SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
Years Ended December 31 1990 1991 1992 1993 1994
Total revenues . . . . . . . $ 59,415 $ 69,577 $135,114 $149,287 $156,344
Royalties and product sales 44,920 56,477 121,714 136,418 140,433
Total expenses and taxes . . 51,695 62,391 96,803 116,870 161,241
Net income (loss). . . . . . 7,720 7,186 38,311 32,417 (4,897)
Earnings (loss) per common
share, primary . . . . . 0.07 0.15 1.12 0.93 (0.15)
Cash and marketable securities 104,146 185,990 227,888 270,351 267,802
Total assets . . . . . . . . . 158,485 253,067 311,192 356,950 377,862
Shareholders' equity . . .. 145,742 238,989 284,953 325,174 329,934
Average shares outstanding,
primary 25,430 29,964 34,198 34,720 32,774
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
1994 AS COMPARED TO 1993
Revenues
Biogen's total revenues in 1994 were $156.3 million as compared to
$149.3 million in 1993, an increase of 5%. This increase was attributable
to higher levels of royalties and interest income.
Revenues from royalties and product sales grew to $140.4 million in
1994 as compared to $136.4 million in 1993. This increase was due
primarily to an increase in ongoing royalties received from licensee sales
of hepatitis B vaccines, sold by SmithKline Beecham plc ("SmithKline") and
Merck & Co., Inc. ("Merck") and a license agreement the Company signed in
the first quarter of 1994 with Eli Lilly and Co. ("Lilly"). These amounts
more than offset the decrease in royalties received from Schering-Plough
Corporation ("Schering-Plough"), the Company's licensee for alpha
interferon. Sales of hepatitis B vaccines outside the United States
increased 60% in the current year. The market for hepatitis B vaccines
increased significantly in Europe, primarily in France, where a vaccination
program for infants and adolescents was instituted during 1994. Sales of
hepatitis B vaccines in the United States decreased 16% from 1993 levels.
During the first quarter of 1994, the Company signed a licensing agreement
with Lilly covering certain patent rights for gene expression methods.
Under this agreement, Lilly paid the Company approximately $10 million in
royalties that related to sales occurring before 1994. Sales of alpha
interferon, sold by Schering-Plough, were $426 million in 1994 as compared
to $572 million in 1993. The decrease in alpha interferon sales is
primarily attributable to lower sales in Japan, which was driven by a 17%
government-mandated decrease in the price of alpha interferon, effective on
April 1, 1994, and restrictions on off-label usage. In the near term, the
Company expects overall sales of licensee products to continue at current
levels or increase slightly although royalty income may fluctuate depending
on changes in sales volumes for specific products. 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, vaccination programs or licensing
arrangements.
Interest income for 1994 increased from 1993 due primarily to higher
interest rates and levels of invested funds.
Expenses
Total expenses were $158.3 million in 1994 as compared to $114.7
million in 1993. Cost of sales decreased to $9.9 million and primarily
represents royalty obligations to third parties. Research and development
costs were $91.2 million in 1994 compared to $79.3 million in 1993, an
increase of 15%. The increase in research and development costs was due
primarily to increased regulatory work, development costs and clinical
expenses relating to HirulogTM thrombin inhibitor and recombinant beta
interferon. On July 26, 1994, the Company announced the results of its
Phase III trial of recombinant beta interferon in patients with active
relapsing and relapsing remitting multiple sclerosis. The Company intends
to seek licensure for this product in the United States and market approval
in Europe in the first half of 1995. On October 31, 1994, the Company
announced the completion of preliminary analysis of the results of its
Phase III trial for HirulogTM thrombin inhibitor in angioplasty and that the
drug did not achieve its primary efficacy endpoint. As a result, the
Company decided to discontinue its major activities associated with
HirulogTM development. The Company currently does not intend to develop and
market HirulogTM independently but will seek a marketing partner for the
drug. The Company currently expects that, as a result of its decision
regarding HirulogTM, research and development expense will decline in the
near term as compared to 1994.
General and administrative expenses increased $7.5 million in 1994 as
compared to 1993. This was primarily due to higher costs related to market
development efforts, establishment of a European headquarters in Paris and
legal and personnel related costs.
