UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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þx | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the fiscal year ended December 31, 20122015 |
or
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¨o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 0-19311
BIOGEN IDEC INC.
(Exact name of registrant as specified in its charter)
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| Delaware | | 33-0112644 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
133 Boston Post Road, Weston,225 Binney Street, Cambridge, Massachusetts 0249302142
(781) 464-2000(617) 679-2000
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | | Name of Each Exchange on Which Registered |
| Common Stock, $0.0005 par value | | The Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þx No ¨o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨o No þx
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þx No ¨o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes þx No ¨o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þx | | Accelerated filer ¨o | | Non-accelerated filer ¨o | | Smaller reporting company ¨o |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨o No þx
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $34,138,379,832.$94,898,425,323.
As of January 31, 2013,29, 2016, the registrant had 236,312,191218,672,717 shares of common stock, $0.0005 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for our 20132016 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.
BIOGEN IDEC INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 20122015
TABLE OF CONTENTS
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are based on our current beliefs and expectations.being made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 (the Act) with the intention of obtaining the benefits of the “Safe Harbor” provisions of the Act. These forward-looking statements may be accompanied by such words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “target,” “will” and other words and terms of similar meaning. Reference is made in particular to forward-looking statements regarding:
the anticipated amount, timing and accounting of revenues, contingencycontingent payments, milestone, royalty and other payments under licensing, collaboration or acquisition agreements, tax positions and contingencies, doubtful accounts,collectability of receivables, pre-approval inventory, cost of sales, research and development costs, compensation and other selling, general and administrative expenses, amortization of intangible assets, and foreign currency forward contracts;exchange risk, estimated fair value of assets and liabilities, and impairment assessments;
the anticipated regulatory actionsexpectations, plans and prospects relating to sales, pricing, growth and the commercial launch of TECFIDERA (BG-12);
our plans to develop further risk stratification protocols for TYSABRI and the impact of such protocols;
anticipated regulatory filings for, regulatory actions relating to, and commercial launch of our long-lasting blood clotting factor candidates;
additional planned launchesmarketed and future development costs of FAMPYRA;pipeline products;
the timing, outcome andpotential impact of proceedings related to: patentsincreased product competition in the markets in which we compete;
patent terms, patent term extensions, patent office actions and other intellectual property rights; tax audits, assessmentsexpected availability and settlements; product liability and other legal proceedings;
loss to be incurred in connection with Genentech's ongoing arbitration with Hoechst;
the deferralperiod of TYSABRI revenue in Italy;
the expected lifetime revenue of AVONEX and amortization recorded in relation to its core technology;regulatory exclusivity;
the costs and timing of potential clinical trials, filing and approvals, and the potential therapeutic scope of the development and commercialization of our and our collaborators’ pipeline products;
the drivers for growing our arrangement with Knopp Neurosciencesbusiness, including our plans and intent to commit resources relating to business development opportunities and research and development programs;
the anticipated benefits, cost savings, and charges related to dexpramipexole;our corporate restructuring initiatives;
our manufacturing capacity, use of third-party contract manufacturing organizations and plans and timing relating to the timingexpansion of our manufacturing capabilities, including anticipated investments and impact of U.S. healthcare reform, including the annual fee on prescription drug manufacturers, and other measures worldwide designed to reduce healthcare costs;activities in new manufacturing facilities;
the impact of the deteriorationcontinued uncertainty of the credit and economic conditions in certain countries in Europe and our collection of accounts receivable in such countries;
patent terms, patent term extensions, patent officethe potential impact of healthcare reform in the United States (U.S.) and measures being taken worldwide designed to reduce healthcare costs to constrain the overall level of government expenditures, including the impact of pricing actions and market exclusivity rights;reduced reimbursement for our products;
fair value estimates in connection with our acquisitionsthe timing, outcome and impact of Stromedixadministrative, regulatory, legal and other entities;proceedings related to patents and other proprietary and intellectual property rights, tax audits, assessments and settlements, pricing matters, sales and promotional practices, product liability and other matters;
lease commitments, purchase obligations and purchasethe timing and satisfaction of other contractual obligations;
our ability to finance our operations and business initiatives and obtain funding for such activities; and
the impact of new laws and accounting standards;
the availability of our unrepatriated foreign earnings and dividend activity;
repayment of outstanding debt;
the timing and expected financial impact of relocating our corporate headquarters from our facility in Weston, Massachusetts to Cambridge, Massachusetts;
manufacturing capacity;
the licensure of and plans for our manufacturing facility in Hillerød, Denmark; and
the drivers for growing our business, including our plans to pursue business development and research opportunities, and competitive conditions.standards.
