-----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, BFoSQUCCwyb+GNRlmuVDE0TA7FxPdl4ijMsALyylj4GiGZ2MWFJlfN7dth68aLVM wFubaN816YEESwL7K+NSyA== 0000714655-96-000020.txt : 19961107 0000714655-96-000020.hdr.sgml : 19961107 ACCESSION NUMBER: 0000714655-96-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961106 SROS: NASD 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: 96654869 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- 16 WASHINGTON, D.C. 20549 Exhibit Index- 15 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, 1996 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 November 4, 1996: Common Stock, par value $0.01 36,004,196 (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, 1996 and December 31, 1995 . . . . . . . . . . . 3 Condensed Consolidated Statements of Income - Three months and nine months ended September 30, 1996 and 1995 4 Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 1996 and 1995. . . . . . . . . 5 Notes to Condensed Consolidated Financial Statements . . . . . . 6 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . 9 PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . 13 * * * * * * * * * * * * * * * * * * 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) September 30,1996 Dec. 31,1995 (unaudited) ASSETS Current assets Cash and cash equivalents . . . . . . . . . $ 62,610 $ 45,770 Marketable securities . . . . . . . . . . . 220,089 262,178 Accounts receivable, net. . . . . . . . . . 65,858 19,612 Inventory . . . . . . . . . . . . . . . . . 16,802 7,131 Deferred income taxes . . . . . . . . . . . 44,239 -- Other . . . . . . . . . . . . . . . . . . . 5,040 5,618 -------- -------- Total current assets. . . . . . . . . . . . 414,638 340,309 -------- -------- Property, plant and equipment Total cost. . . . . . . . . . . . . . . . . 206,462 155,014 Less accumulated depreciation . . . . . . . 49,253 39,966 -------- -------- Property, plant and equipment, net. . . . . 157,209 115,048 -------- -------- Other assets, net. . . . . . . . . . . . . . 15,521 13,844 -------- -------- $587,368 $469,201 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable. . . . . . . . . . . . . . $ 9,902 $ 12,512 Current portion long-term debt. . . . . . . 1,667 1,667 Other current liabilities . . . . . . . . . 54,741 39,216 -------- -------- Total current liabilities . . . . . . . . . 66,310 53,395 -------- -------- Long-term debt . . . . . . . . . . . . . . . 59,956 32,826 -------- -------- Shareholders' equity Common stock. . . . . . . . . . . . . . . . 717 710 Additional paid-in capital. . . . . . . . . 456,539 408,793 Retained earnings (deficit) . . . . . . . . 4,602 (27,699) Unrealized gain (loss) on marketable securities, net of tax . . . . (694) 1,245 Cumulative translation adjustment . . . . . (62) (69) -------- -------- Total shareholders' equity. . . . . . . . . 461,102 382,980 -------- -------- $ 587,368 $469,201 ======== ======== 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 Sept.30, Ended Sept. 30, 1996 1995 1996 1995 REVENUES Product sales. . . . . . . . . . $27,517 $ -- $ 33,642 $ -- Royalties. . . . . . . . . . . . 69,236 33,884 138,646 98,554 Interest . . . . . . . . . . . . 4,106 4,293 12,815 12,489 ------- ------- ------- ------ Total revenues . . . . . . . . 100,859 38,177 185,103 111,043 ------- ------- ------- ------- EXPENSES Cost of sales. . . . . . . . . . 10,424 2,601 18,413 7,753 Research and development . . . . 30,338 22,465 84,051 64,170 Selling, general and administrative. . . . . . . . 18,880 10,272 51,873 27,796 Other. . . . . . . . . . . . . . 494 881 1,812 5,398 ------- ------- ------- ------- Total expenses . . . . . . . . . 60,136 36,219 156,149 105,117 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES . . . . . 40,723 1,958 28,954 5,926 Income taxes. . . . . . . . . . . . (4,329) 830 (3,347) 1,250 ------- ------- ------- -------- NET INCOME . . . . . . . . . . . . $ 45,052 $ 1,128 $ 32,301 $ 4,676 ====== ======= ======= ======== NET INCOME PER SHARE . . . . . . . $ 0.60 $ 0.02 $ 0.45 $ 0.06 ======= ======= ======= ======= Average shares outstanding. . . . . 74,570 73,440 72,395 71,956 ======= ======= ======= ======= 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, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net income. . . . . . . . . . . . . . . . . . $ 32,301 $ 4,676 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization. . . . . . . . 11,195 7,833 Deferred income taxes . . . . . . . . . . . . (5,534) -- Other. . . . . . . . . . . . . . . . . . . . 1,163 1,161 Changes in: Accounts receivable . . . . . . . . . . . . (46,246) 116 Other current assets. . . . . . . . . . . . (9,093) (4,328) Other assets. . . . . . . . . . . . . . . . (1,517) (3,888) Accounts payable and other current liabilities. . . . . . . . . 12,105 (6,689) -------- ------- Net cash used by operating activities . . . . (5,626) (1,119) -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of marketable securities. . . . . . (265,594) (178,229) Proceeds from sales of marketable securities. 