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BIIB > SEC Filings for BIIB > Form 10-Q on 1-May-2012All Recent SEC Filings

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Form 10-Q for BIOGEN IDEC INC.


1-May-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes beginning on page 5 of this quarterly report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K). Certain totals may not sum due to rounding.

Executive Summary

Introduction

Biogen Idec is a global biotechnology company that discovers, develops, manufactures and markets therapies for the treatment of neurodegenerative diseases, hemophilia and autoimmune disorders. Patients worldwide benefit from our multiple sclerosis therapies.

In the near term, our current and future revenues are dependent upon continued sales of our three principal products, AVONEX, TYSABRI, and RITUXAN. In the longer term, our revenue growth will be dependent upon the successful clinical development, regulatory approval and launch of new commercial products, our ability to obtain and maintain patents and other rights related to our marketed products and assets originating from our research and development efforts, and successful execution of external business development opportunities. As part of our on-going research and development efforts, we have devoted significant resources to conducting clinical studies to advance the development of new pharmaceutical products and to explore the utility of our existing products in treating disorders beyond those currently approved in their labels.

Financial Highlights

The following table is a summary of financial results achieved:



                                                                           For the Three Months
                                                                             Ended March 31,
(In millions, except per share amounts and percentages)         2012 (1)        2011 (2)         Change %
Total revenues                                                  $ 1,292.0       $ 1,203.3              7.4 %
Income from operations                                          $   369.4       $   416.3            -11.3 %
Net income attributable to Biogen Idec Inc.                     $   302.7       $   294.3              2.8 %
Diluted earnings per share attributable to Biogen Idec Inc.     $    1.25       $    1.20              4.2 %

(1) Income from operations, as well as net income attributable to Biogen Idec Inc., for the three months ended March 31, 2012, were reduced by a $29.0 million charge to research and development expense made in connection with our development agreement with Isis Pharmaceuticals, Inc. (Isis) and a $12.4 million reduction resulting from an increase in our returns reserve and write-offs of unsold inventory due to a voluntary withdrawal of a limited amount of AVONEX product that has demonstrated a trend in oxidation that may lead to expiry earlier than stated on its label.

(2) Income from operations, as well as net income attributable to Biogen Idec Inc., for the three months ended March 31, 2011, was reduced by a $16.6 million restructuring charge recognized during the first quarter of 2011 in connection with our November 2010 restructuring initiative.

As described below under "Results of Operations," our operating results for the three months ended March 31, 2012 reflect the following:

Worldwide AVONEX revenues totaled $661.6 million in the first quarter of 2012, representing an increase of 3.0% over the same period in 2011.

Our share of TYSABRI revenues totaled $285.5 million in the first quarter of 2012, representing an increase of 13.6% over the same period in 2011.

Our share of RITUXAN revenues totaled $284.6 million in the first quarter of 2012, representing an increase of 11.1% over the same period in 2011.


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Total cost and expenses increased 17.2% in the first quarter of 2012, compared to the same period in 2011. This increase was primarily the result of a 29.2% increase in cost of sales, a 22.7% increase in selling, general and administrative costs, and a 21.2% increase in research and development expense over the same period in 2011. These increases reflect an increase in spending associated with the development of our late stage product candidates, spending in support of FAMPYRA and the potential launch of BG-12 in 2013, and the $29.0 million upfront payment made to Isis.

We generated $194.6 million of net cash flows from operations for the three months ended March 31, 2012, which were primarily driven by earnings offset by a net increase in operating assets and a net reduction in operating liabilities. Cash, cash equivalents and marketable securities totaled approximately $2,748.6 million as of March 31, 2012.

Business Environment

We conduct our business primarily within the biotechnology and pharmaceutical industries, which are highly competitive. Many of our competitors are working to develop or have already commercialized products similar to those we are developing or already market. For example, along with us, a number of companies are working to develop or have already commercialized additional treatments for multiple sclerosis (MS), including oral and other alternative formulations that may compete with AVONEX, TYSABRI or both. In addition, the commercialization of certain of our own pipeline product candidates, such as BG-12, may negatively impact future sales of AVONEX, TYSABRI or both. We may also face increased competitive pressures as a result of the emergence of biosimilars. In the U.S., AVONEX, TYSABRI, and RITUXAN are licensed under the Public Health Service Act (PHSA) as biological products. In March 2010, U.S. healthcare reform legislation amended the PHSA to authorize the U.S. Food and Drug Administration (FDA) to approve biological products, known as biosimilars or follow-on biologics, that are shown to be highly similar to previously approved biological products based upon potentially abbreviated data packages.

Global economic conditions continue to present challenges for our industry. Governments in many international markets in which we operate have announced or have already implemented austerity measures to constrain the overall level of government expenditures. These measures, which include efforts aimed at reforming health care coverage and reducing health care costs, and the deterioration of credit and economic conditions, particularly in certain countries in Europe, continue to exert pressure on product pricing, have delayed reimbursement for our products, and have negatively impacted our revenues and results of operations. We expect revenue growth for 2012 to be in the mid-single digits compared to 2011. For additional information about certain risks that could negatively impact our financial position or future results of operations, please read the "Risk Factors" section of this report.

