(Mark
One)
|
|
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the quarterly period ended June 30, 2007
|
or
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
Delaware
(State
or other jurisdiction of incorporation or organization)
|
94-2347624
(I.R.S.
Employer Identification Number)
|
Large
accelerated filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Class
|
Number
of Shares Outstanding
|
Common
Stock $0.02 par value
|
1,053,031,880 Outstanding
at July 26, 2007
|
Page
No.
|
||
Item
1.
|
3
|
|
3
|
||
4
|
||
5
|
||
6-14
|
||
15
|
||
Item
2.
|
16-39
|
|
Item
3.
|
40
|
|
Item
4.
|
40
|
|
Item
1.
|
41
|
|
Item
1A.
|
41-53
|
|
Item
2.
|
53
|
|
Item
4.
|
54
|
|
Item
6.
|
54
|
|
55
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Revenue
|
||||||||||||||||
Product
sales (including amounts from related parties:
three
months—2007–$256; 2006–$75;
six
months—2007–$522; 2006–$133)
|
$ |
2,443
|
$ |
1,810
|
$ |
4,773
|
$ |
3,454
|
||||||||
Royalties
(including amounts from related parties:
three
months—2007–$296; 2006–$207;
six
months—2007–$557; 2006–$373)
|
484
|
316
|
903
|
602
|
||||||||||||
Contract
revenue (including amounts from related parties:
three
months—2007–$34; 2006–$34;
six
months—2007–$104; 2006–$63)
|
77
|
73
|
171
|
129
|
||||||||||||
Total
operating revenue
|
3,004
|
2,199
|
5,847
|
4,185
|
||||||||||||
Costs
and expenses
|
||||||||||||||||
Cost
of sales (including amounts for related parties:
three
months—2007–$140; 2006–$65;
six
months—2007–$265; 2006–$115)
|
429
|
284
|
821
|
546
|
||||||||||||
Research
and development (including amounts for related parties:
three
months—2007–$79; 2006–$65;
six
months—2007–$147; 2006–$117)
(including
amounts in contract revenue:
three
months—2007–$60; 2006–$51;
six
months—2007–$106; 2006–$87)
|
603
|
390
|
1,213
|
764
|
||||||||||||
Marketing,
general and administrative
|
532
|
471
|
1,023
|
912
|
||||||||||||
Collaboration
profit sharing (including amounts for a related party:
three
months—2007–$49; 2006–$48;
six
months—2007–$96; 2006–$91)
|
277
|
259
|
529
|
485
|
||||||||||||
Recurring
charges related to redemption
|
26
|
26
|
52
|
52
|
||||||||||||
Special
items: litigation related
|
13
|
14
|
26
|
27
|
||||||||||||
Total
costs and expenses
|
1,880
|
1,444
|
3,664
|
2,786
|
||||||||||||
Operating
income
|
1,124
|
755
|
2,183
|
1,399
|
||||||||||||
Other
income (expense):
|
||||||||||||||||
Interest
and other income (expense), net
|
75
|
121
|
149
|
174
|
||||||||||||
Interest
expense
|
(17 | ) | (18 | ) | (35 | ) | (37 | ) | ||||||||
Total
other income, net
|
58
|
103
|
114
|
137
|
||||||||||||
Income
before taxes
|
1,182
|
858
|
2,297
|
1,536
|
||||||||||||
Income
tax provision
|
435
|
327
|
844
|
584
|
||||||||||||
Net
income
|
$ |
747
|
$ |
531
|
$ |
1,453
|
$ |
952
|
||||||||
Earnings
per share
|
||||||||||||||||
Basic
|
$ |
0.71
|
$ |
0.50
|
$ |
1.38
|
$ |
0.90
|
||||||||
Diluted
|
$ |
0.70
|
$ |
0.49
|
$ |
1.36
|
$ |
0.89
|
||||||||
Shares
used to compute basic earnings per share
|
1,053
|
1,053
|
1,053
|
1,054
|
||||||||||||
Shares
used to compute diluted earnings per share
|
1,070
|
1,073
|
1,071
|
1,074
|
Six
Months
Ended
June 30,
|
||||||||
2007
|
2006
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income
|
$ |
1,453
|
$ |
952
|
||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
215
|
199
|
||||||
Employee
stock-based compensation
|
203
|
149
|
||||||
Deferred
income taxes
|
(103 | ) | (85 | ) | ||||
Deferred
revenue
|
(29 | ) |
2
|
|||||
Litigation-related
liabilities
|
26
|
26
|
||||||
Excess
tax benefit from stock-based compensation arrangements
|
(127 | ) | (90 | ) | ||||
Gain
on sales of securities available-for-sale and other, net
|
(12 | ) | (69 | ) | ||||
Write-down
of securities available-for-sale and other
|
4
|
–
|
||||||
Loss