Other expenses increased by $26.4 million and includes a third quarter
pre-tax charge of $25 million as a result of the Company's decision to
discontinue its major activities associated with HirulogTM development. The
charge relates entirely to third-party expenses associated with the
manufacturing of drug supplies and wind-down of clinical trial activities.
The 1994 amount also includes losses from the sale of certain marketable
securities and impacts of foreign exchange associated with the sale of
certain accounts receivable. The 1993 amount includes a charge of $4.3
million related to the Genentech, Inc./Schering-Plough patent settlement
with respect to the production of recombinant alpha interferon by Schering-
Plough and a charge of $1.8 million for the wind-down of the Company's
fifty percent owned European joint venture.
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 an increase in ongoing royalties received from licensee
sales of alpha interferon. Sales of alpha interferon, sold by Schering-
Plough, were $572 million in 1993 as compared to $478 million in 1992. The
increase in alpha interferon sales was 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 and Merck, increased 10% due mostly to higher sales levels in
Europe.
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 higher
levels of invested funds.
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 HirulogTM thrombin inhibitor and
recombinant beta interferon. 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.
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-Plough 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-Plough, 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.
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.
FINANCIAL CONDITION
At December 31, 1994, cash, cash equivalents and marketable securities
amounted to $267.8 million, a $2.6 million decrease from the $270.4 million
on hand at the end of 1993. Working capital was $246.9 million at December
31, 1994, a decrease of $30.8 million from December 31, 1993. Net cash
provided from operating activities in 1994 was $34.9 million while the
Company's common stock option and purchase plans provided $4.7 million.
The Company also received $10.9 million during 1994 from the exercise of
544,600 common stock warrants issued in connection with the original sale
of limited partnership interests in Biogen Medical Products Limited
Partnership ("BMPLP"). Each BMPLP warrant entitled the holder to purchase
one share of the Company's common stock and was exercisable at $20 per
share. The BMPLP warrants expired on June 30, 1994 with the settlement
period extending through July 8, 1994. Outflows of cash included
investments in property and equipment and patents of $43.7 million.
Property and equipment additions related primarily to expanding and
upgrading the Company's manufacturing and research facilities in Cambridge,
Massachusetts. The decrease in accounts receivable is primarily attributed
to an agreement the Company entered into with a bank in the first quarter
of 1994 to sell certain foreign based accounts receivable.
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 $36 million. As of December 31, 1994, the
Company had commitments totaling approximately $5 million on this project.
Upon completion of the building in the first half of 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.
Under the terms of a contract manufacturing agreement signed in the
third quarter of 1994, the Company is committed to purchasing manufacturing
capacity for the production of its clinical material through 1997 at a cost
of approximately $3 million each year. Under this same agreement, the
Company is also required to construct for the manufacturer additional
manufacturing capacity, the cost of which is not expected to exceed $4.5
million. A portion of this amount is reimbursable by the manufacturer upon
completion of the agreement.
In the second quarter of 1994, the Company made a payment of $2.6
million to SmithKline, which amount had been previously reserved, in
settlement of the dispute between the Company and SmithKline regarding the
rate of royalties payable from non-U.S. sales of hepatitis B vaccines by
SmithKline. 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 paid by SmithKline and in dispute as of December
31, 1994 was approximately $18 million. A hearing is scheduled for March
1995 and a decision is expected shortly thereafter. The Company believes
that an adverse ruling in the United States is not probable, and therefore
no amount has been accrued.
During the fourth quarter of 1994, a total of six class action lawsuits
were initiated against the Company and several of its directors and
officers. These cases have been consolidated into a single proceeding in
the United States District Court for the District of Massachusetts. The
lawsuits generally allege that the Company and the named directors and
officers violated federal securities laws in connection with the Company's
public disclosures, including disclosures relating to its HirulogTM thrombin
inhibitor and other disclosures made in connection with patent matters
related to beta interferon. The plaintiffs seek damages in unspecified
amounts. The Company believes that an adverse ruling is not probable, and
therefore no amount has been accrued.
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 or mortgage financings, sales of
equity or debt securities and other financing arrangements.
