2000 Biogen Annual Report

Transcription

Defining the Future
Biogen,Inc.
14 Cambridge Center
Cambridge, MA 02142
Telephone
617 679-2000
European Headquarters
Le Capitole
55 avenue des Champs Pierreux
92012 Nanterre
France
Telephone
33 1 41 37 95 95
www.biogen.com
ANNUAL REPORT 2000
Printing: Quebecor World - Universal
Photography: John Earle, Hans Sautter pg 23 center, Tony Stone Images pg23 top
In addition to historical information, this Annual Report contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995. Reference is made in particular to statements regarding expectations as to future financial results, including the potential growth of the market for AVONEX®,
the potential efficacy and uses of products in development, the timing of anticipated and ongoing clinical trials, expectations regarding trial results, regulatory filing and product
launch of AMEVIVE™, anticipated availability of future manufacturing capacity, the description of the Company’s plans, goals and objectives for future operations and future product
development, assumptions underlying such plans, goals and objectives and other forward-looking statements included in the Letter to Shareholders, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” (“MD&A”) and other sections of this Annual Report. Such statements are based on management’s current
expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements.
In particular, careful consideration should be given to cautionary statements made in MD&A, including under the heading “Outlook” and in the business section of the Company’s
Form 10-K under the heading “Risks Associated with Drug Development.”
Design: www.gillfishmandesign.com / Cambridge
IMPORTANT NOTE TO SHAREHOLDERS
To Our Shareholders
We made significant progress in
Phase II trials were very
every key area of our business:
encouraging. Psoriasis is the
• AVONEX® maintained its
leadership position in the highly
competitive multiple sclerosis
(MS) marketplace. Approximately 100,000 patients
throughout the world are on
AVONEX treatment.
• We announced more data
about AVONEX than in any year
since product launch. Everything
we have learned confirms the
importance of this drug in the
treatment of MS.
kind of focused and underserved
market that we understand.
There is considerable commercial potential for a novel therapy
in this indication, and we believe
AMEVIVE can do very well in this
marketplace.
• We focused our research
efforts, identifying four key
areas that combine considerable
market potential with Biogen’s
competitive research
advantages. We now have 20
research projects underway in
James C. Mullen
President and
Chief Executive Officer
During the past year, Biogen
• We made significant progress
the areas of immunology, cancer,
made enormous strides in
in our clinical development
neuroscience and fibrosis.
James L. Vincent
Chairman of the Board
maintaining our AVONEX®
programs. In January 2001, we
We also made great strides in
(Interferon beta-1a) market
announced positive results of the
transforming our research
leadership, moving our pipeline
Phase II trials of ANTEGREN®
organization to respond to and
compounds closer to market,
(natalizumab) in MS and Crohn’s
anticipate the opportunities
and refocusing our research
disease. We expect to begin
and challenges generated by
program to capitalize on the
Phase III trials in both indications
the genomics era.
advances of the genomics
later this year. We are collabo-
revolution.
rating with Elan Corporation
on the development of this
promising drug.
• We delivered on our financial
goals. On an operating basis,
Earnings Per Share were $1.75,
an increase of 20 percent over
• We will report results of the
1999. Reported Net Income for
Phase III clinical trials of
2000 was $334 million, or
AMEVIVE™ (alefacept) in chronic
$2.16 per share. Total Revenues
plaque psoriasis during the first
half of 2001. Data from our
Defining the Future
Biogen’s Strategy for Building Our Company and
Increasing Shareholder Value
Shareholder Value
Commercial
Leverage
Product
Creation
Strategic
Research
Worldwide Capabilities
Integrated Experience
The “Pull” Paradigm
in Focused Markets
Sustainable Financial Strength
were $926 million, compared
The essay section of this
to our Customer Support lines.
We spent a great deal of time
to $794 million in 1999.
book features comments by
Five years after AVONEX market
refocusing our strategic research
Total AVONEX Sales were
several of Biogen’s key leaders,
entry, we still receive more
model. During the past few
$761 million, an increase of
who describe how we are
than 1,600 calls a day –
years, there has been a major
23 percent over 1999.
approaching the challenges
an extraordinary level of
paradigm shift in biology that will
of bringing our organization
patient interest.
lead to major changes in the way
With the successful introductions
of AVONEX in the U.S. and
to the next level.
We gain additional commercial
Europe in 1996 and 1997,
We learned many important
leverage through our highly
Biogen fulfilled its initial mission
lessons through the development
efficient sales model. Members
and vision of becoming an
and commercialization of
of our field force, known as Area
independent, global
AVONEX and these will stand
Business Managers, effectively
biopharmaceutical company.
us in good stead as we move
run small, independent
forward with our next generation
businesses. Annual revenue per
of products.
AVONEX Area Business Manager
Our next challenge is clear:
To transition from a
one-product company into a
multi-product company with
sustainable growth based on
constant introduction of
important novel therapeutics.
For example, the sales and
marketing model we developed
for AVONEX is easily reproducible.
is more than $8 million,
compared to a U.S. industry
average of $1 million.
drugs are discovered and
developed. The mapping of the
human genome and the
surrounding technologies that
have emerged from this effort
will have a profound impact on
our industry. Biology is still the
basis of this industry and is
Biogen’s fundamental strength.
Our research strategy is in place
and has already generated a
number of exciting new
This model is empowered,
This sales and marketing model
programs. Our challenge is to
efficient and global. It is
is important not only for AVONEX,
execute on this strategy to
customer driven and patient
but also because it can be
ensure a steady stream of
focused, reflecting the
reproduced as our next
pipeline drugs.
empowerment of patients and
generation of drugs comes on
their increasing partnership with
line. We can hire and train new
their physicians in making
specialty sales forces very rapidly
healthcare decisions. One
in the kinds of focused markets
example is found in the number
that we understand so well. We
of calls that come in each day
are already making plans for
The number of new partnerships
and collaborations announced
during the past year underscores
our increasing emphasis on
business development efforts.
AMEVIVE based on our highly
successful AVONEX model.
B I O G E N -3-
Selected Financial Information
Biogen, Inc. and Subsidiaries
Total Revenues
Research and Development
$926
Net Income
$3341
$303
$794
$221
$2202
$558
$177
$146
$412
$132
$139
$260
$89
$41
96
97
98
99
00
Cash and Investments
96
97
98
99
00
Shareholders’ Equity
$655
96
97
98
99
00
Diluted Earnings per Share
$682
$2.161
$1,106
$980
$517
$1.402
$719
$440
$536
$321
$484
$0.90
$0.58
$0.28
96
97
98
99
00
96
97
98
99
00
96
97
98
99
00
Dollars in millions, except for Diluted Earnings per Share.
1
Includes the effect of non-operational net pre-tax gains of $101 million, or $0.41 per share. 2 Includes the effect of a charge for the write-down of non-current marketable securities
of $15 million, or $0.06 per share.
We are collaborating with
drugs in the clinical pipeline,
Today, Biogen has in place the
Elan Corporation on ANTEGREN.
the industry is beginning to
world’s leading drug for multiple
In 2000, we began collaborating
experience shortages of manu-
sclerosis, and several promising
with Eos Biotechnology to
facturing capacity. Biogen has
product candidates, the first of
identify targets and develop
built ahead of need. Our large-
which, if results are good, should
therapeutics for the treatment
scale manufacturing facility
begin to reach the market in
of breast cancer. We also
currently under construction in
2002. In addition, we have a
in-licensed Neublastin from
Research Triangle Park, North
dynamic research pipeline that
NsGene of Denmark and are
Carolina, will give us capacity in
capitalizes on our historic
now studying this molecule’s
excess of 100,000 liters by
strength in biological research.
potential in the treatment of
2002. We will continue to be
Combined with our outstanding
peripheral neuropathies.
able to manufacture our
financial profile and a committed
Among our many other
expanding portfolio from
and dedicated group of
collaborations are a series of
research through commercial
employees, we are confident
research agreements that
stages. This makes us a strong
of meeting our objectives for
enable us to access promising
partner and gives Biogen a
the coming years.
genomics technologies.
unique competitive advantage
Biogen is also an industry leader
in manufacturing. With the
explosion of biopharmaceutical
over other biopharmaceutical
companies.
Because of our strong financial
base, we have been able to
make necessary and timely
James C. Mullen
President and
Chief Executive Officer
strategic investments in critical
areas like manufacturing and
bioinformatics.
James L. Vincent
February 6, 2001
B I O G E N -5-
A word from Jim Vincent . . .
The annual Letter to Shareholders is written jointly by Jim Mullen, Biogen’s Chief Executive Officer,
and me. It reports on our organization’s progress during the past year.
I am taking this opportunity to underscore the importance of the management transition in 2000 and the
quality of the individual leading Biogen through its next major period of growth.
Jim Mullen joined our Company in 1989 as Director, Facilities and Engineering, and was named
Vice President, Operations, in 1992. From 1996 - 1999, he served as Vice President, International,
with responsibility for building all Biogen operations outside North America.
From the beginning, it was apparent that Jim is an executive of exceptional quality, combining high
intelligence with discipline, vision and exceptional leadership skills. His many accomplishments include
creating our manufacturing and distribution operations, building our business operations outside the U.S.
and successfully registering and launching AVONEX throughout Europe. In his many different assignments,
Jim has consistently demonstrated his ability to identify, inspire and retain exceptionally talented
individuals, as well as the ability to lead large and diverse organizations and manage complex situations.
In my years with Biogen, I have watched our Company evolve from a research boutique to one of the
world’s leading global biopharmaceutical organizations. We are now in one of the most exciting times of
our history, as we meet the challenges of bringing the organization to its next operating level. I am
delighted an executive of Jim Mullen’s caliber is leading us at this critical time in our Company’s evolution.
James L. Vincent
-6 - B I O G E N
Biogen Product Portfolio
PROPRIETARY DRUGS
RESEARCH
PRE-CLINICAL
CLINICAL TRIALS
AVONEX® (INTERFERON BETA 1-A)
ON THE MARKET
65+ countries
including U.S.,
Europe, Canada
Relapsing Forms of MS
Worldwide
regulatory
review pending
Monosymptomatic MS (CHAMPS)
Dose Comparison MS
Phase III*
Secondary Progressive MS
Phase III*
Primary Progressive MS
Worldwide
regulatory
filing pending
Pilot Study*
Inhaled Formulation
Phase I
Liquid Prefilled Syringe
Phase I
AMEVIVE™ (ALEFACEPT)
Moderate-to-Severe Psoriasis
Phase III*
Rheumatoid Arthritis
Phase II
ADENTRI™ (ADENOSINE A1 RECEPTOR ANTAGONIST)
Congestive Heart Failure
Phase I
ANTEGREN® (NATALIZUMAB)
MS
Phase II*
Crohn’s disease
Phase II*
LT BETA RECEPTOR ANTAGONIST
Autoimmune
Phase I
INTERFERON BETA GENE THERAPY
Oncology
Preclinical
LT BETA RECEPTOR MONOCLONAL ANTIBODY
Oncology
Preclinical
20 active
research
programs
RESEARCH
* Completed
OUT-LICENSED DRUGS
CLINICAL TRIALS
INTRON® A
(INTERFERON ALFA-2B, RECOMBINANT)
PENDING REGULATORY
APPROVAL
SCHERING-PLOUGH
Hepatitis B and C, certain cancers
HEPATITIS B VACCINES
HEPATITIS B DIAGNOSTICS
ANGIOMAX™ (formerly Hirulog®)
ON THE MARKET
Global
GLAXO SMITHKLINE, MERCK
Global
ABBOTT AND OTHERS
Global
THE MEDICINES COMPANY
Angioplasty
Acute coronary syndromes
Awaiting
European
regulatory
review
U.S.,
New Zealand
GAMMA INTERFERON
SHIONOGI
Japan
IL-2
SHIONOGI
Japan
B I O G E N -7-
Participants in this
discussion included:
Peter N. Kellogg
Vice President, Finance and
Chief Financial Officer
Burt A. Adelman, M.D.
Vice President, Medical Research
Michael Gilman, P.h.D.
Vice President, Research
Mark W. Leuchtenberger
Vice President, International
John W. Palmer
Vice President,
Program Management
Robert A. Hamm
Vice President,
Sales and Marketing
Sylvie L. Grégoire, Pharm.D.
Vice President, Manufacturing
Toshio Nakata, D.Sc.
President, Biogen Japan Ltd.
Cornelis ‘Kees’ Been
Vice President, Business and
Market Development
At the January 2001
JP Morgan Chase H&Q Lifesciences Conference,
Biogen’s CEO Jim Mullen told the
financial community:
“Biogen’s next great challenge is
to transition from being
a one-product company into a
multi-product company.”
We asked a group of Biogen’s
senior managers how they are going to meet
this challenge. Here’s what they said . . .
B I O G E N -9-
• Landmark CHAMPS study published in the New England Journal of Medicine • Submitted worldwide regulatory filings for expanded label indication for
patients at high risk • CHAMPS data one of the top ten medical advances of the year as ranked by the Harvard Health Letter • CHAMPS data indicates
promising results showing that AVONEX significantly reduces the rate at which people at high risk for MS actually develop clinically definite disease
• Dose comparison study shows currently marketed AVONEX dose is the optimal dose • Reported promising data in a pilot study in primary
progressive MS, a particularly severe form of the disease
Avonex
Q: AVONEX® (Interferon beta-1a),
Biogen’s lead proprietary
product, has been on the market
for several years. Is there still life
in AVONEX?
Bob Hamm: Absolutely. AVONEX
is the market leader and is being
prescribed to treat over 100,000
patients worldwide. That’s a lot of
patients, yet only 35 percent of
people with MS are on one of the
available therapies today. There’s
considerable room for growth in
this marketplace.
In 2000, we announced more new
data about AVONEX than in any
other year since product launch.
These data are based on
rigorous clinical trials and gave
us important new information
about AVONEX in Primary
Progressive MS, Secondary
Progressive MS, Early Stage MS
and cognition.
The results of the landmark
CHAMPS study were outstanding. These data, which are
now under review by regulatory
authorities worldwide, indicate
that AVONEX significantly reduces
the rate at which people at high
risk for MS actually developed
clinically definite disease. The
prestigious “Harvard Health
Letter” listed this study as one of
the top 10 medical advances of
the year 2000.
And that’s not all. Our dose
comparison trial confirmed that
the currently marketed dose –
30 mcg – is optimal. We believe
this study puts to rest all
questions about dose and
supports the hypothesis that
biological products are different
from conventional medicines
like aspirin.
All this will help us enlarge the
category of patients who will
benefit from AVONEX and set the
stage for future advances in the
treatment of MS.
Q: That’s impressive news
about AVONEX. How do you plan
to translate all this into the
marketplace?
Hamm: We have several clear
marketing objectives for 2001.
Bob Hamm is Vice President, Sales and Marketing
Mark Leuchtenberger is Vice President, International
®
We are working to differentiate
AVONEX from its competitors
based on Biogen’s sound science.
Our clinical trials are rigorously
designed and our results based
on sound scientific evidence.
We will continue our educational
efforts to explain that MS is more
than just relapses. It is not
enough to treat symptoms –
the insidious underlying nature of
this disease needs to be treated.
AVONEX has been shown to have
significant impact on slowing
the accumulation of physical
disability. Recent published
papers show the effect of AVONEX
on cognition loss and brain
atrophy, which have such a
devastating impact on the lives of
people with MS.
Biogen has demonstrated a
long-term commitment to fighting
MS with sound science and
appropriate research. The MS
community is increasingly
looking to Biogen to lead the
way. The confidence it places in
us also provides an important
marketing advantage.
Q: What about Europe?
You’re facing a different kind of
competitive challenge there.
What are you doing about it?
Mark Leuchtenberger: The
difference in the competitive
challenge for us in Europe is the
presence of a third interferon
beta. We have launched an
aggressive initiative based on the
efficacy of AVONEX. The new
clinical data from CHAMPS, the
results of the dose comparison
trial and those of the IMPACT
study of patients with secondary
progressive MS, underscore the
messages that differentiate
AVONEX from other treatments.
We experienced some market
share loss in the beginning of the
year, and that was disappointing.
I am very proud of the way
Biogen’s international
organization rallied and came
back. We finished the year on
a high note and reported some
increases in market share, while
achieving an overall stabilization
of share.
Top: MS hasn’t stopped AVONEX
Left: TV star David Lander
Center: Dr. Tim Vartanian of
Right: Biogen’s Customer Support
patient Susan Krieg of Indianapolis,
(“Squiggy” on “Laverne and
Beth Israel Deaconess Medical
Center handles more than 1,600
IN, from competing in marathons.
Shirley”) kept his MS secret for
Center in Boston, MA was an
calls every day from physicians,
More than 100,000 people with MS
years. Today, he is active in
investigator in the CHAMPS study,
patients and family members
throughout the world are now on
speaking to patient groups about
which demonstrated that AVONEX
seeking information about AVONEX,
AVONEX therapy.
his experiences and the significant
significantly reduces the rate at
MS and associated issues.
improvement AVONEX has made
which people at high risk for MS
in his life.
actually develop clinically definite
disease.
B I O G E N - 11 -
• Anticipated product launch in second half of 2002 • Completed Phase III dosing ahead of schedule
• More than 100 clinical trial sites in North America and Europe • More than 1,500 people tested to date • Promising Phase II results demonstrate longterm remission of up to 17 months post-treatment • No disease rebound effect or increased risk of infection seen in clinical trials to date
Amevive
™
Q: Some people have been
critical of Biogen’s development
pipeline. Is this criticism
well-founded ?
