Biogen Inc. — 2016 Form 10-K
Business context and reporting period. Biogen is a global biopharmaceutical company focused on neurological, rare and autoimmune diseases. This filing reports the fiscal year ended December 31, 2016; 2016 results include the hemophilia business later spun off as Bioverativ on February 1, 2017. The company’s portfolio was concentrated in multiple sclerosis, with SPINRAZA approved in the U.S. in December 2016.
Financial performance and position
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Total revenue | $11.449 billion | $10.764 billion | +6.4% |
| Net product revenue | $9.818 billion | $9.189 billion | +6.8% |
| Operating income | $5.150 billion | $4.891 billion | +5.3% |
| Net income attributable to Biogen | $3.703 billion | $3.547 billion | +4.4% |
| Diluted EPS | $16.93 | $15.34 | +10.4% |
| Cash flow from operations | $4.522 billion | $3.716 billion | +21.7% |
| Cash, cash equivalents and marketable securities | $7.725 billion | $6.189 billion | +24.8% |
| Total borrowings | $6.517 billion | $6.526 billion | −0.1% |
| Working capital | $5.312 billion | $4.123 billion | +28.9% |
Operating margin was approximately 45.0%; net margin attributable to Biogen was approximately 32.3%. The company reported gross profit of $9.970 billion, calculated before amortization of acquired intangible assets (about 87.1% of revenue on that basis). Capital expenditures were $616.1 million. Year-end cash and marketable securities exceeded borrowings by approximately $1.207 billion.
Material changes versus prior period
- Revenue growth reflected TECFIDERA (+9.1%), hemophilia products ELOCTATE and ALPROLIX (combined growth reported as 52.8%), TYSABRI (+4.1%) and new BENEPALI sales. Interferon revenue declined 5.8%; anti-CD20 program revenue declined 1.8%.
- Revenue growth was partly offset by $167.8 million less in foreign-exchange hedge gains recognized than in 2015. Discounts and allowances rose to 21.3% of gross product revenue from 19.3%.
- Operating expenses increased 7.2% to $6.298 billion, including a $454.8 million TECFIDERA litigation settlement and license charge. Cost of sales increased 19.2%, including $45.5 million accelerated depreciation tied to the Cambridge manufacturing exit. SG&A declined 7.8% and R&D declined 2.0%.
- Fourth-quarter revenue was $2.872 billion versus $2.839 billion in fourth-quarter 2015; net income was $647.9 million versus $828.7 million, and diluted EPS was $2.99 versus $3.77. The 2016 quarter included the Forward Pharma charge and other program and facility-related costs.
Outlook, management commentary and risks
- Management anticipated relatively stable global demand for TECFIDERA and TYSABRI in 2017, with international patient growth offsetting modest U.S. patient declines; it expected Interferon revenue to continue declining. The filing provides no consolidated numerical 2017 revenue or earnings guidance.
- SPINRAZA began its U.S. commercial launch after FDA approval in December 2016. Its ability to gain provider and patient acceptance, reimbursement and commercial uptake was identified as uncertain. Aducanumab for early Alzheimer’s disease remained in Phase 3 development; opicinumab missed its Phase 2 primary and secondary efficacy endpoints, although Biogen planned another Phase 2 study.
- Biogen agreed in January 2017 to pay Forward Pharma $1.25 billion for an irrevocable intellectual-property license. The filing recorded a $454.8 million 2016 pre-tax charge; potential future royalties depend on patent outcomes and product coverage. The filing says license assets could be impaired if Forward Pharma does not obtain relevant patents in pending proceedings.
- Other notable matters include a proposed AIFA settlement over TYSABRI reimbursement in Italy for EUR 37.4 million, subject to ratification; the company said it could recognize approximately EUR 42 million in revenue upon final resolution. Federal investigations and subpoenas involved sales and promotional practices, patient-assistance relationships, government price reporting and related services. A potential loss estimate was unavailable for certain proceedings.
- Principal risks include reliance on concentrated MS product revenue, competition and biosimilar or generic entry, pricing and reimbursement pressure, product safety and regulatory outcomes, patent disputes, clinical-development failure, manufacturing and third-party supply disruption, foreign-exchange exposure, and tax and legal contingencies.
- Biogen completed the Bioverativ spin-off on February 1, 2017, distributing one Bioverativ share for every two Biogen shares. Hemophilia results were included in 2016; they are excluded from Biogen’s consolidated results beginning on the distribution date. The separation also creates transition, indemnification and potential tax risks.
Key facts for investors to verify
- Confirm the Forward Pharma agreement’s final cash-payment timing, patent outcomes, license-asset accounting and any continuing royalties.
- Track post-spin revenue and earnings mix, including the removal of ELOCTATE and ALPROLIX, and any transition-service or supply obligations to Bioverativ.
- Monitor TECFIDERA growth and U.S. competition, Interferon declines, TYSABRI trends, and SPINRAZA launch, pricing and reimbursement progress.
- Check the status and potential financial impact of AIFA’s proposed settlement, government investigations and other disclosed litigation; several possible-loss amounts were not estimable.
- Assess cash deployment and obligations: the company repurchased $1.0 billion of stock in 2016, paid $1.2 billion in Fumapharm contingent consideration, and disclosed substantial future milestone and manufacturing commitments.