SECURITIES AND EXCHANGE COMMISSION Total Pages- 18
WASHINGTON, D.C. 20549 Exhibit Index- 16
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 0-12042
BIOGEN, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-3002117
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14 Cambridge Center, Cambridge, MA 02142
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 679-2000
Former name, former address and former fiscal year, if changed since
last report: Not Applicable
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of each of the issuer's classes of common
stock, as of October 27, 1995:
Common Stock, par value $0.01 35,470,588
(Title of each class) (Number of Shares)
B I O G E N , I N C . Page 2
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994. . . . . . . . . . . . .3
Condensed Consolidated Statements of Income -
Three months and nine months ended September 30, 1995 and 1994. .4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1995 and 1994 . . . . . . . . . .5
Notes to Condensed Consolidated Financial Statements. . . . . . . .6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . .8
Report of Independent Accountants . . . . . . . . . . . . . . . . 14
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . 15
* * * * * * * * * * * * * * * * * *
Note concerning trademarks: Certain names mentioned in this report are
trademarks owned by Biogen, Inc. or its
affiliates. HIRULOG(R) and AVONEX(TM) are
trademarks of Biogen, Inc.
BIOGEN, INC. AND SUBSIDIARIES Page 3
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Sep. 30,1995 Dec. 31,1994
(unaudited)
ASSETS
Current assets
Cash and cash equivalents. . . . . . . . . $ 52,517 $ 54,682
Marketable securities. . . . . . . . . . . 232,948 213,120
Accounts receivable. . . . . . . . . . . . 18,386 18,502
Other. . . . . . . . . . . . . . . . . . . 12,808 8,480
-------- --------
Total current assets . . . . . . . . . . . 316,659 294,784
-------- --------
Property and equipment
Total cost . . . . . . . . . . . . . . . . 137,871 104,651
Less accumulated depreciation. . . . . . . 37,480 31,489
-------- --------
Property and equipment, net. . . . . . . . 100,391 73,162
-------- --------
Other assets
Patents, net . . . . . . . . . . . . . . . 7,963 8,116
Other. . . . . . . . . . . . . . . . . . . 5,688 1,800
-------- --------
Total other assets . . . . . . . . . . . . 13,651 9,916
-------- --------
$430,701 $377,862
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . $ 8,520 $ 9,991
Current portion long-term debt . . . . . . 1,667 --
Other current liabilities. . . . . . . . . 32,719 37,937
-------- --------
Total current liabilities. . . . . . . . . 42,906 47,928
-------- --------
Long-term debt . . . . . . . . . . . . . . 29,132 --
-------- --------
Shareholders' equity
Common stock . . . . . . . . . . . . . . . 343 331
Additional paid-in capital . . . . . . . . 387,075 368,784
Deficit. . . . . . . . . . . . . . . . . . (28,683) (33,359)
Unrealized loss on marketable
securities. . . . . . . . . . . . . . . . (237) (5,867)
Accumulated translation adjustment . . . . 165 45
-------- --------
Total shareholders' equity . . . . . . . . 358,663 329,934
-------- --------
$430,701 $377,862
======== ========
See Notes to Condensed Consolidated Financial Statements.