Burt Adelman: There’s more to
Biogen’s pipeline than many
people recognize. We have to
keep demonstrating strong results
to change this perception to
reflect reality. We currently have
three drugs in the clinic –
AVONEX, AMEVIVE, and – with
our partner, Elan Corporation –
ANTEGREN. We plan to double
the number of Biogen drugs in
the clinic during 2001. Human
trials of ADENTRI, our Adenosine
A1 receptor antagonist, began
in the first quarter, as did trials
with soluble lymphotoxin beta
receptor antagonist. Interferon
beta gene therapy trials in glioma
are scheduled to begin later
in the year.
appropriate for treating a range of
autoimmune disorders by
selectively targeting pathogenic
T-cell subsets. From the results of
our clinical studies in psoriasis,
we believe we have a drug that
can provide prolonged disease
remission with an improved
safety profile over current
therapies.
We have an aggressive timeline
for this drug. We will have data
from our Phase III clinical trials
in chronic plaque psoriasis by
mid-year 2001, expect to file
with regulatory authorities before
year-end, and are on track for an
anticipated product launch in the
second half of 2002.
Let’s start with AMEVIVE.
AMEVIVE is a fusion protein whose
mechanism of action is
Burt Adelman, M.D., is Vice President, Medical Research
Q: There are psoriasis therapies
already on the market. What
advantage do you see with
AMEVIVE ?
Adelman: There are
approximately one million people
worldwide with moderate-tosevere psoriasis. While there are
reasonably effective therapies
currently available, they usually
provide only short-lived
improvements and have
numerous side effects. There’s
room in the marketplace for a
drug that provides prolonged,
durable remission and safe
clearance of disease without
systemic toxicity. This creates an
opportunity environment for
AMEVIVE.
Our Phase II results indicated
a very promising AMEVIVE profile
with some patients in remission
for up to 17 months posttreatment. Twenty-four percent of
patients cleared disease after one
course of therapy. There were no
significant side effects, such as
increased risk of infection or
malignancy, and no systemic
organ toxicity or cytokine release
syndrome. Of particular
importance, there was no
“rebound effect.” This is very
important because when current
therapies are discontinued due to
toxic side effects, the disease
comes back – often more severely
than before. With no known
“rebound effect,” AMEVIVE can
potentially provide long-term
improvement in quality of life
together with meaningful
disease control.
Top: Dr. Ivor Caro of
Left: AMEVIVE is a fusion protein
Center: Phase II clinical studies of
Right: About 1,000,000 people
Massachusetts General Hospital
with a mechanism of action
AMEVIVE demonstrated a profile
throughout the world suffer from
is currently an investigator in a
appropriate for treating a range of
with some patients in remission for
moderate-to-severe psoriasis.
long-term retreatment study of
autoimmune disorders.
up to 17 months post-treatment,
Many patients avoid social
AMEVIVE in patients with moderate-
no significant side effects and no
situations like swimming in which
to-severe chronic plaque psoriasis.
“rebound effect.” Biogen has taken
their disease is apparent. A drug
Some of the patients in the study
AMEVIVE from discovery through the
like AMEVIVE that can potentially
have received up to four courses of
clinic and expects to be on the
provide long-term improvement
AMEVIVE over the past three years.
market in 2002.
in quality of life together with
meaningful disease control
can play an important role in
the marketplace.
B I O G E N - 13 -
• Partnership established with Elan Corporation in August 2000. • A novel anti-inflammatory that binds to alpha-4 integrins
• Positive Phase II results in MS and Crohn’s disease • Development in Crohn’s represents new opportunity for Biogen
Antegren
®
Q: We heard some exciting
things about ANTEGREN
(natalizumab), on which Biogen
and Elan Corporation are
collaborating. Can you tell us
something about it?
Burt Adelman: In August 2000,
Biogen and Elan Corporation
announced a worldwide, exclusive
collaboration to develop,
manufacture and commercialize
ANTEGREN (natalizumab), an
exciting new compound based on
a novel pathway. Early in 2001,
we announced positive results
from preliminary analyses of two
large Phase II clinical studies in
MS and Crohn’s disease. Biogen
and Elan have now begun
planning Phase III clinical studies
in both diseases.
Scientists at Elan Corporation
discovered ANTEGREN in the early
1990s. It is a humanized
monoclonal antibody, the first in a
new class of potential therapeutics
known as alpha 4 integrin
inhibitors that are designed to
block immune cell adhesion
to blood vessel walls and
subsequent migration of
lymphocytes into tissue.
ANTEGREN binds to the cell
surface receptors known as
alpha-4-beta-1 (VLA-4) and
alpha-4-beta-7. Both Biogen and
Elan are pioneers in the study of
this pathway, which may be
useful in the treatment of a range
of inflammatory and noninflammatory diseases.
The Phase II study in MS involved
213 relapsing-remitting and
secondary progressive patients.
ANTEGREN achieved the primary
endpoint, showing a reduction of
greater than 80 percent in the
cumulative number of new
gadolinium-enhancing lesions
compared to baseline over the
six-month treatment period,
with a high degree of statistical
significance. ANTEGREN also
demonstrated a statistically
significant reduction in the
proportion of patients
experiencing MS relapses during
this period. It was well tolerated
from a safety perspective.
Burt Adelman, M.D., is Vice President, Medical Research
Q: How do the ANTEGREN
data thus far compare to AVONEX
in MS?
Adelman: To date, ANTEGREN has
demonstrated compelling
biological activity in MS that has
the potential to be very effective
as monotherapy and may have a
synergistic therapeutic effect in
combination with AVONEX. Both
Biogen and Elan see ANTEGREN
as an additional choice for MS
patients, for whom there still
remains an unmet medical need.
ANTEGREN should provide an
opportunity to meet the needs of
these patients.
Q: Crohn’s disease is an
important new therapeutic area
for Biogen. What have you seen
there in studies to date?
Adelman: Crohn’s disease is a
chronic inflammatory bowel
disease. It affects approximately
250,000 people in the U.S. and
about 350,000 in Europe.
Approximately half of all Crohn’s
patients have the moderate-tosevere form of disease. On
average, Crohn’s patients flare
two times per year. Very severe
flares may require hospitalization.
An estimated 50,000
hospitalizations occur each
year in the U.S. to treat severe
Crohn’s flares.
The Phase II study included 240
patients with moderate-to-severe
Crohn’s disease. ANTEGREN
demonstrated statistically
significant positive results on
multiple endpoints, including
response rate and induction of
remission as measured by the
Crohn’s Disease Activity Index
(CDAI). The CDAI is the standard
validated composite score for
Crohn’s disease that includes
measures of patient symptoms,
physician assessments and
laboratory tests.
Q: What are your longterm plans for ANTEGREN
development?
Adelman: Having demonstrated
important clinical activity of
ANTEGREN in two autoimmune
diseases, Biogen and Elan will be
looking carefully at other diseases
where this mechanism of action
may have an important role.
Biogen and Elan Corporation are
collaborating on ANTEGREN, a
humanized monoclonal antibody
that is the first in a new class of
potential therapeutics known as
alpha 4 integrin inhibitors. Studies
are now underway in MS and
Crohn’s Disease.
B I O G E N - 15 -
• Eight new programs in clinical development • Positive Phase II trials with proof-of-concept molecule for adenosine A1 receptor antagonist
• Second-generation adenosine A1 receptor enters the clinic • Soluble LT beta receptor antagonist moves into Phase I safety trials
Progress in Other Areas
Q: We hear the ADENTRI program
is back in the clinic.
John Palmer: Yes. The Phase II
trials with our proof-of-concept
molecule were positive. We have
completed pre-clinical studies
with our commercial molecule and
are now back in the clinic with this
highly selective small molecule
adenosine A1 receptor antagonist
for congestive heart failure. It
targets receptors in the kidney that
are clinically relevant for the
treatment of acute and chronic
congestive heart failure.
Q: What about soluble lymphotoxin beta receptor antagonist?
Palmer: As of April 2001, both
ADENTRI and LT beta receptor
antagonist were in the clinic. LT
beta receptor antagonist is a
compound that blocks a novel
pathway discovered by Biogen
scientists and to which we hold
worldwide rights. Blocking the
LT beta receptor pathway
regulates the critical positioning
of immune cells including
dendritic cells and lymphocytes
during an immune response.
We believe LT beta receptor
antagonist has disease-modifying
potential in autoimmune diseases.
Q: When will your gene therapy
trial begin?
Palmer: We expect to begin a
Phase I clinical trial of interferon
beta gene therapy in glioma later
this year. We have strong data
from animal models tested in
several other oncologic indications. Our hypothesis is that the
localized sustained production of
interferon beta could lead to
superior anti-tumor efficacy with
little or no systemic toxicity.
Q: What else can you tell us
about your program management
activities?
Palmer: In this past year our
pipeline has progressed
significantly in terms of moving
programs from research into
clinical development. Currently,
we have eight programs in various
stages of clinical development.
These are important milestones in
the assessment of the strength of
our pipeline. We are aggressively
growing and continue to transition
new products, from research
into development.
Q: Biogen now has operations
in Japan. Can you tell us about
your strategy for this important
market?
Toshio Nakata: Because Japan is
one of the largest pharmaceutical
markets in the world, it is very
important to Biogen’s continued
success as a global biopharmaceutical company. Our mission in
Japan is to establish the basis for
Biogen’s commercial capabilities.
We are going to do this in a
number of focused ways. By
establishing a clinical trials
program in the next few years,
we will lay the groundwork to
independently register and
license Biogen products now in
the pipeline. By developing
strategic alliances, we will be able
to secure appropriate partnerships
to market, sell and explore inlicensing opportunities. To achieve
these goals, I will be working over
the course of the year to put in
place a dynamic management
team to lead Biogen’s commercial
operation in Japan.
Q: Biogen seems to be increasing
its business development activity.
What’s your strategy in this area?
Kees Been: We have such an
aggressive vision in terms of
growth that my group is very
John Palmer is Vice President, Program Management
Toshio Nakata, D.Sc., is President, Biogen Japan
Kees Been is Vice President, Business and Market Development
actively looking at a range of
opportunities and is at negotiating
stages in a number of projects.
To generate the successful growth
that we envision, we have to
significantly enhance our pipeline
through partnerships that will
provide even more products in
both early and late stage
development. We have many
advantages – our financial
strength, manufacturing and R&D
infrastructure and a sales and
marketing model – that make us a
desirable partner. We are small
and flexible enough so that inlicensed programs do not get lost
amid a “not-invented-here”
attitude. Each and every one of our
research and development projects
is important to us. We have unique
manufacturing capacity and we
have global reach.
Another important part of our
strategy is to invest in the
technologies to develop drugs
faster and cheaper. This has led
us to successful partnerships,
such as the collaboration with
EOS Biotechnology, to identify
targets and develop therapeutics
for the treatment of breast cancer.
We in-licensed Neublastin from
NsGene and are investigating its
potential therapeutic role in
peripheral neuropathies. These
current strategies will allow us
to always be on the forefront of
drug development.
A scientist works on gene
sequencing in a Biogen genomics
laboratory. The genomics revolution
provides an immediate driver for
change in the way drugs are
discovered and puts a stronger
premium than ever on experimental
biology, which is Biogen’s
unparalleled research strength.
B I O G E N - 17 -
• World-class biologics manufacturing • Building ahead of need, including new large-scale manufacturing facility in North Carolina’s Research
Triangle Park • Over 100,000 liters of capacity by 2002 • Exceeding industry standards, from groundbreaking to FDA licensing in 33 months
Manufacturing
Q: Biogen seems to have
successfully avoided the shortfall of manufacturing capacity
that is beginning to plague the
biopharmaceutical industry.
How have you managed this?
Sylvie Grégoire: Shortfall of
manufacturing capacity is
beginning to shape up as an
important rate-limiting problem
for the industry. However, Biogen
has built ahead, forecasting the
need. We anticipate having a
manufacturing capacity of more
than 100,000 liters by 2002.
This will be sufficient to meet the
needs of our marketed and
pipeline products, and should
make Biogen a particularly
attractive partner to other
companies that lack manufacturing capacity.
Q: Can you tell us something
about your large-scale
manufacturing (LSM) facility
in North Carolina’s Research
Triangle Park?
Grégoire: In addition to our
6,000-liter production facility in
Cambridge, Massachusetts, we
have a plant in North Carolina’s
Research Triangle Park that also
has a production capacity of
6,000 liters. This plant has
exceeded industry standards and
was fully validated after 18
months from the start of
construction. It received FDA
licensing in an unbelievable
record time, within 33 months
from groundbreaking. This
plant manufactures products for
worldwide distribution of
AVONEX.
Currently, we are completing a
250,000 square-foot facility
adjacent to our existing North
Carolina facility that represents
the best of Biogen’s strategic
planning and advanced
manufacturing process. In terms
of capacity, it will have 90,000
liters of production capacity. Our
experience in having already built
two major biological bulkmanufacturing sites in the U.S.
that are fully validated and
Sylvie Grégoire, Pharm.D., is Vice President, Manufacturing
approved to meet worldwide
requirements certainly
established an expertise that
we applied to the RTP facility.
When the LSM comes on line,
Biogen will have multi-product
capacity and flexibility to
manufacture many
different products.
Q: We are hearing about
companies rationing drugs
because they can’t keep up
with manufacturing needs.
It sounds like that won’t be a
problem for Biogen.
Grégoire: That’s right. Biogen’s
capacity for protein manufacturing is world-class in quality
and scale and is a core capability
for the company. Our new LSM
facility will further enhance our
capacity to manufacture bulk
protein and will be one of the
largest cell culture facilities in the
world. As we are building for the
future, we can point to our past
successes. When we launched
AVONEX, our manufacturing
capability proved to be a
competitive advantage. Unlike
other companies that had to rely
on a lottery system to make new
drugs available to patients,
Biogen’s manufacturing
capability produced sufficient
quantities of AVONEX to supply
patients within 33 hours after
FDA approval.
We are ready for the future.
In addition to our worldwide
manufacturing capabilities, we
recently established a packaging
facility outside Amsterdam that is
responsible for packaging AVONEX
for distribution in more than 50
countries. That’s not a small feat
when you consider the complexity
of different labels, packaging
inserts and languages.
Top: Manufacturing capacity
Center: Biogen has 6,000 liter
Right: Biogen’s first manufacturing
shortfall is becoming an important
production facilities in Cambridge,
operation outside the U.S. is a
rate-limiting problem for the
MA and Research Triangle
packaging facility outside
biopharmaceutical industry.
Park, NC, and is completing a
Amsterdam that is responsible for
Biogen has built ahead
250,000 square-foot facility in
packaging AVONEX for distribution
of the curve and anticipates
North Carolina.
in more than 50 countries.
manufacturing capacity in excess
of 100,000 liters by 2002.
B I O G E N - 19 -
• More than 20 projects in the research pipeline • Research strategy targeted to more than 90 diseases in four key areas - fibrosis, neoplasia (oncology),
immunomodulation and neurodegeneration • Biomining as a discovery strategy • Strategy focuses on diseases of unmet need and commercial potential
R&D / Genomics
Q: Let’s look a little further
into the future. What’s in
research phases behind Biogen’s
development pipeline?
Mike Gilman: We are working
hard in Research to keep the
clinical development pipeline full.
We are running 20 programs
in Research right now – most
focused on specific molecules that
we will bring forward for
development, as well as several
exploratory programs designed to
identify new candidate molecules
for us to work on. Our strategy in
Research is now very crisply
focused on four key biologies or
pathologies that underlie diseases
of strong commercial interest to
the company. These are immunomodulation, neoplasia (oncology),
fibrosis and neurodegeneration.
We have strong scientific
leadership in each of the focus
areas, and you can see this from
the quality of the programs we’re
now running.
Q: With the genomics revolution,
there has been a paradigm shift
in the way drugs are discovered
and developed. How is Biogen
capitalizing on this?
Gilman: The completion of the
mapping of the human genome is
a profoundly important event for
mankind, and it will change our
lives in ways we cannot imagine.
It provides an immediate driver
for change in how drugs are
discovered. The good news for
Biogen is that it puts a stronger
premium than ever on experimental biology, which is our
unparalleled strength. Over the
past two years, we’ve worked
hard to complement our depth in
biological research with a stateof-the-art genomics and
bioinformatics infrastructure.
And I think we’ve done a great
job of that.
Michael Gilman, Ph.D., is Vice President, Research
The challenge now is how to use
all this new information to
develop breakthrough therapies
for disease. There are basically
two different approaches you can
take. We call them “push” and
“pull.” A lot of companies are now
using a gene push strategy –
working from the long list of
genes the genome project has
given us and trying to “push”
those genes into one or another
therapeutic area. Sometimes you
get there, sometimes you don’t.
But we already know what areas
we are interested in – our four
focus areas – so we think it is
much more efficient to “pull”
genes out of these biological
systems that match a specific
hypothesis, test that hypothesis
as quickly as possible and then,
whatever the answer, move on.
With our enviable expertise in
biology and a genomics toolkit as
good as anyone has, we think
Biogen is perfectly positioned to
exploit this new golden age of
biology and to deliver a steady
stream of high-quality drug
candidates into the clinical
development pipeline.
Biogen’s research strategy is
focused on four key biologies that
underlie diseases of considerable
commercial interest to the
company – immunomodulation,
oncology, fibrosis and
neurodegeneration. Biogen is
harnessing the discoveries of the
genome to “pull” genes out of
biological systems that correspond
to these focus areas.
