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SECURITIES AND EXCHANGE COMMISSION TOTAL PAGES - 17
WASHINGTON, D.C. 20549 EXHIBIT INDEX - 17
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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 JUNE 30, 1999
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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
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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 July 26, 1999:
Common Stock, par value $0.01 150,315,500
----------------------------- ----------------
(Title of each class) Number of Shares
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BIOGEN, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
Condensed Consolidated Statements of Income -
Three and six months ended June 30, 1999
and 1998 3
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION 16
Note concerning trademarks: AVONEX(R) is a registered trademark of
Biogen, Inc.
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BIOGEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------- -------- ------- --------
REVENUES:
Product sales $145,852 $ 87,073 $277,172 $163,173
Royalties 43,077 41,739 83,477 80,111
-------- -------- -------- --------
Total revenues 188,929 128,812 360,649 243,284
-------- -------- -------- --------
COSTS and EXPENSES:
Cost of sales 26,961 17,171 51,831 32,044
Research and development 50,941 42,135 101,928 79,255
Selling, general and administrative 36,999 28,481 70,860 54,484
-------- ------ -------- ------
Total costs and expenses 114,901 87,787 224,619 165,783
-------- -------- -------- --------
Income from operations 74,028 41,025 136,030 77,501
Other income (expense), net (9,270) 6,239 (3,086) 13,161
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 64,758 47,264 132,944 90,662
Income taxes 21,370 15,815 43,872 31,442
-------- -------- -------- --------
NET INCOME $ 43,388 $ 31,449 $ 89,072 $ 59,220
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ 0.29 $ 0.21 $ 0.59 $ 0.40
======== ======== ======== ========
DILUTED EARNINGS PER SHARE $ 0.28 $ 0.20 $ 0.57 $ 0.39
======== ======== ======== ========
SHARES USED IN CALCULATING:
Basic earnings per share 150,047 147,544 149,722 147,708
======== ======== ======== ========
Diluted earnings per share 157,575 153,528 157,553 153,618
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
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BIOGEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1999 1998
---------- ------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 52,620 $ 25,445
Marketable securities 557,616 491,469
Accounts receivable, net 120,419 101,281
Deferred tax asset 24,465 26,584
Other current assets 61,457 49,365
---------- ----------
Total current assets 816,577 694,144
---------- ----------
Property, plant and equipment
Cost 295,030 269,038
Less accumulated depreciation 98,556 86,487
---------- ----------
Property, plant and equipment, net 196,474 182,551
---------- ----------
Patents, net 14,047 15,869
Marketable securities 13,554 12,668
Other assets 14,775 19,483
---------- ----------
$1,055,427 $ 924,715
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 23,588 $ 24,896
Current portion of long-term debt 4,888 4,888
Accrued expenses and other 90,571 105,305
---------- ----------
Total current liabilities 119,047 135,089
---------- ----------
Long-term debt, less current portion 54,516 56,960
Other long-term liabilities 15,013 14,053
Commitments and contingencies -- --
Shareholders' equity
Common stock 1,507 741
Additional paid-in capital 624,068 538,847
Retained earnings 285,027 213,507
Accumulated other comprehensive income 4,940 (13,165)
Treasury stock, at cost (48,691) (21,317)
---------- ----------
Total shareholders' equity 866,851 718,613
---------- ----------
$1,055,427 $ 924,715
========== ==========
See Notes to Condensed Consolidated Financial Statements.
