01—Abstract
Summary
Summary of the 10-K filed February 1, 2018. Cited figures are marked; the original filing is the authoritative source.
Biogen's 2017 10-K shows a company whose core earnings remained strong but whose reported profitability was sharply reduced by one-time items.
Total revenues rose 7.2% to $12.27 billiona, led by product revenues of $10.35 billion (up 5.5%), with SPINRAZA ($884 million), TECFIDERA ($4.21 billion) and BENEPALI ($371 million) driving growth, partially offset by the February 2017 spin-off of the hemophilia business (Bioverativ), declining Interferon sales, and the loss of hemophilia revenues. Anti-CD20 program revenues grew 18.6% to $1.56 billion on OCREVUS royalties and higher RITUXAN profit share. Net income attributable to Biogen fell to $2.54 billion from $3.70 billion, and diluted EPS fell 29.6% to $11.92.
The decline was driven primarily by a $1.17 billionb charge for the 2017 Tax Act (including a $989.6 million Transition Toll Tax payable over eight years), $444.2 million of Forward Pharma TECFIDERA-license amortization and impairment, a $120 million acquired IPR&D charge for BIIB093, and a rise in R&D to $2.25 billion (up 14.2%) that included several large upfront and milestone payments to collaborators. Cash flow from operations held steady at $4.55 billion, but cash, equivalents and marketable securities declined to $6.75 billion, and the company repurchased about $1.4 billion of stock.
Investors should weigh the company's concentration risk: MS products remain the core of revenue, with OCREVUS (approved 2017) and MS competition expected to pressure TECFIDERA and TYSABRI volumes in the U.S. in 2018. The ZINBRYTA EU restrictions led to roughly $191 millionc in net impairment charges, and a $2.0 billion+ pipeline of late-stage programs (aducanumab, BIIB098, SPINRAZA expansion) represents both the growth thesis and substantial remaining development and milestone obligations of roughly $4.2 billion.
02—Key points
Key Highlights
- Total revenues rose 7.2% to $12,273.9 million, with product revenues up 5.5% to $10,354.7 million, driven by SPINRAZA, TECFIDERA and BENEPALI.
- Net income attributable to Biogen fell to $2,539.1 million (from $3,702.8 million) and diluted EPS declined 29.6% to $11.92, largely due to a $1,173.6 million 2017 Tax Act charge.
- Anti-CD20 therapeutic program revenues increased 18.6% to $1,559.2 million, supported by OCREVUS royalties (launched 2017) and higher RITUXAN co-promotion profits.
- A $444.2 million amortization and impairment charge related to the Forward Pharma TECFIDERA license weighed on operating results, with $795.2 million of intangible assets recognized in 2017.
- R&D expense rose 14.2% to $2,253.6 million, including $300 million (BMS/BIIB092) and $60 million (iPierian) milestones and upfront payments.
- Cash flow from operations was $4,551.0 million; cash, equivalents and marketable securities ended at $6,746.3 million after $1.4 billion of share repurchases and the $1.2 billion Fumapharm contingent payments.
- Restructuring program announced in October 2017 targets up to $170 million in charges, with a goal of redirecting up to $400 million annually by 2020.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Biogen Inc. kept $0.21.
- Revenue$12.27B100.0%
- Cost of revenue−$1.63B13.3%
- Gross profit$10.64B86.7%
- Operating costs−$5.30B43.2%
- Operating income$5.35B43.6%
- Interest, other & tax−$2.81B22.9%
- Net income$2.54B20.7%
Where FY2017 revenue went
$12.27B- Other operating costs: $3.36B, 27% of revenue
- Interest, other & tax: $2.81B, 23% of revenue
- Net income: $2.54B, 21% of revenue
- SG&A: $1.93B, 16% of revenue
- Cost of revenue: $1.63B, 13% of revenue
Kept 21% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 1, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $12.27B$11.45B | +7.2% |
| Cost of Revenue | $1.63B$1.48B | +10.2% |
| Gross Profit | $10.64B$9.97B | +6.8% |
| SG&A Expenses | $1.93B$1.95B | −0.7% |
| Operating Expenses | $6.93B$6.30B | +10.0% |
| Operating Income | $5.35B$5.15B | +3.8% |
| Interest Expense | $250.80M$260.00M | −3.5% |
| Net Income | $2.54B$3.70B | −31.4% |
| EPS (Basic) | $11.94$16.96 | −29.6% |
| EPS (Diluted) | $11.92$16.93 | −29.6% |
| Shares Outstanding (Basic) | 212.60M218.40M | −2.7% |
| Shares Outstanding (Diluted) | 213.00M218.80M | −2.7% |
05—Questions
Frequently Asked Questions
Why did Biogen's earnings per share decline so sharply in 2017 despite revenue growth?
Diluted EPS fell to $11.92 from $16.93 mainly because of a $1,173.6 million charge for the 2017 Tax Act, including a $989.6 million Transition Toll Tax that is payable over eight years. Additional pressure came from $444.2 million of Forward Pharma-related amortization and impairment, a $120 million acquired IPR&D charge for BIIB093, and higher R&D expense from collaboration upfront and milestone payments.
How dependent is Biogen on its multiple sclerosis franchise?
Very dependent. TECFIDERA ($4.21 billion), AVONEX/PLEGRIDY (interferon, about $2.65 billion), and TYSABRI ($1.97 billion) together form the majority of product revenue. Management expects U.S. volume declines for TECFIDERA and TYSABRI in 2018 due to competition from OCREVUS and other MS therapies, and expects interferon revenues to keep declining.
What is the outlook for SPINRAZA and the company's newer growth drivers?
SPINRAZA generated $883.7 million in its first full year of sales across the U.S., E.U. and Japan, and it is Biogen's main near-term growth product outside MS. Management expects growth to moderate over time as loading-dose patients transition to maintenance dosing every four months. The pipeline includes aducanumab (Phase 3 in Alzheimer's), BIIB098 (Phase 3 oral MMF prodrug), and BIIB092 (Phase 2 in PSP), though aducanumab's BAN2401 partner study did not meet its primary endpoint in December 2017.
What financial obligations and risks remain beyond the reported 2017 results?
The Transition Toll Tax of $989.6 million will be paid over eight years starting in 2018. Biogen has up to about $4.2 billion in potential future milestone payments under its collaborations, $1.2 billion in Fumapharm contingent payments (with $600 million accrued at year-end and additional $300 million payments per $1 billion of cumulative sales), and about $1.6 billion in purchase obligations. The EU ZINBRYTA restrictions and ongoing litigation over TECFIDERA patents (Forward Pharma and generic challengers) add further uncertainty.
06—Continue