EXHIBIT 13
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
Years Ended December 31 1989 1990 1991 1992 1993
Total revenues . . . . . . $ 40,894$ 59,415$ 69,577$ 135,114$ 149,287
Royalties and product sales. 24,725 44,920 56,477 121,714 136,418
Total expenses . . . . . . . 37,680 51,695 62,391 96,803 116,870
Net income . . . . . . . . . 3,214 7,720 7,186 38,311 32,417
Earnings per common
share, primary . . . . . . 0.01 0.07 0.15 1.12 0.93
Cash and marketable securities 110,205 104,146 185,990 227,888 270,351
Total assets . . . . . . . . 145,241 158,485 253,067 311,192 356,950
Shareholders' equity . . . . 139,235 145,742 238,989 284,953 325,174
Average shares outstanding, 23,499 25,430 29,964 34,198 34,720
primary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Biogen, Inc. (the "Company") is a biopharmaceutical company principally
engaged in developing and manufacturing drugs for human healthcare through
genetic engineering. The Company's primary source of revenues consists of
royalties received from licensees that sell products based on technology
developed by the Company. These royalties, which have included certain
one-time payments, are primarily derived from sales of alpha interferon and
hepatitis B products. Until Biogen markets its own products directly,
royalties are expected to remain the Company's major source of revenues.
As the majority of revenues that Biogen receives is based on product
sales by its licensees and other events over which the Company has no
control, the Company's total revenues and income may continue to fluctuate
and quarter to quarter comparisons may not necessarily be meaningful.
RESULTS OF OPERATIONS
1993 AS COMPARED TO 1992
Revenues
Biogen's total revenues in 1993 were $149.3 million as compared to
$135.1 million in 1992, an increase of 10%, which resulted mostly from
higher royalties and product sales.
Revenues from royalties and product sales grew to $136.4 million in
1993 from $121.7 million in 1992, an increase of 12%. This increase was
due primarily to ongoing royalties received from licensee sales of alpha
interferon. Sales of alpha interferon, sold by Schering-Plough Corporation
("Schering"), were $572 million in 1993 as compared to $478 million in
1992. The increase in alpha interferon sales is primarily attributable to
the continued use of alpha interferon in Japan for the treatment of
hepatitis C since its approval in mid-1992. Sales of hepatitis B vaccines,
sold by SmithKline Beecham plc ("SmithKline") and Merck & Co., Inc.
("Merck"), increased 10% due mostly to higher sales levels in Europe. The
Company, in general, expects continued increases in sales of licensed
products but at lower growth rates than had been experienced during 1992
and 1993. However, there are numerous health care reform initiatives
currently underway in the United States and other major pharmaceutical
markets and it is not yet clear what effect, if any, these initiatives or
other developments may have on product sales by the Company's licensees.
In addition, these sales levels may fluctuate from quarter to quarter due
to the timing and extent of major events such as new indication approvals
or licensing arrangements. In the first quarter of 1994, the Company
licensed certain patent rights for gene expression to Eli Lilly and Company
("Lilly"). The Company expects to recognize approximately $15 million in
royalties from Lilly in 1994, the majority of which will be recognized in
the first quarter.
Revenues from research and development contracts for 1992 were from an
AIDS research and development funding agreement entered into during the
third quarter of 1989 with an insurance company. As of December 31, 1992,
all funds had been recognized under this contract.
Interest income for 1993 increased from 1992 due primarily to the
increase in invested funds generated from higher revenue and profit levels.
Expenses
Total expenses were $114.7 million in 1993 as compared to $95.2 million
in 1992. Cost of sales increased $2.8 million due to the higher level of
royalty income received during 1993. Research and development costs were
$79.3 million in 1993 compared to $60.4 million in 1992, an increase of
31%. The increase in research and development costs was due primarily to
the expanded clinical development of the Company's lead drug candidates,
Hirulog(TM) thrombin inhibitor and recombinant beta interferon. Both drug
candidates are in Phase II and Phase III clinical trials for a variety of
indications. The increase in research and development costs was also
attributable to a charge in the fourth quarter related to obtaining rights
to beta interferon patents for worldwide manufacture and sale. The Company
expects its research and development costs to continue to increase as it
expands the clinical programs for Hirulog(TM), recombinant beta interferon
and other therapeutics.
Other expenses decreased $2.4 million in 1993 as compared to 1992.
