Business context and reporting period
Biogen Idec Inc. (now Biogen Inc.) filed this Form 10-K for the fiscal year ended December 31, 2011. It is a biotechnology company focused on therapies for multiple sclerosis (MS), neurodegenerative diseases, hemophilia and autoimmune disorders. The filing also reports unaudited fourth-quarter results.
Revenue remained highly dependent on AVONEX, TYSABRI and RITUXAN. The company reported one operating segment.
Financial performance and position
Amounts are in U.S. dollars; annual figures are for the years ended December 31.
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Total revenue | $5,048.6 million | $4,716.4 million | +7.0% |
| Operating income | $1,724.7 million | $1,248.9 million | +38.1% |
| Net income attributable to Biogen Idec | $1,234.4 million | $1,005.3 million | +22.8% |
| Diluted EPS | $5.04 | $3.94 | +27.9% |
| Operating cash flow | $1,727.7 million | $1,624.7 million | +6.3% |
Reported annual gross profit was $4,581.9 million, approximately 90.8% of revenue; operating margin was approximately 34.2% and net income attributable margin approximately 24.5%. These margins are calculated from reported figures.
Revenue mix: product revenue was $3,836.1 million (+10.5%); unconsolidated joint business revenue, primarily RITUXAN, was $996.6 million (-7.5%); and other revenue was $215.9 million (+27.7%). AVONEX revenue rose 6.7% to $2,686.6 million, TYSABRI rose 19.9% to $1,079.5 million, and RITUXAN-related joint business revenue fell 7.5%. RITUXAN’s decline reflected expiring ex-U.S. royalties, lower expense reimbursements and an estimated arbitration charge, partly offset by U.S. growth.
At December 31, 2011, cash, cash equivalents and marketable securities totaled $3,107.4 million, versus $1,950.8 million a year earlier. Total borrowings were $1,064.1 million, down from $1,203.5 million; cash and securities exceeded borrowings by about $2.0 billion. Working capital was $2,062.5 million, compared with $1,490.3 million. Total assets were $9,049.6 million and total liabilities $2,622.6 million. Investing cash flow was negative $1,650.3 million, mainly reflecting net purchases of marketable securities; financing cash flow was negative $319.9 million.
For Q4 2011, revenue was $1,326.7 million, net income attributable to Biogen Idec was $300.2 million and diluted EPS was $1.22. Q4 2010 figures were $1,219.0 million, $240.3 million and $0.99, respectively.
Material changes versus the prior comparable period
- Revenue growth was led by TYSABRI and AVONEX; RITUXAN-related revenue declined as ex-U.S. royalty periods expired and collaboration costs and adjustments affected results.
- Operating income increased substantially as total costs and expenses fell 4.1%, including the absence of 2010’s $245.0 million acquired in-process R&D charge. Offsetting items included higher cost of sales, collaboration profit sharing and a new $36.1 million contingent-consideration fair-value charge in 2011.
- R&D expense declined 2.3% to $1,219.6 million, while SG&A rose 2.4% to $1,056.1 million and cost of sales rose 16.6% to $466.8 million.
- Cash and securities increased despite $498.0 million of 2011 share repurchases and $208.0 million of capital expenditures. Repurchases were materially lower than the approximately $2.1 billion spent in 2010.
Guidance, outlook, risks and unusual items
- Management expected 2012 R&D expense at 24%–25% of revenue, SG&A at 22%–23% of revenue, and an effective tax rate of 24%–26%. It expected cost-containment measures in international markets to reduce 2012 revenue by approximately $40–$60 million. No full-year revenue or EPS guidance is provided in the supplied filing text.
- BG-12 produced positive top-line results in two pivotal Phase 3 MS trials; regulatory submissions were being prepared. Approval, timing, safety, commercial uptake and competition remained uncertain. Management also planned further FAMPYRA launches, subject to local reimbursement approvals.
- TYSABRI carries a boxed warning and risk-management restrictions because of potentially fatal progressive multifocal leukoencephalopathy (PML). PML incidence, JC-virus risk stratification, labeling and prescribing behavior could materially affect sales.
- The company remained reliant on three principal products and faced MS competition, potential biosimilars, pricing pressure, reimbursement constraints and delayed collections in certain European markets. It reported $56.0 million of receivables in Italy, Spain and Portugal overdue more than one year.
- Material legal and regulatory exposures included the Genentech-Hoechst arbitration, for which Biogen Idec reduced its 2011 RITUXAN-related revenue by about $50.0 million; an Italian reimbursement dispute concerning a stated €30.7 million excess over a TYSABRI limit, with $13.8 million of Q4 revenue deferred; and an unresolved False Claims Act complaint alleging underreporting of Average Manufacturer Price data. The filing states outcomes were uncertain.
- The IRS proposed disallowing approximately $130 million of deductions for 2007–2009 related to Danish contract-manufacturing service payments; the company said it would contest the proposal. A separate Massachusetts assessment for 2004–2006 totaled $103.5 million including interest and penalties and was being appealed.
- Other notable items: the $36.8 million Portola upfront payment was expensed in 2011; RITUXAN collaboration revenue included an estimated $50.0 million arbitration-related reduction; restructuring charges were $19.0 million in 2011 versus $75.2 million in 2010; and 2011 inventory write-downs were $25.4 million versus $11.8 million.
- Potential future milestone payments under collaborations totaled up to approximately $1.9 billion, contingent on development, regulatory or commercial milestones. The company reported $1.1 billion of outstanding indebtedness in its risk discussion and a $360 million revolving facility set to terminate in June 2012; it reported no borrowings under that facility at year-end.
Most important facts for investors to verify
- Whether BG-12 receives regulatory approval on the expected timetable and its eventual commercial impact, including possible cannibalization of existing MS products.
- Subsequent developments in TYSABRI PML risk, JC-virus testing, labeling and patient demand.
- Resolution and financial effects of the Hoechst arbitration, Italian TYSABRI reimbursement dispute, AMP litigation, IRS proposal and Massachusetts tax appeal.
- Whether European pricing, reimbursement measures and slow customer payments exceed management’s 2012 estimates.
- Future RITUXAN ex-U.S. royalty declines, contingent milestone obligations, capital commitments and the use of cash for repurchases and business development.