01—Abstract
Summary
Summary of the 10-K filed February 6, 2014. Cited figures are marked; the original filing is the authoritative source.
Biogen Idec (BIIB) closed 2013 with a sharply stronger top line and earnings, driven primarily by the April 2013 acquisition of full ownership of TYSABRI from Elan for a $3.25 billiona upfront payment.
Total revenues rose 25.7% to $6,932.2 millionb, net income attributable to Biogen Idec rose 34.9% to $1,862.3 million, and diluted EPS reached $7.81 versus $5.76 in 2012. Product revenues grew 33.0% to $5,542.3 million, with U.S. TYSABRI now recognized at 100% and TECFIDERA contributing $876.1 million in its first year on the market. Note that Biogen's reported figures include a one-time items: a $38.5 million net tax benefit and a $49.8 million uncertain-tax-position benefit, offset by the $75.0 million Isis upfront charge and a $27.2 million Weston facility exit charge.
The growth picture is more mixed beneath the headline. AVONEX grew only 3.2% to $3,005.5 millionc, with U.S. unit volume down 8% as patients transitioned to TECFIDERA, and rest-of-world pricing pressured by European austerity measures. Cost and expense growth outpaced revenue in several lines: total cost and expenses rose 19.8%, SG&A rose 34.0% on TECFIDERA and hemophilia launch preparation, and amortization of acquired intangibles jumped 69.6% to $342.9 million, with schedules implying $426.3 million in 2014.
Cash, cash equivalents and marketable securities fell to $1,848.5 milliond from $3,742.4 million after the TYSABRI purchase, the repayment of $450 million of 6.0% Senior Notes, and $400.3 million in share repurchases, although operating cash flow was a strong $2,345.1 million. Looking ahead, the key investor questions concern TECFIDERA's commercial trajectory in the U.S. and E.U.
(with about $134.0 million of U.S. revenue still in channel inventory at year-end), the pending FDA decisions on ELOCTATE and ALPROLIX after three-month PDUFA extensions, the PLEGRIDY regulatory reviews, and the expected drop in ANGIOMAX royalties when its U.S. patent expires on December 15, 2014. Exposure to European receivables in Spain, Italy and Portugal, the TYSABRI PML label risk, and an estimated $900 million to $1 billion residual U.S. tax on repatriation are additional considerations.
02—Key points
Key Highlights
- Total revenues rose 25.7% to $6.93 billion, with product revenues up 33.0% to $5.54 billion, driven by TYSABRI (+34.4% to $1.53 billion) and the TECFIDERA launch ($876.1 million).
- Net income attributable to Biogen Idec increased 34.9% to $1.86 billion, and diluted EPS rose 35.8% to $7.81, aided by lower share count and a 24.2% effective tax rate.
- TYSABRI acquisition from Elan for a $3.25 billion upfront payment (April 2, 2013) gives full U.S. economics, though it drained cash and created about $3.2 billion of intangible assets amortized over roughly 17 years.
- AVONEX growth slowed to 3.2% ($3.01 billion), with U.S. unit volume down 8% as patients switched to TECFIDERA, while rest-of-world pricing faced austerity pressure.
- Operating costs grew faster than revenue: total cost and expenses rose 19.8%, SG&A rose 34.0% to $1.71 billion, and amortization of intangibles rose 69.6% to $342.9 million.
- Liquidity declined: cash and marketable securities fell 50.6% to $1.85 billion, though operating cash flow of $2.35 billion and $595.9 million of total borrowings remain manageable.
- Pipeline catalysts include FDA decisions on ELOCTATE and ALPROLIX (both extended by three months), the PLEGRIDY BLA and EMA review, and expected ANGIOMAX royalty declines after December 2014 patent expiry.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Biogen Inc. kept $0.27.
