-----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, TfJg/d1FEGzmepA+wNQX0/Bo1smjtyxJ1sVzfqMpdztK3BMmO3i46WH/YcWapeg9 DgmK5kalFgeP4LBhvlZrsA== 0000714655-97-000012.txt : 19971028 0000714655-97-000012.hdr.sgml : 19971028 ACCESSION NUMBER: 0000714655-97-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971027 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: SEC FILE NUMBER: 000-12042 FILM NUMBER: 97701169 BUSINESS ADDRESS: STREET 1: 14 CAMBRIDGE CTR CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6176792000 MAIL ADDRESS: STREET 1: 14 CAMBRIDGE CTR CITY: CAMBRIDGE STATE: MA ZIP: 02142 FORMER COMPANY: FORMER CONFORMED NAME: BIOGEN NV DATE OF NAME CHANGE: 19880622 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Total Pages- 17 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, 1997 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 17, 1997: Common Stock, par value $0.01 74,068,392 (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 Statements of Income - Three months and nine months ended September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 . . . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 1997 and 1996. . . . . . . . . . 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. . . . . . . . . . . . . . . . . . . . . 15 * * * * * * * * * * * * * * * * * * Note concerning trademarks: AVONEX(R) is a registered trademark of Biogen, Inc. BIOGEN, INC. AND SUBSIDIARIES Page 3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share amounts) Three Months Nine Months Ended Sept.30, Ended Sept. 30, 1997 1996 1997 1996 REVENUES Product sales. . . . . . . . . . $60,413 $27,517 $169,469 $ 33,642 Royalties. . . . . . . . . . . . 40,200 69,236 118,422 138,646 Interest . . . . . . . . . . . . 5,588 4,106 15,701 12,815 ------- ------- ------- ------- Total revenues . . . . . . . . 106,201 100,859 303,592 185,103 ------- ------- ------- ------- EXPENSES Cost of sales. . . . . . . . . . 12,498 10,424 35,686 18,413 Research and development . . . . 37,040 30,338 106,962 84,051 Selling, general and administrative . . . . . . . . 22,649 18,880 64,773 51,873 Other. . . . . . . . . . . . . . ( 71) 494 73 1,812 ------- ------- ------- ------- Total expenses . . . . . . . . . 72,116 60,136 207,494 156,149 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES . . . . 34,085 40,723 96,098 28,954 Income taxes. . . . . . . . . . . . 13,600 (4,329) 38,655 (3,347) ------- ------- ------- ------- NET INCOME . . . . . . . . . . . . $20,485 $45,052 $57,443 $ 32,301 ======= ======= ======= ======== NET INCOME PER SHARE . . . . . . . $ 0.27 $ 0.60 $ 0.75 $ 0.45 ======= ======= ======= ======== Average shares outstanding. . . . . 76,571 74,570 76,554 72,395 ======= ======= ======= ======== See Notes to Condensed Consolidated Financial Statements. BIOGEN, INC. AND SUBSIDIARIES Page 4 CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) Sept.30,1997 Dec.31,1996 (unaudited) ASSETS Current assets Cash and cash equivalents . . . . . . . . . $ 62,574 $ 62,032 Marketable securities . . . . . . . . . . . 335,403 259,349 Accounts receivable, less allowances of $1,390 in 1997 and $1,480 in 1996 . . . . 59,302 42,952 Deferred tax asset, net . . . . . . . . . . 37,574 47,888 Other . . . . . . . . . . . . . . . . . . . 30,981 23,533 -------- -------- Total current assets. . . . . . . . . . . . 525,834 435,754 -------- -------- Property, plant and equipment Total cost. . . . . . . . . . . . . . . . . 233,025 217,926 Less accumulated depreciation . . . . . . . 61,491 52,603 -------- -------- Property, plant and equipment, net. . . . . 171,534 165,323 -------- -------- Other assets Patents, net . . . . . . . . . . . . . . . . 14,834 10,458 Marketable securities . . . . . . . . . . . 25,965 16,003 Other . . . . . . . . . . . . . . . . . . . 9,181 7,034 -------- -------- $747,348 $634,572 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable. . . . . . . . . . . . . . $ 19,911 $ 15,722 Current portion long-term debt. . . . . . . 4,888 4,017 Other current liabilities . . . . . . . . . 71,144 68,209 -------- -------- Total current liabilities . . . . . . . . . 95,943 87,948 -------- -------- Long-term debt . . . . . . . . . . . . . . . 63,484 62,254 -------- -------- Shareholders' equity Common stock. . . . . . . . . . . . . . . . 741 725 Additional paid-in capital. . . . . . . . . 515,625 471,623 Retained earnings . . . . . . . . . . . . . 70,274 12,831 Unrealized gain (loss) on marketable securities, net of tax . . . . 1,255 (743) Cumulative translation adjustment . . . . . 26 (66) -------- -------- Total shareholders' equity. . . . . . . . . 587,921 484,370 -------- -------- $747,348 $634,572 ======== ======== 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, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income. . . . . . . . . . . . . . . . . . $ 57,443 $ 32,301 Adjustments to reconcile net income to net cash provided from (used by) operating activities: Depreciation and amortization. . . . . . . . 13,615 11,195 Deferred income taxes . . . . . . . . . . . . 