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BIOGEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six Months Ended
June 30,
------------------------------
1999 1998
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 89,072 $ 59,220
Adjustments to reconcile net income
to net cash provided from
operating activities:
Depreciation and amortization 15,496 11,630
Deferred income taxes 2,119 13,208
Write-down of non-current marketable securities 15,287 --
Other 379 23
Changes in:
Accounts receivable (11,887) 1,179
Other current and other assets (7,384) (9,372)
Accounts payable, accrued expenses
and other current and long term
liabilities (11,704) (7,383)
--------- --------
Net cash provided from operating activities 91,378 68,505
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities (329,515) (350,035)
Proceeds from sales and maturities of
marketable securities 258,276 331,810
Investment in collaborative partners -- (5,000)
Acquisitions of property and equipment (25,992) (13,113)
Additions to patents (1,605) (2,974)
--------- --------
Net cash used by investing activities (98,836) (39,312)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of note payable -- (10,258)
Payments of long-term debt (2,444) (2,445)
Purchases of treasury stock (68,584) (28,800)
Proceeds from put warrants 8,332 --
Issuance of common stock, stock option
exercises and related tax benefits 97,329 13,791
--------- --------
Net cash from financing activities 34,633 (27,712)
--------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 27,175 1,481
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 25,445 70,358
--------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 52,620 $ 71,839
========= ========
See Notes to Condensed Consolidated Financial Statements.
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BIOGEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting of
only normal recurring accruals, necessary to present fairly the financial
position, results of operations and cash flows of Biogen, Inc. and its
subsidiaries (the "Company"). The Company's accounting policies are
described in the Notes to Consolidated Financial Statements in the
Company's 1998 Annual Report on Form 10-K. Interim results are not
necessarily indicative of the operating results for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Certain amounts for the six months ended June 30, 1998 have been
reclassified to conform to the current period presentation.
Comprehensive income is comprised of net income and other comprehensive
income. Other comprehensive income includes certain changes in equity that
are excluded from net income, such as, translation adjustments, unrealized
holding gains and losses on available-for-sale marketable securities and
certain derivative instruments. Comprehensive income for the three months
ended June 30, 1999 and 1998 was $58 million and $26 million, respectively.
Comprehensive income for the six months ended June 30, 1999 and 1998 was
$107 million and $55 million, respectively.
Dilutive stock options include outstanding options under the Company's
stock option plans. Options to purchase 62,000 shares of common stock were
outstanding at June 30, 1999 but not included in the computation of diluted
earnings per share because the options' exercise prices were greater than
the average market price during the period. Below is a summary of the
shares used in calculating basic and diluted earnings per share (in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------
1999 1998 1999 1998
-------- ------- ------- -------
Weighted average number of shares
of common stock outstanding 150,047 147,544 149,722 147,708
Dilutive stock options 7,528 5,984 7,831 5,910
------- ------- ------- -------
Shares used in calculating diluted
earnings per share 157,575 153,528 157,553 153,618
======= ======= ======= =======
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On June 11, 1999, 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 was payable on June 25, 1999
to shareholders of record at the close of business on June 11, 1999. 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.
On February 22, 1999, the Company announced that its Board of Directors had
authorized the repurchase of up to 8 million shares of the Company's common
stock. The repurchased stock will provide the Company with treasury shares
for general corporate purposes, such as stock to be issued under employee
stock option and stock purchase plans. Stock purchases are expected to
occur from time to time over the next two years. The stock repurchase
program may be discontinued at any time. To enhance the stock repurchase
program, the Company sold put warrants to and purchased call options from
independent third parties covering a large portion of the shares intended
to be repurchased. The outstanding put warrants permit a net-share
settlement at the Company's option. The put warrants sold in connection
with the Company's stock repurchase program may have an additional dilutive
effect.
2. As of June 30, 1999, the Company had $18 million outstanding under a term
loan secured by a laboratory and office building in Cambridge,
Massachusetts. Principal payments of $1.7 million per annum are due through
2004 with the balance due on May 8, 2005.
As of June 30, 1999, the Company had $41 million outstanding under a loan
agreement with a bank for financing the construction of the Company's
biological manufacturing facility in North Carolina (the "Construction
Loan"). The Construction Loan is secured by the facility. Payments of
$805,000 are due quarterly through 2006 with the balance due on March 31,
2007.
Terms of the loan agreements include various covenants, including financial
covenants, which require the Company to maintain minimum net worth, cash
flow and various financial ratios.
