-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DxBbsroCTn3HoEmjLIKIezp9R8OyNO47aBNg8u1ff1XpHJd2oYg4TagN2HlmfdVK Wra4Xj5w2ekKKkJDBbUBLA== 0000714655-95-000030.txt : 19951106 0000714655-95-000030.hdr.sgml : 19951106 ACCESSION NUMBER: 0000714655-95-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951103 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOGEN INC CENTRAL INDEX KEY: 0000714655 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 043002117 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12042 FILM NUMBER: 95587165 BUSINESS ADDRESS: STREET 1: 14 CAMBRIDGE CTR CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6176792000 MAIL ADDRESS: ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: BIOGEN NV DATE OF NAME CHANGE: 19880622 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Total Pages- 18 WASHINGTON, D.C. 20549 Exhibit Index- 16 FORM 10-Q (Mark one) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1995 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 0-12042 BIOGEN, INC. (Exact name of registrant as specified in its charter) Massachusetts 04-3002117 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 14 Cambridge Center, Cambridge, MA 02142 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 679-2000 Former name, former address and former fiscal year, if changed since last report: Not Applicable Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares outstanding of each of the issuer's classes of common stock, as of October 27, 1995: Common Stock, par value $0.01 35,470,588 (Title of each class) (Number of Shares) B I O G E N , I N C . Page 2 INDEX Page No. PART I - FINANCIAL INFORMATION Condensed Consolidated Balance Sheets - September 30, 1995 and December 31, 1994. . . . . . . . . . . . .3 Condensed Consolidated Statements of Income - Three months and nine months ended September 30, 1995 and 1994. .4 Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 1995 and 1994 . . . . . . . . . .5 Notes to Condensed Consolidated Financial Statements. . . . . . . .6 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . .8 Report of Independent Accountants . . . . . . . . . . . . . . . . 14 PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . 15 * * * * * * * * * * * * * * * * * * Note concerning trademarks: Certain names mentioned in this report are trademarks owned by Biogen, Inc. or its affiliates. HIRULOG(R) and AVONEX(TM) are trademarks of Biogen, Inc. BIOGEN, INC. AND SUBSIDIARIES Page 3 CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) Sep. 30,1995 Dec. 31,1994 (unaudited) ASSETS Current assets Cash and cash equivalents. . . . . . . . . $ 52,517 $ 54,682 Marketable securities. . . . . . . . . . . 232,948 213,120 Accounts receivable. . . . . . . . . . . . 18,386 18,502 Other. . . . . . . . . . . . . . . . . . . 12,808 8,480 -------- -------- Total current assets . . . . . . . . . . . 316,659 294,784 -------- -------- Property and equipment Total cost . . . . . . . . . . . . . . . . 137,871 104,651 Less accumulated depreciation. . . . . . . 37,480 31,489 -------- -------- Property and equipment, net. . . . . . . . 100,391 73,162 -------- -------- Other assets Patents, net . . . . . . . . . . . . . . . 7,963 8,116 Other. . . . . . . . . . . . . . . . . . . 5,688 1,800 -------- -------- Total other assets . . . . . . . . . . . . 13,651 9,916 -------- -------- $430,701 $377,862 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable . . . . . . . . . . . . . $ 8,520 $ 9,991 Current portion long-term debt . . . . . . 1,667 -- Other current liabilities. . . . . . . . . 32,719 37,937 -------- -------- Total current liabilities. . . . . . . . . 42,906 47,928 -------- -------- Long-term debt . . . . . . . . . . . . . . 29,132 -- -------- -------- Shareholders' equity Common stock . . . . . . . . . . . . . . . 343 331 Additional paid-in capital . . . . . . . . 387,075 368,784 Deficit. . . . . . . . . . . . . . . . . . (28,683) (33,359) Unrealized loss on marketable securities. . . . . . . . . . . . . . . . (237) (5,867) Accumulated translation adjustment . . . . 165 45 -------- -------- Total shareholders' equity . . . . . . . . 358,663 329,934 -------- -------- $430,701 $377,862 ======== ======== See Notes to Condensed Consolidated Financial Statements. BIOGEN, INC. AND SUBSIDIARIES Page 4 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share amounts) Three Months Nine Months Ended Sep. 30 Ended Sep. 30 1995 1994 1995 1994 REVENUES Royalties and product sales. . $33,884 $ 27,733 $ 98,554 $101,693 Interest . . . . . . . . . . . 4,293 4,079 12,489 11,678 -------- -------- -------- -------- Total revenues . . . . . . . . 38,177 31,812 111,043 113,371 -------- -------- -------- -------- EXPENSES Cost of sales. . . . . . . . . 