Biogen Idec Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2013; unaudited results compared with the three and nine months ended September 30, 2012. Biogen Idec is a biotechnology company focused on multiple sclerosis, autoimmune and neurodegenerative diseases, and hemophilia, with collaboration revenue from RITUXAN.
Financial results
| Metric | Q3 2013 | Q3 2012 | First nine months 2013 | First nine months 2012 |
|---|---|---|---|---|
| Total revenue | $1.828 billion | $1.386 billion | $4.966 billion | $4.099 billion |
| Operating income | $684.5 million | $535.3 million | $1.858 billion | $1.410 billion |
| Net income | $487.6 million | $398.4 million | $1.405 billion | $1.088 billion |
| Diluted EPS | $2.05 | $1.67 | $5.89 | $4.53 |
| Operating margin | 37.4% | 38.6% | 37.4% | 34.4% |
| Net margin | 26.7% | 28.8% | 28.3% | 26.5% |
- Q3 revenue grew 31.9%, operating income 27.9%, net income 22.4%, and diluted EPS 22.3% year over year. For the first nine months, revenue increased 21.2% and net income increased 29.1%.
- Q3 product revenue was $1.454 billion. Key product revenues: AVONEX $733.4 million (down 0.4%); TYSABRI $401.0 million (up 45.9%); TECFIDERA $286.4 million (launched in the U.S. in April); and Biogen Idec’s share of RITUXAN revenue $303.2 million (up 5.4%). TYSABRI’s reported U.S. growth primarily reflects Biogen Idec recognizing 100% of U.S. net revenue after acquiring full rights in April.
- Q3 costs and expenses increased 30.4% to $1.150 billion. Major year-over-year increases included cost of sales (68.4%), R&D (34.8%), SG&A (35.4%) and acquired-intangible amortization (88.6%). R&D included a $75 million Isis collaboration expense; SG&A reflected TECFIDERA launch and preparation for potential hemophilia launches.
- Cash from operations for the first nine months was $1.476 billion, versus $1.372 billion a year earlier. Investing cash outflow was $894.7 million and financing cash outflow was $727.7 million. Cash and cash equivalents ended the period at $427.8 million.
- At September 30, cash, cash equivalents and marketable securities totaled $1.042 billion, down from $3.742 billion at year-end 2012, primarily following the $3.25 billion TYSABRI rights acquisition and repayment of $450 million of senior notes. Working capital was $1.125 billion.
- Total borrowings were $698.3 million, down from $1.141 billion at year-end 2012. The company had no borrowings on its $750 million revolving credit facility and reported covenant compliance. Cash and marketable securities exceeded borrowings by approximately $344 million.
Material changes, outlook and risks
- TYSABRI acquisition: Biogen Idec paid $3.25 billion for full ownership and decision-making rights from Elan, capitalizing a net $3.178 billion intangible asset. It records all related revenue and costs and owes Elan contingent payments: 12% of worldwide net sales for the first 12 months from May 2013, then 18% on annual sales up to $2 billion and 25% above that threshold. The acquisition increased reported revenue but also raised cost of sales and amortization.
- TECFIDERA: U.S. sales began in April; Q3 revenue was $286.4 million. Management said early patient data were limited and difficult to extrapolate. Approximately 75% of new patients in the first two U.S. launch quarters switched from another MS treatment, including Biogen Idec products. European launch timing remained uncertain because of patent and regulatory data-protection issues.
- Management outlook: Management expected international pricing and austerity measures to reduce 2013 revenue by approximately $50–$60 million, excluding the AIFA matter. It expected sufficient existing funds, operating cash flow and financing access to meet foreseeable needs; the filing provides no specific revenue or EPS guidance.
- Italy / TYSABRI: The company reached an agreement in principle with AIFA for a EUR 33.3 million repayment relating to historical reimbursement limits; approval remained pending. Biogen Idec had deferred $120.7 million of TYSABRI revenue and expected to recognize approximately $95 million of incremental revenue upon approval, subject to the final settlement and timing.
- Pipeline and operating risks: FDA review of ELOCTATE could be delayed by manufacturing-process validation discussions. PLEGRIDY applications were under review. The company cited competition, including potential competition from biosimilars or generics, and possible cannibalization among its own MS therapies. TYSABRI sales also face PML safety and risk-management concerns.
- Other exposures: Receivables in Italy, Spain and Portugal were $234.6 million, including $38.8 million classified as non-current; $40.8 million was overdue more than one year. The filing also describes unresolved patent, False Claims Act, product-promotion and other legal matters, including the Genentech-Hoechst arbitration and Knopp dispute. Management could not estimate potential losses for certain cases.
- Unusual items: A $94.9 million U.S. RITUXAN revenue item was recognized following a 340B program final rule, with no corresponding change to Biogen Idec’s reported share of joint-business revenue. A $41.5 million reduction to nine-month RITUXAN collaboration revenue reflected Biogen Idec’s share of Hoechst arbitration damages and interest. The company also recorded a $15.4 million TYSABRI revenue reduction for the probable AIFA settlement.
Important facts for investors to verify
- TECFIDERA’s continuing sales, patient retention, European approval and protection, and effect on AVONEX and TYSABRI demand.
- Final AIFA settlement approval, the resulting TYSABRI revenue recognition, and continuing payments to Elan.
- Progress on ELOCTATE and ALPROLIX regulatory reviews and any manufacturing-related delays.
- European government payment delays, overdue receivables and the adequacy of credit-loss reserves.
- Developments in material litigation and tax matters, including the Hoechst arbitration, AMP litigation, and Knopp dispute.
- Future amortization of AVONEX and TYSABRI assets: management’s 2013 planning update reduced expected future product revenues and increased projected amortization.