3. Inventories, which are included in other current assets, are stated at the
lower of cost or market with cost determined under the first-in/first-out
("FIFO") method. Raw materials include inventory used in the production of
pre-clinical and clinical products, which are expensed as research and
development costs when consumed. Inventories are as follows:
(In thousands)
--------------------------------
June 30, December 31,
1999 1998
--------- ------------
Raw materials $ 5,720 $ 4,878
Work in process 16,079 17,585
Finished goods 17,379 13,402
------- -------
$39,178 $35,865
======= =======
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4. On July 3, 1996, Berlex Laboratories, Inc. ("Berlex") filed suit against
Biogen in the United States District Court for the District of New Jersey
alleging infringement by Biogen of Berlex's "McCormick" patent in the
United States in the production of Biogen's AVONEX(R)(Interferon beta-la).
In November 1996, Berlex's New Jersey action was transferred to the U.S.
District Court in Massachusetts and consolidated for pre-trial purposes
with a related declaratory judgement action previously filed by Biogen. On
August 18, 1998, Berlex filed a second suit against Biogen alleging
infringement by Biogen of a patent which was issued to Berlex in August
1998 and which is related to the McCormick patent. On September 23, 1998,
the cases were consolidated for pre-trial and trial purposes. Berlex seeks
a judgement granting it damages, a trebling of any damages awarded and a
permanent injunction restraining Biogen from the alleged infringement. An
unfavorable ruling in the Berlex suit could have a material adverse effect
on the Company's results of operations and financial position. The Company
believes that it has meritorious defenses to Berlex claims; however, the
ultimate outcome is not determinable at this time. A hearing on the
parties' summary judgement motions is tentatively scheduled for November
1999 and a trial is tentatively scheduled for February 2000 but may be
postponed.
On October 14, 1998, the Company filed an opposition with the Opposition
Division of the European Patent Office to oppose a European patent (the
"Rentschler patent") issued to Dr. Rentschler Biotechnologie GmbH
("Rentschler") with certain claims regarding compositions of matter of beta
interferon with specific regard to the structure of the glycosylated
molecule. While Biogen believes that the patent will be revoked, if the
patent were to be upheld and if Rentschler were to obtain, through legal
proceedings, a determination that the Company's sale of AVONEX(R) in Europe
infringes a valid Rentschler patent, such result could have a material
adverse effect on the Company's results of operation and financial
position.
5. Income tax expense as a percentage of pre-tax income for the quarters ended
June 30, 1999 and 1998 was 33%, respectively. Income tax expense as a
percentage of pre-tax income for the six months ended June 30, 1999 and
1998 was 33% and 35%, respectively. The effective tax rate varied from U.S.
statutory rates in the three and six-month periods of 1999 and 1998,
primarily due to increased European sales and to the utilization of
research and development credits.
6. The Company operates in one segment, which is the business of developing,
manufacturing and marketing drugs for human health care. The Company
currently derives product revenues from sales of AVONEX(R) for the
treatment of relapsing forms of multiple sclerosis. The Company also
derives revenue from royalties on worldwide sales by the Company's
licensees of a number of products covered under patents controlled by the
Company, including alpha interferon and hepatitis B vaccines and diagnostic
products.
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BIOGEN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Biogen, Inc. (the "Company" or "Biogen") is a biopharmaceutical company
principally engaged in the business of developing, manufacturing and marketing
drugs for human health care. The Company currently derives revenues from sales
of AVONEX(R) (Interferon beta-la) for the treatment of relapsing forms of
multiple sclerosis ("MS") and from royalties on worldwide sales by the Company's
licensees of a number of products covered under patents controlled by the
Company, including alpha interferon and hepatitis B vaccines and diagnostic
products.
RESULTS OF OPERATIONS
For the quarter ended June 30, 1999, the Company reported net income of $43
million or $0.28 per diluted share as compared to $31 million or $0.20 per
diluted share for the comparable period of 1998. For the six months ended June
30, 1999, the Company reported net income of $89 million or $0.57 per diluted
share as compared to $59 million or $0.39 per diluted share for the comparable
period of 1998.
Total revenues for the current quarter were $189 million, as compared to $129
million in the quarter ended June 30, 1998, an increase of $60 million or 47%.
Total revenues for the six months ended June 30, 1999 were $361 million, as
compared to $243 million for the same period of 1998, an increase of $118
million or 49%. The increase in total revenues was primarily due to increased
sales of the Company's product AVONEX(R).
