Biogen Inc. — Q2 2018 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2018. Unaudited consolidated results; amounts are in millions of dollars except per-share data. Biogen is a global biopharmaceutical company focused on neurological and neurodegenerative diseases and biosimilars.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total revenue | $3,356.5 | $3,078.4 | $6,487.6 | $5,889.1 |
| Income from operations | $1,213.2 | $1,201.0 | $2,747.9 | $2,225.7 |
| Net income attributable to Biogen | $866.6 | $862.8 | $2,039.5 | $1,610.4 |
| Diluted EPS attributable to Biogen | $4.18 | $4.07 | $9.73 | $7.52 |
| Operating margin | 36.1% | 39.0% | 42.4% | 37.8% |
Q2 revenue grew 9.0% and Biogen-attributable net income grew 0.4%; diluted EPS rose 2.7%, supported in part by fewer weighted-average shares. First-half revenue grew 10.2%, operating income 23.5%, and attributable net income 26.6%. The lower Q2 operating margin reflects faster expense growth than revenue, including higher R&D and SG&A. First-half comparisons also benefited from substantially lower acquired-intangible amortization than in 2017, when a Forward Pharma-related impairment charge affected the period.
- Revenue mix and drivers: Q2 product revenue was $2,757.5, up 4.5%; anti-CD20 program revenue was $490.4, up 23.5%, primarily reflecting OCREVUS royalties; other revenue was $108.6, up 161.1%, mainly on contract manufacturing activity. OCREVUS royalties were $112.9 in Q2 and $189.6 for the first half.
- Product trends: SPINRAZA revenue was $422.7 in Q2 versus $202.9 a year earlier, with international launches contributing to growth. BENEPALI revenue rose to $115.6 from $88.7. TECFIDERA revenue declined to $1,086.8 from $1,110.6; interferon and TYSABRI revenue also declined. ZINBRYTA sales ceased following its worldwide withdrawal.
- Expenses and tax: Q2 R&D increased 23.2% to $981.0, largely due to the Ionis collaboration; SG&A rose 20.1% to $516.2, reflecting commercialization spending, including SPINRAZA. The Q2 effective tax rate was 22.4%, versus 23.8%, primarily reflecting U.S. tax reform.
- Cash flow: First-half operating cash flow was $2,556.4, versus $1,404.4. Capital expenditures were $381.5; operating cash flow less capital expenditures was approximately $2,174.9. Investing cash flow was positive $198.1, while financing cash flow was negative $3,060.1, principally reflecting $3.0 billion of share repurchases.
Financial position and liquidity
At June 30, 2018, cash and cash equivalents were $1,250.2 and marketable securities totaled $3,134.2, for combined cash and securities of $4,384.4, down 35.0% from year-end 2017. Notes payable were $5,928.4, primarily senior notes; the company also had an undrawn $1.0 billion revolving credit facility and reported compliance with its covenants. Current assets were $7,432.1 and current liabilities $3,152.4, yielding working capital of $4,279.7. The first-half cash reduction chiefly reflected repurchases, the Ionis transaction, Fumapharm contingent payments, capital spending, and acquisitions.
Material developments, outlook and risks
- Biogen completed a ten-year Ionis collaboration and stock investment for a total $1.0 billion. It recorded a net $486.2 R&D charge associated with the transaction in Q2, including the collaboration payment and premium paid for Ionis shares.
- The company completed its $5.0 billion 2016 share repurchase program on June 30; Q2 repurchases were $2.75 billion for approximately 9.6 million shares.
- Management expected modest global TECFIDERA demand growth in 2018, with international volume growth partly offset by U.S. declines; continued declines for interferon and TYSABRI; and SPINRAZA growth to moderate over time. IMRALDI’s European launch was expected in October 2018. The filing does not provide a clear numerical full-year revenue or EPS forecast.
- Biogen exercised an option to raise its Samsung Bioepis ownership to approximately 49.9%; regulatory closing conditions remained outstanding, with an expected payment of approximately $700 million. The Solothurn manufacturing facility was expected to be operational by the end of 2020; approximately $1.5 billion was capitalized as construction in progress and $230 million of construction commitments remained.
- Material product and pipeline events included the voluntary worldwide ZINBRYTA withdrawal after serious liver and inflammatory brain safety reports; discontinuation of TYSABRI development for acute ischemic stroke after its Phase 2b study missed the primary endpoint; and completion of aducanumab Phase 3 enrollment in July 2018. BAN2401’s July topline final analysis achieved statistical significance on specified secondary endpoints, although its earlier 12-month primary outcome was not achieved.
- Key risks include intense MS competition and pricing/reimbursement pressure, safety and regulatory outcomes, patent challenges involving TECFIDERA and other products, clinical-development uncertainty, foreign-exchange and international collection risks, and potential manufacturing or supply disruptions. The filing describes ongoing False Claims Act matters, government inquiries, patent litigation and a disputed Brazilian tax assessment of approximately $70 million; certain potential losses cannot be estimated. The $713.5 million Transition Toll Tax liability was payable in installments over eight years, with no amount expected within one year under the company’s interpretation.
Investor facts to verify
- Whether SPINRAZA and OCREVUS growth can offset continued weakness in established MS products and the withdrawal of ZINBRYTA.
- The size and timing of Ionis-related costs, contingent payments, and the approximately $700 million Samsung Bioepis share purchase.
- Progress and outcome of aducanumab and other major pipeline trials, alongside the safety and regulatory status of marketed products.
- Developments in TECFIDERA patent proceedings, government investigations, the Brazilian tax dispute, and other legal contingencies.
- Cash-generation capacity after substantial buybacks and strategic investment, given $5.9 billion of notes payable and ongoing capital commitments.