Biogen Idec Inc. (now identified in the request as Biogen Inc.) — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012; unaudited consolidated results. The filing registrant is Biogen Idec Inc.
Financial performance and position
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Total revenue | $1.421bn | $1.209bn | $2.713bn | $2.412bn |
| Operating income | $505.7m | $410.8m | $875.1m | $827.1m |
| Net income attributable to Biogen Idec | $386.8m | $288.0m | $689.5m | $582.4m |
| Diluted EPS | $1.61 | $1.18 | $2.86 | $2.38 |
| Operating margin | 35.6% | 34.0% | 32.2% | 34.3% |
- Q2 revenue increased 17.6%, operating income 23.1%, attributable net income 34.3%, and diluted EPS 36.4% year over year. Revenue growth reflected higher AVONEX and RITUXAN revenues, FAMPYRA sales, and other revenue; Q2 2011 RITUXAN comparisons included an approximately $50m reduction related to the Hoechst arbitration estimate.
- Q2 product revenue was $1.077bn, up 12.6%. AVONEX revenue grew 15.6% to $762.1m; TYSABRI revenue was essentially flat at $280.4m, down 0.4%; other product revenue was $34.3m, including $19.7m from FAMPYRA. Joint-business revenue, primarily the company’s RITUXAN collaboration share, rose 31.5% to $284.6m.
- Operating expenses rose 14.7% in Q2. R&D increased 15.4% to $329.6m and SG&A increased 13.3% to $301.8m, largely reflecting late-stage development and preparation for potential product launches.
- For the six months, operating cash flow was $830.2m, compared with $683.2m; investing cash flow was negative $52.5m and financing cash flow negative $833.7m. Share repurchases used $909.9m. Cash and equivalents ended at $456.8m.
- Cash, cash equivalents and marketable securities totaled $2.874bn, down 7.5% from year-end 2011. Working capital was $1.436bn, down from $2.063bn, principally because the $450m 6.0% Senior Notes due March 2013 moved into current liabilities. Total borrowings were $1.095bn; the $360m revolving credit facility expired in June and was not renewed.
Material changes versus the prior comparable period
- Revenue growth was led by AVONEX and U.S. RITUXAN collaboration profits. TYSABRI’s Q2 worldwide revenue was flat, with U.S. growth offset by lower rest-of-world revenue, including Italian revenue deferrals, currency effects and pricing measures.
- R&D and SG&A rose as the company advanced late-stage programs and built commercial capabilities for BG-12 and potential hemophilia launches. Six-month R&D included $41m in upfront payments to Isis for DM1 and SMA collaboration options.
- Six-month share repurchases increased to $909.9m from $386.6m in the first half of 2011. The company repurchased 7.3m shares during the first half; approximately 6.3m shares remained under the authorization at June 30.
- The Stromedix acquisition, completed in March for an estimated purchase price of $207.4m, added $219.2m of acquired in-process R&D and $51.6m of goodwill. Contingent consideration liabilities were $280.9m at June 30, compared with $151.0m at year-end.
- The effective tax rate for the first half declined to 22.7% from 25.7%, primarily due to orphan drug credits, cessation of certain intercompany royalties, and a favorable IRS determination concerning reimbursed 2011 expenses.
Outlook, commentary, risks and contingencies
- The FDA accepted the BG-12 application under standard review, and the EMA validated its application. Management anticipated a potential U.S. launch in the first half of 2013. FAMPYRA launches in additional countries were planned during 2012; German pricing negotiations were expected in the second half of 2012, with a negotiated price likely below the initial launch price.
- Management estimated that international austerity and healthcare cost-control measures would reduce 2012 revenue by approximately $40m–$60m. It also cited continued pricing pressure, reimbursement delays, currency exposure and slower collections in certain European markets.
- In June, the Spanish government paid approximately $112m of long-outstanding receivables. The company nevertheless reported continued payment delays in Italy and Portugal. It deferred $32.5m of Italian TYSABRI revenue in the first half pending resolution of a reimbursement-limit dispute and expected further deferrals until resolved.
- Management expected elevated R&D investment as late-stage trials progressed. A research-organization reorganization initiated in July was expected to cost approximately $9m, recorded in Q3. The Hillerød manufacturing facility was expected to be ready for intended use in the second half of 2012, after which depreciation would begin and interest capitalization would stop. Vacating the Weston facility was expected to result in an estimated $35m charge in 2013.
- The company reported potential future collaboration and licensing milestone payments of up to approximately $1.9bn, contingent on development, regulatory or commercial milestones; approximately $26m was anticipated for the remainder of 2012 if milestones were achieved. It also had up to $487.5m of Stromedix contingent development and approval payments.
- Material legal and regulatory matters include a $103.5m Massachusetts tax assessment under appeal; an IRS proposal to disallow approximately $130m in deductions for 2007–2009; Hoechst/Genentech arbitration that could affect RITUXAN collaboration economics; patent disputes involving AVONEX, RITUXAN and TYSABRI; an Italian TYSABRI reimbursement dispute; and a False Claims Act matter concerning Medicaid pricing submissions. The filing states that potential losses in certain proceedings could not be estimated clearly.
- Key business risks include dependence on AVONEX, TYSABRI and RITUXAN; TYSABRI’s PML safety risk and risk-management requirements; competition, including potential biosimilars and BG-12’s possible effect on existing products; product development and regulatory uncertainty; manufacturing and supply risks; and healthcare pricing and reimbursement changes.
Important facts for investors to verify
- BG-12 review milestones, approval timing, launch readiness and whether commercial uptake meets expectations.
- AVONEX and TYSABRI volume, pricing and competitive trends; TYSABRI safety developments and the Italian revenue deferral.
- RITUXAN collaboration revenue and any outcome or financial effect of the Hoechst arbitration; the expected expiry of most remaining rest-of-world RITUXAN royalties during 2012.
- Cash generation and liquidity after substantial repurchases, the March 2013 note maturity, and the nonrenewal of the revolving facility.
- European receivable collections and pricing pressure, the $40m–$60m 2012 revenue-impact estimate, and resolution of the tax and legal contingencies.
- Progress and funding needs for major pipeline programs, contingent milestone obligations, and the timing and costs of the Hillerød and Cambridge projects.