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BIIB > SEC Filings for BIIB > Form 10-Q on 24-Jul-2012All Recent SEC Filings

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Form 10-Q for BIOGEN IDEC INC.


24-Jul-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 June 30,
(In millions, except per share amounts and percentages)           2012          2011 (1)         Change %
Total revenues                                                  $ 1,421.0       $ 1,208.6             17.6 %
Income from operations                                          $   505.7       $   410.8             23.1 %
Net income attributable to Biogen Idec Inc.                     $   386.8       $   288.0             34.3 %
Diluted earnings per share attributable to Biogen Idec Inc.     $    1.61       $    1.18             36.4 %

(1) Our share of RITUXAN revenues from unconsolidated joint business was reduced by approximately $50.0 million to reflect our share of the approximately $125.0 million compensatory damages and interest that Genentech estimated would be awarded to Hoechst GmbH (Hoechst), in relation to Genentech's ongoing arbitration with Hoechst. For additional information related to this arbitration, please read Note 19, Litigation to our condensed consolidated financial statements included within this report.

As described below under "Results of Operations," our operating results for the three months ended June 30, 2012 reflect the following:

Worldwide AVONEX revenues totaled $762.1 million in the second quarter of 2012, representing an increase of 15.6% over the same period in 2011.

Our share of TYSABRI revenues totaled $280.4 million in the second quarter of 2012, representing a decrease of 0.4% over the same period in 2011.

Our share of RITUXAN revenues totaled $284.6 million in the second quarter of 2012, representing an increase of 31.5% over the same period in 2011.

Total cost and expenses increased 14.7% in the second quarter of 2012, compared to the same period in 2011. This increase was primarily the result of a 38.4% increase in cost of sales, a 15.4% increase in research and development expense, and a 13.3% increase in selling, general and administrative costs over the same period in 2011. These increases reflect an increase in manufacturing costs driven by higher sales, spending associated with the development of our late stage product candidates and preparing for the potential launch of BG-12 in 2013.


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We generated $830.2 million of net cash flows from operations for the six months ended June 30, 2012, which were primarily driven by earnings. Cash, cash equivalents and marketable securities totaled approximately $2,873.9 million as of June 30, 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 commercialized products similar to those we market or are developing, 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 from 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, that are similar to or interchangeable with 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 where we operate have announced or 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, 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. 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.

The Affordable Care Act

On June 28, 2012, the United States Supreme Court upheld the constitutionality of the Affordable Care Act's mandate to purchase health insurance but struck down specific funding provisions that incentivized states to expand their current Medicaid programs. As a result of this ruling, we currently expect implementation of most of the major provisions of the Act to continue. Changes to the Act, or other federal legislature regarding health care access, financing, or delivery and other actions taken by individual states concerning the possible expansion of Medicaid could impact our financial position or results of operations.

Key Pipeline and Product Development

BG-12

The U.S. Food and Drug Administration (FDA) has accepted our New Drug Application (NDA) for marketing approval of BG-12 in the United States and granted us a standard review timeline. The European Medicines Agency (EMA) also has validated our Marketing Authorisation Application (MAA) for review of BG-12 in the European Union. We have submitted additional regulatory applications for BG-12 in Australia, Canada and Switzerland.

AVONEX PEN

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 approved in the E.U. and Canada in the first half of 2011.

Other

Over the next nine months, we expect to have clinical trial data readouts for our late-stage long-lasting factor IX and factor VIII programs, dexpramiperole program in ALS, and our PEGylated interferon program.


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Results of Operations

Revenues

Revenues are summarized as follows:



                                                  For the Three Months                                   For the Six Months
                                                     Ended June 30,                                        Ended June 30,
(In millions, except percentages)           2012                       2011                       2012                       2011
Product revenues
United States                       $   557.5        39.2 %    $   490.6        40.6 %    $ 1,045.4        38.5 %    $   951.0        39.4 %
Rest of world                           519.3        36.6 %        466.1        38.6 %      1,006.9        37.1 %        912.8        37.8 %

Total product revenues                1,076.8        75.8 %        956.7        79.2 %      2,052.3        75.6 %      1,863.8        77.3 %
Unconsolidated joint business           284.6        20.0 %        216.5        17.9 %        569.2        21.0 %        472.6        19.6 %
Other                                    59.6         4.2 %         35.5         2.9 %         91.5         3.4 %         75.6         3.1 %

Total revenues                      $ 1,421.0       100.0 %    $ 1,208.6       100.0 %    $ 2,713.0       100.0 %    $ 2,412.0       100.0 %

Product Revenues

Product revenues are summarized as follows:



                                                 For the Three Months                                   For the Six Months
                                                    Ended June 30,                                        Ended June 30,
(In millions, except percentages)           2012                       2011                      2012                       2011
AVONEX                              $   762.1        70.8 %    $  659.2        68.9 %    $ 1,423.7        69.4 %    $ 1,301.7        69.8 %
TYSABRI                                 280.4        26.0 %       281.4        29.4 %        566.0        27.6 %        532.8        28.6 %
Other                                    34.3         3.2 %        16.1         1.7 %         62.6         3.1 %         29.3         1.6 %

