Biogen Inc. (NASDAQ:BIIB)

The period between 2017 and 2021 demonstrates a fluctuating pattern in financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) initially increased significantly, followed by a substantial decline in later years. Simultaneously, the cost of capital decreased over the period, while invested capital exhibited an overall increasing trend with some volatility.

NOPAT Trend

NOPAT experienced considerable growth from 2017 to 2019, increasing from US$2,890,089 thousand to US$6,023,385 thousand. However, a marked decrease occurred in 2020, falling to US$4,370,868 thousand, and continued to decline sharply in 2021 to US$1,501,467 thousand. This suggests a weakening in operational profitability towards the end of the analyzed period.

Cost of Capital Trend

The cost of capital showed a slight increase from 8.54% in 2017 to 8.57% in 2018, then decreased steadily to 7.81% in 2021. This indicates a decreasing cost of funding over time, potentially due to changes in market conditions or the company’s risk profile.

Invested Capital Trend

Invested capital generally increased from US$12,476,129 thousand in 2017 to US$14,142,400 thousand in 2019. A decrease was observed in 2020 to US$12,625,400 thousand, followed by an increase to US$13,824,500 thousand in 2021. This suggests ongoing investment activity, although with some year-over-year fluctuations.

Economic Profit Trend

Economic profit mirrored the trend in NOPAT, rising from US$1,824,138 thousand in 2017 to a peak of US$4,825,199 thousand in 2019. Subsequently, economic profit declined significantly, reaching US$421,289 thousand in 2021. This decline, despite the decreasing cost of capital, indicates that the growth in NOPAT was insufficient to offset the increases in invested capital and maintain prior levels of economic profit.

The observed decline in economic profit from 2019 to 2021 warrants further investigation. While the cost of capital became more favorable, the substantial reduction in NOPAT appears to be the primary driver of the decreased economic profit. The fluctuations in invested capital also contribute to the overall trend, suggesting a dynamic capital allocation strategy.

Net Income Attributable to Biogen Inc.

The net income exhibited a rising trend from 2017 to 2019, increasing from approximately 2.54 billion to nearly 5.89 billion US dollars. However, a decline was observed starting in 2020, with net income falling to about 4.00 billion and further decreasing sharply to approximately 1.56 billion US dollars in 2021. This indicates a significant reduction in profitability during the latter years of the period.

Net Operating Profit After Taxes (NOPAT)

The NOPAT followed a similar trajectory to net income, showing an increase from about 2.89 billion US dollars in 2017 to a peak of approximately 6.02 billion US dollars in 2019. Subsequently, a decline occurred with NOPAT decreasing to roughly 4.37 billion in 2020 and then sharply dropping to around 1.50 billion US dollars in 2021. This pattern signifies a reduction in operating efficiency and effectiveness in generating profit after taxes over the last two years.

Overall Observations

Both net income and NOPAT demonstrated growth during the initial three years, suggesting improved financial performance and operational results. The peak in 2019 represents the highest point in profitability within the analyzed period. The subsequent decline in 2020 and more pronounced drop in 2021 highlight challenges or adverse developments affecting profitability and operational outcomes. The data suggests the company experienced a notable downturn in earning capacity and operating profit in the final years.

Income Tax Expense

The income tax expense demonstrates a consistent downward trend from 2017 to 2021. Starting at 2,458,700 thousand US dollars in 2017, the expense decreased significantly each year to reach 52,500 thousand US dollars in 2021. The reduction is particularly notable in 2021, where the expense dropped sharply compared to previous years.

Cash Operating Taxes

Cash operating taxes also show a general decline over the analyzed period. Beginning at 2,441,355 thousand US dollars in 2017, these taxes declined steadily year over year, falling to 533,599 thousand US dollars in 2021. The reduction is gradual until 2020, followed by a less steep but still notable decrease in 2021.

Comparative Analysis

Both income tax expense and cash operating taxes have followed a downward trajectory, reflecting a possible strategic or operational improvement affecting taxable income or tax planning. The income tax expense decreased more sharply between 2020 and 2021 compared to prior years, whereas cash operating taxes reduced more steadily across the entire timeframe.

