Biogen Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited results; dollar amounts are in millions unless noted.
Business context
Biogen is a biopharmaceutical company focused on neurological and neurodegenerative diseases, with additional biosimilar operations. Its revenue base includes multiple sclerosis products, SPINRAZA, biosimilars, and financial rights in anti-CD20 programs. The filing reports one operating segment.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $3,376.1 | $3,600.1 | $10,592.0 | $10,706.6 |
| Operating income | $1,086.4 | $1,806.3 | $4,880.7 | $5,264.9 |
| Net income attributable to Biogen | $701.5 | $1,545.9 | $3,642.7 | $4,448.8 |
| Diluted EPS | $4.46 | $8.39 | $22.25 | $23.35 |
| Operating cash flow | Not provided separately | Not provided separately | $4,596.9 | $5,118.4 |
- Q3 revenue fell 6.2%; operating income fell 39.8% and net income attributable to Biogen fell 54.6%. The operating margin was approximately 32.2%, versus 50.2% a year earlier; net margin attributable to Biogen was approximately 20.8%, versus 42.9%.
- Nine-month revenue declined 1.1%, attributable net income declined 18.1%, diluted EPS declined 4.7%, and operating cash flow declined 10.2% year over year.
- Q3 product revenue was $2,690.3, down 7.1%. Anti-CD20 program revenue was $560.1, down 6.0%; other revenue was $125.7, up 14.7%.
- Product trends included lower MS revenue ($1,984.9, down 8.1%) and SPINRAZA revenue ($494.4, down 9.6%), partly offset by biosimilar revenue growth ($207.9, up 13.2%) and higher TYSABRI revenue.
- Q3 R&D expense rose to $1,140.9 from $540.4, primarily reflecting $601.3 of Denali-related charges. Q3 other expense, net, was $128.6, including investment losses.
- At September 30, cash and cash equivalents were $2,224.8 and marketable securities totaled $2,364.8, or $4,589.6 combined, down from $5,884.0 at year-end 2019. Notes payable were $7,425.0, versus $5,954.8 at year-end; cash and securities less notes payable was approximately $2,835.4 net debt.
- Working capital was $4,039.1; current assets were $7,843.1 and current liabilities $3,804.0. Nine-month investing cash flow was negative $442.2 and financing cash flow was negative $4,871.6.
- Biogen repurchased $6.3 billion of shares in the first nine months, including $1.3 billion in Q3. A new authorization for up to $5.0 billion of repurchases was approved in October 2020.
Material changes, outlook and key risks
- TECFIDERA: Multiple generic entrants reached the U.S. market during Q3 after adverse patent judgments. Biogen appealed both judgments. Management said generic competition substantially reduced TECFIDERA revenue and is expected to materially pressure it while competition persists.
- Other commercial trends: Management expected continued declines in interferon revenue, modest SPINRAZA growth, and modest-to-moderate biosimilar growth in 2020. SPINRAZA faced gene-therapy and oral-drug competition; COVID-19-related site-of-care disruptions also affected dosing.
- Aducanumab: Biogen completed its FDA BLA submission in July 2020; the FDA accepted it for Priority Review, with an action date of March 7, 2021. Approval and commercial prospects remain uncertain.
- COVID-19: The pandemic created uncertain effects on product demand, clinical-trial timing, manufacturing, employees and operations. Biogen cited delayed trials, including its Phase 3 BIIB093 study, and possible delayed TYSABRI and SPINRAZA doses.
- Other significant items: A $500.0 contract-manufacturing agreement generated $333.2 of revenue in the first nine months; the remaining $166.8 is allocated to services expected through 2026. Biogen recorded a $75.0 upfront R&D charge for BIIB118 and substantial upfront and equity-premium charges related to Denali and Sangamo collaborations.
- Debt and commitments: Biogen issued $3.0 billion of long-term notes in April and used proceeds to redeem $1.5 billion of notes due in 2020. It disclosed up to approximately $8.9 billion of potential development, regulatory and commercial milestone payments, contingent on achievement; these were not recorded as liabilities. The Solothurn facility was expected to be partially operational in the first half of 2021.
- Legal and tax matters: Biogen disclosed TECFIDERA patent appeals; a $200.0 claim by former Convergence shareholders and a disputed approximately $33.0 construction-cost claim relating to Solothurn; and government investigations into sales and promotional practices. It had an agreement in principle to resolve a matter concerning contributions to patient-assistance organizations and accrued its best estimate of the minimum probable loss. The filing says some litigation loss estimates cannot currently be made.
- Management stated that existing funds, operating cash generation and access to financing were expected to cover requirements for the foreseeable future. The filing provides no single quantified consolidated full-year earnings or revenue forecast.
Most important facts for investors to verify
- Further TECFIDERA generic penetration, revenue impact, and the outcome and timing of Biogen’s patent appeals.
- FDA review milestones and the eventual regulatory and commercial outcome for aducanumab.
- Whether COVID-19 continues to affect patient starts, treatment administration, clinical trials, or supply and manufacturing.
- Cash generation and debt levels in light of share repurchases, collaboration spending, and potential milestone obligations.
- Developments in the government investigations, the Convergence and Solothurn disputes, and other proceedings for which potential losses are not estimable.