31,084 (5,534) Other. . . . . . . . . . . . . . . . . . . . 2,184 1,163 Changes in: Accounts receivable . . . . . . . . . . . . (16,350) (46,246) Other current assets. . . . . . . . . . . . (7,448) (9,093) Other assets. . . . . . . . . . . . . . . . (1,147) (1,517) Accounts payable and other current liabilities. . . . . . . . . 9,982 12,105 -------- -------- Net cash provided from (used by) operating activities . . . . . . . . . . . . . . . . . 89,363 (5,626) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of marketable securities. . . . . . (349,255) (265,594) Proceeds from sales of marketable securities. 274,793 304,524 Investments in research collaborations . . . . (11,000) -- Acquisitions of property and equipment. . . . (20,878) (50,613) Additions to patents. . . . . . . . . . . . . (6,670) (1,742) -------- -------- Net cash used by investing activities. . . . . (113,010) (13,425) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt. . . 4,545 27,963 Payments of long-term debt. . . . . . . . . . (2,444) (833) Issuance of common stock . . . . . . . . . . . 22,088 8,761 -------- -------- Net cash provided from financing activities . 24,189 35,891 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . 542 16,840 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . 62,032 45,770 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . $ 62,574 $ 62,610 ======== ======== 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 1996 Annual Report. Interim results are not necessarily indicative of the operating results 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. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Number 128 "Earnings per Share" ("SFAS 128") which changes the method of calculating earnings per share. SFAS 128 requires the presentation of "basic" earnings per share and "diluted" earnings per share on the face of the income statement. Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average shares of outstanding common stock. The calculation of diluted earnings per share is similar to basic earnings per share except that the denominator includes dilutive common stock equivalents such as stock options and warrants. The Company will adopt SFAS 128 in the fourth quarter of 1997, as early adoption is not permitted. The Company does not expect the adoption of SFAS 128 to have a material impact on its earnings per share calculation. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Number 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standards Number 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes standards for reporting comprehensive income and its components in the consolidated financial statements. SFAS 131 establishes standards for reporting information on operating segments in interim and annual financial statements. SFAS 130 and SFAS 131 will become effective for the Company commencing in fiscal year 1998. SFAS 130 and SFAS 131 require disclosure only and will have no impact on the Company's consolidated financial statements. 2. As of September 30, 1997, the Company had $21.7 million outstanding under a term loan secured by a laboratory and office building in Cambridge, Massachusetts. Principal payments of $.8 million are due semi-annually through 2004 with the balance due on May 8, 2005. As of September 30, 1997, the Company had $46.7 million outstanding under a loan agreement with a bank for financing the construction of the Company's biological manufacturing facility in North Carolina (the "Construction Loan"). The Construction Loan is secured by the facility. Payments of $.8 million are due quarterly through 2006 with Page 7 the balance due on March 31, 2007. 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. 3. Inventories are stated at the lower of cost or market with cost determined under the first-in/first-out ("FIFO") method. Raw materials include inventory 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, 1997 and December 31, 1996 are as follows: (In Thousands) Sept. 30, 1997 Dec. 31, 1996 Raw materials $ 3,834 $ 3,262 Work in process 9,096 7,801 Finished goods 9,475 5,495 -------- -------- $22,405 $16,558 ======== ======== 4. On July 3, 1996, Berlex Laboratories, Inc. ("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 Biogen's AVONEX(R)(Interferon beta-1a). Berlex seeks a judgment granting it unspecified damages, a trebling of any damages awarded and a permanent injunction restraining Biogen from alleged infringement. An unfavorable ruling in the Berlex suit could have a material adverse effect on the Company's results of operations and financial position. The Company believes that it has meritorious defenses to the Berlex claim; however, the ultimate outcome is not determinable at this time. Prior to the date of the suit filed by Berlex, 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(R), its manufacturing process and intermediates used in that process do not infringe the McCormick patent and that such patent is not valid. In November 1996, the