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 March 31, 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 April 14, 1997:
Common Stock, par value $0.01 73,853,141
(Title of each class) (Number of Shares)
<PAGE>
Page 2
B I O G E N , I N C .
Page No.
PART I - FINANCIAL INFORMATION
Condensed Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996. . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996. . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31 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: Hirulog(R) and AVONEX(R) are trademarks of
Biogen, Inc.
<PAGE>
BIOGEN, INC. AND SUBSIDIARIES Page 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
Three months ended
March 31,
1997 1996
REVENUES
Product . . . . . . . . . . . . . . . . . . . $ 52,616 $ -
Royalties . . . . . . . . . . . . . . . . . . 42,215 34,378
Interest. . . . . . . . . . . . . . . . . . . 4,907 4,465
-------- --------
Total revenues. . . . . . . . . . . . . . . . 99,738 38,843
-------- --------
EXPENSES
Cost of product and royalty revenues. . . . . 11,744 4,153
Research and development. . . . . . . . . . . 37,908 24,411
Selling, general and administrative . . . . . 21,164 13,246
Other, net. . . . . . . . . . . . . . . . . . 334 509
-------- --------
Total expenses. . . . . . . . . . . . . . . . 71,150 42,319
-------- --------
INCOME(LOSS) BEFORE INCOME TAXES. . . . . . . . 28,588 (3,476)
Income taxes. . . . . . . . . . . . . . . . . . 11,578 182
-------- --------
NET INCOME(LOSS). . . . . . . . . . . . . . . . $ 17,010 $ (3,658)
======== ========
EARNINGS (LOSS) PER SHARE . . . . . . . . . . . $ 0.22 $ (0.05)
======== ========
Average number of shares outstanding. . . . . . 76,843 71,200
======== ========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
BIOGEN, INC. AND SUBSIDIARIES Page 4
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31,1997 Dec. 31,1996
(unaudited)
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . . $ 101,472 $ 62,032
Marketable securities . . . . . . . . . . . . 246,269 259,349
Accounts receivable, less allowances of
$1,729 in 1997; and $1,480 in 1996 . . . . . 43,803 42,952
Deferred tax asset, net . . . . . . . . . . . 61,160 47,888
Other . . . . . . . . . . . . . . . . . . . . 26,655 23,533
-------- --------
Total current assets. . . . . . . . . . . . . 479,359 435,754
-------- --------
Property, plant and equipment
Total cost. . . . . . . . . . . . . . . . . . 222,594 217,926
Less accumulated depreciation . . . . . . . . 56,272 52,603
-------- --------
Property, plant and equipment, net. . . . . . 166,322 165,323
-------- --------
Other assets
Patents, net. . . . . . . . . . . . . . . . . 12,301 10,458
Marketable securities . . . . . . . . . . . . 19,482 16,003
Other . . . . . . . . . . . . . . . . . . . . 6,742 7,034
-------- --------
Total other assets. . . . . . . . . . . . . . 38,525 33,495
-------- --------
$ 684,206 $ 634,572
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . $ 19,414 $ 15,722
Current portion of long-term debt. . . . . . 4,808 4,017
Accrued expenses and other . . . . . . . . . 58,146 68,209
-------- --------
Total current liabilities. . . . . . . . . . 82,368 87,948
-------- --------
Long-term debt, less current portion . . . . . 66,008 62,254
-------- --------
Shareholders' equity:
Common stock . . . . . . . . . . . . . . . . 738 725
Additional paid-in capital . . . . . . . . . 510,581 471,623
Retained earnings . . . . . .. . . . . . . . 29,841 12,831
Unrealized losses on marketable securities . (5,353) (743)
Cumulative translation adjustment. . . . . . 23 (66)
-------- --------
Total shareholders' equity . . . . . . . . . 535,830 484,370
-------- --------
$ 684,206 $ 634,572
======== ========
See Notes to Condensed Consolidated Financial Statements.
