BIIB

Biogen Idec Inc. Q1 2009 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2009. Biogen Idec Inc. is a global biotechnology company focused on therapeutic areas with high unmet medical needs. The company markets four primary products: AVONEX (interferon beta-1a), RITUXAN (rituximab), TYSABRI (natalizumab), and FUMADERM (dimethylfumarate). The company operates as a single business segment.

Key Financial Metrics

Revenue Breakdown: Product revenues were $733.4 million (70.8% of total), Unconsolidated joint business (primarily RITUXAN) was $278.8 million (26.9%), and Other revenues were $24.3 million (2.3%).

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 10.0% year-over-year, driven by a 44.0% increase in TYSABRI revenue ($165.2M), a 3.6% increase in AVONEX revenue ($555.3M), and a 12.8% increase in RITUXAN joint business revenue.
• Profitability: Net income attributable to Biogen Idec increased 49.6% to $244.0 million. Diluted EPS rose 55.6% to $0.84.
• Expense Trends: Total costs and expenses increased 5.1%. Research and Development (R&D) expenses rose 8.2% to $279.5 million due to late-stage program advancement. Selling, General, and Administrative (SG&A) expenses increased 2.8% to $221.8 million.
• Tax Rate: The effective tax rate dropped significantly from 33.4% in Q1 2008 to 21.0% in Q1 2009, primarily due to a $30.2 million reduction in tax expense resulting from changes in state tax laws.
• Collaboration Profit Sharing: Expenses related to the TYSABRI collaboration with Elan doubled to $42.8 million from $21.4 million, reflecting increased sales outside the U.S.

Guidance, Outlook, and Risks

• Outlook: Management expects R&D expenses to continue increasing in 2009 due to investment in the registration-stage clinical pipeline. The full-year 2009 effective tax rate is expected to range between 32% and 34%.
• RITUXAN Royalties: The company anticipates a significant decrease in royalty revenues from RITUXAN sales outside the U.S. and Canada beginning in the latter half of 2009 as patent terms expire in key European markets (France, Spain, Germany, UK). 2009 royalty revenue is projected between $250.0 million and $290.0 million.
• TYSABRI Safety: Growth of TYSABRI is monitored closely due to six reported cases of progressive multifocal leukoencephalopathy (PML). Additional cases or regulatory restrictions could materially impact sales.
• Legal Proceedings: The company is involved in various litigation matters, including a Multi-District Litigation (MDL) regarding Medicaid pricing, an arbitration with Genentech regarding the RITUXAN collaboration agreement, and a tax assessment dispute with the Massachusetts Department of Revenue ($38.9 million).
• Activist Shareholders: Icahn Partners has commenced a proxy contest for the 2009 Annual Meeting, which could disrupt operations and divert management attention.

Key Facts for Investor Verification

• TYSABRI Growth vs. PML Risk: Verify the trajectory of TYSABRI sales growth against the potential for further PML cases or regulatory restrictions that could limit market access.
• RITUXAN Royalty Cliff: Confirm the timing and magnitude of the expected decline in RITUXAN royalty revenues in H2 2009 as patents expire in major European markets.
• Genentech Arbitration: Monitor the outcome of the arbitration regarding the "change of control" provision in the RITUXAN collaboration, which could alter profit-sharing terms or require a buyout of rights.
• Manufacturing Capacity: Assess the progress and potential delays of the Hillerød, Denmark manufacturing facility, which is critical for future supply of AVONEX and TYSABRI.
• Tax Rate Volatility: Evaluate the sustainability of the 21.0% effective tax rate, noting the one-time impact of state law changes, versus the projected 32-34% full-year rate.