BIOGEN, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31 1994 1993
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . $ 54,682 $ 74,546
Marketable securities . . . . . . 213,120 195,805
Accounts receivable . . . . . . . 18,502 31,695
Other . . . . . . . . . . . . . . 8,480 7,378
Total current assets. . . . . . . 294,784 309,424
PROPERTY AND EQUIPMENT, NET. . . . . 73,162 38,500
OTHER ASSETS
Patents, net. . . . . . . . . . . 8,116 7,164
Other . . . . . . . . . . . . . . 1,800 1,862
Total other Assets. . . . . . . . 9,916 9,026
$ 377,862 $356,950
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable. . . . . . . . . $ 9,991 $ 2,916
Accrued expenses and other. . . . 37,937 28,860
Total current liabilities . . . . 47,928 31,776
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $0.01 per share
(55,000,000 shares authorized;
issued: 1994 - 33,128,771;
1993 - 32,299,835 . . . . . . . 331 323
Additional paid-in capital. . . . . 368,784 353,247
Deficit . . . . . . . . . . . . . . (33,359) (28,462)
Unrealized losses on
marketable securities. . . . . . (5,867) - -
Accumulated translation adjustment. 45 66
Total shareholders' equity. . . . . 329,934 325,174
$ 377,862 $ 356,950
See Notes to Consolidated Financial Statements.
BIOGEN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Years Ended December 31 1994 1993 1992
REVENUES
Royalties and product sales . . . $ 140,433 $ 136,418 $ 121,714
Research and development contracts. - - - - 2,035
Interest. . . . . . . . . . . . . . 15,911 12,869 11,365
Total revenues. . . . . . . . . . . 156,344 149,287 135,114
EXPENSES
Cost of sales . . . . . . . . . . . 9,948 12,139 9,384
Research and development. . . . . . 91,213 79,315 60,399
General and administrative. . . . . 24,686 17,236 16,985
Other . . . . . . . . . . . . . . . 32,404 5,980 8,415
Total expenses. . . . . . . . . . . 158,251 114,670 95,183
INCOME (LOSS) BEFORE INCOME TAXES. . . (1,907) 34,617 39,931
Income taxes . . . . . . . . . . . . . 2,990 2,200 1,620
NET INCOME (LOSS). . . . . . . . . . . $ (4,897) $ 32,417 $ 38,311
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Primary . . . . . . . . . . . . . . $ (0.15) $ 0.93 $ 1.12
Fully diluted . . . . . . . . . . . $ (0.15) $ 0.92 $ 1.08
Average number of shares outstanding
Primary . . . . . . . . . . . . . . 32,774 34,720 34,198
Fully diluted . . . . . . . . . . . 32,774 35,124 35,429
See Notes to Consolidated Financial Statements.
BIOGEN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31 1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . $ (4,897) $ 32,417 $ 38,311
Adjustments to reconcile net income
(loss) to net cash provided from
operating activities:
Depreciation and amortization . . . . . 8,056 6,657 7,141
Write-down of investment in joint venture - - 1,803 5,118
Other . . . . . . . . . . . . . . . . . . 3,484 (330) 306
Changes in:
Accounts receivable. . . . . . . . . . 13,193 1,720 (15,026)
Other current assets. . . . . . . . . . (1,102) (234) (2,359)
Accounts payable, accrued expenses
and other liabilities 16,152 5,537 9,561
Net cash provided from operating activities . 34,886 47,570 43,052
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities, net . .(26,625) (53,228) (11,557)
Acquisitions of property and equipment. . .(40,540) (10,770) (9,379)
Additions to patents. . . . . . . . . . . . (3,130) (2,697) (2,933)
Net cash used by investing activities . . .(70,295) (66,695) (23,869)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock and option
exercises . . . . . . . . 15,545 7,808 10,033
Net cash provided from financing activities 15,545 7,808 10,033
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS. . . . . . . . . . . . . (19,864) (11,317) 29,216
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR . . . . . . . . . . . . . . . . . 74,546 85,863 56,647
CASH AND CASH EQUIVALENTS, END OF YEAR . . . $ 54,682 $ 74,546 $ 85,863
See Notes to Consolidated Financial Statements.
