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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-12042
BIOGEN, INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3002117
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
14 Cambridge Center, Cambridge, Massachusetts 02142
(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: (617) 679-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value (Title of class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at March 9, 1999 (excludes shares held by directors): $8,018,804,742.
Exclusion of shares held by any person should not be construed to indicate that
such person possesses the power, direct or indirect, to direct or cause the
direction of management or policies of the Registrant, or that such person is
controlled by or under common control with the Registrant. Common Stock
outstanding at March 9, 1999: 75,111,450 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Report, and portions of the Registrant's 1998 Annual Report to Shareholders are
incorporated by reference into Parts II and IV of this Report.
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PART I
ITEM 1 - BUSINESS
OVERVIEW
Biogen, Inc. ("Biogen" or the "Company") 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 its AVONEX(R) (Interferon beta-1a) for the treatment of relapsing forms of
multiple sclerosis and from sales by its licensees of a number of products,
including alpha interferon, hepatitis B vaccines and hepatitis B diagnostic
products. The Company's revenues from sales of AVONEX(R) in 1998 were
approximately $394.9 million. The Company's royalty revenues in 1998 were
approximately $162.7 million.
Biogen continues to devote significant resources to its ongoing research
and development efforts. The Company focuses its efforts on areas where it has
particular scientific strengths such as: multiple sclerosis, inflammatory
diseases, cardiovascular diseases, developmental biology, kidney diseases and
disorders and gene therapy. In 1998, Biogen completed early-stage clinical
trials of several of its product candidates, including the evaluation of results
of two Phase 2a clinical studies of AMEVIVE(TM) (Human LFA-3/IgG(1) fusion
protein), also known as LFA3TIP, in patients with moderate to severe psoriasis,
two Phase 2a studies of BG9719 (adenosine A1 antagonist), formerly known as
CVT-124, a small molecule being developed as a potential treatment for
congestive heart failure, and a Phase 1 safety study of ANTOVA(TM) (Humanized
anti-CD40 ligand monoclonal antibody), also known as humanized 5c8, in patients
with immune thrombocytopenic purpura. Additional clinical trials of AMEVIVE(TM),
ANTOVA(TM) and BG9719 are underway or planned. In addition, Biogen has many
earlier stage research programs. These include: a program directed toward
developing a novel inhibitor of a particular immune response pathway as a
potential therapy for several autoimmune diseases; a program focused on finding
oral small molecule drug candidates to inhibit the migration of white blood
cells into tissue as a potential treatment for multiple sclerosis and certain
chronic inflammatory diseases; a program in which the Company is exploring ways
to treat central nervous system disorders through use of proteins involved in
inducing the formation and regeneration of tissue; and a program directed at
developing products based on human gene therapy technology. The Company is also
exploring the use of functional genomics technology to find novel therapeutics.
AVONEX(R) INTERFERON BETA-1A
Biogen currently markets and sells AVONEX(R) (Interferon beta-1a) for the
treatment of relapsing forms of multiple sclerosis. Multiple sclerosis is a
progressive neurological disease in which the body loses the ability to transmit
messages among nerve cells, leading to a loss of muscle control, paralysis and,
in some cases, death. Patients with active relapsing multiple sclerosis
experience an uneven pattern of disease progression characterized by periods of
stability interrupted by flareups of the disease after which the patient returns
to a new baseline of functioning. AVONEX(R) is a recombinant form of a protein
produced by fibroblast cells in response to viral infection. AVONEX(R) has been
shown in a pivotal clinical trial both to slow the accumulation of disability
and to reduce the frequency of exacerbations in patients with relapsing forms of
multiple sclerosis.
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Biogen began selling AVONEX(R) in the United States in 1996, and in the
European Union (EU) in 1997. AVONEX(R) is also on the market in Canada,
Argentina, Norway, Israel, Cyprus, Australia, Chile, Columbia, Mexico, Hungary,
Turkey, the Czech Republic, Slovakia, and Switzerland.
In the United States, Canada and in most of the major countries of the EU,
Biogen uses its own sales force to market AVONEX(R). In those countries, Biogen
distributes AVONEX(R) principally through wholesale distributors of
pharmaceutical products or mail order or specialty distributors or using
shipping service providers. In other countries, including Spain, Sweden,
Finland, Norway, Denmark, Italy, Greece, Portugal, Israel and New Zealand,
Biogen sells AVONEX(R) to distribution partners who are then responsible for
most marketing and distribution activities. The Company has also entered into
distribution agreements covering Australia, Latin America, the Caribbean, South
Africa, Eastern Europe, Turkey, the Middle East and Japan. Under most of these
agreements the distribution partners are responsible for obtaining regulatory
approval for AVONEX(R) as well as marketing and distribution.
Biogen is currently conducting several additional clinical studies of
AVONEX(R). These include: a clinical study of AVONEX(R) in patients who have had
only one confirmed exacerbation, which was initiated in 1996; a dose comparison
study, also initiated in 1996, comparing the approved dosage of AVONEX(R) with a
higher dose; a four-year open-label follow-up study initiated in 1995 to obtain
long-term safety and antigenicity data; a clinical study of AVONEX(R) in
patients with secondary progressive multiple sclerosis, initiated in 1998; and a
Phase 2 clinical study of AVONEX(R) in the treatment of idiopathic pulmonary
fibrosis which also commenced in 1998.
Biogen is also exploring new ways to improve the formulation and delivery
of AVONEX(R). In February 1999, Biogen entered into a collaborative agreement
with Inhale Therapeutic Systems, Inc. under which the parties will work towards
development of a dry powder formulation of AVONEX(R) for pulmonary delivery
using Inhale's deep-lung delivery system. Biogen is also working towards
development of a pre-filled syringe formulation of AVONEX(R).
Revenues from sales of AVONEX(R) in 1998 were $394.9 million or
approximately 71% of total revenues. Revenues from sales of AVONEX(R) in 1997
were $240 million or approximately 58% of total revenues. Approximately 77% of
AVONEX(R) sales in 1998 and approximately 92% of AVONEX(R) sales in 1997 were
generated in the United States. Sales to three major wholesale distributors and
a specialty distributor in the United States accounted for 13%, 11%, 11% and
10%, respectively, of total revenues in 1998.
MAJOR RESEARCH AND DEVELOPMENT PROGRAMS
Biogen's research is focused on biological systems and processes where its
scientific expertise in molecular biology, cell biology, immunology and protein
chemistry can lead to a greater understanding of disease processes and, as a
result, to the creation of new pharmaceuticals. Biogen selects product
candidates from its research programs to test in clinical trials, focusing its
efforts on those agents which it believes have the greatest potential
competitive advantages and large commercial markets. Described below are
Biogen's major research programs.
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AMEVIVE(TM) (LFA3TIP)
Inflammation is the result of the body's immune response to infection and
injury. In many autoimmune diseases, the inflammation process is directed
inappropriately against the body's own tissues, causing temporary or permanent
damage. Biogen has focused the efforts of its inflammation programs on
developing drugs to inhibit specific cellular interactions critical to the
inflammation process. Central to inflammation is the activation of T-cells,
specialized white blood cells which initiate and control the immune response.
One of the cellular pathways which is important for the activation of T-cells is
the LFA-3/CD2 pathway. AMEVIVE(TM) (LFA3TIP) is a recombinantly engineered
protein designed to modulate immune responses by binding to the CD2 receptor.
Biogen is developing AMEVIVE(TM) as a treatment for certain autoimmune diseases.
In 1998, the Company completed evaluation of the results of two Phase 2a safety
studies of AMEVIVE(TM), and commenced a Phase 2b study of the safety and
efficacy of AMEVIVE(TM) compared to a placebo as a systemic therapy in patients
with moderate and severe psoriasis. The Company expects the Phase 2b study to be
completed in mid-1999. Psoriasis is a chronic autoimmune disease that is
characterized by inflammation and thickening of the skin. An estimated 500,000
psoriasis patients in the United States and Europe combined have a severe enough
form of the disease to need systemic therapies.
ANTOVA(TM) (HUMANIZED 5c8)
The human immune system generates two types of responses: humoral (also
known as antibody) responses and cell-mediated responses. When CD40 ligand
("CD40L") on the surface of an activated T-cell binds to CD40 on the surface of
a B-cell, the production of antibodies is triggered. When CD40L on the surface
of an activated T-cell binds to CD40 on the surface of a variety of other cells,
such as macrophages and dendritic cells, the cells become activated, triggering
an inflammatory response. The inhibition of the CD40-CD40L pathway offers a
unique target for modulating both types of immune responses.
Biogen is developing ANTOVA(TM), a humanized monoclonal antibody which
binds to CD40L, as a treatment for a variety of autoimmune diseases and as a
therapy for preventing organ and cellular transplant rejection. In 1998, the
Company completed a Phase 1 safety study of ANTOVA(TM) in patients with immune
thrombocytopenic purpura (ITP), and commenced a Phase 2 study in ITP. A Phase 2
study of ANTOVA(TM) in lupus nephritis which commenced in 1998 is currently
being re-designed to enhance patient accrual. The study and patient accrual are
expected to resume in 1999. In early 1999, Biogen commenced a Phase 2 study of
ANTOVA(TM) in renal transplantation. Phase 2 studies of ANTOVA(TM) in pancreatic
islet cell transplantation, Factor VIII inhibitor syndrome and multiple
sclerosis are also expected to commence in 1999.
BG9719
In March 1997, Biogen entered into a research collaboration and license
agreement with CV Therapeutics, Inc. ("CVT") under which the Company obtained
rights to develop and market BG9719 (formerly known as CVT-124). BG9719 is a
highly selective antagonist of the adenosine A1 receptor which is expressed
principally in the heart, brain and kidney, and which in the kidney mediates
vasoconstriction and reabsorption of fluids. Biogen is developing BG9719 as a
treatment for congestive heart failure. Congestive heart failure is a chronic
progressive disease that affects approximately four to
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five million people in the United States. Patients with the disease experience
both a chronic course as well as acute episodes that usually require
hospitalization. Reduction in kidney function and the formation of edema, or
fluid retention, in lungs and extremities are significant symptoms of chronic
heart failure, leading to increased morbidity and need for hospitalization. In
1998, Biogen completed two Phase 2a safety and dose finding clinical studies of
BG9719. A Phase 2 study comparing BG9719 with an existing therapy and in
combination with the existing therapy is ongoing and is expected to be completed
by the end of 1999.
LT-BETA RECEPTOR
The lymphotoxin (LT): lymphotoxin-beta receptor pathway is involved in
activation of dendritic cells and the formation of organized lymphoid tissue
both of which normally increase the efficiency of the immune response, but which
appear to be hyperactive in some autoimmune diseases. Blocking the pathway with
soluble LT-Beta Receptor may inhibit cell-mediated immune reactions particularly
in the skin, the gastrointestinal tract and joints. Biogen is developing its
LT-Beta Receptor as a potential treatment for certain autoimmune diseases.
VLA-4 INHIBITORS
VLA-4 (Very Late Antigen-4) is a receptor which appears on the surface of
most white blood cells except neutrophils and binds to VCAM-1, a protein found
on the surface of vascular endothelial cells. The VLA-4/VCAM-1 pathway
facilitates migration of white blood cells into tissue as part of the body's
normal response during inflammation. This inflammatory response can be severely
damaging or even life threatening when it is directed against the body's own
tissue in chronic inflammatory diseases such as asthma. Biogen scientists have
developed VLA-4-specific small molecule inhibitors designed to interrupt the
cell adhesion activity of VLA-4 as a means of blocking the inflammation process
in a highly specific manner.
In December 1997, Biogen entered into a collaborative research,
development and license agreement with Merck & Co., Inc. ("Merck") under which
Biogen and Merck are collaborating on developing oral and aerosolized small
molecule inhibitors of VLA-4. Under the agreement with Merck, Biogen has rights
to develop, market and sell small molecule inhibitors of VLA-4 for the treatment
of multiple sclerosis, kidney diseases and disorders, inflammatory bowel disease
and most diseases with small patient populations. Merck has rights to develop,
market and sell small molecule inhibitors of VLA-4 in all other indications,
including asthma. Merck commenced a Phase 2a clinical trial of an aerosolized
VLA-4 inhibitor in 1998.
HEDGEHOG PROTEINS
Hedgehog proteins are a class of novel human proteins that are responsible
for inducing the formation or regeneration of tissue. In 1996, the Company
entered into a research collaboration and license agreement with Ontogeny, Inc.
("Ontogeny") for the development of three specific "hedgehog" cell
differentiation proteins. Under its agreement with Ontogeny, Biogen has access
to exclusive worldwide rights to develop therapeutics directly based on
Ontogeny's proprietary family of sonic, indian and desert hedgehogs for most
disease indications. In 1998, Biogen and Ontogeny extended the hedgehog research
program and broadened the collaboration to include gene therapy. The Company's
current focus is the study of the hedgehog proteins for the treatment of central
nervous system disorders.
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GENE THERAPY
In 1995, the Company entered into a collaborative research agreement with
Genovo, Inc. ("Genovo") for the development of certain human gene therapy
treatments. Under its agreement with Genovo, Biogen received certain rights
related to diseases of the liver and lung.
OP-1
In 1998, Biogen amended its collaborative research and license agreement
with Creative BioMolecules, Inc. ("CBM") to return to CBM responsibility for
development of CBM's morphogenic protein, OP-1, for the treatment of kidney
diseases and disorders. OP-1 is a circulating human protein agonist expressed
during development and regeneration of the kidney, spinal cord and bone. Under
the terms of the amendment, Biogen has the option, exercisable prior to the end
of 1999, to resume responsibility for development of OP-1. If Biogen does not
exercise its option, the license agreement with CBM will terminate.
OTHER RESEARCH PROGRAMS
As part of its further research efforts, Biogen is exploring the use of
growth factors to prevent or treat the degeneration of the kidney which results
from renal failure. The Company is also investigating new ways to modify immune
responses more specifically in order to treat diseases of the immune system. In
addition, through its collaboration with CuraGen Corporation, Biogen is
exploring the use of functional genomics technology to find novel therapeutics.
RESEARCH AND DEVELOPMENT COSTS
During 1998, 1997 and 1996, Biogen's research and development costs were
approximately $177.2 million, $145.5 million and $132.4 million, respectively.
RISKS ASSOCIATED WITH DRUG DEVELOPMENT AND COMMERCIALIZATION
Certain of the statements set forth above regarding the Company's research
and development programs, such as statements regarding the anticipated
commencement of clinical trials of drugs in development, are forward-looking,
and are based upon the Company's current belief as to the outcome and timing of
such future events. These events are subject to a number of factors and
uncertainties which could cause actual results to differ materially from those
described in the forward-looking statements. Many important factors affect the
Company's ability to successfully develop and commercialize drugs, including the
need to demonstrate the 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 obtain and maintain all necessary
patents or licenses, to compete successfully against other products, and to
market products successfully. There can be no assurance that any of the products
described in this section or resulting from Biogen's research and development
programs will be successfully developed, prove to be safe and efficacious at
each stage of clinical trials, meet applicable regulatory standards, be capable
of being produced in commercial quantities at reasonable costs, be successfully
marketed or successfully meet challenges from competitive products.
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For a detailed discussion of the outlook of the Company, see the "Outlook"
section of "Management's Discussion and Analysis of Financial Condition and
Results of Operations" incorporated by reference under Item 7.
PRINCIPAL PRODUCTS BEING MARKETED OR DEVELOPED BY BIOGEN'S LICENSEES
ALPHA INTERFERON
Alpha interferon is a naturally occurring protein produced by normal white
blood cells. Biogen has been granted patents covering the production of alpha
interferons through recombinant DNA techniques. See "Patents and Other
Proprietary Rights." Biogen's worldwide licensee for recombinant alpha
interferon, Schering-Plough Corporation ("Schering-Plough"), first began
commercial sales of its Intron(R) A brand of alpha interferon in the United
States in 1986 for hairy-cell leukemia. Schering-Plough now sells Intron(R) A
worldwide for as many as 16 indications. The FDA has approved Intron(R) A for
the treatment of chronic hepatitis B and hepatitis C, hairy cell leukemia,
AIDS-related Kaposi's sarcoma, condylomata acuminata, for injection as an
adjuvant treatment to surgery in patients at high risk for systemic recurrence
of malignant melanoma, and for use in conjunction with anthracycline-containing
combination chemotherapy for the initial treatment of patients with clinically
aggressive non-Hodgkin's lymphoma. In 1998, Schering-Plough also received
marketing clearance from the FDA for its REBETRON(R) product for the treatment
of chronic hepatitis C. REBETRON(R) is a product containing Intron(R) A and
REBETOL(R) (ribavirin, USP capsules). In late 1998, Biogen filed for arbitration
against Schering-Plough in a dispute over the method used by Schering Plough to
determine the amount of royalties payable to Biogen on sales of REBETRON(R).
Royalties from Schering-Plough on sales of Intron(R)A accounted for
approximately 16%, 19% and 27% of Biogen's revenues in 1998, 1997 and 1996,
respectively.
For a discussion of the length of Schering Plough's royalty obligation to
Biogen on sales of alpha interferon products, see "Patents and Other Proprietary
Rights - Recombinant Alpha Interferon."
HEPATITIS B VACCINES AND DIAGNOSTICS
Hepatitis B is a blood-borne disease which causes a serious infection of
the liver and substantially increases the risk of liver cancer. More than 250
million people worldwide have chronic hepatitis B virus infections. Biogen holds
several important patents related to hepatitis B antigens produced by genetic
engineering techniques. See "Patents and Other Proprietary Rights." These
antigens are used in recombinant hepatitis B vaccines and in diagnostic test
kits used to detect hepatitis B infection.
HEPATITIS B VACCINES
At least 20 countries around the world, including the United States,
recommend vaccination against hepatitis B for all infants. The United States
Centers for Disease Control and the American Academy of Pediatrics have also
recommended universal immunization of ten-year-old children and at-risk
adolescents. The United States Occupational Safety and Health Administration has
recommended
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that all persons with an occupational exposure to blood and other infectious
material receive the hepatitis B vaccine.
SmithKline Beecham Biologicals s.a. ("SmithKline") and Merck are the two
major worldwide marketers of hepatitis B vaccines. Biogen has licensed to
SmithKline exclusive rights under Biogen's hepatitis B patents to market
hepatitis B vaccines in the major countries of the world, excluding Japan.
SmithKline's vaccine is approved in the United States and in over 60 other
countries. In 1990, SmithKline and Biogen entered into a sublicense arrangement
with Merck under which Biogen currently receives royalties. Biogen has also
licensed rights under its hepatitis B patents to Merck and The Green Cross
Corporation on a non-exclusive basis in Japan. Royalties from SmithKline and
Merck together accounted for approximately 9%, 14% and 23% of Biogen's revenues
in 1998, 1997 and 1996, respectively.
HEPATITIS B DIAGNOSTICS
Biogen has licensed its proprietary hepatitis B rights, on an
antigen-by-antigen and nonexclusive basis, to diagnostic kit manufacturers.