2,601 2,200 7,753 6,817 Research and development . . . 22,465 22,864 64,170 72,466 General and administrative . . 10,272 5,558 27,796 17,128 Other. . . . . . . . . . . . . 881 27,411 5,398 29,461 --------- -------- -------- -------- Total expenses . . . . . . . . 36,219 58,033 105,117 125,872 -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . . . 1,958 (26,221) 5,926 (12,501) Income taxes. . . . . . . . . . 830 200 1,250 2,080 -------- -------- -------- -------- NET INCOME (LOSS) . . . . . . . $ 1,128 $ (26,421) $ 4,676 $(14,581) ======== ======== ======== ======== NET INCOME (LOSS)PER SHARE. . . $ 0.03 $ (0.80) $ 0.13 $ (0.45) ======== ======== ======== ======== Average shares outstanding. . . 36,720 33,021 35,978 32,660 ======== ======== ======== ======== See Notes to Condensed Consolidated Financial Statements. BIOGEN, INC. AND SUBSIDIARIES Page 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Nine Months Ended September 30, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss). . . . . . . . . . . . . . . $ 4,676 $ (14,581) Adjustments to reconcile net income (loss) to net cash provided from (used by) operating activities: Depreciation and amortization . . . . . . . . 7,833 5,694 Other . . . . . . . . . . . . . . . . . . . . 1,161 2,274 Changes in: Accounts receivable. . . . . . . . . . . . . 116 21,825 Other current assets . . . . . . . . . . . . (4,328) (452) Other assets . . . . . . . . . . . . . . . . (3,888) (87) Accounts payable and other current liabilities. . . . . . . . . (6,689) 26,753 -------- --------- Net cash provided from (used by) operating activities. . . . . . . . . . . . . (1,119) 41,426 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of marketable securities . . . . . . (178,229) (296,504) Proceeds from sales of marketable securities. . . . . . . . . . . . . . . . . . 163,919 258,821 Acquisitions of property and equipment . . . . (33,221) (25,480) Additions to patents . . . . . . . . . . . . . (1,687) (2,024) -------- --------- Net cash used by investing activities. . . . . (49,218) (65,187) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt . . . 30,799 -- Issuance of common stock . . . . . . . . . . . 17,373 14,725 -------- --------- Net cash provided from financing activities. . . . . . . . . . . . . . . . . . 48,172 14,725 -------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS . . . (2,165) (9,036) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . . . . . . . . . . . 54,682 74,546 -------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . . . . . . . . . . . $ 52,517 $ 65,510 ======== ========= See Notes to Condensed Consolidated Financial Statements. BIOGEN, INC. AND SUBSIDIARIES Page 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows of the Company. The Company's accounting policies are described in the Notes to Consolidated Financial Statements in the Company's 1994 Annual Report. Interim results are not necessarily indicative of the operating results for the full year. 2. During the third quarter of 1994, the Company incurred a pre-tax charge to other expenses of $25 million as a result of its decision to discontinue its major activities associated with its HIRULOG(R) thrombin inhibitor product development. The charge consists of cash payments to a third-party manufacturer for product manufactured for clinical trials and to cover a portion of other costs incurred by the manufacturer in anticipation of ongoing HIRULOG(R) related activities, and cash payments for clinical research organizations, clinical investigators and institutions involved in clinical trials to cover noncancellable costs incurred by them in conducting clinical trials and in connection with wind-down activities. Discontinuance of the HIRULOG(R) program did not result in any termination of employees or internal restructuring costs. As of September 30, 1995, $1.9 million remained in reserve. 3. In March 1995, the Company completed construction of its research laboratory and office building in Cambridge, Massachusetts and exercised its option to obtain a 7.5% fixed rate loan with a bank for $25 million. The annual principal payable in each of the years 1996 through 1999 is $1.7 million with the balance due May 8, 2005. 4. In the second quarter of 1995, the Company began construction of its biologics manufacturing facility in Research Triangle Park, North Carolina. The estimated cost of construction, including land, is $57 million. In August 1995, the Company entered into a loan agreement with a bank for financing of this project. Under the terms of the agreement, the Company may be advanced funds during the construction period up to $50 million. Beginning upon the earlier of 90 days after completion of the project, or August 1997, the outstanding principal balance will be payable in 39 consecutive quarterly installments of $0.8 million, assuming the full $50 million is advanced, with the balance due in 2007. As of September 30, 1995, funds advanced were $5.8 million. The Company has also entered into two interest rate swap agreements fixing its interest rate at 6.39% during the construction period and 7.75% during the remaining term of the loan, payable quarterly. 