on property and equipment dispositions
|
30
|
–
|
||||||
Changes
in assets and liabilities:
|
||||||||
Receivables
and other current assets
|
(115 | ) | (184 | ) | ||||
Inventories
|
(180 | ) | (174 | ) | ||||
Investments
in trading securities
|
(72 | ) | (15 | ) | ||||
Accounts
payable, other accrued liabilities, and other long-term
liabilities
|
132
|
205
|
||||||
Net
cash provided by operating activities
|
1,425
|
916
|
||||||
Cash
flows from investing activities
|
||||||||
Purchases
of securities available-for-sale
|
(465 | ) | (898 | ) | ||||
Proceeds
from sales of securities available-for-sale
|
335
|
419
|
||||||
Proceeds
from maturities of securities available-for-sale
|
261
|
126
|
||||||
Capital
expenditures
|
(475 | ) | (538 | ) | ||||
Change
in other intangible and long-term assets
|
(8 | ) |
17
|
|||||
Net
cash used in investing activities
|
(352 | ) | (874 | ) | ||||
Cash
flows from financing activities
|
||||||||
Stock
issuances
|
276
|
187
|
||||||
Stock
repurchases
|
(666 | ) | (540 | ) | ||||
Excess
tax benefit from stock-based compensation arrangements
|
127
|
90
|
||||||
Net
cash used in financing activities
|
(263 | ) | (263 | ) | ||||
Net
increase (decrease) in cash and cash equivalents
|
810
|
(221 | ) | |||||
Cash
and cash equivalents at beginning of period
|
1,250
|
1,225
|
||||||
Cash
and cash equivalents at end of period
|
$ |
2,060
|
$ |
1,004
|
||||
Supplemental
cash flow data
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$ |
31
|
$ |
35
|
||||
Income
taxes
|
806
|
498
|
||||||
Non-cash
investing and financing activities
|
||||||||
Capitalization
of construction in progress related to financing lease
transactions
|
101
|
61
|
June
30,
2007
|
December
31,
2006
|
|||||||
Assets
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ |
2,060
|
$ |
1,250
|
||||
Short-term
investments
|
1,135
|
1,243
|
||||||
Accounts
receivable—product sales (net of allowances:
2007–$105;
2006–$92; including amounts from related parties:
2007–$68;
2006–$57)
|
1,068
|
965
|
||||||
Accounts
receivable—royalties (including amounts from related
parties:
2007–$379;
2006–$316)
|
514
|
453
|
||||||
Accounts
receivable—other (including amounts from related parties:
2007–$103;
2006–$150)
|
177
|
248
|
||||||
Inventories
|
1,365
|
1,178
|
||||||
Deferred
tax assets
|
272
|
278
|
||||||
Prepaid
expenses and other current assets
|
108
|
89
|
||||||
Total
current assets
|
6,699
|
5,704
|
||||||
Long-term
marketable debt and equity securities
|
1,883
|
1,832
|
||||||
Property,
plant and equipment, net
|
4,563
|
4,173
|
||||||
Goodwill
|
1,315
|
1,315
|
||||||
Other
intangible assets
|
427
|
476
|
||||||
Restricted
cash and investments
|
788
|
788
|
||||||
Other
long-term assets
|
684
|
554
|
||||||
Total
assets
|
$ |
16,359
|
$ |
14,842
|
||||
Liabilities
and stockholders’ equity
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable (including amounts to related parties:
2007
and 2006–$7)
|
$ |
361
|
$ |
346
|
||||
Deferred
revenue
|
52
|
62
|
||||||
Taxes
payable
|
124
|
111
|
||||||
Other
accrued liabilities (including amounts to related
parties:
2007–$164;
2006–$136)
|
1,452
|
1,491
|
||||||
Total
current liabilities
|
1,989
|
2,010
|
||||||
Long-term
debt
|
2,307
|
2,204
|
||||||
Deferred
revenue
|
180
|
199
|
||||||
Litigation-related
and other long-term liabilities
|
1,032
|
951
|
||||||
Total
liabilities
|
5,508
|
5,364
|
||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity
|
||||||||
Common
stock
|
21
|
21
|
||||||
Additional
paid-in capital
|
10,624
|
10,091
|
||||||
Accumulated
other comprehensive income
|
205
|
204
|
||||||
Retained
earnings (accumulated deficit), since June 30, 1999
|
1
|
(838 | ) | |||||
Total
stockholders’ equity
|
10,851
|
9,478
|
||||||
Total
liabilities and stockholders’ equity
|
$ |
16,359
|
$ |
14,842
|
Note
1.