BIOGEN, INC. AND SUBSIDIARIES Page 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended
March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss). . . . . . . . . . . . . . . . $ 17,010 $ (3,658)
Adjustments to reconcile net income(loss) to
net cash provided from (used by) operating
activities:
Depreciation and amortization. . . . . . . . . 4,357 3,629
Deferred income taxes. . . . . . . . . . . . . 9,500 -
Other. . . . . . . . . . . . . . . . . . . . . 2,217 401
Changes in:
Accounts receivable . . . . . . . . . . . . . (851) 3,815
Other current assets. . . . . . . . . . . . . (3,122) (5,351)
Other assets. . . . . . . . . . . . . . . . . 291 (142)
Accounts payable and
other current liabilities. . . . . . . . . . (3,513) (7,271)
-------- --------
Net cash provided from (used by)
operating activities. . . . . . . . . . . . . 25,889 (8,577)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities. . . . . . . (95,239) (119,091)
Proceeds from sales of marketable securities. . 106,518 118,088
Investment in research collaboration. . . . . . (10,000) -
Acquisitions of property and equipment. . . . . (8,525) (15,112)
Additions to patents. . . . . . . . . . . . . . (2,531) (44)
-------- --------
Net cash used by investing activities . . . . . (9,777) (16,159)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt. . . . 4,545 7,086
Issuance of common stock. . . . . . . . . . . . 18,783 4,369
-------- --------
Net cash provided from financing activities . . 23,328 11,455
-------- --------
NET INCREASE(DECREASE) IN CASH AND
CASH EQUIVALENTS. . . . . . . . . . . . . . . . 39,440 (13,281)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD . . . . . . . . . . . . . . 62,032 45,770
-------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD . . . . . . . . . . . . . . . . . $101,472 $ 32,489
======== ========
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 statement is effective for financial
statements for periods ending after December 31, 1997. The Company
will adopt SFAS 128 in the fourth quarter of 1997, as early adoption
is not permitted. The pro forma basic earnings per share and diluted
earnings per share calculated in accordance with SFAS 128 for the
three months ended March 31, are as follows:
1997 1996
Pro forma basic earnings per share $0.23 ($0.05)
Pro forma diluted earnings per share $0.22 ($0.05)
2. As of March 31, 1997, the Company had $22.5 million outstanding under
a term loan secured by a laboratory and office building in Cambridge,
Massachusetts. The annual principal payable in each of the years 1996
through 1999 is $1.7 million with the balance due May 8, 2005.
In August 1995, the Company entered into a loan agreement with a bank
for financing the construction of its biological manufacturing
facility in North Carolina (the "Construction Loan"). As of March 31,
1997 the Company had substantially completed construction of the
facility and the funds advanced under the Construction Loan of $48.3
million were converted to a 10 year term loan with principal and
interest payable quarterly.
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
Page 7
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 and are expensed as research and development
costs when consumed. Inventories, net of applicable reserves and
allowances, at March 31, 1997 and December 31, 1996 are as follows:
(In Thousands)
March 31, 1997 Dec. 31, 1996
Raw materials $ 3,944 $ 3,262
Work in process 8,824 7,801
Finished goods 7,831 5,495
---------- ----------
$ 20,599 $ 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 market
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
licence 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 Germany. The
arbitration will take 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.
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
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 March 31, 1997,
the Company had advanced $3 million under the line of credit to CVT.
6. Income tax expense for March 31, 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 months ended March 31, 1997, $20.1 million was
credited to additional paid in capital relating to this tax benefit
from stock option exercises. Due to the sustained growth during the
third quarter of 1996 in sales and profitability of AVONEX(R), the
Company made the determination that it is more likely than not that it
will realize the benefits of its net deferred tax assets, and it
therefore reversed all of the related valuation allowance. The
Company's reversal of the valuation allowance in the third quarter of
1996 resulted in a realization of income tax benefit of approximately
$23 million representing the balance of net operating loss carry
forwards 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 in the third quarter also
resulted in an increase in additional paid-in capital in 1996 of $38.6
million relating to deductions for non-qualified stock options.
Page 9
BIOGEN, INC. AND SUBSIDIARIES
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. In May 1996, the Company received a
license from the United States Food and Drug Administration ("FDA") to
market Biogen's new product AVONEX(R) 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. The Company has also received regulatory approval to market
and sell AVONEX(R) in Israel, Cyprus and Switzerland. In addition, the
Company is seeking approval for AVONEX(R) in Canada and several other
countries.
Results of Operations
1997 QUARTER COMPARED TO 1996 QUARTER
For the first quarter ended March 31, 1997, the Company reported net income
of $17.0 million or $0.22 per share as compared to a net loss of $3.7
million or $(0.05) per share in the first quarter of 1996.