Biogen currently has hepatitis B license or license and supply agreements for
diagnostic use with more than a dozen companies, including Abbott Laboratories,
the major worldwide marketer of hepatitis B diagnostic kits, Ortho Diagnostic
Systems, Inc., Roche Diagnostic Systems, Inc. and Organon Teknika B.V.
For a discussion of the length of the royalty obligation of SmithKline and
Merck on sales of hepatitis B vaccines and the obligation of Biogen's other
licensees on sales of hepatitis B-related diagnostic products, see "Patents and
Other Proprietary Rights - Recombinant Hepatitis B Antigens."
OTHER PRODUCTS
Under a license agreement with Eli Lilly and Company ("Lilly"), Biogen has
granted Lilly rights under certain of Biogen's patents related to gene
expression. Lilly uses the patented vectors and methods in several products that
are on the market or in development. Under the license agreement Biogen receives
royalties on sales of these products. See "Patents and Other Proprietary Rights
- - Other Patents".
In 1996, Biogen granted a sublicense to Pharmacia & Upjohn AB ("Pharmacia &
Upjohn") under certain patent rights to proprietary protein secretion technology
exclusively licensed to Biogen by Harvard University. Under the terms of the
license agreement, Biogen receives ongoing royalties on sales of Pharmacia &
Upjohn's recombinant human growth hormone product, Genotropin(R), in the United
States, Canada and Japan.
In March 1997, Biogen granted to The Medicines Company ("TMC") exclusive
worldwide rights to develop and market Hirulog(R) (bivalirudin) direct thrombin
inhibitor. Biogen will receive milestone and royalty payments from TMC if TMC is
successful in its efforts to develop and commercialize the drug.
Financial information about foreign operations and export sales is included
in Note 10 of the Notes to Consolidated Financial Statements incorporated by
reference under Item 8.
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PATENTS AND OTHER PROPRIETARY RIGHTS
Biogen has filed numerous patent applications in the United States and
various other countries seeking protection of a number of its processes and
products, and patents have been issued on a number of these applications. The
Company has also obtained rights to various patents and patent applications
under licenses with third parties which provide for the payment of royalties by
the Company. Issues remain as to the ultimate degree of protection that will be
afforded to Biogen by its patents. There is no certainty that Biogen's existing
patents or others, if obtained, will be of substantial protection or commercial
benefit to Biogen. Furthermore, it is not known to what extent Biogen's pending
patent applications or patent applications licensed from third parties will
ultimately be granted as patents or whether those patents that have been issued
or are issued in the future will prevail if they are challenged in litigation.
Trade secrets and confidential know-how are important to Biogen's
scientific and commercial success. Although Biogen seeks to protect its
proprietary information, there can be no assurance that others will not either
develop independently the same or similar information or obtain access to
Biogen's proprietary information.
RECOMBINANT ALPHA INTERFERON
Biogen has more than 50 patents in countries around the world, including
the United States and countries of the European Patent Office, covering the
production of recombinant alpha interferons. Biogen has granted an exclusive
worldwide license to Schering Plough under Biogen's alpha interferon patents,
and receives royalties from Schering-Plough on sales of its brand of alpha
interferon. See "Principal Products Being Marketed or Developed by Biogen's
Licensees - Alpha Interferon".
Schering-Plough's royalty obligation to Biogen on sales of alpha interferon
in Japan and Europe will terminate upon expiration of Biogen's alpha interferon
patent in such territories in 2001, except in France and Italy where Biogen has
obtained supplemental protection certificates extending the coverage in France
until 2003 and in Italy until 2007.
In 1998, Biogen and Schering-Plough entered into an agreement under which
Biogen assigned to Schering-Plough a Biogen patent application claiming
recombinant mature human alpha interferon. The Biogen patent application had
been the subject of a lawsuit by Biogen against Genentech, Inc. ("Genentech")
and F. Hoffman La Roche Inc. ("Roche") related to a decision in an interference
proceeding involving the Biogen patent application and a patent application
jointly owned by the two defendants. In consideration of assignment of the
patent to it by Biogen, Schering-Plough has agreed to pay to Biogen certain sums
on sales by Schering-Plough of alpha interferon products in the United States
from July 2002 (when Biogen's existing U.S. alpha interferon patent expires)
until expiration of the alpha interferon patent expected to be issued to Roche
and Genentech. The lawsuit by Biogen against Roche and Genentech has also been
settled.
In December 1996, Schering-Plough filed suit in its own name, as Biogen's
exclusive licensee, against Amgen, Inc. ("Amgen") to enforce Biogen's U.S. alpha
interferon patent claiming it to be infringed by Amgen's consensus interferon
product known as Infergen(R). In February 1999, a federal judge granted
Schering-Plough's request for a judgment against it and ruled that Amgen did not
infringe
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the Biogen patent. Schering-Plough requested the adverse judgement so
that it could begin its appeal of the judge's pretrial interpretation of one of
the claims of the Biogen patent.
Yamanouchi Pharmaceutical Co. Ltd., Amgen's licensee, has filed a
declaratory judgment action against Biogen in France, Italy and Germany seeking
a judgment that its consensus interferon product does not infringe Biogen's
alpha interferon patent.
RECOMBINANT HEPATITIS B ANTIGENS
Biogen has more than 75 patents in countries around the world, including
three in the United States and two in countries of the European Patent Office,
and several patent applications, covering the recombinant production of
hepatitis B surface, core and "e" antigens. Biogen has licensed its recombinant
hepatitis B antigen patent rights to manufacturers and marketers of hepatitis B
vaccines and diagnostic test kits, and receives royalties on sales of the
vaccines and test kits by its licensees. See "Principal Products Being Marketed
or Developed by Biogen's Licensees - Hepatitis B Vaccines and Diagnostics." The
obligation of SmithKline and Merck to pay royalties on sales of hepatitis B
vaccines and the obligation of Biogen's other licensees under its hepatitis B
patents to pay royalties on sales of diagnostic products will terminate upon
expiration of Biogen's existing hepatitis B patents. Biogen's existing United
States hepatitis B patents will expire in 2004. Biogen's European hepatitis B
patents will expire at the end of 1999, except in those countries in which
Biogen has or is able to obtain supplemental protection certificates. To date,
Biogen has received supplemental protection certificates in France, Italy,
Luxembourg, The Netherlands, Sweden, Switzerland and Ireland, and has a number
of additional applications pending. The additional coverage afforded by the
supplemental protection certificates ranges from two to six years.
RECOMBINANT BETA INTERFERON
In 1997, the Technical Board of Appeal of the European Patent Office
revoked Biogen's European patent covering the production of recombinant beta
interferon. Although no formal appeal procedure exists, Biogen has asked the
European Patent Office to overturn the revocation. A patent application in the
United States with similar claims is still pending. The Company also has a
patent with similar claims in Israel. In July 1997, Biogen sued InterPharm
Laboratories Ltd. ("Interpharm"), an affiliate of Ares Serono, S.A. ("Serono"),
and related defendants, claiming that the manufacture by InterPharm of Serono's
Rebif(R) (Interferon Beta-1a) infringes Biogen's Israeli patent. In Germany, a
patent with similar claims was the subject of a nullity proceeding instituted by
Schering AG in the German Federal Patent Court. In March 1998, the German
Federal Patent Court upheld the German patent but with substantially narrower
claims. The Company has appealed the decision.
Other parties have pending patent applications or issued patents in the
United States, Europe and other countries with claims to key intermediates in
the production of beta interferon (the "Taniguchi patents") and to beta
interferon itself (the "Roche patents"). Biogen has obtained non-exclusive
rights in various countries of the world, including the United States, Japan and
most European countries, to manufacture, use and sell AVONEX(R) under the
Taniguchi patents and has obtained worldwide, non-exclusive rights under the
Roche patents.
In October 1998, Biogen filed an opposition with the Opposition Division of
the European Patent Office to oppose a European patent issued to Dr. Rentschler
Biotechnologie GmbH ("Rentschler") with
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certain claims regarding compositions of matter of beta interferon with specific
regard to the structure of the glycosylated molecule. Rentschler has appealed
the decision of the Opposition Division to revoke an earlier Rentschler patent
with claims related to a specific cell line, production method and form of
recombinant beta interferon.
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 AVONEX(R). In November 1996, Berlex's New Jersey action was
transferred to the U.S. District Court in Massachusetts and consolidated for
pretrial purposes with a related declaratory judgment action previously filed by
Biogen. In August 1998, Berlex filed a second suit against Biogen alleging
infringement by Biogen of a patent which was issued to Berlex in August 1998 and
which is related to the McCormick patent. In September 1998, the cases were
consolidated for pretrial and trial purposes. Berlex seeks a judgment granting
it damages, a trebling of any damages awarded and a permanent injunction
restraining Biogen from alleged infringement. A trial is currently scheduled for
fall of 1999, but may be postponed until a later date. For a further discussion,
see Item 3 - Legal Proceedings and Note 8 of the Notes to Consolidated Financial
Statements incorporated by reference under Item 8.
OTHER PATENTS
Biogen has granted Lilly a non-exclusive license under certain of Biogen's
patents for gene expression. Lilly uses the patented vectors and methods in
several products that are on the market or in development. Biogen's European
patent relating to gene expression was opposed by Biotechnology General Corp. in
December 1993. A hearing was held by the Opposition Division of the European
Patent Office in March 1996. In March 1997, the Opposition Division decided to
revoke Biogen's patent. Biogen has appealed the decision.
In March 1995, Biogen filed suit in the U.S. District Court for the
District of Massachusetts seeking to enjoin Amgen from manufacturing and selling
its Neupogen(R) human granulocyte colony stimulating factor in the United States
and asking for damages for infringing activities. Biogen believes that to make
Neupogen(R) Amgen uses technology claimed in certain of Biogen's gene expression
patents. In 1998, the court made a decision as to interpretation of the claims
of the Biogen patent in such a way as to preclude Amgen's literal infringement
of the patent. Amgen has filed a motion for summary judgment based on the
court's decision. The court has requested briefs on whether Amgen is entitled to
summary judgment on its claim that its vector is not an infringing equivalent.
In July 1997, Biogen filed suit in the U.S. District Court for the District
of Massachusetts to enjoin Amgen from manufacturing and selling its Infergen(R)
consensus interferon in the United States and asking for damages for infringing
activities. Biogen believes that to make Infergen(R) Amgen uses technology
claimed in certain of Biogen's gene expression patents. Biogen's request to have
the case consolidated with the Neupogen(R) suit was denied by the court. Biogen
does not expect a trial in the case prior to the early part of 2000.
In March 1999, Biogen was added as a plaintiff in a lawsuit filed by Plant
Genetic Systems, N.V. ("PGS") against Dekalb Genetics Corporation in the United
States District Court in Connecticut. PGS, the licensee of certain Biogen plant
gene patents, is claiming that DeKalb infringes the patents in its production of
genetically-engineered seeds.
11
<PAGE> 12
THIRD PARTY PATENTS
Biogen is aware that others, including various universities and companies
working in the biotechnology field, have also filed patent applications and have
been granted patents in the United States and in other countries claiming
subject matter potentially useful or necessary to Biogen's business. Some of
those patents and applications claim only specific products or methods of making
such products, while others claim more general processes or techniques useful or
now used in the biotechnology industry. For example, Genentech has been granted
patents and is prosecuting other patent applications in the United States and
certain other countries which it may allege are currently used by Biogen and the
rest of the biotechnology industry to produce recombinant proteins in microbial
hosts. Genentech has offered to Biogen and others in the industry non-exclusive
licenses under those patents and patent applications for various proteins and in
various fields of use, but not for others. Schering-Plough, Biogen's exclusive
licensee for recombinant alpha interferon, is licensed under certain of these
patents for the manufacture, use and sale of recombinant alpha interferon. The
ultimate scope and validity of Genentech's patents, of other existing patents,
or of patents which may be granted to third parties in the future, the extent to
which Biogen may wish or be required to acquire rights under such patents, and
the availability and cost of acquiring such rights currently cannot be
determined by Biogen.
There has been, and Biogen expects that there may continue to be,
significant litigation in the industry regarding patents and other intellectual
property rights. Such litigation could create uncertainty and consume
substantial resources.
COMPETITION AND MARKETING
IN GENERAL
Competition in the biotechnology and pharmaceutical industries is intense
and comes from many and varied sources. Biogen does not believe that it or any
of the other industry leaders can be considered dominant in view of the rapid
technological change in the industry. Biogen experiences significant competition
from specialized biotechnology firms in the United States, Europe and elsewhere
and from many large pharmaceutical, chemical and other companies. Certain of
these companies have substantially greater financial, marketing, research and
development and human resources than Biogen. The pharmaceutical companies have
considerable experience in undertaking clinical trials and in obtaining
regulatory approval to market pharmaceutical products. In addition, certain of
Biogen's products may be subject to competition from products developed using
alternatives to biotechnology techniques.
Much competition is directed towards establishing proprietary positions
through research and development. A key aspect of such competition is recruiting
and retaining qualified scientists and technicians. Biogen believes that it has
been successful in attracting skilled and experienced scientific personnel.
Biogen believes that leadership in the industry will be based on managerial and
technological superiority and may be influenced significantly by patents and
other forms of protection of proprietary information. See "Patents and Other
Proprietary Rights". The achievement of a leadership position depends largely
upon Biogen's continued ability to attract and retain skilled and experienced
personnel, its ability to identify and exploit commercially the products
resulting from biotechnology research and
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<PAGE> 13
the availability of adequate financial resources to fund facilities, equipment,
personnel, clinical testing, manufacturing and marketing.
Many of Biogen's competitors are working to develop products similar to
those under development by Biogen. The timing of the entry of a new
pharmaceutical product into the market can be an important factor in determining
the product's eventual success and profitability. Early entry may have important
advantages in gaining product acceptance and market share. Moreover, for certain
diseases with limited patient populations, the FDA is prevented under the Orphan
Drug Act, for a period of seven years, from approving more than one application
for the "same" product for a single orphan drug designation, unless a later
product is considered clinically superior. The European Union and other
jurisdictions have or are considering similar laws. Accordingly, the relative
speed with which Biogen can develop products, complete the testing and approval
process and supply commercial quantities of the product to the market is
expected to have an important impact on Biogen's competitive position. In
addition, competition among products approved for sale may be based, among other
things, on patent position, product efficacy, safety, reliability, availability
and price.
AVONEX(R) (INTERFERON BETA - 1a)
As a treatment for multiple sclerosis, AVONEX(R) competes with interferon
beta-1b which is sold in the United States under the brand name Betaseron(R) by
Berlex Laboratories, Inc., a United States affiliate of Schering AG, and is sold
in Europe under the brand name Betaferon(R) by Schering AG. AVONEX(R) also faces
competition from Copaxone(R) glatiramer acetate (also known as copolymer-1). In
the United States, Copaxone(R) is marketed by a partnership between Teva
Pharmaceuticals ("Teva") and Hoechst Marion Roussel, Inc. In addition, in Europe
and Canada, AVONEX(R) competes with Rebif(R), a recombinant interferon beta 1a
product sold by Ares Serono S.A. ("Serono"). In response to Serono's application
for approval of Rebif(R) in the United States for relapsing multiple sclerosis,
the FDA has notified Serono that, based on the data from existing clinical
trials, Rebif(R) cannot be cleared for marketing in the United States for
relapsing multiple sclerosis while the orphan drug status afforded to AVONEX(R)
and Betaseron(R) for that indication is still in effect. Betaseron(R)'s orphan
drug status for relapsing multiple sclerosis expires in 2000. AVONEX(R)'s orphan
drug status for relapsing forms of the disease expires in 2003. AVONEX(R) also
competes in Italy and Spain with FRONE(R), an extracted form of beta interferon
sold by Serono and in Germany with Imurek(R) azathioprine sold by Glaxo Wellcome
GmbH. A number of other companies are working to develop products to treat
multiple sclerosis which may in the future compete with AVONEX(R). AVONEX(R) may
also in the future face competition from off-label uses of drugs approved for
other indications. Biogen believes that competition among treatments for
multiple sclerosis will be based on product performance, service and price.
REGULATION
Biogen's current and contemplated activities and the products and processes
that will result from such activities are, and will be, subject to substantial
government regulation.
Before new pharmaceutical products may be sold in the United States and
other countries, clinical trials of the products must be conducted and the
results submitted to appropriate regulatory agencies for approval. These
clinical trial programs generally involve a three-phase process. Typically, in
Phase 1, trials are conducted in volunteers or patients to determine the early
side effect profile and, perhaps, the pattern of drug distribution and
metabolism. In Phase 2, trials are conducted in groups of
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<PAGE> 14
patients with a specific disease in order to determine appropriate dosages,
expand evidence of the safety profile and, perhaps, determine preliminary
efficacy. In Phase 3, large scale, comparative trials are conducted on patients
with a target disease in order to generate enough data to provide the
statistical proof of efficacy and safety required by national regulatory
agencies. The receipt of regulatory approvals often takes a number of years,
involving the expenditure of substantial resources and depends on a number of
factors, including the severity of the disease in question, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials. On occasion, regulatory authorities may require larger or additional
studies, leading to unanticipated delay or expense.
In connection with the commercialization of products resulting from
Biogen's research and development projects, it is necessary, in a number of
countries, to comply with certain regulations relating to the manufacturing and
marketing of such products and to the products themselves. For example, the
commercial manufacturing, marketing and exporting of pharmaceutical products
require the approval of the FDA in the United States and of comparable agencies
in other countries. The FDA has established mandatory procedures and safety
standards which apply to the manufacture, clinical testing and marketing of
pharmaceutical products in the United States. The regulatory requirements and
approval processes for new products in the European Union operate under similar
principles as those applied in the United States. The process of seeking and
obtaining approval of the FDA or regulatory authorities in the European Union or
other regulatory authorities worldwide for a new product and licensing of the
facilities in which the product is produced are likely to take a number of years
and involve the expenditure of substantial resources. In addition, the
regulatory approval processes for products in the United States, the countries
of the European Union and other countries around the world are undergoing or may
undergo changes. Biogen cannot determine what effect any changes in regulatory
approval processes may have on its business.
In the United States, the federal government regularly considers reforming
health care coverage and costs. Resulting legislation or regulatory actions may
have a significant effect on the Company's business. Biogen's ability to
commercialize successfully human pharmaceutical products also may depend in part
on the extent to which reimbursement for the costs of such products and related
treatments will be available worldwide from government health administration
authorities, private health insurers and other organizations. Currently,
substantial uncertainty exists as to the reimbursement status of newly approved
health care products by third-party payors.
Biogen's policy is to conduct relevant research in compliance with the
current United States National Institutes of Health Guidelines for Research
Involving Recombinant DNA Molecules (the "NIH Guidelines") and all other
applicable federal and state regulations. By local ordinance, Biogen is
required, among other things, to comply with the NIH Guidelines in relation to
its facilities in Cambridge, Massachusetts, and is required to operate pursuant
to certain permits.
