How dependent is IDEC on Rituxan, and what drives its revenue?

Rituxan is essentially the entire business. About 95% of 2002 revenues came from the U.S. copromotion with Genentech, which is recorded as IDEC's share of pretax profits, plus royalties on sales by Roche and Zenyaku outside the U.S. Revenue growth depends on continued market penetration in B-cell NHL and CLL, as well as wholesale price increases. Any adverse development in Rituxan's acceptance, pricing, reimbursement, or regulation would materially affect results.

Why did the company take on so much convertible debt, and what are the obligations?

In April and May 2002, IDEC issued $1.2 billion face value of zero-coupon senior convertible notes due 2032, which were sold at a 1.75% yield for about $696 million net. Holders can require repurchase on April 29, 2005, 2007, 2012, and 2017, payable in cash, stock, or a combination. Earlier, the company had $345 million face value of 2019 subordinated notes outstanding, carrying a 5.5% yield, with a put in February 2004. Carrying value was $866 million at year-end. Management said the funds will support Oceanside manufacturing and the San Diego campus, and that the company expects existing resources to meet obligations.

What are the main near-term catalysts and risks for Zevalin and the pipeline?

Zevalin's European marketing approval and launch are delayed pending EMEA approval of manufacturing and fill/finish providers. In the U.S., Zevalin faces patent litigation from Corixa and Glaxo, and the competitor Bexxar has an FDA review goal date of May 2, 2003. Pipeline setbacks include IDEC-131 being placed on clinical hold in June 2002 over a possible thromboembolism signal, and IDEC-114 being discontinued for psoriasis. IDEC-152 showed IgE reduction in allergic rhinitis but no significant clinical symptom benefit. Rituxan's rheumatoid arthritis program is advancing toward Phase III.

What is the outlook for operating expenses and manufacturing capacity?

R&D expense rose to $93.6 million and SG&A to $95.2 million in 2002, reflecting the Zevalin launch and new collaborations. Management expects SG&A and R&D to keep rising with clinical trials, Zevalin commercialization, and IP enforcement. IDEC is building a large-scale manufacturing plant in Oceanside, California, with about $93.7 million invested to date and total estimated costs of $400 million, expected to be mechanically complete in 2004 and validated in 2005 to 2006. The company also owns a Zevalin facility in Oceanside expected to be operational by mid-2003, and it relies on Genentech for all Rituxan bulk manufacturing.

BIIB 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 31, 2003. Cited figures are marked; the original filing is the authoritative source.

This is IDEC Pharmaceuticals Corporation's (Nasdaq: IDPH) Form 10-K for fiscal 2002, filed March 31, 2003.

The filing is IDEC's, not Biogen's, though the request named BIIB. IDEC later merged with Biogen in 2003 to form Biogen Idec. The company remains heavily dependent on Rituxan, a CD20 antibody it copromotes with Genentech in the U.S. Rituxan supplied about 95%^a of 2002 revenues.

U.S. Rituxan net sales rose 39% to $1.08 billion^b, and IDEC's share of copromotion profits reached $324.5 million. Total revenues grew 48% to $404.2 million, and net income rose 46% to $148.1 million, or $0.85 diluted EPS, up from $0.59. Profitability improved and the balance sheet strengthened.

The company released its entire deferred tax valuation allowance, which signals management's confidence in future taxable income. Operating income rose to $213.9 million^c. Year-end cash and securities totaled $1.45 billion after issuing $714 million of zero-coupon senior convertible notes due 2032, which carry a face value of $1.2 billion at maturity.

The company also repurchased $135 million^d of stock. Total notes payable rose to $866 million from $136 million, and the company now carries meaningful convertible-debt leverage and put-option exposure in 2005 and 2007. Risks remain significant.

Zevalin, the company's first self-marketed product, launched in April 2002 with only $13.7 million in sales, and its European launch is delayed. Zevalin faces patent litigation from Corixa and Glaxo, and a competing radioimmunotherapy, Bexxar, has an FDA goal date of May 2, 2003.

Clinical development of IDEC-131 is on hold over a thromboembolism safety signal, and IDEC-114 was dropped for psoriasis. The company also depends on third parties for Zevalin's yttrium-90 supply and fill/finish, and it is building a roughly $400 million manufacturing facility in Oceanside, California.

02—Key points

Key Highlights

Total revenues grew 48% to $404.2 million in 2002 from $272.7 million in 2001, driven by copromotion profits of $324.5 million on Rituxan.
Net income rose 46% to $148.1 million, or $0.85 per diluted share, compared with $101.7 million, or $0.59, in 2001.
U.S. Rituxan net sales reached $1.08 billion, up 39% year over year, and Rituxan accounted for about 95% of total revenues.
Zevalin, approved in February 2002, generated $13.7 million in U.S. net sales in its first partial year, and European approval remains pending.
The company reversed its entire $70.7 million deferred tax valuation allowance, and its effective tax rate was about 36%.
Cash, cash equivalents and securities were $1.45 billion at year-end, against $866.2 million in notes payable after the $696 million senior note issuance.
Key risks include the IDEC-131 clinical hold, Zevalin patent litigation with Corixa and Glaxo, the pending Bexxar FDA decision, and reliance on third-party suppliers for Zevalin.

03—Questions

Frequently Asked Questions

How dependent is IDEC on Rituxan, and what drives its revenue?
Rituxan is essentially the entire business. About 95% of 2002 revenues came from the U.S. copromotion with Genentech, which is recorded as IDEC's share of pretax profits, plus royalties on sales by Roche and Zenyaku outside the U.S. Revenue growth depends on continued market penetration in B-cell NHL and CLL, as well as wholesale price increases. Any adverse development in Rituxan's acceptance, pricing, reimbursement, or regulation would materially affect results.
Why did the company take on so much convertible debt, and what are the obligations?
In April and May 2002, IDEC issued $1.2 billion face value of zero-coupon senior convertible notes due 2032, which were sold at a 1.75% yield for about $696 million net. Holders can require repurchase on April 29, 2005, 2007, 2012, and 2017, payable in cash, stock, or a combination. Earlier, the company had $345 million face value of 2019 subordinated notes outstanding, carrying a 5.5% yield, with a put in February 2004. Carrying value was $866 million at year-end. Management said the funds will support Oceanside manufacturing and the San Diego campus, and that the company expects existing resources to meet obligations.
What are the main near-term catalysts and risks for Zevalin and the pipeline?
Zevalin's European marketing approval and launch are delayed pending EMEA approval of manufacturing and fill/finish providers. In the U.S., Zevalin faces patent litigation from Corixa and Glaxo, and the competitor Bexxar has an FDA review goal date of May 2, 2003. Pipeline setbacks include IDEC-131 being placed on clinical hold in June 2002 over a possible thromboembolism signal, and IDEC-114 being discontinued for psoriasis. IDEC-152 showed IgE reduction in allergic rhinitis but no significant clinical symptom benefit. Rituxan's rheumatoid arthritis program is advancing toward Phase III.
What is the outlook for operating expenses and manufacturing capacity?
R&D expense rose to $93.6 million and SG&A to $95.2 million in 2002, reflecting the Zevalin launch and new collaborations. Management expects SG&A and R&D to keep rising with clinical trials, Zevalin commercialization, and IP enforcement. IDEC is building a large-scale manufacturing plant in Oceanside, California, with about $93.7 million invested to date and total estimated costs of $400 million, expected to be mechanically complete in 2004 and validated in 2005 to 2006. The company also owns a Zevalin facility in Oceanside expected to be operational by mid-2003, and it relies on Genentech for all Rituxan bulk manufacturing.

04—Continue

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