Total revenues for the current quarter were $99.7 million, as compared to
$38.8 million in the quarter ended March 31, 1996, an increase of $60.9
million or 157%. The increase in total revenues was primarily due to sales
of the Company's product AVONEX(R) which was introduced in May 1996. Sales
of AVONEX(R) accounted for $52.6 million of total revenues in the first
quarter of 1997. During the first quarter of 1997, the Company received
regulatory approval to sell AVONEX(R) and began selling AVONEX(R) in the
United Kingdom, Germany, Sweden and Finland. AVONEX(R) is also on the
market in Israel and Cyprus. The Company expects product sales as a
percentage of total revenues to increase over the course of the fiscal year
as the Company continues its introduction of AVONEX(R) in new markets.
Revenues from royalties for the current quarter were $42.2 million, an
increase of $7.8 million or 22.7% as compared to the quarter ended March
31, 1996. This increase is primarily a result of an increase in ongoing
royalties received from Schering-Plough Corporation ("Schering-Plough"),
the Company's licensee for alpha interferon, and a one-time royalty payment
from The Medicines Company ("TMC").
In the near term, the Company expects overall sales of licensee products
and royalty revenues to increase. The level of anticipated royalty growth
may fluctuate depending on changes in sales volumes for specific products,
patent expirations, new licensing arrangements or other developments.
There are a number of other factors which could cause the actual level of
royalty revenue to differ from the Company's expectations. For example,
pricing reforms, health care reform initiatives, other legal and regulatory
developments and the introduction of competitive products may have and
Page 10
impact on product sales by the Company's licensees. Since the Company is
not involved in the development or sale of products by its licensees, it is
unable to predict the timing or potential impact of factors which may
affect licensee sales. In addition, licensee sales levels may 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 $4.9 million, an increase of
$442,000 or 9.9% as compared to $4.5 million in the quarter ended March 31,
1996. The increase in interest income is primarily a result of increased
funds invested.
Total expenses for the current quarter were $71.2 million as compared to
$42.3 million in the quarter ended March 31, 1996, an increase of $28.9
million or 68.3%. Cost of sales in the quarter ended March 31, 1997
increased $7.5 million as compared to the quarter ended March 31, 1996.
Cost of sales includes product costs of $ 7.7 million in the first quarter
of 1997 related to sales of AVONEX(R). The gross margin in the first
quarter of 1997 for product revenue was approximately $ 44.9 million or
85.4%. Cost of sales relating to royalty revenue for the first quarter of
1997 was $4 million, a decrease of $200,000 as compared to the first
quarter of 1996.
Research and development expenses for the current quarter were $37.9
million, an increase of $13.5 million or 55.3% as compared to the quarter
ended March 31, 1996. 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
other 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. The Company continues to add additional internal resources in the
area of research and development. 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 expects that, in the long-term,
research and development expenses will increase as the Company expands its
pipeline and related development efforts with respect to potential new
products and conducts clinical trials on potential products.
Selling, general and administrative expenses for the current quarter were
$21.2 million, an increase of $8 million or 60.6% as compared to the
quarter ended March 31, 1996. This increase was primarily due to the
selling and marketing expenses related to sales of AVONEX(R) in the United
States. In addition, the Company has invested resources in market
development efforts and the commercial launch of AVONEX(R)in Europe. The
Company expects that selling, general and administrative 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).
Income tax expense for March 31, 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
Page 11
the Company will receive no current tax benefit. The Company's effective
tax rate in the first quarter of 1997 is 40.5% and it is expected to
continue at or near this level for the remainder of 1997. Due to the
sustained growth during the third quarter of 1996 in sales and
profitability of the Company's first commercial product, AVONEX(R), the
Company made the determination that it was more likely than not that it
will realize the benefits of the net deferred tax assets, and it therefore
reversed all of the related valuation allowance. The Company's reversal of
the valuation allowance in the third quarter of 1996 resulted in a
realization of income tax benefit of approximately $23 million representing
the balance of net operating loss carry forwards 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 in
the third quarter also resulted in an increase in additional paid-in
capital in 1996 of $38.6 million relating to deductions for non-qualified
stock options.
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 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.
Financial Condition
At March 31, 1997, cash, cash equivalents and marketable securities were
$347.7 million compared with $321.4 million at December 31, 1996, an
increase of $26.3 million. Working capital increased $49.2 million to
$397.0 million between December 31, 1996 and March 31, 1997, including an
increase of $20.1 million in deferred tax assets related to non-qualified
stock option activity. Net cash provided from operating activities for the
current quarter was $25.9 million, compared with $8.6 million used by
operating activities in the first quarter of 1996. Cash outflows for the
three months ended March 31, 1997, included investments in property and
equipment and patents of $11.1 million and $10 million related to a
research collaboration agreement with CVT. Cash inflows included $4.5
million from loan agreements with banks and $18.8 million from common stock
option exercises and stock purchase plan activity.