During the first quarter of 1993, the Company incurred a charge of
approximately $1.8 million to write off its remaining interest in a
European joint venture which followed a $5.1 million write-down that was
incurred in the second half of 1992. These adjustments occurred as a
result of the venture entering bankruptcy proceedings and the Company's
reassessment of its European operations strategy. During the second
quarter of 1993, the Company incurred a charge of approximately $4.3
million as a result of a patent settlement between Schering and Genentech,
Inc. The settlement includes a worldwide license to certain patented
technology and processes of Genentech, Inc. used to produce recombinant
alpha interferon by Schering, the Company's licensee. In 1992, the Company
also incurred costs relating to disputes of the royalty arrangements under
certain of its licensing agreements including an adverse ruling rendered in
the fourth quarter of 1992 regarding the rate of royalties payable from
international sales of hepatitis B vaccines by SmithKline. The Company has
received leave to appeal this decision from the English Chancery Court. In
the first quarter of 1993, SmithKline initiated arbitration in the United
States regarding similar royalty provisions in a separate agreement
governing sales of hepatitis B vaccines by SmithKline in the United States.
The amount in dispute at the end of 1993 was approximately $14 million.
The Company believes that an adverse ruling in the United States is not
probable.
Income tax expense was $2.2 million for 1993 which is substantially
less than the amount computed at U.S. federal statutory rates because of
the utilization of net operating loss carryforwards. Effective January 1,
1992, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes, which is an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns.
Adoption of this statement had no effect on the Company's consolidated
financial position and results of operations as income taxes were formerly
accounted for using the asset and liability approach in accordance with
SFAS No. 96.
1992 AS COMPARED TO 1991
Revenues
Biogen's total revenues in 1992 were $135.1 million as compared to
$69.6 million in 1991, an increase of 94%, which resulted mostly from
higher royalties and product sales.
Revenues from royalties and product sales grew to $121.7 million in
1992 from $56.5 million in 1991, an increase of 116%. This increase was
due primarily to ongoing royalties received from licensee sales of alpha
interferon and hepatitis B vaccine, which more than doubled from 1991.
Sales of alpha interferon were $478 million in 1992 as compared to $251
million in 1991. The significant increase in alpha interferon sales was
primarily attributable to sales in Japan for the treatment of hepatitis C.
Sales of hepatitis B vaccines, sold by SmithKline and Merck, also increased
significantly. The increase in sales of hepatitis B vaccines was due
largely to a mandatory vaccination program that was put in place in 1992
for workers covered by OSHA regulations and a large increase in the number
of childhood vaccinations in the United States.
Revenues from research and development contracts for 1992 and 1991 were
from an AIDS research and development funding agreement entered into during
the third quarter of 1989 with an insurance company.
Interest income for 1992 increased from 1991 due primarily to the
increase in invested funds resulting from the common stock offering
completed on December 2, 1991 and cash generated from higher revenue and
profit levels.
Expenses
Total expenses were $95.2 million in 1992 as compared to $62.1 million
in 1991. Cost of sales increased $5.4 million due to the higher level of
royalty income received during 1992. Research and development costs were
$60.4 million in 1992 compared to $44.3 million in 1991, an increase of
36%. The increase in research and development costs was due primarily to
the expanded clinical development of the Company's lead drug candidates,
Hirulog(TM) thrombin inhibitor and recombinant beta interferon. The
increase in research and development costs was also attributable to a
charge in the first quarter related to the upgrade of certain manufacturing
equipment as well as higher patent expenses.
General and administrative expenses increased $2.7 million in 1992 as
compared to 1991. A significant portion of this increase was due to higher
legal expenses and personnel-related costs.
Other expenses increased $8.9 million in 1992 as compared to 1991.
This increase includes a charge of $5.1 million for the write-down of the
Company's fifty percent interest in a European joint venture. In addition,
the Company incurred costs relating to disputes of the royalty arrangements
under certain of its licensing agreements including an adverse ruling
rendered in the fourth quarter of 1992 regarding the rate of royalties
payable from international sales of hepatitis B vaccines by SmithKline.
Income tax expense increased in 1992 as compared to the 1991 amount as
a result of increased pretax earnings and was substantially less than the
amount computed at U.S. federal statutory rates because of the utilization
of net operating loss carryforwards.
FINANCIAL CONDITION
At December 31, 1993, cash, cash equivalents and marketable securities
amounted to $270.4 million, a $42.5 million increase from the $227.9
million on hand at the end of 1992. Working capital was $277.6 million at
December 31, 1993, an increase of $35.4 million from December 31, 1992.
Net cash provided from operating activities in 1993 was $47.6 million while
the Company's common stock option and purchase plans provided $7.8 million.