BIOGEN, INC. AND SUBSIDIARIES Page 4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
Three Months Nine Months
Ended Sep. 30 Ended Sep. 30
1995 1994 1995 1994
REVENUES
Royalties and product sales. . $33,884 $ 27,733 $ 98,554 $101,693
Interest . . . . . . . . . . . 4,293 4,079 12,489 11,678
-------- -------- -------- --------
Total revenues . . . . . . . . 38,177 31,812 111,043 113,371
-------- -------- -------- --------
EXPENSES
Cost of sales. . . . . . . . . 2,601 2,200 7,753 6,817
Research and development . . . 22,465 22,864 64,170 72,466
General and administrative . . 10,272 5,558 27,796 17,128
Other. . . . . . . . . . . . . 881 27,411 5,398 29,461
--------- -------- -------- --------
Total expenses . . . . . . . . 36,219 58,033 105,117 125,872
-------- -------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAXES . . . . . . . . . 1,958 (26,221) 5,926 (12,501)
Income taxes. . . . . . . . . . 830 200 1,250 2,080
-------- -------- -------- --------
NET INCOME (LOSS) . . . . . . . $ 1,128 $ (26,421) $ 4,676 $(14,581)
======== ======== ======== ========
NET INCOME (LOSS)PER SHARE. . . $ 0.03 $ (0.80) $ 0.13 $ (0.45)
======== ======== ======== ========
Average shares outstanding. . . 36,720 33,021 35,978 32,660
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
BIOGEN, INC. AND SUBSIDIARIES Page 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine Months Ended
September 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . $ 4,676 $ (14,581)
Adjustments to reconcile net income (loss)
to net cash provided from (used by)
operating activities:
Depreciation and amortization . . . . . . . . 7,833 5,694
Other . . . . . . . . . . . . . . . . . . . . 1,161 2,274
Changes in:
Accounts receivable. . . . . . . . . . . . . 116 21,825
Other current assets . . . . . . . . . . . . (4,328) (452)
Other assets . . . . . . . . . . . . . . . . (3,888) (87)
Accounts payable and
other current liabilities. . . . . . . . . (6,689) 26,753
-------- ---------
Net cash provided from (used by)
operating activities. . . . . . . . . . . . . (1,119) 41,426
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities . . . . . . (178,229) (296,504)
Proceeds from sales of marketable
securities. . . . . . . . . . . . . . . . . . 163,919 258,821
Acquisitions of property and equipment . . . . (33,221) (25,480)
Additions to patents . . . . . . . . . . . . . (1,687) (2,024)
-------- ---------
Net cash used by investing activities. . . . . (49,218) (65,187)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt . . . 30,799 --
Issuance of common stock . . . . . . . . . . . 17,373 14,725
-------- ---------
Net cash provided from financing
activities. . . . . . . . . . . . . . . . . . 48,172 14,725
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . (2,165) (9,036)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD. . . . . . . . . . . . . . 54,682 74,546
-------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD. . . . . . . . . . . . . . . . . $ 52,517 $ 65,510
======== =========
See Notes to Condensed Consolidated Financial Statements.
BIOGEN, INC. AND SUBSIDIARIES Page 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting
of only normal recurring accruals, necessary to present fairly the
financial position, results of operations and cash flows of the
Company. The Company's accounting policies are described in the Notes
to Consolidated Financial Statements in the Company's 1994 Annual
Report. Interim results are not necessarily indicative of the
operating results for the full year.
2. 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 its HIRULOG(R)
thrombin inhibitor product development. The charge consists of cash
payments to a third-party manufacturer for product manufactured for
clinical trials and to cover a portion of other costs incurred by the
manufacturer in anticipation of ongoing HIRULOG(R) related activities,
and cash payments for clinical research organizations, clinical
investigators and institutions involved in clinical trials to cover
noncancellable costs incurred by them in conducting clinical trials
and in connection with wind-down activities. Discontinuance of the
HIRULOG(R) program did not result in any termination of employees or
internal restructuring costs. As of September 30, 1995, $1.9 million
remained in reserve.
3. In March 1995, the Company completed construction of its research
laboratory and office building in Cambridge, Massachusetts and
exercised its option to obtain a 7.5% fixed rate loan with a bank for
$25 million. The annual principal payable in each of the years 1996
through 1999 is $1.7 million with the balance due May 8, 2005.
4. In the second quarter of 1995, the Company began construction of its
biologics manufacturing facility in Research Triangle Park, North
Carolina. The estimated cost of construction, including land, is $57
million. In August 1995, the Company entered into a loan agreement
with a bank for financing of this project. Under the terms of the
agreement, the Company may be advanced funds during the construction
period up to $50 million. Beginning upon the earlier of 90 days after
completion of the project, or August 1997, the outstanding principal
balance will be payable in 39 consecutive quarterly installments of
$0.8 million, assuming the full $50 million is advanced, with the
balance due in 2007. As of September 30, 1995, funds advanced were
$5.8 million. The Company has also entered into two interest rate
swap agreements fixing its interest rate at 6.39% during the
construction period and 7.75% during the remaining term of the loan,
payable quarterly.
