Biogen Idec Inc. — 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The filing also reports fourth-quarter results; this is an annual report, not a standalone quarterly filing. Amounts are in U.S. dollars.
Business context
Biogen Idec was a global biotechnology company focused on neurology and other serious diseases. Its four marketed products were AVONEX, TYSABRI, RITUXAN (reported as revenue from an unconsolidated joint business), and FUMADERM. Management said near-term revenue remained substantially dependent on AVONEX, TYSABRI, and RITUXAN.
Financial performance and condition
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Total revenue | $4,716.4 million | $4,377.3 million | +7.7% |
| Operating income | $1,248.9 million | $1,295.4 million | -3.6% |
| Net income attributable to Biogen Idec | $1,005.3 million | $970.1 million | +3.6% |
| Diluted EPS attributable to Biogen Idec | $3.94 | $3.35 | +17.6% |
| Operating cash flow | $1,624.7 million | $1,074.9 million | +51.1% |
| Cash, cash equivalents, and marketable securities | $1,950.8 million | $2,457.8 million | -20.6% |
| Total borrowings | $1,203.5 million | $1,100.0 million | +9.4% |
| Working capital | $1,490.3 million | $1,765.7 million | -15.7% |
Reported gross profit after cost of sales and acquired-intangible amortization was approximately $4,107.2 million, or 87.1% of revenue; operating margin was 26.5%. Net income attributable to Biogen Idec was 21.3% of revenue. Consolidated net income was $898.6 million; the higher parent-attributable figure reflects a $106.7 million net loss attributable to noncontrolling interests, principally affected by the Knopp transaction.
- Revenue mix: Product revenue was $3,470.1 million (+10.1%); RITUXAN joint-business revenue was $1,077.2 million (-1.6%); other revenue was $169.1 million (+30.6%).
- Key products: AVONEX revenue was $2,518.4 million (+8.4%); TYSABRI was $900.2 million (+16.0%); RITUXAN revenue to Biogen Idec was $1,077.2 million (-1.6%); FUMADERM revenue was $51.2 million.
- Expenses: R&D was $1,248.6 million (-2.7%); SG&A was $1,031.5 million (+13.2%); collaboration profit sharing was $258.1 million (+19.5%). Total costs and expenses rose 12.5% to $3,467.5 million.
- Liquidity and debt: Cash and marketable securities exceeded reported borrowings by approximately $747 million. The $360 million revolving credit facility was undrawn at year-end. Cash, cash equivalents, and marketable securities included about $0.9 billion generated abroad and intended for foreign operations.
- Share repurchases: The company repurchased approximately 40.3 million shares for $2.1 billion during 2010; shares outstanding fell about 15% from year-end 2009. No cash dividends were paid, and none were anticipated in the near term.
Fourth-quarter snapshot: Revenue was $1,219.0 million versus $1,127.0 million in fourth-quarter 2009. Net income attributable to Biogen Idec was $240.3 million versus $305.6 million; diluted EPS was $0.99 versus $1.06. Fourth-quarter 2010 included $75.2 million of restructuring charges.
Material changes and unusual items
- Revenue growth was led by TYSABRI and AVONEX. RITUXAN’s U.S. co-promotion profit share increased, but rest-of-world royalties declined 33.2% as country royalty periods expired.
- Operating income declined despite higher revenue, reflecting $245.0 million of acquired in-process R&D charges, $75.2 million of restructuring charges, higher SG&A, and greater collaboration profit sharing. Lower acquired-intangible amortization partly offset these costs.
- 2010 acquired in-process R&D charges included $205.0 million related to the Knopp dexpramipexole license and $40.0 million for a Factor IX milestone. The Knopp charge was partly attributed to noncontrolling interests.
- Other income (expense) shifted to a $19.0 million expense from $37.3 million of income in 2009, including lower interest income and $21.3 million of investment impairment charges.
- Cash from operations increased, while total cash and securities fell primarily because of share repurchases, taxes, capital spending, and business-development payments.
Outlook, management commentary, and risks
- Framework for growth: Announced in November 2010, the plan prioritizes neurology and selected differentiated biologic therapies. It includes discontinuing or winding down substantially all oncology and cardiovascular programs and selected other programs, reducing small-molecule discovery, closing San Diego and consolidating Massachusetts facilities, transferring U.S. RITUXAN sales and marketing responsibility to Genentech, and reducing headcount by about 13%.
- Management expected approximately $300 million in annual savings, substantially realized in the latter half of 2011, with savings potentially offset by growth initiatives. It estimated total restructuring charges of about $110 million, with completion expected by the end of 2011.
- 2011 expense outlook: R&D of 22%–24% of revenue; SG&A of 20%–21% of revenue; effective tax rate of 26%–28%. Management expected cost of sales to increase in 2011.
- Pipeline and deal developments included Phase 3 programs for BG-12 and daclizumab in MS, long-acting Factor VIII and IX in hemophilia, and GA101 in oncology. The company acquired Panima for $32.5 million plus up to $395 million in contingent milestones, and licensed dexpramipexole with up to $265 million in additional milestones.
- Product and regulatory risks: TYSABRI carries a boxed warning for potentially fatal PML; risk increases with prior immunosuppressant use and longer treatment duration. U.S. and EU reviews could change its labeling or restrictions. In January 2011, the EU regulator issued a negative opinion on FAMPYRA and Health Canada issued a deficiency notice; the company planned an EU appeal.
- Commercial and financial risks: Heavy reliance on three principal products, new MS competitors and biosimilars, reimbursement and pricing pressure from health reform and austerity measures, and delayed government payments in parts of Europe could constrain revenue or collections. Receivables in Italy, Spain, and Portugal totaled $241.9 million, including about $45 million outstanding over one year.
- Contingencies: Massachusetts tax assessments for 2001–2006 totaled $142.4 million including interest and penalties; the company disputed them. Patent disputes included RITUXAN-related claims and, in January 2011, a suit alleging TYSABRI infringed a patent. The filing did not state a probable loss estimate for these matters. Potential milestone payments across collaborations were up to $1,334.3 million, contingent on future events.
Investor facts to verify
- Whether TYSABRI patient growth can continue without additional PML cases, label restrictions, or adverse changes to its benefit-risk assessment.
- Whether the announced restructuring delivers the projected savings and completes on schedule, and how it affects pipeline execution and commercial operations.
- How quickly RITUXAN rest-of-world royalty expirations and U.S. healthcare reform costs reduce collaboration revenue and profit share.
- Whether receivables in stressed European markets are collected as expected and whether the disputed Massachusetts tax assessments or patent litigation produce material costs.
- How share repurchases, remaining contingent milestones, debt obligations, and cash held abroad affect future liquidity and capital allocation.