01—Abstract
Summary
Summary of the 10-K filed March 10, 2004. Cited figures are marked; the original filing is the authoritative source.
Biogen Idec Inc. (formerly IDEC Pharmaceuticals) reported a 2003 net loss of $875.1 milliona, or $(4.92) per diluted share, versus net income of $148.1 million in 2002.
The loss was driven by an $823 millionb non-cash write-off of acquired in-process R&D tied to the November 12, 2003 merger with Biogen, Inc., along with $173.9 million of inventory write-downs (largely AVONEX pre-filled syringe batches), a $79.1 million inventory step-up charge, and $33.2 million of intangible amortization. Total revenues rose to $679.2 million from $404.2 million, but only about two months of Biogen, Inc. results (November 13 to December 31, 2003) are included, so the reported figures understate the combined run-rate. Management says full-year 2004 product sales, royalties, SG&A and R&D will rise substantially.
Revenue concentration remains high: AVONEX and RITUXAN together were about 94% of 2003 revenue, and Genentech copromotion profits on U.S. RITUXAN sales of $419.2 millionc made up 73% of total revenue. Cash, cash equivalents and marketable securities reached $2.3 billion, and shareholders' equity rose to $7.05 billion from $1.11 billion after the stock-based merger. Debt of about $887 million consists of zero-coupon convertible notes, with put dates in 2005 and 2007 that could require cash repayment.
Key near-term catalysts include the planned mid-2004 BLA filing for ANTEGREN (natalizumab) in MS, the ZEVALIN settlement with Corixa (a $20 milliond payment), and manufacturing risk around AVONEX's pre-filled syringe. Ongoing litigation includes the Average Wholesale Price suits by New York counties and the Columbia University royalty dispute. Investors should weigh the strong cash position and growing portfolio against heavy revenue concentration, manufacturing quality issues, and the leverage that comes with the convertible debt.
02—Key points
Key Highlights
- 2003 net loss of $875.1M ($4.92/diluted share), driven mainly by an $823M non-cash IPR&D write-off from the Biogen, Inc. merger, versus 2002 net income of $148.1M
- Total 2003 revenue of $679.2M (up from $404.2M), but includes only ~7 weeks of combined post-merger results from Biogen, Inc.
- AVONEX and RITUXAN account for ~94% of revenue; U.S. RITUXAN copromotion profits of $419.2M were 73% of total revenue
- $173.9M inventory write-downs (mostly AVONEX, which had pre-filled syringe quality problems) and $79.1M inventory step-up hit 2003 gross margin, which fell to about (65)%
- Cash and marketable securities of $2.3B; shareholders' equity rose to $7.05B after the merger, with ~$887M of convertible notes outstanding
- ANTEGREN (natalizumab) BLA for MS to be filed mid-2004; ZEVALIN settled with Corixa for a $20M payment; ZEVALIN approved in the EU in January 2004
- Litigation exposure includes New York Medicaid/AWP suits (no loss estimate given) and the Columbia University royalty dispute
03—Questions
Frequently Asked Questions
Why did Biogen Idec report a large net loss in 2003?
The loss was mainly caused by an $823 million one-time, non-cash charge to write off in-process R&D acquired in the November 2003 merger with Biogen, Inc. Additional pressure came from $173.9 million of inventory write-downs, a $79.1 million inventory step-up charge, and $33.2 million of intangible amortization. Excluding the IPR&D charge, the company would have reported a much smaller loss.
Will 2004 results look materially different from 2003?
Yes, management expects a significant change. 2003 includes Biogen, Inc. operations only from November 13 to December 31, 2003, so 2004 will reflect a full year of AVONEX, AMEVIVE, royalties and related SG&A and R&D. Management also expects product gross margins to improve as acquired inventory stepped up to fair value is sold, though it also expects about $304 million of fair-value purchase accounting adjustments to hit 2004 cost of sales.
How dependent is the company on a few products?
Very dependent. AVONEX and RITUXAN represented about 94% of 2003 revenue, and RITUXAN economics flow mainly through the Genentech copromotion arrangement, which made up 73% of total revenue. Any adverse development with these products, including manufacturing problems or competition, could materially affect results.
What are the main risks from the convertible debt?
The company carries about $887 million of zero-coupon convertible notes (the 2032 senior notes have a face value of $1.2 billion at maturity, and the 2019 subordinated notes $345 million). Holders can require repurchase on specified dates, including April 2005 and 2007 for the senior notes and February 2009 and 2014 for the subordinated notes, payable in cash, stock, or a combination. Those repurchases could require significant cash, though the company held $2.3 billion in cash and securities at year-end 2003.
What manufacturing issues should investors watch?
The company has had problems with the AVONEX pre-filled syringe formulation, forcing write-downs of multiple batches that failed specifications, and warns of possible supply interruptions. It relies on Genentech for all RITUXAN manufacturing and on a concentrated group of contractors for fill-finish. ZEVALIN depends on a single yttrium-90 supplier (MDS Canada), and FDA inspections could disrupt supply.
04—Continue