<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION TOTAL PAGES - 16
WASHINGTON, D.C. 20549 EXHIBIT INDEX - 16
----------------------------
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934.
For the quarterly period ended March 31, 1999
-------------------------------------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from_______________ to _______________________________
Commission File Number 0-12042
----------------------------
BIOGEN, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Massachusetts 04-3002117
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14 Cambridge Center, Cambridge, MA 02142
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (617)679-2000
Former name, former address and former fiscal year, if changed since last
report: Not Applicable.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------------ ------------------
Number of shares outstanding of each of the issuer's classes of common stock, as
of May 4, 1999:
<TABLE>
<CAPTION>
<S> <C>
Common Stock, par value $0.01 74,953,738
- --------------------------------- --------------------------------
(Title of each class) Number of Shares
</TABLE>
<PAGE> 2
Page 2
BIOGEN, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION Page No.
Condensed Consolidated Statements of Income -
Three months ended March 31, 1999
and 1998 3
Condensed Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION 15
</TABLE>
Note concerning trademarks: AVONEX(R) is a registered trademark of
Biogen, Inc.
<PAGE> 3
Page 3
BIOGEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
--------- ---------
<S> <C> <C>
REVENUES:
Product sales $ 131,320 $ 76,100
Royalties 40,400 38,372
--------- ---------
Total revenues 171,720 114,472
--------- ---------
COSTS and EXPENSES:
Cost of sales 24,870 14,873
Research and development 50,987 37,120
Selling, general and administrative 33,861 26,003
--------- ---------
Total costs and expenses 109,718 77,996
--------- ---------
Income from operations 62,002 36,476
Other income, net 6,184 6,922
--------- ---------
INCOME BEFORE INCOME TAXES 68,186 43,398
Income taxes 22,502 15,627
--------- ---------
NET INCOME $ 45,684 $ 27,771
========= =========
BASIC EARNINGS PER SHARE $ 0.61 $ 0.38
========= =========
DILUTED EARNINGS PER SHARE $ 0.58 $ 0.36
========= =========
SHARES USED IN CALCULATING:
Basic earnings per share 74,699 73,935
========= =========
Diluted earnings per share 78,765 76,854
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
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BIOGEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 91,439 $ 25,445
Marketable securities 520,976 491,469
Accounts receivable, net 107,677 101,281
Deferred tax asset 28,075 26,584
Other current assets 50,530 49,365
---------- ---------
Total current assets 798,697 694,144
---------- ---------
Property, plant and equipment
Cost 281,656 269,038
Less accumulated depreciation 92,370 86,487
---------- ---------
Property, plant and equipment, net 189,286 182,551
---------- ---------
Patents, net 16,224 15,869
Marketable securities 10,394 12,668
Other assets 15,435 19,483
---------- ---------
$1,030,036 $ 924,715
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 17,381 $ 24,896
Current portion of long-term debt 4,888 4,888
Accrued expenses and other 88,211 105,305
---------- ---------
Total current liabilities 110,480 135,089
---------- ---------
Long-term debt, less current portion 56,155 56,960
Other long term liabilities 14,781 14,053
Commitments and contigencies -- --
Shareholders' equity
Common stock 752 741
Additional paid in capital 600,393 538,847
Retained earnings 257,385 213,507
Accumulated other comprehensive income (9,910) (13,165)
Treasury stock, at cost -- (21,317)
---------- ---------
Total shareholders' equity 848,620 718,613
---------- ---------
$1,030,036 $ 924,715
========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
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BIOGEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 45,684 $ 27,771
Adjustments to reconcile net income
to net cash provided from
operating activities:
Depreciation and amortization 6,620 5,629
Deferred income taxes (1,491) 8,506
Other ( 349) 756
Changes in:
Accounts receivable (857) 12,768
Other current and other assets 2,883 (6,536)
Accounts payable, accrued expenses
and other current and long term
liabilities (22,677) (6,553)
--------- ---------
Net cash provided from operating activities 29,813 42,341
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities (139,465) (222,523)
Proceeds from sales and maturities of
marketable securities 110,668 198,931
Investment in collaborative partners - (5,000)
Acquisitions of property and equipment (12,618) (4,388)
Additions to patents (1,092) (1,505)
--------- ---------
Net cash used by investing activities (42,507) (34,485)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of note payable -- (1,516)
Payments of long-term debt (805) ( 805)
Purchases of treasury stock -- (21,500)
Proceeds from put warrants 8,332 --
Issuance of common stock, stock option
exercises and related tax benefits 71,161 11,209
--------- ---------
Net cash from financing activities 78,688 (12,612)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 65,994 (4,756)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 25,445 70,358
--------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 91,439 $ 65,602
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 6
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BIOGEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting
of only normal recurring accruals, necessary to present fairly the
financial position, results of operations and cash flows of Biogen,
Inc. and its subsidiaries (the "Company"). The Company's accounting
policies are described in the Notes to Consolidated Financial
Statements in the Company's 1998 Annual Report on Form 10-K. Interim
results are not necessarily indicative of the operating results for the
full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. Certain amounts for the three months ended March
31, 1998 have been reclassified to conform to the current period
presentation.