B I O G E N - 21 -
• Financial discipline and financial strength • Making key strategic investments for the future – manufacturing and commercial infrastructure
• Attractive growth story • Excellent profit margins • Positive cash flow • Negligible debt • Significant amount of cash
Defining the Future
Q: 2000 was a wild year in the
stock market for the biotechs.
With that behind us, how well is
Biogen’s stock positioned as an
investment today?
Peter Kellogg: At the beginning of
last year, the financial markets
were buzzing over the excitement
of genomics and the discovery of
the human genome. And, indeed,
we are entering a breakthrough
period for drug discovery and
development. But, as has been
the case with many technology
breakthroughs, investors evolve
to searching for who the winners
will be, and this drives a refined
view of success.
The gene data is now available,
and the challenge now is defining
a gene’s function and matching it
to known biologic systems.
Accordingly, investors are now
asking the tougher questions:
Which companies can leverage
the genomic data? Who can
convert this newfound knowledge
into successful products? Who
can commercialize these
products globally?
This is where Biogen has a
tremendous advantage, a proven
track record, and becomes a great
investment opportunity. We’ve
made great progress in building a
growth formula.
Our research strategy involves
tapping the genomics knowledge
base and applying the latest
technologies to drive productivity,
which should bring at least three
new clinical candidates in both
2001 and 2002.
The late-stage pipeline has been
enhanced with the completion of
Phase III AMEVIVE trials and
successful Phase II results with
ANTEGREN. Both are products
that could equal or exceed
AVONEX in sales.
AVONEX market share has
stabilized and we have just
completed several successful
trials reconfirming its outstanding
efficacy, which, combined with a
strong sales and marketing
investment, should continue to
drive momentum in 2001.
Finally, Biogen has operated with
strategic foresight. Our strong
Peter Kellogg is Vice President, Finance and CFO
Jim Mullen is President and CEO
financial position has allowed us
to invest ahead in manufacturing
capacity, which will be scarce in
our industry for years to come,
and global commercial infrastructure, eliminating some of the
barriers to commercialization that
our competitors will face.
All of this is adding up to a
compelling growth story for
Biogen. I’m very bullish about
Biogen’s prospects.
Q: It’s clear that you’re building
a dynamic vision for Biogen.
With some of the changes
discussed here, how far along
are you in ‘Defining the Future’
at Biogen?
Jim Mullen: Well, Jim Vincent’s
note highlighted our strong sense
of change at Biogen. I’m honored
and excited to be the CEO, but the
changes at Biogen are far more
sweeping than one person. A big
part of ‘Defining the Future’ is
building the organization to
take us there.
Our management team has
several new members. Over the
past two years, we have
appointed a new CFO, CIO and
new Vice Presidents of Manufacturing , Sales & Marketing and
Research, among several others.
This team is already having a
tremendous impact. Throughout
the organization, we have built
outstanding capability in critical
areas such as bioinformatics,
product development and clinical
management. I’m very proud of
the progress we have made and
believe that this organization is
ready for the growth ahead.
At Biogen, we’re ‘Defining the
Future’ through:
• World-class research that
leverages the genomics
revolution, and can win the
ensuing race for biologic solutions
and biopharmaceutical products.
• Patient-focused solutions,
developing drugs to address the
critical unmet medical needs of
patients with serious and chronic
life-affecting diseases.
• Unparalleled commercial
strengths coupled with the
capability and capacity to develop
and manufacture drugs faster and
more efficiently than ever.
Biogen is now poised to take
the next major steps toward
becoming a global, multi-product
company. We are a motivated
organization driving change.
Biogen is well on the way to
‘Defining the Future’ and
building one of the most dynamic
biotechnology companies of
this decade.
Top: Biogen has direct operations
Left/Right: Biogen’s excellence in
Center: CEO Jim Mullen and Toshio
in the U.S., Canada, 13 European
molecular biology brought the
Nakata, President, Biogen Japan,
countries and Japan, with active
company to its position of
meet in Biogen’s Tokyo offices.
distributor relationships in more
leadership in today’s biopharma-
than 50 other countries. Direct
ceutical industry – and embodies
operations came on line in Japan in
the company’s strategy for
2001. Japan is the world’s
the future.
third largest pharmaceutical
market and represents an
important opportunity. Biogen
will commercialize, register
and market its drugs there.
B I O G E N - 23 -
Financials
26
27
36
37
38
39
40
55
56
57
58
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’ Equity
Notes to Consolidated Financial Statements
Report of Independent Accountants
Senior Executives and Board Members
Shareholder Information
B I O G E N - 25 -
Selected Financial Data
(in thousands, except per share amounts)
Years Ended December 31,
Product revenue
Royalty revenue
Total revenues
Total costs and expenses
Income before income taxes
Net income
Diluted earnings per share
Cash, cash equivalents and shortterm marketable securities
Total assets
Long-term debt, less current portion
Shareholders’ equity
Shares used in calculating diluted
earnings per share
- 26 - B I O G E N
2000
1999
1998
1997
1996
$ 761,079 $ 620,636
165,373
173,799
926,452
794,435
598,096
478,184
487,105
329,016
333,577
220,450
2.16
1.40
$ 394,863
162,724
557,587
366,948
210,193
138,697
0.90
$ 239,988
171,921
411,909
285,787
148,968
89,167
0.58
$ 78,202
181,502
259,704
234,541
40,829
40,530
0.28
682,412
1,431,856
47,185
1,106,402
654,539
1,277,973
52,073
979,530
516,914
924,715
56,960
718,613
440,088
813,825
61,846
536,293
321,381
634,572
62,254
484,370
154,602
157,788
154,270
152,999
146,442
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 its AVONEX® (Interferon
beta-1a) product for the treatment of relapsing forms of multiple sclerosis (“MS”). 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.
Results of Operations 2000 As Compared to 1999
Revenues
Total revenues in 2000 were $926.5 million, as compared to $794.4 million in 1999, an increase of $132.1 million or
approximately 17%.
Product sales in 2000 were $761.1 million as compared to $620.6 million in 1999, an increase of $140.5 million or approximately
23%. Product sales from AVONEX® represent approximately 82% of the Company’s total revenues in 2000 as compared to 78% in 1999.
The growth in 2000 was primarily attributable to an increase in the sales volume of AVONEX® in the United States and in the fifteen
member countries of the European Union (“EU”). AVONEX® sales outside of the United States were approximately $208.5 million in 2000
as compared to $178.4 million in 1999.
Revenues from royalties in 2000 were $165.4 million, a decrease of $8.4 million or approximately 5% as compared to $173.8 million
of royalty revenue in 1999. Revenues from royalties represented approximately 18% of total revenues in 2000 as compared to 22% in
1999. The decrease in royalty revenues in 2000 over the comparable period in 1999 is primarily the result of reductions attributable to
patent expirations and lower licensee sales. See “Outlook – Royalty Revenue” and “Outlook – Patents and Other Proprietary Rights”.
In the near and long term, the Company expects to experience declining royalty revenues as a result of patent expirations, other patentrelated events and a potential decrease in sales by licensees of licensed products. In the near term, Biogen’s royalty revenues may also be
significantly affected as a result of a dispute with Schering-Plough Corporation (“Schering-Plough”) over twelve to eighteen months of
royalties payable by Schering-Plough on U.S. sales of its alpha interferon products, including INTRON® A. See “Outlook – Royalty
Revenue.” In addition, sales levels of products sold by the Company’s licensees may fluctuate from quarter to quarter due to the timing
and extent of major events such as new indication approvals or government sponsored programs. For a discussion of some of the factors
that may affect royalty revenues in the future, see “Outlook – Royalty Revenue” and “Outlook – Patents and Other Proprietary Rights”. The
Company expects product sales as a percentage of total revenues to continue to increase in the near and long term as the Company
continues to market AVONEX® worldwide, and as royalty revenues continue to decline, the Company also expects sales from AVONEX®
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 in and outside the United States from existing and new MS treatments that may impact sales of
AVONEX®. See “Outlook – Competition”.
Costs and expenses
Total costs and expenses in 2000 were $598.1 million as compared to $478.2 million in 1999, an increase of approximately 25%.
Cost of revenues in 2000 totaled $125.2 million, an increase of $14.2 million or 13% as compared to 1999. The increase in cost of
revenues was attributable to the higher sales volume of AVONEX®. Included in cost of revenues in 2000 and 1999 is $112.9 million and
$96.9 million, respectively, from product sales and $12.3 million and $14.1 million, respectively, relating to royalty revenue. Gross
margins on product sales increased to approximately 85% for the period ended December 31, 2000 compared to 84% for the same
period in 1999. Gross margins on royalty revenue increased to approximately 93% for the period ended December 31, 2000 compared to
92% for the same period in 1999. The Company expects that gross margins on royalty revenue will fluctuate in the future based on
changes in sales volumes for specific products.
Research and development expenses in 2000 were $302.8 million, an increase of $81.6 million or 37% as compared to $221.2
million in 1999. The increase was primarily due to an increase in clinical trial costs of $35.9 million, the costs associated with an increase
in the Company’s other development efforts related to its ongoing research and development programs of $14 million and the funding of
collaboration agreements of $12.4 million. The Company expects that, in the near and long-term, research and development expenses
will increase as the Company continues to expand its development efforts with respect to new products, conducts clinical trials of these
products and continues work on new formulations and delivery methods for AVONEX®.
Selling, general and administrative expenses in 2000 were $170.1 million, an increase of $24.1 million or 17% as compared to 1999.
This increase was primarily due to an increase in selling and marketing expenses related to the sale of AVONEX®. The Company expects
B I O G E N - 27 -
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
that selling, general and administrative expenses will continue to increase in the near term as the Company continues to expand its sales
and marketing organizations necessary to sell AVONEX® worldwide and as the Company expands in anticipation of additional products.
Other income, net
Other income, net consists of interest income, partially offset by interest expenses and other non-operating income and expenses. Other
income, net in 2000 was $158.7 million as compared to $12.8 million in 1999, an increase of $145.9 million. Interest income in 2000
was $43 million compared $35.4 million in 1999, an increase of $7.6 million or 21% due to higher average yields and an increase in
funds invested. The Company expects interest income to vary based on changes in the amount of funds invested and fluctuations in
interest rates. Interest expense decreased $0.3 million or 7% in 2000 from 1999. Other income (expense) increased by $138.1 million in
2000 from 1999. Other income (expense) for the period ended December 31, 2000 included gains on the sale of certain non-current
marketable securities totaling approximately $101.1 million. Additionally, the Company realized gains of approximately $24.1 million
upon the acquisition of two of its investees by third parties. Other income (expense) for the period ended December 31, 1999 included a
$15 million write-down of certain non-current marketable securities.
Other income, net consists of the following (in thousands):
2000
1999
Interest income
Interest expense
Other income (expense)
December 31,
$ 42,965
(4,310)
120,094
$ 35,407
(4,639)
(18,003)
Total other income, net
$ 158,749
$ 12,765
Income taxes
The Company’s effective tax rate in 2000 was 31.5%. Income tax expense for 2000 varied from the amount computed at the U.S.
federal statutory rates primarily due to higher sales in European jurisdictions with lower tax rates and to the utilization of research and
development tax credits. The Company’s effective tax rate outside the U.S. is lower than the U.S. tax rate, and the Company expects that
the U.S. tax rate will decline as a percentage of its total tax rate as international sales increase.
Results of Operations 1999 As Compared to 1998
Revenues
Total revenues in 1999 were $794.4 million, as compared to $557.6 million in 1998, an increase of $236.8 million or approximately
42%.
Product sales in 1999 were $620.6 million as compared to $394.9 million in 1998, an increase of $225.7 million or approximately
57%. Product sales from AVONEX® represent approximately 78% of the Company’s total revenues in 1999 as compared to 71% in 1998.
The growth in 1999 was primarily attributable to an increase in the sales volume of AVONEX® in the United States and in the fifteen
member countries of the European Union (“EU”). AVONEX® sales outside of the United States were approximately $178.4 million in 1999
as compared to $92 million in 1998.
Revenues from royalties in 1999 were $173.8 million, an increase of $11.1 million or approximately 7% as compared to $162.7
million of royalty revenue in 1998. Revenues from royalties represented approximately 22% of total revenues in 1999 as compared to
29% in 1998. The increase in royalty revenues in 1999 over the comparable period in 1998 is primarily the result of royalties received on
increased sales of alpha interferon.
Costs and expenses
Total costs and expenses in 1999 were $478.2 million as compared to $366.9 million in 1998, an increase of approximately 30%.
Cost of revenues in 1999 totaled $111 million, an increase of $36.5 million or 49% as compared to 1998. The increase in cost of
revenues was attributable to the higher sales volume of AVONEX®. Included in cost of revenues in 1999 and 1998 is $96.9 million and
$62.1 million, respectively, from product sales and $14.1 million and $12.4 million, respectively, relating to royalty revenue. Gross
margins on product sales remained constant at approximately 84% for the period ended December 31, 1999 compared to the same
period in 1998. Gross margins on royalty revenue remained constant at approximately 92% for the period ended December 31, 1999
compared to the same period in 1998.
Research and development expenses in 1999 were $221.2 million, an increase of $44 million or 25% as compared to
$177.2 million in 1998. The increase was primarily due to an increase in clinical trial costs, the costs associated with an
- 28 - B I O G E N
increase in the Company’s other development efforts related to its ongoing research and development programs and the funding
of collaboration agreements.
Selling, general and administrative expenses in 1999 were $146 million, an increase of $30.8 million or 27% as compared to 1998.
This increase was primarily due to an increase in selling and marketing expenses related to the sale of AVONEX®.
Other income, net
Other income, net consists primarily of interest income, partially offset by interest expenses and other non-operating income and
expenses. Other income, net in 1999 was $12.8 million as compared to $19.6 million in 1998, a decrease of $6.8 million or
approximately 35%. Interest income in 1999 was $35.4 million compared to $28.3 million in 1998, an increase of $7.1 million or 25%
due to an increase in funds invested. Interest expense decreased $1.3 million or 22% in 1999 from 1998. Other expense increased by
$15.2 million in 1999 from 1998, due primarily to a $15 million write-down related to certain non-current marketable securities in the
second quarter of 1999.
As part of its strategic product development efforts, the Company invests in equity securities of certain biotechnology companies with
which it has collaborative agreements. In December of 1996, Biogen purchased approximately 1.5 million shares of Creative
BioMolecules, Inc. common stock for $18 million. In March of 1997, Biogen purchased approximately 670,000 shares of CV
Therapeutics, Inc. common stock for $7 million. In March of 1998, the Company purchased approximately 435,000 shares of CuraGen
common stock for $5 million and converted 100,000 shares of CuraGen Series E Preferred Stock valued at $1 million to CuraGen
common stock. Each of these small emerging companies is principally engaged in researching, developing or manufacturing drugs for
human health care.
As a matter of policy, Biogen determines on a quarterly basis whether a decline in the fair value of a marketable security is other than
temporary. Unrealized gains and losses on marketable securities are included in other comprehensive income in shareholders’ equity, net
of related tax effects. If a decline in the fair value of a marketable security below the Company’s cost basis is determined to be other than
temporary, such marketable security is written down to its estimated fair value with a charge to current earnings.
Up through and including the assessment at June 30, 1999, the Company concluded that substantial evidence existed suggesting that
the value of the investments described above would recover to at least the Company’s purchase price. Such evidence included the
prospects for favorable clinical trial results, new product initiatives and new collaborative agreements. However, given the lack of any
substantial price recovery during the quarter ended June 30, 1999, and the amount of time elapsed since the decline in value began, the
Company concluded that it had become unclear over what period such price recovery would take place. As a result, it was determined that
the positive evidence suggesting that the investments would recover to at least the Company’s purchase price was not sufficient to
overcome the presumption that the current market price of the investments was the best indicator of value at June 30, 1999. Accordingly,
the related unrealized losses of approximately $15 million were recognized as other expense in the second quarter of 1999.
Income taxes
The Company’s effective tax rate in 1999 was 33%. Income tax expense for 1999 varied from the amount computed at the U.S. federal
statutory rates primarily due to increased European sales and to the utilization of research and development tax credits. The Company’s
effective tax rate outside the U.S. is lower than the U.S. tax rate.
Financial Condition
At December 31, 2000, cash, cash equivalents and short-term marketable securities were $682.4 million compared with $654.5
million at December 31, 1999, an increase of $27.9 million. Working capital decreased $12.7 million to $707.3 million. Net cash from
operating activities for the year ended December 31, 2000 was $365.9 million compared with $363.6 million in 1999. Cash outflows
from investing activities during 2000 included investments in property and equipment and patents of $199.1 million and investments in
collaborative partners of $5 million. Net cash inflows from investing activities related to marketable securities was $99.1 million.
Significant cash outflows from financing activities included $300.2 million for purchases of the Company’s common stock under its stock
repurchase program and $4.9 million for repayments on loan agreements with banks. Cash inflows from financing activities included $36
million from common stock option exercises and employee stock purchase plan activity.
In August 1995, the Company entered into a loan agreement with a bank for financing the construction of its biological manufacturing
facility in North Carolina (the “Construction Loan”). During 1997, the Company completed construction of the facility and the funds
advanced under the Construction Loan were converted to a floating rate ten-year term loan with principal and interest payable quarterly.
