Biogen Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results; figures below are in U.S. dollars unless stated otherwise.
Business context and reporting period
Biogen is a global biopharmaceutical company focused on neurological and neurodegenerative diseases, with major businesses in multiple sclerosis (MS), spinal muscular atrophy (SMA), anti-CD20 therapies and biosimilars. Its results remain dependent on a concentrated portfolio of established medicines, while longer-term growth relies partly on pipeline development and collaborations.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $14.38 billion | $13.45 billion | +6.9% |
| Net product revenue | $11.38 billion | $10.89 billion | +4.5% |
| Operating income | $7.04 billion | $5.89 billion | +19.6% |
| Net income attributable to Biogen | $5.89 billion | $4.43 billion | +32.9% |
| Diluted EPS | $31.42 | $21.58 | +45.6% |
| Operating cash flow | $7.08 billion | $6.19 billion | +14.4% |
Operating margin was approximately 49.0%, compared with 43.8% in 2018; net margin was approximately 41.0%, versus 33.0%. Cost of sales excluding acquired-intangible amortization and impairment was 13.6% of revenue, versus 13.5%.
- Revenue mix and drivers: Anti-CD20 program revenue increased 15.7% to $2.29 billion, primarily from OCREVUS royalties. SPINRAZA revenue rose 21.6% to $2.10 billion, and biosimilar revenue rose 35.4% to $738 million. MS product revenue declined 0.8% to $8.53 billion, including lower interferon sales.
- Profit drivers: Lower R&D expense (down 12.2%) and lower acquired-intangible amortization and impairment contributed to improved operating income. The 2018 comparison included a substantial Ionis collaboration charge. SG&A rose 12.7%.
- Fourth quarter: Revenue was $3.67 billion, net income was $1.44 billion and diluted EPS was $8.08. The filing does not provide a clearly stated standalone fourth-quarter cash-flow figure.
- Balance sheet at year-end: Cash, cash equivalents and marketable securities totaled $5.88 billion, up from $4.91 billion. Borrowings were $5.95 billion, including $1.50 billion due in 2020. Working capital was $3.52 billion, down from $4.35 billion; current assets were $8.38 billion and current liabilities $4.86 billion.
- Capital allocation: Share repurchases used approximately $5.9 billion of cash in 2019. The company repurchased and retired about 23.6 million shares during the year and authorized a further $5.0 billion repurchase program in December.
Material changes, outlook and management commentary
- Management expected 2020 SPINRAZA revenue growth to moderate, citing a lower rate of new patient starts and dosing transitions; it expected interferon revenue to continue declining and TYSABRI demand to be broadly stable.
- Management anticipated continued TECFIDERA growth outside the U.S. to offset U.S. volume declines, and strong biosimilar revenue growth, partly offset by European price reductions.
- Biogen planned significant 2020 SG&A increases for potential aducanumab launch preparation. Aducanumab’s regulatory and commercial prospects remained uncertain: the Phase 3 trials had been stopped after a futility analysis, but a later analysis led Biogen and Eisai to plan a U.S. regulatory filing. The filing described potential milestone payments of $75 million upon FDA filing and $100 million upon U.S. launch.
- Other portfolio developments included FDA approval and U.S. launch of VUMERITY, acquisition of Nightstar Therapeutics for ophthalmology gene-therapy assets, and expanded commercialization rights for potential ophthalmology biosimilars. Biogen discontinued the BG00011 IPF program over safety concerns, elenbecestat Phase 3 trials, and gosuranemab development for PSP after the Phase 2 study missed its primary endpoint.
- Unusual items included a $215.9 million impairment charge for BG00011, a $55.3 million pre-tax loss on the Hillerød manufacturing divestiture, and a favorable investment-related contribution to other income. The effective tax rate fell to 16.3% from 24.2%, including effects from an internal intellectual-property reorganization and Swiss tax reform.
- The Hillerød sale generated approximately $923.7 million in proceeds, including raw materials, but left a minimum-batch production commitment exposure; Biogen accrued an estimated $74 million obligation. The Solothurn, Switzerland manufacturing facility was expected to be partially operational by the end of 2020.
Risks, contingencies and items to verify
- TECFIDERA faces generic-entry risk. Although the PTAB upheld the relevant U.S. patent in February 2020, district-court litigation and appeals remained pending, and Biogen anticipated generic competition before the patent’s 2028 expiration.
- Competition is increasing across MS and SMA, including a newly approved SMA gene therapy, while biosimilars referencing RITUXAN launched in the U.S. in late 2019 and early 2020. Pricing, reimbursement and regulatory changes may further pressure sales.
- Verify aducanumab’s regulatory outcome, evidence supporting the revised analysis, launch costs and any milestone obligations; projected 2020 spending and milestones depended on future events.
- Potential collaboration development, regulatory and commercial milestones could total up to approximately $6.8 billion, contingent on achievement. Contractual obligations totaled $10.28 billion, including debt principal and interest.
- Legal matters include TECFIDERA patent litigation, IMRALDI patent disputes, a False Claims Act qui tam case, government investigations into sales and promotional practices and patient-assistance contributions, and a disputed $200 million claim by former Convergence shareholders. Possible loss estimates are not clear for several proceedings.
- Verify the reconciliation and sustainability of earnings growth, particularly the effects of tax changes, investment fair-value gains, share repurchases and prior-year collaboration charges; also monitor the near-term $1.5 billion debt maturity and liquidity after buybacks and strategic investment.