5. In August 1995, the Company received $10.2 million from the exercise of 600,000 common stock warrants issued in 1989 as part of a research agreement with an insurance company. In October 1995, an additional 1.2 million common stock warrants were exercised for $20.4 million. All of the warrants issued under this agreement have been exercised. 6. In August 1995, the Company signed a collaborative research agreement for the development of human gene therapy treatments with Genovo, Inc., a gene therapy research company. As part of the agreement, the Page 7 Company plans to invest approximately $37 million in Genovo over the next five years depending on achievement of scientific milestones. In return, the Company will receive a significant minority equity interest in Genovo as well as certain licensing rights. The Company accounts for this investment under the equity method of accounting. 7. As of December 31,1994, the Company had a deferred tax asset of $58 million (before valuation allowance) consisting primarily of the future tax benefits from net operating loss carry forwards and other tax credits. Under Statement of Financial Accounting Standards No. 109 ("SFAS 109"), the Company would be required to recognize all or a portion of the $58 million deferred tax asset, with corresponding increases to net income and paid-in capital, if it believes that it is more likely than not, given the weight of all available evidence, that all or a portion of the benefits of the carry forward losses and tax credits will be realized. Given the possibility of fluctuations in the Company's revenue stream, anticipated increases in the Company's expenses, the uncertainties involved and number of milestones to be achieved in obtaining regulatory approval for the Company's AVONEX(TM) interferon beta-1a product and in successfully commercializing the product and the risks and uncertainties associated with taking new products through the development pipeline, the Company has concluded, based on the standard set forth in SFAS 109, that it is more likely than not that the Company will not realize any benefits from its deferred tax asset, and it has therefore recorded a 100% reserve against the asset. The Company will assess the need for the valuation allowance at each balance sheet date based on all available evidence. BIOGEN, INC. AND SUBSIDIARIES Page 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Biogen, Inc. (the "Company") is a biopharmaceutical company principally engaged in developing and manufacturing drugs for human healthcare through genetic engineering. The Company's primary source of revenues consists of royalties received from licensees that sell products based on technology developed by the Company. These royalties are primarily derived from sales of alpha interferon and hepatitis B products. The level of royalties that Biogen receives is based on the level of product sales by its licensees over which the Company has no control. As a result, the Company's revenues may be affected by the impact on licensees' product sales of short-term trends, such as the initiation or expiration of a vaccination program in a particular country, or long-term trends, such as the institution of pricing reforms in a particular country. Since the Company is not involved in the development or sale of products by licensees, it is unable to accurately predict the timing or potential impact of the events or trends which may affect licensee sales or when and for how long these events and trends are likely to affect the Company's royalty income. The Company's revenues may also reflect one-time events such as payment of initial license fees by new licensees. As a result, the Company's total revenues and income may continue to fluctuate and quarter-to-quarter comparisons may not necessarily be meaningful. Until the Company markets its own products directly, royalties are expected to be the major source of the Company's revenues. In 1994, the Company announced the results of a Phase III clinical trial of its AVONEX(TM) interferon beta-1a product, for the treatment of multiple sclerosis. In light of the data from the trial, the Company filed during 1995 for a product license for AVONEX(TM) in the United States and market approval for AVONEX(TM) in Europe and Canada. The Company