As of December 31, 2000, the Company had $36.2 million outstanding under the Construction Loan. The Construction Loan is secured
by the underlying building. The Company also entered into an interest rate swap agreement with the same bank, fixing its interest rate on
B I O G E N - 29 -
the Construction Loan at 7.75% during the remaining term of the loan with interest payable quarterly. In addition, as of December 31,
2000, the Company had $15.8 million outstanding under a floating rate loan with a bank (the “Term Loan”). The Term Loan is secured by
the Company’s laboratory and office building in Cambridge, Massachusetts. The Company has fixed its interest rate on the Term Loan at
7.5% under the terms of an interest rate swap agreement. Terms of the Company’s loan agreements include various covenants, including
financial covenants which require the Company to maintain minimum net worth, cash flow and various financial ratios.
On December 18, 2000, the Company announced that its Board of Directors had authorized the repurchase of up to 4 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
through 2001. The stock repurchase program may be discontinued at any time. In November of 2000, the Company completed a
previous stock repurchase program. During 2000, the Company repurchased approximately 4.6 million shares of its common stock under
this program at a cost of $300.2 million.
On October 4, 1999, the Company began construction of its new research and development center in Cambridge, Massachusetts. The
new 224,000 square foot building is expected to be completed in the spring of 2001 at a total cost of approximately $95 million, of which
$81.4 million had been committed at December 31, 2000. Additionally, the Company is completing plans to build a large scale
manufacturing plant in Raleigh, North Carolina. The Company expects that construction will be completed at the end of 2001 at a total
cost of approximately $175 million of which $141.9 million had been committed at December 31, 2000.
In September 2000, the Company signed a research and development agreement (the “Eos Agreement”) with Eos Biotechnology, Inc.
(“Eos”), under which the Company and Eos will collaborate in the research and development of novel targets for antibody and protein
therapeutics in the area of breast cancer. Under the Eos Agreement, the Company purchased 1.9 million shares of preferred stock of Eos
for $5 million. In addition, the Company paid a one-time, non-refundable license fee of $6 million, which was charged to research and
development expense and acquired certain exclusive, worldwide rights related to breast cancer-specific molecules for the use in the
development of new antibody and secreted protein therapeutics. The Company accounts for its investment in Eos, which is included in
other assets, using the cost method of accounting. The Company provided Eos with research and development funding of $250,000 in
2000. The Company expects to fund research activities of Eos related to the collaboration of up to $1.5 million in 2001.
In August 2000, the Company signed a development and marketing collaboration agreement (the “Antegren Agreement”) with Elan
Corporation, plc (“Elan”) under which the Company and Elan collaborate in the development, manufacture and commercialization of
ANTEGREN®, a humanized monoclonal antibody and alpha 4 integrin inhibitor. Under the terms of the Antegren Agreement, Biogen and
Elan will share costs for on-going development activities. The Company paid a one-time, non-refundable license fee of $15 million, which
was charged to research and development expense.
In October 1997, the Company signed a research and option agreement (the “CuraGen Agreement”) with CuraGen Corporation
(“CuraGen”) under which the Company and CuraGen collaborate in the discovery of novel genes using CuraGen’s functional genomics
technologies. The Company provided CuraGen with research and development funding of $1.5 million, $1.1 million and $1.9 million in
2000, 1999 and 1998, respectively. The Curagen Agreement was terminated in September 2000 and all investments in CuraGen
common stock were sold during 2000.
In March 1997, the Company signed a research collaboration and license agreement (the “CVT Agreement”) with CV Therapeutics,
Inc. (“CVT”) under which Biogen obtained rights under CVT’s patents and know-how to develop and market molecules that act as highly
selective antagonists of the adenosine A1 receptor, for the treatment of congestive heart failure. Under the terms of the CVT Agreement, the
Company purchased approximately 670,000 shares of CVT common stock at the then fair value for $7 million and paid a one-time
license fee of $5 million, which was charged to research and development expense. The investment in CVT is classified as available-forsale and is included in long-term marketable securities. At December 31, 2000 the Company retained approximately 670,000 shares of
CVT common stock.
In December 1996, the Company signed a research collaboration and license agreement (the “CBM Agreement”) with Creative
BioMolecules, Inc. (“CBM”) under which Biogen obtained rights to develop and market CBM’s morphogenic protein, OP-1, for the
treatment of renal disorders. Under the CBM Agreement, the Company purchased 1.5 million shares of CBM common stock for $18
million. The payment for the common stock included a $1.2 million premium over the fair value of the common stock which was charged
to research and development expense. The Company provided $10 million in research and development funding, which was charged to
expense as provided in 1998. The CBM Agreement terminated at the end of 1999 and all investments in CBM common stock were sold
during 2000.
In July 1996, the Company signed a collaborative research and commercialization agreement (the “Ontogeny Agreement”) with
Ontogeny, Inc. (“Ontogeny”), a private biotechnology company, for the development and commercialization of three specific hedgehog cell
proteins, a class of novel human proteins, that are responsible for reducing the formation or regeneration of tissue. Under the Ontogeny
- 30 - B I O G E N
Agreement, the Company purchased 400,000 shares of preferred stock of Ontogeny for $1 million and acquired certain exclusive,
worldwide rights related to products based on the hedgehog proteins for most disease areas. In November 1998, the Company extended
and expanded its collaboration with Ontogeny and provided to Ontogeny a $4 million convertible loan. In June 1999, the loan was
converted into 800,000 shares of Ontogeny Convertible Preferred Stock. The Ontogeny Agreement was terminated in July 2000. In
August 2000, Ontogeny merged with two other biotechnology companies to form Curis Inc. (“Curis”). As a shareholder in Ontogeny,
Biogen received Curis common stock in exchange for the Company’s shares in Ontogeny. The Company provided $1 million, $2.8 million
and $3.6 million of research funding to Ontogeny in 2000, 1999 and 1998, respectively. Additionally, the Company provided $1.5
million upon conclusion of the Ontogeny Agreement, which was charged to research and development expense. At December 31, 2000
the investment in Curis is classified as available-for-sale and is included in long-term marketable securities. At December 31, 2000 the
Company retained approximately 308,000 shares of Curis common stock.
In August 1995, the Company signed a collaborative research agreement (the “Genovo Agreement”) for the development of human
gene therapy treatments with Genovo, Inc. (“Genovo”), a gene therapy research company. Under the Genovo Agreement, the Company
acquired 380,000 shares of Genovo Series A Preferred Stock for $4.5 million and acquired certain licensing rights. The Company
accounted for this investment, which was included in other assets, using the equity method of accounting. The Company recorded its
proportion of Genovo’s net losses as research and development expense in the amounts of $3.9 million, $7.6 million, and $9 million in
2000, 1999, and 1998, respectively. In August 2000, Genovo entered into a merger agreement (“Targeted Merger Agreement”) with
Targeted Genetics Corporation (“Targeted”). As a shareholder in Genovo, Biogen received Targeted common stock in exchange for the
Company’s shares in Genovo. Additionally, concurrently with the Targeted Merger Agreement, the Company entered into a development
and marketing agreement and a funding agreement (the “Targeted Agreements”) for gene therapy research and development in oncology.
The Targeted Agreements provide for a $10 million credit facility. Targeted also has an option to sell to the Company an additional $10
million of Targeted common stock at fair value. As of December 31, 2000, there were no borrowings outstanding under the credit facility
and the Company provided $250,000 in research funding to Targeted in 2000.
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 raise additional capital to take advantage of favorable
conditions in the market or in connection with the Company’s development activities.
Legal Matters
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 (U.S. Patent No. 5,376,567) in the United States in the
production of Biogen’s AVONEX® (Interferon beta-1a) product. In November 1996, Berlex’s New Jersey action was transferred to the
United States District Court in Massachusetts and consolidated for pre-trial purposes with a related declaratory judgment 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 (U.S. Patent No. 5,795,779). On September
23, 1998, the cases were consolidated for pre-trial and trial purposes. Berlex sought a judgment granting it damages, a trebling of any
damages awarded and a permanent injunction restraining Biogen from the alleged infringement. A hearing on the parties’ summary
judgment motions in the case was completed in March 2000. In September 2000, the District Court rendered final judgment in favor of
Biogen and against Berlex determining that Biogen’s production of AVONEX® did not infringe any of the claims of the Berlex patents. Berlex
has appealed this decision with the Court of Appeals for the Federal Circuit and the parties are in the process of briefing the appeal for oral
argument. An unfavorable ruling on appeal would result in the case being remanded to the District Court for trial. If Berlex were to be
successful in its appeal and the case were remanded, an unfavorable ruling in the remanded case could have a material adverse effect on
the Company’s results of operations and financial position. The Company believes that the decision of the District Court that Biogen does
not infringe the Berlex patents is sound, but the ultimate outcome of the appeal is not currently determinable. As a result, an estimate of
any potential loss or range of loss cannot be made at this time.
In 1995, the Company filed an opposition with the Opposition Division of the European Patent Office to oppose a European patent (the
“Rentschler I Patent”) issued to Dr. Rentschler Biotechnologie GmbH (“Rentschler”) relating to compositions of matter of beta interferon.
In 1997, the European Patent Office issued a decision to revoke the Rentschler I Patent. Rentschler appealed that decision and an oral
hearing on the appeal took place in December 2000. At the oral hearing in order to gain reinstatement of the patent, Rentschler narrowed
the patent claims so as to claim only a specific cell line. Biogen does not use the specific cell line now claimed. On October 13, 1998, the
Company filed another opposition with the Opposition Division of the European Patent Office to oppose a second European patent issued
to Rentschler (the “Rentschler II Patent”) with certain claims regarding compositions of matter of beta interferon with specific regard to the
structure of the glycosylated molecule. A hearing on the Company’s opposition previously scheduled for October 2000 has been
B I O G E N - 31 -
postponed, and will likely be held in 2001. While Biogen believes that the Rentschler II Patent will be revoked and that the revocation of
the Rentschler I Patent will be upheld on appeal, if either the Rentschler I Patent or the Rentschler II Patent were to be upheld and if
Rentschler were to obtain, through legal proceedings, a determination that the Company’s sale of AVONEX® 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.
New Accounting Pronouncement
In December 1999, the United States Securities and Exchange Commission issued Staff Accounting Bulletin 101, “Revenue
Recognition in Financial Statements” (“SAB 101”). SAB 101 provides the staff’s views in applying generally accepted accounting
principles to selected revenue recognition issues, as well as examples of how the staff applies revenue recognition guidance to specific
circumstances. The Company adopted SAB 101 in 2000. Adoption of SAB 101 did not have a material effect on the Company’s financial
position and results of operations.
Outlook
Safe Harbor Statement under Private Securities Litigation Reform Act of 1996
In addition to historical information, this annual report 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 product sales, royalty revenues, expenses and profits, statements
regarding the timing of clinical trials, statements regarding the potential outcome of clinical programs, the marketing of additional
products and predictions as to the anticipated outcome of pending or anticipated litigation, arbitration and patent-related proceedings and
the Company’s expectations as to the value of its investments in certain marketable securities. 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 financial condition and
results of operations are discussed below.
Dependence on AVONEX® Sales
The Company’s ability to sustain increases in revenues and profitability for the next several years will be primarily dependent on the
level of revenues and profitability from AVONEX® sales. The Company’s ability to sustain profitability from sales of AVONEX® will depend on
a number of factors, including: continued market acceptance of AVONEX® worldwide; the Company’s ability to maintain a high level of
patient satisfaction with AVONEX®; the nature of regulatory and pricing decisions related to AVONEX® worldwide; the extent to which
AVONEX® continues to receive reimbursement coverage; the impact of competitive products; and the impact of adverse decisions in
patent-related proceedings. The extent of the profitability from AVONEX® sales is also dependent on the successful resolution of the Berlex
suit, which is described above under “Legal Matters”.
Competition
The Company faces increasing competition from other products for the treatment of relapsing forms of MS. As a treatment for multiple
sclerosis, AVONEX® competes with interferon beta-1b which is sold in the United States under the brand name Betaseron® by Berlex
Laboratories, a United States affiliate of Schering AG, and is sold in Europe under the brand name Betaferon® by Schering AG. AVONEX®
also faces competition from Copaxone® glatiramer acetate (also known as copolymer-1). In the United States, Copaxone® is marketed by
a partnership between Teva Pharmaceutical Industries, Ltd. and Hoechst Marion Roussel, Inc. In most countries outside of the United
States, AVONEX® also competes with Rebif®, a recombinant interferon beta-1a product sold by Serono. In response to an application from
Serono for approval of Rebif® in the United States for relapsing multiple sclerosis, the FDA, in March 1999, upheld its earlier ruling that,
based on the data from existing clinical trials, Serono cannot market Rebif® in the United States for relapsing multiple sclerosis while the
orphan drug status afforded to AVONEX® and Betaseron® for that indication is still in effect. AVONEX®’s orphan drug status for relapsing
forms of the disease expires in 2003. The ruling by the FDA prompted Serono in 2000 to initiate a 12-month head-to-head study of
Rebif® and AVONEX® to determine if Serono can show whether Rebif® is clinically superior to AVONEX®. If positive, Serono will most likely
use the results of this study in its attempts to overcome the orphan drug status of AVONEX® and to get Rebif® approved before expiration of
AVONEX’s orphan drug status. Biogen expects Serono to release the results of the study in the third quarter of 2001. AVONEX® also
competes in the United States with Novantrone® (mitoxantrone for injection) which is produced and marketed by Immunex Corporation, a
majority-owned subsidiary of American Home Products Corporation. Novantrone® is approved for use in patients with clinically worsening
forms of relapsing-remitting and secondary progressive multiple sclerosis.
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A number of other companies are working to develop products to treat multiple sclerosis which may in the future compete with AVONEX®,
the worldwide market leader among multiple sclerosis therapies. AVONEX® may also in the future face competition from off-label uses of
drugs approved for other indications. Biogen believes that competition among treatments for multiple sclerosis will be based on product
performance, service and price.
Royalty Revenue
The Company receives royalty revenues which contribute to its overall profitability. The Company expects to continue to experience a
decline in royalty revenues as a result of patent expirations and other patent-related events in the range of up to approximately $10 million
per quarter for 2001 (not including amounts that are subject to a dispute with Schering-Plough as discussed below). See “Outlook – Patents
and Other Proprietary Rights.” The Company expects the most significant decline to be in the amount of royalties received from ScheringPlough on sales of INTRON® A as the result of patent expirations in the EU and Japan. The extent of the decline in royalties related to United
States sales of INTRON® A will depend on the outcome of a dispute with Schering-Plough related to its royalty obligations. Schering-Plough
has taken the position that a Court of Appeal’s decision affirming a District Court’s ruling which narrowed the scope of the claims of Biogen’s
United States alpha interferon patent has caused the patent to no longer cover Schering-Plough’s alpha interferon products, and, that, as a
result, Schering-Plough no longer has an obligation to pay royalties under that patent. Until expiration of Biogen’s EU (Irish) patent in
January 2001, Schering-Plough continued to pay royalties on sales of product in the United States based on manufacture of the product in
Ireland. Biogen is currently in discussions with Schering-Plough to work to resolve the royalty issue and to resolve claims by Biogen related to
underpayment of royalties by Schering-Plough. In any event, commencing in July 2002, Schering-Plough is obligated to pay royalties on
sales of its alpha interferon products in the U.S., including INTRON®A, during the term of a certain Roche/Genentech U.S. alpha interferon
patent right under an agreement between Biogen and Schering-Plough in connection with settlement of a lawsuit with Roche/Genentech
related to the Roche/Genentech patent right. Biogen intends to vigorously oppose any attempt by Schering-Plough to discontinue payment of
royalties. If the dispute with Schering-Plough results in arbitration and Schering-Plough were to prevail in the arbitration, the resulting
decline in royalties on United States sales of alpha interferon products could range up to approximately an additional $10 million per quarter
in the eighteen month period.
There are a number of other factors which could also cause the actual level of royalty revenue to differ from the Company’s expectations.
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, sales levels of products sold by the Company’s
licensees may fluctuate from quarter to quarter due to the timing and extent of major events such as new indication approvals or government
sponsored programs. Since the Company is not involved in the development or sale of products by its licensees, the Company can not be
certain of the timing or potential impact of factors which may affect sales by the Company’s licensees. In the long term, the Company expects
its royalty revenue to be affected most significantly by patent expirations and a potential decrease in sales by licensees of licensed products. See
“Outlook - Patents and Other Proprietary Rights.”
Patents and Other Proprietary Rights
The Company has numerous issued patents and patent applications pending on a number of its processes and products. The Company
has also obtained rights to certain patents under licenses with third parties which provide for the payment of royalties. There can be no
assurances that Biogen’s existing patents or others, if obtained, will be of substantial protection or commercial benefit to Biogen. In addition,
it is not known to what extent Biogen’s pending patent applications or patent applications licensed from third parties will be granted or
whether any of the Company’s patents will prevail if they are challenged in litigation. There is also no assurance that third parties have not or
will not be granted patents claiming subject matter necessary to Biogen’s business.