Various laws, regulations and recommendations relating to safe working
conditions, laboratory practices, the experimental use of animals and the
purchase, storage, movement, import and export and use and disposal of hazardous
or potentially hazardous substances, including radioactive compounds and
infectious disease agents, used in connection with Biogen's research work are or
may be applicable to its activities. The extent of government regulation which
might result from future legislation or administrative action cannot accurately
be predicted. Certain agreements entered into by Biogen involving exclusive
license rights may be subject to national or supranational antitrust regulatory
control, the effect of which also cannot be predicted.
14
<PAGE> 15
EMPLOYEES
At December 31, 1998, Biogen employed 1,114 full-time employees worldwide,
of whom 970 are located in the United States. Of the 1,114 employees,
approximately 244 were engaged in, or directly supported, research and process
development, approximately 365 were involved in, or directly supported,
manufacturing, quality assurance/quality control, regulatory, medical operations
and preclinical and clinical development and approximately 216 were involved in
sales and marketing. In addition, Biogen maintains consulting arrangements with
a number of scientists at various universities and other research institutions
in Europe and the United States, including the nine outside members of its
Scientific Board.
ITEM 2 - PROPERTIES
Biogen's principal executive offices and a majority of its administrative,
manufacturing and research and development facilities are located in Cambridge,
Massachusetts. The Company owns a 150,000 square foot building in Cambridge
which houses laboratories and office space. The Company also leases a total of
approximately 300,992 square feet of additional office, manufacturing and
research and development space in all or part of four other buildings in
Cambridge, consisting of a 67,362 square foot building housing manufacturing
facilities, laboratories and office space, a building with 65,792 square feet of
space containing laboratories, purification and aseptic bottling facilities and
office space, a multi-tenant building where the Company leases approximately
150,838 square feet of office space, and a 17,000 square foot building housing
office space and distribution facilities. The lease expiration dates for the
leased sites range from 2000 to 2012. In 1999, Biogen intends to commence
construction of a new 200,000 square foot facility in Cambridge primarily to
house process development operations. The Company also has development options
for additional property in Cambridge.
In addition to its Cambridge facilities, the Company has a 100,000 square
foot biologics manufacturing facility in Research Triangle Park, North Carolina.
In 1998, the Company received approval from the FDA to use the Research Triangle
Park facility as an additional site for the manufacture of AVONEX(R). The
Company expects to commence construction in 1999 of a 170,000 square foot
addition to the Research Triangle Park facility to add large scale cell culture
manufacturing capacity.
Biogen financed construction of the buildings which it owns in Cambridge,
Massachusetts and Research Triangle Park, North Carolina with term loans. The
loans are secured by the buildings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" incorporated by reference under
Item 7.
The Company's European headquarters consists of 2,900 square meters of
office space in a multi-tenant building in Nanterre, France. The lease for this
space terminates in 2008 with Biogen having the right to terminate the lease
earlier under specified circumstances. The Company has also leased 3,000 square
meters of office and manufacturing space in The Netherlands, and leases small
offices in England, Germany, The Netherlands, Switzerland, Austria and Canada.
The Company believes that its production plants in Cambridge, Massachusetts
and Research Triangle Park, North Carolina and existing outside sources will
allow it to meet, in the near term, its production needs for clinical trials and
its production needs for AVONEX(R). Biogen believes that its
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<PAGE> 16
existing facilities are in compliance with applicable regulatory standards. The
Company expects that additional facilities and outside sources will be required
to meet the Company's future research and production needs.
ITEM 3 - LEGAL PROCEEDINGS
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 AVONEX(R). In November 1996, Berlex's New Jersey action was
transferred to the United States District Court in Massachusetts and
consolidated for pretrial purposes with a related declaratory judgment action
previously filed by Biogen. In August 1998, Berlex filed a second suit against
Biogen alleging infringement by Biogen of a patent which was issued to Berlex in
August 1998 and which is related to the McCormick patent. In September 1998, the
cases were consolidated for pretrial and trial purposes. Berlex seeks a judgment
granting it 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 condition. The Company believes that it has
meritorious defenses to the Berlex claims; however, the ultimate outcome is not
determinable at this time. A trial is currently scheduled for fall of 1999, but
may be postponed until a later date.
On December 28, 1998, Biogen settled its dispute with ASTA Medica ("ASTA")
of Frankfurt, Germany related to a terminated 1989 agreement among Biogen, ASTA
and Bioferon, a former Biogen joint venture, under which ASTA had obtained a
license to certain intellectual property rights related to recombinant beta
interferon for a number of European countries. Under the terms of the settlement
agreement, ASTA dismissed its lawsuit against Biogen in the U.S. District Court
in Massachusetts and released Biogen from all claims related to the 1989
agreement. As part of the settlement, Biogen made an insignificant cash payment
to ASTA.
In December, 1998, the plaintiffs in a class action suit filed in
Massachusetts Superior Court against CVS and a number of pharmaceutical
companies for alleged violations of privacy rights in connection with certain
marketing practices dismissed Biogen as a defendant in the suit.
For a description of legal proceedings relating to certain patent rights,
see Item 1, "Business-Patents and Other Proprietary Rights."
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
EXECUTIVE OFFICERS
The following is a list of the executive officers of the Company and their
principal positions with the Company. Each individual officer serves at the
pleasure of the Board of Directors.
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<PAGE> 17
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
James L. Vincent ......... 59 Chairman of the Board of Directors and Chief Executive Officer
James C. Mullen .......... 40 President and Chief Operating Officer
Burt A. Adelman, ......... 46 Vice President - Medical Research
Michael J. Astrue ........ 42 Vice President - General Counsel, Secretary and Clerk
Michael W. Bonney ........ 41 Vice President - Sales and Marketing
Frank A. Burke, Jr........ 55 Vice President - Human Resources
Lawrence S. Daniels....... 56 Vice President - Strategic Planning
Joseph M. Davie .......... 59 Senior Vice President - Research
David C. Dlesk ........... 40 Vice President - Operations
Sylvie L. Gregoire........ 37 Vice President - Regulatory Affairs
Timothy M. Kish .......... 47 Vice President - Finance and Chief Financial Officer
Mark W. Leuchtenberger ... 42 Vice President - International
David D. Pendergast ...... 50 Vice President - Product Development and Quality Assurance
</TABLE>
The background of these officers is as follows:
James L. Vincent has been Chairman of the Board of Directors of the Company
since October 1985. Mr. Vincent's current term as Chief Executive Officer began
in December 1998. He previously served as Chief Executive Officer of the Company
from October 1985 until February 1997. He served in the additional capacities of
Chief Operating Officer and President from April 1988 until February 1994.
Before joining Biogen, Mr. Vincent served as Group Vice President, Allied
Corporation and as President, Allied Health & Scientific Products Company, a
subsidiary of Allied Corporation. Before joining Allied Corporation, Mr. Vincent
was with Abbott Laboratories, Inc. where he served in various capacities,
including Executive Vice President, Chief Operating Officer and Director of the
parent corporation. Mr. Vincent is a director of CuraGen Corporation.
James C. Mullen was appointed President and Chief Operating Officer of the
Company in January 1999, after serving as Vice President - International since
August 1996. Mr. Mullen was the Company's Vice President - Operations from
December 1991 until August 1996 and served as Senior Director - Operations from
February 1991 to December 1991. Mr. Mullen joined the Company in 1989. Before
coming to Biogen, Mr. Mullen held various positions of responsibility from 1984
through 1988 at SmithKline-Beckman Corporation, most recently as Director,
Engineering, SmithKline and French Laboratories, Worldwide.
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<PAGE> 18
Burt A. Adelman, M.D. was appointed Vice President - Medical Research in
January 1999 after serving as Vice President - Development Operations since
August 1996. Dr. Adelman served as Vice President - Regulatory Affairs of the
Company from May 1995 until August 1996. From 1991 until May 1995, Dr. Adelman
was Director of Medical Research at Biogen. Dr. Adelman has served as Lecturer
of Medicine at Harvard Medical School and Brigham and Women's Hospital since
1992.
Michael J. Astrue was appointed Vice President - General Counsel, Secretary
and Clerk of the Company in June 1993. Prior to joining the Company, Mr. Astrue
was a partner in the Boston law firm of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. and a managing director of its wholly-owned consulting firm, ML
Strategies, from November 1992 to June 1993. From June 1989 through November
1992, Mr. Astrue served as General Counsel of the United States Department of
Health and Human Services. From April 1988 through June 1989, Mr. Astrue served
as Associate Counsel to the President of the United States.
Michael W. Bonney was appointed Vice President - Sales and Marketing in
January 1999, after serving as Vice President - Sales since September 1995. Mr.
Bonney is also the Program Executive for the Company's AVONEX(R) program. Prior
to joining the Company, Mr. Bonney served as National Business Director for the
U.S. pharmaceutical business of Zeneca Inc. from October 1994 to September 1995
and as Director of Core Business Systems and Re-engineering of Zeneca Inc.'s
U.S. pharmaceutical business from January 1993 until January 1995.
Frank A. Burke, Jr., was appointed Vice President - Human Resources in May
1986 after serving for 12 years in various human resource management positions
at Allied-Signal, Inc., most recently as Director of Compensation and Employee
Benefits of the Engineered Materials Sector.
Lawrence S. Daniels was appointed Vice President - Strategic Planning of
the Company in August 1993 after serving as Vice President Marketing and
Business Development since November 1991. Prior to joining the Company, Mr.
Daniels served for nine years in planning and administrative functions for
Allied-Signal, Inc., most recently as Vice President, Corporate Strategy
Development.
Joseph M. Davie, M.D., Ph.D. was appointed Senior Vice President - Research
of the Company in January 1999 after serving as Vice President - Research since
April 1993. Prior to joining the Company, Dr. Davie was employed by Searle
Corporation where he served as Senior Vice President - Science and Technology
from January 1993 to April 1993, President - Research and Development from July
1987 to January 1993 and Senior Vice President - Discovery Research from January
1987 to July 1987. Dr. Davie is a director of Genovo, Inc.
David C. Dlesk was appointed Vice President - Operations of the Company in
August, 1996 after serving as Senior Director of Manufacturing and Engineering
since May 1996. Prior to joining Biogen, Mr. Dlesk was Chief Executive Officer
of Medical Media Systems, a developer of software for computer-aided surgery.
From 1981 to 1993, Mr. Dlesk held a number of positions with Baxter Healthcare
Corporation, including Director of Business Development, Venture Technology,
General Manager Bentley Laboratories B.V. and Manager of Drug Delivery
Technology Group for the I.V. Systems Division.
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<PAGE> 19
Sylvie L. Gregoire, Pharm.D. was appointed Vice President - Regulatory
Affairs in January 1999. She is also the Program Executive for the Company's
LT-Beta Receptor program, a role she assumed in July 1998. From 1995 until July
1998, Dr. Gregoire served as Director, European Regulatory Affairs of the
Company. Prior to joining Biogen, Dr. Gregoire was Associate Director of
European Regulatory Affairs for Merck Sharp and Dohme (Europe) Inc. from 1991
until the end of 1994.
Timothy M. Kish was appointed Vice President - Finance and Chief Financial
Officer of the Company in August 1993 after serving as Corporate Controller of
the Company since 1986. Prior to joining Biogen, Mr. Kish was Director of
Finance for Allied Health & Scientific Products Company, a subsidiary of Allied
Corporation. Before joining Allied, Mr. Kish served in various capacities at
Bendix Corp., most recently as Executive Assistant to the President.
Mark W. Leuchtenberger was appointed Vice President - International in
January 1999 after serving as Vice President - Sales, Marketing and Business
Development since January 1998. Mr. Leuchtenberger was the Company's Vice
President - Marketing and Sales from October 1996 until January 1998, Director
of Distributor Operations, Europe from September 1996 until October 1996,
Director of Marketing and the Program Executive for AVONEX(R) from 1993 until
September 1996, a Product Manager from 1992 to 1993, and a Market Development
Manager from 1990 to 1992. Prior to joining Biogen, Mr. Leuchtenberger worked
for the consulting firm of Bain & Company from 1987 to 1990.
David D. Pendergast, Ph.D. was appointed Vice President - Product
Development and Quality Assurance in January 1998 after serving as Vice
President - Quality Assurance and Quality Control of the Company since April
1996. Dr. Pendergast joined Biogen from Fisons Pharmaceuticals, Manchester U.K.
where he served as Director, Quality Assurance/Quality Control of Fisons PLC
from 1992 to 1996. Prior to joining Fisons, Dr. Pendergast served, over a twenty
year period, in various capacities at The Upjohn Company, including Vice
President - Quality Assurance from 1989 to 1992.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The section entitled "Market for Securities" in the Company's 1998 Annual
Report to Shareholders is hereby incorporated by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The section entitled "Selected Financial Data" in the Company's 1998 Annual
Report to Shareholders is hereby incorporated by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1998 Annual Report to
Shareholders is hereby incorporated by reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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<PAGE> 20
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Outlook" in the Company's 1998 Annual
Report to Shareholders is hereby incorporated by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The sections entitled "Consolidated Statements of Income," "Consolidated
Balance Sheets," "Consolidated Statements of Cash Flows," "Consolidated
Statements of Shareholders' Equity," "Notes to Consolidated Financial
Statements" and "Report of Independent Accountants" in the Company's 1998 Annual
Report to Shareholders are hereby incorporated by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's definitive proxy statement for
its 1999 Annual Meeting of Stockholders, which the Company intends to file with
the Commission no later than April 30, 1999, are hereby incorporated by
reference.
Information concerning the Company's Executive Officers is set forth in
Part I of this Annual Report on Form 10-K.
ITEM 11 - EXECUTIVE COMPENSATION
The sections entitled "Election of Directors" and "Executive Compensation",
in the Company's definitive proxy statement for its 1999 Annual Meeting of
Stockholders, which the Company intends to file with the Commission no later
than April 30, 1999, are hereby incorporated by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Share Ownership" in the Company's definitive proxy
statement for its 1999 Annual Meeting of Stockholders, which the Company intends
to file with the Commission no later than April 30, 1999, is hereby incorporated
by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Executive Compensation-Employment Arrangements with
the Company and Certain Transactions" in the Company's definitive proxy
statement for its 1999 Annual Meeting of Stockholders, which the Company intends
to file with the Commission no later than April 30, 1999, is hereby incorporated
by reference.
20
<PAGE> 21
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements and Financial Statement Schedules.
The following documents are filed as a part of this report:
(1) Financial Statements, as required by Item 8 of this Form, incorporated
by reference herein from the 1998 Annual Report to Shareholders attached
hereto as Exhibit 13:
<TABLE>
<CAPTION>
Item Location
- ---- --------
<S> <C>
Consolidated Statements of Income Annual Report under the caption "Biogen, Inc. and Subsidiaries Consolidated
Statements of Income."
Consolidated Balance Sheets Annual Report under the caption "Biogen, Inc. and Subsidiaries Consolidated
Balance Sheets."
Consolidated Statements of Cash Flows Annual Report under the caption "Biogen, Inc. and Subsidiaries Consolidated
Statements of Cash Flows."
Consolidated Statements of Shareholders' Equity Annual Report under the caption "Biogen, Inc. and Subsidiaries Consolidated
Statements of Shareholders' Equity."
Notes to Consolidated Financial Statements Annual Report under the caption "Biogen, Inc. and Subsidiaries Notes to
Consolidated Financial Statements."
Reports of Independent Accountants Annual Report under the caption "Report of Independent Accountants."
</TABLE>
With the exception of the portions of the 1998 Annual Report to
Shareholders specifically incorporated herein by reference, such report shall
not be deemed filed as part of this Annual Report on Form 10-K.
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts and Reserves
(3) Exhibits
21
<PAGE> 22
Exhibit No. Description
- ----------- -----------
(3.1) Articles of Organization, as amended (p)
(3.2) By-Laws, as amended (g)
(4.1) Form of Common Stock Share Certificate (i)
(4.2) Certificate of Designation of Series A Junior Participating
Preferred Stock (d)
(4.3) Rights Agreement dated as of May 8, 1989 between Registrant and
The First National Bank of Boston, as Rights Agent (d)
(10.1) Independent Consulting and Project Agreement dated as of June 29,
1979 between Company and Kenneth Murray (a)**
(10.2) Letter Agreement dated September 11, 1998 with Kenneth Murray
related to renewal of Independent Consulting Agreement *, **
(10.3) Minute of Agreement dated February 5, 1981 among Registrant, The
University Court of the University of Edinburgh and Kenneth Murray
(a)**
(10.4) Independent Consulting Agreement dated as of June 29, 1979 between
Registrant and Phillip A. Sharp (a)**
(10.5) Letter Agreement dated December 11, 1998 with Phillip A. Sharp
related to chairmanship of Scientific Board and renewal of
Independent Consulting Agreement *, **
(10.6) Project Agreement dated as of December 15, 1979 between Registrant
and Phillip A. Sharp (a)**
(10.7) Share Restriction and Repurchase Agreement dated as of December
15, 1979 between Registrant and Phillip A. Sharp (a)**
(10.8) Consulting Agreement dated as of April 1, 1991, as amended,
between Registrant and Alexander G. Bearn (f)**
(10.9) Letter Agreement dated March 24, 1998 with Alexander G. Bearn
relating to renewal of Independent Consulting Agreement *, **
(10.10) Form of Amendment dated July 1, 1988 to Independent Consulting
Agreement between Registrant and Scientific Board Members (c)**
(10.11) Letter regarding employment of James L. Vincent dated September
23, 1985 (b)**
22
<PAGE> 23
(10.12) Letter agreement amending employment arrangement between the
Registrant and James L. Vincent dated as of November 21, 1996
(q)**
(10.13) Form of Stock Option Agreement with James L. Vincent under 1985
Non-Qualified Stock Option Plan (g)**
(10.14) Form of Stock Option Agreement with James L. Vincent under 1985
Non-Qualified Stock Option Plan (1995) (o)**
(10.15) Form of Stock Option Agreement with James L. Vincent under 1985
Non-Qualified Stock Option Plan (1997) (s)**
(10.16) Letter dated April 7, 1993 regarding employment of Dr. Joseph M.
Davie (h)**
(10.17) Form of Indemnification Agreement between Registrant and each
Director and Executive Officer (c)**
(10.18) Cambridge Center Lease dated October 4, 1982 between Mortimer
Zuckerman, Edward H. Linde and David Barrett, as Trustees of
Fourteen Cambridge Center Trust, and B. Leasing, Inc. (a)
(10.19) First Amendment to Lease dated January 19, 1989 amending Cambridge
Center Lease dated October 4, 1982 (g)
(10.20) Second Amendment to Lease dated March 8, 1990 amending Cambridge
Center Lease dated October 4, 1982 (g)
(10.21) Third Amendment to Lease dated September 25, 1991 amending
Cambridge Center Lease dated October 4, 1982 (g)
(10.22) Fourth Amendment to Lease dated October 6, 1993, amending
Cambridge Center Lease dated October 4, 1982 (s)
(10.23) Fifth Amendment to Lease dated October 9, 1997, amending Cambridge
Center Lease dated October 4, 1982 (s).