Product sales for the current quarter were $146 million compared to $87 million
for the comparable period in 1998, an increase of $59 million or 68%. Product
sales for the six months ended June 30, 1999 were $277 million compared to $163
million for the comparable period in 1998, an increase of $114 million or 70%.
The growth in the second quarter and six month period of 1999 was primarily due
to an increase in the sales volume of AVONEX(R) in the United States and in the
European Union ("EU"). AVONEX(R) sales outside of the United States were
approximately $42 million in the current quarter as compared to approximately
$19 million in the comparable period of 1998. AVONEX(R) sales outside of the
United States were approximately $78 million in the six months ended June 30,
1999 as compared to approximately $32 million in the comparable period of 1998.
Revenues from royalties for the current quarter were $43 million as compared to
$42 million for the comparable period of 1998, an increase of $1 million or 2%.
Revenues from royalties for the six months ended June 30, 1999 were $83 million
as compared to $80 million for the comparable period of 1998, an increase of $3
million or 4%. The increases in royalties for the three and six month periods of
1999 over the comparable periods of 1998 are primarily a result of increases in
royalties on sales of alpha interferon.
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The Company expects product sales as a percentage of total revenues to continue
to increase in the near term as the Company continues to market AVONEX(R)
worldwide, and expects sales from AVONEX(R) outside the United States to
continue to increase as a percentage of total product sales. The Company,
however, expects to face increasing competition in the MS marketplace from
existing and new MS treatments that may impact sales of AVONEX(R). In the near
term, the Company expects overall sales of licensee products and royalty
revenues to fluctuate depending on changes in sales volumes for specific
products, patent expirations, new licensing arrangements, if any, or other
developments. Licensee sales levels may also fluctuate from quarter to quarter
due to the timing and extent of major events such as new indication approvals or
government sponsored vaccination programs.
Total costs and expenses for the current quarter were $115 million as compared
to $88 million in the quarter ended June 30, 1998, an increase of $27 million or
31%. Total costs and expenses for the six months ended June 30, 1999 were $225
million as compared to $166 million for the six months ended June 30, 1998, an
increase of $59 million or 36%.
Cost of sales in the current quarter totaled $27 million, an increase of $10
million from the quarter ended June 30, 1998. Cost of sales in the six-month
period ended June 30, 1999 totaled $52 million compared to $32 million for the
same period in 1998, an increase of $20 million. Cost of product sales were $23
million in the second quarter of 1999 compared to $14 million for the same
quarter of 1998. Cost of product sales were $44 million and $26 million for the
six months of 1999 and 1998, respectively. Gross margins on product sales
remained constant at 84% for the three and six-month periods ended June 30, 1999
and 1998. Cost of royalty revenues for the current quarter increased slightly to
$4 million as compared to $3 million in the comparable period of 1998. Cost of
royalty revenues for the six-month period of 1999 increased to $8 million as
compared to $6 million in the comparable period of 1998. Gross margins on
royalty revenue declined slightly to 91% from 92% for both the three and
six-month periods ended June 30, 1999, compared to the same periods in 1998. The
Company expects that gross margins on royalty revenue will fluctuate in the
future based on the impact of one-time royalty and milestone payments.
Research and development expenses for the current quarter were $51 million, an
increase of $9 million or 21% as compared to the quarter ended June 30, 1998.
Research and development expenses were $102 million for the six-month period
ended June 30, 1999, an increase of $23 million or 29% as compared to the same
period in 1998. The increases were primarily due to increases in clinical trial
costs and an increase in the Company's development efforts relating to research
and development programs in its product pipeline. The Company expects that, in
the long-term, research and development expenses will increase as the Company
continues to expand its development efforts with respect to new products and as
it conducts clinical trials of these products.
Selling, general and administrative expenses for the current quarter were $37
million, an increase of $9 million or 32% as compared to the quarter ended June
30, 1998. Selling, general and administrative expenses for the six months ended
June 30, 1999 were $71 million, an increase of $17 million or 31% from the same
period in 1998. The increases were primarily due to higher selling and marketing
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expenses related to sales of AVONEX(R), and the impact of stock option
compensation and related expenses. The Company expects that selling, general and
administrative expenses will increase in the near and long-term as the Company
continues to put in place the commercial infrastructure and sales and marketing
organizations necessary to sell AVONEX(R) worldwide.