BIOGEN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Years Ended December 31, 1994, 1993 and 1992
Additional Losses on Accumulated
Common Paid-in Marketable Translation Shareholders'
Stock Capital Deficit Securities Adjustment Equity
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
Conversion of warrants . . . . . . 5 10,889 10,894
Issuance of common . . . . . . . . 457 457
Exercise of options. . . . . . . . 3 4,191 4,194
Unrealized losses on
marketable securities. . . . . (5,867) (5,867)
Net loss . . . . . . . . . . . . . (4,897) (4,897)
Translation adjustment . . . . . . (21) (21)
Balance, December 31, 1994 $331 $ 368,784 $(33,359) $ (5,867) $ 45 329,934
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 multiple
sclerosis, inflammatory and respiratory diseases, and certain viruses and
cancers.
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
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. 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 as to
institution, maturity and investment type. As of January 1, 1994,
marketable securities are recorded at fair value and unrealized gains and
losses are recorded as part of shareholders' equity in accordance with
Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities. The impact of this
statement at adoption was not material. The carrying amount of marketable
securities for 1993 was at amortized cost.
Accounts Receivable
During the first quarter of 1994, the Company entered into an agreement
with a bank to sell certain foreign based accounts receivable, with
recourse, up to $14 million per quarter which approximated the proceeds in
each quarter. The exposure to credit risk under the recourse provision is
minimal since the debtors are highly rated companies. The selling price
is partially determined by foreign exchange rates at the end of each
quarter. Resulting gains and losses are recorded in other expenses when
the receivables are sold.
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.
Accumulated amortization of patent costs as of December 31, 1994 and 1993
was $7.9 million and $5.8 million, respectively.
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.
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 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.
Per Share Data
Earnings (loss) per share is based upon the weighted average number of
common shares and, if dilutive, all common stock equivalents outstanding,
which include options and warrants.
2. 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.
3. FINANCIAL INSTRUMENTS
As of January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Under this statement, the Company is required to
classify its marketable securities (all of which are debt securities) into
one or more of the following categories: held-to-maturity, trading or
available-for-sale. All of the Company's marketable securities, including
cash equivalents, are classified as available-for-sale. Under this
statement, these securities are recorded at fair market value and
unrealized gains and losses are recorded as part of shareholders' equity.
Following is a summary of marketable securities as of December 31, 1994:
Fair Unrealized Amortized
(in thousands) Value Gains Losses Cost
U.S. Government securities . . . $191,458 $ 16 $ 4,160 $ 195,602
(average maturity of 15 months)
Corporate debt securities. . . . 61,923 - - 1,723 63,646
(average maturity of 15 months)
Proceeds from maturities and other sales of securities, which were
primarily reinvested, for the year ended December 31, 1994, were $754.4
million. Gross realized losses on these sales were $3.4 million. The
carrying amount of marketable securities for 1993 was at amortized cost
which approximated fair value.
In October 1994, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 119 "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." The
statement is effective for the current fiscal year. The Company has only
limited involvement with derivative financial instruments and does not use
them for trading purposes. They are used to manage interest rate and
foreign currency movement risks for specific transactions.
The Company enters into forward contracts from time to time to limit its
exposure to fluctuations in foreign currency exchange rates. Differences
between the fair value as of the period end and the contracted value were
insignificant and are recorded as gains or losses in other expenses.
The Company has entered into a forward interest rate swap agreement with a
bank to limit its exposure to fluctuations in interest rates and to lower
its financing costs. This was done in connection with an option to enter
into a term loan upon completion of its research laboratory and office
building in Cambridge, Massachusetts. The effective date of the swap
agreement is May 8, 1995 with a termination date of May 9, 2005. Under
the swap agreement, the Company agrees to exchange with the bank semi-
annually the difference between a fixed rate and a floating rate computed
on a notional amount beginning at $25 million and amortizing according to
the terms of the loan agreement. Under the terms of the loan and swap
agreements, the Company has fixed its interest rate at 7.5%. The fair
value of the swap agreement was $1.6 million at December 31, 1994 which
represents the estimated amount the Company would receive to terminate the
swap agreement taking into consideration current interest rates. The
market risk is limited to interest rate movements.