These forward-looking statements involve risks and uncertainties, including those that are described in the “Risk Factors” section of this report, and elsewhere withinin this report that could cause actual results to differ materially from those reflected in such statements. You should not place undue reliance on these statements. Forward-looking statements speak only as of the date of this report. WeExcept as required by law, we do not undertake any obligation to publicly update any forward-looking statements.statements, whether as a result of new information, future developments or otherwise.
NOTE REGARDING COMPANY AND PRODUCT REFERENCES
Throughout this report, “Biogen, Idec,” the “Company,” “we,” “us” and “our” refer to Biogen Inc. (formerly Biogen Idec Inc.) and its consolidated subsidiaries. References to “RITUXAN” refer to both RITUXAN (the trade name for rituximab in the U.S., Canada and Japan) and MabThera (the trade name for rituximab outside the U.S., Canada and Japan), and “ANGIOMAX” refers to both ANGIOMAX (the trade name for bivalirudin in the U.S., Canada and Latin America) and ANGIOX (the trade name for bivalirudin in Europe).
NOTE REGARDING TRADEMARKS
ALPROLIX®,AVONEX®, AVONEX PENBENEPALI®, ELOCTATE®, FLIXABI®, PLEGRIDY®, RITUXAN®, TECFIDERA® and RITUXANTYSABRI® are registered trademarks of Biogen Idec.Biogen. FUMADERMTM and TECFIDERAZINBRYTATMare trademarks of Biogen Idec. TYSABRI® and TOUCH®Biogen. Other trademarks referenced in this report are registered trademarksthe property of Elan Pharmaceuticals, Inc. The following are trademarks of thetheir respective companies listed: ACTEMRAowners.® — Chugai Seiyaku Kabushiki Kaisha; AUBAGIO® — Sanofi Societe Anonyme France; ANGIOMAX® and ANGIOX® — The Medicines Company; ARZERRA® — Glaxo Group Limited; BENLYSTA® — Human Genome Sciences, Inc.; BETASERON® and BETAFERON® — Bayer Schering Pharma AG; CAMPATH® and LEMTRADA® — Genzyme Corporation; CIMZIA® — UCB Pharma, S.A.; COPAXONE® — Teva Pharmaceutical Industries Limited; ENBREL® — Immunex Corporation; EXTAVIA® and GILENYA® — Novartis AG; FAMPYRA® — Acorda Therapeutics, Inc.; HUMIRA® — AbbVie Biotechnology Ltd.; ORENCIA® — Bristol-Myers Squibb Company; REBIF® — Ares Trading S.A.; REMICADE® — Centocor Ortho Biotech Inc.; SIMPONI® — Johnson & Johnson; and TREANDA® — Cephalon, Inc.
PART I
Item 1. Business
Overview
Biogen Idec is a global biotechnologybiopharmaceutical company focused on discovering, developing, manufacturing and marketingdelivering therapies to patients for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for multiple sclerosis (MS), ELOCTATE for hemophilia A and other autoimmune disorders, neurodegenerative diseasesALPROLIX for hemophilia B, and hemophilia.FUMADERM for the treatment of severe plaque psoriasis. We also collaborate onhave a collaboration agreement with Genentech, Inc. (Genentech), a wholly-owned member of the developmentRoche Group (Roche Group), which entitles us to certain business and commercialization offinancial rights with respect to RITUXAN and anti-CD20 product candidates for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions. Summary information aboutconditions, GAZYVA indicated for the treatment of CLL, and other potential anti-CD20 therapies.
We support our marketed products is set forthdrug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities, particularly within areas of our scientific, manufacturing and technical expertise and scientific adjacencies. In addition to our innovative drug development efforts, we aim to leverage our manufacturing capabilities and scientific expertise to extend our mission to improve the lives of patients living with serious diseases through the development, manufacture and marketing of biosimilars through Samsung Bioepis, our joint venture with Samsung BioLogics Co. Ltd. (Samsung Biologics).
Key Developments
During 2015 and early 2016, we had a number of key developments affecting our business.
Corporate Matters
Company Name Change
In March 2015, we changed our name from Biogen Idec Inc. to Biogen Inc.
Corporate Restructuring
In October 2015, we announced a corporate restructuring, which includes a reduction in workforce and discontinuation of certain programs. We are reinvesting the table below.resulting savings to support key commercial activities and the advancement of our pipeline candidates.