anticipates an independent advisory committee to the U.S. Food and Drug Administration (the "FDA") to review the Company's product license application for AVONEX(TM) at a meeting on December 4, 1995. The Company has also filed an application with the FDA for an establishment license for its Cambridge, Massachusetts facility to manufacture AVONEX(TM). If the Company is successful in its efforts to obtain regulatory approval for AVONEX(TM) and for its Cambridge, Massachusetts manufacturing facility, the Company will market AVONEX(TM) in the United States, Canada and major markets of Europe. Results of Operations For the third quarter ended September 30, 1995, the Company reported net income of $1.1 million or $0.03 per share as compared to a net loss of $26.4 million or $0.80 per share in the third quarter of 1994. For the nine months ended September 30, 1995, the Company had net income of $4.7 million or $0.13 per share as compared to a net loss of $14.6 million or $0.45 per share for the comparable period of 1994. Total revenues for the third quarter of 1995 were $38.2 million, as compared to $31.8 million in the comparable quarter of 1994. For the current nine-month period, total revenues were $111.0 million as compared to $113.4 million in 1994. Revenues from royalties and product sales for the current quarter were higher than the comparable 1994 quarter primarily Page 9 due to an increase in ongoing royalties received from licensee sales of hepatitis B vaccines, sold by SmithKline Beecham plc ("SmithKline") and Merck & Co., Inc. Revenues from royalties and product sales for the current nine-month period were slightly lower than the comparable 1994 period, primarily because of the inclusion in the first quarter of 1994 of a one-time payment of approximately $10 million from Eli Lilly & Co. ("Lilly") under a licensing agreement covering certain patent rights for gene expression methods. Under this agreement, Lilly paid the Company in the first quarter of 1994 approximately $10 million in royalties that related to sales occurring in the periods before the contract was signed. Ongoing royalties received from licensee sales of hepatitis B vaccines in the nine-month period of 1995 increased and offset the decrease in royalties received from licensee sales of alpha interferon. Sales of hepatitis B vaccines outside the United States increased 28% from the prior year's nine-month period. This increase was primarily attributable to a vaccination program in France for infants and adolescents which began in 1994. Alpha interferon sales by Schering-Plough Corporation declined in the current nine-month period, due primarily to lower sales in Japan. In the near term, the Company expects overall sales of licensee products to continue at or slightly below current levels although royalty income may fluctuate depending on changes in sales volumes for specific products, patent expirations or other developments. Moreover, there are numerous health care reform initiatives currently underway in the United States and other major pharmaceutical markets and it is not yet clear what effect, if any, these initiatives or other legal and regulatory developments may have on product sales by the Company's licensees. In addition, these sales levels may fluctuate from quarter to quarter due to the timing and extent of major events such as new indication approvals, vaccination programs or licensing arrangements. Interest income for the current quarter and nine-month period increased from the comparable 1994 amounts due primarily to higher returns on invested funds. Total expenses for the third quarter of 1995 were $36.2 million as compared to $58.0 million in the 1994 quarter. Cost of sales increased $0.4 million and primarily represents royalty obligations to third parties. Research and development expenses for the third quarter of 1995 were $22.5 million, a decrease of $0.4 million from the third quarter of 1994. The current quarter includes costs for the production of clinical material by a contract manufacturer and increased personnel costs while the 1994 quarter had higher costs, primarily for HIRULOG(R) thrombin inhibitor clinical development. General and administrative expenses increased by $4.7 million due mostly to higher costs for market development efforts related to AVONEX(TM), including the Company's European headquarters in Paris and legal and personnel-related costs. Other expenses decreased by $26.5 million, primarily due to a pre-tax charge in the prior year quarter of $25 million as a result of the Company's decision to discontinue its major activities associated with HIRULOG(R) development. For the nine-month period ended September 30, 1995, total expenses were $105.1 million as compared