Key Pipeline Development

BG-12

In February 2012, we submitted a New Drug Application (NDA) to the FDA for marketing approval of BG-12 (dimethyl fumarate), our oral therapeutic candidate for the treatment of MS. In March 2012, we also submitted a Marketing Authorisation Application (MAA) for BG-12 to the European Medicines Agency (EMA).


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Results of Operations

Revenues

Revenues are summarized as follows:



                                                      For the Three Months
                                                        Ended March 31,
    (In millions, except percentages)           2012                       2011
    Product revenues:
    United States                       $   487.8        37.8 %    $   460.4        38.3 %
    Rest of world                           487.6        37.7 %        446.7        37.1 %

    Total product revenues                  975.4        75.5 %        907.1        75.4 %
    Unconsolidated joint business           284.6        22.0 %        256.1        21.3 %
    Other                                    32.0         2.5 %         40.1         3.3 %

    Total revenues                      $ 1,292.0       100.0 %    $ 1,203.3       100.0 %

Product Revenues

Product revenues are summarized as follows:



                                                      For the Three Months
                                                        Ended March 31,
    (In millions, except percentages)           2012                       2011
    AVONEX                              $   661.6        67.8 %    $   642.5        70.8 %
    TYSABRI                                 285.5        29.3 %        251.4        27.7 %
    Other                                    28.3         2.9 %         13.2         1.5 %

    Total product revenues              $   975.4       100.0 %    $   907.1       100.0 %

AVONEX

Revenues from AVONEX are summarized as follows:



                                                    For the Three Months
                                                       Ended March 31,
          (In millions, except percentages)    2012        2011       Change %
          United States                       $ 400.5     $ 387.3           3.4 %
          Rest of world                         261.1       255.2           2.3 %

          Total AVONEX revenues               $ 661.6     $ 642.5           3.0 %

For the three months ended March 31, 2012, compared to the same period in 2011, the increase in U.S. AVONEX revenues was due to price increases offset by an 8% decrease in U.S. AVONEX sales volume. The decrease in U.S. AVONEX sales volume was driven by a 4% decrease in commercial demand, an unexpected shift in ordering patterns and the transition of pharmacy service providers for a major benefit plan on January 1, 2012, which resulted in higher than expected product sales in 2011 and a decrease in unit sales experienced in January 2012.

For the three months ended March 31, 2012, compared to the same period in 2011, the increase in rest of world AVONEX revenues was due to price increases and gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program. These increases were offset by the negative impact of foreign currency exchange rates and pricing reductions resulting from austerity measures enacted in some countries. Rest of world AVONEX unit volume was essentially flat for the three months ended March 31, 2012, over the prior year comparative period. Gains recognized in relation to the settlement of


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certain cash flow hedge instruments under our foreign currency hedging program totaled $3.9 million for the three months ended March 31, 2012, compared to losses recognized of $7.1 million in the prior year comparative period.

On February 28, 2012, the FDA approved two separate dosing innovations designed to improve the treatment experience for patients receiving once-a-week AVONEX for relapsing forms of MS: AVONEX PEN and a new dose titration regimen. AVONEX PEN, the first intramuscular autoinjector approved for MS, incorporates a smaller needle and easier administration to help reduce patients' anxiety about AVONEX self-injection. Our new dose titration regimen gradually escalates the dose of AVONEX at treatment initiation and reduces the incidence and severity of flu-like symptoms that can occur at the beginning of therapy with any interferon. AVONEX PEN was previously approved in the E.U. and Canada in the first half of 2011.

We expect AVONEX to continue facing increased competition in the MS marketplace in both the U.S. and rest of world. We and a number of other companies are working to develop or have already commercialized additional treatments for MS, including oral and other alternative formulations that may compete with AVONEX now and in the future. In addition, the continued growth of TYSABRI and the commercialization of certain of our own pipeline product candidates, such as BG-12, may negatively impact future sales of AVONEX. Increased competition may also lead to reduced unit sales of AVONEX, as well as increasing price pressure.

TYSABRI

We collaborate with Elan Pharma International, Ltd (Elan) an affiliate of Elan Corporation, plc, on the development and commercialization of TYSABRI. For additional information related to this collaboration, please read Note 20, Collaborations to our consolidated financial statements included within our 2011 Form 10-K.

Revenues from TYSABRI are summarized as follows:

                                                    For the Three Months
                                                      Ended March 31,
         (In millions, except percentages)    2012        2011        Change %
         United States                       $  87.3     $  73.2           19.3 %
         Rest of world                         198.2       178.2           11.2 %

         Total TYSABRI revenues              $ 285.5     $ 251.4           13.6 %

For the three months ended March 31, 2012, compared to the same period in 2011, the increase in U.S. TYSABRI revenues was due to increased commercial demand and price increases. Increased commercial demand resulted in an increase of approximately 9% in U.S. TYSABRI unit sales volume for the three months ended March 31, 2012, over the prior year comparative period. Net sales of TYSABRI from our collaboration partner, Elan, to third-party customers in the U.S. for the three months ended March 31, 2012 totaled $201.0 million, compared to $169.9 million in the prior year comparative period.