U.S. District Court in Massachusetts ruled that it had jurisdiction and Berlex's New Jersey action was transferred to Massachusetts. Biogen and Stanford subsequently entered into an agreement voluntarily dismissing Stanford from the suit. A trial is not expected before the latter part of 1998. In June 1996, ASTA Medica Aktiengesselschaft ("ASTA") filed for arbitration against Biogen with the International Chamber of Commerce (ICC) in Paris, France. In its complaint, ASTA alleges that Biogen's 1993 termination of a 1989 agreement licensing ASTA to make recombinant interferon beta in certain European territories was ineffective. The agreement at issue also included as a party Bioferon, a Biogen joint venture that declared bankruptcy in 1993. The ASTA complaint asks that an ICC panel declare that the 1989 license is still in force, and, in the alternative, seeks approximately $5 million in damages. The territories in the 1989 license included most of Western Europe except Page 8 Germany. The arbitration is taking place in Zurich under Swiss law. The Company's management believes that it has meritorious defenses to this claim and given the defenses, believes the ultimate outcome of this legal proceeding will not have a material adverse effect on the results of operations or financial position of the Company. 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 remaining claims in this lawsuit and given the defenses, believes the ultimate outcome of this legal proceeding will not have a material adverse effect on the results of operations or financial position of the Company. 5. In March 1997, the Company and its wholly-owned subsidiary, Biotech Manufacturing Limited, signed a research collaboration and license agreement (the "Agreement") with CV Therapeutics, Inc. ("CVT") under which Biogen obtained rights to develop and market CVT's therapeutic CVT-124 for the treatment of edema associated with congestive heart failure. Under the terms of the Agreement, the Company purchased approximately 670,000 shares of CVT common stock for $7 million and paid a one-time license fee of $5 million. In addition, pursuant to the terms of the Agreement, the Company established a $12 million line of credit that CVT may use for operating purposes. At September 30, 1997, the Company had advanced $3 million under the line of credit to CVT. 6. Income tax expense for September 30, 1997 varied from the amount computed at U.S. statutory rates primarily due to the benefit of research and development and investment tax credits partially offset by foreign losses for which the Company will receive no current tax benefit. The exercise of nonqualified stock options results in a reduction of taxable income of the Company equal to the difference between the option price and the fair market value on the date of the exercise. During the three and nine months ended September 30, 1997, $746,000 and $21.7 million, respectively, was credited to additional paid-in capital relating to this tax benefit from stock option exercises. 7. In October 1997, the Company signed a research and option agreement (the "Agreement") with CuraGen Corporation ("CuraGen"). Under the Agreement, the Company and CuraGen will collaborate in the discovery of novel genes using CuraGen's functional genomics technologies. The Company has an option to acquire an exclusive license to certain discoveries arising out of the collaborative effort. Under the terms of the Agreement, the Company has agreed to purchase CuraGen common stock totaling $5 million and to establish a $10 million line of credit with an annual maximum drawdown limit of $5 million in the first year. The Company has also agreed to fund research activities of CuraGen related to the collaboration over the next five years. BIOGEN, INC. AND SUBSIDIARIES Page 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Biogen, Inc. (the "Company" or "Biogen") is a biopharmaceutical company principally engaged in the business of developing, manufacturing and marketing drugs for human health care. The Company currently derives revenues from sales of AVONEX(R) which is sold under the Biogen name and from royalties on worldwide sales by the Company's licensees of a number of products covered under patents controlled by the Company, including alpha interferon and hepatitis B products. The Company began selling AVONEX (R) in the United States in May 1996 as a treatment for relapsing forms of multiple sclerosis ("MS"). MS is a chronic inflammatory disease of the central nervous system that affects over one million people worldwide. In March 1997, the Company received regulatory approval to market AVONEX(R) for the treatment of relapsing MS in the 15 member countries of the European Union. During the first quarter of 1997, the Company began marketing AVONEX(R) in the United Kingdom, Germany, Sweden, Finland and Switzerland. During the third quarter of 1997 AVONEX(R)was introduced in Italy, Spain and the Netherlands. Final pricing and reimbursement approvals are anticipated