to $125.9 million in 1994. Research and development expenses decreased $8.3 million, primarily due to higher costs in the 1994 period that were associated with the clinical development of HIRULOG(R). The 1995 period includes costs for the production of clinical material by a contract manufacturer and increased personnel costs. The Company expects that, in the long-term, research and development expenses will increase as the Company expands its development efforts with respect to new products and begins clinical trials of these products. General and Page 10 administrative expenses increased $10.7 million due mostly to higher costs for market development efforts related to AVONEX(TM), including the Company's European headquarters and legal and personnel-related costs. On May 4, 1995, the Company announced that it had filed with the European Medicines Evaluation Agency for European market approval of AVONEX(TM) for the treatment of multiple sclerosis. On May 22, 1995, the Company announced that it had filed with the FDA for U.S. market approval of AVONEX(TM) for the treatment of multiple sclerosis. The Company also filed an application with the FDA for an establishment license for its Cambridge, Massachusetts facility to manufacture AVONEX(TM). On July 27, 1995, the Company announced that it filed with Canada's Health Protection Branch for Canadian market approval of AVONEX(TM) for the treatment of multiple sclerosis. The Company anticipates an independent advisory committee to the FDA to review the Company's product license application for AVONEX(TM) at a meeting on December 4, 1995. The Company expects that general and administrative expenses will increase in the near and long term as compared to 1994 as the Company continues to put in place the commercial infrastructure and sales and marketing organizations necessary to sell AVONEX(TM). The anticipated level of expense will depend on the status of regulatory approvals and the resulting levels of commercial ramp-up activities. Other expenses decreased $24.1 million, primarily due to a pre-tax charge in the 1994 third quarter of $25 million as a result of the Company's decision to discontinue its major activities associated with HIRULOG(R) development. In general, as development efforts expand and as AVONEX(TM) ramp-up activities evolve, the Company anticipates that expenses will likely exceed revenues until such time as the Company has successfully marketed AVONEX(TM). Income tax expense for the 1995 and 1994 periods were substantially less than the amount computed at U.S. federal statutory rates because of the utilization of net operating loss carryforwards. As of December 31, 1994, the Company had a deferred tax asset of $58 million (before valuation allowance) consisting primarily of the future tax benefits from net operating loss carry forwards and other tax credits. If fully realized through sufficient future profitability, this deferred tax asset will reduce future income tax expense by $29 million and increase paid-in capital by $29 million. The Company has recorded a 100% valuation allowance against the net deferred tax asset. Realization of the deferred tax asset and future reversals of the valuation allowance depend on the Company's ability to achieve future profitability through earnings from existing sources and from sales of AVONEX(TM) or other proprietary products. The timing and amount of future earnings will depend on the Company's success in obtaining approval for and marketing and selling AVONEX(TM) and the results of clinical trials and commercialization and development efforts with respect to other products under development. The Company will assess the need for the valuation allowance at each balance sheet date based on all available evidence. Under Statement of Financial Accounting Standards No. 109 (SFAS 109), the Company would be required to recognize all or a portion of its $58.4 million deferred tax asset, with corresponding increases to net income and paid-in capital, if it believed that it was more likely than not, given the weight of all available evidence, that all or a portion of the benefits of the carry forward losses and tax credits would be realized. Given the possibility of fluctuations in the Company's revenue stream, anticipated increases in the Company's expenses, the uncertainties involved and number of milestones to be achieved in obtaining regulatory approval for AVONEX(TM) and in successfully commercializing the product and the risks and uncertainties associated with taking new products through the Page 11 development pipeline, the Company has concluded, based on the standard set forth in SFAS 109, that it is more likely than not that the Company will not realize any benefits from