4. CONSOLIDATED BALANCE SHEET DETAILS
(in thousands) 1994 1993
Property and equipment:
Land . . . . . . . . . . . . . . . . . . $ 2,691 $ 603
Construction in progress . . . . . . . . 29,117 3,409
Leasehold improvements . . . . . . . . . 34,168 31,544
Equipment. . . . . . . . . . . . . . . . 38,675 28,555
Total cost . . . . . . . . . . . . . . . 104,651 64,111
Less accumulated depreciation. . . . . . 31,489 25,611
$ 73,162 $ 38,500
Accrued expenses and other:
Royalties and licensing fees . . . . . . $ 8,379 $ 14,614
Clinical trial costs . . . . . . . . . . 5,097 4,614
Discontinuance of HirulogTM program . . . 7,813 - -
Income taxes . . . . . . . . . . . . . . 5,312 2,481
Other. . . . . . . . . . . . . . . . . . 11,336 7,151
$ 37,937 $ 28,860
5. 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 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) 1994 1993 1992
Service cost . . . . . . . . . . . . . . $ 791 $ 477 $ 356
Interest cost. . . . . . . . . . . . . . 313 236 215
Actual return on plan assets . . . . . . 9 (113) (155)
Net amortization and deferral. . . . . . (149) (33) (28)
Net pension cost . . . . . . . . . . . . $ 964 $ 567 $ 388
The funded status of the defined benefit plans at December 31, is as
follows:
(in thousands) 1994 1993
Actuarial present value of:
Vested benefits obligation . . . . . $ (2,720) $ (2,462)
Non-vested benefits. . . . . . . . . (300) (266)
Accumulated benefit obligation . . . $ (3,020) $ (2,728)
Projected benefit obligation . . . . . $ (4,419) $ (4,018)
Plan assets at fair value. . . . . . . $ 2,289 $ 1,815
Projected benefit obligation in excess
of plan assets . . . . . . . . . . . $ (2,130) $ (2,203)
Unrecognized net asset . . . . . . . . (83) (104)
Unrecognized net loss. . . . . . . . . 137 559
Unrecognized prior service cost. . . . 183 202
Accrued pension cost . . . . . . . . . $ (1,893) $ (1,546)
The projected benefit obligation was determined using an assumed discount
rate of 8.5% for 1994 and 7.5% for 1993. The assumed long-term
compensation increase rates were 5% for 1994 and 1993. The assumed long-
term rate of return on plan assets was 8% for both years.
6. INCOME TAXES
The components of income (loss) before income taxes and of income tax
expense for the years ended December 31 follow:
(in thousands) 1994 1993 1992
Income (loss) before income taxes:
Domestic . . . . . . . . . . . . $ (1,533) $ 37,218 $ 45,522
Foreign. . . . . . . . . . . . . (374) (2,601) (5,591)
$ (1,907) $ 34,617 $ 39,931
Income tax expense:
Federal. . . . . . . . . . . . . $ 2,540 $ 1,700 $ 1,300
State. . . . . . . . . . . . . . 415 476 313
Foreign. . . . . . . . . . . . . 35 24 7
$ 2,990 $ 2,200 $ 1,620
Deferred tax assets (liabilities) are comprised of the following at
December 31:
(in thousands) 1994 1993
Tax credits. . . . . . . . . . . . . $ 18,287 $ 15,210
Loss carryforwards . . . . . . . . . 29,017 31,753
Discontinuance of HirulogTM program . 7,548 - -
Other. . . . . . . . . . . . . . . . 7,702 4,858
Gross deferred tax assets. . . . . . 62,554 51,821
Depreciation and amortization. . . . (4,117) (4,222)
Gross deferred tax liabilities . . . (4,117) (4,222)
Deferred tax assets valuation allowance. (58,437) (47,599)
$ - - $ - -
The net change in the valuation allowance was an increase of $10.8 million
in 1994 and a decrease of $3.7 million in 1993. Of the $58.4 million
valuation allowance at December 31, 1994, $29.3 million relating to
deductions for non-qualified stock options will be credited to paid-in
capital, if realized.