5. In August 1995, the Company received $10.2 million from the exercise
of 600,000 common stock warrants issued in 1989 as part of a research
agreement with an insurance company. In October 1995, an additional
1.2 million common stock warrants were exercised for $20.4 million.
All of the warrants issued under this agreement have been exercised.
6. In August 1995, the Company signed a collaborative research agreement
for the development of human gene therapy treatments with Genovo,
Inc., a gene therapy research company. As part of the agreement, the
Page 7
Company plans to invest approximately $37 million in Genovo over the
next five years depending on achievement of scientific milestones. In
return, the Company will receive a significant minority equity
interest in Genovo as well as certain licensing rights. The Company
accounts for this investment under the equity method of accounting.
7. As of December 31,1994, the Company had a deferred tax asset of $58
million (before valuation allowance) consisting primarily of the
future tax benefits from net operating loss carry forwards and other
tax credits. Under Statement of Financial Accounting Standards No.
109 ("SFAS 109"), the Company would be required to recognize all or a
portion of the $58 million deferred tax asset, with corresponding
increases to net income and paid-in capital, if it believes that it is
more likely than not, given the weight of all available evidence, that
all or a portion of the benefits of the carry forward losses and tax
credits will be realized. Given the possibility of fluctuations in
the Company's revenue stream, anticipated increases in the Company's
expenses, the uncertainties involved and number of milestones to be
achieved in obtaining regulatory approval for the Company's AVONEX(TM)
interferon beta-1a product and in successfully commercializing the
product and the risks and uncertainties associated with taking new
products through the development pipeline, the Company has concluded,
based on the standard set forth in SFAS 109, that it is more likely
than not that the Company will not realize any benefits from its
deferred tax asset, and it has therefore recorded a 100% reserve
against the asset. The Company will assess the need for the valuation
allowance at each balance sheet date based on all available evidence.
BIOGEN, INC. AND SUBSIDIARIES Page 8
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 are primarily derived from sales
of alpha interferon and hepatitis B products. The level of royalties that
Biogen receives is based on the level of product sales by its licensees
over which the Company has no control. As a result, the Company's revenues
may be affected by the impact on licensees' product sales of short-term
trends, such as the initiation or expiration of a vaccination program in a
particular country, or long-term trends, such as the institution of pricing
reforms in a particular country. Since the Company is not involved in the
development or sale of products by licensees, it is unable to accurately
predict the timing or potential impact of the events or trends which may
affect licensee sales or when and for how long these events and trends are
likely to affect the Company's royalty income. The Company's revenues may
also reflect one-time events such as payment of initial license fees by new
licensees. As a result, the Company's total revenues and income may
continue to fluctuate and quarter-to-quarter comparisons may not
necessarily be meaningful. Until the Company markets its own products
directly, royalties are expected to be the major source of the Company's
revenues.
In 1994, the Company announced the results of a Phase III clinical trial of
its AVONEX(TM) interferon beta-1a product, for the treatment of multiple
sclerosis. In light of the data from the trial, the Company filed during
1995 for a product license for AVONEX(TM) in the United States and market
approval for AVONEX(TM) in Europe and Canada. The Company anticipates an
independent advisory committee to the U.S. Food and Drug Administration
(the "FDA") to review the Company's product license application for
AVONEX(TM) at a meeting on December 4, 1995. The Company has also filed an
application with the FDA for an establishment license for its Cambridge,
Massachusetts facility to manufacture AVONEX(TM). If the Company is
successful in its efforts to obtain regulatory approval for AVONEX(TM) and
for its Cambridge, Massachusetts manufacturing facility, the Company will
market AVONEX(TM) in the United States, Canada and major markets of Europe.