its deferred tax asset, and it has therefore recorded a 100% reserve against the asset. In making its determination under SFAS 109, the Company considered its positive earnings history in 1992 and 1993, although the weight given to this past history was partially offset by the Company's loss in 1994, the increases in expenses since 1992 and the short term nature of some of the events leading to the revenue growth in 1992 and 1993. As noted above, since the Company is not involved in the development or sale of products by licensees, the Company is unable to accurately predict the timing or potential impact of all of the events or trends which may affect licensee sales or when and for how long these events or trends are likely to affect the Company's royalty income. The Company also considered whether to take into account potential profits that the Company may earn on sales of AVONEX(TM), if the product is approved and successfully marketed. The Company recognized, however, that it has never marketed or sold its own proprietary drug and faces a number of hurdles if it is to be successful in commercializing AVONEX(TM), including obtaining regulatory approval for the product and manufacturing plant, establishing customer service, marketing and sales organizations and obtaining market acceptance for the product. The Company viewed its lack of operating history as a fully integrated biopharmaceutical company, the number of hurdles it faces to successfully commercialize AVONEX(TM) and the uncertainties related to the Company's revenue stream as support for recording a 100% reserve against its deferred tax asset under SFAS 109. The Company finally considered as support for the reserve the Company's current expectation that, as a result of commercialization ramp-up and pipeline expansion activities, expenses will likely exceed revenues until such time as the Company has profitably marketed AVONEX(TM). The Company will assess the need for the valuation allowance at each balance sheet date based on all available evidence. Financial Condition At September 30, 1995, cash, cash equivalents and marketable securities amounted to $285.5 million, a $17.7 million increase from the $267.8 million on hand at the end of 1994. Working capital increased $26.9 million to $273.8 million. Net cash used by operating activities for the nine months ended September 30, 1995 was $1.1 million. Other outflows of cash included investments in property and equipment and patents of $34.9 million. The Company's common stock option and purchase plans provided $7.2 million and the exercise of common stock warrants provided $10.2 million. Other inflows of cash included $30.8 million from loan agreements with banks. In March 1995, the Company completed construction of its research laboratory and office building in Cambridge, Massachusetts and exercised its option to obtain a 7.5% fixed rate loan with a bank for $25 million. The annual principal payable in each of the years 1996 through 1999 is $1.7 million with the balance due May 8, 2005. In the second quarter of 1995, the Company began construction of its biologics manufacturing facility in Research Triangle Park, North Carolina. The estimated cost of construction, including land, is $57 million. As of September 30, 1995, the Company had commitments totaling approximately $15 million on this project. Until the facility is licensed by the FDA for the manufacture of AVONEX(TM), the Company will manufacture AVONEX(TM) in its Cambridge, Massachusetts facility. The company has filed an application with the FDA for an establishment license for its Cambridge, Massachusetts Page 12 facility to manufacture AVONEX(TM). In August 1995, the Company entered into a loan agreement with a bank for financing of this project. Under the terms of the agreement, the Company may be advanced funds during the construction period up to $50 million. Beginning upon the earlier of 90 days after completion of the project, or August 1997, the outstanding principal balance will be payable in 39 consecutive quarterly installments of $0.8 million, assuming the full $50 million is advanced, with the balance due in 2007. As of September 30, 1995, funds advanced were $5.8 million. The Company has also entered into two interest rate swap agreements fixing its interest rate at 6.39% during the construction period and 7.75% during the remaining term of the loan, payable quarterly. In August 1995, the Company received $10.2 million from the exercise of 600,000 common stock warrants issued in 1989 as part of a research agreement with an insurance company. In October 1995, an additional 1.2 million common stock warrants were exercised for $20.4 million. All of the warrants issued under this agreement