|
Summary
of Significant Accounting
Policies
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net
income
|
$ |
747
|
$ |
531
|
$ |
1,453
|
$ |
952
|
||||||||
Denominator:
|
||||||||||||||||
Weighted-average
shares outstanding used to compute basic earnings per
share
|
1,053
|
1,053
|
1,053
|
1,054
|
||||||||||||
Effect
of dilutive stock options
|
17
|
20
|
18
|
20
|
||||||||||||
Weighted-average
shares outstanding and dilutive securities used to compute diluted
earnings per share
|
1,070
|
1,073
|
1,071
|
1,074
|
June
30, 2007
|
December
31, 2006
|
|||||||
Net
unrealized gains on securities available-for-sale
|
$ |
204
|
$ |
214
|
||||
Net
unrealized gains (losses) on cash flow hedges
|
7
|
(4 | ) | |||||
Post-retirement
benefit obligation
|
(6 | ) | (6 | ) | ||||
Accumulated
other comprehensive income
|
$ |
205
|
$ |
204
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Net
income
|
$ |
747
|
$ |
531
|
$ |
1,453
|
$ |
952
|
||||||||
Decrease
in unrealized gains on securities available-for-sale
|
(14 | ) | (43 | ) | (10 | ) | (40 | ) | ||||||||
Increase
(decrease) in unrealized gains on cash flow hedges
|
8
|
(19 | ) |
11
|
(20 | ) | ||||||||||
Comprehensive
income, net of income taxes
|
$ |
741
|
$ |
469
|
$ |
1,454
|
$ |
892
|
Note
2.
|
Employee
Stock-Based Compensation
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Cost
of sales
|
$ |
16
|
$ |
–
|
$ |
33
|
$ |
–
|
||||||||
Research
and development
|
39
|
34
|
77
|
67
|
||||||||||||
Marketing,
general and administrative
|
47
|
41
|
93
|
82
|
||||||||||||
Total
employee stock-based compensation expense
|
$ |
102
|
$ |
75
|
$ |
203
|
$ |
149
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Risk-free
interest rate
|
4.8 | % | 4.9 | % | 4.7 | % | 4.8 | % | ||||||||
Dividend
yield
|
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||
Expected
volatility
|
27.0 | % | 29.0 | % | 27.0 | % | 29.0 | % | ||||||||
Expected
term (years)
|
4.6
|
4.2
|
4.6
|
4.2
|
Note
3.
|
Condensed
Consolidated Financial Statement
Detail
|
June
30, 2007
|
December
31, 2006
|
|||||||
Raw
materials and supplies
|
$ |
123
|
$ |
116
|
||||
Work
in process
|
883
|
818
|
||||||
Finished
goods
|
359
|
244
|
||||||
Total
|
$ |
1,365
|
$ |
1,178
|
Note
4.
|
Contingencies
|
Note
5.
|
Relationship
with Roche Holdings, Inc. and Related Party
Transactions
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Product
sales to Roche
|
$ |
253
|
$ |
73
|
$ |
516
|
$ |
131
|
||||||||
Royalties
earned from Roche
|
$ |
283
|
$ |
207
|
$ |
538
|
$ |
373
|
||||||||
Contract
revenue from Roche
|
$ |
30
|
$ |
21
|
$ |
60
|
$ |
40
|
||||||||
Cost
of sales on product sales to Roche
|
$ |
137
|
$ |
64
|
$ |
258
|
$ |
113
|
||||||||
Research
and development (R&D) expenses incurred on joint development projects
with Roche
|
$ |
70
|
$ |
53
|
$ |
128
|
$ |
95
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Product
sales to Novartis
|
$ |
3
|
$ |
2
|
$ |
6
|
$ |
2
|
||||||||
Royalties
earned from Novartis
|
$ |
13
|
$ |
–
|
$ |
19
|
$ |
–
|
||||||||
Contract
revenue from Novartis
|
$ |
4
|
$ |
13
|
$ |
44
|
$ |
23
|
||||||||
Cost
of sales on product sales to Novartis
|
$ |
3
|
$ |
1
|
$ |
7
|
$ |
2
|
||||||||
R&D
expenses incurred on joint development projects with
Novartis
|
$ |
9
|
$ |
12
|
$ |
19
|
$ |
22
|
||||||||
Collaboration
profit sharing expense to Novartis
|
$ |
49
|
$ |
48
|
$ |
96
|
$ |
91
|
Note
6.
