Biogen Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2017; unaudited. Unless stated otherwise, financial amounts are in millions of U.S. dollars. Biogen is a global biopharmaceutical company focused primarily on neurological and neurodegenerative diseases. It completed the spin-off of its hemophilia business, Bioverativ, on February 1, 2017; 2017 results include that business only through January 31, making some comparisons with 2016 less comparable.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $3,077.8 | $2,955.8 | $8,966.9 | $8,576.8 |
| Operating income | $1,653.5 | $1,425.3 | $3,878.4 | $4,264.2 |
| Net income attributable to Biogen | $1,226.1 | $1,032.9 | $2,836.5 | $3,053.6 |
| Diluted EPS | $5.79 | $4.71 | $13.30 | $13.92 |
- Q3 revenue rose 4.1%; product revenue increased 3.3% and anti-CD20 program revenue rose 28.0%, primarily reflecting OCREVUS royalties. Other revenue fell 50.5%.
- Q3 operating income increased as total costs and expenses declined 6.9%. Approximate operating margin was 53.7%, versus 48.2% in Q3 2016. For the nine-month period, expenses rose 18.0%, operating income fell 9.0%, and approximate operating margin declined to 43.2% from 49.7%.
- Q3 diluted EPS increased 22.9%; nine-month diluted EPS declined 4.5%. Lower weighted-average share counts, partly reflecting repurchases, supported per-share results.
- Growth drivers included SPINRAZA, BENEPALI and anti-CD20 programs. Q3 product revenue included $270.9 of SPINRAZA and $99.2 of BENEPALI. TECFIDERA revenue was $1,069.6; interferon revenue was $662.0 and TYSABRI revenue was $469.4.
- Nine-month research and development expense increased 15.7%, including $300.0 paid upfront to BMS and a $60.0 development milestone for BIIB092. The period also included $120.0 of acquired in-process R&D for BIIB093. Nine-month acquired-intangible amortization was $674.9, including $413.4 of amortization and impairment charges related to Forward Pharma TECFIDERA license rights.
Cash, liquidity and debt
- Cash, cash equivalents and marketable securities totaled $6,570.3 at September 30, 2017, down 14.9% from year-end 2016. Current assets were $7,568.0 and current liabilities $3,448.4; working capital was $4,119.6.
- Nine-month operating cash flow was $3,032.7, compared with $3,005.3. Investing cash outflow was $2,193.6 and financing cash outflow was $1,671.9. Property, plant and equipment purchases were $636.8.
- Total borrowings were $6,511.5, broadly unchanged from year-end 2016. The $550.0 principal amount of 6.875% senior notes due March 2018 was classified as current; management expected to redeem it in Q4 2017. The $1.0 billion revolving credit facility was undrawn, and Biogen reported covenant compliance.
- Biogen repurchased approximately $1.4 billion of shares during the first nine months; none were repurchased in Q3. Approximately $3.0 billion remained under the 2016 authorization.
Material changes, outlook and unusual items
- The hemophilia spin-off reduced reported product sales and changed the business mix. Nine-month 2017 results include hemophilia product revenue only through January 31, versus a full nine months in 2016.
- Management described its priorities as strengthening the MS business, accelerating SMA growth, expanding its neuroscience portfolio, directing capital toward future growth, and simplifying operations. It anticipated relatively stable global demand for TECFIDERA and TYSABRI, with international growth offsetting modest U.S. patient declines; management expected interferon revenue to continue declining amid competition.
- In October 2017, after quarter-end, Biogen approved a restructuring program. It expects up to $170.0 of non-recurring operating and capital expenditures, primarily in 2018, and aims to redirect up to $400.0 annually by 2020 toward prioritized R&D and other value-creation opportunities.
- SPINRAZA had received approvals in the U.S., E.U. and Japan and was in early commercialization. OCREVUS was approved in the U.S. and certain other markets; additional applications were under review. These launches offer growth potential but depend on uptake, access and reimbursement.
- ZINBRYTA faced provisional European use restrictions following reports of fatal fulminant liver failure and serious liver injury. Biogen reported approximately $200 of related assets and an unrecorded tax benefit of approximately $100; further regulatory action could affect sales or asset values.
- Forward Pharma-related payments included $1,250.0 for TECFIDERA intellectual-property licenses, of which $795.2 was recognized as an intangible asset in 2017; the U.S. dispute was decided in Biogen’s favor, but an appeal remained pending and European proceedings continued. Biogen also faced generic TECFIDERA patent litigation.
- Other significant exposures include up to approximately $3.1 billion of potential development, regulatory and commercial milestone payments, up to approximately $1.2 billion of remaining contingent milestones for certain acquisitions, and continuing contingent payments tied to Fumapharm product sales. Biogen paid $900.0 in Fumapharm contingent consideration during the nine months and accrued another $300.0.
- Biogen disclosed government inquiries concerning sales and promotional practices, patient-assistance programs, Medicaid price reporting and healthcare-provider interactions, as well as qui tam and securities litigation. Possible losses for certain matters could not be estimated. It also disputed Danish tax assessments and reported approximately $60.0 paid to the Danish tax authority.
- After quarter-end, Eisai exercised its option to collaborate on aducanumab. Biogen reported regional profit-and-loss shares, continued leadership of Phase 3 development and staged sharing of development costs. Also after quarter-end, Biogen agreed to pay Neurimmune $150.0 for reduced potential aducanumab royalties; the payment was expected in Q4 2017, with a further $50.0 reduction option.
- Principal risks include intense competition and pricing/reimbursement pressure, product safety and regulatory developments, dependence on key products and successful pipeline development, patent disputes, foreign-exchange and international credit risks, manufacturing execution, and potential costs from legal, tax and collaboration matters. Biogen stated existing funds and expected operating cash flows were sufficient for foreseeable requirements.
Important facts for investors to verify
- Whether SPINRAZA and OCREVUS adoption, reimbursement and international launches sustain growth, and how much growth offsets declines in established MS products.
- The commercial and regulatory outcome for ZINBRYTA and any resulting impairment or other charges.
- Developments in TECFIDERA patent proceedings, generic challenges and the accounting or cash impact of Forward Pharma license rights.
- The timing and amount of Fumapharm contingent payments, other milestones, and the planned 2018 debt redemption.
- Whether the restructuring achieves the stated annual resource-redirection goal and within the expected cost range.
- Resolution of the Genentech collaboration dispute involving approximately $120 withheld, and developments in disclosed investigations, litigation and tax assessments.