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)
<PAGE>
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.
<PAGE>
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.
<PAGE>
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>
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.
<PAGE>
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>
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>
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>
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>
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).
<PAGE>
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%.
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