Outflows of cash included investments in property and equipment and patents
of $13.5 million. Property and equipment additions related primarily to
expanding and upgrading the Company's manufacturing and research facilities
in Cambridge, Massachusetts. Also, during the fourth quarter of 1993, the
Company commenced construction of a 150,000 square foot building in
Cambridge, Massachusetts to house research laboratories and offices. The
anticipated cost of construction including land is approximately $40
million. Upon completion of the building in 1995, the Company has the
option, subject to certain conditions, to obtain a secured term loan with
a bank for up to $25 million for a period of up to 10 years.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company will adopt the
provisions of SFAS No. 115 effective January 1, 1994. The Company does not
expect the adoption of this statement to have a significant effect on its
consolidated financial condition and results of operations.
The Company is the general partner of Biogen Medical Products Limited
Partnership ("BMPLP"). BMPLP was formed for the continued development of
commercial products based on gamma interferon and interleukin-2 (the
"partnership products"). The Company agreed to extend the term of the
development contract with BMPLP until December 31, 1994. The Company did
not incur any significant costs with respect to BMPLP in 1993 but has the
option to provide up to $9.2 million to BMPLP to continue development of
the partnership products.
The Company believes that the financial resources available to it,
including its current working capital and its existing and anticipated
contractual relationships, may be sufficient to finance its planned
operations and capital expenditures for the near term. However, the
Company expects that it may have additional funding needs, the extent of
which will depend upon the level of royalties and product sales, the
outcome of clinical trial programs, the receipt and timing of required
regulatory approvals for products, the results of research and development
efforts and business expansion opportunities. Accordingly, from time to
time, the Company may obtain funding through various means which could
include collaborative agreements, lease financings, sales of equity or debt
securities and other financing arrangements.
BIOGEN, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31 1993 1992
ASSETS
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . $ 74,546$ 85,863
Marketable securities. . . . . . . . . . . . 195,805 142,025
Accounts receivable:
Affiliate . . . . . . . . . . . . . . . . . - - 1,005
Other . . . . . . . . . . . . . . . . . . . 31,695 32,410
Other. . . . . . . . . . . . . . . . . . . . 7,378 7,144
Total current assets . . . . . . . . . . . . 309,424 268,447
======= =======
PROPERTY AND EQUIPMENT
Leasehold improvements . . . . . . . . . . . 31,544 29,407
Equipment. . . . . . . . . . . . . . . . . . 28,555 23,934
Construction in progress . . . . . . . . . . 4,012 - -
Total cost . . . . . . . . . . . . . . . . . 64,111 53,341
Less accumulated depreciation. . . . . . . . 25,611 21,035
Property and equipment, net. . . . . . . . . 38,500 32,306
OTHER ASSETS
Investment in joint venture. . . . . . . . . - - 1,803
Patents, net of amortization of $5,782 in 1993
and $4,213 in 1992. . . . . . . . . . . . . 7,164 6,548
Other. . . . . . . . . . . . . . . . . . . . 1,862 2,088
Total other assets . . . . . . . . . . . . . 9,026 10,439
$356,950$ 311,192
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable:
Affiliate. . . . . . . . . . . . . . . . . $ - -$ 708
Other. . . . . . . . . . . . . . . . . . . . 2,916 3,188
Accrued expenses and other . . . . . . . . . . 28,860 22,343
Total current liabilities. . . . . . . . . . . 31,776 26,239
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $0.01 per share
(55,000,000 shares authorized; issued:
1993 - 32,299,835;
1992 - 31,733,749) . . . . . . . . . . . . 323 317
Additional paid-in capital . . . . . . . . . 353,247 345,445
Deficit. . . . . . . . . . . . . . . . . . . (28,462) (60,879)
Accumulated translation adjustment . . . . . 66 70
Total shareholders' equity . . . . . . . . . 325,174 284,953
$356,950 $311,192
. . . . . . . . . . . . . . . . . . . . . . ======== ========
See Notes to Consolidated Financial Statements.
BIOGEN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Years Ended December 31 1993 1992 1991
REVENUES
Royalties and product sales. . . . . . $ 136,418$ 121,714$ 56,477
Research and development contracts . . . - - 2,035 4,965
Interest . . . . . . . . . . . . . . . . 12,869 11,365 8,135
Total revenues . . . . . . . . . . . . . 149,287 135,114 69,577
EXPENSES
Cost of sales. . . . . . . . . . . . . . 12,139 9,384 4,033
Research and development . . . . . . . . 79,315 60,399 44,292
General and administrative . . . . . . . 17,236 16,985 14,328
Other. . . . . . . . . . . . . . . . . . 5,980 8,415 (522)
Total expenses . . . . . . . . . . . . . 114,670 95,183 62,131
INCOME BEFORE INCOME TAXES . . . . . . . . 34,617 39,931 7,446
Income taxes . . . . . . . . . . . . . . . 2,200 1,620 260
NET INCOME . . . . . . . . . . . . . . . . 32,417 38,311 7,186
Preferred stock dividends. . . . . . . . . - - - - 2,679
EARNINGS APPLICABLE TO COMMON STOCK. . . . $32,417 $38,311 $4,507
EARNINGS PER SHARE OF COMMON STOCK
Primary. . . . . . . . . . . . . . . . . $ 0.93 $ 1.12 $ 0.15
Fully diluted. . . . . . . . . . . . . . $ 0.92 $ 1.08 $ 0.15
Average number of shares outstanding
Primary. . . . . . . . . . . . . . . . . 34,720 34,198 29,964
Fully diluted. . . . . . . . . . . . . . 35,124 35,429 29,964
Royalties and product sales include amounts from affiliates of $160 in 1992
and $1,867 in 1991.