in certain other countries of the European Union during the fourth quarter of 1997 and into 1998. AVONEX (R) is also on the market in Israel and Cyprus. In addition, the Company is seeking approval to market AVONEX(R) in Canada and several other countries. Results of Operations For the quarter ended September 30, 1997, the Company reported net income of $20.5 million or $0.27 per share as compared to $45.1 million or $0.60 per share for the comparable period of 1996. For the nine months ended September 30, 1997, the Company reported net income of $57.4 million or $0.75 per share as compared to $32.3 million or $0.45 per share for the comparable period of 1996. Net income for the three and nine months ended September 30, 1996 included a one-time royalty payment of $30 million from Pharmacia & Upjohn, Inc. (the "one-time royalty payment") and a one-time tax benefit of $23 million. Total revenues for the current quarter were $106.2 million, as compared to $100.9 million in the quarter ended September 30, 1996, an increase of $5.3 million or 5.3%. Excluding the 1996 one-time royalty payment, total revenues for the current quarter increased $35.3 million or 49.8% from the comparable quarter of 1996. The increase in total revenues was primarily due to sales of the Company's product AVONEX(R) which was introduced in the United States in May 1996. Sales of AVONEX(R) accounted for $60.4 million of total revenues for the current quarter of 1997 compared to $27.5 million for the comparable period in 1996, an increase of $32.9 million. Revenues from royalties for the current quarter were $40.2 million as compared to $69.2 million for the comparable quarter of 1996. Excluding the 1996 one-time royalty payment, royalty revenues increased $1 million from the comparable quarter of 1996. Page 10 Total revenues for the nine months ended September 30, 1997 were $303.6 million as compared to $185.1 million in the comparable period of 1996, an increase of $118.5 million or 64%. Excluding the 1996 one-time royalty payment, total revenues increased $148.5 million from the comparable period of 1996. The increase in total revenues was primarily due to sales of the Company's product AVONEX(R). Sales of AVONEX(R)for the nine months ended September 30, 1997 were $169.5 million as compared to $33.6 million in the comparable period of 1996, an increase of $135.9 million. Revenues from royalties during the nine months ended September 30, 1997 decreased $20.2 million, or 14.6% from the comparable period in 1996. Excluding the 1996 one-time royalty payment, royalty revenues for the nine months ended September 30, 1997 increased $9.8 million from the comparable period of 1996, primarily as a result of an increase in alpha interferon sales by Schering-Plough Corporation, which were partially offset by a decrease in royalties on sales of Hepatitis B vaccines. The Company expects product sales to increase in the near term as the Company continues its introduction of AVONEX(R) in new markets. The Company, however, expects to face increasing competition in the MS marketplace from other treatments for MS. In the near term, the Company expects overall sales of licensee products and royalty revenues to fluctuate depending on changes in sales volumes for specific products, patent expirations, new licensing arrangements or other developments. Licensee sales levels may also fluctuate from quarter to quarter due to the timing and extent of major events such as new indication approvals or vaccination programs. Interest income for the current quarter was $5.6 million, an increase of $1.5 million or 36.6% as compared to $4.1 million in the comparable period in 1996. For the nine months ended September 30, 1997, interest income was $15.7 million compared to $12.8 million for the comparable period of 1996, an increase of $2.9 million or 22.7%. The increase in interest income is primarily a result of increased levels of invested funds. Total expenses for the current quarter were $72.1 million as compared to $60.1 million in the quarter ended September 30, 1996, an increase of $12 million or 20%. Cost of sales in the current quarter totaled $12.5 million, an increase of $2.1 million from the quarter ended September 30, 1996. Cost of sales in the current quarter includes product costs of $9.4 million compared to $4.1 million in the quarter ended September 30, 1996, an increase of $5.3 million. This increase in product cost of sales was offset by a $3.2 million decrease in royalty cost of sales, primarily due to costs included in 1996 associated with the one-time royalty payment. Research and development expenses for the current quarter were $37 million, an increase of $6.7 million or 22.1% as compared to the quarter ended September 30, 1996. This increase was primarily due an increase in clinical trial costs 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 current quarter were $22.6 million, an increase of $3.7 million or 19.6% as compared to the quarter ended September 30, 1996. This