Biogen Idec Inc. (now identified in the request as Biogen Inc.) — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; filed May 1, 2012. The filing reports Biogen Idec Inc. and subsidiaries on a consolidated, unaudited basis. The company develops, manufactures and markets therapies for neurodegenerative diseases, hemophilia and autoimmune disorders. AVONEX, TYSABRI and RITUXAN remained its principal revenue sources.
Financial performance
Amounts are in U.S. dollars; financial statement figures below are in millions except per-share data.
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Total revenue | $1,292.0 | $1,203.3 | +7.4% |
| Operating income | $369.4 | $416.3 | -11.3% |
| Operating margin | 28.6% | 34.6% | Down 6.0 percentage points |
| Net income attributable to Biogen Idec | $302.7 | $294.3 | +2.8% |
| Diluted EPS attributable to Biogen Idec | $1.25 | $1.20 | +4.2% |
| Operating cash flow | $194.6 | $253.6 | -23.3% |
- Product revenue was $975.4 million, up 7.5%; revenue from the unconsolidated joint business, primarily RITUXAN, was $284.6 million, up 11.1%. Other revenue was $32.0 million, down 20.2%.
- AVONEX revenue rose 3.0% to $661.6 million; U.S. unit volume declined 8%, partly offset by price increases. TYSABRI revenue increased 13.6% to $285.5 million, with higher demand. FAMPYRA contributed $15.0 million in product revenue.
- Total costs and expenses rose 17.2% to $922.6 million. R&D increased 21.2% to $356.0 million and SG&A increased 22.7% to $300.1 million, pressuring operating margin. R&D and SG&A increases reflected late-stage development, launch preparation and commercial spending.
- The effective tax rate was 21.4%, versus 27.6%; the company attributed the decline chiefly to orphan drug credits, changes in intercompany royalties and a favorable IRS determination regarding certain reimbursed expenses.
Balance sheet, liquidity and cash flows
- At March 31, 2012, cash and cash equivalents were $298.1 million and marketable securities totaled $2,450.4 million; combined liquidity was $2,748.6 million, down 11.5% from year-end 2011.
- Total borrowings were $1,079.4 million. Current borrowings were $453.4 million, largely reflecting reclassification of the $450 million 6.0% Senior Notes due March 2013. The company reported $626.0 million of long-term notes, credit and other financing arrangements.
- Working capital was $1,340.6 million, down 35.0% from December 31, 2011; current assets were $2,678.0 million and current liabilities $1,337.3 million.
- Operating cash flow of $194.6 million was below net income, with cash use from receivables and accrued liabilities. Investing cash flow was $0.6 million provided; financing cash flow was $416.3 million used, including $463.2 million of share repurchases.
- Capital spending was $54.6 million and the Stromedix acquisition used $72.4 million net of acquired cash. Management said existing funds and expected operating cash flows should cover foreseeable operating, investment and debt-service needs.
Material changes and notable items
- On March 8, Biogen Idec acquired Stromedix for $75.0 million cash plus contingent development and approval payments of up to $487.5 million. It recorded $219.2 million of acquired in-process R&D, $47.0 million goodwill and a $117.6 million initial contingent-consideration liability. The lead candidate, STX-100, was expected to enter a Phase 2 IPF trial by mid-2012.
- The company entered an Isis agreement for ISIS-SMN Rx, paying a $29.0 million upfront amount recorded as R&D expense; further development, licensing and milestone payments may apply.
- Q1 results included a $12.4 million reduction related to a voluntary withdrawal of a limited amount of AVONEX product showing an oxidation trend that could cause earlier-than-labeled expiry. The company recorded related return reserves and inventory write-offs and expected returns in Q2.
- Cash repurchases covered approximately 4.0 million shares for $463.2 million. The board’s authorization had approximately 10.0 million shares remaining; the company intended to repurchase up to $500 million more during the remainder of 2012.
- Biogen Idec and Samsung BioLogics formed Samsung Bioepis to develop, manufacture and market biosimilars. Biogen Idec held a 15% interest, had contributed approximately $22.1 million by quarter-end and remained obligated to fund approximately $22.1 million more.
Outlook, management commentary and risks
- Management expected 2012 revenue growth in the mid-single digits. It projected R&D at 24%–25% of revenue, SG&A at approximately 22%–23%, and an effective tax rate of 24%–25%.
- Management expected BG-12, an oral MS candidate, to potentially launch in the first half of 2013; the NDA was submitted to the FDA in February 2012 and an EU marketing application in March. Hemophilia product candidates had a potential mid-2013 launch window. These outcomes remained subject to clinical, regulatory and commercial risks.
- Pricing and austerity measures were expected to reduce 2012 revenue by approximately $40–$60 million. Management also cited competitive pressure in MS, potential biosimilar competition, foreign exchange exposure, and reimbursement and collection uncertainty in Europe.
- European receivables in Italy, Spain and Portugal totaled $292.5 million at March 31, including $121.0 million classified as non-current; approximately $70.4 million across selected European countries was overdue more than one year. In Greece, collectability was no longer considered reasonably assured, so revenue on AVONEX and TYSABRI sales was deferred until cash collection.
- Biogen Idec deferred $16.5 million of Q1 TYSABRI revenue in Italy amid a dispute with the Italian medicines agency over a reimbursement cap; it expected to continue deferring a portion of future Italian sales until resolution.
- Contingencies include an IRS proposed disallowance of approximately $130 million in deductions for 2007–2009, a Massachusetts tax assessment of $103.5 million for 2004–2006, and various patent, reimbursement and other lawsuits. The company was contesting the tax matters; several litigation outcomes and potential losses were not estimable from the filing.
- The company expected to vacate its Weston, Massachusetts facility in the second half of 2013 and estimated a charge of approximately $35 million, net of expected sublease income. Its Hillerød, Denmark manufacturing facility was expected to be ready for intended use in the second half of 2012.
Investor verification priorities
- Track whether revenue growth and product demand—particularly TYSABRI growth and AVONEX U.S. volume—meet management’s outlook.
- Verify the timing, regulatory decisions and launch economics for BG-12 and hemophilia candidates, and monitor the R&D and SG&A investment required.
- Monitor European collections, deferred revenue in Greece and Italy, and any resolution or financial effect of the Italian reimbursement dispute.
- Review AVONEX withdrawal returns, inventory charges and any subsequent manufacturing or product-quality disclosures.
- Assess liquidity and refinancing of the 2013 senior notes, alongside planned share repurchases, capital spending and acquisition-related contingent payments.
- Follow tax audits and litigation, especially the IRS and Massachusetts disputes, the Hoechst–Genentech arbitration, and the TYSABRI and AVONEX patent matters.