Biogen Idec Inc. (now Biogen Inc.) — Q2 2009 Form 10-Q
Reporting period: Three and six months ended June 30, 2009; unaudited. Comparisons are with the corresponding 2008 periods. The company reported four marketed products—AVONEX, RITUXAN, TYSABRI and FUMADERM—and 22 pipeline products in Phase 2 or later.
Key financial results
| Metric | Q2 2009 | Q2 2008 | Six months 2009 | Six months 2008 |
|---|---|---|---|---|
| Total revenue | $1,093.3 million | $993.4 million | $2,129.8 million | $1,935.6 million |
| Operating income | $222.9 million | $296.8 million | $527.9 million | $542.8 million |
| Net income attributable to Biogen Idec | $142.8 million | $206.6 million | $386.8 million | $369.7 million |
| Diluted EPS | $0.49 | $0.70 | $1.33 | $1.24 |
| Operating margin | 20.4% | 29.9% | 24.8% | 28.0% |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $529.3 million | $643.0 million |
Q2 revenue increased 10.1% year over year, led by product revenue growth. TYSABRI revenue rose 27.4% to $187.6 million; AVONEX revenue rose 12.1% to $591.2 million. RITUXAN-related unconsolidated joint business revenue was $275.6 million, down 1.2%, as stronger U.S. co-promotion profits were offset by lower ex-U.S. royalties. Six-month revenue increased about 10.0%.
Q2 operating income fell about 24.9% and attributable net income fell about 30.9%; diluted EPS declined from $0.70 to $0.49. The principal unusual expense was the $110 million Acorda upfront payment, charged to R&D. Six-month net income and diluted EPS increased year over year despite lower operating income.
Q2 R&D expense was $416.5 million versus $252.3 million; six-month R&D was $695.9 million versus $510.5 million. The increase primarily reflected the Acorda payment and higher investment in later-stage pipeline programs. Amortization of acquired intangibles also increased, to $93.2 million for Q2 and $182.5 million for six months.
Liquidity, debt and balance sheet
- At June 30, cash and cash equivalents were $786.8 million; marketable securities totaled $1,883.9 million. Combined cash and securities were $2,670.7 million, up from $2,262.8 million at year-end 2008.
- Working capital was $1,940.4 million, versus $1,534.8 million at December 31, 2008. Current assets were $2,744.3 million and current liabilities $803.9 million.
- Total borrowings were $1,100.3 million, compared with $1,113.1 million at year-end. The company reported no borrowings under its available revolving credit facility and compliance with applicable covenants.
- Six-month operating cash flow was $529.3 million, down 17.7% year over year, mainly due to payment of taxes and other liabilities. Investing activities used $303.2 million; financing activities used $63.8 million.
Material changes, outlook and risks
- Management expected full-year 2009 effective tax rate of 30%–32%, R&D expense excluding milestone payments to continue increasing, and SG&A expense to remain below 2008 levels.
- RITUXAN royalty periods in France, Spain, Germany and the U.K. were expected to expire in 2009, with Italy in 2010 and other markets through 2012. Management anticipated a significant decline in ex-U.S. RITUXAN royalties in the second half of 2009. ANGIOMAX royalties were expected to decline significantly beginning in 2010.
- The $110 million Acorda upfront payment related to ex-U.S. development and commercialization rights for Fampridine-SR was recorded as Q2 R&D expense. Up to a further $400 million of regulatory and commercial milestones, plus royalties, may be payable.
- In July 2009, a Cardiokine development milestone triggered a $20 million payment, not recorded as a June 30 liability. Management also anticipated approximately $70 million of additional collaboration milestones during the remainder of 2009, subject to milestones being achieved.
- TYSABRI sales growth remains exposed to PML safety concerns and regulatory restrictions. The filing notes that reported PML cases had slowed sales growth. AVONEX faces existing and potential MS competition, and the company remains substantially dependent on AVONEX, RITUXAN and TYSABRI.
- Other significant risks include clinical and regulatory failure, manufacturing and supply disruption, foreign-exchange and securities-market risk, reimbursement and pricing pressure, and collaboration dependence. The filing describes unresolved litigation and tax assessments, including a $38.9 million Massachusetts assessment; outcomes and potential losses were not clearly estimable. The Genentech arbitration decision required unanimous joint-committee approval for certain development plans and awarded no damages.
- The Hillerød, Denmark manufacturing facility was expected to be ready for commercial production in 2010; timing and returns depend partly on demand and capacity needs. The company stated existing cash, operating cash flow and financing access were expected to meet foreseeable requirements.
Investor verification priorities
- Check the drivers and sustainability of TYSABRI and AVONEX growth, including patient demand, pricing, foreign exchange and PML developments.
- Verify the scale and timing of RITUXAN royalty expirations and the resulting effect on collaboration revenue.
- Assess the recurring R&D run rate separately from the $110 million Acorda charge, and track pipeline milestones and outcomes.
- Review operating cash generation, investment portfolio valuation and liquidity, debt service, and any future use of the repurchase authorization.
- Monitor the $20 million Cardiokine milestone, other contingent collaboration payments, tax disputes and litigation developments.