10-QPeriod: Q2 FY2003

BIOGEN INC. Quarterly Report for Q2 Ended Jun 30, 2003

Filed August 14, 2003For Securities:BIIB

Summary

IDEC Pharmaceuticals Corporation (now part of Biogen Inc. following a merger announced in June 2003) reported its second-quarter 2003 financial results. Total revenues increased significantly year-over-year, driven primarily by strong performance in its unconsolidated joint business, largely stemming from the co-promotion of Rituxan with Genentech. The company also saw a substantial increase in Research and Development (R&D) expenses, notably due to a $20 million payment related to an amended collaboration agreement with Genentech and increased spending on a new oncology collaboration with Biogen. Financially, the company reported a decrease in net income for the three-month period but an increase for the six-month period compared to the prior year, alongside a slight decrease in cash and cash equivalents. The company also highlighted its ongoing development of manufacturing facilities and the significant impact of the pending merger with Biogen, expected to close in Q4 2003. This merger, accounted for as a purchase, will result in Biogen shareholders owning approximately 49.5% of the combined entity.

Key Highlights

  • 1Total revenues for the three months ended June 30, 2003, increased to $123.6 million from $97.1 million in the prior year, driven by a 37.5% rise in revenues from unconsolidated joint business, primarily related to Rituxan.
  • 2Net income for the three months ended June 30, 2003, decreased to $28.8 million ($0.17 diluted EPS) from $35.4 million ($0.20 diluted EPS) in the prior year, though net income for the six-month period increased to $70.0 million ($0.41 diluted EPS) from $65.1 million ($0.37 diluted EPS).
  • 3Research and Development (R&D) expenses more than doubled for the three-month period, rising to $47.4 million from $23.0 million, significantly impacted by a $20 million payment to Genentech and increased spending on a Biogen oncology collaboration.
  • 4The company reported $292.5 million in cash and cash equivalents as of June 30, 2003, a decrease from $350.1 million at the end of 2002, reflecting significant investments in property and equipment and net cash used in investing activities.
  • 5IDEC Pharmaceuticals announced an Agreement and Plan of Merger with Biogen Inc. on June 20, 2003, with the transaction expected to close in the fourth quarter of 2003 and to be accounted for as a purchase.
  • 6Sales of Zevalin, the company's radioimmunotherapy product, were $5.0 million and $10.6 million for the three and six months ended June 30, 2003, respectively. Cost of sales for Zevalin was high due to a $3.1 million write-down of commercial inventory that did not meet quality specifications.
  • 7The company is making significant capital investments in new manufacturing facilities in Oceanside, California, with approximately $180.3 million invested as of June 30, 2003, for a facility expected to be mechanically completed in 2005.

Frequently Asked Questions

For the three months ended June 30, 2003, IDEC Pharmaceuticals reported total revenues of $123.6 million, an increase from $97.1 million in the prior year. However, net income decreased to $28.8 million from $35.4 million. For the six-month period, revenues increased to $240.8 million from $176.9 million, and net income rose to $70.0 million from $65.1 million. The company experienced a significant increase in R&D expenses.

Revenue growth is primarily driven by 'Revenues from unconsolidated joint business,' which increased substantially year-over-year. This segment is largely composed of IDEC's share of copromotion profits from Rituxan (marketed as MabThera outside the U.S.) with Genentech, as well as royalty revenue on Rituxan sales outside the U.S.

IDEC Pharmaceuticals entered into an Agreement and Plan of Merger with Biogen, Inc. on June 20, 2003. The transaction is expected to close in the fourth quarter of 2003 and will be accounted for as a purchase, with IDEC as the acquiror. Upon completion, Biogen shareholders are expected to own approximately 49.5% of the combined company. The merger has received board approval and is subject to shareholder and regulatory approvals.

R&D expenses increased significantly in the current periods, largely due to a $20 million payment made to Genentech in June 2003 as part of an amended collaboration agreement and increased spending related to a new oncology collaboration with Biogen. The company also continues to invest in its manufacturing capabilities, with substantial capital expenditures on new facilities.