Biogen Inc. — Form 10-Q Summary
Business context and reporting period
Biogen is a global biopharmaceutical company focused on neurological and neurodegenerative diseases, with commercial businesses in multiple sclerosis (MS), spinal muscular atrophy (SMA), anti-CD20 programs and biosimilars. This unaudited report covers the quarter and six months ended June 30, 2019; balance-sheet comparisons are to December 31, 2018.
Key financial metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $3.617B | $3.357B | $7.107B | $6.488B |
| Operating income | $1.956B | $1.213B | $3.459B | $2.748B |
| Net income attributable to Biogen | $1.494B | $0.867B | $2.903B | $2.040B |
| Diluted EPS | $7.85 | $4.18 | $14.99 | $9.73 |
| Operating margin | 54.1% | 36.1% | 48.7% | 42.4% |
Revenue increased 7.8% in Q2 and 9.5% for the first half. Q2 product revenue grew 4.5%; anti-CD20 program revenue rose 17.5% and other revenue rose 47.3%. Growth reflected SPINRAZA, biosimilars, OCREVUS royalties and contract manufacturing. TECFIDERA revenue increased, while interferon declined; MS products remained the largest product category.
Q2 operating income and EPS benefited from lower R&D expense against the prior-year $486.2 million Ionis agreement charge, lower acquired IPR&D and amortization expense, and a lower effective tax rate. The Q2 tax rate was 14.1%, versus 22.4% a year earlier; the IP reorganization benefit is not expected to recur after 2019. Other expense was $197.4 million in Q2, chiefly reflecting investment losses, including on Ionis shares. For the first half, other income was $159.9 million, mainly from investment gains.
First-half operating cash flow was $3.424 billion, versus $2.556 billion; investing cash flow provided $128 million and financing used $3.055 billion, including $3.057 billion of share repurchases. At June 30, cash, cash equivalents and marketable securities totaled $4.262 billion, notes payable were $5.949 billion, working capital was $4.699 billion, and total liabilities were $13.339 billion. The company reported no borrowings under its $1 billion revolving credit facility and compliance with its covenants.
Material changes and notable items
- Product mix and performance varied: first-half SPINRAZA revenue rose to $1.007 billion from $787 million and biosimilar revenue to $359 million from $254 million; MS revenue edged down to $4.187 billion from $4.228 billion.
- Biogen completed its June acquisition of Nightstar Therapeutics for approximately $852 million, adding ophthalmology gene-therapy programs, including Phase 3 BIIB111 and Phase 2/3 BIIB112.
- The proposed sale of the Hillerød, Denmark manufacturing operation to FUJIFILM, expected to close in Q3 2019, could yield up to $890 million subject to adjustments. Biogen recorded an estimated $174.5 million total loss related to the transaction, including a $113.2 million pre-tax loss and $61.3 million tax expense. The estimate includes an approximately $120 million adverse production-commitment obligation.
- Biogen repurchased $3.057 billion of shares in the first half. Its new $5 billion repurchase authorization had approximately $4.1 billion remaining at quarter-end.
- Operating lease accounting was adopted in 2019, adding $434 million of lease assets and $495 million of lease liabilities at June 30.
Outlook, management commentary, risks and contingencies
- Management expected 2019 TECFIDERA demand to increase globally, with international volume growth exceeding U.S. volume declines, and expected continued price reductions in some European markets. Interferon revenue was expected to decline; TYSABRI demand was expected to be broadly stable. SPINRAZA growth was expected to moderate amid lower new-patient starts, dosing patterns and a newly approved competing SMA gene therapy. Biosimilar revenue was expected to grow, particularly with IMRALDI’s launch.
- The FDA’s target action date for the diroximel fumarate (BIIB098) application was in Q4 2019. In March 2019, Biogen and Eisai discontinued the ENGAGE and EMERGE Phase 3 aducanumab trials; Biogen said it was analyzing the data and planned to share results after analysis.
- Key commercial risks include competition from generics and biosimilars, pricing and reimbursement pressure, product safety or efficacy issues, and patent challenges. Biogen warned that a U.S. RITUXAN biosimilar could reach the market in Q4 2019. TECFIDERA patent proceedings and other patent disputes remain material risks.
- Biogen disclosed government investigations and subpoenas concerning sales and promotional practices and patient-assistance relationships. Several legal matters remain pending; the company said possible losses could not be estimated for certain cases. It also disputes approximately $70 million in Brazilian tax assessments and Danish withholding-tax assessments for which it has paid approximately $60 million.
- Other exposures include up to approximately $6.7 billion of potential development, regulatory and commercial milestone payments, contingent on milestones, and up to approximately $1 billion of remaining acquisition-related contingent consideration. Brexit’s impact remained uncertain, though management did not expect a material effect on consolidated results.
Important facts for investors to verify
- Whether core-product trends—particularly TECFIDERA, SPINRAZA and MS therapies—support reported revenue growth and management’s 2019 expectations.
- The final Hillerød sale price, closing status, production commitments and any revisions to the estimated loss.
- Results and commercial prospects for the acquired Nightstar programs and the status of the diroximel fumarate application.
- The consequences of aducanumab trial discontinuation and any subsequent data disclosures.
- Potential impacts of biosimilar entry, patent outcomes, healthcare pricing changes, and disclosed legal, tax and collaboration exposures.