Biogen has granted an exclusive worldwide license to Schering-Plough under Biogen’s alpha interferon patents. Schering-Plough’s royalty
obligation to Biogen on sales of Schering-Plough’s INTRON® A brand of alpha interferon in Japan and Europe terminated upon expiration of
Biogen’s alpha interferon patent in such territories in January 2001, except in France and Italy where Biogen has obtained supplemental
protection certificates extending the coverage in France until 2003 and in Italy until 2007. In 2000, a Court of Appeals decision affirmed a
District Court’s decision narrowing the scope of Biogen’s United States alpha interferon patents. For a discussion of a dispute with ScheringPlough over the implications of the decision on the amount of royalties owed to Biogen on sales of alpha interferon products in the United
States, see “Outlook – Royalty Revenue”. In consideration of assignment to Schering-Plough by Biogen of a Biogen patent application
claiming recombinant mature human alpha interferon, Schering-Plough has agreed to pay to Biogen certain sums on sales by ScheringPlough of alpha interferon products in the United States from the date when Biogen’s existing United States alpha interferon patent expires
(i.e. July 2002) until expiration of an alpha interferon patent expected to be issued to Hoffman-LaRoche Inc. (“Roche”) and Genentech, Inc.
(“Genentech”). The Roche/Genentech patent was the subject of a lawsuit brought by Biogen which was ultimately settled. Schering-Plough
entered into an agreement with Roche as part of the settlement.
B I O G E N - 33 -
Biogen has licensed its recombinant hepatitis B antigen patent rights to manufacturers and marketers of hepatitis B vaccines and
diagnostic test kits, and receives royalties on sales of the vaccines and test kits by its licensees. The obligation of GlaxoSmithKline plc and
Merck & Co., Inc. to pay royalties on sales of hepatitis B vaccines and the obligation of Biogen’s other licensees under its hepatitis B
patents to pay royalties on sales of diagnostic products will terminate upon expiration of Biogen’s existing hepatitis B patents. Biogen’s
existing United States hepatitis B patents will expire in 2004. Biogen’s European hepatitis B patents expired at the end of 1999, except in
those countries in which Biogen has or is able to obtain supplementary protection certificates. To date, Biogen has received
supplementary protection certificates in Austria, Belgium, France, Great Britain, Ireland, Italy, Luxembourg, The Netherlands, Sweden,
and Switzerland, and has a number of granted or pending registrations of the Great Britain supplementary protection certificates in various
British Territories. The additional coverage afforded by the supplementary protection certificates, or related registrations, ranges from two
to eight years. There can be no assurance as to the extent of coverage available under the supplementary protection certificates, or that
protection will be available in additional countries.
In 1994, Biogen granted Eli Lilly and Company (“Lilly”) a non-exclusive license under certain patents for gene expression. Under the
license, Biogen has received royalties from Lilly since 1994 on products which use the patented vectors and methods. Based on a District
Court’s claims construction decision in an infringement action brought by Biogen against Amgen, Inc. involving the same patents as are
licensed to Lilly, Lilly recently notified Biogen that Lilly believes that it no longer owes royalties to Biogen under the agreement on any of its
products.
There has been, and Biogen expects that there may continue to be significant litigation in the industry regarding patents and other intellectual
property rights. Such litigation could create uncertainty and consume substantial resources. See also “Legal Matters”.
Products
AVONEX® 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 continues
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 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 overcome technical hurdles that may arise, 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.
Market Risk
The Company has exposure to financial risk in several areas including changes in foreign exchange rates and interest rates. The
Company attempts to minimize its exposures by using certain financial instruments, for purposes other than trading, in accordance with
the Company’s overall risk management guidelines. Further information regarding the Company’s accounting policies for financial
instruments and disclosures of financial instruments can be found in Notes 1, 2 and 3 to the Company’s Consolidated Financial
Statements.
Foreign Exchange
The Company has operations in several European countries in connection with the sale of its product AVONEX®. The Company also
receives royalty revenues based on worldwide product sales by its licensees. As a result, the Company’s financial position, results of
operations and cash flows can be affected by fluctuations in foreign currency exchange rates (primarily the Euro, British pound, Japanese
yen and Canadian dollar).
The Company uses foreign currency forward contracts to manage foreign currency risk and does not engage in currency speculation.
The Company uses these forward contracts to hedge certain forecasted transactions denominated in foreign currencies. A hypothetical
adverse 10% movement in foreign exchange rates compared to the U.S. dollar across all maturities would result in a hypothetical loss in
fair value of approximately $11 million. The Company’s use of this methodology to quantify the market risk of such instruments should not
be construed as an endorsement of its accuracy or the accuracy of the related assumptions. The quantitative information about market risk
is necessarily limited because it does not take into account operating transactions.
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Interest Rates
The Company is exposed to risk of interest rate fluctuations in connection with its variable rate long-term debt. The Term Loan requires
annual principal payments of $1.7 million through 2004, with the balance due in 2005. The Construction Loan requires annual principal
payments of $3.2 million through 2006, with the balance due in 2007. At December 31, 2000, the carrying values of the Term Loan and
the Construction Loan approximated fair value.
The Company has fixed its interest rates on the Term Loan and Construction Loan by entering interest rate swap agreements under
which the Company exchanges the difference between 7.5% and 7.75%, respectively, and a floating rate. The notional principal balances
on the interest rate swap agreements are exactly equal to the principal on the underlying debt agreements. All other relevant terms of the
interest rate swap agreements (including the index rate, reset period, etc.) exactly match the underlying loan agreements. The fair value of
the interest rate swap agreements at December 31, 2000, representing the cash requirements of the Company to settle the agreements,
was approximately $1.7 million. Terms of the Company’s loan agreements include various covenants, including financial covenants which
require the Company to maintain minimum net worth, cash flow and various financial ratios.
The fair value of the Company’s cash, cash equivalents, marketable securities, long-term debt and interest rate swap agreements are
subject to change as a result of potential changes in market interest rates. The potential change in fair value for interest rate sensitive
instruments has been assessed on a hypothetical 100 basis point adverse movement across all maturities. The Company estimates that
such hypothetical adverse 100 basis point movement would not have materially impacted net income or materially affected the fair value
of interest rate sensitive instruments.
Stock Price
The stock prices of biotechnology companies are subject to significant fluctuations. The stock price may be affected by a number of
factors including, but not limited to clinical trial results and other product development events, the outcome of litigation, the financial
impact of changes in the value of investments, including investments in other biotechnology companies, the decisions relating to
intellectual property rights and the entrance of competitive products into the market, changes in reimbursement policies or other practices
related to the pharmaceutical industry or other industry and market changes or trends. In addition, if revenues or earnings in any quarter
fail to meet the investment community’s expectations, there could be an immediate adverse impact on the Company’s stock price.
B I O G E N - 35 -
Consolidated Statements of Income
(in thousands, except per share amounts)
2000
For the years ended December 31,
Revenues:
Product
Royalties
$ 761,079
165,373
1999
1998
$ 620,636 $ 394,863
173,799 162,724
926,452
794,435
557,587
125,198
302,840
170,058
111,005
221,153
146,026
74,509
177,228
115,211
Total costs and expenses
598,096
478,184
366,948
Income from operations
Other income, net
328,356
158,749
316,251
12,765
190,639
19,554
Income before income taxes
Income taxes
487,105
153,528
329,016
108,566
210,193
71,496
Total revenues
Costs and expenses:
Cost of revenues
Research and development
Selling, general & administrative
Net Income
$ 333,577
$ 220,450 $ 138,697
Basic earnings per share
$
2.24
$
1.47
$
0.94
$
2.16
$
1.40
$
0.90
Shares used in calculating:
148,743
149,921
147,537
154,602
157,788
154,270
See accompanying notes to consolidated financial statements.
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Consolidated Balance Sheets
(in thousands, except share amounts)
2000
As of December 31
Assets
Current assets
Cash and cash equivalents
Marketable securities
Accounts receivable, less allowances of $2,436 and $1,642, respectively
Deferred tax assets
Other current assets
$
Long-term debt, less current portion
Other long-term liabilities
Commitments and contingencies
Shareholders’ equity
Common stock, par value $0.01 per share (375,000,000
shares authorized; 151,705,636 and 150,684,586
shares issued in 2000 and 1999, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost, 3,882,979 and 669,651
shares in 2000 and 1999, respectively
Total shareholders’ equity
56,920
597,619
137,363
50,565
67,759
910,226
400,429
13,510
71,982
17,664
239,777
13,871
98,017
16,082
$ 1,431,856
$ 1,277,973
$
$
Property and equipment, net
Patents
Marketable securities
Other assets
Total current liabilities
$
928,271
Total current assets
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable
Current portion of long-term debt
Accrued expenses and other
48,737
633,675
143,178
40,047
62,634
1999
37,869
4,888
178,264
30,125
4,888
155,257
221,021
190,270
47,185
57,248
—
52,073
56,100
—
1,517
772,172
543,913
22,376
1,507
676,673
352,016
45,618
(233,576)
(96,284)
1,106,402
979,530
$ 1,431,856
$ 1,277,973
B I O G E N - 37 -
Consolidated Statements of Cash Flows
(in thousands)
For the years ended December 31,
Cash Flows from Operating Activities
Net Income
Adjustments to reconcile net income to net
cash provided from operating activities
Depreciation and amortization
Other
Deferred income taxes
Gain on sale of non-current marketable securities
Tax benefit of stock options
Write-down of non-current marketable securities
Changes in:
Accounts receivable
Other current and other assets
Accounts payable, accrued expenses and
other current and long-term liabilities
Net cash flows from operating activities
Cash Flows from Investing Activities
Purchases of marketable securities
Proceeds from sales and maturities of
marketable securities
Proceeds from sales of non-current marketable securities
Investment in collaborative partners
Acquisitions of property and equipment
Additions to patents
Net cash flows from investing activities
Cash Flows from Financing Activities
Repayments on note payable
Repayments on long-term debt
Purchases of treasury stock
Proceeds from put warrants
Issuance of common stock and option exercises
Net cash flows from financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of the year
2000
$ 333,577
1999
1998
$ 220,450 $ 138,697
38,824
(569)
25,203
(101,129)
81,023
—
31,099
5,162
(23,981)
—
91,295
15,287
24,590
(888)
7,486
—
19,595
—
(5,815)
(35,329)
(36,082)
(41,372)
(14,479)
(25,638)
30,154
101,725
38,077
365,939
363,583
187,440
(627,168) (1,120,218) (574,021)
606,087
120,199
(5,000)
(194,402)
(4,713)
1,006,465
—
(10,000)
(82,528)
(3,799)
453,952
—
(5,000)
(29,049)
(4,562)
(104,997)
(210,080) (158,680)
—
(4,888)
(300,192)
—
35,955
—
(4,887)
(197,717)
22,086
58,490
(24,817)
(4,886)
(65,550)
—
21,580
(269,125)
(122,028)
(73,673)
(8,183)
56,920
31,475
25,445
(44,913)
70,358
Cash and cash equivalents, end of the year
$ 48,737
$ 56,920 $ 25,445
Supplemental Cash Flow Data
Cash paid during the year for:
Interest
Income taxes
$
4,314
$ 42,683
$
$
- 38 - B I O G E N
4,598 $ 5,909
4,787 $ 35,828
Consolidated Statements of Shareholders’ Equity
Common
Stock
Additional
Paid-in
Capital
$ 1,483
$ 516,138
(in thousands)
Balance, December 31, 1997
Treasury
Stock
$
(4,385)
Net income
Unrealized gains/losses on marketable
securities, net of tax of $4,476
Unrealized gains/losses on interest
rate swaps, net of transition adjustment
(see Note 1)
Translation adjustment
Retained
Earnings
Accumulated
Other
Comprehensive
Income
$ 25,327
$ (2,270) $ 536,293
138,697
138,697
(7,072)
(7,072)
(4,132)
309
(4,132)
309
Total comprehensive income
127,802
Exercise of options and related tax benefits
Reclassification of put option obligation
Treasury stock purchased
Compensation expense related
to stock options
19,745
48,618
(65,550)
(65,550)
(27,188)
76,671
41,175
76,671
(65,550)
2,222
$ 1,483
$ 538,105
2,222
$ (21,317)
Net income
Unrealized gains/losses on foreign currency
forward contracts, net of tax of $2,490
Unrealized gains/losses on interest
rate swaps, net of tax of $137
$ 213,507
$ (13,165) $ 718,613
220,450
220,450
48,555
48,555
6,654
6,654
4,501
(927)
4,501
( 927)
279,233
Exercise of options and related tax benefits
Proceeds from sale of put warrants
to stock options
24
108,952
22,086
122,750
(81,941)
149,785
22,086
(197,717)
(197,717)
7,530
$ 1,507
$ 676,673
7,530
$ (96,284)
Net income
Unrealized gains/losses on foreign currency
forward contracts, net of tax of $1,686
Unrealized gains/losses on interest rate swaps,
net of tax of $789
$ 352,016
$ 45,618
333,577
$ 979,530
333,577
(16,152)
(16,152)
(5,311)
(5,311)
(1,458)
(321)
(1,458)
( 321)
310,335
Exercise of options and related
tax benefits
to stock options
Total
Shareholders’
Equity
10
95,748
$ 1,517
$ 772,172
162,900
(300,192)
(141,680)
$ (233,576)
$ 543,913
116,978
(300,192)
(249)
(249)
$ 22,376
$1,106,402
B I O G E N - 39 -
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Business
Biogen, Inc. (“Biogen” or the “Company”) 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 its AVONEX®
(Interferon beta-la) product for the treatment of relapsing forms of multiple sclerosis 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.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material
intercompany balances and transactions have been eliminated. Certain items in prior years’ financial statements have been reclassified to
conform with the current year’s presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make
estimates and use assumptions that affect certain reported amounts and disclosures; actual amounts may differ.
Translation of Foreign Currencies
The functional currency for most of the Company’s foreign subsidiaries is the local currency. Assets and liabilities are translated at
current rates of exchange. Income and expense items are translated at the average exchange rates for the year. Adjustments resulting
from the translation of the financial statements of the Company’s foreign operations into U.S. dollars are excluded from the determination
of net income and are accumulated in a separate component of shareholders’ equity. The U.S. dollar is the functional currency for certain
foreign subsidiaries. The Company’s subsidiaries which have the U.S. dollar as the functional currency are remeasured into U.S. dollars
using current rates of exchange for monetary assets and liabilities and historical rates of exchange for nonmonetary assets. Foreign
exchange transaction gains and losses are included in the results of operations in other income, net. Foreign exchange gains totaled $2.8
million, $2.5 million and $2.5 million in 2000, 1999, and 1998, respectively.
Cash and Cash Equivalents
The Company considers only those investments which are highly liquid, readily convertible to cash and which mature within three
months from date of purchase to be cash equivalents.
Fair Value of Financial Instruments
The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, other current
assets, accounts payable, and accrued expenses and other approximate fair value due to the short-term maturities of these instruments.
Marketable securities are carried at fair value based on quoted market prices, consistent with the requirements of Statement of Financial
Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. The fair values of trading securities,
interest rate swaps, foreign currency forward contracts and options on non-marketable instruments are based on quoted market prices or
pricing models using current market rates. The Company’s long-term debt approximates fair value based on dealer quotes.
Inventories
Inventories are stated at the lower of cost or market with cost determined under the first-in/first-out (“FIFO”) method and are included
in other current assets. Included in inventory are raw materials used in the production of pre-clinical and clinical products which are
expensed as research and development costs when consumed. The components of inventories for the periods ending December 31, are
as follows:
(in thousands)
Raw materials
Work in process
Finished goods
- 40 - B I O G E N
2000
1999
$ 7,775
17,582
14,172
$ 5,679
15,110
19,242
$ 39,529
$ 40,031
Marketable Securities
The Company invests its excess cash balances in short-term marketable securities, principally corporate notes and government
securities. At December 31, 2000, substantially all of the Company’s securities were classified as “available-for-sale”. All available-forsale securities are recorded at fair market value and unrealized gains and losses are included in accumulated other comprehensive
income in shareholders’ equity, net of related tax effects. Realized gains and losses and declines in value, if any, judged to be other than
temporary on available-for-sale securities are reported in other income or expense.
As part of its strategic product development efforts, the Company also invests in equity securities of certain biotechnology companies
with which it has collaborative agreements. Such investments, which are included in long-term marketable securities and other assets,
are classified as available-for-sale if a readily determinable market value exists. These investments are accounted for under the cost or
equity method, depending on the facts and circumstances of the investment, and are reviewed regularly for impairment.
On a quarterly basis, as of the end of the quarter, the Company determines whether a decline in fair value of a marketable security is
other than temporary. Unrealized gains and losses on marketable securities are included in other comprehensive income in shareholders’
equity, net of related tax effects. If a decline in the fair value of a marketable security below the Company’s cost basis is determined to be
other than temporary, such marketable security is written down to its estimated fair value with a charge to current earnings. The
Company has concluded that all unrealized losses on marketable securities at December 31, 2000 are temporary in nature. The
Company expects that the market value of such investments will recover to at least the Company’s cost basis within a reasonable period
of time. Should any portion of these unrealized losses subsequently be determined to be other than temporary, the Company would be
required to record the related amount as a charge to current earnings.
Property and Equipment
Property and equipment is carried at cost, subject to review of impairment for significant assets whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recoverable. Depreciation is calculated on the straight-line basis
over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the useful life or the term of the
respective lease. Maintenance of computer systems, including maintenance to make software Year 2000 compliant, is expensed as
incurred. Buildings and equipment are depreciated over estimated useful lives ranging from 30 to 40 and 3 to 10 years, respectively. The
Company capitalizes certain incremental costs associated with the validation effort required for licensing by the FDA of manufacturing
equipment for the production of a commercially approved drug. These costs include primarily direct labor and material and are incurred
in preparing the equipment for its intended use. Net capitalized validation costs were $4.3 million and $4.7 million at December 31,
2000 and 1999, respectively. The validation costs are amortized over the life of the related equipment.
