Biogen Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results; dollar amounts are in millions unless stated otherwise. Biogen is a global biopharmaceutical company focused on neurological and related diseases. On September 26, it completed its acquisition of Reata Pharmaceuticals, adding SKYCLARYS and pipeline programs.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $2,530.3 | $2,508.5 | $7,449.3 | $7,629.4 |
| Product revenue | $1,805.2 | $1,962.1 | $5,414.3 | $6,083.3 |
| Net income (loss) attributable to Biogen | $(68.1) | $1,134.7 | $911.4 | $2,496.5 |
| Diluted EPS | $(0.47) | $7.84 | $6.26 | $17.07 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $1,534.7 | $1,559.3 |
Q3 total revenue rose 0.9%, as a 134.9% increase in contract manufacturing, royalty and other revenue offset an 8.0% decline in product revenue. Nine-month revenue fell 2.4%. Q3 net loss reflected, among other items, $302.0 million of net losses on investments and Reata-related compensation expense. R&D was 29.1% of revenue in Q3 and 25.4% for the nine months.
Revenue trends and comparison with prior periods
- Multiple sclerosis: Revenue declined 13.5% in Q3 and 16.0% for the nine months. TECFIDERA, interferons and TYSABRI were pressured by generic or other competition, patient transitions and channel or discount effects. VUMERITY grew in Q3.
- SPINRAZA: Q3 SMA revenue increased 4.0%; nine-month revenue was down 0.5%, with U.S. growth offset by international pricing, foreign exchange and shipment effects.
- Anti-CD20 programs: Revenue was broadly flat year to date at $1,253.8 million. OCREVUS royalties increased, while U.S. profit share from RITUXAN, GAZYVA and LUNSUMIO declined amid RITUXAN biosimilar competition and a lower profit-share rate.
- Contract manufacturing, royalty and other revenue: Increased to $304.2 million in Q3 and $781.2 million year to date, principally due to higher manufacturing volumes, including LEQEMBI-related batches.
Financial position, cash flow and debt
- Cash and cash equivalents were $2,287.9 million at September 30, versus $3,419.3 million at year-end 2022. Cash, cash equivalents and marketable securities totaled approximately $2.3 billion, down from $5.6 billion, primarily reflecting the Reata acquisition. Biogen had sold all marketable debt securities by quarter-end.
- Working capital was $3,431.8 million, compared with $6,518.4 million at year-end 2022. Current assets included $2,982.4 million of inventory, including approximately $1.7 billion acquired from Reata.
- Total borrowings were $7,286.4 million, comprising senior notes and $1.0 billion outstanding under a new term loan; $500 million of the term loan was current. The company had no borrowings under its $1.0 billion revolving facility and was in compliance with its covenants.
- Nine-month investing cash outflow was $3,448.7 million, including $6,335.6 million paid for Reata, net of cash acquired. Financing cash inflow was $795.4 million, including $997.2 million of net borrowing proceeds. No shares were repurchased in the first nine months of 2023.
Outlook, commentary and notable items
- Management expects total MS revenue to continue declining in 2023. SPINRAZA revenue is expected to be relatively flat, with potential growth thereafter; biosimilars revenue is expected to grow modestly. Core R&D expense, excluding upfront payments, is expected to increase modestly in 2023. The filing does not provide a clear overall revenue or EPS forecast.
- The Fit for Growth program is expected to generate approximately $1.0 billion in gross operating expense savings by 2025, some of which will be reinvested; the plan includes an estimated net reduction of about 1,000 employees.
- Reata consideration was approximately $7.2 billion for accounting purposes. Acquisition-related accelerated vesting generated $393.4 million of Q3 compensation expense. Approximately $980 million of equity-award payments was paid in October; a $300 million Blackstone termination payment was expected in November. The acquired SKYCLARYS inventory fair-value step-up is expected to flow through cost of sales as inventory is sold, over approximately three years.
- LEQEMBI received traditional FDA approval in July 2023 and approval in Japan in September. ZURZUVAE was approved for postpartum depression in August, with U.S. commercial availability expected in Q4; the FDA issued a complete response letter for its major depressive disorder application, requiring additional study or studies. QALSODY and COLUMVI have accelerated approvals with continued approval potentially contingent on confirmatory evidence.
- Q3 total expenses included $76.0 million of restructuring charges and $300.0 million of other expense, net. Prior-year comparisons are affected by the 2022 $503.7 million building-sale gain, $1.5 billion Samsung Bioepis sale gain and $900 million litigation-settlement charge. Q3 2023 also included $297.6 million of unrealized equity-security losses.
- Key risks include continued generic and biosimilar competition, drug-pricing and reimbursement pressure, product-launch execution, manufacturing and supply constraints, Reata integration and realization of synergies, clinical and regulatory uncertainty, foreign exchange, and litigation. Potential collaboration, development, regulatory and commercial milestone payments total up to approximately $6.0 billion, contingent on achievement; up to $91.7 million could be payable in 2023 under current agreements.
Investor verification priorities
- Track MS product declines, particularly TECFIDERA and TYSABRI, and assess the effect of additional generic and biosimilar entry.
- Verify LEQEMBI and SKYCLARYS launch uptake, reimbursement, costs and contribution to revenue, including future SKYCLARYS inventory step-up charges.
- Reconcile Reata-related cash payments, remaining acquisition obligations, term-loan repayment and the final purchase-price allocation.
- Assess whether the Fit for Growth savings and planned headcount reduction are achieved without impairing pipeline execution or commercial capacity.
- Monitor the MDD zuranolone regulatory path, confirmatory obligations for accelerated approvals, and material litigation and tax contingencies.