See Notes to Consolidated Financial Statements.
BIOGEN, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31 1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . $ 32,417$ 38,311 $7,186
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization . . . . . . 6,657 7,141 5,064
Write-down of investment in joint venture 1,803 5,118 - -
Other . . . . . . . . . . . . . . . . . . (330) 306 (1,155)
Changes in:
Accounts receivable . . . . . . . . 1,720 (15,026)(5,174)
Other current assets. . . . . . . . (234) (2,359) (1,372)
Accounts payable, accrued expenses
and other liabilities. . . . . . 5,537 9,561 1,335
Net cash provided from operating activities . .47,570 43,052 5,884
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities, net. . (53,228) (11,557) (37,274)
Acquisitions of property and equipment . . (10,770) (9,379) (8,426)
Additions to patents . . . . . . . . . . . (2,697) (2,933) (2,634)
Net cash used by investing activities. . . (66,695) (23,869) (48,334)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock and option exercises. 7,808 10,033 89,455
Preferred stock dividends paid . . . . . . - - - - (2,932)
Net cash provided from financing activities. . 7,808 10,033 86,523
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . (11,317) 29,216 44,073
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR. . . . . . . . . . . . . . . . . . 85,863 56,647 12,574
CASH AND CASH EQUIVALENTS, END OF YEAR . . $ 74,546$ 85,863$ 56,647
See Notes to Consolidated Financial Statements.
BIOGEN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Years Ended December 31, 1993, 1992 and 1991
Additional Accumulated Share-
Preferred Common Paid-in Translation holders'
Stock Stock Capital Deficit Adjustment Equity
Balance, December 31, 1990. $ 28 $ 229 $246,017 $(103,444) $2,912 $145,742
Preferred dividends . . . . (2,932) (2,932)
Conversion of preferred to common (28) (28)
Issuance of common. . . . . 69 81,416 81,485
Exercise of options . . . . 10 7,988 7,998
Net income. . . . . . . . . 7,186 7,186
Translation adjustment. . . (462) (462)
Balance, December 31, 1991. - - 308 335,421 (99,190) 2,450 238,989
Issuance of common. . . . . 345 345
Exercise of options . . . . 9 9,679 9,688
Net income. . . . . . . . . 38,311 38,311
Write-down of joint venture (3,352) (3,352)
Translation adjustment. . . 972 972
Balance, December 31, 1992. - - 317 345,445 (60,879) 70 284,953
Issuance of common. . . . . 475 475
Exercise of options . . . . 6 7,327 7,333
Net income. . . . . . . . . 32,417 32,417
Translation adjustment. . . (4) (4)
Balance, December 31, 1993. $ - - $ 323 $353,247 $(28,462) $ 66 $325,174
See Notes to Consolidated Financial Statements.
BIOGEN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Biogen, Inc. (the "Company") is a biopharmaceutical company principally
engaged in developing and manufacturing drugs for human healthcare through
genetic engineering. The Company's revenues are generated from the
worldwide sales by licensees of five products, including alpha interferon
and hepatitis B vaccines and diagnostic products. Biogen is focused
primarily on developing and testing products for the treatment of
cardiovascular disease, inflammatory diseases, AIDS, certain cancers and
viruses.
Consolidation Principles
The financial statements include the accounts of Biogen, Inc. and its
subsidiaries, each of which is wholly owned. Intercompany balances and
transactions have been eliminated.
Translation of Foreign Currencies
Adjustments resulting from the translation of the financial statements of
the Company's foreign operations are excluded from the determination of net
income and accumulated in a separate component of shareholders' equity.
Foreign exchange transaction gains and losses are included in the results
of operations. Such amounts for the years presented were insignificant.