Other income (expense), net consists primarily of interest income, partially
offset by interest expenses and other non-operating income and expenses. The
decrease in other income (expense), net for the three and six months periods
ended June 30, 1999 was primarily attributable to a $15 million write-down of
certain non-current marketable securities. The Company determined that the
decline in fair value below cost of the marketable securities was other than
temporary.
Income tax expense as a percentage of pre-tax income for the quarters ended June
30, 1999 and 1998 was 33%, respectively. Income tax expense as a percentage of
pre-tax income for the six months ended June 30, 1999 and 1998 was 33% and 35%,
respectively. The effective tax rate varied from U.S. statutory rates in the
three and six-month periods of 1999 and 1998, primarily due to increased
European sales and to the utilization of research and development credits. The
Company's effective tax rate is expected to continue at or near the 33% level
for the remainder of 1999.
FINANCIAL CONDITION
At June 30, 1999, cash, cash equivalents and short-term marketable securities
were $610 million compared with $517 million at December 31, 1998, an increase
of $93 million. Working capital increased by $138 million to $698 million from
December 31, 1998 to June 30, 1999. Net cash provided from operating activities
for the six-month period ended June 30, 1999 was $91 million, compared with $69
million in the comparable period of 1998. Cash outflows for the six-months ended
June 30, 1999, included investments in property and equipment and patents of $28
million. Cash inflows from financing activities included $97 million from common
stock option and purchase plan activity, including tax benefits related to stock
options and $8 million of proceeds from the sale of put warrants. Cash outflows
from financing activities included $69 million for purchases of 1,400,000 shares
of the Company's common stock under its stock repurchase program and $2 million
for repayments of long term debt.
On February 22, 1999, the Company announced that its Board of Directors has
authorized the repurchase of up to 8 million shares of the Company's common
stock. The repurchased stock will provide the Company with treasury shares for
general corporate purposes, such as stock to be issued under employee stock
option and stock purchase plans. Stock purchases are expected to occur from time
to time over the next two years. The stock repurchase program may be
discontinued at any time. To enhance the stock repurchase program, the Company
sold put warrants to and purchased call options from independent third parties
covering a large portion of the shares intended to be repurchased. The
outstanding put warrants permit a net-share settlement at the Company's option.
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Several legal proceedings were pending during the current quarter, which involve
the Company. See Note 4 of the Notes to the Condensed Consolidated Financial
Statements. See also Item 1 - Business, "Patents and Other Proprietary Rights"
of the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998 for discussions of these legal proceedings.
The Company believes that existing funds and cash generated from operations are
adequate to satisfy its working capital and capital expenditure requirements in
the foreseeable future. However, the Company may seek to raise additional
capital to take advantage of favorable conditions in the market or in connection
with the Company's development activities.
Year 2000 Issues
Year 2000 is the problem resulting from the use of a two-digit date field to
identify the year in computer software. Consequently, computer programs may not
accurately reflect the appropriate date, confusing "00" as the year 1900 rather
than the year 2000. Year 2000 is a pervasive problem affecting many information
technology systems and embedded technologies (e.g. microprocessors in
communications systems) in all companies, in all industries. Failure by the
Company or failure by third parties upon which the Company relies to effectively
address Year 2000 issues could have a material adverse impact on the Company's
financial position or results of operations.
The Company has developed a plan to address the Year 2000 issue. The plan is
segregated into four phases:
1. Information Collection - Identify all Year 2000 risk areas and assign
accountability.
2. Assess Risk - Assign each item a category of risk:
* Commercial Risk - Has a significant impact on sale, delivery and
support of AVONEX(R) or a significant impact on the Company's
financial position or results of operations.
* Operational Risk - Has a significant impact on productivity but does
not materially impact the Company's financial position or results of
operations.
* Convenience Risk - Has a minor impact on productivity.
3. Remediate - Fix or replace, test and implement changes required for
Year 2000 compliance.