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. Comprehensive income for
the three months ended March 31, 1999 and 1998 was $49 million and $29
million, respectively.
Dilutive stock options include outstanding options under the Company's
stock option plans. Options to purchase 34,000 shares of common stock
were outstanding at March 31, 1999 but not included in the computation
of diluted earnings per share because the options' exercise prices were
greater than the average market price during the period. Below is a
summary of the shares used in calculating basic and diluted earnings
per share (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
-------- -------
<S> <C> <C>
Weighted average number of shares
of common stock outstanding 74,699 73,935
Dilutive stock options 4,066 2,919
------- -------
Shares used in calculating diluted
earnings per share 78,765 76,854
======= =======
</TABLE>
On February 22, 1999, the Company announced that its Board of Directors
had 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. Stock
purchases are expected to occur from time to time over the next two
years. The stock repurchase program may be discontinued at any time. To
enhance the stock repurchase program, the Company sold put warrants to
and purchased call options from independent third parties covering a
<PAGE> 7
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large portion of the shares intended to be repurchased. The outstanding
put warrants permit a net-share settlement at the Company's option. The
put warrants sold in connection with the Company's stock repurchase
program may have an additional dilutive effect.
2. As of March 31, 1999, the Company had $19.2 million outstanding under a
term loan secured by a laboratory and office building in Cambridge,
Massachusetts. Principal payments of $1.7 million per annum are due
through 2004 with the balance due on May 8, 2005.
As of March 31, 1999, the Company had $41.9 million outstanding under a
loan agreement with a bank for financing the construction of the
Company's biological manufacturing facility in North Carolina (the
"Construction Loan"). The Construction Loan is secured by the facility.
Payments of $805,000 are due quarterly through 2006 with the balance
due on March 31, 2007.
Terms of the loan agreements include various covenants, including
financial covenants, which require the Company to maintain minimum net
worth, cash flow and various financial ratios.
3. Inventories, which are included in other current assets, are stated at
the lower of cost or market with cost determined under the
first-in/first-out ("FIFO") method. Raw materials include inventory
used in the production of pre-clinical and clinical products, which are
expensed as research and development costs when consumed. Inventories
are as follows:
<TABLE>
<CAPTION>
(In thousands)
----------------------------
March 31, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Raw materials $ 5,290 $ 4,878
Work in process 15,907 17,585
Finished goods 15,188 13,402
------- -------
$36,385 $35,865
======= =======
</TABLE>
4. On July 3, 1996, Berlex Laboratories, Inc. ("Berlex") filed suit
against Biogen in the United States District Court for the District of
New Jersey alleging infringement by Biogen of Berlex's "McCormick"
patent in the United States in the production of Biogen's
AVONEX(R)(Interferon beta-la). 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 judgement
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 Berlex claims;
however, the ultimate
<PAGE> 8
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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 position.
5. Income tax expense as a percentage of pre-tax income for the quarters
ended March 31, 1999 and 1998 was 33% and 36%, respectively. The
effective tax rate varied from U.S. statutory rates in the current
quarter and in the comparable period of 1998, primarily due to
increased European sales and to the utilization of research and
development credits.
6. 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)
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.
<PAGE> 9
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BIOGEN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Biogen, Inc. (the "Company" or "Biogen") is a biopharmaceutical company
principally engaged in the business of developing, manufacturing and marketing
drugs for human health care. The Company currently derives revenues from sales
of AVONEX(R) (Interferon beta-la) for the treatment of relapsing forms of
multiple sclerosis ("MS") 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.
RESULTS OF OPERATIONS
For the quarter ended March 31, 1999, the Company reported net income of $45.7
million or $0.58 per diluted share as compared to $27.8 million or $0.36 per
diluted share for the comparable period of 1998.