- Revenue$6.93B100.0%
- Cost of revenue−$857.7M12.4%
- Gross profit$6.07B87.6%
- Operating costs−$3.56B51.3%
- Operating income$2.52B36.3%
- Interest, other & tax−$653.2M9.4%
- Net income$1.86B26.9%
Where FY2013 revenue went
$6.93B- Net income: $1.86B, 27% of revenue
- Other operating costs: $1.85B, 27% of revenue
- SG&A: $1.71B, 25% of revenue
- Cost of revenue: $857.7M, 12% of revenue
- Interest, other & tax: $653.2M, 9.4% of revenue
Kept 27% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 6, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $6.93B$5.52B | +25.7% |
| Cost of Revenue | $857.70M$545.49M | +57.2% |
| Gross Profit | $6.07B$4.97B | +22.2% |
| SG&A Expenses | $1.71B$1.28B | +34.0% |
| Operating Expenses | $4.44B$3.71B | +19.8% |
| Operating Income | $2.52B$1.86B | +35.5% |
| Interest Expense | $31.90M$36.50M | −12.6% |
| Net Income | $1.86B$1.38B | +34.9% |
| EPS (Basic) | $7.86$5.80 | +35.5% |
| EPS (Diluted) | $7.81$5.76 | +35.6% |
| Shares Outstanding (Basic) | 236.90M237.94M | −0.4% |
| Shares Outstanding (Diluted) | 238.30M239.74M | −0.6% |
05—Questions
Frequently Asked Questions
How much did TECFIDERA contribute to 2013 results, and how much of that is sustainable?
TECFIDERA generated $876.1 million in 2013 product revenue, of which $864.4 million was U.S. and $11.7 million was rest of world. Approximately $134.0 million of U.S. revenue represents inventory in the distribution channel at year-end, so underlying end-demand is lower than the reported figure. Management noted that about 70% of new U.S. patients switched from another MS therapy, including AVONEX and TYSABRI, which means part of TECFIDERA's growth comes at the expense of Biogen's own products. The E.U. approval in February 2014 adds a new growth driver, but the filing states that limited history makes future trends difficult to forecast.
Why did reported 2013 results jump so much, and what one-time items affected them?
The biggest driver was consolidating 100% of U.S. TYSABRI revenue after the April 2013 Elan transaction, which replaced the prior profit-sharing arrangement and shifted revenue and cost of sales onto Biogen's income statement. Several items cut in both directions: a $49.8 million income tax benefit from updated IRS guidance and a $38.5 million benefit for 2005 to 2012 tax items, versus a $75.0 million Isis upfront charge in Q3 2013, a $27.2 million charge for exiting part of the Weston facility, and a $49.7 million reduction in unconsolidated joint business revenue from the Hoechst arbitration award. Investors should examine underlying growth excluding these items.
What risks does the ANGIOMAX royalty stream and the Genentech collaboration pose to future earnings?
ANGIOMAX royalty revenue, which rose to $185.7 million in other revenues in 2013, is expected to fall significantly after the U.S. patent covering ANGIOMAX expires on December 15, 2014. Separately, the RITUXAN and GAZYVA collaboration with Genentech makes up roughly 16% of total revenues and depends on Genentech's and Roche's commercial efforts. Under the amended agreement, Biogen's share of co-promotion profits drops as GAZYVA reaches certain U.S. sales thresholds, and the Hoechst award shows that partner-level legal outcomes can flow through to Biogen's reported revenue.
What is the outlook for hemophilia and MS pipeline products, and what could delay approvals?
Biogen has BLAs under FDA review for ELOCTATE (hemophilia A) and ALPROLIX (hemophilia B), with PDUFA dates extended by three months after requests for additional manufacturing validation information. PLEGRIDY, a peginterferon for relapsing MS, is under standard FDA review and EMA review following a Q2 2013 submission. Risks include additional manufacturing questions, the need for positive pediatric data to support EMA filings, and competition, including the possibility that competitors obtain orphan approvals first. Management also noted that the MS market is becoming more crowded, including with LEMTRADA's E.U. approval.
What are the main balance sheet and legal exposures investors should watch?
Cash, cash equivalents and marketable securities totaled $1.85 billion at year-end, while total borrowings were $595.9 million, mainly the 6.875% Senior Notes due 2018. Biogen's undistributed foreign earnings of about $3.8 billion carry an estimated residual U.S. tax liability of $900 million to $1 billion if repatriated. Accounts receivable in Spain, Italy and Portugal totaled $217.2 million, with $45.9 million overdue more than one year. Legal exposures include the AIFA settlement in Italy (about EUR33.3 million), a pending Massachusetts DOR matter now settled, a Medicaid AMP false claims suit with trial set for December 2014, a government review of sales practices, and the '755 patent litigation covering AVONEX and PLEGRIDY.
06—Continue