Cash, Cash Equivalents and Marketable Securities
For purposes of reporting cash flows, the Company considers time deposits
and certificates of deposit purchased with a maturity of 90 days or less to
be cash equivalents. Marketable securities are carried at cost which
approximates market. The Company invests in U.S. government securities and
corporate bonds and notes with strong credit ratings. The Company limits
the amount of investment exposure to any one institution.
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 being amortized over the terms of leases, up to
20 years. Equipment is being depreciated over estimated useful lives from
5 to 10 years.
Patents
The costs of patents and patent applications are amortized on the straight-
line basis over estimated useful lives, up to 15 years.
Revenues
The Company receives revenues under license agreements with a number of
third parties that sell products based on technologies developed by the
Company. All of these 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 these 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. Revenues from
research and development contracts were derived from a collaborative
agreement with an insurance company (see note 4).
Research and Development Expenses
Research and development costs are expensed as incurred.
Income Taxes
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, which
is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Adoption of this statement had no effect on the
Company's consolidated financial position and results of operations as
income taxes were formerly accounted for using the asset and liability
approach in accordance with SFAS No. 96.
Earnings Per Share of Common Stock
Earnings per share of common stock is computed by dividing net income,
after deducting preferred stock dividends, by the weighted average number
of shares of common stock and common stock equivalents outstanding, which
include options and warrants. For 1991, primary earnings per share has
been substituted for fully diluted earnings per share since the fully
diluted calculation produced an antidilutive result.
2. BIOGEN MEDICAL PRODUCTS LIMITED PARTNERSHIP
The Company is the general partner of Biogen Medical Products Limited
Partnership ("BMPLP"). BMPLP was formed for the continued development of
commercial products based on gamma interferon and interleukin-2 (the
"partnership products").
Under terms of a development contract, the Company performs research and
development work on behalf of BMPLP, which is reimbursable at cost.
Expenses incurred by the Company as a result of this work were $.8 million
in 1992 and $.9 million in 1991. BMPLP has earned revenues from sales or
licensing arrangements related to the partnership products which have been
payable to the Company as repayment of a loan made by the Company. The
amounts earned from BMPLP and included in the Company's royalties and
product sales revenues were $.2 million in 1992 and $1.9 million in 1991.
Revenues and expenses recorded with respect to BMPLP by the Company in 1993
were insignificant.
The Company agreed to extend the term of the development contract with
BMPLP until December 31, 1994. The Company has the option to provide up to
an additional $9.2 million to BMPLP to continue development of the
partnership products.
3. INVESTMENT IN JOINT VENTURE
During the third quarter of 1992, the Company incurred a charge of
approximately $5.1 million, included in other expenses, for the write-down
of its fifty percent interest in a European joint venture. In connection
with this write-down the Company discontinued use of the equity method of
accounting for the venture. During the first quarter of 1993, the Company
incurred a charge to other expenses of approximately $1.8 million for the
write-off of its remaining interest in the venture. These adjustments
occurred as a result of the venture entering bankruptcy proceedings and the
Company's reassessment of its European operations strategy.
4. RESEARCH AND DEVELOPMENT AGREEMENT
During 1989, the Company entered into a funding arrangement for one of its
research projects with an insurance company, which expired on December 31,
1992. Under this agreement, the Company received $20 million.
Approximately $5 million of this amount was received in exchange for
issuing 1.8 million common stock warrants with an exercise price of $17 per
share. The Company began receiving the remainder of the funds at the end
of 1989 at a rate of fifty percent of development costs incurred, subject
to certain limits. These payments were used to partially fund the
Company's development costs for rsCD4-based products. Biogen will pay
royalties to the insurance company on worldwide sales of rsCD4-based
products subject to specified maximums.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at
December 31, are as follows:
1993 1992
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
Cash and cash equivalents. . . $74,546 $74,546 $85,863 $85,863
Marketable securities. . . . . 195,805 197,504 142,025 144,333
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. The fair values of
marketable securities and other investments are estimated based on quoted
market prices for those investments.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company will adopt the
provisions of SFAS No. 115 effective January 1, 1994. The Company does not
expect the adoption of this statement to have a significant effect on its
consolidated financial condition and results of operations.