(10.24) Lease dated October 6, 1993 between North Parcel Limited
Partnership and Biogen Realty Limited Partnership (j)
(10.25) 1983 Employee Stock Purchase Plan, as amended and restated through
September 12, 1997 (s)**
(10.26) 1982 Incentive Stock Option Plan, as amended through April 25,
1995 and restated with form of Option Agreement (t)**
(10.27) 1985 Non-Qualified Stock Option Plan, as amended through December
6, 1996 and restated with form of Option Agreement (t) **
23
<PAGE> 24
(10.28) 1987 Scientific Board Stock Option Plan, as amended through
September 12, 1997 (s)**
(10.29) Voluntary Executive Supplemental Savings Plan (m)**
(10.30) Amendment No. 1 dated April 25, 1997 to Voluntary Executive
Supplemental Savings Plan (s)**
(10.31) Amendment No. 2 dated March 11, 1998 to Voluntary Executive
Supplemental Savings Plan *,**
(10.32) Amended and Restated Supplemental Executive Retirement Plan (s)**
(10.33) Voluntary Board of Directors Savings Plan (m)**
(10.34) Amendment No. 1 dated April 25, 1997 to Voluntary Board of
Directors Savings Plan (s)**
(10.35) Amendment No. 2 dated March 11, 1998 to Voluntary Board of
Directors Savings Plan *,**
(10.36) Exclusive License and Development Agreement dated December 8, 1979
between Registrant and Schering Corporation (a)
(10.37) Amendatory Agreement dated May 14, 1985 to Exclusive License and
Development Agreement dated December 8, 1979 (b)
(10.38) Amendment and Settlement Agreement dated September 29, 1988 to
Exclusive License and Development Agreement dated December 8, 1979
(g)
(10.39) Amendment dated March 20, 1989 to Exclusive License and
Development Agreement dated December 8, 1979 (g)
(10.40) License Agreement (United States) dated March 28, 1988 between
Registrant and SmithKline Beecham Biologicals, s.a. (as successor
to Smith Kline-R.I.T, s.a.) (g)
(10.41) License Agreement (International) dated March 28, 1988 between
Registrant and SmithKline Beecham Biologicals, s.a. (as successor
to Smith Kline-R.I.T., s.a.) (g)
(10.42) Sublicense Agreement dated as of February 15, 1990 among
Registrant, SmithKline Beecham Biologicals, s.a (as successor to
SmithKline Biologicals, s.a.) and Merck and Co., Inc. (g)
(10.43) Supplemental Amendment and Agreement dated as of March 1, 1994
between the Registrant and Schering Corporation (l)
24
<PAGE> 25
(10.44) Agreement and Amendment between the Registrant and Schering
Corporation dated May 1, 1998 (t).
(13) Incorporated portions from Biogen, Inc. 1998 Annual Report to
Shareholders *
(21) Subsidiaries of the Registrant *
(24.1) Consent of PricewaterhouseCoopers LLP *
(27) Financial Data Schedule
(a) Previously filed with the Commission as an exhibit to Registration
Statement on Form S-1, File No. 2-81689 and incorporated herein by
reference.
(b) Previously filed with the Commission as an exhibit to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1985,
as amended, File No. 0-12042 and incorporated herein by reference.
(c) Previously filed with the Commission as an exhibit to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988,
File No. 0-12042 and incorporated herein by reference.
(d) Previously filed with the Commission as an exhibit to Registration
Statement on Form 8-A, File No. 0-12042, filed May 26, 1989 and
incorporated herein by reference.
(e) Previously filed with the Commission as an exhibit to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990,
File No. 0-12042, and incorporated herein by reference.
(f) Previously filed with the Commission as an exhibit to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991,
File No. 0-12042, and incorporated herein by reference.
(g) Previously filed with the Commission as an exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, File No. 0-12042, and incorporated herein by
reference.
(h) Previously filed with the Commission as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, File No. 0-12042, and incorporated herein by
reference.
(i) Previously filed with the Commission as an exhibit to Registration
Statement on Form S-3, File No. 33-51639 filed December 21, 1993,
and incorporated herein by reference.
(j) Previously filed with the Commission as an exhibit to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993,
File No. 0-12042, and incorporated herein by reference.
25
<PAGE> 26
(k) Previously filed with the Commission as an exhibit to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994,
File No. 0-12042, and incorporated herein by reference.
(l) Previously filed with the Commission as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994, File No. 0-12042, and incorporated herein by
reference.
(m) Previously filed with the Commission as an exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, File No. 0-12042, and incorporated herein by
reference.
(n) Previously filed with the Commission as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, File No. 0-12042, and incorporated herein by
reference.
(o) Previously filed with the Commission as an exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 0-12042, and incorporated herein by
reference.
(p) Previously filed with the Commission as an exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, File No. 0-12042, and incorporated herein by
reference.
(q) Previously filed with the Commission as an exhibit to an amendment
to the Registrant's Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1996, File No. 0-12042, and incorporated
herein by reference.
(r) Previously filed with the Commission as an exhibit to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
File No. 0-12042, and incorporated herein by reference.
(s) Previously filed with the Commission as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, File No. 0-12042, and incorporated herein by
reference.
(t) Previously filed with the Commission as an exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998, File No. 0-12042, and incorporated herein by reference.
* Filed herewith
** Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
26
<PAGE> 27
During the fourth quarter of 1998, the Company filed a report on Form 8-K
announcing the resignation of James R. Tobin as its President and Chief
Executive Officer.
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ James L. Vincent
---------------------------------------
James L. Vincent, Chairman of the Board
Dated March 23, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ James L. Vincent Chairman of the Board and March 23, 1999
- ------------------------ Chief Executive Officer
James L. Vincent (principal executive officer)
/s/ Timothy M. Kish Vice President - Finance and Chief March 23, 1999
- ------------------------ Financial Officer (principal
Timothy M. Kish financial and accounting officer)
/s/ Alexander G. Bearn Director March 23, 1999
- ------------------------
Alexander G. Bearn
/s/ Harold W. Buirkle Director March 23, 1999
- ------------------------
Harold W. Buirkle
/s/ Alan Belzer Director March 23, 1999
- ------------------------
Alan Belzer
/s/ Mary L. Good Director March 23, 1999
- ------------------------
Mary L. Good
/s/ Thomas F. Keller Director March 23, 1999
- ------------------------
Thomas F. Keller
/s/ Roger H. Morley Director March 23, 1999
- ------------------------
Roger H. Morley
/s/ Kenneth Murray Director March 23, 1999
- ------------------------
Kenneth Murray
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Phillip A. Sharp Director March 23, 1999
- ----------------------
Phillip A. Sharp
/s/ Alan K. Simpson Director March 23, 1999
- ---------------------
Alan K. Simpson
/s/ James W. Stevens Director March 23, 1999
- ----------------------
James W. Stevens
</TABLE>
<PAGE> 30
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.2 Letter Agreement dated September 11, 1998, with Kenneth Murray
related to renewal of Independent Consulting Agreement.
10.5 Letter Agreement dated December 11, 1998 with Phillip A. Sharp
related to chairmanship of Scientific Board and renewal of
Independent Consulting Agreement.
10.9 Letter Agreement dated March 24, 1998 with Alexander G. Bearn
related to renewal of Independent Consulting Agreement.
(10.31) Amendment No. 2 dated March 11, 1998 to Voluntary Executive
Supplemental Savings Plan
(10.35) Amendment No. 2 dated March 11, 1998 to Voluntary Board of
Directors Savings Plan
(13) Incorporated portions from Biogen, Inc. 1998 Annual Report to
Shareholders
(21) Subsidiaries of the Registrant
(24.1) Consent of PricewaterhouseCoopers LLP
(27) Financial Data Schedule
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Biogen, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 14, 1999 appearing in the 1998 Annual Report to Shareholders of
Biogen, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 14, 1999
<PAGE> 32
BIOGEN, INC.
Schedule II
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
Balance at Additions Charged
Beginning of to Costs and Balance at
Description Period Expenses Deductions End of Period
- --------------------------------------- ------------- ----------------- ---------- -------------
Allowance For Doubtful Accounts:
<S> <C> <C> <C> <C>
Year Ended December 31, 1998 $ 1,645 $ -- $ 3 $ 1,642
============= ================ ========== =============
Year Ended December 31, 1997 $ 1,480 $ 1,196 $ 1,031 $ 1,645
============= ================ ========== =============
Year Ended December 31, 1996 $ -- $ 1,480 $ -- $ 1,480
============= ================ ========== =============
Sales Returns & Allowances,
Discounts and Rebates:
Year Ended December 31, 1998 $ 3,789 $ 26,172 $ 24,369 $ 5,592
============= ================ ========== =============
Year Ended December 31, 1997 $ 1,350 $ 18,387 $ 15,948 $ 3,789
============= ================ ========== =============
Year Ended December 31, 1996 $ -- $ 3,640 $ 2,290 $ 1,350
============= ================ ========== =============
</TABLE>
<PAGE> 1
EXHIBIT 10.2
[BIOGEN LETTERHEAD]
September 11, 1998
Sir Kenneth Murray
4 Mortonhall Road
Edinburgh EH9 2HW
Scotland, United Kingdom
Re: RENEWAL OF INDEPENDENT CONSULTING AND PROJECT AGREEMENT
Dear Ken:
Your Independent Consulting and Project Agreement with Biogen, Inc.,
dated June 29, 1979, as previously amended (the "Agreement"), under which you
serve as a member of the Scientific Board of the Company expires on September
30, 1998. Biogen greatly values your input on the Scientific Board, and would
like to renew the Agreement for an additional three-year period commencing as of
September 30, 1998 and ending on September 30, 2001. The terms and conditions of
the Agreement will continue to apply during the renewal term except that
compensation for your services under the Agreement during the renewal term will
be as follows:
1. You will receive (i) a $20,000 per year retainer, (ii) $2,000 per
day for attendance at Scientific Board meetings, plus reasonable
travel and lodging expenses and (iii) $500 per day for time spent
in Biogen=s laboratories.
2. Subject to approval by the Stock and Option Plan Administration
Committee, on your renewal date, you will be granted an option to
purchase 30,000 shares of Biogen Common Stock. The option will vest
over three years (33-1/3% per year) and will be exercisable at a
price equal to the average of the high and low sales prices on your
renewal date.
If you agree to renewal of the Agreement on these terms, please sign
both copies of this renewal letter and return one copy to the attention of Anne
Marie Cook, Associate General Counsel, Biogen, Inc., 14 Cambridge Center,
Cambridge, MA 02142.
<PAGE> 2
We look forward to your continued participation on the Scientific
Board.
Very truly yours,
BIOGEN, INC.
By:________________________________
James R. Tobin
President and Chief Executive
Officer
By:________________________________
Phillip A. Sharp, Ph.D.
Chairman of Scientific Board
AGREED TO AND ACCEPTED:
___________________________________
Sir Kenneth Murray, Ph.D.
<PAGE> 1
EXHIBIT 10.5
[BIOGEN LETTERHEAD]
December 11, 1998
Phillip A. Sharp, Ph.D.
Salvador E. Luria Professor
Department of Biology
Center for Cancer Research
Room E17-529B
Massachusetts Institute of Technology
40 Ames Street
Cambridge, MA 02139-4307
Re: RENEWAL OF INDEPENDENT CONSULTING AGREEMENT
Dear Phil:
Your Independent Consulting Agreement with Biogen, Inc., dated June 29,
1979, as previously amended (the "Agreement"), under which you serve as a member
of the Scientific Board of the Company, and your service as Chairman of the
Scientific Board expire on December 31, 1998. Biogen greatly values your input
on the Scientific Board, and would like to renew the Agreement and your service
as Chairman of the Scientific Board for an additional three-year period,
commencing as of December 31, 1998 and ending on December 31, 2001 (the "Renewal
Term"), on the following terms and conditions:
1. Your annual fee as Chairman of the Scientific Board will be $95,000
per year, payable quarterly in advance. The fee is to cover your service as
Chairman, and is in lieu of the standard fee for Scientific Board members of
$20,000 per year and the per diem fees for Scientific Board attendance,
laboratory visits and consulting services.
2. Biogen will pay Margarita Siafaca, or any other person you may
designate, $1,250 per calendar quarter (for a total of $5,000 per year), in
advance, for secretarial and administrative services rendered and for office
expenses incurred for or on behalf of the Scientific Board of the Company.
<PAGE> 2
3. Subject to approval by the Stock and Option Plan Administration
Committee, you will be granted an option to purchase 75,000 shares of Common
Stock of the Company at an exercise price equal to the average of the high and
low sales prices on the date of this renewal letter. The option will vest as to
one-third of the shares upon completion of each of the first, second and third
year of service after the date of this renewal letter during the Renewal Term.
If you agree to renewal of the Agreement and your service as Chairman
of the Scientific Board on these terms, please sign both copies of this renewal
letter and return one copy to the attention of Anne Marie Cook, Biogen, Inc., 14
Cambridge Center, Cambridge, MA 02142.
I look forward to your continued participation on the Scientific Board.
Very truly yours,
James R. Tobin
President and Chief
Executive Officer
AGREED TO AND ACCEPTED:
_____________________________
Phillip A. Sharp, Ph.D.
<PAGE> 1
EXHIBIT 10.9
March 24, 1998
Alexander G. Bearn, M.D.
Executive Director
American Philosophical Society
104 South 5th St.
Philadelphia, PA 19106-3387
Re: RENEWAL OF CONSULTANCY AGREEMENT
Dear Alick:
Your Consultancy Agreement with Biogen, Inc., dated April 1, 1991 (the
"Agreement"), under which you serve as a member of the Scientific Board of the
Company, expires on April 1, 1998. Biogen greatly values your input on the Board
and would like to renew the Agreement for an additional three-year period
commencing as of April 1, 1998 and ending on April 1, 2001. The terms and
conditions of the Agreement will continue to apply during the renewal term
except that compensation for your services under the Agreement during the
renewal term will be as follows:
1. You will receive (i) a $20,000 per year retainer, (ii) $2,000 per
day for attendance at Scientific Board meetings, plus reasonable
travel and lodging expenses and (iii) $500 per day for time spent
in Biogen's laboratories.
2. Subject to approval by the Stock and Option Plan Administration
Committee, on your renewal date, you will be granted an option to
purchase 30,000 shares of Biogen Common Stock. The option will vest
over three years (33-1/3% per year) and will be exercisable at a
price equal to the average of the high and low sales prices on your
renewal date.
1
<PAGE> 2
If you agree to renewal of the Agreement on the above terms, please
sign both copies of this letter and return one copy to the attention of Anne
Marie Cook, Associate General Counsel, Biogen, Inc., 14 Cambridge Center,
Cambridge, MA 02142.
BIOGEN, INC.
By:____________________________
James R. Tobin
President and Chief
Executive Officer
By:____________________________
Phillip A. Sharp
Chairman of Scientific Board
AGREED TO AND ACCEPTED:
_______________________________
Alexander G. Bearn, M.D.
2
<PAGE> 1
EXHIBIT 10.31
BIOGEN, INC.
VOLUNTARY EXECUTIVE SUPPLEMENTAL SAVINGS PLAN
SECOND AMENDMENT
The Biogen, Inc. Voluntary Executive Supplemental Savings Plan, as
heretofore amended, is hereby further amended effective as of January 1, 1998,
as follows:
1. Section 4.1(a) is amended by deleting the number "25%" and by
inserting in its place the number "50%".
2. Section 5.1(c) is amended by (a) deleting the words "mutual fund"
and "mutual funds" in each place they occur and substituting in their
place the words "investment fund" and "investment funds" respectively,
and (b) deleting the parenthetical phrase at the end of the first
paragraph thereby allowing participants to chose the Biogen stock fund
as an investment option.
BIOGEN, INC.
Date: March 11, 1998 By:______________________________
Frank A. Burke, Jr.
Vice President - Human Resources
<PAGE> 1
EXHIBIT 10.35
BIOGEN, INC.
VOLUNTARY BOARD OF DIRECTORS SAVINGS PLAN
SECOND AMENDMENT
The Biogen, Inc. Voluntary Board of Directors Savings Plan, as
heretofore amended, is hereby further amended effective as of January 1, 1998,
as follows:
1. Section 5.1(b) is amended by (a) deleting the words "mutual fund"
and "mutual funds" in each place they occur and substituting in their
place the words "investment fund" and "investment funds" respectively,
and (b) deleting the parenthetical phrase at the end of the first
paragraph thereby allowing participants to chose the Biogen stock fund
as an investment option.
BIOGEN, INC.
Date: March 11, 1998 By:________________________________
Frank A. Burke, Jr.
Vice President - Human Resources
<PAGE> 1
EXHIBIT 13
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Product sales $394,863 $239,988 $ 78,202 $ -- $ --
Royalty revenue 162,724 171,921 181,502 134,653 140,433
Total revenues 557,587 411,909 259,704 134,653 140,433
Total expenses 366,948 285,787 234,541 138,245 125,847
Income (loss) before income taxes(a) 210,193 148,968 40,829 7,445 (1,907)
Net income (loss) (a) 138,697 89,167 40,530 5,660 (4,897)
Diluted earnings (loss) per share 1.80 1.17 0.55 0.08 (0.07)
Cash, cash equivalents and short-
term marketable securities 516,914 440,088 321,381 307,948 267,802
Total assets 924,715 813,825 634,572 469,201 377,862
Long-term debt, less current
portion 56,960 61,846 62,254 32,826 --
Shareholders' equity 718,613 536,293 484,370 382,980 329,934
Shares used in calculating diluted
earnings per share 77,135 76,500 73,221 72,890 65,548
</TABLE>
(a) Net loss for the year ended December 31, 1994 includes a pre-tax
charge of $25 million as a result of the Company's decision to
discontinue its activities associated with the development of the
Hirulog(R) thrombin inhibitor product. Net income for the year ended
December 31, 1996 includes a tax benefit of approximately $23 million
resulting from the reversal of a deferred tax asset valuation
allowance.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
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) (Interferon beta-1a) for the treatment of relapsing forms of
multiple sclerosis ("MS"). The Company also derives revenue 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
vaccines and diagnostic products.
RESULTS OF OPERATIONS 1998 AS COMPARED TO 1997
REVENUES
Total revenues in 1998 were $557.6 million, as compared to $411.9 million in
1997, an increase of $145.7 million or approximately 35%.
Product sales in 1998 were $394.9 million as compared to $240 million in 1997,
an increase of $154.9 million or approximately 65%. Product sales from AVONEX(R)
represent approximately 71% of the Company's total revenues in 1998 as compared
to 58% in 1997. AVONEX(R) sales outside of the United States were approximately
$92 million in 1998 as compared to $19.1 million in 1997. The Company began
selling AVONEX(R) in the United States in May 1996. In March 1997, the Company
received regulatory approval to market AVONEX(R) in the fifteen member countries
of the European Union ("EU"). By the end of 1997, AVONEX(R) had received
reimbursement approval and was on the market in all of the EU countries. In
April of 1998, the Company received approval and began marketing AVONEX(R) in
Canada. The Company expects product sales as a percentage of total revenues to
increase in the near term as the Company continues to market AVONEX(R)
worldwide. The Company also expects sales from AVONEX(R) in Europe to increase
as a percentage of total product sales. The Company, however, faces increasing
competition worldwide. See "Outlook - Competition".