Total product revenues              $ 1,076.8       100.0 %    $  956.7       100.0 %    $ 2,052.3       100.0 %    $ 1,863.8       100.0 %

AVONEX

Revenues from AVONEX are summarized as follows:



                                           For the Three Months                       For the Six Months
                                              Ended June 30,                            Ended June 30,
(In millions, except percentages)    2012        2011        Change %         2012          2011         Change %
United States                       $ 464.3     $ 409.4           13.4 %    $   864.8     $   796.7            8.5 %
Rest of world                         297.8       249.8           19.2 %        558.9         505.0           10.7 %

Total AVONEX revenues               $ 762.1     $ 659.2           15.6 %    $ 1,423.7     $ 1,301.7            9.4 %

For the three and six months ended June 30, 2012, compared to the same periods in 2011, the increase in U.S. AVONEX revenues was due to price increases offset by a 2% and 5% decrease, respectively, in U.S. AVONEX unit sales volume.

For the three and six months ended June 30, 2012, compared to the same periods in 2011, the increase in rest of world AVONEX revenues was due to increased demand driven by customer penetration attributable to the AVONEX PEN launch and gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program. These increases were partially 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 increased 19% and 9%, respectively, for the three and six months ended June 30, 2012, over the prior year comparative periods. Gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program totaled


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$10.0 million and $13.9 million, respectively, for the three and six months ended June 30, 2012, compared to losses recognized of $15.1 million and $22.2 million, respectively, in the prior year comparative periods.

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 commercialized additional treatments for MS, including oral and other alternative formulations that may compete with AVONEX. 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 also may 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                      For the Six Months
                                              Ended June 30,                           Ended June 30,
(In millions, except percentages)    2012        2011        Change %         2012        2011        Change %
United States                       $  93.2     $  81.2           14.8 %     $ 180.6     $ 154.3           17.0 %
Rest of world                         187.2       200.2           (6.5 )%      385.4       378.4            1.8 %

Total TYSABRI revenues              $ 280.4     $ 281.4           (0.4 )%    $ 566.0     $ 532.8            6.2 %

For the three and six months ended June 30, 2012, compared to the same period in 2011, the increase in U.S. TYSABRI revenues was due to increased demand and price increases. Increased demand resulted in an increase of approximately 9% in U.S. TYSABRI unit sales volume for the three and six months ended June 30, 2012, over the prior year comparative periods. Net sales of TYSABRI from our collaboration partner, Elan, to third-party customers in the U.S. for the three and six months ended June 30, 2012 totaled $211.5 million and $412.5 million, respectively, compared to $183.0 million and $353.0 million, respectively, in the prior year comparative periods.

For the three months ended June 30, 2012, compared to the same period in 2011, the decrease in rest of world TYSABRI revenues reflects 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 from austerity measures enacted in some countries offset by an increase in demand. Increased demand resulted in an increase of approximately 11% in rest of world TYSABRI unit sales volume for the three months ended June 30, 2012. For the six months ended June 30, 2012, compared to the same period in 2011, the increase in rest of world TYSABRI revenues reflects an increase in 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 demand resulted in an increase of approximately 18% in rest of world TYSABRI unit sales volume for the six months ended June 30, 2012. The change in rest of world TYSABRI revenues for the three and six months ended June 30, 2012, compared to the same periods 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 $3.6 million and $5.1 million, respectively, for the three and six months ended June 30, 2012, compared to losses recognized of $3.4 million and $4.6 million, respectively, for the three and six months ended June 30, 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 the reimbursement limit does not apply and that the position of AIFA is unenforceable. As a result of being notified that AIFA believes a reimbursement limit is in effect, we have deferred $32.5 million and $13.8 million of revenue of TYSABRI made in Italy during the first half 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 19, 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 commercialized additional treatments for MS, including oral and other alternative formulations that may compete with TYSABRI. 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 progressive multifocal leukoencephalopathy (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, 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                   For the Six Months
                                            Ended June 30,                        Ended June 30,
(In millions, except percentages)    2012       2011      Change %         2012       2011      Change %
FAMPYRA                             $ 19.7     $    -             * *     $ 34.7     $    -             * *
FUMADERM                              14.6       15.1          (3.3 )%      27.9       27.6           1.1 %
Other                                    -        1.0        (100.0 )%         -        1.7        (100.0 )%

Total other product revenues        $ 34.3     $ 16.1             * *     $ 62.6     $ 29.3             * *

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 have launched FAMPYRA in Australia, Canada and a number of European countries and expect to launch the product in additional countries throughout the remainder of 2012.

In 2011, the German government implemented new legislation to manage pricing related to new drug products introduced within the German market through a review of each product's comparative efficacy. We launched FAMPYRA in Germany in August 2011. During the second quarter of 2012, the government agency completed its comparative efficacy assessment of FAMPYRA and we expect to enter into pricing negotiations during the second half of 2012. It is likely that the negotiated price will be less than our initial launch price, which has been used to record sales in the six month period.

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


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Unconsolidated Joint Business Revenues

We collaborate with Genentech on the development and commercialization of RITUXAN. For information about our relationship with Genentech, 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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