Results of Operations
For the third quarter ended September 30, 1995, the Company reported net
income of $1.1 million or $0.03 per share as compared to a net loss of
$26.4 million or $0.80 per share in the third quarter of 1994. For the
nine months ended September 30, 1995, the Company had net income of $4.7
million or $0.13 per share as compared to a net loss of $14.6 million or
$0.45 per share for the comparable period of 1994.
Total revenues for the third quarter of 1995 were $38.2 million, as
compared to $31.8 million in the comparable quarter of 1994. For the
current nine-month period, total revenues were $111.0 million as compared
to $113.4 million in 1994. Revenues from royalties and product sales for
the current quarter were higher than the comparable 1994 quarter primarily
Page 9
due to an increase in ongoing royalties received from licensee sales of
hepatitis B vaccines, sold by SmithKline Beecham plc ("SmithKline") and
Merck & Co., Inc. Revenues from royalties and product sales for the
current nine-month period were slightly lower than the comparable 1994
period, primarily because of the inclusion in the first quarter of 1994 of
a one-time payment of approximately $10 million from Eli Lilly & Co.
("Lilly") under a licensing agreement covering certain patent rights for
gene expression methods. Under this agreement, Lilly paid the Company in
the first quarter of 1994 approximately $10 million in royalties that
related to sales occurring in the periods before the contract was signed.
Ongoing royalties received from licensee sales of hepatitis B vaccines in
the nine-month period of 1995 increased and offset the decrease in
royalties received from licensee sales of alpha interferon. Sales of
hepatitis B vaccines outside the United States increased 28% from the prior
year's nine-month period. This increase was primarily attributable to a
vaccination program in France for infants and adolescents which began in
1994. Alpha interferon sales by Schering-Plough Corporation declined in
the current nine-month period, due primarily to lower sales in Japan. In
the near term, the Company expects overall sales of licensee products to
continue at or slightly below current levels although royalty income may
fluctuate depending on changes in sales volumes for specific products,
patent expirations or other developments. Moreover, 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 legal and regulatory 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 the current quarter and nine-month period increased
from the comparable 1994 amounts due primarily to higher returns on
invested funds.
Total expenses for the third quarter of 1995 were $36.2 million as compared
to $58.0 million in the 1994 quarter. Cost of sales increased $0.4 million
and primarily represents royalty obligations to third parties. Research
and development expenses for the third quarter of 1995 were $22.5 million,
a decrease of $0.4 million from the third quarter of 1994. The current
quarter includes costs for the production of clinical material by a
contract manufacturer and increased personnel costs while the 1994 quarter
had higher costs, primarily for HIRULOG(R) thrombin inhibitor clinical
development. General and administrative expenses increased by $4.7 million
due mostly to higher costs for market development efforts related to
AVONEX(TM), including the Company's European headquarters in Paris and
legal and personnel-related costs. Other expenses decreased by $26.5
million, primarily due to a pre-tax charge in the prior year quarter of $25
million as a result of the Company's decision to discontinue its major
activities associated with HIRULOG(R) development.