Revenues from royalties in 1998 were $162.7 million, a decrease of $9.2 million
or 5% as compared to $171.9 million of royalty revenue in 1997. Included in
royalty revenue in 1997 is a one-time non-refundable licensing payment of $15
million from Merck & Co., Inc. ("Merck"). Merck paid the $15 million license fee
to Biogen for the transfer of technology, rights granted and the research and
development previously performed by Biogen. Revenues from royalties represented
approximately 29% of total revenues in 1998 as compared to 42% in 1997. In May
1998, the Company and Schering Corporation, a subsidiary of Schering-Plough,
amended the terms of the license agreement under which Schering-Plough pays the
Company royalties on worldwide sales of Schering-Plough's alpha interferon
product, Intron(R) A. Under the terms of the amendment, Schering-Plough acquired
the Biogen alpha interferon patent application which was the subject of a
lawsuit filed by the Company against F. Hoffman-LaRoche, Inc. and Genentech Inc.
related to an interference involving the Biogen patent application and a patent
application jointly-owned by the two defendants. The lawsuit has since been
settled. As consideration for the acquisition of the Biogen patent application,
Schering-Plough agreed to pay certain sums on U.S. sales of alpha interferon
products from July 2002 until the expiration of the alpha interferon patent
expected to be issued to F. Hoffman-LaRoche, Inc. and Genentech Inc. as a result
of the settlement. 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, if any, or other developments. For a discussion of some of the
factors that may affect royalty revenues in the future, see "Outlook - Royalty
Revenue" and see "Outlook - Patents and Other Proprietary Rights".
<PAGE> 3
COSTS AND EXPENSES
Total expenses in 1998 were $366.9 million as compared to $285.8 million in
1997, an increase of approximately 28%.
Cost of sales in 1998 totaled $74.5 million, an increase of $24.3 million or 48%
as compared to 1997. The increase in cost of sales was attributable to the
higher sales volume of AVONEX(R). Included in cost of sales in 1998 and 1997 is
$62.1 million and $37.1 million, respectively, from product sales and $12.4
million and $13.1 million, respectively, relating to royalty revenue. The
Company expects that gross margins on royalty revenue will fluctuate in the
future based on the impact of one-time royalty and milestone payments, and
changes in sales volumes for specific products.
Research and development expenses in 1998 were $177.2 million, an increase of
$31.7 million or 22% as compared to $145.5 million in 1997. The increase was
primarily due to the costs associated with funding of collaboration agreements,
an increase in clinical trial costs and an increase in the Company's other
development efforts related to its ongoing research and development programs.
The Company expects that, in the near and long-term, research and development
expenses will increase as the Company expands its pipeline and related
development efforts with respect to potential new product candidates and
continues clinical trials and work on new formulations and delivery methods for
AVONEX(R).
Selling, general and administrative expenses in 1998 were $115.2 million, an
increase of $25.1 million or 28% as compared to 1997. This increase was
primarily due to selling and marketing expenses related to the sale of AVONEX(R)
and an increase in legal fees. The Company expects that selling, general, and
administrative expenses will continue to increase in the near term as the
Company continues to expand the sales and marketing organizations necessary to
sell AVONEX(R) in existing and new markets.
OTHER INCOME, NET
Other income, net consists primarily of interest income, partially offset by
interest and other financing expenses, and other non-operating income and
expenses. Interest income increased $6.2 million from 1997 to 1998, which was
offset by increases in financing related and other non-operating expenses. The
increase in interest income is a result of increased funds invested. The Company
expects interest income to vary based on changes in the amount of funds invested
and fluctuations in interest rates.
INCOME TAXES
The Company's effective tax rate in 1998 was 34%. Income tax expense for 1998
varied from the amount computed at the U.S. federal statutory rates primarily
due to the benefit of research and development and investment tax credits.
The Company's effective tax rate outside the U.S. is lower than the U.S. tax
rate, and the Company expects that the U.S. tax rate will decline as a
percentage of its total tax rate as international sales increase.
RESULTS OF OPERATIONS 1997 AS COMPARED TO 1996
REVENUES
Total revenues in 1997 were $411.9 million, as compared to $259.7 million in
1996, an increase of approximately 59%.
Product sales in 1997 were $240 million as compared to $78.2 million in 1996, an
increase of approximately 207%. AVONEX(R) sales outside of the United States
were approximately $19.1 million in 1997 as compared to $593,000 in 1996.
Revenues from royalties in 1997 were $171.9 million, a decrease of $9.6 million
or 5% as compared to $181.5 million of royalty revenue in 1996. Included in
royalty revenue in 1997 was a one-time non-
<PAGE> 4
refundable licensing payment of $15 million from Merck paid under a
collaborative research, development and license agreement (the "Merck
Agreement"). Merck paid the $15 million license fee to Biogen for the transfer
of technology, rights granted and the research and development previously
performed by Biogen. Under the Merck Agreement, Merck will have rights to
develop and market small molecule VLA-4 inhibitors in all therapeutic areas
other than certain small indications such as multiple sclerosis and kidney
diseases and disorders, which Biogen will continue to work on itself. The Merck
Agreement also provides for payments to be made by either party upon the
achievement of certain development milestones by the other party. In addition,
if either party successfully develops a product, the other party will receive
royalties on sales of the product. Included in royalty revenue in 1996 was a
one-time royalty payment of $30 million for sales that occurred prior to 1996
received under a license agreement with Pharmacia & Upjohn A.B. ("Pharmacia &
Upjohn"). Under the terms of this license agreement Biogen granted Pharmacia &
Upjohn a sublicense under certain patents related to a proprietary protein
secretion technology licensed exclusively to Biogen by Harvard University.
Excluding the one-time payments from Merck in 1997 and Pharmacia & Upjohn in
1996, royalty revenue increased 3.6% from 1996 to 1997.
COSTS AND EXPENSES
Total expenses in 1997 were $285.8 million as compared to $234.5 million in
1996, an increase of approximately 22%.
Cost of sales in 1997 totaled $50.2 million, an increase of $21.7 million or 76%
as compared to 1996. The increase was due to the higher sales volume of
AVONEX(R). Included in cost of sales in 1997 and 1996 is $37.1 million and $11.4
million, respectively, from product sales and $13.1 million and $17.1 million,
respectively, relating to royalty revenue. Gross margins for product sales
remained flat at 85% in both 1997 and 1996. Cost of sales relating to royalty
revenue for 1997 decreased $4 million, or approximately 23% as compared to 1996,
due to a lower percentage of royalty revenue with associated royalty costs.
Research and development expenses in 1997 were $145.5 million, an increase of
$13.1 million or 10% as compared to 1996. This increase was primarily due to the
costs associated with funding of collaboration agreements, an increase in
clinical trial costs and an increase in the Company's other development efforts
related to its ongoing research and development programs. In 1997, the Company
completed Phase 2 trials of several of its drug candidates, including LFA3TIP, a
T-cell inhibiting protein being tested as a potential treatment for moderate to
severe psoriasis and CVT-124, which is being developed for treatment of edema
associated with congestive heart failure.
Selling, general and administrative expenses in 1997 were $90.1 million, an
increase of $16.5 million or 22% as compared to 1996. The increase was primarily
due to the selling and marketing expenses related to the sale of AVONEX(R),
principally in support of the European launch.
OTHER INCOME, NET
Other income, net consists primarily of interest income, partially offset by
interest and other financing expenses, and other non-operating income and
expenses. The increase in other income, net from 1996 to 1997 of $7.2 million
was primarily attributable to the increase interest income and other
non-operating income partially offset by financing related expenses. The
increase in interest income was attributable to increased funds invested and
higher average yields.
INCOME TAXES
The Company's effective tax rate in 1997 was 40.1%. Income tax expense for 1997
varied from the amount computed at U.S. federal 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. During
the third quarter of 1996, the Company determined it was more likely than not
that it would realize the benefits of its net deferred tax assets, and reversed
the related valuation allowance. The reversal of the valuation allowance
resulted in a realization of income tax benefit of approximately $23 million and
an increase in additional paid-in capital of $38.6 million that related to
deductions for non-qualified stock options.
<PAGE> 5
FINANCIAL CONDITION
At December 31, 1998, cash, cash equivalents and short-term marketable
securities were $516.9 million compared with $440.1 million at December 31,
1997, an increase of $76.8 million. Working capital increased $86.9 million to
$559.1 million. Net cash from operating activities for the year ended December
31, 1998 was $167.8 million compared with $97.6 million in 1997. Cash outflows
during 1998 included investments in property and equipment and patents of $33.6
million and $5 million related to investments under collaborative agreements.
Significant cash outflows from financing activities included $65.6 million for
purchases of the Company's common stock under its stock repurchase program and
$29.7 million for repayments on loans and note payable agreements with banks.
Cash inflows included $41.2 million from common stock option exercises and
related tax benefits and employee stock purchase plan activity.
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"). During 1997, the Company completed
construction of the facility and the funds advanced under the Construction Loan
were converted to a floating rate ten-year term loan with principal and interest
payable quarterly. As of December 31, 1998, the Company had $42.7 million
outstanding under the Construction Loan. The loan is secured by the underlying
building. The Company also entered an interest rate swap agreement with the same
bank, fixing its interest rate on the Construction Loan at 7.75% during the
remaining term of the loan with interest payable quarterly. As of December 31,
1998, the Company also had $19.2 million outstanding under a floating rate loan
with a bank (the "Term Loan"). The Term Loan is secured by the Company's
laboratory and office building in Cambridge, Massachusetts. The Company has
fixed its interest rate on the Term Loan at 7.5% under the terms of a swap
agreement. Terms of the Company's loan agreements include various covenants,
including financial covenants which require the Company to maintain minimum net
worth, cash flow and various financial ratios.
On February 22, 1999, the Company announced that its Board of Directors has
authorized the repurchase of up to 4 million shares of the Company's 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. The stock purchases are expected to occur from
time to time over a two year period and the program may be discontinued at any
time. Under a previous stock repurchase program, the Company in 1998 repurchased
1.8 million shares of its common stock at a cost of $65.6 million and in 1997
repurchased 200,000 shares of its common stock at a cost of $7 million.
The Company has several research programs and collaborations underway. In
December 1997, the Company entered into a collaborative research, development
and license agreement with Merck. Merck paid a $15 million non-refundable
license fee to Biogen for the transfer of technology, the rights granted and the
research and development previously performed by Biogen. Under the Merck
Agreement, Merck will have rights to develop and market small molecule VLA-4
inhibitors in all therapeutic areas other than certain small indications such as
multiple sclerosis and kidney diseases and disorders, which Biogen will continue
to work on itself. The Merck Agreement also provides for payments to be made to
either party upon the achievement of certain development milestones by the other
party. In addition, if a product is successfully developed by a party, the other
party will receive royalties on sales of the product.
In October 1997, the Company signed a research and option agreement (the
"CuraGen Agreement") with CuraGen Corporation ("CuraGen") under which the
Company and CuraGen will collaborate in the discovery of novel genes using
CuraGen's functional genomics technologies. The Company has also agreed to fund
research activities of CuraGen related to the collaboration up to a maximum of
$7.5 million over the next four years, and in return, has an option to acquire
an exclusive license to certain discoveries arising out of the collaborative
efforts. The Company provided $1.9 million in research and development funding
in 1998. In March of 1998, under the terms of the CuraGen Agreement, the Company
purchased approximately 435,000 shares of CuraGen common stock for a total of $5
million. Additionally, 100,000 shares of Series E Preferred Stock purchased by
Biogen in 1997 for $1 million were automatically converted into 100,000 shares
of CuraGen common stock. The investment is classified as available-for-sale and
is included in long-term marketable securities as of December 31, 1998. In
addition, pursuant to the terms of the agreement, the
<PAGE> 6
Company has extended to CuraGen a $10 million line of credit. At December
31, 1998, there were no borrowings outstanding under the line of credit.
In March 1997, the Company signed a research collaboration and license agreement
(the "CVT Agreement") with CV Therapeutics, Inc. ("CVT") under which Biogen
obtained rights to develop and market CVT's therapeutic CVT-124, now known as
BG9719, for the treatment of edema associated with congestive heart failure.
Under the terms of the CVT 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, which was charged to research and development expense. The
investment in CVT is classified as available-for-sale and is included in
long-term marketable securities. In addition, pursuant to the terms of the CVT
Agreement, the Company established a $12 million line of credit that CVT may use
for operating purposes. At December 31, 1998, the Company had advanced $7.7
million under the line of credit to CVT.
In December 1996, the Company signed a research collaboration and license
agreement (the "CBM 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 renal disorders. Under the CBM Agreement, Biogen paid
a license fee of $10 million, which was charged to research and development
expense, and purchased 1.5 million shares of CBM common stock for $18 million.
The payment for the common stock included a $1.2 million premium over the fair
value of the common stock which was charged to research and development expense.
The investment is classified as available-for-sale and is included in long term
marketable securities. In 1998, Biogen and CBM agreed to amend the CBM Agreement
to return to CBM responsibility for the development of OP-1. Under the terms of
the amendment, Biogen has the option, exercisable through the end of 1999, to
resume responsibility for development of OP-1. If Biogen does not exercise its
option, the CBM Agreement will terminate at the end of 1999. The Company
provided $10 million in research and development funding and material purchases
to CBM in 1998.
In July 1996, the Company signed a collaborative research and commercialization
agreement (the "Ontogeny Agreement") with Ontogeny, Inc. ("Ontogeny"), a private
biotechnology company, for the development and commercialization of three
specific hedgehog cell proteins. Under the Ontogeny Agreement, the Company
purchased 400,000 shares of preferred stock of Ontogeny for $1 million and
acquired certain exclusive, worldwide rights related to products based on the
hedgehog proteins for most disease areas. The Company accounts for its
investment in Ontogeny, which is included in other assets, using the cost method
of accounting. In November 1998, the Company extended and expanded its
collaboration with Ontogeny and provided to Ontogeny a $4 million convertible
loan. The Company provided $3.6 million of research funding to Ontogeny in 1998.
The Company has agreed to fund up to an additional $8 million in research
funding over the next three years. If the Company exercises its option to
proceed with development and commercialization of a hedgehog protein, the
Company would be committed to additional funding in the form of license fees,
equity investments and lines of credit.
In August 1995, the Company signed a collaborative research agreement (the
"Genovo Agreement") for the development of human gene therapy treatments with
Genovo, Inc. ("Genovo"), a gene therapy research company. Under the Genovo
Agreement, the Company acquired 380,000 shares of Genovo Series A Preferred
stock for $4.5 million and acquired certain licensing rights. The Company
accounts for this investment, which is included in other assets, using the
equity method of accounting. The Company recorded its proportion of Genovo's net
losses as research and development, which totaled $9 million, $7.7 million, and
$5.6 million in 1998, 1997 and 1996, respectively. At December 31, 1998, the
Company had remaining funding commitments to Genovo of approximately $10
million.
On a quarterly basis, as of the end of the quarter, the Company determines
whether a decline in fair value of a marketable security is other than
temporary. Unrealized gains and losses on marketable securities are included in
other comprehensive income in shareholders' equity, net of related tax effects.
If a decline in the fair value of a marketable security below the Company's cost
basis is determined to be other than temporary, such marketable security is
written down to its estimated fair value with a charge to current earnings. The
Company has concluded that all unrealized losses on marketable securities at
December 31, 1998 are temporary in nature. The Company expects that the market
value of such investments will recover to at least the Company's cost basis
within a reasonable period of time. Should any portion of these unrealized
losses subsequently be determined to be other than temporary, the Company would
be required to record the related amount as a charge to current earnings. See
Outlook-Stock Price.
The Company believes that existing funds and cash generated from operations are
adequate to satisfy its working capital and capital expenditure requirements in
the foreseeable future. However, the Company may raise additional capital to
take advantage of favorable conditions in the market or in connection with the
Company's development activities.
<PAGE> 7
LEGAL MATTERS
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 AVONEX(R) (Interferon beta-1a). In November 1996, Berlex's New
Jersey action was transferred to the U.S. District Court in Massachusetts and
consolidated for pre-trial purposes with a related declaratory judgement action
previously filed by Biogen. On August 18, 1998 Berlex filed a second suit
against Biogen alleging infringement by Biogen of a patent which was issued to
Berlex in August 1998 and which is related to the McCormick patent. On September
23, 1998, the cases were consolidated for pre-trial and trial purposes. Berlex
seeks a judgment granting it damages, a trebling of any damages awarded and a
permanent injunction restraining Biogen from the 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. A trial is currently scheduled for the
fall of 1999 but may be postponed.
On October 14, 1998 the Company filed an opposition with the Opposition
Division of the European Patent Office to oppose a European patent (the
"Rentschler patent") issued to Dr. Rentschler Biotechnologie GmbH ("Rentschler")
with certain claims regarding compositions of matter of beta interferon with
specific regard to the structure of the glycosylated molecule. While Biogen
believes that the patent will be revoked, if the patent were to be upheld and if
Rentschler were to obtain, through legal proceedings, a determination that the
Company's sale of Avonex(R) in Europe infringes a valid Rentschler patent, such
result could have a material adverse effect on the company's results of
operation and financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and
Statement of Financial Accounting Standards No. 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 require disclosure only and will have no impact on the
Company's consolidated financial position or results of operations. The Company
adopted SFAS 130 and SFAS 131 on January 1, 1998.
In February 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 132 "Employers Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132"). SFAS 132 revises standards for
disclosures of employers' pension and other post retirement benefit plans. SFAS
132 does not change the measurement or recognition of those plans. The Company
adopted SFAS 132 on January 1, 1998. The adoption of SFAS 132 had no impact on
the Company's consolidated financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal quarters for all
fiscal years beginning after June 15, 1999. The Company elected to adopt SFAS
133 in the fourth quarter of 1998. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. See Notes 1
and 2 to the Company's Consolidated Financial Statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 provides guidance on the
<PAGE> 8
financial reporting of start-up costs and organization costs, requiring those
costs to be expensed as incurred. SOP 98-5 is effective for financial statements
for fiscal years beginning after December 15, 1998. SOP 98-5 will have not have
a material impact on the Company's consolidated financial position or results
of operations.
OUTLOOK
SAFE HARBOR STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996
In addition to historical information, this annual report 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 product sales, royalty revenues,
expenses and profits, statements regarding the timing of clinical trials and
predictions as to the anticipated outcome of pending litigation and
patent-related proceedings and the Company's expectations as to the value of its
investments in certain marketable securities. 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 financial condition and results of operations are discussed
below.
DEPENDENCE ON AVONEX(R) SALES
The Company's ability to sustain increases in revenues and profitability for the
next several years 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) worldwide; the Company's
ability to maintain a high level of patient satisfaction with AVONEX(R); the
nature of regulatory and pricing decisions related to AVONEX(R) worldwide; the
extent to which AVONEX(R) receives reimbursement coverage; the impact of
competitive products and the impact of adverse decisions in patent-related
proceedings. The profitability from AVONEX(R) sales is also dependent on the
successful resolution of the Berlex suit, which is described above under "Legal
Matters".