Total revenues for the current quarter were $171.7 million, as compared to
$114.5 million in the quarter ended March 31, 1998, an increase of $57.2 million
or 50%. The increase in total revenues was primarily due to increased sales of
the Company's product AVONEX(R). Product sales for the current quarter were
$131.3 million compared to $76.1 million for the comparable period in 1998, an
increase of $55.2 million or 73%. The growth in the first quarter of 1999 was
primarily due to an increase in the sales volume of AVONEX(R) in the United
States and in the European Union ("EU"). AVONEX(R) sales outside of the United
States were approximately $36 million in the current quarter as compared to
approximately $13 million in the comparable period of 1998. Revenues from
royalties for the current quarter were $40.4 million as compared to $38.4
million for the comparable period of 1998, an increase of $2 million or 5%,
primarily as a result of an increase in royalties on sales of hepatitis B
vaccines and alpha interferon.
The Company expects product sales as a percentage of total revenues to continue
to increase in the near term as the Company continues to market AVONEX(R)
worldwide, and expects sales from AVONEX(R) outside the United States to
continue to increase as a percentage of total product sales. The Company,
however, expects to face increasing competition in the MS marketplace from
existing and new MS treatments that may impact sales of AVONEX(R). 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. Licensee sales levels may also fluctuate from quarter to quarter
due to the timing and extent of major events such as new indication approvals or
government sponsored vaccination programs.
Total costs and expenses for the current quarter were $109.7 million as compared
to $78 million in the quarter ended March 31, 1998, an increase of $31.7 million
or 41%. Cost of sales in the current quarter totaled $24.9 million, an increase
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of $10 million from the quarter ended March 31, 1998. Cost of sales in the
current quarter includes product costs relating to sales of AVONEX(R) of $21.4
million compared to $12.1 million in the quarter ended March 31, 1998. Gross
margins for product sales remained constant at 84% for both the three months
ended March 31, 1999 and 1998. Cost of sales relating to royalty revenue for the
current quarter increased slightly to $3.5 million as compared to $2.8 million
in the comparable period of 1998. Gross margins on royalty revenue declined
slightly to 91% for the current quarter as compared to 93% for the comparable
period of 1998. 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.
Research and development expenses for the current quarter were $51 million, an
increase of $13.9 million or 37% as compared to the quarter ended March 31,
1998. This increase was primarily due to an increase in clinical trial costs and
an increase in the Company's development efforts relating to research and
development programs in its product pipeline. The Company expects that, in the
long-term, research and development expenses will increase as the Company
continues to expand its development efforts with respect to new products and as
it conducts clinical trials of these products. Selling, general and
administrative expenses for the current quarter were $33.9 million, an increase
of $7.9 million or 30% as compared to the quarter ended March 31, 1998. The
increase was primarily due to higher selling and marketing expenses related to
sales of AVONEX(R), the impact of stock option compensation, and related
expenses partially offset by a reduction in legal costs. The Company expects
that selling, general and administrative expenses will increase in the near and
long-term as the Company continues to put in place the commercial infrastructure
and sales and marketing organizations necessary to sell AVONEX(R) worldwide.
Income tax expense as a percentage of pre-tax income for the quarters ended
March 31, 1999 and 1998 was 33% and 36%, respectively. The effective tax rate
varied from U.S. statutory rates in the current quarter and in the comparable
quarter of 1998, primarily due to increased European sales and to the
utilization of research and development credits. The Company's effective tax
rate is expected to continue at or near this level for the remainder of 1999.
FINANCIAL CONDITION
At March 31, 1999, cash, cash equivalents and short-term marketable securities
were $612.4 million compared with $516.9 million at December 31, 1998, an
increase of $95.5 million. Working capital increased by $129.2 million to $688.2
million from December 31, 1998 to March 31, 1999. Net cash provided from
operating activities for the three-month period ended March 31, 1999 was $29.8
million, compared with $42.3 million in the comparable period of 1998. Cash
outflows for the three-months ended March 31, 1999, included investments in
property and equipment and patents of $13.7 million. Cash inflows from financing
activities included $71.2 million from common stock option and purchase plan
activity, including tax benefits related to stock options and $8.3 million of
proceeds from the sale of put warrants.
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
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stock. The repurchased stock will provide the Company with treasury shares for
general corporate purposes, such as stock to be issued under employee stock
option and stock purchase plans. Stock purchases are expected to occur from time
to time over the next two years. The stock repurchase program may be
discontinued at any time. To enhance the stock repurchase program, the Company
sold put warrants to and purchased call options from independent third parties
covering a large portion of the shares intended to be repurchased. The
outstanding put warrants permit a net-share settlement at the Company's option.
