How dependent is Biogen Idec on its key products?

Very dependent. AVONEX and RITUXAN made up roughly 94% of 2006 total revenues. Management expects to remain substantially dependent on these two products for many years, so any safety, efficacy, competitive, or regulatory setback for either would materially affect results.

What happened with TYSABRI, and how is it performing?

TYSABRI was voluntarily withdrawn in February 2005 after PML cases. The FDA approved its reintroduction for relapsing MS in June 2006, and the EMEA approved it in June 2006. Shipments began in July 2006, producing $35.8 million in 2006 sales. The launch is under a risk-minimization program (TOUCH), and the company faces PML-related safety and adoption risks. Crohn's disease filings are pending with regulators.

Why was net income depressed relative to operating performance in 2006?

The $330.5 million charge for acquired in-process R&D (Fumapharm $207.4 million, Conforma $123.1 million) is expensed immediately and is non-deductible for tax. Together with a 56.6% effective tax rate, this compressed earnings even as revenues grew.

What are the most significant legal and regulatory risks?

Key matters include a securities class action over TYSABRI disclosures, an SEC investigation of the TYSABRI suspension, a DOJ investigation of Genentech's RITUXAN promotion, a False Claims Act suit alleging off-label promotion of RITUXAN, multistate Medicaid pricing lawsuits, a wrongful-death suit over ZEVALIN, and an arbitration with Genentech over change-of-control rights. The company says it cannot estimate potential losses for most of these.

What are the company's 2007 expectations and capital commitments?

Management expects higher R&D and SG&A expenses in 2007, mainly from the TYSABRI launch and business development, and plans to commit significant capital to external opportunities. It has approved a second phase of the Hillerod, Denmark manufacturing facility at an additional cost of about $225 million, on top of about $275 million already paid, and has a new $20 million share repurchase authorization.

BIIB 10-K FY2006 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 21, 2007. Cited figures are marked; the original filing is the authoritative source.

Biogen Idec's 2006 Form 10-K shows a company in transition: total revenues rose 10.7% to $2.68 billion^a, net income reached $217.5 million ($0.63 diluted EPS) versus $160.7 million in 2005, and the company ended the year with $2.31 billion in cash and marketable securities.

Growth is concentrated in two products: AVONEX (MS, $1.71 billion^b) and RITUXAN (co-promoted with Genentech, with Biogen's share of U.S. copromotion profits at $556 million plus $194 million in ex-U.S. royalties). Together these represent about 94% of revenues, so the company remains highly concentrated and exposed to competition in multiple sclerosis and to the Genentech relationship. The filing also highlights the relaunch of TYSABRI after its 2005 withdrawal over PML safety concerns.

TYSABRI generated $35.8 million^c in 2006 sales, with U.S. and EU launches underway in the second half. The company is also pursuing a sizable pipeline and external growth. Acquisitions of Fumapharm and Conforma triggered $330.5 million in acquired IPR&D charges, which depressed reported profitability and drove a 56.6% effective tax rate.

Management guided to higher 2007 R&D and SG&A spending, driven by the TYSABRI launch and business development. Key risks include ongoing litigation (TYSABRI securities class action, SEC investigation, DOJ probe of Genentech's RITUXAN promotion, False Claims Act suit, Medicaid pricing suits from multiple states), the RITUXAN change-of-control arbitration with Genentech, a Massachusetts tax assessment of $38.9 million^d, and the Hillerod, Denmark manufacturing investment, which totals roughly $500 million including the approved second phase. Balance-sheet strength and cash generation ($841 million operating cash flow) provide flexibility, but investors should weigh the single-product concentration and litigation exposure.

02—Key points

Key Highlights

Revenue grew 10.7% to $2.68 billion in 2006, with AVONEX at $1.71 billion (up 10.6%) and RITUXAN U.S. copromotion profits of $556 million (up 8.2%).
Net income rose to $217.5 million ($0.63 diluted EPS) from $160.7 million, despite a $330.5 million IPR&D charge tied to the Fumapharm and Conforma acquisitions.
AVONEX and RITUXAN together accounted for about 94% of 2006 revenues, underscoring a high concentration risk.
TYSABRI returned to market in the U.S. and EU in 2006, generating $35.8 million in its first partial year of sales after the 2005 PML-related suspension.
Cash, cash equivalents and marketable securities totaled $2.31 billion at year-end, and operating cash flow was $841 million.
Material legal exposure includes the TYSABRI securities class action, an SEC investigation, a DOJ probe involving Genentech's RITUXAN promotion, Medicaid pricing suits, and a Genentech change-of-control arbitration.
Effective tax rate rose to 56.6% (from 37.3%), driven primarily by non-deductible IPR&D; a $38.9 million Massachusetts tax assessment is under dispute.

03—Questions

Frequently Asked Questions

How dependent is Biogen Idec on its key products?
Very dependent. AVONEX and RITUXAN made up roughly 94% of 2006 total revenues. Management expects to remain substantially dependent on these two products for many years, so any safety, efficacy, competitive, or regulatory setback for either would materially affect results.
What happened with TYSABRI, and how is it performing?
TYSABRI was voluntarily withdrawn in February 2005 after PML cases. The FDA approved its reintroduction for relapsing MS in June 2006, and the EMEA approved it in June 2006. Shipments began in July 2006, producing $35.8 million in 2006 sales. The launch is under a risk-minimization program (TOUCH), and the company faces PML-related safety and adoption risks. Crohn's disease filings are pending with regulators.
Why was net income depressed relative to operating performance in 2006?
The $330.5 million charge for acquired in-process R&D (Fumapharm $207.4 million, Conforma $123.1 million) is expensed immediately and is non-deductible for tax. Together with a 56.6% effective tax rate, this compressed earnings even as revenues grew.
What are the most significant legal and regulatory risks?
Key matters include a securities class action over TYSABRI disclosures, an SEC investigation of the TYSABRI suspension, a DOJ investigation of Genentech's RITUXAN promotion, a False Claims Act suit alleging off-label promotion of RITUXAN, multistate Medicaid pricing lawsuits, a wrongful-death suit over ZEVALIN, and an arbitration with Genentech over change-of-control rights. The company says it cannot estimate potential losses for most of these.
What are the company's 2007 expectations and capital commitments?
Management expects higher R&D and SG&A expenses in 2007, mainly from the TYSABRI launch and business development, and plans to commit significant capital to external opportunities. It has approved a second phase of the Hillerod, Denmark manufacturing facility at an additional cost of about $225 million, on top of about $275 million already paid, and has a new $20 million share repurchase authorization.

04—Continue

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