01—Abstract
Summary
Summary of the 10-K filed February 2, 2017. Cited figures are marked; the original filing is the authoritative source.
Biogen's 2016 Form 10-K shows a strong year financially: total revenues rose 6.4% to $11.45 billiona, diluted EPS grew 10.4% to $16.93, and net income attributable to Biogen was $3.70 billion.
Product revenues reached $9.82 billionb, led by TECFIDERA (+9.1% to $3.97 billion). Results were partly offset by a $454.8 million pre-tax charge tied to the January 2017 $1.25 billion settlement and license agreement with Forward Pharma, a $454.8 million TECFIDERA litigation charge, and rising interest expense following the 2015 $6.0 billion senior notes issuance. Operating cash flow was $4.5 billion, and cash, equivalents and marketable securities totaled $7.7 billion against roughly $6.5 billion of debt.
The filing is dominated by portfolio transition. Biogen completed the spin-off of its hemophilia business, Bioverativ (BIVV), on February 1, 2017, with shareholders receiving one Bioverativ share for every two Biogen shares. Going forward, Biogen's revenue will be more concentrated in MS (TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, ZINBRYTA) and SPINRAZA, which launched in the U.S. in December 2016.
Management also ceased manufacturing at its Cambridge, MA facility, a move that added accelerated depreciation and restructuring costs in 2016. Key pipeline items include aducanumab for Alzheimer's disease, now in Phase 3 with Fast Track designation, and several neurology and autoimmune programs.
Investors should weigh the MS franchise's competitive exposure, including the anticipated erosion of AVONEX and rising competition from OCREVUS and oral therapies, against the company's cash generation and capital return program, which included $1.0 billionc of share repurchases in 2016 under a $5.0 billion authorization. Pricing pressure in the U.S. and Europe, the Forward Pharma and Italian AIFA matters, and the success of the late-stage pipeline remain the main risks.
02—Key points
Key Highlights
- Total revenues rose 6.4% to $11.45 billion in 2016, and diluted EPS increased 10.4% to $16.93.
- TECFIDERA was the largest product at $3.97 billion (+9.1%), and total product revenues grew 6.8% to $9.82 billion.
- A $454.8 million pre-tax charge was recognized for the $1.25 billion Forward Pharma settlement and license agreement, which resolves the German TECFIDERA patent litigation.
- The hemophilia spin-off of Bioverativ was completed February 1, 2017, removing ELOCTATE and ALPROLIX revenue from future consolidated results.
- Operating cash flow was $4.5 billion, with $1.0 billion in share repurchases and $7.7 billion in cash and marketable securities at year-end.
- SPINRAZA received FDA approval in December 2016 for SMA and came with a rare pediatric disease priority review voucher.
- Management ceased manufacturing at the Cambridge, MA facility, incurring $45.5 million of accelerated depreciation and related restructuring charges.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Biogen Inc. kept $0.32.
- Revenue$11.45B100.0%
- Cost of revenue−$1.48B12.9%
- Gross profit$9.97B87.1%
- Operating costs−$4.82B42.1%
- Operating income$5.15B45.0%
- Interest, other & tax−$1.45B12.7%
- Net income$3.70B32.3%
Where FY2016 revenue went
$11.45B- Net income: $3.70B, 32% of revenue
- Other operating costs: $2.87B, 25% of revenue
- SG&A: $1.95B, 17% of revenue
- Cost of revenue: $1.48B, 13% of revenue
- Interest, other & tax: $1.45B, 13% of revenue
Kept 32% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 2, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $11.45B$10.76B | +6.4% |
| Cost of Revenue | $1.48B$1.24B | +19.2% |
| Gross Profit | $9.97B$9.52B | +4.7% |
| SG&A Expenses | $1.95B$2.11B | −7.9% |
| Operating Expenses | $6.30B$5.87B | +7.2% |
| Operating Income | $5.15B$4.89B | +5.3% |
| Interest Expense | $260.00M$95.50M | +172.3% |
| Net Income | $3.70B$3.55B | +4.4% |
| EPS (Basic) | $16.96$15.38 | +10.3% |
| EPS (Diluted) | $16.93$15.34 | +10.4% |
| Shares Outstanding (Basic) | 218.40M230.70M | −5.3% |
| Shares Outstanding (Diluted) | 218.80M231.20M | −5.4% |
05—Questions
Frequently Asked Questions
How did the Bioverativ spin-off change Biogen's business?
On February 1, 2017, Biogen distributed Bioverativ shares to its stockholders at a ratio of one Bioverativ share for every two Biogen shares. Bioverativ now holds the hemophilia franchise (ELOCTATE and ALPROLIX), so Biogen's future results will exclude those revenues. This leaves Biogen more concentrated in MS and SPINRAZA.
What is the financial impact of the Forward Pharma settlement?
Biogen agreed to pay Forward Pharma $1.25 billion in cash for an irrevocable license and the termination of the German infringement litigation. In Q4 2016 it recorded a $454.8 million pre-tax charge, representing the estimated fair value of royalties on TECFIDERA sales from April 2014 through December 2016. Biogen expects to recognize $656.3 million and $138.9 million of license assets for the U.S. and E.U., subject to the outcome of pending patent proceedings.
What are the main risks to Biogen's MS franchise?
The filing cites intense competition from oral therapies, OCREVUS (Genentech/Roche), and generic or biosimilar entrants. Interferon revenues fell 5.8% in 2016 as patients moved to TECFIDERA, and management expects continued declines. Pricing reductions in Europe and U.S. pricing pressure are also key risks, along with the potential loss of patent exclusivity for TYSABRI and AVONEX.
What are Biogen's major pipeline catalysts?
Aducanumab for early Alzheimer's disease is in two global Phase 3 studies (ENGAGE and EMERGE) with about 2,700 patients and has received Fast Track designation and PRIME acceptance. SPINRAZA is launching in the U.S. after approval. The company is also developing OCREVUS-related programs through Genentech, BAN2401 and E2609 with Eisai, and BIIB074 for trigeminal neuralgia. Pipeline outcomes are uncertain, as shown by the opicinumab Phase 2 miss.
How is Biogen returning capital to shareholders?
In July 2016 the board authorized a $5.0 billion share repurchase program with no expiration date. Biogen repurchased 3.3 million shares for $1.0 billion in 2016, with $4.0 billion remaining at year-end. The company has not paid cash dividends since inception and says it continually reviews capital allocation, including potential dividends.
06—Continue