The FINANCIAL — Biogen Inc. on October 21 reported third quarter 2015 results, including revenues of $2.8 billion, an 11% increase compared to the third quarter of 2014. Non-GAAP diluted earnings per share (EPS) for the third quarter of 2015 were $4.48, an increase of 18% over the third quarter of 2014. Non-GAAP net income attributable to Biogen for the third quarter of 2015 was $1.0 billion, an increase of 16% over the third quarter of 2014.
On a reported basis, GAAP diluted EPS for the third quarter of 2015 were $4.15, an increase of 15% over the third quarter of 2014. GAAP net income attributable to Biogen for the third quarter of 2015 was $966 million, an increase of 13% versus the same period in the prior year, according to Biogen.
Biogen also announced a corporate restructuring, which includes the termination of a number of pipeline programs and an 11% reduction in workforce. These changes are expected to reduce the current annual run rate of operating expenses by approximately $250 million. The Company plans to reinvest these savings to support key commercial initiatives, including increased sales and marketing activities behind TECFIDERA, and the advancement of high potential pipeline candidates in areas such as Alzheimer’s disease, multiple sclerosis, and spinal muscular atrophy.
“We remain committed to maximizing the potential of our commercial portfolio, with a particular emphasis on TECFIDERA,” said Chief Executive Officer George A. Scangos, Ph.D. “We continue to see growth for our market leading portfolio of MS products, driven by the uptake of our oral therapy TECFIDERA in recently launched countries worldwide and the introduction of PLEGRIDY to new markets.”
“The decision to reduce the Company’s workforce was extremely difficult, but we believe these actions are necessary to fulfill our mission of bringing important new medicines to patients. We have several high-quality programs that are now or soon will be in Phase 3, and the cost savings from the restructuring will be reinvested to carry out those programs aggressively and hopefully to bring them to patients as quickly as possible,” Dr. Scangos continued. “We are grateful for the contributions of our talented and admired colleagues and we will do our best to treat everyone with fairness and dignity.”
The Company plans to substantially complete the majority of the 11% reduction of its global workforce by the end of 2015. The Company is in the process of notifying employees affected by the restructuring, and has initiated the required consultation processes in European countries where employees may be impacted. Biogen has also discontinued several programs, including its Phase 3 program for TECFIDERA in secondary progressive MS, the development of anti-TWEAK in lupus nephritis, and certain activities in immunology and fibrosis research.
Implementing these changes is expected to reduce the current annual run rate of operating expenses by approximately $250 million. Biogen expects to incur a charge of approximately $85-$95 million, primarily in the fourth quarter of 2015.
Additionally, the Company plans to identify additional savings in non-labor expenses by the end of the year.
The restructuring is expected to yield savings for 2016 and beyond and provides additional financial flexibility to support marketed therapies and focus on a number of meaningful pipeline opportunities, including:
Commercial initiatives aimed at increasing sales of TECFIDERA including new direct to consumer marketing programs;
Aducanumab in Phase 3 for Alzheimer’s disease;
BAN2401 in Phase 2 for Alzheimer’s disease;
E2609 in Phase 2 for Alzheimer’s disease;
SMN-Rx in Phase 3 for spinal muscular atrophy;
Anti-LINGO in Phase 2 for multiple sclerosis;
Subject to deal closure, MT-1303, a Phase 3 ready asset for inflammatory bowel disease with potential further development in MS; and
Raxatrigine (CNV1014802), a Phase 3 ready asset for trigeminal neuralgia and Phase 2b ready for lumbar radiculopathy.
Third Quarter 2015 Financial Highlights
Total multiple sclerosis product sales were $2.2 billion compared to $2.1 billion in the same quarter last year.
TECFIDERA revenues were $937 million compared to $787 million in the same quarter last year. These results consisted of $754 million in U.S. sales and $183 million in sales outside the U.S. compared to $638 million and $149 million, respectively, in the third quarter of 2014.
TECFIDERA revenues in the third quarter of 2015 increased 6% versus the second quarter of 2015. In the U.S., TECFIDERA revenues increased 5% versus the second quarter of 2015, partially due to an increase of inventory in the specialty pharmacy channel.
Interferon revenues, including AVONEX® and PLEGRIDY, were $785 million compared to $745 million in the same quarter last year. These results consisted of $538 million in U.S. sales and $247 million in sales outside the U.S. compared to $482 million and $263 million, respectively, in the third quarter of 2014.
Interferon revenues in the third quarter of 2015 increased 14% versus the second quarter of 2015. In the U.S., interferon revenues increased 18% versus the second quarter of 2015, primarily due to a rebalancing of wholesaler inventory from the drawdown in the second quarter of 2015, which contributed approximately $40 million to the increase.
TYSABRI® revenues were $480 million compared to $501 million in the same quarter last year. These results consisted of $284 million in U.S. sales and $196 million in sales outside the U.S. compared to $275 million and $226 million, respectively, in the third quarter of 2014.
Net revenues relating to RITUXAN® and GAZYVA® from our unconsolidated joint business arrangement were $337 million compared to $291 million in the same quarter last year.
ELOCTATE® revenues were $91 million and ALPROLIX® revenues were $66 million.
Revenues for FAMPYRA® and FUMADERM™ were $34 million compared to $37 million in the same quarter last year.
Royalty revenues were $9 million compared to $67 million in the same quarter last year.
Corporate partner revenues were $40 million compared to $36 million in the same quarter last year.
Foreign exchange, offset by hedging, weakened total revenues by approximately $63 million compared to the third quarter of 2014.
Non-GAAP SG&A expense was $478 million compared to $569 million in the same quarter last year. GAAP SG&A expense was $478 million compared to $570 million in the same quarter last year.