A reconciliation between the amount of reported income tax expense and the
amount computed using the U.S. federal statutory rate of 35% for 1994 and
1993 and 34% for 1992 follows:
(in thousands) 1994 1993 1992
Income tax (benefit) at statutory rates. $ (667) $ 12,116 $ 13,577
Foreign losses without tax benefit
and foreign rate differential . 391 934 1,907
Effects of losses not currently utilizable 2,962 - - - -
Utilization of net operating loss
carryforwards. . . . . . . . . . - - (11,159) (14,070)
Other. . . . . . . . . . . . . . . 304 309 206
Reported income tax expense. . . . $ 2,990 $ 2,200 $ 1,620
At December 31, 1994, the Company had net operating loss carryforwards
available in the United States for federal income tax return purposes of
$80 million and tax credits of $13 million which expire at various dates
through 2009. Total income tax payments for the years ended December 31,
1994, 1993 and 1992 amounted to $170,000, $983,000 and $745,000,
respectively.
7. 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 $4.7 million in
1994, $3.6 million in 1993 and $3.5 million in 1992. 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, 1994, minimum annual rental commitments under
noncancellable leases were as follows:
(in thousands)
Year
1995 . . . . . . . . . . . . . . $ 4,444
1996 . . . . . . . . . . . . . . 4,341
1997 . . . . . . . . . . . . . . 4,073
1998 . . . . . . . . . . . . . . 2,078
1999 . . . . . . . . . . . . . . 741
Thereafter . . . . . . . . . . . 3,291
Total minimum lease payments . . $ 18,968
Under the terms of a contract manufacturing agreement signed in the third
quarter of 1994, the Company is committed to purchasing manufacturing
capacity for the production of its clinical material through 1997 at a
cost of approximately $3 million each year. Under this same agreement,
the Company is also required to construct for the manufacturer additional
manufacturing capacity, the cost of which is not expected to exceed $4.5
million. A portion of this amount is reimbursable by the manufacturer
upon completion of the agreement.
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 $36 million. As of December 31, 1994, the Company
had commitments totaling approximately $5 million on this project. Upon
completion of the building in the first half of 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 second quarter of 1994, the Company made a payment of $2.6 million
to SmithKline Beecham plc ("SmithKline"), which amount had been previously
reserved, in settlement of the dispute between the Company and SmithKline
regarding the rate of royalties payable from non-U.S. sales of hepatitis B
vaccines by SmithKline. 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 paid by SmithKline and in
dispute as of December 31, 1994 was approximately $18 million. A hearing
is scheduled for March 1995 and a decision is expected shortly thereafter.
The Company believes that an adverse ruling in the United Sates is not
probable, and therefore no amount has been accrued.
During the fourth quarter of 1994, a total of six class action lawsuits
were initiated against the Company and several of its directors and
officers. These cases have been consolidated into a single proceeding in
the United States District Court for the District of Massachusetts. The
lawsuits generally allege that the Company and the named directors and
officers violated federal securities laws in connection with the Company's
public disclosures, including disclosures relating to its HirulogTM
thrombin inhibitor and other disclosures made in connection with patent
matters related to beta interferon. The plaintiffs seek damages in
unspecified amounts. The Company believes that an adverse ruling is not
probable, and therefore no amount has been accrued.
8. 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 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, 1994, 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:
1994 1993 1992
Outstanding, January 1 . . 4,755,330 4,785,293 4,381,635
Granted. . . . . . . . . . 1,211,697 917,327 1,464,153
Exercised. . . . . . . . . (268,539) (564,021) (902,278)
Cancelled. . . . . . . . . (316,420) (383,269) (158,217)
Outstanding, December 31 . 5,382,068 4,755,330 4,785,293
Options were exercised during the three years ended December 31, 1994 at
prices ranging from $4.25 to $45.19 per share. The exercise price of
options outstanding at December 31, 1994, 1993, and 1992 ranged from $4.25
to $54.88 per share. At December 31, 1994, 2,594,307 options were
exercisable and 944,636 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, 1994,
99,798 shares have been issued under this plan.
Common Stock Warrants
At December 31, 1994, 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.
During the year ended December 31, 1994, the Company received $10.9
million from the exercise of 544,600 common stock warrants issued in
connection with the original sale of limited partnership interests in
Biogen Medical Products Limited Partnership ("BMPLP"). Each BMPLP warrant
entitled the holder to purchase one share of the Company's common stock
and was exercisable at $20 per share. The BMPLP warrants expired on June
30, 1994, with the settlement period extending through July 8, 1994.