Patents
The costs associated with successful patent defenses and patent applications are capitalized and amortized on a straight-line basis
over estimated useful lives up to 15 years. Accumulated amortization of patent costs was $25.2 million and $20.1
million as of December 31, 2000 and 1999, respectively. The carrying value of patents is regularly reviewed by the Company
and impairments are recognized when the expected future operating cash flows derived from the patent are less than their carrying value.
Derivatives and Hedging Activities
On June 15, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133,
“Accounting for Derivative Instruments and Hedging Activities”, (“SFAS 133”). The Company elected to adopt SFAS 133 in the fourth
quarter of 1998. All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a
hedge transaction and, if it is, the type of hedge transaction. The Company assesses, both at its inception and on an on-going basis,
whether the derivatives that are used in hedging transactions are highly effective in offsetting the changes in cash flows of hedged items.
The Company assesses hedge ineffectiveness on a quarterly basis and records the gain or loss related to the ineffective portion to current
earnings to the extent significant. If the Company determines that a cash flow hedge is no longer probable of occurring, the Company
discontinues hedge accounting for the affected portion of the forecasted transaction, and any unrealized gain or loss on the contract is
recognized in current earnings.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”, (“SFAS 130”) requires the display of
comprehensive income and its components as part of the Company’s full set of financial statements. Comprehensive income is
B I O G E N - 41 -
Notes to Consolidated Financial Statements (continued)
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 and unrealized holding gains and losses on available-for-sale marketable
securities and certain derivative instruments, net of tax. The Consolidated Statements of Shareholders’ Equity reflect comprehensive
income for years ended December 31, 2000, 1999 and 1998 which were $310.3 million, $279.2 million and $127.8 million,
respectively.
Upon adoption of SFAS 133, on October 1, 1998, the Company recorded an adjustment to other comprehensive income to recognize
at fair value all derivatives that were designated as cash flow hedging instruments, which comprised unrealized losses related to the
Company’s interest rate swaps of $5.4 million. This unrealized loss decreased by $1.3 million during the fourth quarter of 1998 and as
of December 31, 1998, the cumulative unrealized losses on the Company’s interest rate swaps were $4.1 million. During 1999, the
Company recorded $4.5 million of unrealized gains to other comprehensive income reflecting the increase in the fair value of the interest
rate swaps and at December 31, 1999 had a cumulative unrealized gain of $366,000. During 2000, the Company recorded $1.5
million of unrealized losses to other comprehensive income reflecting the decrease in the fair value of the interest rate swaps and at
December 31, 2000 had a cumulative unrealized loss of $1.1 million.
The Company entered into foreign currency forward contracts in October 1998. At December 31, 1998, these contracts had
unrealized gains of $3,000, which were aggregated with the unrealized losses associated with the Company’s interest rate
swaps in comprehensive income. During 1999, the fair value of the Company’s foreign currency forward contracts increased by $6.7
million in unrealized gains. At December 31, 1999, the Company had cumulative unrealized gains of $6.7 million on its foreign currency
forward contracts. During 2000, the fair value of the Company’s foreign currency forward contracts decreased by $5.3 million. At
December 31, 2000, the Company had cumulative unrealized gains of $1.4 million on its foreign currency forward contracts.
Segment Information
Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information”,
(“SFAS 131”) establishes standards for reporting information on operating segments in interim and annual financial statements. The
Company’s chief operating decision makers review the profit and loss of the Company on an aggregate basis and manage the operations
of the Company as a single operating segment. Accordingly, the Company operates in one segment, which is the business of developing,
manufacturing and marketing drugs for human health care.
Revenues
Revenues from product sales are recognized when product is shipped and title and the risk of loss has passed. Revenues are recorded
net of applicable allowances for returns, rebates and other applicable discounts and allowances. The Company prepares its estimates for
sales returns and allowances, discounts and rebates quarterly based primarily on historical experience updated for changes in facts and
circumstances, as appropriate.
The Company receives royalty revenues under license agreements with a number of third parties that sell products based on
technology developed by the Company or to which the Company has rights. The license agreements provide for the payment of royalties
to the Company based on sales of the licensed product. The Company records these revenues based on estimates of the sales that
occurred during the relevant period. The relevant period estimates of sales are based on interim data provided by licensees and analysis
of historical royalties paid to the Company (adjusted for any changes in facts and circumstances, as appropriate). The Company
maintains regular communication with its licensees in order to gauge the reasonableness of its estimates. Differences between actual
royalty revenues and estimated royalty revenues are reconciled and adjusted for in the following quarter. Historically, adjustments have
not been material based on actual amounts paid by licensees. There are no future performance obligations on the part of the Company
under these license agreements.
Revenue is not recognized in any circumstances unless collectibility is reasonably assured.
Research and Development Expenses
Research and development costs, including amounts funded in research collaborations, are expensed as incurred.
Earnings per Share
The Company calculates earnings per share in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per
Share” (“SFAS 128”). SFAS 128 requires the presentation of “basic” earnings per share and “diluted” earnings per share. Basic earnings
per share is computed by dividing the net income available to common shareholders by the weighted average number of shares of
- 42 - B I O G E N
common stock outstanding. For purposes of calculating diluted earnings per share the denominator includes both the weighted average
number of shares of common stock outstanding and the number of dilutive common stock equivalents such as stock options and
warrants.
Dilutive securities include outstanding options under the Company’s stock option plans. Options to purchase 2.7 million shares were
outstanding at December 31, 2000 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. The put warrants sold in connection with the Company’s stock
repurchase program in 1999 did not have a significant additional dilutive effect. Shares used in calculating basic and diluted earnings per
share for the periods ending December 31, are as follows:
2000
1999
1998
Weighted average number of shares of common stock outstanding
Dilutive stock options
148,743
5,859
149,921
7,867
147,537
6,733
Shares used in calculating diluted earnings per share
154,602
157,788
154,270
(in thousands)
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 number of shares and per share amounts in the financial statements have been restated to
give effect to the stock split for all periods presented.
2. Financial Instruments
Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable and marketable
securities. Wholesale distributors and large pharmaceutical companies account for the majority of the accounts receivable and collateral
is generally not required. To mitigate the risk, the Company monitors the financial performance and credit worthiness of its customers.
The Company invests its excess cash balances in marketable debt securities, primarily U.S. government securities and corporate bonds
and notes, with strong credit ratings. The Company limits the amount of investment exposure as to institution, maturity and investment
type.
The average maturity of the Company’s marketable securities as of December 31, 2000 and 1999 was 30 months and 24 months,
respectively. Proceeds from maturities and other sales of marketable securities, which were primarily reinvested, for the years ended
December 31, 2000, 1999 and 1998 were approximately $606 million, $1,006 million and $454 million, respectively. The cost of
securities sold is determined based on the specific identification method. Realized gains and (losses) on these sales for the years ended
December 31, 2000, 1999 and 1998 were $(1,846,000), $(1,442,000) and $645,000, respectively.
The following is a summary of marketable securities:
Unrealized
Unrealized
Amortized
(in thousands)
Fair Value
Gains
Losses
Cost
December 31, 2000:
U.S. Government securities
Corporate debt securities
$ 288,214
345,461
$ 633,675
$ 7,728
$
—
$ 625,947
Marketable securities, noncurrent
$ 71,982
$ 28,174
$
—
$
December 31, 1999:
U.S. Government securities
Corporate debt securities
$ 295,046
302,573
$
—
—
$ 4,656
3,717
$ 299,702
306,290
$ 597,619
$
—
$ 8,373
$ 605,992
$ 98,017
$ 75,263
$
$
Marketable securities, noncurrent
$ 5,284
2,444
$
—
—
—
$ 282,930
343,017
43,808
22,754
The Company uses interest rate swap agreements to mitigate the risk associated with its floating rate debt. The fair value of the
interest rate swap agreements at December 31, 2000, representing the cash requirements of the Company to settle the agreements,
B I O G E N - 43 -
approximated $1.7 million. The fair value of the interest rate swap agreements at December 31, 1999, representing the cash the
Company would receive to settle the agreements, was approximately $366,000. The Company has designated the interest rate swaps as
cash flow hedges. There were no amounts of hedge ineffectiveness related to the Company’s interest rate swaps during 2000 and 1999,
and no gains or losses were excluded from the assessment of hedge effectiveness. The Company records the differential to be paid or
received on the interest rate swaps as incremental interest expense. The Company expects approximately $619,000 in losses related to
its interest rate swaps to affect earnings in 2001.
The Company has foreign currency forward contracts to hedge specific transactions denominated in foreign currencies. All foreign
currency forward contracts have durations of ninety days to 12 months. These contracts have been designated as cash flow hedges and
accordingly, to the extent effective, any unrealized gains or losses on these foreign currency forward contracts are reported in other
comprehensive income. Realized gains and losses for the effective portion are recognized with the underlying hedge transaction. The
Company assesses hedge ineffectiveness on a quarterly basis and records the gain or loss related to the ineffective portion to current
earnings to the extent significant. If the Company determines that a cash flow hedge is no longer probable of occurring, the Company
discontinues hedge accounting for the affected portion of the forecasted transaction and any unrealized gain or loss on the contract is
recognized in current earnings. The notional settlement amount of the foreign currency forward contracts outstanding at December 31,
2000 was approximately $111.7 million. These contracts had a fair value of approximately $2.2 million, representing an unrealized
gain, and were included in other current assets at December 31, 2000.
In 2000, there were no significant amounts recognized in earnings due to hedge ineffectiveness. During 2000, the Company
recognized $977,000 in other income as a result of the discontinuance of cash flow hedges upon determining that it was no longer
probable that the original forecasted transaction would occur. The Company recognized $12.7 million of gains in product revenue and
$3.7 million of gains in royalty revenue for the settlement of certain effective cash flow hedge instruments during the year ended
December 31, 2000. These settlements were recorded in the same period as the related forecasted transactions affecting earnings. The
Company expects approximately $2.2 million of unrealized gains at December 31, 2000 to affect earnings in 2001 related to its foreign
currency forward contracts.
In 1999, there were no significant amounts recognized in earnings due to hedge ineffectiveness or as a result of the discontinuance of
cash flow hedge accounting because it was probable that the original transaction would not occur. The Company recognized $7.4 million
of gains in product revenue and $2.7 million of gains in royalty revenue for the settlement of certain effective cash flow hedge instruments
during the year ended December 31, 1999. These settlements were recorded in the same period as the related forecasted transactions
affecting earnings.
During 1998, the Company recognized $686,000 in other expense as a result of the discontinuance of cash flow hedges upon
determining that it was no longer probable that the original forecasted transaction would occur. The Company also recognized a
$322,000 gain in product revenue and a $485,000 loss in royalty revenue for the settlement of certain cash flow hedge instruments
during the period. These settlements were recorded in the same period as the related forecasted transactions affecting earnings.
3. Borrowings
As of December 31, 2000, the Company had $15.8 million outstanding under a floating rate loan with a bank (the “Term Loan”). The
Term Loan is secured by the Company’s laboratory and office building in Cambridge, Massachusetts. The Term Loan provides for annual
principal payments of $1.7 million in each of the years 1996 through 2004 with the balance due May 8, 2005. The Company also
entered into an interest rate swap agreement, with the same bank, fixing its interest rate at 7.5% during the remaining term of the loan,
payable semi-annually.
As of December 31, 2000, the Company had $36.2 million outstanding under a floating rate loan agreement with a bank for financing
the construction of its 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 in 2007. The Company also entered into an
interest rate swap agreement, with the same bank, fixing its interest rate at 7.75% during the remaining term of the loan, payable
quarterly.
The Term Loan and Construction Loan agreements include various covenants, including financial covenants, which require the
Company to maintain minimum net worth, cash flow and various financial ratios. The Company’s long-term debt obligations are carried
at face value, which approximates fair market value.
- 44 - B I O G E N
Long-term debt at December 31, consists of the following:
(in thousands)
Term Loan due 2005
Construction Loan due 2007
Current portion
2000
1999
$ 15,836
36,237
$ 17,501
39,460
52,073
(4,888)
56,961
(4,888)
$ 47,185
$ 52,073
4. Consolidated Balance Sheet Details
Property and equipment:
December 31,
(in thousands)
Land
Buildings
Leasehold improvements
Equipment
Construction in Progress
Total cost
Less accumulated depreciation
2000
1999
$ 12,349
84,119
63,845
185,404
191,355
$ 12,349
92,462
54,946
191,809
—
537,072
136,643
351,566
111,789
$ 400,429
$ 239,777
Depreciation expense was $27.8 million, $25.9 million and $21.4 million for 2000, 1999 and 1998, respectively.
Accrued expenses and other:
December 31,
(in thousands)
Royalties and licensing fees
Income taxes
Clinical trial costs
Other
2000
1999
$ 32,188
69,494
24,694
51,888
$ 34,914
64,545
15,746
40,052
$ 178,264
$ 155,257
5. Pensions
The Company has a defined benefit pension plan which provides benefits to substantially all of its employees. The Company also has a
supplemental retirement benefit plan which covers certain employees. The pension plans are noncontributory with benefit formulas
based on employee earnings and credited years of service. The Company’s funding policy for its pension plans is to contribute amounts
deductible for federal income tax purposes. Funds contributed to the plans are invested in fixed income and equity securities.
The components of net periodic pension cost for each of the three years ended December 31 are summarized below:
(in thousands)
2000
1999
1998
Service cost
Interest cost
Expected return on plan assets
Amortization of transition asset
Amortization of prior service cost
Amortization of net actuarial loss
$ 3,314
1,799
(1,258)
—
43
86
$ 2,923
1,307
(994)
—
43
22
$ 2,225
1,041
(722)
(21)
43
—
Net pension cost
$ 3,984
$ 3,301
$ 2,566
B I O G E N - 45 -
Reconciliations of projected benefit obligations, fair value of plan assets and the funded status of the plans as of December 31, are
presented below:
(in thousands)
2000
1999
Change in projected benefit obligation
Net projected benefit obligation at the beginning of the year
Service cost
Interest cost
Actuarial gain (loss)
Gross benefits paid
$ (19,377)
(3,314)
(1,799)
(935)
991
$ (16,003)
(2,923)
(1,307)
697
159
(24,434)
(19,377)
Fair value of plan assets at the beginning of the year
Actual return on plan assets
Employer contributions
Gross benefits paid
Administrative expenses
15,061
(934)
2,000
(752)
(119)
11,773
2,021
1,500
(43)
(190)
Fair value of plan assets at the end of the year
15,256
15,061
(9,178)
1,224
271
0
(4,316)
(1,833)
315
0
$ (7,683)
$ (5,834)
Net projected benefit obligation at the end of the year
Change in plan assets
Funded status at the end of the year
Funded status at the end of the year
Unrecognized net actuarial (gain) loss
Unrecognized prior service cost
Unrecognized net transition asset
Net amount recognized at the end of the year
Weighted average assumptions at the end of the year
Discount rate
Expected return on plan assets
Rates of compensation increase
7.50%
8.00%
5.00%
7.50%
8.00%
5.00%
The Company has an unfunded supplemental retirement plan. As of December 31, 2000 the projected benefit and the accumulated benefit
obligations were $5.7 million and $3.7 million, respectively. As of December 31, 1999 the projected benefit and the accumulated benefit
obligations were $3.8 million and $2.8 million, respectively.
6. Other Income, Net
Other income, net consists of the following
(in thousands)
2000
December 31,
1999
1998
Interest income
Interest expense
Other income (expense)
$ 42,965
( 4,310)
120,094
$ 35,407 $ 28,339
( 4,639)
( 5,944)
( 18,003)
(2,841)
Total other income, net
$ 158,749
$ 12,765
- 46 - B I O G E N
$ 19,554
Other income (expense) for the period ended December 31, 2000 included gains on the sale of certain non-current marketable
securities totaling approximately $101.1 million. Additionally, the Company realized gains of approximately $24.1 million upon the
acquisition of two of its investees by third parties. Other income (expense) for the period ended December 31, 1999 included a $15
million write-down of certain non-current marketable securities.
As part of its strategic product development efforts, the Company invests in equity securities of certain biotechnology companies with
which it has collaborative agreements. In December of 1996, Biogen purchased approximately 1.5 million shares of Creative
BioMolecules, Inc. common stock for $18 million. In March of 1997, Biogen purchased approximately 670,000 shares of CV
Therapeutics, Inc. common stock for $7 million. In March of 1998, the Company purchased approximately 435,000 shares of CuraGen
common stock for $5 million and converted 100,000 shares of CuraGen Series E Preferred Stock valued at $1 million into CuraGen
common stock. Each of these small emerging companies was principally engaged in researching, developing or manufacturing drugs for
human health care.
As a matter of policy, Biogen determines on a quarterly basis whether a decline in the fair value of a marketable security is other than
temporary. Unrealized gains and losses on marketable securities are included in other comprehensive income in shareholders’ equity, net
of related tax effects. If a decline in the fair value of a marketable security below the Company’s cost basis is determined to be other than
temporary, such marketable security is written down to its estimated fair value with a charge to current earnings.
Up through and including the assessment at June 30, 1999, the Company concluded that substantial evidence existed suggesting
that the value of the investments described above would recover to at least the Company’s purchase price. Such evidence included the
prospects for favorable clinical trial results, new product initiatives and new collaborative agreements. However, given the lack of any
substantial price recovery during the quarter ended June 30, 1999 and the amount of time elapsed since the decline in value began, the
Company concluded that it had become unclear over what period such price recovery would take place. As a result, it was determined
that the positive evidence suggesting that the investments would recover to at least the Company’s purchase price was not sufficient to
overcome the presumption that the current market price of the investments was the best indicator of value at June 30, 1999.