Total Reported Debt & Leases

The total reported debt and leases remained relatively stable from 2017 to 2019, with a slight decrease each year from approximately 6.45 billion US dollars to around 6.44 billion US dollars. However, there was a significant increase in 2020, rising to approximately 7.91 billion US dollars. In 2021, the debt slightly decreased to about 7.69 billion US dollars, indicating a reduction after the peak the previous year.

Total Biogen Inc. Shareholders’ Equity

Shareholders' equity showed a consistent upward trend from 2017 to 2019, growing from approximately 12.61 billion US dollars to 13.34 billion US dollars. In 2020, there was a notable decline to about 10.70 billion US dollars. This followed by a modest recovery in 2021, with equity increasing to approximately 10.90 billion US dollars, yet still below the peak levels observed in 2019.

Invested Capital

Invested capital experienced steady growth from 2017 through 2019, rising from approximately 12.48 billion US dollars to 14.14 billion US dollars. In 2020, invested capital dropped to about 12.63 billion US dollars but rebounded in 2021 to 13.82 billion US dollars. This pattern suggests some disruptions or adjustments during 2020, followed by partial recovery the following year.

The economic spread ratio demonstrates significant fluctuation over the observed five-year period. Initially, the ratio exhibits a strong upward trend, followed by a substantial decline in the most recent year.

Economic Spread Ratio Trend

The economic spread ratio increased from 14.62% in 2017 to a peak of 34.12% in 2019, indicating a growing ability to generate returns exceeding the cost of capital. This represents a period of improving profitability relative to invested capital. However, the ratio then decreased to 26.63% in 2020 and experienced a dramatic drop to 3.05% in 2021. This recent decline suggests a significant reduction in the company’s ability to generate value above its cost of capital.

Economic profit also follows a similar pattern, peaking in 2019 and then declining sharply in 2021. While invested capital generally increased between 2017 and 2019, it decreased in 2020 before rising again in 2021. The combination of decreasing economic profit and increasing invested capital likely contributed to the substantial decrease in the economic spread ratio in 2021.

Relationship between Economic Profit and Invested Capital

The economic spread ratio is directly influenced by both economic profit and invested capital. The initial increases in the ratio correlate with increases in economic profit, while the subsequent decline in 2021 is likely attributable to the disproportionate decrease in economic profit relative to the invested capital base. Further investigation into the drivers of the economic profit decline would be warranted.

The observed trends suggest a weakening of the company’s economic value creation in the latest period. The significant drop in the economic spread ratio in 2021 warrants further scrutiny to understand the underlying causes and potential implications for future performance.

The economic profit margin exhibited a fluctuating trend over the observed five-year period. Initially, the margin demonstrated substantial growth, followed by a significant decline in the most recent year.

Economic Profit Margin Trend

In 2017, the economic profit margin stood at 14.86%. This figure increased considerably to 26.27% in 2018, indicating improved profitability relative to economic costs. The margin continued its upward trajectory, reaching a peak of 33.56% in 2019. A subsequent decrease was observed in 2020, with the margin falling to 25.01%. The most pronounced change occurred in 2021, where the economic profit margin experienced a substantial decline to 3.84%, representing a significant reduction from prior years.

The economic profit margin’s performance appears closely linked to revenue fluctuations. While economic profit increased from 2017 to 2019, revenue also rose during this period. The decline in economic profit margin in 2020 coincided with a slight decrease in revenue. However, the dramatic drop in the margin in 2021 occurred alongside a more substantial decrease in revenue, suggesting that the reduction in revenue had a disproportionately negative impact on profitability relative to economic costs.

Revenue Correlation

Revenue decreased from US$13,444.6 million in 2020 to US$10,981.7 million in 2021, a decrease of approximately 18.3%. This substantial revenue decline likely contributed significantly to the sharp reduction in the economic profit margin observed in 2021.

The observed trend suggests a sensitivity of economic profitability to revenue levels. Further investigation into the factors driving revenue changes, alongside a detailed analysis of economic costs, would be necessary to fully understand the underlying causes of the margin’s volatility.