4. Contingency Plan - Define procedures to be implemented should a
disruption due to Year 2000 occur.
The Company has completed the first two phases of the project and has completed
the testing and upgrading of all individual software applications and equipment
that fall within the Commercial Risk category. Additionally, approximately 86%
of the software applications and equipment in the Operational and Convenience
Risk categories have been remediated. All of the Company's major software
applications are purchased from major software vendors and the Company performs
only minor customizations to those applications. The Company's major software
providers have
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attested to Year 2000 compliance. The Company has reviewed its operations
equipment for embedded technologies which may be Year 2000 susceptible and does
not believe necessary modifications to be material.
The Company is communicating with its significant vendors and customers to
determine the progress that those vendors and customers are making in
remediating their own Year 2000 issues. The Company is requiring that
significant vendors and customers certify those products and services to be Year
2000 compliant and in some cases is performing on-site reviews.
To date, Year 2000 costs have been immaterial and the Company believes that
future costs will also be immaterial. The Company expects the remainder of the
Year 2000 compliance program to be substantially complete by the third quarter
of 1999.
The most reasonably likely worst case scenario, if significant Year 2000 issues
arise, is that the Company would execute its contingency plans to produce,
package, and deliver AVONEX(R), resulting in lower productivity. These
contingency plans include producing and maintaining a sufficient level of
inventory of AVONEX(R) in both bulk and packaged format, developing secondary
sources of packaging and delivery, providing for manual and backup processes.
Customers anticipating Year 2000 concerns, could increase their inventory of
AVONEX(R) prior to the end of the year causing short-term temporary volatility
in sales between periods. Additionally, third parties from whom the Company
receives royalty revenues could encounter difficulties in their efforts to
produce and sell products which generate royalty revenue for the Company.
OUTLOOK
Safe Harbor Statement under Private Securities Litigation Reform Act of 1995
In addition to historical information, this quarterly report on Form 10-Q
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from those reflected in such
forward-looking statements. Reference is made in particular to forward-looking
statements regarding the anticipated level of future royalty revenues, product
sales, expenses and profits, predictions as to the anticipated outcome of
pending litigation and opposition proceedings and statements regarding the
expected outcome of planned measures to deal with Year 2000 issues. These and
all other forward-looking statements are made based on the Company's current
belief as to the outcome and timing of such future events. Factors which could
cause actual results to differ from the Company's expectations and which could
negatively impact the Company's results of operations are discussed below and
elsewhere in this Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Dependence on AVONEX(R) Sales and Royalty Revenue
The Company's ability to sustain increases in revenues and profitability will be
primarily dependent on the level of revenues and profitability from AVONEX(R)
sales. The Company's ability to sustain profitability from sales of AVONEX(R)
will depend on a number of factors, including: continued market acceptance of
AVONEX(R)
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worldwide; the Company's ability to maintain a high level of patient
satisfaction with AVONEX(R); the nature of regulatory and pricing decisions
related to AVONEX(R) worldwide and the extent to which AVONEX(R) receives and
maintains reimbursement coverage; successful resolution of the lawsuit with
Berlex related to the "McCormick" patents, which if decided in Berlex's favor
could have a material adverse effect on the Company's financial position and
results of operations; success in revoking the Rentschler patent since if the
patent were to be upheld and if Rentschler were to obtain, through legal
proceedings, a determination that the Company's sale of AVONEX(R) in Europe
infringes a valid Rentschler patent, such result could have a material adverse
effect on the Company's results of operation and financial condition; the
Company's ability to sustain market share of AVONEX(R) in light of the impact of
competitive products for the treatment of multiple sclerosis; the success of
ongoing development work related to AVONEX(R) in expanded multiple sclerosis
indications and the continued accessibility of third parties to vial, label, and
distribute AVONEX(R) on acceptable terms. The Company also receives royalty
revenues which contribute significantly to its overall profitability. The
Company's ability to maintain the level of its royalty revenues will depend on a
number of factors. For example, pricing reforms, health care reform initiatives,
other legal and regulatory developments and the introduction of competitive
products may have an impact on product sales by the Company's licensees. In
addition, licensee sales levels may fluctuate from quarter to quarter due to the
timing and extent of major events such as new indication approvals or government
sponsored vaccination programs. Since the Company is not involved in the
development or sale of products by licensees, the Company is unable to predict
the timing or potential impact of factors which may affect licensee sales. In
the long term, the Company expects its royalty revenue to be affected most
significantly by patent expirations.
