SECURITIES AND EXCHANGE COMMISSION Total Pages- 16
WASHINGTON, D.C. 20549 Exhibit Index- 15
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, 1996
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 November 4, 1996:
Common Stock, par value $0.01 36,004,196
(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, 1996 and December 31, 1995 . . . . . . . . . . . 3
Condensed Consolidated Statements of Income -
Three months and nine months ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1996 and 1995. . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . 13
* * * * * * * * * * * * * * * * * *
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)
September 30,1996 Dec. 31,1995
(unaudited)
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . $ 62,610 $ 45,770
Marketable securities . . . . . . . . . . . 220,089 262,178
Accounts receivable, net. . . . . . . . . . 65,858 19,612
Inventory . . . . . . . . . . . . . . . . . 16,802 7,131
Deferred income taxes . . . . . . . . . . . 44,239 --
Other . . . . . . . . . . . . . . . . . . . 5,040 5,618
-------- --------
Total current assets. . . . . . . . . . . . 414,638 340,309
-------- --------
Property, plant and equipment
Total cost. . . . . . . . . . . . . . . . . 206,462 155,014
Less accumulated depreciation . . . . . . . 49,253 39,966
-------- --------
Property, plant and equipment, net. . . . . 157,209 115,048
-------- --------
Other assets, net. . . . . . . . . . . . . . 15,521 13,844
-------- --------
$587,368 $469,201
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable. . . . . . . . . . . . . . $ 9,902 $ 12,512
Current portion long-term debt. . . . . . . 1,667 1,667
Other current liabilities . . . . . . . . . 54,741 39,216
-------- --------
Total current liabilities . . . . . . . . . 66,310 53,395
-------- --------
Long-term debt . . . . . . . . . . . . . . . 59,956 32,826
-------- --------
Shareholders' equity
Common stock. . . . . . . . . . . . . . . . 717 710
Additional paid-in capital. . . . . . . . . 456,539 408,793
Retained earnings (deficit) . . . . . . . . 4,602 (27,699)
Unrealized gain (loss) on
marketable securities, net of tax . . . . (694) 1,245
Cumulative translation adjustment . . . . . (62) (69)
-------- --------
Total shareholders' equity. . . . . . . . . 461,102 382,980
-------- --------
$ 587,368 $469,201
======== ========
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 Sept.30, Ended Sept. 30,
1996 1995 1996 1995
REVENUES
Product sales. . . . . . . . . . $27,517 $ -- $ 33,642 $ --
Royalties. . . . . . . . . . . . 69,236 33,884 138,646 98,554
Interest . . . . . . . . . . . . 4,106 4,293 12,815 12,489
------- ------- ------- ------
Total revenues . . . . . . . . 100,859 38,177 185,103 111,043
------- ------- ------- -------
EXPENSES
Cost of sales. . . . . . . . . . 10,424 2,601 18,413 7,753
Research and development . . . . 30,338 22,465 84,051 64,170
Selling, general and
administrative. . . . . . . . 18,880 10,272 51,873 27,796
Other. . . . . . . . . . . . . . 494 881 1,812 5,398
------- ------- ------- -------
Total expenses . . . . . . . . . 60,136 36,219 156,149 105,117
------- ------- ------- -------
INCOME BEFORE INCOME TAXES . . . . . 40,723 1,958 28,954 5,926
Income taxes. . . . . . . . . . . . (4,329) 830 (3,347) 1,250
------- ------- ------- --------
NET INCOME . . . . . . . . . . . . $ 45,052 $ 1,128 $ 32,301 $ 4,676
====== ======= ======= ========
NET INCOME PER SHARE . . . . . . . $ 0.60 $ 0.02 $ 0.45 $ 0.06
======= ======= ======= =======
Average shares outstanding. . . . . 74,570 73,440 72,395 71,956
======= ======= ======= =======
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,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . $ 32,301 $ 4,676
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and amortization. . . . . . . . 11,195 7,833
Deferred income taxes . . . . . . . . . . . . (5,534) --
Other. . . . . . . . . . . . . . . . . . . . 1,163 1,161
Changes in:
Accounts receivable . . . . . . . . . . . . (46,246) 116
Other current assets. . . . . . . . . . . . (9,093) (4,328)
Other assets. . . . . . . . . . . . . . . . (1,517) (3,888)
Accounts payable and
other current liabilities. . . . . . . . . 12,105 (6,689)
-------- -------
Net cash used by operating activities . . . . (5,626) (1,119)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities. . . . . . (265,594) (178,229)
