01—Abstract
Summary
Summary of the 10-K filed February 14, 2008. Cited figures are marked; the original filing is the authoritative source.
Biogen Idec's 2007 10-K shows a year of strong top-line growth and a transformative, debt-funded capital return.
Total revenues rose 18% to $3,171.6 million and net income climbed to $638.2 milliona, or $1.99 diluted EPS, versus $217.5 million ($0.63) in 2006 (which included a $330.5 million IPR&D charge). Growth was driven by AVONEX ($1,867.8 million, up 9%), TYSABRI's relaunch ($229.9 million, up from $35.8 million), and RITUXAN copromotion and royalty income from Genentech ($926.1 million, up 14%). Operating margins improved, though R&D rose 29% to $925.2 million to fund a broad late-stage pipeline.
The defining event of the year was a July 2007 Dutch Auction tender offer that repurchased 56.4 million shares at $53.00b for $2,990.5 million. It was funded with $1,490.5 million of cash and a $1,500.0 million 364-day term loan due June 2008. As a result, shareholders' equity fell to $5,534.3 million from $7,149.8 million, working capital dropped to $179.2 million from $1,129.7 million, and $1,511.1 million of debt is current.
Management plans to refinance this with long-term debt in 2008, so refinancing execution is a key near-term watch item. Cash and marketable securities declined to $2,115.8 millionc. Investors should weigh several risks.
AVONEX and RITUXAN account for about 88%d of revenue, TYSABRI carries PML safety risk and is limited to a restricted distribution program, and an activist proxy threat from Icahn Partners emerged in January 2008. Management also disclosed that a strategic review concluded in December 2007 with no definitive acquisition offers.
Litigation exposure includes a securities class action on appeal, DOJ-related investigations involving Genentech, a qui tam False Claims Act case, and a Genentech arbitration over a change-of-control claim. The company also has about $300 million invested in the Hillerod, Denmark facility, with a potential impairment risk if TYSABRI demand does not materialize.
02—Key points
Key Highlights
- Total revenue grew 18% to $3,171.6 million in 2007, led by AVONEX ($1,867.8 million, +9%) and TYSABRI ($229.9 million, up from $35.8 million).
- Net income rose to $638.2 million ($1.99 diluted EPS) from $217.5 million ($0.63) in 2006, which was depressed by a $330.5 million IPR&D charge.
- A $2,990.5 million tender offer repurchased 56.4 million shares at $53.00, funded by $1,490.5 million of cash and a $1,500.0 million short-term term loan due June 2008.
- Shareholders' equity fell to $5,534.3 million from $7,149.8 million, and working capital fell to $179.2 million from $1,129.7 million, with $1,511.1 million of debt classified as current.
- AVONEX and RITUXAN represent about 88% of total revenue, creating high concentration risk; RITUXAN revenue from the Genentech collaboration totaled $926.1 million across copromotion profits, reimbursements, and royalties.
- R&D spending rose 29% to $925.2 million, reflecting late-stage programs including BG-12 (Phase 3), ocrelizumab, galiximab, and lixivaptan, and TYSABRI received FDA approval for Crohn's disease in January 2008.
- Risks include an Icahn Partners proxy nomination, the TYSABRI PML safety profile, a securities class action on appeal, DOJ investigations involving Genentech, and a Genentech arbitration over change of control.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, Biogen Inc. kept $0.20.
- Revenue$3.17B100.0%
- Cost of revenue−$335.2M10.6%
- Gross profit$2.84B89.4%
- Operating costs−$2.06B64.8%
- Operating income$779.8M24.6%
- Interest, other & tax−$141.6M4.5%
- Net income$638.2M20.1%
Where FY2007 revenue went
$3.17B- R&D: $925.2M, 29% of revenue
- SG&A: $776.1M, 24% of revenue
- Net income: $638.2M, 20% of revenue
- Cost of revenue: $335.2M, 11% of revenue
- Other operating costs: $355.4M, 11% of revenue
- Interest, other & tax: $141.6M, 4.5% of revenue
Kept 20% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 14, 2008Financial Statements
| Revenue | $3.17B |
| Cost of Revenue | $335.19M |
| Gross Profit | $2.84B |
| R&D Expenses | $925.16M |
| SG&A Expenses | $776.10M |
| Operating Expenses | $2.39B |
| Operating Income | $779.77M |
| Net Income | $638.17M |
| EPS (Basic) | $2.02 |
| EPS (Diluted) | $1.99 |
| Shares Outstanding (Basic) | 315.84M |
| Shares Outstanding (Diluted) | 320.17M |
05—Questions
Frequently Asked Questions
Why did shareholders' equity and working capital drop so sharply in 2007?
The company repurchased 56.4 million shares in a July 2007 tender offer for $2,990.5 million. It funded the deal with $1,490.5 million of existing cash and a $1,500.0 million term loan. The repurchased shares were retired, which reduced equity, and the loan is current, which reduced working capital to $179.2 million from $1,129.7 million.
How will Biogen Idec repay the $1.5 billion term loan due in June 2008?
Management expects to repay the term loan in 2008 by issuing long-term debt securities. The 10-K states that the company believes existing cash, operating cash flow, and liquidation of marketable securities will fund operations, but the refinancing itself is not yet completed as of the filing date.
What is the main growth driver going forward, and what are the risks?
TYSABRI is the near-term growth driver, with 2007 sales of $229.9 million after a 2005 suspension due to PML cases. Growth depends on physician and patient acceptance under a restricted distribution program, and on competition from new MS therapies. Long term, growth depends on successful pipeline development and the Hillerod manufacturing facility, which the company expects to enter commercial production in 2009.
What legal and governance risks should investors be aware of?
Key items include a securities class action over TYSABRI safety disclosures, now on appeal; a DOJ investigation of Genentech over RITUXAN promotion; a qui tam False Claims Act suit; a Massachusetts $38.9 million tax assessment; and a Genentech arbitration asserting a change-of-control right. Icahn Partners has also nominated three directors for the 2008 annual meeting. The company says it believes it has good defenses but cannot predict outcomes or potential losses.
06—Continue