COMPETITION
The Company faces increasing competition from other products for the treatment
of relapsing forms of multiple sclerosis. AVONEX(R) competes with interferon
beta-1b which is sold in the United States under the brand name Betaseron(R) by
Berlex Laboratories, Inc., a United States affiliate of Schering AG, Germany
("Schering AG"), and is sold in Europe under the brand name Betaferon(R) by
Schering AG. AVONEX(R) also faces competition from Copaxone(R) glatiramer
acetate (also known as copolymer-1). In the United States Copaxone(R) is
marketed by a partnership between Teva Pharmaceuticals and Hoechst Marion
Roussel, Inc. In addition, in Europe and Canada, AVONEX(R) competes with
Rebif(R), a recombinant interferon beta-1a product sold by Ares Serono S.A.
("Serono"). Serono is unable to sell Rebif(R) in the United States for relapsing
multiple sclerosis because of the orphan drug status afforded to AVONEX(R) and
Betaseron(R) for that indication. AVONEX(R) may also in the future face
competition from off-label uses of drugs approved for other indications, and
from new drugs in development. There can be no assurance that the Company will
be able to sustain market share of AVONEX(R) in light of competition from other
products for the treatment of multiple sclerosis.
ROYALTY REVENUE
The Company receives royalty revenues which contribute a significant amount to
its overall profitability. 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, if any, or other developments. There are a number of other factors
which could also 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 an impact on product sales by the Company's
licensees. In addition,
<PAGE> 9
licensee sales levels may fluctuate from quarter to quarter due to the timing
and extent of major events such as new indication approvals or government
sponsored vaccination programs. Since the Company is not involved in the
development or sale of products by its licensees, the Company is unable to
predict the timing or potential impact of factors which may affect licensee
sales. In the long term, the Company expects its royalty revenue to be affected
most significantly by patent expirations. See "Outlook - Patents and Other
Proprietary Rights."
In 1998, Schering-Plough received marketing clearance from the FDA for
REBETRON(R) for the treatment of chronic hepatitis C. REBETRON(R) is a product
containing Intron(R) A and REBETOL(R) (ribavirin, USP capsules). In late 1998,
Biogen filed for arbitration against Schering-Plough in a dispute over the
method used by Schering-Plough to determine the amount of royalties payable to
Biogen on sales of REBETRON(R).
PATENTS AND OTHER PROPRIETARY RIGHTS
The Company has numerous issued patents and patent applications pending on a
number of its processes and products. The Company has also obtained rights to
certain patents under licenses with third parties which provide for the payment
of royalties. There can be no assurances that Biogen's existing patents or
others, if obtained, will be of substantial protection or commercial benefit to
Biogen. In addition, it is not known to what extent Biogen's pending patent
applications or patent applications licensed from third parties will be granted
or whether any of the Company's patents will prevail if they are challenged in
litigation. There is also no assurance that third parties will not be granted
patents claiming subject matter necessary to Biogen's business.
Biogen has granted an exclusive worldwide license to Schering-Plough Corporation
under Biogen's alpha interferon patents, and receives royalties from
Schering-Plough on sales of its Intron(R) A brand of alpha interferon.
Schering-Plough's royalty obligation to Biogen on sales of alpha interferon
products in Japan and in most European countries will terminate upon expiration
of Biogen's Japanese and European alpha interferon patents in 2001. Biogen's
existing U.S. alpha interferon patent expires in 2002, but in connection with
the acquisition of a related Biogen patent application from Biogen,
Schering-Plough has agreed to pay to Biogen certain sums on sales by
Schering-Plough of alpha interferon products in the United States until the
expiration of the alpha interferon patent expected to issue to F. Hoffman La
Roche, Inc. and Genentech, Inc.
Biogen has licensed its recombinant hepatitis B antigen patent rights to
manufacturers and marketers of hepatitis B vaccines and diagnostic test kits,
and receives royalties on sales of the vaccines and test kits by its licensees.
The obligation of SmithKline and Merck to pay royalties on sales of hepatitis B
vaccines and the obligation of Biogen's other licensees under its hepatitis B
patents to pay royalties on sales of diagnostic products will terminate upon
expiration of Biogen's existing hepatitis B patents. Biogen's existing United
States hepatitis B patents will expire in 2004. Biogen's European hepatitis B
patents will expire at the end of 1999, except in those countries in which
Biogen has or is able to obtain supplemental protection certificates. To date,
Biogen has received supplemental protection certificates in France, Italy,
Luxembourg, The Netherlands, Sweden, Switzerland and Ireland, and has a number
of additional applications pending. The additional coverage afforded by
supplemental protection certificates ranges from two to six years. There can be
no assurance as to the extent of coverage available under the supplemental
protection certificates, or that protection will be available in additional
countries.
There has been, and Biogen expects that there may continue to be significant
litigation in the industry regarding patents and other intellectual property
rights. Such litigation could create uncertainty and consume substantial
resources. See also "Legal Matters".
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 continues to expand its development efforts related
to other potential products in its pipeline. The expansion of the pipeline may
include increases in spending on
<PAGE> 10
internal projects, the acquisition of third party technologies or products or
other types of investments. Product development involves a high degree of risk.
Only a small number of research and development programs result in the
commercialization of a product. Success in preclinical and early clinical trials
does not ensure that later stage or large scale clinical trials will be
successful. 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 to 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.
MARKET RISK
The Company has exposure to financial risk in several areas including changes in
foreign exchange rates and interest rates. The Company attempts to minimize its
exposures by using certain financial instruments, for purposes other than
trading, in accordance with the Company's overall risk management guidelines.
Further information regarding the Company's accounting policies for financial
instruments and disclosures of financial instruments can be found in Notes 1, 2
and 3 to the Company's Consolidated Financial Statements.
FOREIGN EXCHANGE
The Company has operations in several European countries in connection with the
sale of its product AVONEX(R). The Company also receives royalty revenues based
on worldwide product sales by its licensees. As a result, the Company's
financial position, results of operations and cash flows can be affected by
fluctuations in foreign currency exchange rates (primarily the British pound,
Euro, and Japanese yen).
The Company uses foreign currency forward contracts to manage foreign currency
risk and does not engage in currency speculation. The Company uses these forward
contracts to hedge certain transactions denominated in foreign currencies. A
hypothetical adverse 10% movement in market rates of currencies on the net
unhedged exposures would not have materially decreased 1998 net income.
INTEREST RATES
The Company is exposed to risk of interest rate fluctuations in connection with
its variable rate long-term debt. The Term Loan requires annual principal
payments of $1.7 million through 2004, with the balance due in 2005. The
Construction Loan requires principal payments of $805,000 quarterly through
2006, with the balance due in 2007. At December 31, 1998, the carrying values of
the Term Loan and the Construction Loan approximated fair value.
The Company has fixed its interest rates on the Term Loan and Construction Loan
by entering swap agreements under which the Company exchanges the difference
between 7.5% and 7.75%, respectively, and a floating rate. The notional
principal balance on the swap agreements approximates the principal on the
underlying debt agreements. The fair value of the swap agreements at December
31, 1998, representing the cash requirements of the Company to settle the
agreements, was approximately $4.1 million. Terms of the Company's loan
agreements include various covenants, including financial covenants which
require the Company to maintain minimum net worth, cash flow and various
financial ratios.
The fair value of the Company's marketable securities, long-term debt and
interest rate swap agreements are subject to change as a result of potential
changes in market interest rates. The potential change in fair value for
interest rate sensitive instruments has been assessed on a hypothetical 100
basis point adverse movement across all maturities. The Company estimates that
such hypothetical adverse 100 basis point movement would not have materially
impacted net income.
<PAGE> 11
STOCK PRICE
The stock prices of biotechnology companies are subject to significant
fluctuations. The stock price may be affected by a number of factors including,
but not limited to clinical trial results and other product development events,
the outcome of litigation, the financial impact of changes in the value of
investments, including investments in other biotechnology companies, the
decisions relating to intellectual property rights and the entrance of
competitive products into the market, changes in reimbursement policies or other
practices related to the pharmaceutical industry or other industry and market
changes or trends. In addition, if revenues or earnings in any quarter fail to
meet the investment community's expectations, there could be an immediate
adverse impact on the Company's stock price.
YEAR 2000 ISSUES
Year 2000 is the problem resulting from the use of a two-digit date field to
identify the year in computer software. Consequently, computer programs may not
accurately reflect the appropriate date, confusing "00" as the year 1900 rather
than the year 2000. Year 2000 is a pervasive problem affecting many information
technology systems and embedded technologies (e.g. microprocessors in
communications systems) in all companies, in all industries. Failure by the
Company or failure by third parties upon which the Company relies to effectively
address Year 2000 issues could have a material adverse impact on the Company's
financial position or results of operations.
The Company has developed a plan to address the Year 2000 issues. The plan is
segregated into four phases:
1. Information Collection - Identify all Year 2000 risk areas and assign
accountability.
2. Assess Risk - Assign each item a category of risk:
* Commercial Risk - Has a significant impact on sale, delivery and support
of AVONEX(R) or a significant impact on the Company's financial position
or results of operations.
* Operational Risk - Has a significant impact on productivity but does not
materially impact the Company's financial position or results of
operations.
* Convenience Risk - Has a minor impact on productivity.
3. Remediate - Fix or replace, test and implement changes required for Year
2000 compliance.
4. Contingency Plan - Define procedures to be implemented should a disruption
due to Year 2000 occur.
The Company has completed the first two phases of the project and has completed
the testing and upgrading of all individual software applications and equipment
that fall within the Commercial Risk category. Additionally, approximately 70%
of the software applications and equipment in the Operational and Convenience
Risk categories have been remediated. All of the Company's major software
applications are purchased from major software vendors and the Company performs
only minor customizations to those applications. The Company's major software
providers have attested to Year 2000 compliance. The Company has reviewed its
operations equipment for embedded technologies which may be Year 2000
susceptible and does not believe necessary modifications to be material.
The Company is communicating with its significant vendors and customers to
determine the progress that those vendors and customers are making in
remediating their own Year 2000 issues. The Company is requiring that
significant vendors and customers certify those products and services to be Year
2000 compliant and in some cases is performing on-site reviews.
To date, Year 2000 costs have been immaterial and the Company believes that
future costs will also be immaterial. The Company expects the remainder of the
Year 2000 compliance program to be substantially complete by the third quarter
of 1999.
The most reasonably likely worst case scenario, if significant Year 2000 issues
arise, is that the Company would execute its contingency plans to produce,
package, and deliver AVONEX(R), resulting in lower
<PAGE> 12
productivity. These contingency plans include producing and maintaining a
sufficient level of inventory of AVONEX(R) in both bulk and packaged format,
developing secondary sources of packaging and delivery, providing for manual and
backup processes. Additionally, third parties from whom the Company receives
royalty revenues could encounter difficulties in their efforts to produce and
sell products which generate royalty revenue for the Company.
<PAGE> 13
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------
For the years ended December 31,
- -------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------
REVENUES:
<S> <C> <C> <C>
Product sales $394,863 $239,988 $ 78,202
Royalties 162,724 171,921 181,502
- -------------------------------------------------------------------------------------------
Total revenues 557,587 411,909 259,704
- -------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 74,509 50,188 28,525
Research and development 177,228 145,501 132,384
Selling, general and administrative 115,211 90,098 73,632
- -------------------------------------------------------------------------------------------
Total costs and expenses 366,948 285,787 234,541
- -------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 190,639 126,122 25,163
Other income, net 19,554 22,846 15,666
- -------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 210,193 148,968 40,829
Income taxes 71,496 59,801 299
- -------------------------------------------------------------------------------------------
NET INCOME $138,697 $ 89,167 $ 40,530
- -------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $ 1.88 $ 1.21 $ 0.57
- -------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ 1.80 $ 1.17 $ 0.55
- -------------------------------------------------------------------------------------------
SHARES USED IN CALCULATING:
Basic earnings per share 73,768 73,812 71,595
- -------------------------------------------------------------------------------------------
Diluted earnings per share 77,135 76,500 73,221
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 14
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------
As of December 31,
- -------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 25,445 $ 70,358
Marketable securities 491,469 369,730
Accounts receivable, less allowances of
$1,642 in 1998 and $1,645 in 1997 101,281 86,802
Deferred tax asset 26,584 37,203
Other current assets 49,365 31,973
- -------------------------------------------------------------------------------------
Total current assets 694,144 596,066
- -------------------------------------------------------------------------------------
Property and equipment, net 182,551 174,492
Patents, net 15,869 14,935
Marketable securities 12,668 17,095
Other assets 19,483 11,237
- -------------------------------------------------------------------------------------
$ 924,715 $813,825
- -------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 24,896 $ 15,820
Note payable -- 24,817
Current portion of long-term debt 4,888 4,888
Accrued expenses and other 105,305 78,358
- -------------------------------------------------------------------------------------
Total current liabilities 135,089 123,883
- -------------------------------------------------------------------------------------
Long-term debt, less current portion 56,960 61,846
Other long-term liabilities 14,053 15,132
Put options -- 76,671
Commitments and contigencies -- --
Shareholders' equity
Common stock, par value $0.01 per share (110,000,000
shares authorized; 74,149,391 shares issued) 741 741
Additional paid-in capital 538,847 516,880
Retained earnings 213,507 25,327
Accumulated other comprehensive income (13,165) (2,270)
Treasury stock, at cost, 579,931 shares in 1998 and
125,534 shares in 1997 (21,317) (4,385)
- -------------------------------------------------------------------------------------
Total shareholders' equity 718,613 536,293
- -------------------------------------------------------------------------------------
$ 924,715 $813,825
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 15
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income $ 138,697 $ 89,167 $ 40,530
Adjustments to reconcile net income to net
cash provided from operating activities
Depreciation and amortization 24,590 19,296 15,264
Other (888) 2,695 682
Deferred income taxes 7,486 22,462 (5,541)
Changes in:
Accounts receivable (14,479) (43,850) (23,340)
Other current and other assets (25,638) (8,643) (7,727)
Accounts payable, accrued expenses and
other current and long-term liabilities 38,077 16,505 22,413
----------------------------------------
Net cash flows from operating activities 167,845 97,632 42,281
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities (574,021) (481,783) (369,893)
Proceeds from sales and maturities of
marketable securities 453,952 373,130 370,252
Investment in collaborative partners (5,000) (11,000) (16,774)
Acquisitions of property and equipment (29,049) (28,896) (62,030)
Additions to patents (4,562) (6,654) (3,606)
----------------------------------------
Net cash flows from investing activities (158,680) (155,203) (82,051)
----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable -- 24,817 --
Repayments on note payable (24,817) -- --
Proceeds from issuance of long-term debt -- 4,545 33,444
Repayments on long-term debt (4,886) (4,082) (1,666)
Purchases of treasury stock (65,550) (7,000) --
Issuance of common stock, and option
exercises and related tax benefits 41,175 47,617 24,254
----------------------------------------
Net cash flows from financing activities (54,078) 65,897 56,032
----------------------------------------
Net increase (decrease) in cash and cash equivalents (44,913) 8,326 16,262
Cash and cash equivalents, beginning of the year 70,358 62,032 45,770
----------------------------------------
Cash and cash equivalents, end of the year $ 25,445 $ 70,358 $ 62,032
========================================
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for:
Interest $ 5,909 $ 5,940 $ 4,038
Income taxes $ 35,828 $ 3,783 $ 1,516
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED OTHER TOTAL
COMMON PAID-IN TREASURY EARNINGS COMPREHENSIVE SHAREHOLDERS'
STOCK CAPITAL STOCK (DEFICIT) INCOME EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $710 $408,793 $ -- $(27,699) $ 1,176 $382,980
Net income 40,530 40,530
Unrealized losses on marketable securities, net
of tax (1,988) (1,988)
Translation adjustment 3 3
--------
Total comprehensive income 38,545
--------
Exercise of options and related tax benefits 15 62,137 62,152
Issuance of common stock 693 693
------------------------------------------------------------------------
Balance, December 31, 1996 $725 $471,623 $ -- $ 12,831 $ (809) $484,370
Net income 89,167 89,167
Unrealized losses on marketable securities, net
of tax (1,490) (1,490)
Translation adjustment 29 29
--------
Total comprehensive income 87,706
--------
Reclassification of put option obligation (76,671) (76,671)
Treasury stock purchased (7,000) (7,000)
Exercise of options and related tax benefits 16 44,005 2,548 46,569
Issuance of common stock 981 67 1,048
Compensation expense related to stock options 271 271
------------------------------------------------------------------------
Balance, December 31, 1997 $741 $516,880 $ (4,385) $ 25,327 $ (2,270) $536,293
Net income 138,697 138,697
Unrealized losses on marketable securities, net
of tax (7,072) (7,072)
Unrealized losses on interest rate swaps (4,132) (4,132)
Translation adjustment 309 309
--------
Total comprehensive income 127,802
--------
Exercise of options and related tax benefits 19,745 48,618 (27,188) 41,175
Reclassification of put option obligation 76,671 76,671
Treasury stock purchased (65,550) (65,550)
Compensation expense related to stock options 2,222 2,222
------------------------------------------------------------------------
Balance, December 31, 1998 $741 $538,847 $(21,317) $213,507 $(13,165) $718,613
========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Biogen, Inc. ("Biogen" or the "Company") 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) (Interferon beta-la) for the treatment of relapsing forms of
multiple sclerosis 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 vaccines and diagnostic
products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated. Certain items in prior years' financial
statements have been reclassified to conform with the current year's
presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and use assumptions
that affect certain reported amounts and disclosures; actual amounts may differ.
TRANSLATION OF FOREIGN CURRENCIES
Adjustments resulting from the translation of the financial statements of the
Company's foreign operations into U.S. dollars are excluded from the
determination of net income and are accumulated in a separate component of
shareholders' equity. Foreign exchange transaction gains and losses are included
in the results of operations in other income, net. Foreign exchange gains
totaled $2.5 million, $8.2 million and $1.9 million in 1998, 1997 and 1996,
respectively.
CASH AND CASH EQUIVALENTS
The Company considers only those investments which are highly liquid, readily
convertible to cash and which mature within three months from date of purchase
to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined under
the first-in/first-out ("FIFO") method and are included in other current assets.
Included in inventory are raw materials used in the production of pre-clinical
and clinical products which are expensed as research and development costs when
consumed. The components of inventories for the periods ending December 31, are
as follows:
(in thousands) 1998 1997
------- -------
Raw materials $ 4,878 $ 4,957
Work in process 17,585 8,132
Finished goods 13,402 9,870
------- -------
$35,865 $22,959
======= =======
<PAGE> 18
MARKETABLE SECURITIES
The Company invests its excess cash balances in short-term marketable
securities, principally corporate notes and government securities. The Company
classifies these securities as "available for sale". All available for sale
securities are recorded at fair market value and unrealized gains and losses are
included in accumulated other comprehensive income in shareholders' equity, net
of related tax effects. Realized gains and losses and declines in value, if any,
judged to be other than temporary on available for sale securities are reported
in other income or expense.