Proceeds from sales of marketable securities. 304,524 163,919
Acquisitions of property, plant and
equipment. . . . . . . . . . . . . . . . . . (50,613) (33,221)
Additions to patents. . . . . . . . . . . . . (1,742) (1,687)
-------- -------
Net cash used by investing activities . . . (13,425) (49,218)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt. . . 27,963 30,799
Payments of long-term debt. . . . . . . . . . (833) --
Proceeds from exercise of common
stock warrants and options. . . . . . . . . 8,761 17,373
-------- ------
Net cash provided from financing activities . 35,891 48,172
-------- ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS. . . . . . . . . . . . . . . 16,840 (2,165)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD . . . . . . . . . . . . . 45,770 54,682
-------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD . . . . . . . . . . . . . . . . $ 62,610 $ 52,517
======== =======
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
normal recurring accruals, considered 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 1995 Annual Report.
Interim results are not necessarily indicative of the operating results
for any other interim period or for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
On October 22, 1996, the Board of Directors declared a two-for-one stock
split to be effected in the form of a stock dividend of one share of
Common Stock for each share outstanding. The stock dividend will be
payable on November 15, 1996 to shareholders of record at the close of
business on November 4, 1996. All references to the number of shares
and per share amounts in the financial statements have been restated to
reflect the effect of the stock split. As of September 30, 1996 and
December 31, 1995, there were 33,505,501 and 35,855,807 shares
outstanding which have been restated for the two-for-one stock split to
71,011,022 and 71,710,414, respectively.
2. On May 17, 1996, the Company received a license from the U.S. Food and
Drug Administration ("FDA") to market AVONEX(TM) (Interferon beta-1a), a
new drug for treatment of relapsing forms of multiple sclerosis.
Revenues from product sales are recognized when goods are shipped and
are net of third party contractual allowances.
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% secured term 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, of
this facility is $59 million. As of September 30, 1996, the Company
had paid or been invoiced approximately $49 million and had
additional commitments totaling approximately $10 million on this
project. 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. As of September 30, 1996, funds advanced
were approximately $38 million.
Page 7
Terms of the loan agreements include various covenants, including
financial covenants which require the Company to maintain minimum net
worth, cash flow and various financial ratios. The loans are secured by
the underlying buildings.
4. Inventories are stated at the lower of cost or market with cost
determined under the first-in/first-out ("FIFO") method. Included in
inventory are raw materials used in the production of pre-clinical and
clinical products which are expensed as research and development costs
when consumed. Inventories, net of applicable reserves and allowances,
at September 30, 1996 and December 31, 1995 are as follows:
(In Thousands)
September 30,1996 December 31, 1995
Raw materials $ 3,614 $ 3,051
Work in process 8,337 2,968
Finished goods 4,851 1,112
----------- -----------
$ 16,802 $ 7,131
=========== ===========
5. Effective July 1, 1996, the Company signed a collaborative research and
commercialization agreement with Ontogeny, Inc. ("Ontogeny"), a private
biotechnology company, for the development and commercialization of
three specific Hedgehog cell differentiation proteins. The Company
acquired a minority equity interest in Ontogeny as well as certain
exclusive, worldwide rights related to products based on the Hedgehog
proteins for most disease areas. The Company has agreed to fund
approximately $6 million in research and development costs of Ontogeny
over two years and to make license fees and milestone payments to
Ontogeny of up to $27 million per Hedgehog protein, depending on the
achievement of certain clinical, regulatory and commercial milestones.
