Biogen Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2015; unaudited results compared with the three months ended March 31, 2014. Biogen is a biopharmaceutical company focused on neurological, autoimmune and hematologic disorders.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total revenue | $2.555 billion | $2.130 billion | +20.0% |
| Product revenue, net | $2.172 billion | $1.743 billion | +24.6% |
| Operating income | $1.118 billion | $671 million | +66.5% |
| Net income attributable to Biogen | $823 million | $480 million | +71.4% |
| Diluted EPS | $3.49 | $2.02 | +72.8% |
| Operating cash flow | $733 million | $105 million | Higher |
Operating margin was approximately 43.8% versus 31.5%; net margin attributable to Biogen was approximately 32.2% versus 22.5%. These margins are calculated from reported figures. Research and development expense was $461 million, down 12.9%; selling, general and administrative expense was $560 million, up 9.5%; cost of sales excluding acquired-intangible amortization was $312 million, up 11.9%; and acquired-intangible amortization was $96 million, down 33.1%.
Operating cash flow less purchases of property, plant and equipment was approximately $635 million, versus $50 million in Q1 2014. This is a simple calculation, not a company-reported free-cash-flow measure. Investing activities used $503 million, including the Convergence acquisition and a $250 million Fumapharm contingent payment. Financing activities provided $81 million.
At March 31, cash and cash equivalents were $1.478 billion and marketable securities were $2.051 billion, for total cash, cash equivalents and marketable securities of $3.529 billion. Total borrowings were approximately $584 million; cash and securities therefore exceeded borrowings by about $2.945 billion. Working capital was $3.313 billion, compared with $2.453 billion at year-end 2014. The current ratio was approximately 2.7. Total assets were $15.219 billion and total liabilities were $3.550 billion.
Business developments and period comparisons
- TECFIDERA revenue rose 63.1% to $825 million, driven by volume growth. Its launch-driven market effects moderated; German unregulated launch pricing ended in Q1 2015, and the negotiated fixed price is lower than the initial price.
- Interferon revenue was $755 million, slightly below the prior year. AVONEX faced lower unit volume as patients shifted to PLEGRIDY and oral therapies; foreign exchange also weighed on international sales. TYSABRI revenue increased to $463 million, with U.S. volume partly benefiting from an extra shipping week.
- Newer hemophilia products contributed $43 million of ALPROLIX revenue and $54 million of ELOCTATE revenue. Management said product sales trends remain difficult to estimate given their limited commercial histories.
- Biogen’s share of RITUXAN and GAZYVA operating profits was $331 million, up 11.4%. Other revenue fell 42.3% to $52 million, mainly as ANGIOMAX royalties ended following patent expiry and corporate-partner revenue declined.
- Expense comparisons benefited from lower R&D upfront and milestone charges than in Q1 2014, which included $117.7 million paid to Eisai and $20 million to Sangamo. Lower intangible amortization also reflected the absence of a $34.7 million prior-year impairment charge and changes in expected product revenues.
Outlook, risks and unusual items
- The filing provides no specific full-year revenue, earnings or cash-flow guidance. Management expects to fund operating needs and capital expenditures principally from operating cash flow and existing cash resources, and considers available resources sufficient for foreseeable requirements.
- Management highlighted reliance on principal products, particularly TECFIDERA, and risks from competition, pricing and reimbursement pressure, safety developments, patent disputes, foreign exchange and international collections. The company intends to continue significant R&D investment in MS, aducanumab and other targeted programs.
- Pipeline developments included plans to advance aducanumab to Phase 3 after positive interim Phase 1b results, and EMA validation of the ZINBRYTA application. Management cautioned that early-stage results may not predict later trial outcomes. Anti-LINGO-1 showed improvement on the RENEW primary endpoint but no effect on secondary endpoints.
- Biogen acquired Convergence Pharmaceuticals in February for a preliminary purchase price of $438.6 million, including $200.1 million cash and $238.5 million fair-value contingent consideration; potential milestone payments are up to $450 million. Acquired in-process R&D was valued at $424.6 million.
- Biogen paid $250 million tied to Fumapharm product sales. Further $300 million payments may become due for each additional $1 billion of cumulative sales, subject to the stated trailing-sales condition, up to the agreement’s cumulative-sales limit.
- Potential milestone payments under collaborations totaled up to approximately $3.0 billion; about $113.6 million was anticipated during the remainder of 2015 if milestones were achieved. These contingent amounts were not recorded as liabilities where the milestones had not occurred.
- Foreign-exchange losses contributed to other expense, which was $15 million versus $6 million of expense a year earlier. Revenue hedges partly offset currency impacts. A hypothetical adverse 10% currency move was estimated to reduce forward-contract fair value by approximately $192 million.
- Receivables in Spain and Portugal remained subject to extended collection periods; approximately $11.4 million was overdue more than one year. The filing also describes an Italian TYSABRI reimbursement dispute, a proposed $35.6 million settlement, and approximately €75 million accrued for the matter.
- Legal and tax matters include a German TECFIDERA patent claim by Forward Pharma, government investigations into sales and promotional practices, a Danish tax assessment of $45.6 million for 2009 that Biogen is contesting, and an IRS proposed disallowance of approximately $130 million in deductions for 2007–2009. The filing does not quantify a clear potential loss for the Forward Pharma dispute.
- Disclosure controls were judged effective at quarter-end; the company reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether TECFIDERA growth and pricing after the German price reset can sustain revenue momentum, and how shifts to newer MS therapies affect AVONEX and TYSABRI.
- Whether reported cash generation is repeatable after working-capital movements, acquisition spending and contingent payments.
- Progress, trial results and potential costs for aducanumab and other pipeline candidates; early-stage results do not establish future approval or commercial success.
- Resolution and financial exposure from the Italian TYSABRI matter, Forward Pharma patent litigation, government investigations and tax disputes.
- Collection trends in Spain and Portugal, the adequacy of rebate and discount reserves, and the impact of currency and pricing pressures.
- Future contingent obligations, including Convergence milestones, Fumapharm sales-based payments and collaboration milestones.