For the nine-month period ended September 30, 1995, total expenses were
$105.1 million as compared to $125.9 million in 1994. Research and
development expenses decreased $8.3 million, primarily due to higher costs
in the 1994 period that were associated with the clinical development of
HIRULOG(R). The 1995 period includes costs for the production of clinical
material by a contract manufacturer and increased personnel costs. The
Company expects that, in the long-term, research and development expenses
will increase as the Company expands its development efforts with respect
to new products and begins clinical trials of these products. General and
Page 10
administrative expenses increased $10.7 million due mostly to higher costs
for market development efforts related to AVONEX(TM), including the
Company's European headquarters and legal and personnel-related costs. On
May 4, 1995, the Company announced that it had filed with the European
Medicines Evaluation Agency for European market approval of AVONEX(TM) for
the treatment of multiple sclerosis. On May 22, 1995, the Company
announced that it had filed with the FDA for U.S. market approval of
AVONEX(TM) for the treatment of multiple sclerosis. The Company also filed
an application with the FDA for an establishment license for its Cambridge,
Massachusetts facility to manufacture AVONEX(TM). On July 27, 1995, the
Company announced that it filed with Canada's Health Protection Branch for
Canadian market approval of AVONEX(TM) for the treatment of multiple
sclerosis. The Company anticipates an independent advisory committee to
the FDA to review the Company's product license application for AVONEX(TM)
at a meeting on December 4, 1995. The Company expects that general and
administrative expenses will increase in the near and long term as compared
to 1994 as the Company continues to put in place the commercial
infrastructure and sales and marketing organizations necessary to sell
AVONEX(TM). The anticipated level of expense will depend on the status of
regulatory approvals and the resulting levels of commercial ramp-up
activities. Other expenses decreased $24.1 million, primarily due to a
pre-tax charge in the 1994 third quarter of $25 million as a result of the
Company's decision to discontinue its major activities associated with
HIRULOG(R) development. In general, as development efforts expand and as
AVONEX(TM) ramp-up activities evolve, the Company anticipates that expenses
will likely exceed revenues until such time as the Company has successfully
marketed AVONEX(TM).
Income tax expense for the 1995 and 1994 periods were substantially less
than the amount computed at U.S. federal statutory rates because of the
utilization of net operating loss carryforwards. As of December 31, 1994,
the Company had a deferred tax asset of $58 million (before valuation
allowance) consisting primarily of the future tax benefits from net
operating loss carry forwards and other tax credits. If fully realized
through sufficient future profitability, this deferred tax asset will
reduce future income tax expense by $29 million and increase paid-in
capital by $29 million. The Company has recorded a 100% valuation
allowance against the net deferred tax asset. Realization of the deferred
tax asset and future reversals of the valuation allowance depend on the
Company's ability to achieve future profitability through earnings from
existing sources and from sales of AVONEX(TM) or other proprietary
products. The timing and amount of future earnings will depend on the
Company's success in obtaining approval for and marketing and selling
AVONEX(TM) and the results of clinical trials and commercialization and
development efforts with respect to other products under development. The
Company will assess the need for the valuation allowance at each balance
sheet date based on all available evidence.
Under Statement of Financial Accounting Standards No. 109 (SFAS 109), the
Company would be required to recognize all or a portion of its $58.4
million deferred tax asset, with corresponding increases to net income and
paid-in capital, if it believed that it was more likely than not, given the
weight of all available evidence, that all or a portion of the benefits of
the carry forward losses and tax credits would be realized. Given the
possibility of fluctuations in the Company's revenue stream, anticipated
increases in the Company's expenses, the uncertainties involved and number
of milestones to be achieved in obtaining regulatory approval for
AVONEX(TM) and in successfully commercializing the product and the risks
and uncertainties associated with taking new products through the
Page 11
development pipeline, the Company has concluded, based on the standard set
forth in SFAS 109, that it is more likely than not that the Company will
not realize any benefits from its deferred tax asset, and it has therefore
recorded a 100% reserve against the asset. In making its determination
under SFAS 109, the Company considered its positive earnings history in
1992 and 1993, although the weight given to this past history was partially
offset by the Company's loss in 1994, the increases in expenses since 1992
and the short term nature of some of the events leading to the revenue
growth in 1992 and 1993. As noted above, since the Company is not involved
in the development or sale of products by licensees, the Company is unable
to accurately predict the timing or potential impact of all of the events
or trends which may affect licensee sales or when and for how long these
events or trends are likely to affect the Company's royalty income. The
Company also considered whether to take into account potential profits that
the Company may earn on sales of AVONEX(TM), if the product is approved and
successfully marketed. The Company recognized, however, that it has never
marketed or sold its own proprietary drug and faces a number of hurdles if
it is to be successful in commercializing AVONEX(TM), including obtaining
regulatory approval for the product and manufacturing plant, establishing
customer service, marketing and sales organizations and obtaining market
acceptance for the product. The Company viewed its lack of operating
history as a fully integrated biopharmaceutical company, the number of
hurdles it faces to successfully commercialize AVONEX(TM) and the
uncertainties related to the Company's revenue stream as support for
recording a 100% reserve against its deferred tax asset under SFAS 109.