304,524 163,919 Acquisitions of property, plant and equipment. . . . . . . . . . . . . . . . . . (50,613) (33,221) Additions to patents. . . . . . . . . . . . . (1,742) (1,687) -------- ------- Net cash used by investing activities . . . (13,425) (49,218) --------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt. . . 27,963 30,799 Payments of long-term debt. . . . . . . . . . (833) -- Proceeds from exercise of common stock warrants and options. . . . . . . . . 8,761 17,373 -------- ------ Net cash provided from financing activities . 35,891 48,172 -------- ------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . 16,840 (2,165) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . 45,770 54,682 -------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . $ 62,610 $ 52,517 ======== ======= 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 normal recurring accruals, considered 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 1995 Annual Report. Interim results are not necessarily indicative of the operating results for any other interim period or for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On October 22, 1996, the Board of Directors declared a two-for-one stock split to be effected in the form of a stock dividend of one share of Common Stock for each share outstanding. The stock dividend will be payable on November 15, 1996 to shareholders of record at the close of business on November 4, 1996. All references to the number of shares and per share amounts in the financial statements have been restated to reflect the effect of the stock split. As of September 30, 1996 and December 31, 1995, there were 33,505,501 and 35,855,807 shares outstanding which have been restated for the two-for-one stock split to 71,011,022 and 71,710,414, respectively. 2. On May 17, 1996, the Company received a license from the U.S. Food and Drug Administration ("FDA") to market AVONEX(TM) (Interferon beta-1a), a new drug for treatment of relapsing forms of multiple sclerosis. Revenues from product sales are recognized when goods are shipped and are net of third party contractual allowances. 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% secured term 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, of this facility is $59 million. As of September 30, 1996, the Company had paid or been invoiced approximately $49 million and had additional commitments totaling approximately $10 million on this project. 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. As of September 30, 1996, funds advanced were approximately $38 million. Page 7 Terms of the loan agreements include various covenants, including financial covenants which require the Company to maintain minimum net worth, cash flow and various financial ratios. The loans are secured by the underlying buildings. 4. Inventories are stated at the lower of cost or market with cost determined under the first-in/first-out ("FIFO") method. Included in inventory are raw materials used in the production of pre-clinical and clinical products which are expensed as research and development costs when consumed. Inventories, net of applicable reserves and allowances, at September 30, 1996 and December 31, 1995 are as follows: (In Thousands) September 30,1996 December 31, 1995 Raw materials $ 3,614 $ 3,051 Work in process 8,337 2,968 Finished goods 4,851 1,112 ----------- ----------- $ 16,802 $ 7,131 =========== =========== 5. Effective July 1, 1996, the Company signed a collaborative research and commercialization agreement with Ontogeny, Inc. ("Ontogeny"), a private biotechnology company, for the development and commercialization of three specific Hedgehog cell differentiation proteins. The Company acquired a minority equity interest in Ontogeny as well as certain exclusive, worldwide rights related to products based on the Hedgehog proteins for most disease areas. The Company has agreed to fund approximately $6 million in research and development costs of Ontogeny over two years and to make license fees and milestone payments to Ontogeny of up to $27 million per Hedgehog protein, depending on the achievement of certain clinical, regulatory and commercial milestones. 6. On October 7, 1996, a judge dismissed the lawsuit filed by Berlex Laboratories, Inc. ("Berlex") against the FDA in the United States District Court for the District of Columbia in which Berlex claimed that the FDA's approval of Biogen's AVONEX(TM)(Interferon beta 1a) was improper. Biogen was an intervenor-defendant in the litigation. In dismissing the suit, the judge held that the FDA acted lawfully in approving AVONEX(TM). Berlex has sixty days from the date of the decision to appeal. On July 3, 1996, Berlex filed suit against Biogen alleging that Biogen's production of AVONEX(TM) infringes Berlex's "McCormick" patent in the United States. Berlex seeks a judgment granting it unspecified damages, a trebling of any damages awarded and a permanent injunction restraining Biogen from alleged infringement. Prior to the date of the suit filed by Berlex on the McCormick patent, Biogen had filed a suit against Schering AG ("Schering"), Berlex and the Board