As part of its strategic product development efforts, the Company also invests
in equity securities of certain biotechnology companies with which it has
collaborative agreements. Such investments, which are included in long-term
marketable securities and other assets, are classified as available for sale if
a readily determinable market value exists. These investments are accounted for
under the cost or equity method depending on the facts and circumstances of the
investment and are reviewed regularly for impairment.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost and depreciation is calculated on the
straight-line basis over the estimated useful lives of the assets. Leasehold
improvements are amortized over the lesser of the useful life or the term of the
respective lease. Maintenance of computer systems, including maintenance to make
software Year 2000 compliant, is expensed as incurred. The Company capitalizes
certain incremental costs associated with the validation effort required for
licensing by the FDA of a manufacturing facility for the production of a
commercially approved drug. These costs include a partial allocation of direct
labor and material. Buildings and equipment are depreciated over estimated
useful lives ranging from 30 to 40 and 3 to 10 years, respectively.
PATENTS
The costs associated with successful patent defenses and patent applications are
capitalized and amortized on a straight-line basis over estimated useful lives
up to 15 years. Accumulated amortization of patent costs was $15.5 million and
$11.8 million as of December 31, 1998 and 1997, respectively. The carrying value
of patents is regularly reviewed by the Company and impairments are recognized
when the expected future operating cash flows derived from the patent are less
than their carrying value.
DERIVATIVES AND HEDGING ACTIVITIES
On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", ("SFAS 133"). SFAS 133 is effective for all fiscal
quarters for all fiscal years beginning after June 15, 1999. The Company elected
to adopt SFAS 133 in the fourth quarter of 1998. All derivatives are recognized
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. The Company assesses,
both at its inception and on an on-going basis, whether the derivatives that are
used in hedging transactions are highly effective in offsetting the changes in
cash flows of hedged items. When it is determined that a derivative is not
highly effective as a hedge or that it has ceased to be a highly effective
hedge, the Company discontinues hedge accounting prospectively.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", ("SFAS
130"). The Company adopted SFAS 130 on January 1, 1998. Under SFAS 130, the
Company is required to display comprehensive income and its components as part
of the Company's full set of financial statements. The measurement and
presentation of net income did not change. Comprehensive income is comprised of
net income and other comprehensive income. Other comprehensive income includes
certain changes in equity that are excluded from net income, such as,
translation adjustments, unrealized holding gains and losses on
available-for-sale marketable securities and certain derivative instruments. The
Consolidated Statements of Shareholders' Equity reflect comprehensive income for
years ended December 31, 1998, 1997 and 1996.
<PAGE> 19
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", ("SFAS 131"). The Company adopted SFAS 131
on January 1, 1998. SFAS 131 establishes standards for reporting information on
operating segments in interim and annual financial statements. SFAS 131 had no
impact on the Company's consolidated financial position or results of
operations.
REVENUES
Revenues from product sales are recognized when product is shipped and are net
of applicable allowances for returns, rebates and other applicable discounts and
allowances. The Company receives revenues under license agreements with a number
of third parties that sell products based on technology developed by the
Company. All of the license agreements provide for the payment of royalties to
the Company based on sales of the licensed product. The Company records these
revenues based on estimates of the sales that occurred during the relevant
period. Many of the license agreements also provide for the payment of one-time,
non-refundable fees when the agreement is signed or when commercial goals are
achieved. These fees are recorded as revenue in accordance with the terms of the
particular agreement.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs, including amounts funded in research
collaborations, are expensed as incurred.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128"), which
changed the method of calculating earnings per share. SFAS 128 requires the
presentation of "basic" earnings per share and "diluted" earnings per share.
Basic earnings per share is computed by dividing the net income available to
common shareholders by the weighted average number of shares of common stock
outstanding. For purposes of calculating diluted earnings per share the
denominator includes both the weighted average number of shares of common stock
outstanding and the number of dilutive common stock equivalents such as stock
options and warrants. The Company adopted SFAS 128 in the fourth quarter of
1997. All prior period per share amounts have been restated to comply with the
standard.
Dilutive securities include outstanding options under the Company's stock option
plans. Shares used in calculating basic and diluted earnings per share for the
periods ending December 31, are as follows:
(in thousands) 1998 1997 1996
------ ------ ------
Weighted average number of shares
of common stock outstanding 73,768 73,812 71,595
Dilutive stock options 3,367 2,688 1,626
------ ------ ------
Shares used in calculating diluted
earnings per share 77,135 76,500 73,221
====== ====== ======
2. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to concentrations of
credit risk are accounts receivable and marketable securities. Wholesale
distributors and large pharmaceutical companies account for the majority of the
accounts receivable and collateral is generally not required. To mitigate the
risk, the Company monitors the financial performance and credit worthiness of
its customers. The Company invests its excess cash balances in marketable debt
securities, primarily U.S. government securities and corporate bonds and notes,
with strong credit ratings. The Company limits the amount of investment exposure
as to institution, maturity and investment type.
The average maturity of the Company's marketable securities as of December 31,
1998 and 1997 was 21 months and 16 months, respectively. Proceeds from
maturities and other sales of marketable securities,
<PAGE> 20
which were primarily reinvested, for the years ended December 31, 1998, 1997 and
1996 were $454 million, $373.1 million and $370.3 million, respectively. The
cost of securities sold is determined based on the specific identification
method. Realized gains and (losses) on these sales for the years ended December
31, 1998, 1997 and 1996 were $645,000, $(510,000) and $(783,000), respectively.
The following is a summary of marketable securities:
Unrealized Amortized
(in thousands) Fair Value Gains Losses Cost
---------- ------ ------- ---------
December 31, 1998:
U.S. Government securities $259,411 $ 627 $ 57 $258,841
Corporate debt securities 232,058 3,810 -- 228,248
--------------------------------------------
$491,469 $4,437 $ 57 $487,089
============================================
Marketable securities,
noncurrent $ 12,668 $ -- $16,192 $ 28,860
============================================
December 31, 1997:
U.S. Government securities $197,375 $ 250 $ 207 $197,332
Corporate debt securities 172,355 1,751 -- 170,604
--------------------------------------------
$369,730 $2,001 $ 207 $367,936
============================================
Marketable securities,
noncurrent $ 17,095 $ 228 $ 5,974 $ 22,841
============================================
On a quarterly basis, as of the end of the quarter, the Company determines
whether a decline in fair value of a marketable security is other than
temporary. Unrealized gains and losses on marketable securities are included in
other comprehensive income in shareholders' equity, net of related tax effects.
If a decline in the fair value of a marketable security below the Company's cost
basis is determined to be other than temporary, such marketable security is
written down to its estimated fair value with a charge to current earnings. The
Company has concluded that all unrealized losses on marketable securities at
December 31, 1998 are temporary in nature. The Company expects that the market
value of such investments will recover to at least the Company's cost basis
within a reasonable period of time.
The Company uses swap agreements to mitigate the risk associated with its
floating rate debt and records the differential to be paid or received as
interest expense. The fair value of the swap agreements at December 31, 1998 and
1997, representing the cash requirements of the Company to settle the
agreements, approximated $4.1 million and $2.1 million, respectively.
The Company has foreign currency forward contracts to hedge specific
transactions denominated in foreign currencies. All foreign currency forward
contracts have durations of ninety days to one year. These contracts are
designated as cash flow hedges and accordingly, when effective, any unrealized
gains or losses on these contracts are reported in other comprehensive income.
Realized gains and losses for the effective portion are recognized with the
underlying hedge transaction. The contract amount of the forwards outstanding at
December 31, 1998 was $112.4 million with a fair value of approximately $111.6
million.
In 1998, the Company recorded an adjustment to other comprehensive income to
recognize at fair value all derivatives that are designated as cash-flow hedging
instruments. Additionally, the Company recognized $686,000 in other expense, for
the ineffective portion of certain cash flow hedge transactions. The Company
also recognized a $322,000 gain in product revenue and a $485,000 loss in
royalty revenue for the settlement of certain cash flow hedge instruments during
the period.
<PAGE> 21
During 1997, to minimize the cost of the Company's stock repurchase program, the
Company sold put options and purchased call options covering a large portion of
the shares intended to be repurchased. There were no put or call options
outstanding at December 31, 1998. The maximum potential repurchase obligation
for put options outstanding at December 31, 1997 was $76.7 million. Below is a
summary of the contract amounts, weighted average strike price and fair value of
these instruments at December 31, 1997.
Contract Amount Weighted Average Fair Value
(in millions) Strike Price (in millions)
--------------- ---------------- -------------
Put Options Sold $76.7 $33.34 $(4.9)
Call Options Purchased 65.6 36.42 7.9
3. BORROWINGS
As of December 31, 1998, the Company had $19.2 million outstanding under a
floating rate loan with a bank (the "Term Loan"). The Term Loan is secured by
the Company's laboratory and office building in Cambridge, Massachusetts. The
Term Loan provides for annual principal payments of $1.7 million in each of the
years 1996 through 2004 with the balance due May 8, 2005. The Company also
entered into an interest rate swap agreement, with the same bank, fixing its
interest rate at 7.5% during the remaining term of the loan, payable
semi-annually.
As of December 31, 1998, the Company had $42.7 million outstanding under a
floating rate loan agreement with a bank for financing the construction of its
biological manufacturing facility in North Carolina (the "Construction Loan").
The Construction Loan is secured by the facility. Payments of $805,000 are due
quarterly through 2006 with the balance due in 2007. The Company also entered
into an interest rate swap agreement, with the same bank, fixing its interest
rate at 7.75% during the remaining term of the loan, payable quarterly.
The Term Loan and Construction Loan agreements include various covenants,
including financial covenants, which require the Company to maintain minimum net
worth, cash flow and various financial ratios. The Company's long-term debt
obligations are carried at face value, which approximates fair market value.
Long-term debt at December 31, consists of the following:
(in thousands) 1998 1997
- ------------------------------------ -------- --------
Term Loan due 2005 $19,167 $20,834
Construction Loan due 2007 42,681 45,900
-------- --------
61,848 66,734
Current portion (4,888) (4,888)
======== ========
$56,960 $61,846
======== ========
During 1997, the Company entered into a $30 million variable rate multicurrency
line of credit agreement with a bank. Under the line of credit, the Company
could borrow or enter into commitments to borrow amounts in various currencies,
at which time the exchange rate for these commitments was set. Any amounts
outstanding were revalued using exchange rates at each balance sheet date.
During 1998, the Company terminated the line of credit and at December 31, 1998
there were no obligations outstanding under this facility. At December 31, 1997
there was $24.8 million outstanding under this agreement.
<PAGE> 22
4. CONSOLIDATED BALANCE SHEET DETAILS
Property and equipment:
December 31 (in thousands) 1998 1997
--------- --------
Land $ 8,359 $ 8,359
Buildings 87,190 83,565
Leasehold improvements 52,602 49,795
Equipment 120,887 98,794
--------- --------
Total cost 269,038 240,513
Less accumulated depreciation 86,487 66,021
========= ========
$ 182,551 $174,492
========= ========
Depreciation expense was $21.4 million, $15.9 million and $12.7 million for
1998, 1997 and 1996, respectively. The Company capitalized interest costs of
$685,000 and $1.7 million in 1997 and 1996, respectively with respect to
qualifying construction projects. The Company did not capitalize any interest
costs in 1998. The Company completed construction of its biological
manufacturing facility in North Carolina in 1997. As of December 31, 1997, the
Company had capitalized $65.5 million relating to the North Carolina facility.
Accrued expenses and other:
December 31 (in thousands) 1998 1997
-------- -------
Royalties and licensing fees $ 23,029 $17,676
Income taxes 28,056 20,196
Other 54,220 40,486
======== =======
$105,305 $78,358
======== =======
5. PENSIONS
In February 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 132, "Employers Disclosures about Pensions and Other
Postretirement Benefits", ("SFAS 132"). SFAS 132 revises standards for
disclosures of employers' pension and other post retirement benefit plans. SFAS
132 does not change the measurement or recognition of those plans.
The Company has a defined benefit pension plan which provides benefits to
substantially all of its employees. The Company also has a supplemental
retirement benefit plan which covers certain employees. The pension plans are
noncontributory with benefit formulas based on employee earnings and credited
years of service. The Company's funding policy for its pension plans is to
contribute amounts deductible for federal income tax purposes. Funds contributed
to the plans are invested in fixed income and equity securities.
The components of net periodic pension cost for each of the three years ended
December 31 are summarized below:
(in thousands) 1998 1997 1996
------ ------ ------
Service cost $2,225 $1,873 $1,381
Interest cost 1,041 876 659
Expected return on plan assets (722) (497) (293)
Amortization of transition asset (21) (21) (21)
Amortization of prior service cost 43 43 37
Amortization of net actuarial loss -- 40 57
------ ------ ------
Net pension cost $2,566 $2,314 $1,820
====== ====== ======
<PAGE> 23
Reconciliations of projected benefit obligations, fair value of plan assets and
the funded status of the plans as of December 31, are presented below:
<TABLE>
<CAPTION>
Change in projected benefit obligation (in thousands) 1998 1997
- ---------------------------------------------------------------- --------- ---------
<S> <C> <C>
Net projected benefit obligation at the beginning of the year $(12,727) $ (9,466)
Service cost (2,225) (1,873)
Interest cost (1,041) (876)
Actuarial loss (341) (845)
Gross benefits paid 331 333
-------- --------
Net projected benefit obligation at the end of the year (16,003) (12,727)
-------- --------
Change in plan assets (in thousands)
- ----------------------------------------------------------------
Fair value of plan assets at the beginning of the year 8,393 5,579
Actual return on plan assets 2,142 1,416
Employer contributions 1,557 1,752
Gross benefits paid (213) (216)
Administrative expenses (106) (138)
-------- --------
Fair value of plan assets at the end of the year 11,773 8,393
-------- --------
Funded status at the end of the year (in thousands)
- ----------------------------------------------------------------
Funded status at the end of the year (4,230) (4,334)
Unrecognized net actuarial (gain) loss (173) 905
Unrecognized prior service cost 358 401
Unrecognized net transition asset 0 (21)
-------- --------
Net amount recognized at the end of the year $ (4,045) $ (3,049)
======== ========
Weighted average assumptions at the end of the year
- ----------------------------------------------------------------
Discount rate 6.75% 7.25%
Expected return on plan assets 8.00% 8.00%
Rates of compensation increase 5.00% 5.00%
</TABLE>
The Company has an unfunded supplemental retirement plan. As of December 31,
1998 and 1997 the projected benefit and the accumulated benefit obligations were
$3.2 million and $2.3 million, and $3 million and $1.6 million, respectively.
<PAGE> 24
6. INCOME TAXES
The components of income (loss) before income taxes and of income tax expense
(benefit) for each of the three years ended December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic $200,181 $172,973 $ 65,250
Foreign 10,012 (24,005) (24,421)
-------- -------- --------
$210,193 $148,968 $ 40,829
======== ======== ========
Income tax expense (benefit):
Current
Federal $ 58,152 $ 33,688 $ 4,636
State 3,937 2,735 789
Foreign 887 916 415
-------- -------- --------
$ 62,976 $ 37,339 $ 5,840
-------- -------- --------
Deferred
Federal $ 8,314 $ 21,416 $ (4,082)
State 206 1,046 (1,459)
-------- -------- --------
8,520 22,462 (5,541)
-------- -------- --------
Total income tax expense $ 71,496 $ 59,801 $ 299
======== ======== ========
</TABLE>
The Company's foreign subsidiaries generated operating losses in 1997 and 1996
reflecting the costs of building a commercial infrastructure in Europe and the
foreign subsidiaries' investment in the Company's research and development
efforts.
Deferred tax assets (liabilities) are comprised of the following at December 31:
(in thousands) 1998 1997
------- --------
Tax credits $13,454 $ 32,273
Inventory and other reserves 10,762 3,810
Other 2,368 5,297
------- --------
Deferred tax assets 26,584 41,380
------- --------
Depreciation and amortization (7,095) (14,405)
------- --------
Deferred tax liabilities (7,095) (14,405)
------- --------
$19,489 $ 26,975
======= ========
During the third quarter of 1996, the Company determined that it was more likely
than not that it would realize the benefits of its net deferred tax assets and
therefore released the related valuation allowance. The reversal of the
valuation allowance resulted in a realization of income tax benefits of
approximately $23 million. The income tax benefit represented the balance of
tax-loss carryforwards and tax credits that had not been recognized through the
third quarter in 1996 and tax credits generated during the quarter. The reversal
of the valuation allowance also resulted in an increase in additional paid-in
capital of $38.6 million relating to deductions for non-qualified stock options.
<PAGE> 25
A reconciliation of the U.S. federal statutory tax rate to the effective tax
rate for the periods ending December 31 is as follows:
1998 1997 1996
---- ---- -----
Statutory rate 35.0% 35.0% 35.0%
State taxes 3.0 2.7 1.3
Foreign taxes -- 6.3 21.8
Credits, net operating loss utilization and
release of valuation allowance (4.2) (3.8) (56.3)
Other 0.2 (0.1) (1.1)
---- ---- -----
Effective tax rate 34.0% 40.1% 0.7%
==== ==== =====
At December 31, 1998, the Company had tax credits of $13.5 million, most of
which expire at various dates through 2013.
7. RESEARCH COLLABORATIONS
The Company has several research programs and collaborations underway. In
December 1997, the Company entered into a collaborative research, development
and license agreement (the "Merck Agreement") with Merck & Co., Inc.("Merck").
Merck paid a $15 million non-refundable license fee to Biogen for the transfer
of technology, the rights granted and the research and development previously
performed by Biogen. Under the Merck Agreement, Merck will have rights to
develop and market small molecule VLA-4 inhibitors in all therapeutic areas
other than certain small indications such as multiple sclerosis and kidney
diseases and disorders, which Biogen will continue to work on itself. The Merck
Agreement also provides for payments to be made to either party upon the
achievement of certain development milestones by the other party. In addition,
if a product is successfully developed by a party, the other party will receive
royalties on sales of the product.
In October 1997, the Company signed a research and option agreement (the
"CuraGen Agreement") with CuraGen Corporation ("CuraGen") under which the
Company and CuraGen will collaborate in the discovery of novel genes using
CuraGen's functional genomics technologies. The Company has also agreed to fund
research activities of CuraGen related to the collaboration up to a maximum of
$7.5 million over the next four years, and in return, has an option to acquire
an exclusive license to certain discoveries arising out of the collaborative
efforts. The Company provided $1.9 million in research and development funding
in 1998. In March of 1998, under the terms of the CuraGen Agreement, the Company
purchased approximately 435,000 shares of CuraGen common stock for a total of $5
million. Additionally, 100,000 shares of Series E Preferred Stock purchased by
Biogen in 1997 for $1 million were automatically converted into 100,000 shares
of CuraGen common stock. The investment is classified as available-for-sale and
is included in long-term marketable securities. In addition, pursuant to the
terms of the agreement, the Company has extended to CuraGen a $10 million line
of credit. At December 31, 1998, there were no borrowings outstanding under the
line of credit.