Capital Allocation
In 2015, our capital allocation strategy included the following elements:
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| | | | | | | Product Revenues to Biogen Idec (in millions) |
| Product | | Indications | | Development or Marketing Collaborator | | 2012 | | 2011 | | 2010 |
| AVONEX (1) | | Multiple sclerosis | | None | | $ | 2,913.1 |
| | $ | 2,686.6 |
| | $ | 2,518.4 |
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| TYSABRI (2) | | Multiple sclerosis Crohn’s disease | | Elan Pharma International | | $ | 1,135.9 |
| | $ | 1,079.5 |
| | $ | 900.2 |
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| FAMPYRA (3) | | Multiple sclerosis (walking ability) | | Acorda Therapeutics | | $ | 57.4 |
| | $ | 13.6 |
| | $ | — |
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| FUMADERM (4) | | Psoriasis | | None | | $ | 59.7 |
| | $ | 54.7 |
| | $ | 51.2 |
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| | | | | | | Unconsolidated Joint Business Revenues to Biogen Idec (in millions) |
| Product | | Indications | | Development or Marketing Collaborator | | 2012 | | 2011 | | 2010 |
| RITUXAN (5) | | Non-Hodgkin’s lymphoma Rheumatoid arthritis Chronic lymphocytic leukemia ANCA-associated vasculitis | | Genentech (Roche Group) | | $ | 1,137.9 |
| | $ | 996.6 |
| | $ | 1,077.2 |
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| Share Repurchase Program | l | Returned approximately $5.0 billion to our shareholders through our share repurchase program |
| l | Utilized a portion of the proceeds from our $6.0 billion senior unsecured debt offering completed in September 2015 to fund our share repurchase program |
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| Acquisitions and Collaborations | l | Acquired Convergence Pharmaceuticals (Convergence), a clinical-stage biopharmaceutical company with a focus on developing product candidates for neuropathic pain |
| l | Obtained exclusive worldwide license, excluding Asia, from Mitsubishi Tanabe Pharma Corporation (MTPC) to amiselimod (MT-1303), a late stage experimental medicine with potential in multiple autoimmune indications |
| l | Entered into a collaboration agreement with Applied Genetic Technologies Corporation (AGTC) to develop gene-based therapies for multiple ophthalmic diseases |
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| Investment in Manufacturing | l | Acquired land in Solothurn, Switzerland, where we plan to build a biologics manufacturing facility in the Commune of Luterbach over the next several years |
| l | Acquired the drug product manufacturing facility and supporting infrastructure of Eisai, Inc. (Eisai) in Research Triangle Park (RTP), North Carolina |
Corporate Responsibility
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| Environmental Sustainability |
In 2015, we were named the biotechnology industry leader on the Dow Jones Sustainability World Index, an index that tracks the economic, environmental and social strategy and performance of the 2,500 largest companies in the S&P Global Broad Market Index.
In 2015, we announced that we achieved carbon neutrality, meaning we believe we have effectively neutralized all of the carbon emissions associated with our business.
In 2014, we and Swedish Orphan Biovitrum AB (publ) (Sobi) began working with the World Federation of Hemophilia (WFH) to help people with hemophilia in the developing world through our pledge to donate up to one billion international units (IUs) of clotting factor therapy for humanitarian use, of which up to 500 million IUs will be donated to WFH USA over a period of five years. In 2015, we made the first shipments of hemophilia therapy to WFH USA.
Product/Pipeline Developments
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(1) | AVONEX (interferon beta-1a) is indicated for the treatment of patients with relapsing forms of MS to slow the accumulation of physical disability and decrease the frequency of clinical exacerbations. |
| Multiple Sclerosis |
(2)ZINBRYTA (daclizumab high yield process) |
| l | TYSABRI (natalizumab) is indicated (1)In March 2015, the European Medicines Agency (EMA) validated our marketing authorization application (MAA) for ZINBRYTA for the treatment of relapsing forms of MS as a monotherapy to delay the accumulation of physical disability and reduce the frequency of clinical exacerbations and (2) in the European Union (E.U.). |
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| l | In April 2015, the U.S. Food and Drug Administration (FDA) accepted our Biologics License Application (BLA) for inducingZINBRYTA for the treatment of relapsing forms of MS in the United States (U.S.). |
| TYSABRI (natalizumab) |