|
Income
Taxes
|
Note
7.
|
Subsequent
Event
|
/s/ Ernst
& Young LLP
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||||||||||
2007
|
2006
|
% Change
|
2007
|
2006
|
% Change
|
|||||||||||||||||||
Product
sales
|
$ |
2,443
|
$ |
1,810
|
35 | % | $ |
4,773
|
$ |
3,454
|
38 | % | ||||||||||||
Royalties
|
484
|
316
|
53
|
903
|
602
|
50
|
||||||||||||||||||
Contract
revenue
|
77
|
73
|
5
|
171
|
129
|
33
|
||||||||||||||||||
Total
operating revenue
|
3,004
|
2,199
|
37
|
5,847
|
4,185
|
40
|
||||||||||||||||||
Cost
of sales
|
429
|
284
|
51
|
821
|
546
|
50
|
||||||||||||||||||
Research
and development
|
603
|
390
|
55
|
1,213
|
764
|
59
|
||||||||||||||||||
Marketing,
general and administrative
|
532
|
471
|
13
|
1,023
|
912
|
12
|
||||||||||||||||||
Collaboration
profit sharing
|
277
|
259
|
7
|
529
|
485
|
9
|
||||||||||||||||||
Recurring
charges related to redemption
|
26
|
26
|
–
|
52
|
52
|
–
|
||||||||||||||||||
Special
items: litigation-related
|
13
|
14
|
(7 | ) |
26
|
27
|
(4 | ) | ||||||||||||||||
Total
costs and expenses
|
1,880
|
1,444
|
30
|
3,664
|
2,786
|
32
|
||||||||||||||||||
Operating
income
|
1,124
|
755
|
49
|
2,183
|
1,399
|
56
|
||||||||||||||||||
Other
income (expense):
|
||||||||||||||||||||||||
Interest
and other income, net
|
75
|
121
|
(38 | ) |
149
|
174
|
(14 | ) | ||||||||||||||||
Interest
expense
|
(17 | ) | (18 | ) | (6 | ) | (35 | ) | (37 | ) | (5 | ) | ||||||||||||
Total
other income, net
|
58
|
103
|
(44 | ) |
114
|
137
|
(17 | ) | ||||||||||||||||
Income
before taxes
|
1,182
|
858
|
38
|
2,297
|
1,536
|
50
|
||||||||||||||||||
Income
tax provision
|
435
|
327
|
33
|
844
|
584
|
45
|
||||||||||||||||||
Net
income
|
$ |
747
|
$ |
531
|
41
|
$ |
1,453
|
$ |
952
|
53
|
||||||||||||||
Earnings
per share:
|
||||||||||||||||||||||||
Basic
|
$ |
0.71
|
$ |
0.50
|
42
|
$ |
1.38
|
$ |
0.90
|
53
|
||||||||||||||
Diluted
|
$ |
0.70
|
$ |
0.49
|
43
|
$ |
1.36
|
$ |
0.89
|
53
|
||||||||||||||
Cost
of sales as a % of product sales
|
18 | % | 16 | % | 17 | % | 16 | % | ||||||||||||||||
Research
and development as a % of operating revenue
|
20
|
18
|
21
|
18
|
||||||||||||||||||||
Marketing,
general and administrative as a % of operating revenue
|
18
|
21
|
17
|
22
|
||||||||||||||||||||
Pretax
operating margin
|
37
|
34
|
37
|
33
|
||||||||||||||||||||
Effective
income tax rate
|
37
|
38
|
37
|
38
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||||||||||
2007
|
2006
|
% Change
|
2007
|
2006
|
% Change
|
|||||||||||||||||||
Net
U.S. product sales
|
||||||||||||||||||||||||
Avastin
|
$ |
564
|
$ |
423
|
33 | % | $ |
1,097
|
$ |
821
|
34 | % | ||||||||||||
Rituxan
|
582
|
526
|
11
|
1,117
|
1,003
|
11
|
||||||||||||||||||
Herceptin
|
329
|
320
|
3
|
640
|
610
|
5
|
||||||||||||||||||
Lucentis
|
209
|
10
|
*
|
420
|
10
|
*
|
||||||||||||||||||
Xolair
|
120
|
105
|
14
|
231
|
200
|
16
|
||||||||||||||||||
Tarceva
|
102
|
103
|
(1 | ) |
203
|
196
|
4
|
|||||||||||||||||
Nutropin
products
|
94
|
98
|
(4 | ) |
185
|
185
|
–
|
|||||||||||||||||
Thrombolytics
|
67
|
62
|
8
|
135
|
121
|
12
|
||||||||||||||||||
Pulmozyme
|
55
|
47
|
17
|
107
|
96
|
11
|
||||||||||||||||||
Raptiva
|
27
|
22
|
23
|
51
|
43
|
19
|
||||||||||||||||||
Total
U.S. product sales(1)
|
2,149
|
1,716
|
25
|
4,186
|
3,285
|
27
|
||||||||||||||||||
Net
product sales to collaborators
|
294
|
94
|
213
|
587
|
169
|
247
|
||||||||||||||||||
Total
product sales
|
$ |
2,443
|
$ |
1,810
|
35
|
$ |
4,773
|
$ |
3,454
|
38
|
*
|
Calculation
not meaningful.