6. On October 7, 1996, a judge dismissed the lawsuit filed by Berlex
Laboratories, Inc. ("Berlex") against the FDA in the United States
District Court for the District of Columbia in which Berlex claimed that
the FDA's approval of Biogen's AVONEX(TM)(Interferon beta 1a) was
improper. Biogen was an intervenor-defendant in the litigation. In
dismissing the suit, the judge held that the FDA acted lawfully in
approving AVONEX(TM). Berlex has sixty days from the date of the
decision to appeal.
On July 3, 1996, Berlex filed suit against Biogen alleging that Biogen's
production of AVONEX(TM) infringes Berlex's "McCormick" patent in the
United States. Berlex seeks a judgment granting it unspecified damages,
a trebling of any damages awarded and a permanent injunction restraining
Biogen from alleged infringement. Prior to the date of the suit filed
by Berlex on the McCormick patent, Biogen had filed a suit against
Schering AG ("Schering"), Berlex and the Board of Trustees of the Leland
Stanford Jr. University ("Stanford") seeking a judgment which declares
the McCormick patent invalid and not infringed by Biogen and which
enjoins Schering, Berlex and Stanford from asserting any charge of
infringement of the McCormick patent or asserting any civil action
against Biogen and its customers or users of AVONEX(TM). See Item 1 -
Legal Proceedings.
Page 8
The Company is also a party to a class action lawsuit in connection with
disclosures related to Biogen's HIRULOG(R) product.
The Company's management believes that it has meritorious defenses to
the preceding claims and given these defenses, believes the ultimate
outcome of these legal proceedings will not have a material adverse
effect on the results of operations or financial position of the
Company.
7. Due to the sustained growth during the quarter in sales and
profitability of the Company's first commercial product, AVONEX(TM), the
Company made the determination that it is more likely than not that it
will realize the benefits of the net deferred tax assets and it has
therefore reversed all of the related valuation allowance.
The Company's reversal of the valuation allowance resulted in a
realization of income tax benefit of approximately $23 million
representing the balance of tax-loss carryforwards and tax credits that
had not been recognized at the beginning of the quarter as well as tax
credits generated during the quarter. The reversal of the valuation
allowance also resulted in an increase in additional paid-in capital of
$38.6 million relating to deductions for non-qualified stock options.
8. On September 30, 1996, Biogen Technologies, Inc., a wholly-owned
subsidiary of the Company, entered into an agreement to license to
Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn") certain patent rights to
proprietary protein secretion technology. Under the agreement Pharmacia
& Upjohn paid the Company a one-time royalty of $30 million and agreed
to pay a percentage of future sales of Pharmacia & Upjohn's product
Genotropin in North America and Japan.
BIOGEN, INC. AND SUBSIDIARIES Page 9
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 health care through
genetic engineering. On May 17, 1996, the Company received a license from
the U.S. Food and Drug Administration ("FDA") to market AVONEX(TM)
(Interferon beta-1a), the Company's first commercial product. The Company
currently markets AVONEX(TM) under the Biogen name as a treatment for
relapsing forms of multiple sclerosis ("MS"). MS is a chronic,
inflammatory disease of the central nervous system in which most patients
incur physical disability over time. MS affects approximately 250,000
people in the United States, about two-thirds of whom are women. Disease
onset typically occurs in young adults between the ages of 20 and 40.
Revenues from AVONEX(TM) sales were $27.5 million and $33.6 million,
respectively, for the three-month and nine-month periods ended September
30, 1996. The Company expects to receive regulatory approval in the
European Union and to be selling AVONEX(TM) in certain European markets in
the first half of 1997.
Results of Operations
On October 22,1996, the Board of Directors declared a two-for-one stock
split to be effected in the form of a stock dividend of one share of Common
Stock for each share outstanding. The stock dividend will be payable on
November 15, 1996 to shareholders of record on November 4, 1996. All
references to the number of shares and per share amounts in the financial
statements have been restated to reflect the effect of the stock split.
For the third quarter ended September 30, 1996, the Company reported net
income of $45.1 million or $0.60 per share as compared to $1.1 million or
$0.02 per share in the third quarter of 1995. For the nine months ended
September 30, 1996, the Company recorded net income of $32.3 million or
$0.45 per share as compared to $4.7 million or $0.06 per share for the
comparable period of 1995.
