01—Abstract
Summary
Summary of the 10-K filed February 5, 2013. Cited figures are marked; the original filing is the authoritative source.
Biogen Idec (BIIB) closed fiscal 2012 with record results driven by its three core products: AVONEX, TYSABRI and RITUXAN.
Total revenues rose 9.3% to $5,516.5 milliona, income from operations increased 7.6% to $1,855.8 million, and diluted EPS grew 14.3% to $5.76 (net income attributable to Biogen Idec of $1,380.0 million). Growth was led by AVONEX ($2,913.1 million, up 8.4%), TYSABRI ($1,135.9 million, up 5.2%) and RITUXAN unconsolidated joint business revenue ($1,137.9 million, up 14.2%). Total cost and expenses rose 11.5%, largely from higher SG&A (up 21%) and R&D (up 9.5%) as the company prepares for launches of TECFIDERA, long-lasting Factor VIII and Factor IX, and continues investing in FAMPYRA commercialization.
The company's pipeline and regulatory outlook is central to the investment case. TECFIDERA's FDA PDUFA date was extended to late March 2013 and it has an EMA application under review; the U.S. launch is expected in Q2 2013. Factor IX has a BLA under review and Factor VIII is expected to be filed in 1H 2013.
Peginterferon beta-1a met its Phase 3 ADVANCE endpoints, with filings planned by mid-2013. Setbacks included the failure of dexpramipexole in ALS, which was discontinued at year-end 2012. Biogen also faces ongoing risks: heavy dependence on three products, PML-related label pressure on TYSABRI, European austerity and slow collections in Italy, Spain and Portugal, a pending Hoechst arbitration affecting RITUXAN, and an IRS proposed disallowance of about $130 millionb.
Capital allocation remained shareholder-friendly, with $984.7 millionc in share repurchases in 2012 and about $1.9 billion in operating cash flow. Cash, equivalents and marketable securities reached $3.74 billion, against $1.14 billion in borrowings, including $450 million of 6.0% senior notes due March 2013 that will need to be refinanced or repaid. Management expects revenue headwinds from European pricing measures of roughly $45–60 million in 2013.
02—Key points
Key Highlights
- Total revenues grew 9.3% to $5.52 billion, and diluted EPS rose 14.3% to $5.76, supported by AVONEX (+8.4%), TYSABRI (+5.2%) and RITUXAN joint business revenue (+14.2%).
- Operating cash flow was $1.88 billion, and the company returned capital through $984.7 million of share repurchases, with about 6.2 million shares left under the 2011 authorization.
- Cash, cash equivalents and marketable securities totaled $3.74 billion against $1.14 billion of total borrowings, including $450 million of 6.0% notes due March 1, 2013.
- TECFIDERA (oral MS therapy) has its FDA decision expected in late March 2013 after a standard three-month PDUFA extension, with a U.S. launch targeted for Q2 2013.
- Long-lasting Factor IX has a U.S. BLA under review, and Factor VIII is expected to be filed in 1H 2013; both drive planned hemophilia commercialization spending.
- Dexpramipexole failed its Phase 3 ALS trial and was discontinued, while Peginterferon beta-1a met its Phase 3 ADVANCE endpoints with filings planned by mid-2013.
- Key risks include dependence on three products, TYSABRI PML label risk, European austerity and collection delays in Italy, Spain and Portugal, and the Hoechst arbitration affecting RITUXAN.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Biogen Inc. kept $0.25.