| l | In July 2015, the results of ACTION, our Phase 2 trial investigating TYSABRI in acute ischemic stroke, did not demonstrate an impact on change in infarct volume, the primary endpoint. Exploratory endpoints suggested that TYSABRI had a beneficial impact on patient functional deficits. |
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| l | In October 2015, the results of ASCEND, our Phase 3 study evaluating TYSABRI in secondary progressive MS (SPMS), did not achieve its primary and maintaining clinical responsesecondary endpoints, and remissionthe development of TYSABRI in adult patients with moderately to severely active Crohn's disease with evidence of inflammation who have had an inadequate response to, or are unable to tolerate, conventional Crohn's disease therapies and TNF inhibitors.SPMS was discontinued. |
| Anti-LINGO |
| l | In January 2015, we announced top-line results from RENEW, our Phase 2 acute optic neuritis trial. |
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(3)Hemophilia |
ELOCTATE[Antihemophilic Factor (Recombinant), Fc Fusion Protein] |
| l | FAMPYRA (prolonged-release fampridine tablets) is indicatedIn November 2015, the European Commission (EC) approved ELOCTA, the approved trade name for ELOCTATE in the E.U., for the improvementtreatment of walking abilityhemophilia A. |
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| l | Sobi has assumed final development and commercialization of ELOCTA in adult patients with MS who have walking disability.their territory, which essentially includes Europe, North Africa, Russia, and certain markets in the Middle East (Sobi Territory). |
ALPROLIX[Coagulation Factor IX (Recombinant), Fc Fusion Protein] |
| l | In June 2015, the EMA validated our MAA for ALPROLIX for the treatment of hemophilia B. |
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| l | In July 2015, Sobi exercised its option to assume final development and commercialization of ALPROLIX in the Sobi Territory. |
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(4)Neurodegeneration |
| Aducanumab (BIIB037) |
| l | FUMADERM (fumaric acid esters) is only approvedIn March 2015 and July 2015, we announced data from pre-specified interim analyses of PRIME, our Phase 1b study of aducanumab. |
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| l | In September 2015, we enrolled our first patient in Germanyour two global Phase 3 studies, ENGAGE and is indicatedEMERGE, to assess the efficacy and safety of aducanumab in people with early Alzheimer's disease. In October 2015, we announced that we received FDA agreement on a special protocol assessment on the Phase 3 study protocols. Such agreement constitutes FDA’s concurrence on the design and size of the clinical trials which will form the basis for approval of aducanumab. |
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| Other Programs |
Nusinersen (ISIS-SMNRx) |
| l | In June 2015, our collaborator, Ionis Pharmaceuticals, Inc. (Ionis), formerly known as Isis Pharmaceuticals, Inc., announced additional data from two Phase 2 studies of nusinersen for the treatment of adult patients with moderate to severe plaque psoriasis for whom topical therapy is ineffective.SMA in infants and children. There are two ongoing Phase 3 studies of nusinersen. |
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(5) | RITUXAN (rituximab) is indicated for the treatment of (1)(a) relapsed or refractory, low-grade or follicular, CD20-positive, B-cell Non-Hodgkin's lymphoma (NHL) as a single agent, (b) previously untreated follicular, CD20-positive, B-cell NHL in combination with first line chemotherapy and, in patients achieving a complete or partial response to RITUXAN in combination with chemotherapy, as a single-agent maintenance therapy, (c) non-progressing (including stable disease), low-grade, CD20-positive, B-cell NHL, as a single agent, after first-line CVP chemotherapy, and (d) previously untreated diffuse large B-cell, CD20-positive NHL in combination with CHOP or other anthracycline-based chemotherapy regimens, (2) CD20-positive chronic lymphocytic leukemia in combination with fludarabine and cyclophosphamide, (3) moderately- to severely-active rheumatoid arthritis, in combination with methotrexate, in adult patients who have had an inadequate response to one or more TNF antagonist therapies, and (4) Wegener's Granulomatosis and Microscopic Polyangiitis, in combination with glucocorticoids, in adult patients. |
Additional financial information about our product revenues, other revenues and geographic areas in which we operate is set forth in our consolidated financial statements, in Note 26, Segment Information to our consolidated financial statements, and in Item 6. Selected Consolidated Financial Data included in this report. A discussion of the risks attendant to our international operations is set forth in the “Risk Factors” section of this report.