Total revenues for the third quarter of 1996 were $100.9 million, including
$27.5 million from sales of AVONEX(TM) and a one-time royalty payment of
$30.0 million from Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn"),
compared to $38.2 million in the comparable quarter of 1995. Under the
terms of a licensing agreement covering certain patent rights for
proprietary protein secretion technology, Pharmacia & Upjohn paid the
Company a one-time royalty of $30 million and agreed to pay a percentage of
future sales of Pharmacia & Upjohn's product Genotropin in North America
and Japan. Excluding sales of AVONEX(TM)and the one-time royalty payment,
revenues increased 13.5%, primarily as a result of an increase in ongoing
royalties received from Schering-Plough Corporation ("Schering-Plough"),
the Company's licensee for alpha interferon. Royalties on sales of
Hepatitis B vaccines sold by SmithKline Beecham plc ("SmithKline") and
Merck & Co., Inc. ("Merck") increased in Germany as a result of a recently
initiated vaccination policy which offset a decrease in the market in
France which had instituted a vaccination program for infants and
adolescents during 1994.
Page 10
Total revenues for the nine months ended September 30, 1996 were $185.1
million, including $33.6 million from sales of AVONEX(TM) and the one-time
royalty payment of $30 million from Pharmacia & Upjohn, as compared to $111
million in the comparable period of 1995. Excluding sales of AVONEX(TM)and
the one-time royalty payment, revenues increased approximately 9.5%
primarily as a result of an increase in royalties on alpha interferon sales
by Schering-Plough, which were partially offset by a decrease in royalties
on sales of Hepatitis B vaccines sold by SmithKline and Merck. The
decrease in Hepatitis B vaccine royalties from the prior period was
primarily a result of declines in the markets in the United States and
France offset by an increase in the German market.
On October 31, 1996, the House of Lords in the United Kingdom ruled that
one of Biogen's two British patents for Hepatitis B antigens is invalid.
As a result of the ruling, the invalidated patent will no longer be
enforceable in the United Kingdom or in British patent registration
countries. In 1995, royalties from licensee sales of Hepatitis B products
in the United Kingdom were less than $1.0 million. The Company does not
believe that the House of Lords ruling will affect the validity of its
hepatitis B patent portfolio outside the United Kingdom and the British
patent registration countries.
The Company expects product sales as of a percentage of total revenues to
increase as the Company continues to market its new product AVONEX(TM). In
the near term, the Company expects overall sales of licensee products to
continue at or around current levels although royalty income may fluctuate
depending on changes in sales volumes for specific products. In addition,
licensee product sales levels and the Company's royalty levels may
fluctuate from quarter to quarter as a result of the timing and extent of
major events such as new indication approvals, vaccination programs and new
licensing arrangements.
Total expenses for the third quarter of 1996 were $60.1 million as compared
to $36.2 million in the comparable 1995 quarter, a $23.9 million or 66%
increase. Cost of sales increased $7.8 million over the comparable 1995
quarter primarily due to the sales of AVONEX(TM) and the royalty revenue
from Pharmacia & Upjohn. Costs of sales includes $4.1 million in the
current quarter related to sales of AVONEX(TM). Research and development
expenses for the current quarter were $30.3 million as compared to $22.5
million in the comparable 1995 quarter, an increase of $7.8 million or 35%.
This increase was primarily due to research funding under existing and new
collaboration agreements, an increase in clinical trial costs in connection
with development efforts on new products and an increase in the Company's
development efforts related to other research and development programs in
its pipeline. Selling, general and administrative expenses for the current
quarter were $18.9 million as compared to $10.3 million in the comparable
1995 quarter, an increase of $8.6 million or 83%. This increase was
primarily due to costs associated with the commercial launch of AVONEX(TM)
in the United States, including the operation of a domestic sales
organization, and market development efforts in the United States and
Europe related to AVONEX(TM).