9. GEOGRAPHIC DATA
Revenues, excluding interest, were derived in the following geographic
areas for the years ended December 31:
(in thousand) 1994 1993 1992
United States. . . . . . . . . $ 44,083 $ 45,846 $ 45,885
Japan. . . . . . . . . . . . . 27,216 43,959 27,576
Europe . . . . . . . . . . . . 56,881 32,273 41,582
Other. . . . . . . . . . . . . 12,253 14,340 8,706
$ 140,433 $136,418 $ 123,749
The Company received revenues from three unrelated parties in 1994
accounting for 40%, 34% and 11% of revenues before interest (two unrelated
parties in 1993 accounting for 57% and 25%, and two unrelated parties in
1992 accounting for 53% and 28%).
10. OTHER EXPENSES
During the third quarter of 1994, the Company incurred a pre-tax charge to
other expenses of $25 million as a result of its decision to discontinue
its major activities associated with HirulogTM development. The charge
relates entirely to third-party expenses associated with the manufacturing
of drug supplies and wind-down of clinical trial activities.
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.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share amounts)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
1994
Total revenues . . . . $ 44,780 $36,779 $ 31,812 $ 42,973 $156,344
Royalties and product
sales. . . . . . 41,167 32,793 27,733 38,740 140,433
Total expenses and taxes 33,551 36,168 58,233 33,289 161,241
Net income (loss). . . . . 11,229 611 (26,421) 9,684 (4,897)
Earnings (loss) per share
of common stock
Primary and fully
diluted 0.31 0.02 (0.80) 0.27 (0.15)
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 and taxes . 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
Total expenses for the third quarter of 1994 includes a pre-tax charge of
$25 million as a result of the Company's decision to discontinue its
major activities associated with HirulogTM development.
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, 1994, and 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994, 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.
Price Waterhouse LLP
Boston, Massachusetts
February 7, 1995
SHAREHOLDER INFORMATION SEC FORM 10-K:
A copy of the Company's annual report
CORPORATE HEADQUARTERS 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) 679-2000 Department, Biogen, Inc.,
Fax: (617) 679-2617 14 Cambridge Center, Cambridge, MA
02142.
ANNUAL MEETING TRANSFER AGENT:
Friday, June 23, 1995 at 10:00 a.m., For shareholder questions regarding
See proxy for location. lost certificates, address changes
All shareholders are welcome and changes of ownership or name in
which the shares are held, direct
MARKET FOR SECURITIES: inquiries to:
Biogen's securities are quoted on
the NASDAQ National Market System: State Street Bank and Trust Company
Common Stock symbol: BGEN P.O. Box 8200
Boston, MA 02266-8200
Telephone: (800)426-5523
As of February 17, 1995, there were
approximately 3,181 holders of record INDEPENDENT ACCOUNTANTS:
of the Company's Common Stock. The Price Waterhouse
Company has not paid any dividends on 160 Federal Street
its Common Stock since its inception, Boston, MA 02110
and does not intend to pay any
dividends in the foreseeable future. U.S. LEGAL COUNSEL:
The quarterly high and low closing Mintz, Levin, Cohn, Ferris, Glovsky
sales price of the Common Stock on the and Popeo, P.C.
NASDAQ National Market System for 1994 One Financial Center
and 1993 are as follows: Boston, MA 02111
High Low
FISCAL 1994
First Quarter.....52 3/4 32 7/8 The Biogen logo is a registered
Second Quarter....38 3/4 27 1/4 trademark of Biogen, Inc.
Third Quarter.....55 3/4 27 3/4 Hirulog TM is a trademark of
Fourth Quarter....55 32 3/4 Biogen, Inc.
Intron R A is a registered
FISCAL 1993 trademark of Schering-Plough
First Quarter.....47 3/4 27 1/4 Corporation.
Second Quarter....39 25 3/4
Third Quarter.....37 1/4 25 3/4 C Biogen, Inc. 1995 All rights
Fourth Quarter....42 1/4 34 1/2 reserved.