Subsequent to March 31, 1999 the Company purchased 500,000 shares of the
Company's common stock at a cost of $48.8 million.
Several legal proceedings were pending during the current quarter, which involve
the Company. See Note 4 of the Notes to the Condensed Consolidated Financial
Statements. See also Item 1 - Business, "Patents and Other Proprietary Rights"
of the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998 for discussions of these legal proceedings.
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
March 31, 1999 are temporary in nature. 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.
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 seek to raise additional
capital to take advantage of favorable conditions in the market or in connection
with the Company's development activities.
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 issue. The plan is
segregated into four phases:
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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 80%
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 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.
Customers anticipating Year 2000 concerns, could increase their inventory of
AVONEX(R) prior to the end of the year causing short-term temporary volatility
in sales between periods. 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
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OUTLOOK
Safe Harbor Statement under Private Securities Litigation Reform Act of 1995
In addition to historical information, this quarterly report on Form 10-Q
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from those reflected in such
forward-looking statements. Reference is made in particular to forward-looking
statements regarding the anticipated level of future royalty revenues, product
sales, expenses and profits, predictions as to the anticipated outcome of
pending litigation and opposition proceedings and statements regarding the
expected outcome of planned measures to deal with Year 2000 issues. These and
all other forward-looking statements are made based on the Company's current
belief as to the outcome and timing of such future events. Factors which could
cause actual results to differ from the Company's expectations and which could
negatively impact the Company's results of operations are discussed below and
elsewhere in this Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Dependence on AVONEX(R) Sales and Royalty Revenue
The Company's ability to sustain increases in revenues and profitability will be
primarily dependent on the level of revenues and profitability from AVONEX(R)
sales. The Company's ability to sustain profitability from sales of AVONEX(R)
will depend on a number of factors, including: continued market acceptance of
AVONEX(R) 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 and the extent to which AVONEX(R) receives and
maintains reimbursement coverage; successful resolution of the lawsuit with
Berlex related to the "McCormick" patents, which if decided in Berlex's favor
could have a material adverse effect on the Company's financial position and
results of operations; success in revoking the Rentschler patent since 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; the
Company's ability to sustain market share of AVONEX(R) in light of the impact of
competitive products for the treatment of multiple sclerosis; the success of
ongoing development work related to AVONEX(R) in expanded multiple sclerosis
indications and the continued accessibility of third parties to vial, label, and
distribute AVONEX(R) on acceptable terms. The Company also receives royalty
revenues which contribute significantly to its overall profitability. The
Company's ability to maintain the level of its royalty revenues will depend on a
number of factors. 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, 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 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
<PAGE> 14
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to be affected most significantly by patent expirations.
There can be no assurance that the Company will achieve a positive outcome with
respect to any of the factors discussed in this Section or that the timing and
extent of the Company's success with respect to any combination of these factors
will be sufficient to result in sustained increases in revenues or profitability
or the sustained profitability of the Company. For a further discussion of risks
regarding drug development, patent matters, including the Berlex lawsuit on the
"McCormick" patents, competition in the multiple sclerosis market and regulatory
matters, see the Company's Annual Report on Form 10-K for the period ended
December 31, 1998 under the headings "Business - Risks Associated with Drug
Development", "Business - Patents and Other Proprietary Rights", "Business -
Competition and Marketing - AVONEX(R) (interferon beta-la)", "Business -
Regulation", "Legal Proceedings" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Outlook."
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 is continuing to expand its development efforts
related to other potential products in its pipeline. The expansion of the
pipeline may include increases in spending on internal projects, the acquisition
of third party technologies or products or other types of investments. Product
development involves a high degree of risk. 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.
<PAGE> 15
Page 15
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
On February 25, 1999, the Registrant filed a report on Form 8-K to announce
the authorization by the Registrant's Board of Directors of the repurchase by
the Registrant of up to 4,000,000 shares of the Registrant's Common Stock from
time to time over a two-year period.
Exhibits
No. 27 Financial Data Schedule (for EDGAR filing purposes only).
<PAGE> 16
Page 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOGEN, INC.
Dated: May 6, 1999 /s/Timothy M. Kish
-------------------------------------
Timothy M. Kish
Vice President-Finance and
Chief Financial Officer
EXHIBITS
Index to Exhibit.
No. 27 Financial Data Schedule (for EDGAR filing purposes only).
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