For the nine-month period ended September 30, 1996, total expenses were
$156.1 million as compared to $105.1 million in the comparable period in
1995, an increase of $51 million or 49%. Cost of sales increased $10.7
million over the comparable period in 1995 primarily due to the sales of
Page 11
AVONEX(TM), and the royalty revenue from Pharmacia & Upjohn. Costs of
sales includes $5 million in the current nine month period related to the
sale of AVONEX(TM). Research and development expenses for the current
nine-month period were $84.1 million as compared to $64.2 million in the
comparable 1995 period, an increase of $19.9 million or 31%. This increase
was primarily due to research funding under existing and new collaboration
agreements, payments made to acquire certain patent rights, an increase in
clinical trial costs in connection with development efforts on new products
and an increase in the Company's development efforts related to other
research and development programs in its pipeline. The Company expects
that, in the long-term, research and development expenses will increase as
the Company continues to expand its development efforts with respect to new
products and begins clinical trials of these products. Selling, general
and administrative expenses for the nine-month period ended September 30,
1996 were $51.9 million as compared to $27.8 million in the comparable
period in 1995, an increase of $24.1 million or 87%. This increase was
primarily due to costs associated with the commercial launch of AVONEX(TM)
in the United States, including the start-up and operation of a domestic
sales organization and the market development efforts in the United States
and Europe related to AVONEX(TM).
During the current nine-month period, the Company substantially completed
the hiring of its domestic sales force and the build-up of its corporate
and administrative departments to support the Company's ongoing commercial
operations. The Company expects that selling, general and administrative
expenses will continue to increase as the Company continues to build the
commercial infrastructure and sales and marketing organizations necessary
to sell AVONEX(TM) worldwide. The anticipated level of expense will depend
on the overall sales levels achieved by AVONEX(TM) and the status of
applications for marketing approvals for AVONEX(TM) in the European Union
and in several other jurisdictions, including Canada.
Income tax expense for the 1996 and 1995 periods varied from the amount
computed at U.S. federal statutory rates primarily because of the impact of
net operating loss carry forwards. As of December 31, 1995, the Company
had a deferred tax asset of $57.1 million (before valuation allowance)
consisting of the future tax benefits from net operating loss carry
forwards and other tax credits. Due to the sustained growth during the
quarter in sales and profitability of the Company's first commercial
product, AVONEX(TM), the Company made the determination that it is more
likely than not that it will realize the benefits of the net deferred tax
assets, and it has therefore reversed all of the related valuation
allowance. The Company's reversal of the valuation allowance resulted in a
realization of income tax benefit of approximately $23 million representing
the balance of tax-loss carryforwards and tax credits that had not been
recognized at the beginning of the quarter as well as tax credits generated
during the quarter. The reversal of the valuation allowance also resulted
in an increase in additional paid-in capital of $38.6 million relating to
deductions for non-qualified stock options.
During 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock-Based Compensation". Biogen intends to adopt SFAS
123 through disclosure only in 1996.
Financial Condition
At September 30, 1996, the Company had cash, cash equivalents and
marketable securities of $282.7 million, a $25.2 million decrease from the
Page 12
$307.9 million on hand at December 31, 1995. Working capital increased
$61.4 million to $348.3 million. The increase in working capital is
primarily due to the reversal of the deferred tax asset valuation
allowance. Net cash used by operating activities for the nine months ended
September 30, 1996 was $5.6 million. Other outflows of cash included
investments in property, plant and equipment and patents of $52.3 million.
The Company's common stock option and purchase plans provided $8.8 million
in the first nine months of 1996. The Company also received proceeds of
$28 million from the issuance of long-term debt issued in connection with
the construction of its biologics manufacturing facility.
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% secured 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 third 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 $59 million. As of September 30, 1996,
the Company had been invoiced approximately $49 million and had commitments
totaling approximately $10 million on this project. 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. As of September
30, 1996, funds advanced were approximately $38 million.
Several legal proceedings were pending during the current quarter which
involve the Company. See Note 6 of Notes to Condensed Consolidated
Financial Statements for discussion of these legal proceedings.