increase was primarily due to the selling and marketing expenses related to sales of AVONEX(R). The Company expects that selling, general and administrative Page 11 expenses will increase in the near and long-term as the Company continues to put in place the commercial infrastructure and sales and marketing organizations necessary to sell AVONEX(R) worldwide. The anticipated level of expense will depend on the overall sales levels achieved by AVONEX(R). Total expenses for the nine months ended September 30, 1997 were $207.5 million as compared to $156.1 million in the comparable period in 1996, an increase of $51.4 million or 32.9%. Cost of sales for the nine months ended September 30, 1997 were $35.7 million as compared to $18.4 million in the comparable period of 1996, an increase of $17.3 million or 94%. Cost of sales for the nine months ended September 30, 1997 includes product costs of $25.9 million as compared to $5.0 million in the comparable period of 1996, an increase on $20.9 million. Cost of sales relating to royalty revenue for the nine months ended September 30, 1997 decreased $3.6 million from $13.4 million to $9.8 million, primarily due to costs included in 1996 associated with the one-time royalty payment. Research and development expenses for the nine months ended September 30, 1997 were $107 million as compared to $84.1 million in the comparable 1996 period, an increase of $22.9 million or 27.2%. This increase was primarily due to the research collaboration with CV Therapeutics, Inc. ("CVT"), an increase in clinical trial costs and an increase in the Company's development efforts related to research and development programs in its pipeline. In March 1997, the Company entered into a research collaboration and license agreement with CVT under which Biogen obtained rights to develop and market CVT's therapeutic CVT-124 for treatment of edema associated with congestive heart failure. In addition to CVT, Biogen currently has three early stage compounds in clinical trials. They are LFA3TIP, a T-cell inhibiting protein being tested as a potential treatment for severe psoriasis, Gelsolin, a mucolytic agent, that is being studied for treatment of cystic fibrosis, chronic bronchitis and several other pulmonary diseases, and CD40 ligand antibody, which is being studied as a potential treatment for certain autoimmune diseases. The Company continues to add additional internal resources in the area of research and development. Selling, general and administrative expenses for the nine months ended September 30, 1997 were $64.8 million as compared to $51.9 million in the comparable period in 1996, an increase of $12.9 million or 24.9%. This increase was primarily due to selling and marketing expenses related to sales of AVONEX(R). Income tax expense for September 30, 1997 varied from the amount computed at U.S. statutory rates primarily due to the benefit of research and development and investment tax credits offset by foreign losses for which the Company will receive no current tax benefit. The Company's effective tax rate for the nine months ended September 30, 1997 was 40.2% and it is expected to continue at or near this level for the remainder of 1997. In February 1997, the Financial Accounting Standards Board issued SFAS 128, "Earnings per Share" ("SFAS 128") which changes the method of calculating earnings per share. SFAS 128 requires the presentation of basic earnings per share and diluted earnings per share on the face of the income statement. Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average shares of outstanding common stock. The calculation of diluted earnings per share is similar to the calculation of basic earnings per share except that the denominator includes dilutive common stock equivalents such as stock options and warrants. See Note 1 to the Condensed Consolidated Financial Statements. Page 12 In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Number 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standards Number 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes standards for reporting comprehensive income and its components in the consolidated financial statements. SFAS 131 establishes standards for reporting information on operating segments in interim and annual financial statements. SFAS 130 and SFAS 131 will become effective for the Company commencing in fiscal year 1998. SFAS 130 and SFAS 131 require disclosure only and will have no impact on the Company's consolidated financial statements. See Note 1 to the Condensed Consolidated Financial Statements. Financial Condition At September 30, 1997, cash, cash equivalents and short term marketable securities were $398 million compared with $321.4 million at December 31, 1996, an increase of $76.6 million. Working capital increased $82.1 million to $429.9 million between December 31, 1996 and September 30, 1997. Net cash provided from operating activities for the nine months ended September 30, 1997 was $89.4 million, compared with $5.6 million used by