of Trustees of the Leland Stanford Jr. University ("Stanford") seeking a judgment which declares the McCormick patent invalid and not infringed by Biogen and which enjoins Schering, Berlex and Stanford from asserting any charge of infringement of the McCormick patent or asserting any civil action against Biogen and its customers or users of AVONEX(TM). See Item 1 - Legal Proceedings. Page 8 The Company is also a party to a class action lawsuit in connection with disclosures related to Biogen's HIRULOG(R) product. The Company's management believes that it has meritorious defenses to the preceding claims and given these defenses, believes the ultimate outcome of these legal proceedings will not have a material adverse effect on the results of operations or financial position of the Company. 7. Due to the sustained growth during the quarter in sales and profitability of the Company's first commercial product, AVONEX(TM), the Company made the determination that it is more likely than not that it will realize the benefits of the net deferred tax assets and it has therefore reversed all of the related valuation allowance. The Company's reversal of the valuation allowance resulted in a realization of income tax benefit of approximately $23 million representing the balance of tax-loss carryforwards and tax credits that had not been recognized at the beginning of the quarter as well as tax credits generated during the quarter. The reversal of the valuation allowance also resulted in an increase in additional paid-in capital of $38.6 million relating to deductions for non-qualified stock options. 8. On September 30, 1996, Biogen Technologies, Inc., a wholly-owned subsidiary of the Company, entered into an agreement to license to Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn") certain patent rights to proprietary protein secretion technology. Under the agreement Pharmacia & Upjohn paid the Company a one-time royalty of $30 million and agreed to pay a percentage of future sales of Pharmacia & Upjohn's product Genotropin in North America and Japan. BIOGEN, INC. AND SUBSIDIARIES Page 9 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 health care through genetic engineering. On May 17, 1996, the Company received a license from the U.S. Food and Drug Administration ("FDA") to market AVONEX(TM) (Interferon beta-1a), the Company's first commercial product. The Company currently markets AVONEX(TM) under the Biogen name as a treatment for relapsing forms of multiple sclerosis ("MS"). MS is a chronic, inflammatory disease of the central nervous system in which most patients incur physical disability over time. MS affects approximately 250,000 people in the United States, about two-thirds of whom are women. Disease onset typically occurs in young adults between the ages of 20 and 40. Revenues from AVONEX(TM) sales were $27.5 million and $33.6 million, respectively, for the three-month and nine-month periods ended September 30, 1996. The Company expects to receive regulatory approval in the European Union and to be selling AVONEX(TM) in certain European markets in the first half of 1997. Results of Operations On October 22,1996, the Board of Directors declared a two-for-one stock split to be effected in the form of a stock dividend of one share of Common Stock for each share outstanding. The stock dividend will be payable on November 15, 1996 to shareholders of record on November 4, 1996. All references to the number of shares and per share amounts in the financial statements have been restated to reflect the effect of the stock split. For the third quarter ended September 30, 1996, the Company reported net income of $45.1 million or $0.60 per share as compared to $1.1 million or $0.02 per share in the third quarter of 1995. For the nine months ended September 30, 1996, the Company recorded net income of $32.3 million or $0.45 per share as compared to $4.7 million or $0.06 per share for the comparable period of 1995. Total revenues for the third quarter of 1996 were $100.9 million, including $27.5 million from sales of AVONEX(TM) and a one-time royalty payment of $30.0 million from Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn"), compared to $38.2 million in the comparable quarter of 1995. Under the terms of a licensing agreement covering certain patent rights for proprietary protein secretion technology, Pharmacia & Upjohn paid the Company a one-time royalty of $30 million and agreed to pay a percentage of future sales of Pharmacia & Upjohn's product Genotropin in North America and Japan. Excluding sales of AVONEX(TM)and the one-time royalty payment, revenues increased 13.5%, primarily as a result of an increase in ongoing royalties received from Schering-Plough Corporation ("Schering-Plough"), the Company's licensee for alpha interferon. Royalties on sales of Hepatitis B vaccines sold by SmithKline Beecham plc ("SmithKline") and Merck & Co., Inc. ("Merck") increased in Germany as a result of a recently initiated vaccination policy which offset a decrease in the market in France which had instituted a vaccination program