6. ACCRUED EXPENSES AND OTHER
The following items are included in accrued expenses and other at December
31:
(in thousands) 1993 1992
Royalties and licensing fees . . . . . . . $14,614 $12,385
Clinical trial costs . . . . . . . . . . . 4,614 1,033
Restructuring. . . . . . . . . . . . . . . 3,725 3,025
Income taxes . . . . . . . . . . . . . . . 2,481 1,515
Other. . . . . . . . . . . . . . . . . . . 3,426 4,385
$28,860 $22,343
======= =======
7. PENSIONS
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, adopted in 1991, 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
primarily in fixed income and equity securities. Pension cost for the
years ended December 31 are summarized below:
(in thousands) 1993 1992 1991
Service cost . . . . . . . . . . . . . . . $ 477 $ 356 $ 308
Interest cost. . . . . . . . . . . . . . . 236 215 196
Actual return on plan assets . . . . . . . (113) (155) (291)
Net amortization and deferral. . . . . . . (33) (28) 124
Net pension cost . . . . . . . . . . . . . $ 567 $ 388 $ 337
The funded status of the defined benefit plans at December 31, is as
follows:
(in thousands) 1993 1992
Actuarial present value of:
Vested benefits obligation. . . . . . . . $(2,462) $(1,441)
Non-vested benefits . . . . . . . . . . . (266) (158)
Accumulated benefit obligation. . . . . . $(2,728) $(1,599)
Projected benefit obligation . . . . . . . $(4,018) $(2,506)
Plan assets at fair value. . . . . . . . . $1,815 $1,772
Projected benefit obligation in excess
of plan assets. . . . . . . . . . . . . . $(2,203) $ (734)
Unrecognized net asset . . . . . . . . . . (104) (125)
Unrecognized net (gain) loss . . . . . . . 559 (427)
Unrecognized prior service cost. . . . . . 202 222
Accrued pension cost . . . . . . . . . . . $(1,546) $(1,064)
The projected benefit obligation was determined using an assumed discount
rate of 7.5% for 1993 and 9% for 1992. The assumed long-term compensation
increase rates were 5% for 1993 and 6% for 1992. The assumed long-term
rate of return on plan assets was 8% for both years.
8. INCOME TAXES
The components of income (loss) before income taxes and of income tax
expense for the years ended December 31 follow:
(in thousands) 1993 1992 1991
Income (loss) before income taxes:
Domestic. . . . . . . . . . . . . . . . . $37,218 $45,522 $6,879
Foreign . . . . . . . . . . . . . . . . . (2,601) (5,591) 567
$34,617 $39,931 $7,446
Income tax expense:
Federal . . . . . . . . . . . . . . . . . $1,700 $1,300 $ 120
State . . . . . . . . . . . . . . . . . . 476 313 115
Foreign . . . . . . . . . . . . . . . . . 24 7 25
$2,200 $1,620 $ 260
====== ====== ======
Deferred tax assets (liabilities) are comprised of the following at
December 31:
(in thousands) 1993 1992
Tax credits. . . . . . . . . . . . . . . . $15,210 $9,936
Loss carryforwards . . . . . . . . . . . . 31,753 39,729
Other. . . . . . . . . . . . . . . . . . . 4,858 4,035
Gross deferred tax assets. . . . . . . . . 51,821 53,700
Depreciation and amortization. . . . . . . (4,222) (2,442)
Gross deferred tax liabilities . . . . . . (4,222) (2,442)
Deferred tax assets valuation allowance. . (47,599) (51,258)
$ - - $ - -
========== =========
The net change in the valuation allowance was a decrease of $3.7 million in
1993 and $4.0 million in 1992. Of the $47.6 million valuation allowance at
December 31, 1993, $28.2 million relating to deductions for non-qualified
stock options will be credited to paid-in capital if realized.
The Company increased its gross deferred tax assets and liabilities in 1993
as a result of legislation enacted in the United States during the current
year increasing the corporate tax rate from 34% to 35% commencing January
1, 1993.
A reconciliation between the amount of reported income tax expense and the
amount computed using the U.S. federal statutory rate of 35% for 1993 and
34% for 1992 and 1991 follows:
(in thousands) 1993 1992 1991
Income at statutory rates. . . . . . . . . $12,116 $13,577 $2,532
Foreign income at other than U.S. rates. . (253) (655) 56
Utilization of net operating loss
carryforwards. . . . . . . . . . . . . . (11,159) (14,070) (2,510)
Effects of losses not currently utilizable 1,187 2,562 - -
Other. . . . . . . . . . . . . . . . . . . 309 206 182
Reported income tax expense. . . . . . . . $2,200 $1,620 $ 260
At December 31, 1993, the Company had net operating loss carryforwards
available in the United States for federal income tax return purposes of
$89 million and tax credits of $11 million which expire at various dates
through 2008. Total income tax payments for the years ended December 31,
1993, 1992 and 1991 amounted to $983,000, $745,000 and $197,000,
respectively.
