01—Abstract
Summary
Summary of the 10-K filed February 6, 2020. Cited figures are marked; the original filing is the authoritative source.
Biogen closed 2019 with record profitability: total revenues rose 6.9% to $14.38 billiona, and diluted EPS jumped 45.6% to $31.42, aided by a lower effective tax rate of 16.3% (versus 24.2% in 2018), a $205 million tax benefit from an IP reorganization and Swiss tax reform, and a $204.7 million investment gain.
Net income reached $5.89 billionb. Growth was led by SPINRAZA (up 21.6% to $2.10 billion), biosimilars (up 35.4%), and OCREVUS royalties (anti-CD20 revenues up 15.7%). TECFIDERA grew 3.7% and remains the largest product, though the U.S. MS franchise is under pressure from OCREVUS and interferon declines.
Operating cash flow was $7.08 billionc, and the company returned about $5.9 billion through share repurchases while holding $5.9 billion in cash and marketable securities against $5.95 billion of borrowings. The filing highlights several forward-looking risks. TECFIDERA faces potential generic entry before its '514 patent expires in February 2028, following settlements and pending litigation, and a PTAB decision upheld the patent in February 2020 (appealable).
Competition is intensifying in MS, SMA (including a new gene therapy approved in May 2019), and oncology, where RITUXAN biosimilars launched in November 2019 and January 2020. Management also flagged significant spending ahead: SG&A is expected to rise sharply in 2020 to support the potential aducanumab launch, and the company expects approximately $430 milliond in milestone payments in 2020, including $75 million on aducanumab's FDA filing. Biogen is also building a large Solothurn, Switzerland biologics facility, expected to be partially operational by end-2020, with $2.0 billion of long-lived assets tied to it.
Pipeline and portfolio activity was active: the Nightstar acquisition added ophthalmology assets, the Hillerød manufacturing site was sold to FUJIFILM, Biogen acquired ophthalmology biosimilar rights from Samsung Bioepis, and it exercised its option on BIIB080 (tau ASO). Biogen also announced plans to pursue FDA approval for aducanumab in AD after the EMERGE study met its primary endpoint, despite the earlier futility-based discontinuation of the Phase 3 trials. Several pipeline programs failed or were discontinued in 2019, including BG00011 (IPF, $215.9 million impairment), gosuranemab in PSP, and elenbecestat.
02—Key points
Key Highlights
- Total revenues up 6.9% to $14.38B; diluted EPS up 45.6% to $31.42, helped by a 16.3% effective tax rate and a $204.7M investment gain
- SPINRAZA revenue grew 21.6% to $2.10B, and biosimilar revenue grew 35.4%; anti-CD20 program revenues rose 15.7% to $2.29B on OCREVUS royalties
- TECFIDERA remains the largest product at $4.43B (+3.7%), but faces generic entry risk before its '514 patent expires in February 2028 (PTAB upheld the patent in February 2020; appealable)
- Operating cash flow of $7.08B; $5.9B returned via buybacks; $5.9B cash and marketable securities versus $5.95B debt
- SG&A expected to increase significantly in 2020 to support pre-launch activities for aducanumab, which Biogen plans to file in the U.S. after the EMERGE Phase 3 study met its primary endpoint
- Approximately $430M of milestone payments expected in 2020, including $75M upon aducanumab's FDA filing and $100M upon U.S. launch
- Major 2019 portfolio moves: Nightstar acquisition (ophthalmology gene therapy), Hillerød plant divestiture to FUJIFILM, Samsung Bioepis ophthalmology biosimilar deal, and pipeline setbacks including BG00011 ($215.9M impairment), gosuranemab in PSP, and elenbecestat
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Biogen Inc. kept $0.41.
- Revenue$14.38B100.0%
- Cost of revenue−$1.96B13.6%
- Gross profit$12.42B86.4%
- Operating costs−$5.38B37.4%
- Operating income$7.04B49.0%
- Interest, other & tax−$1.15B8.0%
- Net income$5.89B41.0%
Where FY2019 revenue went
$14.38B- Net income: $5.89B, 41% of revenue
- Other operating costs: $3.01B, 21% of revenue
- SG&A: $2.37B, 17% of revenue
- Cost of revenue: $1.96B, 14% of revenue
- Interest, other & tax: $1.15B, 8.0% of revenue
Kept 41% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 6, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $14.38B$13.45B | +6.9% |
| Cost of Revenue | $1.96B$1.82B | +7.7% |
| Gross Profit | $12.42B$11.64B | +6.8% |
| SG&A Expenses | $2.37B$2.11B | +12.7% |
| Operating Expenses | $7.34B$7.56B | −3.0% |
| Operating Income | $7.04B$5.89B | +19.6% |
| Interest Expense | $187.40M$200.60M | −6.6% |
| Net Income | $5.89B$4.43B | +32.9% |
| EPS (Basic) | $31.47$21.63 | +45.5% |
| EPS (Diluted) | $31.42$21.58 | +45.6% |
| Shares Outstanding (Basic) | 187.10M204.90M | −8.7% |
| Shares Outstanding (Diluted) | 187.40M205.30M | −8.7% |
05—Questions
Frequently Asked Questions
Why did diluted EPS grow faster than revenue in 2019?
Diluted EPS rose 45.6% to $31.42 versus 6.9% revenue growth, driven by a lower effective tax rate (16.3% vs. 24.2%) from an intellectual property reorganization and Swiss tax reform, a $204.7M gain on investments, lower amortization and impairment charges ($489.9M vs. $747.3M), and a 9% reduction in weighted-average diluted shares from buybacks (187.4M vs. 205.3M). Some of these items are non-recurring, so investors should not assume the same tax rate going forward.
What is the biggest risk to Biogen's revenue base?
TECFIDERA, the largest product at $4.43B in 2019, faces potential generic competition before February 2028 if adverse PTAB or district court decisions are reached on appeal, or under settlement agreements already reached with some defendants. Erosion of U.S. MS share to OCREVUS and declining interferon sales also weigh on the MS franchise, and the company expects U.S. TECFIDERA and interferon volumes to keep declining in 2020.
How much pressure will aducanumab place on 2020 spending and earnings?
Management expects SG&A to increase significantly in 2020 for aducanumab pre-launch activities, plus $75M upon FDA filing and $100M upon U.S. launch in milestones. Biogen's share of development costs also changed: Eisai reimburses 45% of aducanumab development expense from 2019, and Biogen will receive a 55% share of U.S. profits or losses. Approval is not assured, and the company warns that failure to obtain approval or commercialize successfully could adversely affect its financial condition.
What is the status of the company's manufacturing capacity?
Biogen is building a large-scale biologics facility in Solothurn, Switzerland, with $2.0B of long-lived assets tied to it at year-end 2019. It is expected to be only partially operational by the end of 2020, with no assurance that the timeline will be met. Delays could leave the company short of large-scale capacity for long-term needs. The company sold its Hillerød, Denmark plant to FUJIFILM in 2019 and recorded a $55.3M pre-tax loss, including a $74M adverse batch-commitment obligation.
Are there legal or regulatory overhangs investors should monitor?
Yes. The filing discloses IMRALDI patent litigation in Europe brought by Fresenius Kabi and Gedeon Richter, a qui tam False Claims Act action, government investigations into sales and promotional practices and patient-assistance donations, a $200M claim from former Convergence shareholders, and ongoing Hatch-Waxman litigation over TECFIDERA. Biogen says it cannot estimate loss ranges for several of these matters. Samsung BioLogics, its biosimilar joint venture partner, is also under a criminal investigation that could affect Samsung Bioepis.
06—Continue