- Revenue$5.52B100.0%
- Cost of revenue−$545.5M9.9%
- Gross profit$4.97B90.1%
- Operating costs−$3.12B56.5%
- Operating income$1.86B33.6%
- Interest, other & tax−$475.8M8.6%
- Net income$1.38B25.0%
Where FY2012 revenue went
$5.52B- Net income: $1.38B, 25% of revenue
- R&D: $1.33B, 24% of revenue
- SG&A: $1.28B, 23% of revenue
- Cost of revenue: $545.5M, 9.9% of revenue
- Other operating costs: $502.7M, 9.1% of revenue
- Interest, other & tax: $475.8M, 8.6% of revenue
Kept 25% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 5, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $5.52B$5.05B | +9.3% |
| Cost of Revenue | $545.49M$466.78M | +16.9% |
| Gross Profit | $4.97B$4.58B | +8.5% |
| R&D Expenses | $1.33B$1.22B | +9.5% |
| SG&A Expenses | $1.28B$1.06B | +21.0% |
| Operating Expenses | $3.71B$3.32B | +11.5% |
| Operating Income | $1.86B$1.72B | +7.6% |
| Interest Expense | $36.50M$33.00M | +10.6% |
| Net Income | $1.38B$1.23B | +11.8% |
| EPS (Basic) | $5.80$5.09 | +13.9% |
| EPS (Diluted) | $5.76$5.04 | +14.3% |
| Shares Outstanding (Basic) | 237.94M242.40M | −1.8% |
| Shares Outstanding (Diluted) | 239.74M245.03M | −2.2% |
05—Questions
Frequently Asked Questions
How much did Biogen's core products contribute to 2012 growth, and how sustainable is it?
AVONEX revenue reached $2.91 billion (up 8.4%), driven by U.S. pricing and European penetration from the AVONEX PEN launch, while U.S. unit volume declined about 2%. TYSABRI grew 5.2% to $1.14 billion, with U.S. volume up about 11%, but rest-of-world revenue was flat due to an Italian revenue deferral of $62.7 million and austerity pricing. RITUXAN joint business revenue rose 14.2% to $1.14 billion on U.S. pricing and demand. Growth depends heavily on continued MS demand and competitive pressure from oral MS therapies, including Biogen's own TECFIDERA.
What are the near-term catalysts investors should watch in 2013?
The main catalysts are the FDA decision on TECFIDERA in late March 2013 and its planned U.S. launch in Q2 2013, the EMA review of TECFIDERA, the Factor IX BLA decision, the Factor VIII BLA filing in 1H 2013, and Peginterferon filings in the U.S. and EU by mid-2013. Also watch the TYSABRI first-line label expansion application filed in January 2013 and the Massachusetts tax appeal hearing scheduled for April 2013.
Is Biogen's balance sheet able to support its capital returns and debt maturities?
Yes, the company has $3.74 billion in cash and marketable securities and generated $1.88 billion in operating cash flow in 2012. Total borrowings were $1.14 billion, but $450 million of 6.0% notes mature March 1, 2013, which will be a near-term cash use. The company stated it expects existing funds and operating cash flow to cover its requirements. Share repurchases of $984.7 million in 2012 were funded from cash flow, and $1.4 billion of cash is held in foreign subsidiaries, with U.S. repatriation carrying an estimated $800–900 million tax cost.
What are the biggest risks to the earnings outlook?
Key risks include concentration in three products that represent substantially all revenue, PML-related restrictions or label changes for TYSABRI, pricing pressure and slow collections in Europe (approximately 39% of product revenue, with Italy, Spain and Portugal most exposed), an adverse outcome in the Hoechst arbitration (Genentech estimates about $125 million in damages, with Biogen's share around $50 million already recorded), a possible generic or biosimilar challenge, and an IRS proposed disallowance of about $130 million in Danish-related deductions. Management also flagged possible U.S. tax reform affecting unrepatriated earnings.
Why did operating expenses rise so sharply in 2012, and when should margins improve?
Total cost and expenses rose 11.5%, with SG&A up 21% to $1.28 billion and R&D up 9.5% to $1.33 billion. The increases reflect pre-launch commercial investments for TECFIDERA, Factor VIII and Factor IX, FAMPYRA sales and promotion, and early-stage pipeline programs, plus $71 million of Isis upfront payments. Cost of sales also rose 16.9% on higher volumes and AVONEX PEN costs. Margin relief is likely to depend on successful launches; until then, spending is expected to remain elevated, which is worth watching against the 2013 launch timeline.
06—Continue