Biogen Idec Inc. — FY2013 Form 10-K
Reporting period: Year ended December 31, 2013. The filing also reports fourth-quarter results. The company was a global biotechnology business focused principally on multiple sclerosis, with activities in hemophilia, immunology and neurodegenerative disease.
Financial performance and position
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Total revenue | $6,932.2 million | $5,516.5 million | +25.7% |
| Income from operations | $2,515.5 million | $1,855.9 million | +35.5% |
| Net income attributable to Biogen Idec | $1,862.3 million | $1,380.0 million | +34.9% |
| Diluted EPS | $7.81 | $5.76 | +35.8% |
| Operating cash flow | $2,345.1 million | $1,879.9 million | +24.7% |
| Cash, cash equivalents and marketable securities | $1,848.5 million | $3,742.4 million | -50.6% |
| Total borrowings | $595.9 million | $1,140.8 million | -47.8% |
- Product revenue rose 33.0% to $5,542.3 million. Revenue from the unconsolidated joint business, primarily RITUXAN and GAZYVA profit share, was $1,126.0 million, down 1.0%; other revenue was $263.9 million, up 24.2%.
- Major product revenue: AVONEX $3,005.5 million (+3.2%); TYSABRI $1,526.5 million (+34.4%); TECFIDERA $876.1 million (first commercial year); and RITUXAN-related joint business revenue is included in unconsolidated joint business revenue.
- Gross profit was $6,074.5 million, or approximately 87.6% of revenue; operating margin was approximately 36.3%, and net margin approximately 26.9% (calculated from reported figures).
- Research and development expense was $1,444.1 million (+8.2%); selling, general and administrative expense was $1,712.1 million (+34.0%); acquired-intangible amortization was $342.9 million (+69.6%). Higher launch, commercialization and TYSABRI-related costs contributed to expense growth.
- Net cash used in investing activities was $1,604.7 million, including $3.263 billion for the TYSABRI rights acquisition, partly offset by marketable-security maturities and sales. Capital expenditures were $246.3 million. Operating cash flow less capital expenditures was approximately $2.10 billion.
- At year-end, working capital was $1,426.6 million. Cash and marketable securities exceeded reported borrowings by approximately $1,252.6 million. The company had no borrowings outstanding under its $750 million revolving facility at year-end; the facility was due to terminate in March 2014.
Fourth-quarter 2013
Revenue was $1,965.9 million versus $1,417.9 million in Q4 2012; net income attributable to Biogen Idec was $457.3 million versus $292.1 million; diluted EPS was $1.92 versus $1.23. Q4 2013 product revenue was $1,607.1 million. The filing attributes the annual revenue increase in part to TECFIDERA’s launch and the change to recognizing 100% of TYSABRI sales following the April 2013 acquisition.
Material changes and significant developments
- On April 2, 2013, Biogen Idec acquired full ownership and strategic, commercial and decision-making rights to TYSABRI from Elan for an upfront $3.25 billion. It began recognizing all TYSABRI revenue and associated costs; future contingent payments to Elan are based on worldwide net sales.
- TECFIDERA was approved in the U.S. in March 2013 and launched in April. FY2013 revenue was $876.1 million, including approximately $134 million of U.S. channel inventory at year-end. About 70% of new U.S. patients in the first three quarters had switched from another MS therapy. European Commission approval followed in February 2014.
- GAZYVA was approved in the U.S. in November 2013 for previously untreated chronic lymphocytic leukemia. Biogen Idec shares U.S. operating profits and losses with Genentech.
- AVONEX revenue growth reflected U.S. price increases, partly offset by an 8% decline in U.S. unit volume, including patient transitions to TECFIDERA. TYSABRI growth in the U.S. primarily reflects the change in revenue recognition after acquiring Elan’s rights.
- Cash and marketable securities declined mainly because of the TYSABRI acquisition and repayment of $450 million of 6.0% senior notes. The company repurchased $400.3 million of its shares in 2013.
Outlook, risks and contingencies
- The filing provides no quantified financial guidance. Management said future funding needs were expected to be met primarily through operating cash flow and existing resources, and considered those resources sufficient for the foreseeable future.
- Management emphasized continued investment in MS, hemophilia and other pipeline programs. PLEGRIDY, ELOCTATE and ALPROLIX were under regulatory review in the U.S. at year-end. FDA reviews of ELOCTATE and ALPROLIX were extended by three months after requests for additional manufacturing-validation information; European submissions would require pediatric data.
- Principal commercial risks include reliance on AVONEX, TYSABRI, TECFIDERA and RITUXAN; increasingly intense MS competition, including potential cannibalization among Biogen products; and pricing, reimbursement and biosimilar or generic competition.
- TYSABRI carries a boxed warning and significant PML risk. Risk is higher with anti-JCV antibodies, prior immunosuppressant use and longer treatment duration. Additional PML cases or regulatory restrictions could affect use, sales and the product’s benefit-risk profile.
- Pricing and collection risks include government cost-containment measures and delayed payment in parts of Europe. Receivables in Italy, Portugal and Spain totaled $217.2 million at year-end; $45.9 million was more than one year overdue.
- The company recorded a $20.0 million revenue reduction related to an agreement in principle to settle Italian agency AIFA claims over TYSABRI reimbursement limits. Approval remained pending. It had deferred $129.3 million of TYSABRI revenue; management expected about $105 million of incremental revenue after approval, subject to the settlement terms.
- Other notable legal and tax matters include the Hoechst arbitration affecting the RITUXAN collaboration (a $49.7 million reduction to 2013 joint-business revenue), pending AMP/Medicaid rebate litigation with trial set for December 2014, government review of sales and promotional practices, and an IRS dispute over approximately $130 million of deductions relating to services from the Danish subsidiary. The filing does not provide a clear estimate of potential loss for several pending matters.
- Potential future development and commercial milestone payments across collaborations were up to approximately $2.0 billion, contingent on achieving milestones and not recorded as liabilities at year-end. A subsequent-event agreement with Sangamo, announced in January 2014, included a $20 million upfront payment and up to $300 million in development and regulatory milestones, subject to closing conditions.
Most important facts for investors to verify
- How much of TECFIDERA’s early sales and channel inventory convert into sustained patient demand, and how its growth affects AVONEX and TYSABRI.
- Whether AIFA approves the TYSABRI settlement, and the timing and amount of any deferred revenue released.
- Progress and regulatory outcomes for PLEGRIDY, ELOCTATE and ALPROLIX, particularly manufacturing validation and required pediatric studies.
- Developments in TYSABRI PML cases, risk-management requirements and prescribing trends.
- European receivable collections, pricing actions, contingent collaboration payments and the outcomes of material litigation and tax disputes.