Biogen Inc. — Q1 2022 Form 10-Q
Business context and period. Biogen is a global biopharmaceutical company focused on neuroscience, including multiple sclerosis (MS), spinal muscular atrophy (SMA) and Alzheimer’s disease, as well as biosimilars and collaborative therapies. This unaudited report covers the three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Biogen reports one operating segment. Dollar figures below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $2,531.8 | $2,694.0; down 6.0% |
| Product revenue | $2,066.3 | $2,211.7; down 6.6% |
| Income from operations | $610.7 | $973.9; operating margin 24.1% vs. 36.2% |
| Net income attributable to Biogen | $303.8 | $410.2; attributable net margin 12.0% vs. 15.2% |
| Diluted EPS | $2.06 | $2.69; down 23.4% |
| Operating cash flow | $161.8 | $769.0 |
| Cash, cash equivalents and marketable securities | $4,753.3 at March 31 | $4,694.5 at December 31, 2021 |
| Borrowings | $7,275.2 | $7,273.1 at December 31, 2021 |
| Working capital | $3,969.3 | $3,558.3 at December 31, 2021 |
Cash and marketable securities were below total borrowings by approximately $2.5 billion. Current assets were $7,915.9 and current liabilities $3,946.6 at quarter-end. Investing cash outflow was $648.0, largely reflecting net purchases of marketable securities; financing cash outflow was $16.5. Capital expenditures were $57.9.
Material changes and key drivers
- Revenue fell $162.2. MS product revenue declined 6.0%, led by lower interferon sales and generic competition for TECFIDERA; SPINRAZA revenue declined 9.2%, reflecting competition, shipment timing and foreign exchange. Anti-CD20 program revenue rose 2.7%, primarily from higher OCREVUS royalties, partly offset by lower RITUXAN revenue. Other revenue fell 29.2%.
- Cost of sales increased $275.8 to $753.9. Biogen recorded approximately $275 of ADUHELM inventory and purchase-commitment charges and $45 of gross idle-capacity charges. Approximately $160 of these charges was reflected as Eisai’s 45% share in collaboration profit/loss sharing.
- Total cost and expense increased 11.7% to $1,921.1. SG&A rose 6.7%, including approximately $80 of gross ADUHELM commercialization expense; restructuring charges were $38.1. R&D rose 7.3% to $551.7.
- Other expense, net was $263.3, compared with $506.9. It included $191.1 of net investment losses, principally unrealized losses on strategic equity holdings. The effective tax rate increased to 36.2% from 9.5%, including effects of an ADUHELM-related deferred tax valuation allowance and non-cash tax effects from equity investment value changes.
- Consolidated net income was $218.5, while net income attributable to Biogen was $303.8 because the statement recorded an $85.3 loss attributable to noncontrolling interests.
Outlook, commentary and risks
- CMS’s final April 2022 coverage decision for anti-amyloid treatments, including ADUHELM, limits Medicare access to patients in approved clinical trials. Biogen expects ADUHELM demand to fall to a minimal level and planned to substantially eliminate its commercial infrastructure while retaining limited patient-access resources. ADUHELM has accelerated approval and requires a confirmatory trial; the FDA may withdraw approval if required conditions are not met.
- Management expected TECFIDERA revenue to continue declining in 2022 due to generic competition; interferon revenue was also expected to decline. TYSABRI revenue was expected to be relatively flat, while SPINRAZA faced increased competition. Management anticipated a slight decline in biosimilar revenue. Excluding upfront payments, core R&D expense was expected to be consistent with 2021. The filing does not provide a clear consolidated full-year revenue or EPS guidance figure.
- Biogen expected $100–$150 of 2022 restructuring charges, primarily severance, substantially incurred and paid by year-end. It stated that existing funds, operating cash generation and access to financing were expected to cover foreseeable requirements. Approximately $1.0 billion of notes mature in September 2022 and were to be repaid or refinanced.
- After quarter-end, Biogen completed the sale of its Samsung Bioepis equity interest on April 20, 2022: approximately $1.0 billion was received at closing, with approximately $1.3 billion due in two deferred payments and up to $50 in potential commercial milestones. Also after quarter-end, on May 3, Biogen announced a search for a new CEO; Michel Vounatsos was to serve in the interim.
- Key risks include product and biosimilar competition, pricing and reimbursement pressure, clinical and regulatory uncertainty, patent litigation, reliance on collaborators, manufacturing utilization and supply-chain disruption, foreign exchange and investment-value volatility, and potential impacts from COVID-19 and the Ukraine conflict. The filing describes multiple legal proceedings and investigations, including ADUHELM-related matters; potential losses for several proceedings could not be estimated.
Investor verification priorities
- Track ADUHELM’s clinical-trial requirements, remaining costs, patient access, and the financial effect of CMS coverage and the revised Eisai collaboration terms.
- Assess the pace of erosion in TECFIDERA, interferon and RITUXAN, and the extent to which OCREVUS, TYSABRI and other products offset declines.
- Verify operating cash generation and the repayment or refinancing of the September 2022 $1.0 billion note maturity; monitor deferred Samsung Bioepis sale proceeds.
- Review the impact of ADUHELM-related inventory, purchase commitments, idle capacity and restructuring charges on margins and cash flow.
- Follow the ADUHELM securities and derivative litigation, government investigations, and material patent proceedings; the filing states that possible losses are not estimable for several matters.