The Company currently believes that the financial resources available to
it, including its current working capital, revenues from product sales 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 the development effort and launch of AVONEX(TM) in the
United States, 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
AVONEX(TM) is the first drug the Company markets directly, the Company
continues to build a commercial infrastructure both in the United States
and in Europe to market and sell AVONEX(TM).
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
Page 13
licensees' product sales, the timing and extent of royalties from
additional licensing opportunities, successful marketing and sales of
AVONEX(TM), the level of revenues and profitability from AVONEX(TM) sales,
receipt of timely European regulatory approval for AVONEX(TM), which is
subject to the discretion of regulatory authorities, the nature of the
regulatory and reimbursement decisions related to AVONEX(TM) made by
governments around the world, the cost and success of developing and
commercializing other products 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 sustained profitability of the Company.
Certain of the statements set forth above and elsewhere in the financial
statements, including statements regarding the rate of the Company's
royalties and product sales in the future, the Company's future expenses
and the predictions as to the actions of regulatory authorities in the
European Union with respect to AVONEX(TM) and the anticipated outcome of
pending litigation, are forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995, and are based upon the Company's current belief as to the
outcome and timing of future events. Important factors which could cause
actual results to differ materially from those described in the forward-looking
statements and which could negatively impact the Company's results
of operations going forward are set forth under "Risks Associated with Drug
Development" in the Company's Form 10-K and under Financial Condition in
this Form 10-Q and above.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On October 7,1996, a judge dismissed the lawsuit filed by Berlex
Laboratories, Inc. against the FDA in the U.S. District Court for the
District of Columbia in which Berlex claimed that the FDA's approval of
Biogen's AVONEX(TM)(Interferon beta 1a) was improper. Biogen was an
intervenor-defendant in the litigation. In dismissing the suit, the judge
held that the FDA acted lawfully in approving AVONEX(TM). Berlex has sixty
days from the date of the decision to appeal.
On July 3, 1996, Berlex filed suit against Biogen in the United States
District Court for the District of New Jersey alleging infringement by
Biogen of Berlex's "McCormick" patent in the United States in the
production of AVONEX(TM). Berlex seeks a judgment granting it unspecified
damages, a trebling of any damages awarded and a permanent injunction
restraining Biogen from alleged infringement. Prior to the date of the
suit filed by Berlex on the McCormick patents, Biogen had filed a suit
against Schering AG ("Schering"), Berlex and the Board of Trustees of the
Leland Stanford Jr. University ("Stanford") in the United States District
Court for the District of Massachusetts for a declaratory judgment of non-
infringement and invalidity of the McCormick patent contending that
AVONEX(TM), its manufacturing process and intermediates used in that
process do not infringe the McCormick patent and that such patent is valid.
Biogen seeks a judgment which declares the McCormick patent invalid and not
Page 14
infringed by Biogen and which enjoins Schering, Berlex and Standford from
asserting any charge of infringement of the McCormick patent or asserting
any civil action against Biogen and its customers or users of AVONEX(TM).
Biogen and Berlex have each made motions to have the entire case heard in
the jurisdiction in which it originally filed its lawsuit.
As reported in previous disclosures, the Company is also a party to a class
action lawsuit in connection with disclosures related to Biogen's
HIRULOG(R) product.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
No. 11 Computation of Earnings per Share.
(b) During the quarter ended September 30, 1996, the Company filed
the following report on Form 8-K:
On July 3, 1996, the Company filed a report on Form 8-K to
disclose a patent suit filed by Berlex Laboratories, Inc., the
current status of the legal proceeding among the FDA, Berlex and
the Company regarding the FDA's approval of Biogen's drug
AVONEX(TM) and the filing by ASTA Medica Aktiengesselschaft for
arbitration against the Company with the International Chamber of
Commerce.
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 5, 1996 /s/Timothy M. Kish
----------------------------------
Timothy M. Kish
Vice President-Finance and
Chief Financial Officer
EXHIBITS Page 15
Index to Exhibits.
No. 11 Computation of Earnings per Share.