for infants and adolescents during 1994. Page 10 Total revenues for the nine months ended September 30, 1996 were $185.1 million, including $33.6 million from sales of AVONEX(TM) and the one-time royalty payment of $30 million from Pharmacia & Upjohn, as compared to $111 million in the comparable period of 1995. Excluding sales of AVONEX(TM)and the one-time royalty payment, revenues increased approximately 9.5% primarily as a result of an increase in royalties on alpha interferon sales by Schering-Plough, which were partially offset by a decrease in royalties on sales of Hepatitis B vaccines sold by SmithKline and Merck. The decrease in Hepatitis B vaccine royalties from the prior period was primarily a result of declines in the markets in the United States and France offset by an increase in the German market. On October 31, 1996, the House of Lords in the United Kingdom ruled that one of Biogen's two British patents for Hepatitis B antigens is invalid. As a result of the ruling, the invalidated patent will no longer be enforceable in the United Kingdom or in British patent registration countries. In 1995, royalties from licensee sales of Hepatitis B products in the United Kingdom were less than $1.0 million. The Company does not believe that the House of Lords ruling will affect the validity of its hepatitis B patent portfolio outside the United Kingdom and the British patent registration countries. The Company expects product sales as of a percentage of total revenues to increase as the Company continues to market its new product AVONEX(TM). In the near term, the Company expects overall sales of licensee products to continue at or around current levels although royalty income may fluctuate depending on changes in sales volumes for specific products. In addition, licensee product sales levels and the Company's royalty levels may fluctuate from quarter to quarter as a result of the timing and extent of major events such as new indication approvals, vaccination programs and new licensing arrangements. Total expenses for the third quarter of 1996 were $60.1 million as compared to $36.2 million in the comparable 1995 quarter, a $23.9 million or 66% increase. Cost of sales increased $7.8 million over the comparable 1995 quarter primarily due to the sales of AVONEX(TM) and the royalty revenue from Pharmacia & Upjohn. Costs of sales includes $4.1 million in the current quarter related to sales of AVONEX(TM). Research and development expenses for the current quarter were $30.3 million as compared to $22.5 million in the comparable 1995 quarter, an increase of $7.8 million or 35%. This increase was primarily due to research funding under existing and new collaboration agreements, an increase in clinical trial costs in connection with development efforts on new products and an increase in the Company's development efforts related to other research and development programs in its pipeline. Selling, general and administrative expenses for the current quarter were $18.9 million as compared to $10.3 million in the comparable 1995 quarter, an increase of $8.6 million or 83%. This increase was primarily due to costs associated with the commercial launch of AVONEX(TM) in the United States, including the operation of a domestic sales organization, and market development efforts in the United States and Europe related to AVONEX(TM). For the nine-month period ended September 30, 1996, total expenses were $156.1 million as compared to $105.1 million in the comparable period in 1995, an increase of $51 million or 49%. Cost of sales increased $10.7 million over the comparable period in 1995 primarily due to the sales of Page 11 AVONEX(TM), and the royalty revenue from Pharmacia & Upjohn. Costs of sales includes $5 million in the current nine month period related to the sale of AVONEX(TM). Research and development expenses for the current nine-month period were $84.1 million as compared to $64.2 million in the comparable 1995 period, an increase of $19.9 million or 31%. This increase was primarily due to research funding under existing and new collaboration agreements, payments made to acquire certain patent rights, an increase in clinical trial costs in connection with development efforts on new products and an increase in the Company's development efforts related to other research and development programs in its pipeline. The Company expects that, in the long-term, research and development expenses will increase as the Company continues to expand its development efforts with respect to new products and begins clinical trials of these products. Selling, general and administrative expenses for the nine-month period ended September 30, 1996 were $51.9 million as compared to $27.8 million in the comparable period in 1995, an increase of $24.1 million or 87%. This increase was primarily due to costs associated with the commercial launch of AVONEX(TM) in the United States, including the start-up and operation of a domestic sales organization and the market development efforts in the United States and Europe related to AVONEX(TM). During the