There can be no assurance that the Company will achieve a positive outcome with
respect to any of the factors discussed in this Section or that the timing and
extent of the Company's success with respect to any combination of these factors
will be sufficient to result in sustained increases in revenues or profitability
or the sustained profitability of the Company. For a further discussion of risks
regarding drug development, patent matters, including the Berlex lawsuit on the
"McCormick" patents, competition in the multiple sclerosis market and regulatory
matters, see the Company's Annual Report on Form 10-K for the period ended
December 31, 1998 under the headings "Business - Risks Associated with Drug
Development", "Business - Patents and Other Proprietary Rights", "Business -
Competition and Marketing - AVONEX(R) (interferon beta-la)", "Business -
Regulation", "Legal Proceedings" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Outlook."
New Products
AVONEX(R) is currently the only product sold by the Company. The Company's
long-term viability and growth will depend on the successful development and
commercialization of other products from its research activities and
collaborations. The Company is continuing to expand its development efforts
related to other potential products in its pipeline. The expansion of the
pipeline may include increases in spending on internal projects, the acquisition
of third party technologies or products or other types of investments. Product
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development involves a high degree of risk. Only a small number of research and
development programs result in the commercialization of a product. Success in
preclinical and early clinical trials does not ensure that later stage or large
scale clinical trials will be successful. Many important factors affect the
Company's ability to successfully develop and commercialize drugs, including the
ability to obtain and maintain necessary patents and licenses, to demonstrate
safety and efficacy of drug candidates at each stage of the clinical trial
process, to meet applicable regulatory standards and to receive required
regulatory approvals, to be capable of producing drug candidates in commercial
quantities at reasonable costs, to compete successfully against other products
and to market products successfully. There can be no assurance that the Company
will be successful in its efforts to develop and commercialize new products.
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The information set forth in this Item 4 relates to matters submitted to a
vote at the Annual Meeting of Stockholders of Biogen, Inc. on June 11,
1999. References to the number of shares indicated below have not been
restated to reflect the two-for-one stock split effected in the form of a
stock dividend.
(b) Not applicable.
(c) A proposal to elect Thomas F. Keller, Roger H. Morley, Phillip A. Sharp and
James C. Mullen as directors to serve for a three year term ending in 2002
and until their successors are duly elected and qualified was approved with
the following vote:
NOMINEE FOR ABSTAINS
------- --- --------
Thomas F. Keller 53,161,372 200,793
Roger H. Morley 53,156,962 205,203
Phillip A. Sharp 53,163,588 198,577
James C. Mullen 53,163,492 198,673
A proposal to ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending December 31,
1999 was approved with 53,260,254 affirmative votes, 13,292 negative votes,
88,619 abstentions and 0 broker non-votes.
A proposal to approve an amendment to the Company's Articles of
Organization to increase the number of authorized shares of the Company's
Common Stock from 110,000,000 shares to 375,000,000 shares was approved
with 51,945,117 affirmative votes, 1,382,064 negative votes, 34,984
abstentions and 0 broker non-votes.
(d) Not applicable.
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PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
No. 10.1 1985 Non-Qualified Stock Option Plan, as amended through
June 10, 1999.
No. 27 Financial Data Schedule (for EDGAR filing purposes only).
(b) On April 27, 1999, the Company filed a report on Form 8-K disclosing
adoption of a new Shareholder Rights Plan and the issuance of the new
rights as a dividend to holders of the Company's Common Stock.
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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: August 4, 1999 /s/ Timothy M. Kish
-----------------------------
Timothy M. Kish
Vice President-Finance and
Chief Financial Officer
EXHIBITS
Index to Exhibit.
No. 27 Financial Data Schedule (for EDGAR filing purposes only).