Biogen Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Comparisons are with Q1 2022 unless otherwise stated. Amounts are in U.S. dollars.
Business context
Biogen is a global biopharmaceutical company focused on neurology and related therapeutic areas. Its portfolio includes multiple sclerosis (MS), spinal muscular atrophy (SMA), biosimilars and collaboration-derived revenue. During the quarter, LEQEMBI received U.S. accelerated approval and began commercial launch with Eisai.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $2,463.0 million | $2,531.8 million | Down 2.7% |
| Product revenue | $1,763.3 million | $2,066.3 million | Down 14.7% |
| Income before tax | $438.3 million | $347.4 million | Up $90.9 million |
| Net income attributable to Biogen | $387.9 million | $303.8 million | Up 27.7% |
| Diluted EPS | $2.67 | $2.06 | Up 29.6% |
| Operating cash flow | $455.3 million | $161.8 million | Up $293.5 million |
- Revenue mix: Anti-CD20 therapeutic program revenue was $399.5 million, essentially unchanged. Contract manufacturing, royalty and other revenue rose to $319.1 million from $66.1 million, mainly reflecting increased manufacturing activity, including LEQEMBI-related batches. Biogen recorded a $18.9 million reduction in revenue for its LEQEMBI collaboration share.
- Product trends: MS revenue fell 19.3% to $1,125.2 million, and SPINRAZA revenue fell 6.2% to $443.3 million. Biosimilars revenue declined 1.0% to $192.4 million.
- Expenses and tax: Total costs and expenses were $2,024.7 million, down 7.3%. R&D was $570.6 million, or 23.2% of revenue, versus 21.8% a year earlier. The effective tax rate was 11.6%, compared with 36.2%.
- Liquidity and debt: Cash, cash equivalents and marketable securities totaled $6,019.5 million at March 31, 2023. Notes payable were $6,282.7 million. Working capital was $6,747.6 million. Biogen reported no borrowings under its $1.0 billion revolving credit facility and compliance with its covenants.
- Cash flows: Investing activities used $953.0 million, primarily reflecting net purchases of marketable securities. Financing activities used $43.4 million. Cash and cash equivalents ended the quarter at $2,898.2 million.
Material changes versus Q1 2022
- Lower MS product revenue, particularly TECFIDERA, was the primary revenue headwind; TECFIDERA sales fell 33.0% amid generic competition. Interferon, VUMERITY and TYSABRI sales also declined.
- Total revenue fell less than product revenue because contract manufacturing revenue increased substantially and anti-CD20 revenue remained stable.
- Net income improved despite lower revenue. Costs and expenses declined, including lower investment-related losses in other expense and the absence of the prior-year ADUHELM inventory write-off. The effective tax rate was also lower; Q1 2022 included an $85 million Neurimmune deferred-tax valuation allowance, offset in attribution to noncontrolling interests.
- Operating cash flow increased, which management attributed mainly to higher net income and timing of customer collections and inventory levels.
- Q1 2022 included a $275 million ADUHELM inventory write-off and a $181.7 million net reduction in operating expense from Eisai’s share of ADUHELM collaboration losses. From January 2023, Eisai no longer shares ADUHELM profits and losses and instead receives a tiered royalty.
Outlook, management commentary and risks
- Management expects MS revenue to continue declining in 2023 due to competition. A potential TYSABRI biosimilar entrant could reach U.S. and European markets in 2023.
- Biogen anticipates modest 2023 biosimilars revenue growth from BYOOVIZ launches, partly offset by price reductions. Inspection deficiencies at facilities used for IMRALDI and BENEPALI could constrain supply and sales if not resolved.
- Management expects core R&D expense to modestly increase and SG&A expense to continue declining in 2023. The company’s cost-saving initiatives are expected to yield approximately $1.0 billion in expense savings when completed.
- Biogen expects LEQEMBI commercial expense to exceed initial revenue in 2023. Its FDA supplemental application for traditional approval had Priority Review, with an advisory committee meeting scheduled for June 9 and a July 6, 2023 action date, as described in the filing.
- The filing reports potential future collaboration milestone payments of up to approximately $7.2 billion, not recorded because achievement was not considered probable. Up to approximately $314 million could become payable in 2023 if milestones are achieved, including $225 million to Sage upon the first U.S. commercial sale of zuranolone.
- Notable post-quarter developments disclosed in the filing include FDA approval of QALSODY under accelerated approval in April 2023 and Biogen’s April exercise of its option to license Denali’s ATV-enabled anti-amyloid beta program. These are subsequent events, not Q1 results.
- Principal risks include generic and biosimilar competition, pricing and reimbursement pressure (including the Inflation Reduction Act), clinical and regulatory uncertainty, manufacturing and supply issues, reliance on collaboration partners, foreign exchange and equity investment volatility, and potential impacts of geopolitical and economic disruption.
- Legal matters include an SEC information request concerning ADUHELM, a Genentech suit alleging unpaid post-patent TYSABRI royalties, and other patent, shareholder and employment-related proceedings. The filing does not provide a clear estimate of possible loss for several matters.
Important facts for investors to verify
- Whether continued declines in MS sales, especially TECFIDERA, are offset by LEQEMBI, anti-CD20 royalties and other revenue streams.
- LEQEMBI’s conversion from accelerated to traditional approval, reimbursement, commercial uptake and collaboration economics.
- Whether manufacturing issues affecting IMRALDI and BENEPALI are resolved and whether planned manufacturing capacity is utilized.
- The timing and likelihood of potential milestone payments, including the $225 million zuranolone milestone and the broader disclosed milestone exposure.
- Developments in the SEC ADUHELM inquiry and material litigation, including the TYSABRI royalty dispute.
- The sustainability of cash generation and the value and liquidity of Biogen’s concentrated biotechnology equity investments.