Biogen Inc. Form 10-Q Summary
Reporting period: Third quarter and nine months ended September 30, 2016. Unaudited results are compared with the corresponding 2015 periods. Biogen is a biopharmaceutical company focused on neurological, autoimmune and rare diseases.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $2,955.8 million | $2,777.9 million | $8,576.8 million | $7,924.5 million |
| Income from operations | $1,425.3 million | $1,371.8 million | $4,264.2 million | $3,722.8 million |
| Net income attributable to Biogen | $1,032.9 million | $965.6 million | $3,053.6 million | $2,715.4 million |
| Diluted EPS attributable to Biogen | $4.71 | $4.15 | $13.92 | $11.57 |
| Operating margin | 48.2% | 49.4% | 49.7% | 47.0% |
| Net margin attributable to Biogen | 34.9% | 34.8% | 35.6% | 34.3% |
Q3 revenue grew 6.4% year over year; nine-month revenue grew 8.2%. Product revenue was $2,539.6 million in Q3, up 6.2%. TECFIDERA and TYSABRI increased, as did ELOCTATE, ALPROLIX and new BENEPALI sales; declines in Interferon partly offset growth. Anti-CD20 program revenue fell 5.8% in Q3 to $317.6 million. Other revenue rose to $98.6 million, primarily on higher corporate revenue.
Q3 operating income increased 3.9%, while total costs and expenses rose 8.9%, including a 34.5% rise in cost of sales. Nine-month operating income increased 14.5%. Nine-month effective tax rate was 25.6%, versus 24.6% in 2015.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $2,945.8 million, up from $2,675.7 million. Investing cash outflow was $1,903.1 million; financing cash outflow was $266.6 million.
- Capital expenditures were $434.0 million for the nine months. Operating cash flow less reported capital expenditures was approximately $2.51 billion; this is a simple derived measure, not a company-reported metric.
- At September 30, cash, cash equivalents and marketable securities totaled $7,412.9 million, compared with $6,188.9 million at December 31, 2015. Total borrowings were $6,534.5 million, leaving approximately $878 million more in cash and securities than borrowings.
- Working capital was $5,592.1 million, up from $4,122.6 million; current assets were $8,091.8 million and current liabilities $2,499.7 million.
- Long-term notes and other financing arrangements were $6,529.6 million. The company had no borrowings under its $1.0 billion revolving credit facility and reported compliance with its covenants.
Material changes and notable items
- TECFIDERA revenue rose to $1,033.7 million in Q3 from $937.4 million; TYSABRI rose to $515.5 million from $479.7 million. Interferon revenue declined to $708.3 million from $784.8 million.
- Biogen paid $900 million in Fumapharm contingent consideration during the nine months and accrued a further $300 million after reaching the $10 billion cumulative-sales threshold. Future payments depend on cumulative sales and trailing sales conditions.
- The company authorized a new $5 billion share repurchase program and repurchased 1.1 million shares for $348.9 million during the nine months. In 2015, it repurchased $3.0 billion of shares over the comparable period.
- Goodwill increased to $3,419.7 million, primarily reflecting Fumapharm contingent milestones; intangible assets declined to $3,869.9 million, primarily reflecting amortization.
Outlook, risks and contingencies
- Biogen expected to complete the proposed Bioverativ hemophilia-business spin-off in early 2017, subject to Board approval, a favorable tax opinion and SEC registration effectiveness. Until completion, the business remains consolidated. Management noted that a completed spin-off would increase revenue concentration in MS products.
- Management expected Interferon revenue to continue declining amid competition and patient transitions to oral MS therapies. It expected continued ELOCTATE and ALPROLIX growth as market penetration and geographic reach expand. No consolidated revenue or earnings guidance is provided in the filing text.
- Pipeline developments included exercising the nusinersen license option after positive interim Phase 3 results in infantile-onset SMA; a $75 million license fee was expensed in R&D. The FDA NDA submission was completed in September, and an EMA application was filed in October. Aducanumab received FDA Fast Track and EMA PRIME designations. Anti-LINGO missed its Phase 2 primary and secondary efficacy endpoints, though further trials were contemplated; amiselimod development was discontinued in October.
- Q3 included $11.6 million of restructuring charges. A separate 2016 restructuring initiative was expected to incur about $20 million in total charges. Facility plans to vacate Cambridge manufacturing and Somerville warehouse space led to $31.5 million of accelerated depreciation for the nine months; remaining lease obligations were $25.5 million.
- Risks include intense MS competition and pricing/reimbursement pressure, product safety and regulatory risks, reliance on key products and collaborators, foreign-exchange and international collection exposure, and patent disputes. TECFIDERA-related patent proceedings and an ALPROLIX patent licensing claim are disclosed. The company also reported government investigations and subpoenas concerning sales and promotional practices, patient-assistance relationships and Medicaid price reporting.
- Biogen disputed Danish tax assessments totaling an estimated $68.7 million, including interest. It had paid $13 million toward the 2011 and 2013 assessments and continued to contest the assessments.
Important facts for investors to verify
- Whether MS product growth, particularly TECFIDERA and TYSABRI, can offset continuing Interferon declines and intensifying competition.
- Completion timing, tax treatment, costs and post-spin revenue concentration implications of the Bioverativ separation.
- Nusinersen regulatory progress and the clinical and commercial prospects of aducanumab and other priority pipeline programs.
- Future Fumapharm contingent payments, including the accrued $300 million, and the impact of other milestone and royalty obligations.
- Developments in patent litigation, government investigations, pricing matters and tax disputes, including the TYSABRI reimbursement issue in Italy.