current nine-month period, the Company substantially completed the hiring of its domestic sales force and the build-up of its corporate and administrative departments to support the Company's ongoing commercial operations. The Company expects that selling, general and administrative expenses will continue to increase as the Company continues to build the commercial infrastructure and sales and marketing organizations necessary to sell AVONEX(TM) worldwide. The anticipated level of expense will depend on the overall sales levels achieved by AVONEX(TM) and the status of applications for marketing approvals for AVONEX(TM) in the European Union and in several other jurisdictions, including Canada. Income tax expense for the 1996 and 1995 periods varied from the amount computed at U.S. federal statutory rates primarily because of the impact of net operating loss carry forwards. As of December 31, 1995, the Company had a deferred tax asset of $57.1 million (before valuation allowance) consisting of the future tax benefits from net operating loss carry forwards and other tax credits. Due to the sustained growth during the quarter in sales and profitability of the Company's first commercial product, AVONEX(TM), the Company made the determination that it is more likely than not that it will realize the benefits of the net deferred tax assets, and it has therefore reversed all of the related valuation allowance. The Company's reversal of the valuation allowance resulted in a realization of income tax benefit of approximately $23 million representing the balance of tax-loss carryforwards and tax credits that had not been recognized at the beginning of the quarter as well as tax credits generated during the quarter. The reversal of the valuation allowance also resulted in an increase in additional paid-in capital of $38.6 million relating to deductions for non-qualified stock options. During 1995, the Financial Accounting Standards Board issued SFAS 123, "Accounting for Stock-Based Compensation". Biogen intends to adopt SFAS 123 through disclosure only in 1996. Financial Condition At September 30, 1996, the Company had cash, cash equivalents and marketable securities of $282.7 million, a $25.2 million decrease from the Page 12 $307.9 million on hand at December 31, 1995. Working capital increased $61.4 million to $348.3 million. The increase in working capital is primarily due to the reversal of the deferred tax asset valuation allowance. Net cash used by operating activities for the nine months ended September 30, 1996 was $5.6 million. Other outflows of cash included investments in property, plant and equipment and patents of $52.3 million. The Company's common stock option and purchase plans provided $8.8 million in the first nine months of 1996. The Company also received proceeds of $28 million from the issuance of long-term debt issued in connection with the construction of its biologics manufacturing facility. 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% secured 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 third 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 $59 million. As of September 30, 1996, the Company had been invoiced approximately $49 million and had commitments totaling approximately $10 million on this project. 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. As of September 30, 1996, funds advanced were approximately $38 million. Several legal proceedings were pending during the current quarter which involve the Company. See Note 6 of Notes to Condensed Consolidated Financial Statements for discussion of these legal proceedings. The Company currently believes that the financial resources available to it, including its current working capital, revenues from product sales 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 the development effort and launch of AVONEX(TM) in the United States, 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 AVONEX(TM) is the first drug the Company markets directly, the Company continues to build a commercial infrastructure both in the United States and in Europe to market and sell AVONEX(TM). 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 Page 13 licensees' product sales, the timing and extent of royalties from additional licensing opportunities, successful marketing and sales of AVONEX(TM), the level of revenues and profitability from AVONEX(TM) sales, receipt of timely European regulatory approval for AVONEX(TM), which is subject to the discretion of regulatory authorities, the nature of the regulatory and reimbursement decisions related to AVONEX(TM) made by governments around the world, the cost and success of developing and commercializing other products 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 sustained profitability of the Company. Certain of the statements set forth above and elsewhere in the financial statements, including statements regarding the rate of the Company's royalties and product sales in the future, the Company's future expenses and the predictions as to the actions of regulatory authorities in the