In March 1997, the Company signed a research collaboration and license agreement
(the "CVT Agreement") with CV Therapeutics, Inc. ("CVT") under which Biogen
obtained rights to develop and market CVT's therapeutic CVT-124, now known as
BG9719, for the treatment of edema associated with congestive heart failure.
Under the terms of the CVT 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, which was charged to research and development expense. The
investment in CVT is classified as available-for-sale and is included in
long-term marketable securities. In addition, pursuant to the terms of the CVT
Agreement, the Company established a $12 million line of credit that CVT may use
for operating purposes. At December 31, 1998, the Company had advanced $7.7
million under the line of credit to CVT.
In December 1996, the Company signed a research collaboration and license
agreement (the "CBM 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 renal disorders. Under the CBM Agreement, Biogen paid
a license fee of $10 million, which was charged to research and development
expense, and purchased 1.5 million shares of CBM common stock for $18 million.
The payment for the common stock included a $1.2 million premium over the fair
value of the common stock which was
<PAGE> 26
charged to research and development expense. The investment is classified as
available-for-sale and is included in long term marketable securities. In 1998,
Biogen and CBM agreed to amend the CBM Agreement to return to CBM responsibility
for the development of OP-1. Under the terms of the amendment, Biogen has the
option, exercisable through the end of 1999, to resume responsibility for
development of OP-1. If Biogen does not exercise its option, the CBM Agreement
will terminate at the end of 1999. The Company provided $10 million in research
and development funding and material purchases to CBM in 1998.
In July 1996, the Company signed a collaborative research and commercialization
agreement (the "Ontogeny Agreement") with Ontogeny, Inc. ("Ontogeny"), a private
biotechnology company, for the development and commercialization of three
specific hedgehog cell proteins. Under the Ontogeny Agreement, the Company
purchased 400,000 shares of preferred stock of Ontogeny for $1 million and
acquired certain exclusive, worldwide rights related to products based on the
hedgehog proteins for most disease areas. The Company accounts for its
investment in Ontogeny, which is included in other assets, using the cost method
of accounting. In November 1998, the Company extended and expanded its
collaboration with Ontogeny and provided to Ontogeny a $4 million convertible
loan. The Company provided $3.6 million of research funding to Ontogeny in 1998.
The Company has agreed to fund up to an additional $8 million in research
funding over the next three years. If the Company exercises its option to
proceed with development and commercialization of a hedgehog protein, the
Company would be committed to additional funding in the form of license fees,
equity investments and lines of credit.
In August 1995, the Company signed a collaborative research agreement (the
"Genovo Agreement") for the development of human gene therapy treatments with
Genovo, Inc. ("Genovo"), a gene therapy research company. Under the Genovo
Agreement, the Company acquired 380,000 shares of Genovo Series A Preferred
stock for $4.5 million and acquired certain licensing rights. The Company
accounts for this investment, which is included in other assets, using the
equity method of accounting. The Company recorded its proportion of Genovo's net
losses as research and development, which totaled $9 million, $7.7 million, and
$5.6 million in 1998, 1997 and 1996, respectively. At December 31, 1998, the
Company had remaining funding commitments to Genovo of approximately $10
million.
8. COMMITMENTS AND CONTINGENCIES
The Company rents laboratory and office space and certain equipment under
noncancellable operating leases. The rental expense under these leases, which
terminate at various dates through 2012, amounted to $9.4 million in 1998, $7.5
million in 1997 and $6.6 million in 1996. The lease agreements contain various
clauses for renewal at the option of the Company and, in certain cases,
escalation clauses linked generally to rates of inflation. At December 31, 1998,
minimum annual rental commitments under noncancellable leases were as follows:
Year (in thousands)
---------------------------------------------------------
1999 $ 9,798
2000 8,128
2001 5,122
2002 4,836
2003 2,914
Thereafter 14,260
-------
Total minimum lease payments $45,058
=======
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 AVONEX(R) (Interferon beta-1a). In November 1996, Berlex's New
Jersey action was transferred to the U.S. District Court in Massachusetts and
consolidated for pre-trial purposes with a related declaratory judgement action
previously filed by Biogen. On August 18, 1998 Berlex filed a second suit
against Biogen alleging infringement by Biogen of a patent which was issued to
Berlex in August 1998 and which is related to the McCormick patent. On September
23, 1998, the cases were consolidated for pre-trial and trial purposes. Berlex
seeks a judgment granting it damages, a trebling of any damages awarded and a
permanent injunction restraining Biogen from the 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
<PAGE> 27
claim; however, the ultimate outcome is not determinable at this time. A trial
is currently scheduled for the fall of 1999 but may be postponed.
On October 14, 1998 the Company filed an opposition with the Opposition Division
of the European Patent Office to oppose a European patent (the "Rentschler
patent") issued to Dr. Rentschler Biotechnologie GmbH ("Rentschler") with
certain claims regarding compositions of matter of beta interferon with specific
regard to the structure of the glycosylated molecule. While Biogen believes that
the patent will be revoked, if the patent were to be upheld and if Rentschler
were to obtain, through legal proceedings, a determination that the Company's
sale of Avonex(R) in Europe infringes a valid Rentschler patent, such result
could have a material adverse effect on the company's results of operation and
financial condition.
9. SHAREHOLDERS' EQUITY
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
The Company has authority to issue 20,000,000 shares of $.01 par value preferred
stock.
SHAREHOLDER RIGHTS PLAN
In 1989, the Company's Board of Directors declared a dividend of one preferred
share purchase right (a "right") for each share of common stock outstanding.
Each right entitles the holder to purchase from the Company one two-hundredth of
a share of $0.01 par value Series A junior participating preferred stock at a
price of $34.00 per two-hundredth of a share, subject to certain adjustments.
The rights are exercisable only if a person or group acquires 20% or more of the
outstanding common stock of the Company or commences a tender offer which would
result in the ownership of 20% or more of the outstanding common stock of the
Company; or if 10% of the Company's common stock is acquired and the acquirer is
determined by the Board of Directors to be an adverse person (as defined in the
rights plan). Once a right becomes exercisable, the plan allows the Company's
shareholders to purchase common stock at a substantial discount. Unless earlier
redeemed, the rights expire on May 8, 1999. The Company is entitled to redeem
the rights at $.005 per right, subject to adjustment for any future stock split,
stock dividend or similar transaction.
As of December 31, 1998, the Company has authorized the issuance of 400,000
shares of Series A junior participating preferred stock for use in connection
with the shareholder rights plan.
SHARE OPTION AND PURCHASE PLANS
The Company has several stock-based compensation plans. The Company applies APB
Opinion No. 25 "Accounting for Stock Issued to Employees" in accounting for its
plans. In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123 "Accounting for Stock Issued to Employees" ("SFAS 123") for disclosure
purposes only. The SFAS 123 disclosures include pro forma net income and
earnings per share as if the fair value-based method of accounting had been
used. Stock issued to non-employees is accounted for in accordance with SFAS 123
and related interpretations. Included in compensation expense for the periods
ending December 31, 1998 and 1997 were approximately $2.2 million and $271,000,
respectively, related to stock based compensation plans. There were no such
compensation costs in 1996.
<PAGE> 28
The Company has several plans and arrangements under which it may grant options
to employees, Directors and Scientific Board members to purchase common stock.
Option grants are typically made under the 1985 Non-Qualified Stock Option Plan
and the 1987 Scientific Board Stock Option Plan (the "Plans"). Options under the
Plans are granted at no less than 100% of the fair market value on the date of
grant. Options generally become exercisable over various periods, typically 5 to
7 years for employees and 3 years for Directors and Scientific Board members and
have a maximum term of 10 years. Activity under these plans for the periods
ending December 31, is as follows (shares are in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, Jan. 1 11,152 $23.95 11,748 $20.77 11,772 $17.59
Granted 1,809 67.75 1,556 37.65 1,935 34.46
Exercised (1,306) 15.29 (1,652) 14.08 (1,478) 12.89
Canceled (467) 26.65 (500) 24.39 (481) 20.92
------ ------ ------ ------ ------ ------
Outstanding, Dec. 31 11,188 $31.93 11,152 $23.95 11,748 $20.77
====== ====== ====== ====== ====== ======
Options exercisable 5,499 5,208 5,692
Available for grant 1,912 1,135 2,310
Weighted average fair
value of options
granted $29.25 $16.78 $16.59
</TABLE>
The table below summarizes options outstanding and exercisable at December 31,
1998 (shares are in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
- --------------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.00-$10.00 467 2.15 $ 8.50 394 $ 8.27
$10.01-$20.00 2,680 4.49 16.00 2,080 15.84
$20.01-$30.00 3,550 5.71 25.07 2,258 24.64
$30.01-$40.00 2,565 8.07 35.37 675 35.13
$40.01-$50.00 584 8.67 45.68 32 45.34
$50.01-$60.00 116 9.60 52.56 -- --
$60.01-$70.00 106 9.74 64.79 -- --
$70.01-$80.00 38 9.85 75.79 -- --
Over $80.00 1,082 9.95 81.47 60 81.47
------ ------ -----
Total 11,188 $31.93 5,499
====== ====== =====
</TABLE>
The Company also has two employee stock purchase plans covering substantially
all of its employees. The plans allow employees to purchase common stock at 85%
of the lower of the fair market value at either the date of the beginning of the
plan period or the purchase date. Purchases under the plans are subject to
certain limitations and may not exceed an aggregate of 560,000 shares during the
term of the plans; no shares may be issued after December 31, 2007. Through
December 31, 1998, 322,673 shares have been issued under the stock purchase
plans.
<PAGE> 29
If compensation cost for the Company's 1998, 1997 and 1996 grants under the
stock-based compensation plans had been determined based on SFAS 123, the
Company's pro forma net income, and pro forma diluted earnings per share for the
years ending December 31, would have been as follows (in thousands except per
share data):
1998 1997 1996
-------- ------- -------
Pro forma net income $122,342 $83,244 $36,679
Pro forma diluted earnings per share $ 1.59 $ 1.09 $ 0.50
The fair value of options granted is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
1998 1997 1996
---- -------- --------
Expected dividend yield 0% 0% 0%
Expected stock price volatility 36% 36% 36%
Risk-free interest rate 5.5% 5.5-5.9% 5.5-5.9%
Expected option term in years 5.6 5.8 6.3
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 did not apply to awards prior to 1995, and
additional awards in future years are anticipated.
STOCK REPURCHASE PROGRAM
On October 6, 1997, the Company announced that its Board of Directors had
authorized the repurchase of up to 2.5 million shares of the Company's common
stock. The repurchased stock provides the Company with treasury shares for
general corporate purposes, such as stock to be issued under employee stock
option and stock purchase plans. The stock purchases occurred from time to time.
In 1998, the Company repurchased 1.8 million shares of its common stock at a
cost of $65.6 million. In 1997, the Company repurchased 200,000 shares of its
common stock at a cost of $7 million.
During 1997, to minimize the cost of the Company's stock repurchase program, the
Company sold put options and purchased call options covering a large portion of
the shares intended to be repurchased. There were no put or call options
outstanding at December 31, 1998. The maximum potential repurchase obligation
for put options outstanding at December 31, 1997 was $76.7 million.
10. SEGMENT INFORMATION
The Company operates in one segment, which is the business of developing,
manufacturing and marketing drugs for human health care. The Company currently
derives product revenues from sales of AVONEX(R) (Interferon beta-1a) for the
treatment of relapsing forms of multiple sclerosis. The Company also derives
revenue 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 vaccines and diagnostic products. The Company's
geographic information is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998: US EUROPE ASIA OTHER TOTAL
- --------------------------------- -------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Product revenue from external
customers $303,591 $91,237 $ -- $ 35 $394,863
Royalty revenue from external
customers 108,177 37,573 13,940 3,034 162,724
Long-lived assets 213,053 15,912 -- 105 229,070
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
December 31, 1997: US EUROPE ASIA OTHER TOTAL
- --------------------------------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Product revenue from external
customers $220,385 $17,885 $ -- $ 1,718 $239,988
Royalty revenue from external
customers 88,424 50,279 15,362 17,856 171,921
Long-lived assets 204,800 11,888 -- -- 216,688
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996: US EUROPE ASIA OTHER TOTAL
- --------------------------------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Product revenue from external
customers $ 77,945 $ 257 $ -- -- $ 78,202
Royalty revenue from external
customers 53,813 62,200 50,342 15,147 181,502
Long-lived assets 195,958 1,430 -- -- 197,388
</TABLE>
The Company received revenue from five unrelated parties in 1998 accounting for
a total of 16%, 13%, 11%, 11% and 10% of total product and royalty revenue. The
Company received revenue from four unrelated parties in 1997 accounting for a
total of 19%, 11%, 11% and 10% of total product and royalty revenue. The Company
received revenue from three unrelated parties in 1996 accounting for 27%, 17%
and 13% of total product and royalty revenue.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
1998
<S> <C> <C> <C> <C> <C>
Total revenues $114,472 $128,812 $145,904 $168,399 $557,587
Product revenue 76,100 87,073 107,492 124,198 394,863
Royalties revenue 38,372 41,739 38,412 44,201 162,724
Total expenses and taxes 93,623 103,602 114,024 127,195 438,444
Other income, net 6,922 6,239 5,685 708 19,554
Net income 27,771 31,449 37,565 41,912 138,697
Basic earnings per share 0.38 0.43 0.51 0.57 1.88
Diluted earnings per share 0.36 0.41 0.49 0.54 1.80
1997
Total revenues $94,831 92,447 $100,613 $124,018 $411,909
Product revenue 52,616 56,440 60,413 70,519 239,988
Royalties revenue 42,215 36,007 40,200 53,499 171,921
Total expenses and taxes 82,394 77,895 85,787 99,512 345,588
Other income, net 4,573 5,396 5,659 7,218 22,846
Net income 17,010 19,948 20,485 31,724 89,167
Basic earnings per share 0.23 0.27 0.28 0.43 1.21
Diluted earnings per share 0.22 0.26 0.27 0.42 1.17
</TABLE>
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Biogen, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of shareholders' equity
present fairly, in all material respects, the financial position of Biogen, Inc.
and its subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 14, 1999
<PAGE> 32
SHAREHOLDER INFORMATION
BIOGEN, INC. AND SUBSIDIARIES
CORPORATE HEADQUARTERS:
Biogen, Inc.
14 Cambridge Center
Cambridge, MA 02142
Telephone: (617) 679-2000
Fax: (617) 679-2617
ANNUAL MEETING:
Friday, June 11, 1999 at 10:00 a.m.
at the Company's offices at 12 Cambridge Center
All shareholders are welcome.
MARKET FOR SECURITIES:
Biogen's securities are quoted on the
NASDAQ National Market System.
Common stock symbol: BGEN
As of March 15, 1999, there were approximately 2,579 holders of record of the
Company's Common Stock. The Company has not paid any cash dividends on its
Common Stock since its inception, and does not intend to pay any dividends in
the foreseeable future. The quarterly high and low closing sales price of the
Company's Common Stock on the NASDAQ National Market System for 1998 and 1997
are as follows:
HIGH LOW
FISCAL 1998
First Quarter 49 11/16 33 1/4
Second Quarter 49 11/16 41 1/16
Third Quarter 68 46 1/4
Fourth Quarter 86 7/8 62
FISCAL 1997
First Quarter 51 7/8 37 3/8
Second Quarter 39 1/4 30
Third Quarter 41 3/16 31 7/8
Fourth Quarter 37 5/16 31 5/8
SEC FORM 10-K:
A copy of the Company's annual report to the Securities and Exchange Commission
on Form 10-K is available without charge upon written request to the Corporate
Communications Department, Biogen, Inc., 14 Cambridge Center, Cambridge, MA
02142
TRANSFER AGENT:
For shareholder questions regarding lost certificates, address changes and
changes of ownership or name in which the shares are held, direct inquiries to:
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Telephone: (800) 426-5523
INDEPENDENT ACCOUNTANTS:
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
U.S. LEGAL COUNSEL:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
NEWS RELEASES
As a service to our shareholders and prospective investors, copies of Biogen
news releases issued in the last 12 months are now available almost immediately
24 hours a day, seven days a week on the Internet's World Wide Web at
http://www.prnewswire.com and via automated fax by calling "Company News On
Call" at 1 800 758-5804, ext. 101550. Biogen news releases are usually posted on
both systems within one hour of being issued and are available at no cost.
THE BIOGEN LOGO IS A REGISTERED TRADEMARK OF BIOGEN, INC. AVONEX(R) IS A
REGISTERED TRADEMARK OF BIOGEN, INC. HIRULOG(R) IS A REGISTERED TRADEMARK OF THE
MEDICINES COMPANY. INTRON(R) A IS A REGISTERED TRADEMARK OF SCHERING-PLOUGH
CORPORATION.
<PAGE> 1
Exhibit 21
BIOGEN, INC.
Subsidiaries
NAME JURISDICTION OF INCORPORATION
- ---- -----------------------------
Biogen Canada, Inc. Delaware
Bio Holding I, Inc. Delaware
Bio Holding II, Inc. Delaware
Biogen Realty Corporation Massachusetts
Biogen Realty Limited Partnership Massachusetts
Biogen Securities Corporation Massachusetts
Biogen Technologies, Inc. Delaware
Biogen Belgium S.A. Belgium
Biogen B.V. The Netherlands
Biogen France S.A. France
Biogen GmbH Austria
Biogen GmbH Germany
Biogen International BV The Netherlands
Biogen Limited United Kingdom
Biotech Manufacturing CV The Netherlands
Biotech Manufacturing Limited Channel Islands
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3, as amended (Nos.
33-14741, 33-14743, 33-20183, 33-51639, and 333-71695) and in the Registration
Statements on Form S-8, as amended (Nos. 2-87550, 2-96157, 33-9827, 33-14742,
33-37312, 33-22378, 33-41077, 33-69174, 33-63013, 33-63015, 333-42887, and
333-70701) of Biogen, Inc. and its subsidiaries of our report dated January 14,
1999 appearing in the 1998 Annual Report to Shareholders which is incorporated
in this Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule, which appears in
this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BIOGEN, INC. AND SUBSIDIARIES FOR THE YEAR
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ANNUAL REPORT ON FORM 10K FOR THE PERIOD ENDED DECEMBER 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 25,445
<SECURITIES> 491,469
<RECEIVABLES> 102,923
<ALLOWANCES> 1,642
<INVENTORY> 35,865
<CURRENT-ASSETS> 694,144
<PP&E> 269,038
<DEPRECIATION> 86,487
<TOTAL-ASSETS> 924,715
<CURRENT-LIABILITIES> 135,089
<BONDS> 56,960
0
0
<COMMON> 741
<OTHER-SE> 717,872
<TOTAL-LIABILITY-AND-EQUITY> 924,715
<SALES> 394,863
<TOTAL-REVENUES> 557,587
<CGS> 62,144
<TOTAL-COSTS> 74,509
<OTHER-EXPENSES> 292,439
<LOSS-PROVISION> 0
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<INCOME-TAX> 71,496
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<EPS-PRIMARY> 1.88
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</TABLE>