operating activities in 1996. Cash outflows for the nine months ended September 30, 1997, included investments in property and equipment and patents of $27.5 million and $11 million related to research collaboration agreements. Cash inflows included $3.7 million from loan agreements with banks and $22.1 million from common stock option exercises and stock purchase plan activity. The Company has several research programs and collaborations underway. In March 1997, the Company and its wholly-owned subsidiary, Biotech Manufacturing Limited, signed a research collaboration and license agreement (the "Agreement") with CVT under which Biogen obtained rights to develop and market CVT's therapeutic CVT-124 for the treatment of edema associated with congestive heart failure. Under the terms of the Agreement, the Company purchased approximately 670,000 shares of CVT common stock for $7 million and paid a one-time license fee of $5 million. In addition, pursuant to the terms of the Agreement, the Company established a $12 million line of credit that CVT may use for operating purposes. At September 30, 1997, the Company had advanced $3 million under the line of credit to CVT. On October 6, 1997, the Company announced that its Board of Directors has authorized the repurchase of up to 2,500,000 shares of its common stock. The repurchased stock will provide the Company with treasury shares for general corporate purposes, such as stock to be issued under employee stock option and stock purchase plans. Stock purchases will occur from time to time over the next two years, depending on market conditions. The stock repurchase program may be discontinued at any time. The Company intends to institute a put and call program in order to facilitate the stock repurchases. In October 1997, the Company signed a research and option agreement (the "Agreement") with CuraGen Corporation ("CuraGen"). Under the Agreement, the Company and CuraGen will collaborate in the discovery of novel genes using CuraGen's functional genomics technologies. The Company has an option to acquire an exclusive license to certain discoveries arising out of the collaborative effort. Under the terms of the Agreement, the Company has agreed to purchase CuraGen common stock totaling $5 million and to Page 13 establish a $10 million line of credit with an annual maximum drawdown limit of $5 million in the first year. The Company has also agreed to fund research activities of CuraGen related to the collaboration over the next five years. Several legal proceedings were pending during the current quarter which involve the Company. See Note 4 to the Condensed Consolidated Financial Statement and Item 1 - Business, "Patents and Other Proprietary Rights" of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 for discussions 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 financing, sales of equity or debt securities and other financing arrangements. Outlook Safe Harbor Statement under Private Securities Litigation Reform Act of 1995 In addition to historical information, this quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Reference is made in particular to forward-looking statements regarding the anticipated level of future royalty revenues, product sales, expenses and profits and anticipated pricing approvals and predictions as to the anticipated outcome of pending litigation. These and all other forward-looking statements are made based on the Company's current belief as to the outcome and timing of such future events. Factors which could cause actual results to differ from the Company's expectations and which could negatively impact the Company's results of operations are discussed below and elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations. Dependence on AVONEX(TM) Sales and Royalty Revenue The Company's ability to sustain increases in revenues and profitability will be primarily dependent on the level of revenues and profitability from AVONEX(R) sales. The Company's ability to sustain profitability from sales of AVONEX(R) will depend on a number of factors, including: continued market acceptance of AVONEX(R) in the United States; the Company's ability to maintain a high level of patient satisfaction with AVONEX(R) in treating the relapsing form of multiple sclerosis, a disease which is characterized by an uneven pattern of disease progression; the nature of regulatory and pricing decisions related to AVONEX(R) worldwide and the extent to which AVONEX(R) receives reimbursement coverage; market acceptance of AVONEX(R) outside Page 14 the United States; successful resolution of the lawsuit with Berlex related to the "McCormick" patent, which if decided in Berlex's favor could have a material adverse effect on the Company's operations; the Company's ability to sustain market share of AVONEX(R) in light of the introduction of competitive products for the treatment of multiple sclerosis, such as Teva Pharmaceuticals' Copaxone(R) glatiramer acetate, which was recently launched in the