9. 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 2004, amounted to $3.6 million in
1993 ($3.5 million in 1992 and $3.3 million in 1991). 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, 1993, minimum annual rental commitments under
noncancellable leases were as follows:
(in thousands)
Year
1994 . . . . . . . . . . . . . . . . . . . . . . $4,249
1995 . . . . . . . . . . . . . . . . . . . . . . 4,230
1996 . . . . . . . . . . . . . . . . . . . . . . 4,086
1997 . . . . . . . . . . . . . . . . . . . . . . 3,856
1998 . . . . . . . . . . . . . . . . . . . . . . 1,919
Thereafter . . . . . . . . . . . . . . . . . . . 3,399
Total minimum lease payments . . . . . . . . . . $21,739
During the fourth quarter of 1993, the Company commenced construction of a
150,000 square foot building in Cambridge, Massachusetts to house research
laboratories and offices. The anticipated cost of construction including
land is approximately $40 million. Upon completion of the building in
1995, the Company has the option, subject to certain conditions, to obtain
a 7.5% secured term loan with a bank for up to $25 million for a period of
up to 10 years.
In the fourth quarter of 1992, SmithKline Beecham plc ("SmithKline")
received a favorable foreign arbitration decision against Biogen regarding
the rate of royalties payable on international sales of hepatitis B
vaccines by SmithKline. The Company has received leave to appeal this
decision from the English Chancery Court. In the first quarter of 1993,
SmithKline initiated arbitration in the United States regarding similar
royalty provisions in a separate agreement governing sales of hepatitis B
vaccines by SmithKline in the United States. The amount in dispute at the
end of 1993 was approximately $14 million. The Company believes that an
adverse ruling in the United States is not probable.
In the first quarter of 1994, the Company licensed certain patent rights
for gene expression to Eli Lilly and Company ("Lilly"). The Company
expects to recognize approximately $15 million in royalties from Lilly in
1994, the majority of which will be recognized in the first quarter.
10. SHAREHOLDERS' EQUITY
Convertible Exchangeable Preferred Stock
The Company has authority to issue 20,000,000 shares of $.01 par value
preferred stock. On June 24, 1991, the Company completed the redemption of
its $2.125 convertible exchangeable preferred stock. Virtually all of the
2,760,000 shares of convertible exchangeable preferred stock then
outstanding were converted into common stock at a rate of 1.6393 shares of
common stock for each share of convertible exchangeable preferred stock.
As a result of this conversion, the Company no longer pays dividends on the
convertible exchangeable preferred stock, which totaled $5.9 million per
year.
Common Stock
The Company has authority to issue 55,000,000 shares of $.01 par value
common stock. On December 2, 1991, the Company completed a public offering
of 2,300,000 shares of its common stock at a price of $37.00 per share.
The proceeds of the offering, after deducting related costs, were
approximately $81.1 million.
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 one-hundredth of a share of $.01 par value Series A junior
participating preferred stock at a price of $68.00 per one-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 $.01 per right subject to adjustment for
any stock split, stock dividend or similar transaction.
As of December 31, 1993, 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 plans and arrangements under which it may grant
options to employees, Directors, Scientific Board members and consultants
to purchase common stock. Options are granted for periods of up to 10
years and become exercisable in installments over periods of up to 7 years
or upon the achievement of scientific or other goals. Activity under these
plans and arrangements follows:
1993 1992 1991
Outstanding, January 1 . . . . . . . . . . 4,785,293 4,381,635 4,770,677
Granted. . . . . . . . . . . . . . . . . . 917,327 1,464,153 781,829
Exercised. . . . . . . . . . . . . . . . . (564,021) (902,278)(1,010,603)
Cancelled. . . . . . . . . . . . . . . . . (383,269) (158,217) (160,268)
Outstanding, December 31 . . . . . . . . . 4,755,330 4,785,293 4,381,635
Options were exercised during the three years ended December 31, 1993 at
prices ranging from $4.25 to $41.50 per share. The exercise price of options
outstanding at December 31, 1993, 1992 and 1991 ranged from $4.25 to $48.38
per share. At December 31, 1993, 2,260,508 options were exercisable and
1,840,056 shares were reserved for issuance of additional options which may
be granted under the plans.
The Company also has an employee stock purchase plan covering substantially
all of its employees. This plan allows 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 this plan are
subject to certain limitations and may not exceed an aggregate of 250,000
shares during the term of the plan; no shares may be issued after December
31, 1997. Through December 31, 1993, 87,783 shares have been issued under
this plan.
Common Stock Warrants
At December 31, 1993, 1.8 million warrants issued in connection with a
research agreement with an insurance company were outstanding. Each warrant
entitles the holder to purchase one share of the Company's common stock and
may be exercised at $17.00 per share through December 31, 1996. At December
31, 1993, 602,800 warrants issued in connection with the research and
development arrangement with BMPLP were outstanding. Each warrant entitles
the holder to purchase one share of the Company's common stock and may be
exercised at $20.00 per share through June 30, 1994.