For the three months ended March 31, 2012, compared to the same period in 2011, the increase in rest of world TYSABRI revenues reflect an increase in commercial demand offset by the deferral of a portion of our revenues recognized on sales of TYSABRI in Italy (as described below), the negative impact of foreign currency exchange rates, and pricing reductions resulting from austerity measures enacted in some countries. Increased commercial demand resulted in increases of approximately 24% in rest of world TYSABRI unit sales volume for the three months ended March 31, 2012, over the prior year comparative period. The increase in rest of world TYSABRI revenues for the three months ended March 31, 2012, compared to the same period in 2011, also reflects gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program. Gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program totaled $1.5 million for the three months ended March 31, 2012, compared to losses recognized of $1.2 million for the three months ended March 31, 2011.


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In the fourth quarter of 2011, Biogen Idec SRL received a notice from the Italian National Medicines Agency (AIFA) stating that sales of TYSABRI for the period from February 2009 through February 2011 exceeded by Euro 30.7 million a reimbursement limit established pursuant to a Price Determination Resolution (Price Resolution) granted by AIFA in February 2007. In December 2011, we filed an appeal against AIFA seeking a ruling that our interpretation of the Price Resolution is valid and that the position of AIFA is unenforceable. While we believe that we have good and valid grounds for our appeal, an unfavorable outcome could negatively impact our results of operations. As a result of this dispute, we deferred $16.5 million and $13.8 million of revenue on sales of TYSABRI made in Italy during the first quarter of 2012 and fourth quarter of 2011, respectively. We expect that we will continue to defer a portion of our revenues on future sales of TYSABRI in Italy until this matter is resolved. For additional information, please read Note 18, Litigation to our condensed consolidated financial statements included within this report.

We expect TYSABRI to continue facing increased competition in the MS marketplace in both the U.S. and rest of world. We and a number of other companies are working to develop or have already commercialized additional treatments for MS, including oral and other alternative formulations that may compete with TYSABRI now and in the future. The commercialization of certain of our own pipeline product candidates, such as BG-12, also may negatively impact future sales of TYSABRI. Increased competition may also lead to reduced unit sales of TYSABRI, as well as increasing price pressure. In addition, safety warnings included in the TYSABRI label, such as the risk of PML, and any future safety-related label changes, may limit the growth of TYSABRI unit sales. We continue to research and develop protocols and therapies that may reduce risk and improve outcomes of PML in patients. Our efforts to stratify patients into lower or higher risk for developing PML, including through the JCV antibody assay, and other on-going or future clinical trials involving TYSABRI may have a negative impact on prescribing behavior in at least the short term, which may result in decreased product revenues from sales of TYSABRI.

Other Product Revenues

Other product revenues are summarized as follows:



                                                   For the Three Months
                                                      Ended March 31,
          (In millions, except percentages)    2012       2011      Change %
          FAMPYRA.                            $ 15.0     $    -             * *
          FUMADERM                              13.3       12.5           6.4 %
          Other                                    -        0.7        (100.0 )%

          Total other product revenues        $ 28.3     $ 13.2         114.4 %

We have a license from Acorda Therapeutics, Inc. (Acorda) to develop and commercialize FAMPYRA in all markets outside the U.S. In July 2011, the European Commission granted a conditional marketing authorization, renewable annually, for FAMPYRA in the E.U. To meet the conditions of this marketing authorization, we will provide additional data from on-going clinical studies regarding FAMPYRA's benefits and safety in the long term. FAMPYRA is the first treatment that addresses the unmet medical need of walking improvement in adult patients with MS who have walking disability. We launched FAMPYRA in Australia, Denmark, Germany, Norway, Iceland and the United Kingdom in 2011 and plan to launch in additional markets during 2012. Most recently, we launched FAMPYRA in Canada.

In 2011, the German government implemented new legislation to manage pricing related to new drug products introduced to the German market. Under this legislation, drug manufacturers are allowed to freely set drug pricing upon product launch; however, this initial price will only apply during the drug's first twelve months on the German market. Subsequent to the first anniversary of product launch, drug manufacturers must agree to a new price with Germany's Federal Joint Committee (FJC), which will determine a new price upon completion of a comparative efficacy assessment based upon evidence of the drug's benefit over existing


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treatments. If a new price cannot be agreed upon, an arbitration board will set the price. Once determined, the price will be retroactively applied to sales of product occurring after the first anniversary of product launch. We launched FAMPYRA in Germany in 2011. We remain uncertain as to the impact that this new legislation may have on revenues from sales of FAMPYRA in Germany in periods subsequent to July 2012.

For information about our relationship with Acorda, please read Note 20, Collaborations to our consolidated financial statements included within our 2011 Form 10-K.

Unconsolidated Joint Business Revenues

We collaborate with Genentech on the development and commercialization of RITUXAN. For additional information related to this collaboration including information regarding the pre-tax co-promotion profit sharing formula for RITUXAN and its impact on future unconsolidated joint business revenues, please read Note 20, Collaborations to our consolidated financial statements included within our 2011 Form 10-K.

Revenues from unconsolidated joint business are summarized as follows:

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