European Union with respect to AVONEX(TM) and the anticipated outcome of pending litigation, are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, and are based upon the Company's current belief as to the outcome and timing of future events. Important factors which could cause actual results to differ materially from those described in the forward-looking statements and which could negatively impact the Company's results of operations going forward are set forth under "Risks Associated with Drug Development" in the Company's Form 10-K and under Financial Condition in this Form 10-Q and above. PART II - OTHER INFORMATION Item 1 - Legal Proceedings On October 7,1996, a judge dismissed the lawsuit filed by Berlex Laboratories, Inc. against the FDA in the U.S. District Court for the District of Columbia in which Berlex claimed that the FDA's approval of Biogen's AVONEX(TM)(Interferon beta 1a) was improper. Biogen was an intervenor-defendant in the litigation. In dismissing the suit, the judge held that the FDA acted lawfully in approving AVONEX(TM). Berlex has sixty days from the date of the decision to appeal. On July 3, 1996, Berlex filed suit against Biogen in the United States District Court for the District of New Jersey alleging infringement by Biogen of Berlex's "McCormick" patent in the United States in the production of AVONEX(TM). Berlex seeks a judgment granting it unspecified damages, a trebling of any damages awarded and a permanent injunction restraining Biogen from alleged infringement. Prior to the date of the suit filed by Berlex on the McCormick patents, Biogen had filed a suit against Schering AG ("Schering"), Berlex and the Board of Trustees of the Leland Stanford Jr. University ("Stanford") in the United States District Court for the District of Massachusetts for a declaratory judgment of non- infringement and invalidity of the McCormick patent contending that AVONEX(TM), its manufacturing process and intermediates used in that process do not infringe the McCormick patent and that such patent is valid. Biogen seeks a judgment which declares the McCormick patent invalid and not Page 14 infringed by Biogen and which enjoins Schering, Berlex and Standford from asserting any charge of infringement of the McCormick patent or asserting any civil action against Biogen and its customers or users of AVONEX(TM). Biogen and Berlex have each made motions to have the entire case heard in the jurisdiction in which it originally filed its lawsuit. As reported in previous disclosures, the Company is also a party to a class action lawsuit in connection with disclosures related to Biogen's HIRULOG(R) product. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits No. 11 Computation of Earnings per Share. (b) During the quarter ended September 30, 1996, the Company filed the following report on Form 8-K: On July 3, 1996, the Company filed a report on Form 8-K to disclose a patent suit filed by Berlex Laboratories, Inc., the current status of the legal proceeding among the FDA, Berlex and the Company regarding the FDA's approval of Biogen's drug AVONEX(TM) and the filing by ASTA Medica Aktiengesselschaft for arbitration against the Company with the International Chamber of Commerce. 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 5, 1996 /s/Timothy M. Kish ---------------------------------- Timothy M. Kish Vice President-Finance and Chief Financial Officer EXHIBITS Page 15 Index to Exhibits. No. 11 Computation of Earnings per Share. 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 Sept. 30, Ended Sept. 30, 1996 1995 1996 1995 Primary earnings per share Weighted average number of shares outstanding. . . . . . . . . 71,594 67,900 71,403 66,945 Shares deemed outstanding from the assumed exercise of stock options and warrants. . . . . . . . 2,976 5,540 992 5,011 ------- ------- ------- ------- Total . . . . . . . . . . . . . . . 74,570 73,440 72,395 71,956 ======= ======= ======= ======= Net income . . . . . . . . . . . . . $45,052 $ 1,128 $32,301 $ 4,676 ======= ======= ======= ======= Primary earnings per share of common stock . . . . . . . $ 0.60 $ 0.02 $ 0.45 $ 0.06 ======= ======= ======= ======= Fully diluted earnings per share (a) Weighted average number of shares outstanding. . . . . . . . . 71,594 67,900 71,403 66,945 Shares deemed outstanding from the assumed exercise of stock options and warrants. . . . . . . . 4,466 6,720 1,489 5,729 ------- ------- ------- ------- Total . . . . . . . . . . . . . . . . 76,060 74,620 72,892 72,674 ======= ======= ======= ======= Net income . . . . . . . . . . . . . $45,052 $ 1,128 $ 32,301 $ 4,676 ======= ======= ======= ======= Fully diluted earnings per share of common stock . . . . . $ 0.59 $ 0.02 $ 0.44 $ 0.06 ======= ======= ======= ======= (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-27 3
5 1000 9-MOS DEC-31-1996 SEP-30-1996 62,610 220,089 65,858 0 16,802 414,638 206,462 49,253 587,368 66,310 59,956 717 0 0 460,385 587,368 172,288 185,103 18,413 154,337 1,812 0 0 28,954 (3,347) 0 0 0 32,301 0 .45 .44
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