Accordingly, the related unrealized losses of approximately $15 million were recognized as other expense in the second quarter of 1999.
7. Income Taxes
The components of income before income taxes and of income tax expense (benefit) for each of the three years ended December 31,
are as follows:
(in thousands)
Income before income taxes:
Domestic
Foreign
2000
1999
1998
$ 379,489
107,616
$ 253,303 $ 200,181
75,713
10,012
$ 487,105
$ 329,016 $ 210,193
$ 115,696
11,969
1,098
$ 112,499 $ 58,152
15,587
3,937
4,206
887
$ 128,763
$ 132,292 $ 62,976
Deferred
Federal
State
$ 25,344
(579)
$ (20,863) $
(2,863)
8,314
206
(23,726)
8,520
Total income tax expense
$ 153,528
Income tax expense:
Current
Federal
State
Foreign
24,765
$ 108,566 $ 71,496
B I O G E N - 47 -
Deferred tax assets (liabilities) are comprised of the following at December 31:
2000
1999
$ 28,135
11,532
379
$ 35,089
14,927
549
Deferred tax asset
40,046
50,565
Depreciation, amortization and other
Unrealized gain on investments
(24,189)
(12,956)
(9,943)
(27,640)
Deferred tax liabilities
(37,145)
(37,583)
$ 2,901
$ 12,982
(in thousands)
Tax credits
Inventory and other reserves
Other
A reconciliation of the U.S. federal statutory tax rate to the effective tax rate for the periods ending December 31 is as follows:
2000
1999
1998
Statutory rate
State taxes
Foreign taxes
Credits and net operating loss utilization
Other
35.0%
3.2
(2.6)
(3.3)
(0.8)
35.0%
3.3
(2.6)
(2.6)
(0.1)
35.0%
3.0
—
(4.2)
0.2
Effective tax rate
31.5%
33.0%
34.0%
At December 31, 2000, the Company had tax credits of $28.1 million, most of which expire at various dates through 2015.
As of December 31, 2000, undistributed foreign earnings of non-U.S. subsidiaries included in consolidated retained earnings
aggregated $117 million, exclusive of earnings that would result in little or no tax under current U.S. tax law. The Company intends to
reinvest these earnings indefinitely in operations outside the United States. It is not practicable to estimate the amount of additional tax
that might be payable if such earnings were remitted to the United States.
8. Research Collaborations
In September 2000, the Company signed a research and development agreement (the “Eos Agreement”) with Eos Biotechnology, Inc.
(“Eos”), under which the Company and Eos will collaborate in the research and development of novel targets for antibody and protein
therapeutics in the area of breast cancer. Under the Eos Agreement, the Company purchased 1.9 million shares of preferred stock of Eos
for $5 million. In addition, the Company paid a one-time, non-refundable license fee for $6 million, which was charged to research and
development expense and acquired certain exclusive, worldwide rights related to breast cancer-specific molecules for the use in the
development of new antibody and secreted protein therapeutics. The Company accounts for its investment in Eos, which is included in
other assets, using the cost method of accounting. The Company provided Eos with research and development funding of $250,000 in
2000. The Company expects to fund research activities of Eos related to the collaboration of up to $1.5 million in 2001.
In August 2000, the Company signed a development and marketing collaboration agreement (the “Antegren Agreement”) with Elan
Corporation, plc (“Elan”) under which the Company and Elan collaborate in the development, manufacture and commercialization of
ANTEGREN®, a humanized monoclonal antibody and alpha 4 integrin inhibitor. Under the terms of the Antegren Agreement, Biogen and
Elan will share costs for on-going development activities. The Company paid a one-time, non-refundable license fee of $15 million, which
was charged to research and development expense.
In October 1997, the Company signed a research and option agreement (the “CuraGen Agreement”) with CuraGen Corporation
(“CuraGen”) under which the Company and CuraGen collaborate in the discovery of novel genes using CuraGen’s functional genomics
technologies. The Company provided CuraGen with research and development funding of $1.5 million, $1.1 million and $1.9 million in
2000, 1999 and 1998, respectively. The Curagen Agreement was terminated in September 2000 and all investments in CuraGen
common stock were sold during 2000.
In March 1997, the Company signed a research collaboration and license agreement (the “CVT Agreement”) with CV Therapeutics,
Inc. (“CVT”) under which Biogen obtained rights under CVT’s patents and know-how to develop and market molecules that act as highly
- 48 - B I O G E N
selective antagonists of the adenosine A1 receptor, for the treatment of congestive heart failure. Under the terms of the CVT Agreement,
the Company purchased approximately 670,000 shares of CVT common stock at the then fair value for $7 million and paid a one-time
license fee of $5 million, which was charged to research and development expense. The investment in CVT is classified as available-forsale and is included in long-term marketable securities. At December 31, 2000 the Company retained approximately 670,000 shares of
CVT common stock.
In December 1996, the Company signed a research collaboration and license agreement (the “CBM Agreement”) with Creative
BioMolecules, Inc. (“CBM”) under which Biogen obtained rights to develop and market CBM’s morphogenic protein, OP-1, for the
treatment of renal disorders. Under the CBM Agreement, the Company purchased 1.5 million shares of CBM common stock for $18
million. The payment for the common stock included a $1.2 million premium over the fair value of the common stock which was charged
to research and development expense. The Company provided $10 million in research and development funding, which was charged to
expense as provided in 1998. The CBM Agreement terminated at the end of 1999 and all investments in CBM common stock were sold
during 2000.
In July 1996, the Company signed a collaborative research and commercialization agreement (the “Ontogeny Agreement”) with
Ontogeny, Inc. (“Ontogeny”), a private biotechnology company, for the development and commercialization of three specific hedgehog
cell proteins, a class of novel human proteins, that are responsible for reducing the formation or regeneration of tissue. Under the
Ontogeny Agreement, the Company purchased 400,000 shares of preferred stock of Ontogeny for $1 million and acquired certain
exclusive, worldwide rights related to products based on the hedgehog proteins for most disease areas. In November 1998, the Company
extended and expanded its collaboration with Ontogeny and provided to Ontogeny a $4 million convertible loan. In June 1999, the loan
was converted into 800,000 shares of Ontogeny Convertible Preferred Stock. The Ontogeny Agreement was terminated in July 2000. In
August 2000, Ontogeny merged with two other biotechnology companies to form Curis Inc. (“Curis”). As a shareholder in Ontogeny,
Biogen received Curis common stock in exchange for the Company’s shares in Ontogeny. The Company provided $1 million, $2.8 million
and $3.6 million of research funding to Ontogeny in 2000, 1999 and 1998, respectively. Additionally, the Company provided $1.5
million upon conclusion of the Ontogeny Agreement, which was charged to research and development expense. At December 31, 2000
the investment in Curis is classified as available-for-sale and is included in long-term marketable securities. At December 31, 2000 the
Company retained approximately 308,000 shares of Curis common stock.
In August 1995, the Company signed a collaborative research agreement (the “Genovo Agreement”) for the development of human
gene therapy treatments with Genovo, Inc. (“Genovo”), a gene therapy research company. Under the Genovo Agreement, the Company
acquired 380,000 shares of Genovo Series A Preferred Stock for $4.5 million and acquired certain licensing rights. The Company
accounted for this investment, which was included in other assets, using the equity method of accounting. The Company recorded its
proportion of Genovo’s net losses as research and development expense in the amounts of $3.9 million, $7.6 million, and $9 million in
2000, 1999, and 1998, respectively. In August 2000, Genovo entered into a merger agreement (“Targeted Merger Agreement”) with
Targeted Genetics Corporation (“Targeted”). As a shareholder in Genovo, Biogen received Targeted common stock in exchange for the
Company’s shares in Genovo. Additionally, concurrently with the Targeted Merger Agreement, the Company entered into a development
and marketing agreement and a funding agreement (the “Targeted Agreements”) for gene therapy research and development in oncology.
The Targeted Agreements provide for a $10 million credit facility. Targeted also has an option to sell to the Company an additional $10
million of Targeted common stock at fair value. As of December 31, 2000, there were no borrowings outstanding under the credit facility
and the Company provided $250,000 in research funding to Targeted in 2000.
9. Commitments and Contingencies
The Company rents laboratory and office space and certain equipment under noncancellable operating leases. The rental expense
under these leases, which terminate at various dates through 2015, amounted to $14.9 million in 2000, $11.9 million in 1999 and
$9.4 million in 1998. The lease agreements contain various clauses for renewal at the option of the Company and, in certain cases,
escalation clauses linked generally to rates of inflation.
At December 31, 2000, minimum annual rental commitments under noncancellable leases were as follows:
Year
(in thousands)
2001
2002
2003
2004
2005
Thereafter
$ 17,365
15,123
13,338
12,261
11,993
60,220
Total minimum lease payments
$130,300
B I O G E N - 49 -
On October 4, 1999 the Company began construction of its new research and development center in Cambridge, Massachusetts. The
new 224,000 square foot building is expected to be completed in the spring of 2001. At December 31, 2000, $81.4 million had been
committed for construction costs. Additionally, the Company is completing plans to build a large scale manufacturing plant in Raleigh,
North Carolina. The Company expects that construction will be completed at the end of 2001. At December 31, 2000, $141.9 million
had been committed for construction costs.
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 (U.S. Patent No. 5,376,567) in the United States in the
production of Biogen’s AVONEX® (Interferon beta-1a) product. In November 1996, Berlex’s New Jersey action was transferred to the
United States District Court in Massachusetts and consolidated for pre-trial purposes with a related declaratory judgment 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 (U.S. Patent No. 5,795,779). On September
23, 1998, the cases were consolidated for pre-trial and trial purposes. Berlex sought a judgment granting it damages, a trebling of any
damages awarded and a permanent injunction restraining Biogen from the alleged infringement. A hearing on the parties’ summary
judgment motions in the case was completed in March 2000. In September 2000, the District Court rendered final judgment in favor of
Biogen and against Berlex determining that Biogen’s production of AVONEX® did not infringe any of the claims of the Berlex patents.
Berlex has appealed this decision with the Court of Appeals for the Federal Circuit and the parties are in the process of briefing the appeal
for oral argument. An unfavorable ruling on appeal would result in the case being remanded to the District Court for trial. If Berlex were to
be successful in its appeal and the case were remanded, an unfavorable ruling in the remanded case could have a material adverse effect
on the Company’s results of operations and financial position. The Company believes that the decision of the District Court that Biogen
does not infringe the Berlex patents is sound, but the ultimate outcome of the appeal is not currently determinable. As a result, an
estimate of any potential loss or range of loss cannot be made at this time.
In 1995, the Company filed an opposition with the Opposition Division of the European Patent Office to oppose a European patent (the
“Rentschler I Patent”) issued to Dr. Rentschler Biotechnologie GmbH (“Rentschler”) relating to compositions of matter of beta interferon.
In 1997, the European Patent Office issued a decision to revoke the Rentschler I Patent. Rentschler appealed that decision and an oral
hearing on the appeal took place in December 2000. At the oral hearing in order to gain reinstatement of the patent, Rentschler narrowed
the patent claims so as to claim only a specific cell line. Biogen does not use the specific cell line now claimed. On October 13, 1998, the
Company filed another opposition with the Opposition Division of the European Patent Office to oppose a second European patent issued
to Rentschler (the “Rentschler II Patent”) with certain claims regarding compositions of matter of beta interferon with specific regard to
the structure of the glycosylated molecule. A hearing on the Company’s opposition previously scheduled for October 2000 has been
postponed, and will likely be held in 2001. While Biogen believes that the Rentschler II Patent will be revoked and that the revocation of
the Rentschler I Patent will be upheld on appeal, if either the Rentschler I Patent or the Rentschler II Patent were to be upheld and if
Rentschler were to obtain, through legal proceedings, a determination that the Company’s sale of AVONEX® 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.
10. Shareholders’ Equity
Convertible Exchangeable Preferred Stock
The Company has authority to issue 20,000,000 shares of $.01 par value preferred stock.
Shareholder Rights Plan
In 1989, the Company’s Board of Directors declared a dividend to holders of the Company’s common stock of rights (the “Old Rights”)
to purchase shares of Series A Junior Participating Preferred Stock (the “Old Preferred Stock”). Each Old Right entitled the registered
holder to purchase from the Company one one-hundredth of a share of Old Preferred Stock upon the terms and subject to the conditions
set forth in a Rights Agreement, dated as of May 8, 1989, between the Company and The First National Bank of Boston (the “Old Plan”).
The Old Plan and the Old Rights expired on May 8, 1999. Consequently, on April 16, 1999, the Board of Directors declared a dividend to
holders of the Company’s common stock of one new preferred share purchase right (a “New Right”) for each outstanding share of
common stock. The New Rights were granted on May 8, 1999 pursuant to a new Rights Agreement, dated May 8, 1999, between the
Company and State Street Bank and Trust Company, as Rights Agent (the “New Plan”). Each New Right entitles the registered holder to
purchase from the Company one one-thousandth of a share of Series A-1 Junior Participating Preferred Stock, par value $.01 per share
(“New Preferred Stock”), at a price of $850 per one one-thousandth of a share of New Preferred Stock, subject to adjustment. Each one
one-thousandth of a share of New Preferred Stock has rights, privileges and preferences which make its value approximately equal to the
- 50 - B I O G E N
value of one share of the Company’s common stock. The New Rights are exercisable only if a person or group acquires 20% or more of
the outstanding common stock of the Company or commences a tender or exchange offer, the consummation of which would result in the
ownership of 20% or more of the outstanding common stock of the Company. Once the New Rights become exercisable, and in some
circumstances if additional conditions are met, each New Right will entitle the Company’s shareholders (other than the acquiror) to,
among other things, purchase common stock at a substantial discount. Unless earlier redeemed or exchanged by the Company, the New
Rights expire on May 8, 2009. The Company is entitled to redeem the New Rights at a price of $.001 per New Right.
The Old Preferred Stock has been eliminated and replaced with the New Preferred Stock. At December 31, 2000, the Company had
250,000 shares of New Preferred Stock authorized for use in connection with the New Plan.
Share Option and Purchase Plans
The Company has several stock-based compensation plans. The Company applies APB Opinion No. 25 “Accounting for Stock Issued
to Employees” in accounting for its plans and applies Statement of Financial Accounting Standards No. 123 “Accounting for Stock Issued
to Employees” (“SFAS 123”) for disclosure purposes only. The SFAS 123 disclosures include pro forma net income and earnings per
share as if the fair value-based method of accounting had been used. Stock issued to non-employees is accounted for in accordance with
SFAS 123 and related interpretations. Included in compensation expense for the periods ending December 31, 2000, 1999 and 1998
were approximately $(249,000), $7.5 million, and $2.2 million, respectively, related to stock based compensation plans.
The Company has several plans and arrangements under which it may grant options to employees, Directors and Scientific Board
members to purchase common stock. Under the terms of the Company’s stock-based compensation plans, approximately 47 million
options may be granted. Option grants are typically made under the 1985 Non-Qualified Stock Option Plan and the 1987 Scientific
Board Stock Option Plan (the “Plans”). Options under the Plans are granted at no less than 100% of the fair market value on the date of
grant. Options generally become exercisable over various periods, typically 5 to 7 years for employees and 3 years for Directors and
Scientific Board members, and have a maximum term of 10 years.
Activity under these plans for the periods ending December 31, is as follows:
(shares are in thousands)
2000
Shares
Weighted
Average
Exercise
Price
Outstanding, Jan. 1
Granted
Exercised
Canceled
17,938
2,731
(3,250)
(502)
Outstanding, Dec. 31
16,917
Options exercisable
Available for grant
Weighted average fair value of
options granted
1999
1998
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
$ 24.53
55.34
11.61
34.17
22,376
3,099
(5,435)
(2,102)
$ 15.97
60.24
10.45
22.41
22,304
3,618
(2,612)
(934)
$ 11.98
33.88
7.65
13.33
$ 31.70
17,938
$ 24.53
22,376
$ 15.97
9,093
1,578
9,384
3,807
$ 24.34
10,998
4,804
$ 26.23
$ 14.63
B I O G E N - 51 -
The table below summarizes options outstanding and exercisable at December 31, 2000:
(shares are in thousands)
Range of
Exercise Price
$0.00-$10.00
$10.01-$20.00
$20.01-$30.00
$30.01-$40.00
$40.01-$50.00
$50.01-$60.00
$60.01-$70.00
$70.01-$80.00
Over $80.00
Total
Options Outstanding
Number
Outstanding
Weighted
Average
Remaining
Contractual
Life
2,086
6,711
784
232
2,555
2,626
281
1,453
189
2.78
5.25
7.00
7.76
7.98
9.31
9.35
8.93
8.80
16,917
Options Exercisable
Weighted
Average
Exercise
Price
Number
Exercisable
Weighted
Average
Exercise
Price
$ 8.10
15.69
22.81
33.23
41.26
54.69
65.00
72.34
85.85
2,030
4,622
312
115
1,269
173
13
521
38
$ 8.07
15.24
22.70
33.28
41.14
53.11
68.70
71.98
85.89
$ 31.70
9,093
The Company also has two employee stock purchase plans covering substantially all of its employees. The plans allow employees to
purchase common stock at 85% of the lower of the fair market value at either the date of the beginning of the plan period or the purchase
date. Purchases under the plans are subject to certain limitations and may not exceed an aggregate of 1,120,000 shares during the term
of the plans; no shares may be issued after December 31, 2007. Through December 31, 2000, 409,102 shares have been issued
under the stock purchase plans.