|
(1)
|
The
totals may not appear to sum due to
rounding.
|
Three
Months
Ended
June 30, 2007
|
Six
Months
Ended
June 30, 2007
|
|||||||
Royalty
revenue
|
$ |
46
|
$ |
108
|
||||
Gross
expenses(1)
|
$ |
27
|
$ |
57
|
||||
Net
of tax effect of Cabilly patent on diluted EPS
|
$ |
0.01
|
$ |
0.03
|
(1)
|
Gross
expenses include COH’s share of royalty revenue and royalty cost of sales
on our U.S. product sales
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||||||||||
Research
and Development
|
2007
|
2006
|
% Change
|
2007
|
2006
|
% Change
|
||||||||||||||||||
Product
development (including post-marketing)
|
$ |
387
|
$ |
301
|
29 | % | $ |
799
|
$ |
584
|
37 | % | ||||||||||||
Research
|
128
|
75
|
71
|
195
|
149
|
31
|
||||||||||||||||||
In-licensing
(up-front and ongoing fees)
|
88
|
14
|
529
|
219
|
31
|
606
|
||||||||||||||||||
Total
R&D
|
$ |
603
|
$ |
390
|
55
|
$ |
1,213
|
$ |
764
|
59
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||||||||||
2007
|
2006
|
% Change
|
2007
|
2006
|
% Change
|
|||||||||||||||||||
U.S.
Rituxan profit sharing expense
|
$ |
188
|
$ |
173
|
9 | % | $ |
354
|
$ |
325
|
9 | % | ||||||||||||
U.S.
Tarceva profit sharing expense
|
49
|
48
|
2
|
96
|
91
|
5
|
||||||||||||||||||
Total
Xolair profit sharing expense
|
40
|
38
|
5
|
79
|
69
|
14
|
||||||||||||||||||
Total
collaboration profit sharing expense
|
$ |
277
|
$ |
259
|
7
|
$ |
529
|
$ |
485
|
9
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||||||||||
2007
|
2006
|
% Change
|
2007
|
2006
|
% Change
|
|||||||||||||||||||
Product
sales, net
|
$ |
582
|
$ |
525
|
11 | % | $ |
1,117
|
$ |
1,002
|
11 | % | ||||||||||||
Combined
commercial and manufacturing costs and expenses
|
146
|
116
|
26
|
276
|
230
|
20
|
||||||||||||||||||
Combined
co-promotion profits
|
$ |
436
|
$ |
409
|
7
|
$ |
841
|
$ |
772
|
9
|
||||||||||||||
Amount
due to Biogen Idec for their share of co-promotion profits – included in
collaboration profit sharing expense
|
$ |
188
|
$ |
173
|
9 | % | $ |
354
|
$ |
325
|
9 | % |
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||||||||||
2007
|
2006
|
% Change
|
2007
|
2006
|
% Change
|
|||||||||||||||||||
Contract
revenue from Biogen Idec (R&D reimbursement)
|
$ |
34
|
$ |
23
|
48 | % | $ |
55
|
$ |
39
|
41 | % | ||||||||||||
Royalty
expense on sales of Rituxan to Roche and Zenyaku and other patent
costs –
included in MG&A expense
|
$ |
51
|
$ |
45
|
13 | % | $ |
107
|
$ |
80
|
34 | % |
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||||||||||
Other
Income, Net
|
2007
|
2006
|
% Change
|
2007
|
2006
|
% Change
|
||||||||||||||||||