United States, Canada and Israel and Ares-Serono's Rebif(R), an interferon beta-1a product, which is the subject of a pending application in the European Union, and also in light of the decision earlier this year of the European Patent Office to revoke the Company's European patent covering the expression of recombinant beta interferon; the success of ongoing development work related to AVONEX(R) in expanded multiple sclerosis indications and the continued accessibility of third parties to vial, label, and distribute AVONEX(R) on acceptable terms. The Company also receives royalty revenues which contribute a significant amount to its overall profitability. The Company's ability to maintain the level of its royalty revenues will depend on: sustaining the scope and validity of existing patents; the efforts of licensees in the clinical testing and marketing of products from which the Company derives revenue; and the timing and extent of royalties from additional licensing opportunities. There can be no assurance that the Company will achieve a positive outcome with respect to any of the factors discussed in this Section 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 sustained increases in revenues or profitability or the sustained profitability of the Company. For a further discussion of risks regarding drug development, patent matters, including the Berlex lawsuit on the "McCormick" patent, competition in the multiple sclerosis market and regulatory matters, see the Company's Annual Report on Form 10-K for the period ended December 31, 1996 under the headings "Business - Risks Associated with Drug Development", "Business - Patents and Other Proprietary Rights", "Business - Competition and Marketing -AVONEX(TM) (interferon beta 1a)", "Business - Regulation" and "Legal Proceedings." New Products AVONEX(R) is currently the only product sold by the Company. The Company's long-term viability and growth will depend on the successful development and commercialization of other products from its research activities and collaborations. The Company has begun to expand its development efforts related to other potential 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. Product development involves a high degree of risk. Many important factors affect the Company's ability to successfully develop and commercialize drugs, including the ability to obtain and maintain necessary patents and licenses, to demonstrate safety and efficacy of drug candidates at each stage of the clinical trial process, to meet applicable regulatory standards and receive required regulatory approvals, to be capable of producing drug candidates in commercial quantities at reasonable costs, to compete successfully against other products and to market products successfully. There can be no assurance that the Company will be successful in its efforts to develop and commercialize new products. Page 15 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits No. 11 Computation of Earnings per Share. No. 27 Financial Data Schedule(for EDGAR filing purposes only). (b) There were no reports on Form 8-K filed for the quarter ended September 30, 1997. 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: October 27, 1997 /s/Timothy M. Kish ------------------------------- Timothy M. Kish Vice President-Finance and Chief Financial Officer Page 16 PART II - OTHER INFORMATION EXHIBITS Index to Exhibits. No. 11 Computation of Earnings per Share. No. 27 Financial Data Schedule(for EDGAR filing purposes only). EX-11 2 Page 17 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, 1997 1996 1997 1996 Primary earnings per share Weighted average number of shares outstanding . . . . . . . 74,003 71,594 73,719 71,403 Shares deemed outstanding from the assumed exercise of stock options and warrants. . . . . . 2,568 2,976 2,835 992 ------- ------- ------- ------- Total . . . . . . . . . . . . .. 76,571 74,570 76,554 72,395 ======= ======= ======= ======= Net income . . . . . . . . . . . . $20,485 $45,052 $57,443 $32,301 ======= ======= ======= ======= Primary earnings per share of common stock . . . .. . $ 0.27 $ 0.60 $ 0.75 $ 0.45 ======= ======= ======= ======= Fully diluted earnings per share (a) Weighted average number of shares outstanding. . . . . .. . 74,003 71,594 73,719 71,403 Shares deemed outstanding from the assumed exercise of stock options and warrants. . . . .. . 2,568 4,466 2,853 1,489 ------- ------- ------- ------- Total . . . . . . . . . . . . .. . 76,571 76,060 76,572 72,892 ======= ======= ======= ======= Net income . . . . . . . . . . . $20,485 $ 45,052 $57,443 $32,301 ======= ======= ======= ======= Fully diluted earnings per share of common stock . . . $ 0.27 $ 0.59 $ 0.75 $ 0.44 ======= ======= ======= ====== (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-31-1997 SEP-30-1997 62574 335403 60692 1390 22405 525834 233025 61491 747348 95943 0 0 0 741 587180 747348 169469 303592 35686 207494 73 0 0 96098 38655 57443 0 0 0 57443 0.75 0.75
-----END PRIVACY-ENHANCED MESSAGE-----