Non-GAAP R&D expense was $520 million compared to $416 million in the same quarter last year. GAAP R&D expense was $520 million compared to $417 million in the same quarter last year.
Capital Allocation Highlights
As of September 30, 2015, Biogen purchased approximately 9.7 million shares of its common stock for a cost of approximately $3 billion in the open market under the Company’s previously authorized $5.0 billion share repurchase program. Since the end of the quarter, the Company has purchased an additional 3.2 million shares for approximately $900 million.
At the end of the third quarter of 2015, the Company’s weighted average diluted shares were 233 million.
In September 2015, Biogen issued senior unsecured notes in the aggregate principal amount of $6 billion.
Through the end of the third quarter of 2015, Biogen had cash, cash equivalents and marketable securities totaling approximately $7.8 billion.
2015 Financial Guidance
In light of the restructuring, change in capital structure, and significant share repurchases, Biogen announced an update to its full year 2015 financial guidance. This guidance consists of the following components:
Revenue growth is expected to be approximately 8% to 9% compared to 2014, a modest increase versus prior guidance. This guidance implies a sequential decrease in revenue in the fourth quarter of 2015 based on the assumption of stable US wholesaler inventory levels for the balance of the year in MS and a reduction in US wholesaler inventory for Rituxan.
R&D expense is expected to be approximately 19% to 20% of total revenue, unchanged from prior guidance.
SG&A expense is expected to be approximately 19% to 20% of total revenue, a decrease from prior guidance.
Non-GAAP diluted EPS is expected to be between $16.20 and $16.50, an increase from prior guidance.
GAAP diluted EPS is expected to be between $14.65 and $14.95, an increase from prior guidance.
Biogen may incur charges, realize gains or experience other events in 2015 that could cause actual results to vary from this guidance.
Business Development and Collaboration Highlights
In July 2015, Biogen and the Parkinson’s Institute and Clinical Center announced the formation of a strategic alliance focused on enhancing the understanding of the underlying biology of Parkinson’s disease (PD).
In August 2015, Biogen, the ALS Association and Columbia University Medical Center announced a new collaboration to better understand the differences and commonalities in the ALS (Amyotrophic Lateral Sclerosis) disease process and how genes influence the clinical features of the disease.
In September 2015, Biogen announced an agreement with Mitsubishi Tanabe Pharma to exclusively license MT-1303, a Phase 3 ready experimental medicine with potential in multiple autoimmune indications, including inflammatory bowel disease and potentially multiple sclerosis. MT-1303 is a potentially best-in-class oral compound that targets the sphingosine 1-phosphate (S1P) receptor. This transaction is subject to customary closing conditions, including the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in the United States, and is expected to close in the fourth quarter of 2015.
In September 2015, Biogen announced that the first patient has been enrolled in the Phase 3 studies, ENGAGE and EMERGE, for its investigational treatment aducanumab for early Alzheimer’s disease.
In October 2015, Biogen presented new clinical data for its portfolio of MS therapies at the 31st meeting of the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS) in Barcelona, Spain. Presentations included results providing evidence for the strong and sustained efficacy of TECFIDERA in relapsing-remitting multiple sclerosis (RRMS) patients who were newly diagnosed or who were early in the course of disease, disability and cognitive outcomes data for ZINBRYTATM versus intramuscular interferon beta-1a, and additional Phase 2 results for anti-LINGO-1 in acute optic neuritis.
In October 2015, Biogen announced the top-line results from the Phase 3 ASCEND study evaluating natalizumab (TYSABRI) in secondary progressive multiple sclerosis. The study did not achieve its primary and secondary endpoints. Detailed results from the ASCEND study will be presented at a future medical meeting.
During the quarter, Roche announced positive results from two Phase 3 studies evaluating ocrelizumab compared with interferon beta-1a in RRMS as well as a Phase 3 study evaluating ocrelizumab versus placebo in primary progressive MS (PPMS). If approved for commercial sale by the FDA, Biogen will receive tiered royalties ranging between 13.5-24% of US net sales.
Biogen has ceased development of anti-TWEAK in lupus nephritis after a Phase 2 futility analysis. Biogen will provide more information on the anti-TWEAK program in future scientific presentations.
In August 2015, Biogen presented interim results from the Phase 3 B-YOND open label extension study of ALPROLIX in hemophilia B at 67th Annual Meeting for the National Hemophilia Foundation. These interim data showed that participants in the study maintained low bleeding rates with one to two week prophylaxis regimens. Safety results were typical of the hemophilia B populations studied.
In August 2015, interim results from the ASPIRE extension study of ELOCTATE in hemophilia A were published in Haemophilia. These data demonstrated that people on extended-interval prophylaxis regimens with ELOCTATE experienced low bleeding rates. Safety results were consistent with the general hemophilia A population.
In September 2015, Biogen and Swedish Orphan Biovitrum AB (Sobi) announced a positive recommendation from the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) for the marketing authorization of ELOCTA™ (rFVIIIFc). If approved, Sobi would lead commercialization in Europe.
In October 2015, Biogen, Sobi, and the World Federation of Hemophilia (WFH) announced that the first shipments of much-needed hemophilia therapy have started to arrive at treatment centers across the developing world. This initiative is the first phase of Biogen and Sobi’s ten-year commitment to produce up to 1 billion International Units (IUs) of hemophilia therapy for humanitarian use.
In September 2015, Biogen announced that it was named the biotechnology industry leader on the Dow Jones Sustainability World Index for the second year in a row. The company was also named to the Dow Jones Sustainability Index North America for the sixth consecutive year, one of only three biotech companies included.
In October, Biogen announced that Tony Kingsley, executive vice president, Global Commercial Operations, will leave the company and a search has been initiated for a permanent replacement. In the interim, his responsibilities will be assumed by John G. Cox, executive vice president, Pharmaceutical Operations & Technology.