The Company finally considered as support for the reserve the Company's
current expectation that, as a result of commercialization ramp-up and
pipeline expansion activities, expenses will likely exceed revenues until
such time as the Company has profitably marketed AVONEX(TM). The Company
will assess the need for the valuation allowance at each balance sheet date
based on all available evidence.
Financial Condition
At September 30, 1995, cash, cash equivalents and marketable securities
amounted to $285.5 million, a $17.7 million increase from the $267.8
million on hand at the end of 1994. Working capital increased $26.9
million to $273.8 million. Net cash used by operating activities for the
nine months ended September 30, 1995 was $1.1 million. Other outflows of
cash included investments in property and equipment and patents of $34.9
million. The Company's common stock option and purchase plans provided
$7.2 million and the exercise of common stock warrants provided $10.2
million. Other inflows of cash included $30.8 million from loan agreements
with banks.
In March 1995, the Company completed construction of its research
laboratory and office building in Cambridge, Massachusetts and exercised
its option to obtain a 7.5% fixed rate loan with a bank for $25 million.
The annual principal payable in each of the years 1996 through 1999 is $1.7
million with the balance due May 8, 2005.
In the second quarter of 1995, the Company began construction of its
biologics manufacturing facility in Research Triangle Park, North Carolina.
The estimated cost of construction, including land, is $57 million. As of
September 30, 1995, the Company had commitments totaling approximately $15
million on this project. Until the facility is licensed by the FDA for the
manufacture of AVONEX(TM), the Company will manufacture AVONEX(TM) in its
Cambridge, Massachusetts facility. The company has filed an application
with the FDA for an establishment license for its Cambridge, Massachusetts
Page 12
facility to manufacture AVONEX(TM). In August 1995, the Company entered
into a loan agreement with a bank for financing of this project. Under the
terms of the agreement, the Company may be advanced funds during the
construction period up to $50 million. Beginning upon the earlier of 90
days after completion of the project, or August 1997, the outstanding
principal balance will be payable in 39 consecutive quarterly installments
of $0.8 million, assuming the full $50 million is advanced, with the
balance due in 2007. As of September 30, 1995, funds advanced were $5.8
million. The Company has also entered into two interest rate swap
agreements fixing its interest rate at 6.39% during the construction period
and 7.75% during the remaining term of the loan, payable quarterly.
In August 1995, the Company received $10.2 million from the exercise of
600,000 common stock warrants issued in 1989 as part of a research
agreement with an insurance company. In October 1995, an additional 1.2
million common stock warrants were exercised for $20.4 million. All of the
warrants issued under this agreement have been exercised.
In August 1995, the Company signed a collaborative research agreement for
the development of human gene therapy treatments with Genovo, Inc., a gene
therapy research company. As part of the agreement, the Company plans to
invest approximately $37 million in Genovo over the next five years
depending on achievement of scientific milestones. In return, the Company
will receive a significant minority equity interest in Genovo as well as
certain licensing rights.
In the first quarter of 1993, SmithKline initiated arbitration in the
United States regarding the rate of royalties payable from 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. In April 1995, an arbitration panel ruled in Biogen's favor. On
June 30, 1995, SmithKline made a motion to vacate this award in the Federal
District Court for the Southern District of New York. However, the Company
believes that an adverse ruling is not probable and, therefore, no amount
has been accrued.