If compensation cost for the Company’s 2000, 1999 and 1998 grants under the stock-based compensation plans had been
determined based on SFAS 123, the Company’s pro forma net income, and pro forma diluted earnings per share for the years ending
December 31, would have been as follows:
(in thousands except per share data)
Pro forma net income
Pro forma diluted earnings per share
2000
$ 294,412
$
1.90
1999
1998
$ 196,965 $ 122,342
$
1.25 $
0.79
The fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing model with the following
assumptions:
2000
1999
1998
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected option term in years
0%
45%
6.9%
5.5
0%
36%
5.5%
5.6
0%
36%
5.5%
5.6
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 did not apply to awards
prior to 1995, and additional awards in future years are anticipated.
Stock Repurchase Program
On December 18, 2000, the Company announced that its Board of Directors had authorized the repurchase of up to 4 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 through 2001. The stock repurchase program may be discontinued at any time.
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 provided the Company with treasury shares for general corporate purposes, such
as stock to be issued under employee stock option and stock purchase plans. During 1999, the Company repurchased approximately 3.4
- 52 - B I O G E N
million shares of its common stock at a cost of $197.7 million. During 2000, the Company repurchased approximately 4.6 million
shares of its common stock at a cost of $300.2 million, completing this program.
To enhance the 1999 stock repurchase program, the Company sold put warrants to and purchased call options from independent third
parties for a total of 4 million shares of which 2.2 million shares were outstanding at December 31, 1999, at a strike price of $49.47.
None of the put warrants and call options were outstanding at December 31, 2000. Additionally, during 1999 in a separate put warrant
program to facilitate its purchase of common stock, the Company sold put warrants for total proceeds of $22.1 million. The Company
had put warrants to purchase 1.6 million shares outstanding at December 31, 1999, at an average strike price of $68.99 relating to this
put warrant program. None of the put warrants were outstanding at December 31, 2000. The outstanding put warrants permitted a netshare settlement at the Company’s option and, therefore, did not result in a put obligation liability on the Company’s Consolidated
Balance Sheets. The put warrants sold in connection with the Company’s stock repurchase program did not have a significant additional
dilutive effect.
11. Segment Information
The Company operates in one segment, which is the business of developing, manufacturing and marketing drugs for human health
care. The chief operating decision makers review the profit and loss of the Company on an aggregate basis and manage the operations of
the Company as a single operating segment. The Company currently derives product revenues from sales of its AVONEX® (Interferon beta1a) product 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. Revenues are primarily attributed from external customers to individual countries
where earned based on location of the customer or licensee. At December 31, 2000, product and royalty revenues from external
customers in The Netherlands were approximately 10% of total revenues. As of December 31, 1999, and 1998, respectively, no
material amounts of product or royalty revenue could be attributable to an individual foreign country.
The Company’s geographic information is as follows:
(in thousands)
US
Europe
$ 552,591
$ 199,714
120,578
497,347
26,414
6,125
$ 442,278
$ 173,640
117,182
346,706
38,391
20,910
$ 303,591
$ 91,237
108,177
214,554
37,573
15,912
Asia
Other
Total
—
$ 8,774
$ 761,079
16,479
—
1,902
113
165,373
503,585
—
$ 4,718
$ 620,636
15,871
—
2,355
131
173,799
367,747
35
$ 394,863
3,034
105
162,724
230,571
December 31, 2000:
Product revenue from external
customers
Royalty revenue from external
customers
Long-lived assets
$
December 31, 1999:
customers
customers
Long-lived assets
$
December 31, 1998:
customers
customers
Long-lived assets
$
—
13,940
—
$
The Company received revenue from five unrelated parties in 2000 accounting for a total of 18%, 13%, 12%, 11% and 10% of total
product and royalty revenue. The Company received revenue from five unrelated parties in 1999 accounting for a total of 15%, 13%,
13%, 11% and 11% of total product and royalty revenue. The Company received revenue from five unrelated parties in 1998 accounting
for a total of 16%, 13%, 11%, 11% and 10% of total product and royalty revenue.
B I O G E N - 53 -
12. Quarterly Financial Data (unaudited)
(in thousands,
except per share amounts)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Year
$ 216,848
174,596
42,252
194,506
99,024
121,366
0.81
0.77
$ 230,514
190,009
40,505
175,191
16,737
72,060
0.48
0.47
$ 233,754
193,242
40,512
198,577
33,204
68,381
0.46
0.44
$ 245,336
203,232
42,104
183,350
9,784
71,770
0.49
0.47
$ 926,452
761,079
165,373
751,624
158,749
333,577
2.24
2.16
$ 171,720
131,320
40,400
132,220
6,184
45,684
0.31
0.29
$ 188,929
145,852
43,077
136,271
(9,270)
43,388
0.29
0.28
$ 208,431
163,448
44,983
154,494
8,092
62,029
0.41
0.39
$ 225,355
180,016
45,339
163,765
7,759
69,349
0.46
0.44
$ 794,435
620,636
173,799
586,750
12,765
220,450
1.47
1.40
2000
Total revenues
Product revenue
Royalties revenue
Total expenses and taxes
Other income, net
Net income
1999
Total revenues
Product revenue
Royalties revenue
Total expenses and taxes
Other income, net
Net income
13. New Accounting Pronouncement
In December 1999, the United States Securities and Exchange Commission issued Staff Accounting Bulletin 101, “Revenue
Recognition in Financial Statements” (“SAB 101”). SAB 101 provides the staff’s views in applying generally accepted accounting
principles to selected revenue recognition issues, as well as examples of how the staff applies revenue recognition guidance to specific
circumstances. The Company adopted SAB 101 in 2000. Adoption of SAB 101 did not have a material effect on the Company’s financial
position and results of operations.
- 54 - B I O G E N
Report of Independent Accountants
To the Board of Directors and Shareholders of Biogen, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows
and of shareholders’ equity present fairly, in all material respects, the financial position of Biogen, Inc. and its subsidiaries at
December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 11, 2001
B I O G E N - 55 -
Senior Executives and Board Members
Senior Biogen Executives
Board of Directors
James L. Vincent
James L. Vincent
Biogen, Inc.
James C. Mullen
Scientific Board
2,3,5
Phillip A. Sharp, Ph.D.
Chairman of the Scientific Board
Institute Professor and Director of the McGovern
Institute for Brain Research,Massachusetts Institute
of Technology; Nobel Laureate
1,5
President and Chief Executive Officer
Alan Belzer
Burt A. Adelman, M.D.
President, Chief Operating Officer and Director,
Allied-Signal, Inc. (retired)
Vice President - Medical Research
Harold W. Buirkle
1,2,4
Cornelis “Kees” Been
Managing Director, The Henley Group, Inc. (retired)
Vice President - Business and
Market Development
Mary L. Good, Ph.D.
Thomas J. Bucknum, Esq.
Vice President - General Counsel,
Secretary and Clerk
Frank A. Burke, Jr.
2
1
Thomas F. Keller, Ph.D.
Nadine D. Cohen, Ph.D.
Vice Chairman of the Scientific Board
Biogen Professor of Molecular Biology, Emeritus
University of Edinburgh; Fellow of The Royal Society
Alexander G. Bearn, M.D.
Former Undersecretary for Technology, U.S.
Department of Commerce; Managing Member,
Venture Capital Investors, LLC; Donaghey University
Professor at University of Arkansas at Little Rock;
Dean, Donaghey College of Information Science and
System Engineering
Vice President - Human Resources
Sir Kenneth Murray, Ph.D.
Vice President - Regulatory Affairs
R.J. Reynolds Professor and Dean, Fuqua School of
Business Europe, Duke University
Michael Gilman, Ph.D.
Roger H. Morley
Vice President - Research
Vice President, Schiller International University;
Co-Managing Director, R&R Inventions Ltd.;
Former President, American Express Co.
Executive Officer, American Philosophical
Society; Adjunct Professor, The Rockefeller
University; Professor Emeritus, Cornell University
Medical College
Max D. Cooper, M.D.
Investigator, Howard Hughes Medical Institute;
Professor of Medicine, Pediatrics, Microbiology, and
Pathology, University of Alabama at Birmingham
Joseph M. Davie, M.D., Ph.D.
Sylvie L. Grégoire, Pharm.D.
2,4
Vice President - Manufacturing
James C. Mullen
Robert A. Hamm
Vice President - Sales and Marketing
President and Chief Executive Officer
Biogen, Inc.
Peter N. Kellogg
Sir Kenneth Murray, Ph.D.
Vice President - Finance and
Chief Financial Officer
Biogen Professor of Molecular Biology, Emeritus
University of Edinburgh; Fellow of The Royal Society
Mark W. Leuchtenberger
Phillip A. Sharp, Ph.D.
Vice President - International
Institute Professor and Director of the McGovern
Institute for Brain Research, Massachusetts Institute
of Technology; Nobel Laureate
Former Senior Vice President - Research
Biogen, Inc.
Richard A. Flavell, Ph.D.
Professor and Chairman, Immunobiology Section,
Howard Hughes Medical Institute, Yale University
School of Medicine; Fellow of The Royal Society
Michael Gilman, Ph.D.
3,5
Vice President - Research
Biogen, Inc.
Daniel H. Rich, Ph.D.
Toshio Nakata, D.Sc.
President - Biogen Japan, Ltd.
Vice President - Japan, Asia, Oceana
John W. Palmer
Vice President - Program Management
2,3
5
Alan K. Simpson
Former Director of the Institute of Politics and Visiting
Lecturer, John F. Kennedy School of Government,
Harvard University; Visiting Lecturer, University of
Wyoming; Former U.S. Senator
David D. Pendergast, Ph.D.
Vice President - Product Development
and Quality Assurance
James W. Stevens
1,5
Former Chairman, Prudential Asset
Management Group
Patrick J. Purcell
Vice President - Information Systems and
Chief Information Officer
- 56 - B I O G E N
1 Member of the Finance and Audit Committee
2 Member of the Compensation and Management Resources
Committee
3 Member of the Project Share Committee
4 Member of the Stock and Option Plan Administration
Committee
5 Member of the Nominating Committee
Professor of Medicinal Chemistry and Organic
Chemistry, University of Wisconsin - Madison
Kai L. Simons, M.D., Ph.D.
Executive Director, Max-Planck-Institute of
Molecular Cell Biology and Genetics,
Dresden, Germany
Thomas P. Stossel, M.D.
Co-Director, Division of Hematology
Brigham and Women’s Hospital
Daniel I.C. Wang, Ph.D.
Institute Professor of Chemical Engineering
Massachusetts Institute of Technology
Shareholder Information
Corporate Headquarters:
SEC Form 10-K
Biogen, Inc.
14 Cambridge Center
Cambridge, MA 02142
Telephone: (617) 679-2000
Fax:
(617) 679-2617
A copy of the Company’s annual report to the Securities and
Exchange Commission on Form 10-K is available without
charge upon written request to the:
Corporate Communications Department
Biogen, Inc.
14 Cambridge Center
Cambridge, MA 02142
Annual Meeting
Friday, June 15, 2001 at 10:00 a.m.
at the Company’s offices at 12 Cambridge Center.
All shareholders are welcome.
Market for Securities
Biogen’s securities are quoted on the NASDAQ National
Market System.
Common stock symbol: BGEN.
As of March 7, 2001, there were approximately 2,654 holders
of record of the Company’s Common Stock. The Company has
not paid any cash dividends on its Common Stock since its
inception, and does not intend to pay any dividends in the
foreseeable future. On June 25, 1999 the Company effected a
two-for-one stock split of its Common Stock. The quarterly
high and low closing sale prices (adjusted to reflect the stock
split) of the Company’s Common Stock on the NASDAQ
National Market System for 2000 and 1999 are as follows:
High
Low
119 1/2
72 3/4
74 3/4
64 1/4
69 7/8
49 3/4
53
51 1/2
Transfer Agent
For shareholder questions regarding lost certificates, address
changes and changes of ownership or name in which the
shares are held, direct inquiries to:
State Street Bank and Trust Company
c/o EquiServe
150 Royall Street
Canton, MA 02021
(877) 282-1168
www.EquiServe.com
Independent Accountants
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
U.S. Legal Counsel
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Fiscal 2000
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 1999
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
58 19/32
64 5/16
89 3/16
88 1/16
39 19/32
46 3/16
63 1/16
64 3/8
News Releases
As a service to our shareholders and prospective investors,
copies of Biogen news releases issued in the last 12 months
are now available almost immediately 24 hours a day, seven
days a week, on the Internet’s World Wide Web at http://
www.prnewswire.com and via automated fax by calling
“Company News On Call” at 1 800 758-5804,
ext. 101550. Biogen news releases are usually posted on
both systems within one hour of being issued and are
available at no cost.
The Biogen logo and AVONEX® are registered Trademarks of Biogen, Inc. AMEVIVE™
and ANTOVA™ are trademarks of Biogen, Inc. PEG-INTRON®, INTRON® A,
REBETOL®, and REBETRON® are registered trademarks of Schering-Plough
Corporation. Betaseron® is a registered trademark of Berlex Laboratories, Inc.
Betaferon® is a registered trademark of Schering AG, Germany. Copaxone® is a
registered trademark of Teva Pharmaceutical Industries, Ltd. Infergen® is a registered
trademark of Amgen, Inc. Rebif® is a registered trademark of Ares Serono S.A.
ANTEGREN® is a registered trademark of Elan Corporation.
B I O G E N - 57 -
Offices Worldwide
Biogen,Inc.
Biogen Belgium S.A.
Biogen Japan, Ltd.
14 Cambridge Center
Cambridge, MA 02142
United States
Tel
617 679-2000
Fax 617 679-2617
Avenue de Tyras 111
1120 Neder-Over-Heembeek
Belgium
AIG Building 9th Floor
1-1-3 Marunouchi
Chiyoda-ku
Tokyo 100-0005 Japan
Biogen Europe
Le Capitole
92012 Nanterre
France
Tel
33 1 41 37 95 95
Fax 33 1 41 37 24 00
Biogen, Inc. - RTP
P.O. Box 14627
5000 Davis Drive
Research Triangle Park
NC 27709-4627
Tel
919 941-1100
Fax 919 941-1112
Biogen Australia Pty Ltd.
Level 9
123 Epping Road
North Ryde NSW 2113 Australia
Biogen GmbH
Effingergasse 21
1160 Vienna
Austria
Tel
43 1 48 44 61 3
Fax 43 1 48 44 61 311
Biogen Canada, Inc.
3-Robert Speck Parkway
Mississauga, Ontario L4Z 2G5
Canada
Tel
1 888 456-2263
Biogen (Denmark) A/S
Lyngbyvej 28
2100 Copenhagen
Denmark
Tel
45 39 16 91 91
Fax 45 39 16 91 99
Biogen Finland Oy
Pakkalankuja 6
SF-0150 Vantaa
Finland
Tel
358 9 77 43 700
Fax 358 9 77 43 70 40
Biogen France S.A.
Le Capitole
92012 Nanterre
France
Tel
33 1 41 37 95 95
Fax 33 1 40 97 00 53
Biogen GmbH
Carl-Zeiss Ring 6
85737 Ismaning
Germany
Tel
49 89 99 61 70
Fax 49 89 99 61 71 99
- 58 - B I O G E N
Biogen International B.V.
Robijnlaan 8
2132 WX Hoofddorp
The Netherlands
Tel
31 23 566 81 81
Fax 31 23 566 81 82
Biogen Norway AS
Karenslyst Allé 8b
N-0277 Oslo
Norway
Tel
47 23 12 06 38
Fax 47 23 12 05 98
Biogen Sweden AB
Kanalvägen 10C/12
S-194 61 Upplands Väsby
Stockholm, Sweden
Tel
46 8 590 041 70
Fax 46 8 590 042 02
Biogen Limited
5d Roxborough Way
Foundation Park
Maidenhead, Berkshire SL6 2UD
United Kingdom
Tel
44 1628 501000
Fax 44 1628 501010
Printing: Quebecor World - Universal
Photography: John Earle, Hans Sautter pg 23 center, Tony Stone Images pg23 top
In addition to historical information, this Annual Report contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995. Reference is made in particular to statements regarding expectations as to future financial results, including the potential growth of the market for AVONEX®,
the potential efficacy and uses of products in development, the timing of anticipated and ongoing clinical trials, expectations regarding trial results, regulatory filing and product
launch of AMEVIVE™, anticipated availability of future manufacturing capacity, the description of the Company’s plans, goals and objectives for future operations and future product
development, assumptions underlying such plans, goals and objectives and other forward-looking statements included in the Letter to Shareholders, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” (“MD&A”) and other sections of this Annual Report. Such statements are based on management’s current
expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements.
In particular, careful consideration should be given to cautionary statements made in MD&A, including under the heading “Outlook” and in the business section of the Company’s
Form 10-K under the heading “Risks Associated with Drug Development.”
Design: www.gillfishmandesign.com / Cambridge
IMPORTANT NOTE TO SHAREHOLDERS
Defining the Future
Biogen,Inc.
14 Cambridge Center
Cambridge, MA 02142
Telephone
617 679-2000
European Headquarters
Le Capitole
92012 Nanterre
France
Telephone
33 1 41 37 95 95
www.biogen.com
ANNUAL REPORT 2000

2000 Biogen Annual Report

Transcription

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