01—Abstract
Summary
Summary of the 10-K filed February 3, 2016. Cited figures are marked; the original filing is the authoritative source.
Biogen's fiscal 2015 10-K shows a company at a major inflection point.
Total revenues rose 10.9% to $10,763.8 milliona and diluted EPS increased 24.0% to $15.34, driven by TECFIDERA (up 25.1% to $3,638.4 million), new hemophilia launches (ELOCTATE and ALPROLIX, together about $554 million), and a 12.0% rise in the company's share of RITUXAN and GAZYVA U.S. profits. Income from operations reached $4,891.0 million. Partially offsetting this, AVONEX fell with unit volume down 17% in the U.S., TYSABRI revenue declined, and foreign currency losses of about $388 million reduced product revenue.
Cash flow from operations was $3,716.1 millionb, and cash, equivalents and marketable securities reached $6,188.9 million after the $6.0 billion senior notes issuance. Capital allocation was aggressive in 2015. Biogen repurchased and retired about 16.8 million shares for $5.0 billion under its share repurchase program, funded partly by the $6.0 billion September 2015 debt offering.
Total borrowings rose from $583.4 million to $6,526.3 millionc, and shareholders' equity fell to $9,372.8 million from $10,809.0 million. The company also paid $850.0 million in Fumapharm contingent payments and acquired Convergence Pharmaceuticals, while a restructuring (October 2015) with an 11% workforce reduction and pipeline terminations is expected to cut annual operating costs by about $250 million. The key risks for investors are concentration and pipeline setbacks.
TECFIDERA is increasingly important, the MS market is crowded, and TYSABRI's SPMS Phase 3 study (ASCEND) failed in October 2015, causing that development to be discontinued. Patent challenges to TECFIDERA (Forward Pharma litigation and inter partes review) and a securities class action are pending, and several government investigations into sales practices are ongoing. The company's growth now depends on aducanumab for Alzheimer's disease (Phase 3 ENGAGE and EMERGE underway), nusinersen for SMA, ocrelizumab royalties via Genentech, and biosimilars through Samsung Bioepis.
02—Key points
Key Highlights
- Total revenues grew 10.9% to $10.76 billion, and diluted EPS rose 24.0% to $15.34, with net income attributable to Biogen of $3.55 billion.
- TECFIDERA product revenue reached $3.64 billion (+25.1%), and combined hemophilia launches ELOCTATE and ALPROLIX generated roughly $554 million in 2015.
- AVONEX U.S. unit volume fell 17% as patients moved to PLEGRIDY and oral therapies, and TYSABRI revenue declined 3.7% after the ASCEND SPMS trial failed.
- Returned $5.0 billion to shareholders via the 2015 share repurchase program, funded by a $6.0 billion senior unsecured notes offering; total borrowings rose to $6.53 billion.
- October 2015 restructuring with an 11% workforce reduction and pipeline terminations, with about $250 million of expected annual run-rate savings and a $93.4 million Q4 charge.
- Foreign currency losses of $388.1 million hit product revenue in 2015, partially offset by $166.3 million in hedging gains.
- Pipeline catalysts include aducanumab Phase 3 trials (ENGAGE and EMERGE, about 2,700 patients), nusinersen Phase 3 studies, and ocrelizumab, which Genentech is developing and which would pay Biogen tiered royalties.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Biogen Inc. kept $0.33.
- Revenue$10.76B100.0%
- Cost of revenue−$1.24B11.5%
- Gross profit$9.52B88.5%
- Operating costs−$4.63B43.0%
- Operating income$4.89B45.4%
- Interest, other & tax−$1.34B12.5%
- Net income$3.55B33.0%
Where FY2015 revenue went
$10.76B- Net income: $3.55B, 33% of revenue
- Other operating costs: $2.52B, 23% of revenue
- SG&A: $2.11B, 20% of revenue
- Interest, other & tax: $1.34B, 12% of revenue
- Cost of revenue: $1.24B, 12% of revenue
Kept 33% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 3, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $10.76B$9.70B | +10.9% |
| Cost of Revenue | $1.24B$1.17B | +5.9% |
| Gross Profit | $9.52B$8.53B | +11.6% |
| SG&A Expenses | $2.11B$2.23B | −5.3% |
| Operating Expenses | $5.87B$5.75B | +2.2% |
| Operating Income | $4.89B$3.97B | +23.1% |
| Interest Expense | $95.50M$29.50M | +223.7% |
| Net Income | $3.55B$2.93B | +20.9% |
| EPS (Basic) | $15.38$12.42 | +23.8% |
| EPS (Diluted) | $15.34$12.37 | +24.0% |
| Shares Outstanding (Basic) | 230.70M236.40M | −2.4% |
| Shares Outstanding (Diluted) | 231.20M237.20M | −2.5% |
05—Questions
Frequently Asked Questions
Why did Biogen take on $6 billion in debt while repurchasing $5 billion in stock?
The company issued $6.0 billion of senior unsecured notes in September 2015 and used a portion of the proceeds to fund the $5.0 billion repurchase of about 16.8 million shares. Management also cited the ability to fund strategic business development and milestone obligations. Total borrowings increased to $6.53 billion from $583 million, and the 2015 Senior Notes add to interest expense, which rose to $95.5 million.
How exposed is Biogen to TECFIDERA and multiple sclerosis competition?
Heavily. TECFIDERA is the largest product and its sales are growing, but the MS market is intensely competitive, with competing products from Teva, Novartis, Sanofi and Merck KGaA, plus upcoming ocrelizumab and ZINBRYTA. The company also expects AVONEX revenue to keep declining as patients switch to PLEGRIDY and oral therapies, and it faces generic and biosimilar risk and patent challenges to TECFIDERA, including the Forward Pharma litigation and an inter partes review petition.
What happened to TYSABRI and how does it affect the outlook?
TYSABRI's Phase 2 ACTION trial in acute ischemic stroke missed its primary endpoint in July 2015, and the Phase 3 ASCEND trial in secondary progressive MS failed in October 2015, leading the company to discontinue development in SPMS. U.S. TYSABRI revenue still rose 4% in volume in 2015, but rest-of-world revenue fell on European price reductions, and TYSABRI faces competition from ZINBRYTA and ocrelizumab.
What are the main near-term growth drivers beyond the current MS franchise?
Hemophilia products (ELOCTATE and ALPROLIX) are ramping, with the company expecting continued ELOCTATE growth. Pipeline programs include aducanumab for Alzheimer's (Phase 3 started September 2015), nusinersen for spinal muscular atrophy, and amiselimod for autoimmune indications. Biosimilars through Samsung Bioepis (BENEPALI approved in the E.U. in January 2016) and royalties from Genentech's ocrelizumab are additional drivers. Investors should note that much of this pipeline is still in clinical development and carries significant execution risk.
What legal and regulatory risks should investors monitor?
Several matters are pending: a securities class action filed in August 2015, a qui tam False Claims Act suit unsealed in July 2015, government investigations into sales and promotional practices, the Forward Pharma patent interference and German litigation over TECFIDERA, a Danish tax assessment of about $60.9 million, and an IRS proposed disallowance of about $130 million. Italian pricing disputes over TYSABRI also remain unresolved. The company states it cannot estimate possible losses for several of these matters.
06—Continue