The Company currently believes that the financial resources available to
it, including its current working capital and its existing and anticipated
contractual relationships, will be sufficient to finance its planned
operations and capital expenditures for the near term. However, the
Company may have additional funding needs, the extent of which will depend
upon the level of royalties and product sales, the outcome of clinical
trial programs, the receipt and timing of required regulatory approvals for
products, the results of research and development efforts and business
expansion opportunities. Accordingly, from time to time, the Company may
obtain funding through various means which could include collaborative
agreements, lease or mortgage financings, sales of equity or debt
securities and other financing arrangements.
Outlook
Having completed both of its ongoing Phase III studies and discontinued
HIRULOG(R) development in 1994, the Company has begun to expand its
development efforts related to other products in its pipeline. The
expansion of the pipeline may include increases in spending on internal
projects, the acquisition of third party technologies or products or other
types of investments. Since the Company does not currently market any
drugs directly, the Company has also begun to create a commercial
infrastructure both in the United States and in Europe to market and sell
Page 13
AVONEX(TM). The timing, nature and scope of the activities related to the
building of a commercial infrastructure will depend on the status of
regulatory filing and approval activities. As development efforts expand
and as AVONEX(TM) ramp-up activities evolve, the Company anticipates that
expenses will likely exceed revenues until such time as the Company has
successfully marketed AVONEX(TM). As a result, the Company does not expect
past operating results to be indicative of future operating results. While
in the past the Company's ability to achieve profitability has been
dependent mainly on the level of royalty revenues as compared to expenses,
in the future, profitability will be dependent on the outcome of a number
of factors. These include: the level of royalties from existing
licensees' product sales as compared to expenses, the timing and extent of
royalties from additional licensing opportunities, successful completion of
development and regulatory filing activities related to AVONEX(TM), receipt
of timely FDA and European regulatory approval for AVONEX(TM), the level of
revenues and profitability from AVONEX(TM) sales, if the product is
approved, the cost and success of developing and commercializing other
products the Company is developing and the cost and success of other
business opportunities that may arise from time to time. There can be no
assurance that the Company will achieve a positive outcome with respect to
any of these factors, or that the timing and extent of the Company's
success with respect to any combination of these factors will be sufficient
to result in the profitability of the Company.
Page 14
With respect to the unaudited condensed consolidated financial information
of Biogen, Inc. and its subsidiaries at September 30, 1995 and for the
three month and nine month periods ended September 30, 1995 and 1994, Price
Waterhouse LLP reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report dated October 18, 1995 appearing herein,
states that they did not audit and they do not express an opinion on that
unaudited condensed consolidated financial information. Price Waterhouse
LLP has not carried out any significant or additional audit tests beyond
those which would have been necessary if their report had not been
included. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the
review procedures applied. Price Waterhouse LLP is not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
report on the unaudited condensed consolidated financial information
because that report is not a "report" or a "part" of the registration
statement prepared or certified by Price Waterhouse LLP within the meaning
of sections 7 and 11 of the Act.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Biogen, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Biogen, Inc. and its subsidiaries as of September 30, 1995, and the related
condensed consolidated statements of income for the three month and nine
month periods ended September 30, 1995 and 1994 and of cash flows for the
nine month periods ended September 30, 1995 and 1994. This financial
information is the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted audit
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
information for it to be in conformity with generally accepted accounting
principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994, and the
related consolidated statements of income, of cash flows and of
shareholders' equity for the year then ended (not presented herein), and in
our report dated February 7, 1995 we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet as of
December 31, 1994, is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
/s/ Price Waterhouse LLP
- ------------------------
Boston, Massachusetts
October 18, 1995
PART II - OTHER INFORMATION Page 15
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
No. 11 Computation of Earnings per Share.
No. 15 Letter from Price Waterhouse LLP.
(b) There were no reports on Form 8-K filed for the quarter ended
September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOGEN, INC.
Dated: November 3, 1995 /s/Timothy M. Kish
----------------------------------
Timothy M. Kish
Vice President-Finance and
Chief Financial Officer
EXHIBITS Page 16
Index to Exhibits.
No. 11 Computation of Earnings per Share.
No. 15 Letter from Price Waterhouse LLP.