have been exercised. In August 1995, the Company signed a collaborative research agreement for the development of human gene therapy treatments with Genovo, Inc., a gene therapy research company. As part of the agreement, the Company plans to invest approximately $37 million in Genovo over the next five years depending on achievement of scientific milestones. In return, the Company will receive a significant minority equity interest in Genovo as well as certain licensing rights. In the first quarter of 1993, SmithKline initiated arbitration in the United States regarding the rate of royalties payable from sales of hepatitis B vaccines by SmithKline in the United States. The amount paid by SmithKline and in dispute as of December 31, 1994, was approximately $18 million. In April 1995, an arbitration panel ruled in Biogen's favor. On June 30, 1995, SmithKline made a motion to vacate this award in the Federal District Court for the Southern District of New York. However, the Company believes that an adverse ruling is not probable and, therefore, no amount has been accrued. The Company currently believes that the financial resources available to it, including its current working capital and its existing and anticipated contractual relationships, will be sufficient to finance its planned operations and capital expenditures for the near term. However, the Company may have additional funding needs, the extent of which will depend upon the level of royalties and product sales, the outcome of clinical trial programs, the receipt and timing of required regulatory approvals for products, the results of research and development efforts and business expansion opportunities. Accordingly, from time to time, the Company may obtain funding through various means which could include collaborative agreements, lease or mortgage financings, sales of equity or debt securities and other financing arrangements. Outlook Having completed both of its ongoing Phase III studies and discontinued HIRULOG(R) development in 1994, the Company has begun to expand its development efforts related to other products in its pipeline. The expansion of the pipeline may include increases in spending on internal projects, the acquisition of third party technologies or products or other types of investments. Since the Company does not currently market any drugs directly, the Company has also begun to create a commercial infrastructure both in the United States and in Europe to market and sell Page 13 AVONEX(TM). The timing, nature and scope of the activities related to the building of a commercial infrastructure will depend on the status of regulatory filing and approval activities. As development efforts expand and as AVONEX(TM) ramp-up activities evolve, the Company anticipates that expenses will likely exceed revenues until such time as the Company has successfully marketed AVONEX(TM). As a result, the Company does not expect past operating results to be indicative of future operating results. While in the past the Company's ability to achieve profitability has been dependent mainly on the level of royalty revenues as compared to expenses, in the future, profitability will be dependent on the outcome of a number of factors. These include: the level of royalties from existing licensees' product sales as compared to expenses, the timing and extent of royalties from additional licensing opportunities, successful completion of development and regulatory filing activities related to AVONEX(TM), receipt of timely FDA and European regulatory approval for AVONEX(TM), the level of revenues and profitability from AVONEX(TM) sales, if the product is approved, the cost and success of developing and commercializing other products the Company is developing and the cost and success of other business opportunities that may arise from time to time. There can be no assurance that the Company will achieve a positive outcome with respect to any of these factors, or that the timing and extent of the Company's success with respect to any combination of these factors will be sufficient to result in the profitability of the Company. Page 14 With respect to the unaudited condensed consolidated financial information of Biogen, Inc. and its subsidiaries at September 30, 1995 and for the three month and nine month periods ended September 30, 1995 and 1994, Price Waterhouse LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated October 18, 1995 appearing herein, states that they did not audit and they do not express an opinion on that unaudited condensed consolidated financial information. Price Waterhouse LLP has not carried out any significant or additional audit tests beyond those which would have been necessary if their report had not been included. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. Price Waterhouse LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited condensed consolidated financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by Price Waterhouse LLP within the meaning of sections 7 and 11 of the Act. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Biogen, Inc. We have reviewed the accompanying condensed consolidated balance sheet of Biogen, Inc. and its subsidiaries as of September 30, 1995, and the related condensed consolidated statements of income for the three month and nine month periods ended September 30, 1995 and 1994 and of cash flows for the nine month periods ended September 30, 1995 and 1994. This financial information is the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted audit standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial information for it to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1994, and the related consolidated statements of income, of cash flows and of shareholders' equity for the year then ended (not presented herein), and in our report dated February 7, 1995 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1994, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/ Price Waterhouse LLP - ------------------------ Boston, Massachusetts October 18, 1995 PART II - OTHER INFORMATION Page 15 Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits No. 11 Computation of Earnings per Share. No. 15 Letter from Price Waterhouse LLP. (b) There were no reports on Form 8-K filed for the quarter ended September 30, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BIOGEN, INC. Dated: November 3, 1995 /s/Timothy M. Kish ---------------------------------- Timothy M. Kish Vice President-Finance and Chief Financial Officer EXHIBITS Page 16 Index to Exhibits. No. 11 Computation of Earnings per Share. No. 15 Letter from Price Waterhouse LLP. EX-11 2 EXHIBIT 11 BIOGEN, INC. and SUBSIDIARIES Computation of Earnings Per Share (unaudited) (in thousands, except per share amounts) Three Months Nine Months Ended Sep. 30, Ended Sep 30, 1995 1994 1995 1994 Primary earnings per share Weighted average number of shares outstanding . . . . . . . 33,950 33,021 33,473 32,660 Shares deemed outstanding from the assumed exercise of stock options and warrants . . . . . . 2,770 -- 2,505 -- ------- -------- -------- -------- Total . . . . . . . . . . . . . . 36,720 33,021 35,978 32,660 ======= ======== ======== ======== Net income (loss) . . . . . . . . $ 1,128 $(26,421) $ 4,676 $(14,581) ======= ======== ======== ======== Primary earnings (loss) per share of common stock. . . . . . $ 0.03 $ (0.80) $ 0.13 $ (0.45) ======= ======== ======== ======== Fully diluted earnings per share (a) Weighted average number of shares outstanding . . . . . . . 33,950 33,021 33,473 32,660 Shares deemed outstanding from the assumed exercise of stock options and warrants . . . . . . 3,360 -- 3,360 -- ------- -------- -------- -------- Total . . . . . . . . . . . . . . 37,310 33,021 36,833 32,660 ======= ======== ======== ======== Net income (loss) . . . . . . . . $ 1,128 $(26,421) $ 4,676 $(14,581) ======= ======== ======== ======== Fully diluted earnings (loss) per share of common stock. . . . $ 0.03 $ (0.80) $ 0.13 $ (0.45) ======= ======== ======== ======== (a) This calculation is submitted in accordance with Regulation S-K item 601 (b) (11) although not required by Footnote 2 to Paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. EX-15 3 EXHIBIT 15 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Sirs: We are aware that our report dated October 18, 1995 (issued pursuant to the provisions of Statement on Auditing Standards No. 71) on the unaudited condensed consolidated balance sheet of Biogen, Inc. and subsidiaries at September 30, 1995, and the related condensed consolidated statements of income for the three month and nine month periods then ended and of cash flows for the nine month period then ended, is incorporated by reference in the Prospectuses constituting part of its Registration Statements on Form S-3, as amended (Nos. 33-14741, 33-14743, 33-20183 and 33-51639) and on Form S-8, as amended (Nos. 2-87550, 2-96157, 33-9827, 33-14742, 33-37312, 33-22378, 33-41077, 33-69174, 33-63013 and 33-63015). We are also aware of our responsibilities under the Securities Act of 1933. Yours very truly, /s/ Price Waterhouse LLP - ------------------------ Boston, Massachusetts November 3, 1995 EX-27 4
5 1,000 9-MOS DEC-31-1995 SEP-30-1995 52,517 232,948 18,386 0 0 316,659 137,871 37,480 430,701 42,906 29,132 343 0 0 358,320 430,701 98,554 111,043 7,753 99,719 5,398 0 0 5,926 1,250 4,676 0 0 0 4,676 0.13 0.13
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