Biogen Inc. — Q2 2020 Form 10-Q
Business context and reporting period. Biogen is a global biopharmaceutical company focused primarily on neurological and neurodegenerative diseases, with marketed multiple sclerosis, spinal muscular atrophy and biosimilar products, plus financial rights in anti-CD20 programs. This unaudited filing covers the three and six months ended June 30, 2020; amounts below are in millions of dollars except per-share data.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $3,681.6 | $3,616.7 | $7,215.9 | $7,106.5 |
| Product revenue | $2,795.7 | $2,880.3 | $5,700.3 | $5,560.3 |
| Operating income | $1,974.5 | $1,955.9 | $3,794.3 | $3,458.6 |
| Net income attributable to Biogen | $1,542.1 | $1,494.1 | $2,941.2 | $2,902.9 |
| Diluted EPS | $9.59 | $7.85 | $17.61 | $14.99 |
- Q2 revenue increased 1.8%, while product revenue declined 2.9%; the increase reflected a $329.4 million manufacturing-IP license revenue item. Six-month revenue increased 1.5%.
- Q2 operating margin was approximately 53.6% versus 54.1%; six-month operating margin was approximately 52.6% versus 48.7%. Q2 net income attributable to Biogen rose 3.2%; diluted EPS rose 22.2%, aided by a lower weighted-average share count following substantial repurchases.
- Q2 product revenue was led by multiple sclerosis products ($2,126.7) and SPINRAZA ($494.6). Anti-CD20 program revenue fell 17.0% to $478.3, principally reflecting lower RITUXAN revenue; OCREVUS royalties increased.
- Research and development expense was $647.6 in Q2, up 33.6%, including $208.0 million of Sangamo-related charges. Selling, general and administrative expense declined 5.5% to $555.1.
- Six-month operating cash flow was $3,415.8, nearly unchanged year over year. Capital expenditures were $254.7; operating cash flow less capital expenditures was approximately $3,161.1. Financing cash outflow was $3,558.7, including $5.0 billion of share repurchases, partly offset by new debt issuance.
- At June 30, cash, cash equivalents and marketable securities totaled $5,250.4, versus $5,884.0 at year-end 2019. Working capital was $5,046.7 and the current ratio approximately 2.46.
- Notes payable totaled $7,423.8, up from $5,954.8 at year-end. Biogen issued $3.0 billion of 10- and 30-year notes and redeemed $1.5 billion of notes due in 2020. Cash and marketable securities exceeded notes payable by approximately $2,173.4.
Material changes versus prior period
- Q2 product revenue declined despite six-month growth, with COVID-19-related advance purchasing in Q1 followed by customer use of inventory in Q2 contributing to quarterly comparisons.
- Anti-CD20 revenue weakened, including a 28.7% decline in U.S. RITUXAN volume during Q2, as biosimilar competition and pandemic-related treatment disruption weighed on sales.
- Q2 other income included $106.8 million of net investment gains, versus $173.4 million of losses in Q2 2019; gains included increases in the fair value of Ionis and Sangamo shares. This was a material source of period-to-period earnings variability.
- Deferred tax assets and liabilities were remeasured in connection with uncertainty about future U.S. TECFIDERA sales; the resulting net tax expense was $56.0 million. The effective tax rate was 21.9% in Q2 versus 14.1% a year earlier.
- Biogen repurchased and retired approximately 9.0 million shares for $2.8 billion in Q2; approximately $1.3 billion remained under its December 2019 repurchase authorization at June 30.
Outlook, commentary and risks
- Management said product supply had continued and no interruptions were then anticipated, but warned that COVID-19 could affect demand, patient starts and dosing, manufacturing, clinical trials, expenses and collections. Site-of-care closures affected TYSABRI and SPINRAZA; some trials were delayed, and initiation of trials for known immunosuppressants was paused.
- Product-specific 2020 expectations included growth in rest-of-world fumarate sales offsetting U.S. volume declines, assuming no U.S. generic TECFIDERA competition; continued interferon declines; stable global TYSABRI demand; modest SPINRAZA growth; and modest-to-moderate biosimilar revenue growth. The filing does not provide a single consolidated revenue or EPS forecast.
- TECFIDERA faces significant patent uncertainty. A district court ruled asserted patent claims invalid in June; an interim injunction temporarily barred Mylan from launching pending further appellate consideration. Biogen also anticipated generic entry before the patent’s February 2028 expiration following settlements with some defendants.
- In July 2020, after quarter-end, Biogen and Eisai completed submission of an FDA biologics license application for aducanumab. This was a filing submission, not an FDA approval. A $75.0 million related milestone was accrued at June 30 and expected to be paid in Q3.
- Other notable commitments include up to approximately $7.9 billion of contingent development, regulatory and commercial milestones across collaborations (not recorded because achievement was not considered probable), and an estimated $74.0 million obligation related to minimum manufacturing commitments at the divested Hillerød facility.
- Pending legal and regulatory matters include TECFIDERA and other patent disputes, a False Claims Act qui tam case, claims by former Convergence shareholders and a disputed construction-cost claim. The filing states that possible loss estimates cannot be made for certain matters. Biogen also reported an agreement in principle with the U.S. government concerning patient-assistance charity contributions.
Most important facts for investors to verify
- Current status and timing of TECFIDERA generic litigation, any injunction, and potential impact on U.S. sales and deferred tax asset realizability.
- How much of reported revenue and earnings depends on the one-time $329.4 million license recognition and investment fair-value gains, versus recurring product and royalty performance.
- Whether COVID-19 effects on patient access, prescriptions, dosing, clinical programs, rebates and supply persist or intensify.
- Regulatory progress and clinical evidence for aducanumab, alongside the costs, milestones and commercial assumptions tied to the program.
- Debt, capital returns and liquidity after the $3.0 billion note issuance and $5.0 billion of first-half repurchases, as well as the outcome or potential exposure of material legal and contingent obligations.