As of March 31, 1997, the Company had $22.5 million outstanding under a
term loan secured by a laboratory and office building in Cambridge,
Massachusetts. The annual principal payable in each of the years 1996
through 1999 is $1.7 million with the balance due May 8, 2005.
In August 1995, the Company entered into a loan agreement with a bank for
financing the construction of its biological manufacturing facility in
North Carolina (the "Construction Loan"). As of March 31, 1997 the Company
had substantially completed construction of the facility and the funds
advanced under the Construction Loan of $48.3 million were converted to a
10 year term loan with principal and interest payable quarterly.
Terms of the loan agreements include various covenants, including financial
covenants which require the Company to maintain minimum net worth, cash
Page 12
flow and various financial ratios. The loans are secured by the underlying
buildings.
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
March 31, 1997, the Company had advanced $3 million under the line of
credit to CVT.
In December 1996, the Company entered into a research collaboration and
license agreement with Creative BioMolecules, Inc. ("CBM") under which
Biogen obtained rights to develop and market CBM's morphogenic protein, OP-1,
for the treatment of kidney diseases and disorders including acute and
chronic renal failure. Under the agreement, Biogen paid a license fee of
$10 million and purchased 1.5 million shares of CBM common stock for $18
million. The Company has also agreed to fund $10.5 million of research
activities over the next three years assuming continuation of the
collaboration and to make additional payments upon the achievement of
specified milestones.
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 over the life of the agreement.
In August 1995, the Company signed a collaborative research agreement for
the development of human gene therapy treatments with Genovo, Inc.
("Genovo"), a gene therapy research company. The Company acquired a
minority equity interest in Genovo as well as certain licensing rights.
The Company has agreed to fund research and development costs to Genovo up
to approximately $37 million over the life of the agreement, depending on
achievement of scientific milestones.
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.
In April 1997, the European Patent Office revoked the Company's European
patent covering the expression of recombinant beta interferon. The
decision of the European Patent Office is final and cannot be repealed.
This decision will not impact the Company's ability to sell AVONEX (R) in
Europe, the United States or any other market but will prevent the Company
from enforcing this patent against potential competitors.
Page 13
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
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 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 operation are discussed
below and elsewhere in this Management's Discussion and Analysis of
Financial Condition and Results of Operation.
Dependence on AVONEX(TM) Sales and Royalty Revenue
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, continued profitability will also be highly 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 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, 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 recent decision 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,
Page 14
label, and distribute AVONEX(R) on acceptable terms. The Company's ability
to increase 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 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.
(b) There were no reports on Form 8-K filed for the quarter ended
March 31, 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: April 25, 1997 /s/Timothy M. Kish
----------------------------------
Timothy M. Kish
Vice President-Finance and
Chief Financial Officer<PAGE>
EXHIBITS Page 16
Index to Exhibits.
No. 11 Computation of Earnings per Share.
EXHIBIT 11 Page 17
BIOGEN, INC. and SUBSIDIARIES
Computation of Earnings Per Share
(unaudited)
(in thousands, except per share amounts)
Three months ended
March 31,
1997 1996
Primary earnings per share
Weighted average number of
shares outstanding. . . . . . . . . . . . . . . $ 73,268 $ 71,200
Shares deemed outstanding from
the assumed exercise of stock
options and warrants. . . . . . . . . . . . . . 3,575 --
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . 76,843 71,200
======== ========
Net income(loss). . . . . . . . . . . . . . . . . $ 17,010 $ (3,658)
======== ========
Primary earnings per
share of common stock . . . . . . . . . . . . . $ 0.22 $ (0.05)
======== ========
Fully diluted earnings per share (a)
Weighted average number of
shares outstanding. . . . . . . . . . . . . . . $ 73,268 $ 71,200
Shares deemed outstanding from
the assumed exercise of stock
options and warrants. . . . . . . . . . . . . . 3,575 --
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . 76,843 71,200
======== ========
Net income(loss). . . . . . . . . . . . . . . . . $ 17,010 $ (3,658)
======== ========
Fully diluted earnings
per share of common stock . . . . . . . . . . . $ 0.22 $ (0.05)
======== ========
(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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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
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<SECURITIES> 246,269
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0
0
<COMMON> 738
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