11. GEOGRAPHIC DATA
Revenues, excluding interest, were derived in the following geographic areas
for the years ended December 31:
(in thousands) 1993 1992 1991
United States. . . . . . . . . . . . . . . $45,846 $45,885 $21,937
Japan. . . . . . . . . . . . . . . . . . . 43,959 27,576 1,986
Europe . . . . . . . . . . . . . . . . . . 32,273 41,582 30,653
Other. . . . . . . . . . . . . . . . . . . 14,340 8,706 6,866
$136,418 $123,749 $61,442
======= ======= ======
The Company received revenues from two unrelated parties in 1993 accounting
for 57% and 25% of revenues before interest (two unrelated parties in 1992
accounting for 53% and 28%, and two unrelated parties in 1991 accounting for
46% and 18%).
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousand, except per share amounts)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
1993
Total revenues . . . . . . . $35,421 $37,854 $37,305 $38,707 $149,287
Royalties and product sales. 32,540 34,714 33,942 35,222 136,418
Total expenses . . . . . . . 24,161 32,210 26,030 34,469 116,870
Net income . . . . . . . . . 11,260 5,644 11,275 4,238 32,417
Earnings per share of common stock
Primary. . . . . . . . . . 0.32 0.17 0.33 0.11 0.93
Fully diluted. . . . . . . 0.32 0.17 0.32 0.11 0.92
1992
Total revenues . . . . . . . $19,122 $20,905 $40,603 $54,484 $135,114
Royalties and product sales. 15,541 17,649 37,489 51,035 121,714
Total expenses . . . . . . . 18,308 20,240 29,463 28,792 96,803
Net income . . . . . . . . . 814 665 11,140 25,692 38,311
Earnings per share of common stock
Primary . . . . . . . . . 0.02 0.02 0.33 0.75 1.12
Fully diluted . . . . . . 0.02 0.02 0.32 0.72 1.08
Total expenses for the third quarter of 1992 includes a charge of
approximately $5.1 million for the write-down of a fifty percent interest in
a European joint venture. Royalties and product sales for the third and
fourth quarters of 1992 include approximately $10 million and $14 million
which relate to licensee sales of the prior quarter. Total year figures are
audited.
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, 1993, and 1992, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1993, 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.
Boston, Massachusetts
January 20, 1994
SHAREHOLDER INFORMATION SEC FORM 10-K
CORPORATE HEADQUARTERS A copy of the Company's annual report
to the Securities and Exchange
Biogen, Inc. Commission on Form 10-K is available
14 Cambridge Center without charge upon written request
Cambridge, MA 02142 to the Corporate Communications
Telephone: (617) 252-9200 Department, Biogen, Inc.,
Fax: (617) 252-9617 14 Cambridge Center, Cambridge, MA
02142.
ANNUAL MEETING: TRANSFER AGENT:
Friday, June 3, 1994 at For shareholder questions regarding
10:00 a.m. at Corporate lost certificates, address changes,
Headquarters. All changes of ownership or name in
shareholders are welcome. which the shares are held, direct
inquiries to:
MARKET FOR SECURITIES: State Street Bank and Trust Company
Biogen's securities are P.O. Box 8200
quoted on the NASDAQ Boston, MA 02266-8200
National Market System. Telephone: (800) 426-5523
Common stock symbol: BGEN.
Warrant symbol: BGENW. INDEPENDENT ACCOUNTANTS:
Price Waterhouse
As of February 25, 1994, 160 Federal Street
there were approximately Boston, MA 02110
3,581 holders of record of
the Company's Common Stock. U.S. LEGAL COUNSEL
The Company has not paid any Mintz, Levin, Cohn, Ferris, Glovsky
dividends on its Common Stock and Popeo, P.C.
since its inception, and One Financial Center
does not intend to pay any Boston, MA 02111
dividends in the foreseeable
future. The quarterly high
and low closing sales price
of the Common Stock on the
NASDAQ National Market System
for 1993 and 1992 are as follows:
High Low
FISCAL 1993 The Biogen logo is a registered
First Quarter 47 3/4 24 1/4 trademark of Biogen, Inc.
Second Quarter 39 25 3/4 Hirulog (TM) is a trademark of
Third Quarter 37 1/4 25 3/4 Biogen, Inc.
Fourth Quarter 42 1/4 34 1/2 Intron(R)A is a registered trademark
of Schering-Plough Corporation.
FISCAL 1992
First Quarter 43 3/4 26
Second Quarter 26 1/2 18 1/4
Third Quarter 34 1/2 22 1/4
Fourth Quarter 49 3/4 29 1/4