Biogen Idec to limit R&D and SG&A costs
This article was originally published in Scrip
Biogen Idecwill squeeze the impact of R&D and SG&A spending on its revenues in order to sustain and drive growth. The firm said that this will reduce its two main expenses as a percentage of total revenues.
The news came as the company announced second-quarter revenues of $993 million (+28%), driven primarily by improved sales of Avonex (interferon beta-1a) and Rituxan (rituximab). Avonex had sales of $527 million (+14%), while Rituxan revenues rose by 21% to $279 million.
Strong sales of these products and $147 million (+210%) of Tysabri (natalizumab) revenues, encouraged Biogen Idec to raise its financial guidance. The company expects total revenue growth to be in the mid 20% range, up from 15-20%, because of Tysabri sales and favourable foreign exchange rates.
Despite year-on-year increases in R&D and SG&A spending, Biogen Idec said that these outgoings as a percentage of total revenue would fall during 2008.
R&D spending, as a percentage of revenues, will fall to less than 25%, with 20% noted as an ideal amount. "We are going to bring this R&D spend as a percentage of revenue down from 30% into the mid 20s and down," said the company's president and CEO, James Mullen.
"It's always easy to judge [R&D spending] about five years after the event and decide whether you've got good results from it or not. Right now, we feel pretty good about our ability to balance the R&D investments," Mr Mullen added.
He suggested that 20% was "probably the range that will be sustainable and be able to drive continued growth" for companies in the industry.
Biogen Idec added that its SG&A spending was also likely to fall, particularly general and administration costs. "We'll continue to put pressure on the G&A side. On the sales and marketing side we continue to expand some of the geographies," said Mullen.
"We have a few businesses that will be in the built mode, like Argentina for example next year and India and China, but those are relatively small numbers in the big scheme of things," he added.
Over the past year, Biogen Idec's R&D and SG&A spending as a percentage of earnings has gradually fallen. For the second quarter R&D spending declined by 3% to 25%, while for the half year it dropped by 2% to 26%. During the second quarter SG&A spending fell by 1% to 25% and for the half year it decreased by 2% to 24%.
Despite the decline in R&D and SG&A spending as a percentage of revenues, year-on-year costs increased. R&D outgoings for the six months to June 30th rose by 25% to $510 million, while second quarter expenditure grew by 16% to $252 million.
For the half year, SG&A costs increased by 18% to $462 million, while for the second quarter outgoings rose by 21% to $246 million.
financial performance
On a reported and GAAP basis, Biogen Idec had a net income of $207 million and diluted earnings per share (EPS) of 70 cents in the second quarter. As of June 30th, the company had cash, cash equivalents, loaned securities and marketable securities of $1.6 billion.