Biogen Idec Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2009; unaudited. The filing identifies the registrant as Biogen Idec Inc.
Business context
Biogen Idec is a biotechnology company focused on neurology, oncology and immunology. Its marketed products were AVONEX, RITUXAN, TYSABRI and FUMADERM. Revenue depended substantially on AVONEX, RITUXAN and TYSABRI, with RITUXAN revenue earned through a collaboration with Genentech and TYSABRI profits shared with Elan.
Financial performance
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Total revenue | $1,120.5 million | $1,093.0 million | $3,250.3 million | $3,028.6 million |
| Operating income | $384.2 million | $345.9 million | $912.0 million | $888.7 million |
| Net income attributable to Biogen Idec | $277.7 million | $206.8 million | $664.5 million | $576.5 million |
| Diluted EPS | $0.95 | $0.70 | $2.28 | $1.95 |
| Operating cash flow | Not separately stated for quarter | Not separately stated for quarter | $792.7 million | $1,155.2 million |
- Q3 revenue increased 2.5%; attributable net income rose 34.3%. Nine-month revenue rose 7.3%; attributable net income rose 15.3%.
- Q3 operating margin was approximately 34.3%, versus 31.6% in Q3 2008. Nine-month operating margin was approximately 28.1%, versus 29.3%.
- Q3 product revenue was $801.7 million, up 5.7%. TYSABRI revenue rose 20.9% to $207.0 million; AVONEX rose 1.1% to $580.0 million. Unconsolidated joint-business revenue declined 5.1% to $283.9 million, largely reflecting lower RITUXAN revenue outside the United States.
- Research and development expense increased 13.1% in Q3 and 28.3% year to date, including the $110 million Acorda upfront payment in the first half. Collaboration profit-sharing expense rose 39.4% in Q3 as TYSABRI sales grew. Lower acquired-intangible amortization helped reported operating income.
- At September 30, cash and cash equivalents were $585.8 million; current and non-current marketable securities totaled $2,319.3 million. Total financial assets were $2,905.1 million. Working capital was $1,850.9 million.
- Total borrowings were $1,101.3 million, including $15.5 million current and $1,085.8 million long term. The $360 million revolving credit facility had no borrowings outstanding; the company reported covenant compliance.
- Cash and cash equivalents declined to $585.8 million from $622.4 million at year-end 2008. Nine-month investing cash outflow was $777.7 million, primarily reflecting net purchases of marketable securities; financing cash outflow was $54.6 million.
Changes, outlook and material developments
- Cash from operations fell 31.4% year over year for the first nine months, primarily due to lower income-tax payable balances, the Acorda upfront payment and payment of accrued liabilities. Capital spending declined to $110.1 million from $222.0 million as the Hillerød facility and other manufacturing upgrades neared completion.
- Management expected a full-year 2009 effective tax rate of 29%–31%. It expected acquired-intangible amortization of about $283 million for 2009 and $160–$220 million annually for each of the following five years. A $40 million Syntonix milestone payment was expected in Q4 2009 if the specified milestone was achieved.
- On October 19, 2009, the board authorized up to $1 billion in additional share repurchases, intended to reduce shares outstanding and return excess cash. The authorization was subsequent to quarter-end; no shares had been repurchased under it as of October 20.
- The company extended its all-cash tender offer for Facet Biotech, at $14.50 per share, to December 16, 2009. The offer was approximately $356 million and was not subject to financing or Biogen Idec shareholder approval contingencies.
- Management cited continued TYSABRI growth but warned that PML risk may increase with treatment duration and was discussing a possible label change with regulators. It also expected a significant decline in RITUXAN royalties outside the United States as country-level royalty periods expired.
- October 2009 pipeline developments included a clinical hold and stopped dosing in one ocrelizumab rheumatoid arthritis study after an apparent imbalance in opportunistic infections, and closure of an ocrelizumab lupus nephritis study. Other ocrelizumab rheumatoid arthritis and MS studies remained ongoing. The FDA also issued a Complete Response on the proposed broader RITUXAN rheumatoid arthritis label, citing PML-risk concerns in a less refractory population.
- Material risks include dependence on key products and collaborators; product safety, competition and reimbursement; clinical and regulatory uncertainty; manufacturing and supply concentration; foreign-exchange and investment-market exposure; and intellectual-property, tax and litigation outcomes. The filing describes several legal matters, including New York pricing claims, a Massachusetts tax assessment and RITUXAN-related patent disputes; the company did not quantify a likely loss for key proceedings.
Most important facts for investors to verify
- Whether TYSABRI growth can continue amid PML cases, potential labeling changes and competition, and how profit sharing affects margins.
- The pace of RITUXAN royalty expirations and the financial effect of new anti-CD20 products on Biogen Idec’s collaboration share.
- Whether R&D spending, including milestone and collaboration commitments, translates into successful approvals and commercial products.
- The outcome and timing of the Facet tender offer, the $1 billion repurchase program and the conditional Syntonix milestone.
- Cash-flow sustainability, investment-portfolio risk, debt service and the possible effects of tax assessments and other litigation.