We devote significant resources to research and development programs and external business development opportunities, as summarized in the table below: |
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| Genentech Relationships |
| GAZYVA (obinutuzumab) |
| l | In February 2015, the Roche Group announced positive results from its Phase 3 GADOLIN study of GAZYVA in non-Hodgkin’s lymphoma. |
| Ocrelizumab |
| l | In June 2015, the Roche Group announced positive results from two Phase 3 studies evaluating ocrelizumab compared with interferon beta-1a in people with relapsing forms of MS. |
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| l | In September 2015, the Roche Group announced positive results from a Phase 3 study evaluating ocrelizumab in people with primary progressive MS (PPMS). |
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| l | Under our agreement with Genentech, if ocrelizumab is approved, we will receive tiered royalty payments on sales of ocrelizumab. |
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| (In millions) | | 2012 | | 2011 | | 2010 | |
| Research and development | | $ | 1,334.9 |
| | $ | 1,219.6 |
| | $ | 1,248.6 |
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| Amortization of acquired intangible assets | | $ | 202.2 |
| | $ | 208.6 |
| | $ | 208.9 |
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| Fair value adjustment of contingent consideration | | $ | 27.2 |
| | $ | 36.1 |
| | $ | — |
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| Acquired in-process research and development | | $ | — |
| | $ | — |
| | $ | 245.0 |
| * |
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| Biosimilars (Samsung Bioepis - Biogen's Joint Venture with Samsung Biologics) |
| BENEPALI |
| l | In November 2015, Samsung Bioepis received a positive opinion from the Committee for Medicinal Products for Human Use (CHMP) for the MAA for BENEPALI, an etanercept biosimilar referencing ENBREL. In January 2016, the EC approved the MAA for BENEPALI for marketing in the E.U. Under our agreement with Samsung Bioepis, we will manufacture and commercialize BENEPALI in specified E.U. countries. |
| FLIXABI |
| l | In March 2015, the EMA validated and accepted Samsung Bioepis’ MAA for FLIXABI, an infliximab biosimilar candidate referencing REMICADE. |
* $145.0 million attributed to noncontrolling interests, net |
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| Discontinued Programs |
| l | During 2015, we discontinued several programs, including our study of Neublastin in neuropathic pain, our Phase 3 program for TECFIDERA in SPMS, our Phase 3 program evaluating TYSABRI in SPMS, the development of anti-TWEAK in lupus nephritis, and certain activities in immunology and fibrosis research. |
Additional information about our research and development programs and business development activity during 2012 is set forth below under the subsections entitled “Research and Development Programs” and “Business Development.”
We were formed as a California corporation in 1985 and became a Delaware corporation in 1997. In 2003, we acquired Biogen, Inc. and changed our corporate name from IDEC Pharmaceuticals Corporation to Biogen Idec Inc. Our principal executive offices are located at 133 Boston Post Road, Weston, MA 02493 and our telephone number is (781) 464-2000. Our website address is www.biogenidec.com. We make available free of charge through the Investors section of our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). We include our website address in this report only as an inactive textual reference and do not intend it to be an active link to our website. The contents of our website are not incorporated into this filing.
Marketed Products
AVONEXThe following graphs show our product sales and unconsolidated joint business revenues by principal product and geography as a percentage of revenue for the years ended December 31, 2015, 2014 and 2013.
(1) Other includes FAMPYRA, ELOCTATE, ALPROLIX and FUMADERM
Product sales for TECFIDERA, AVONEX is oneand TYSABRI and unconsolidated joint business revenues for RITUXAN each accounted for more than 10% of our total revenue for the years ended December 31, 2015, 2014 and 2013. For additional financial information about our product and other revenues and geographic areas in which we operate, please read Note 24, Segment Information to our consolidated financial statements, Item 6. Selected Financial Data and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. A discussion of the most prescribed treatments for relapsing formsrisks attendant to our operations is set forth in the “Risk Factors” section of MS worldwide.this report.
Multiple Sclerosis
We develop, manufacture and market a number of products designed to treat patients with MS. MS is a progressive neurological disease in which the body loses the ability to transmit messages along nerve cells, leading to a loss of muscle control, paralysis and, in some cases, death. Patients with active relapsing MS experience an uneven pattern of disease progression characterized by periods of stability that are interrupted by flare-ups of the disease after which the patient returns to a new baseline of functioning. AVONEX is a recombinant form of the interferon beta protein produced in the body in response to viral infection.Our MS products and major markets include:
In February 2012, the U.S. Food and Drug Administration (FDA) approved two separate dosing innovations designed to improve the treatment experience for patients receiving once-a-week AVONEX for relapsing forms of MS: AVONEX PEN and a new dose titration regimen. AVONEX PEN is the first intramuscular autoinjector approved for MS and is designed to enhance the self-injection process for patients receiving AVONEX therapy. A new dose titration regimen, facilitated by the AVOSTARTGRIP titration devices, provides patients with the option to gradually increase the dose of AVONEX at treatment initiation to reduce the incidence and severity of flu-like symptoms that patients may experience with therapy. These AVONEX dosing innovations are commercially available in the E.U., U.S. and other countries.
TYSABRI
TYSABRI has advanced the treatment of MS patients with its established efficacy. TYSABRI is a monoclonal antibody approved in numerous countries as a monotherapy for relapsing MS and is also approved in the U.S. to treat Crohn's disease, an inflammatory disease of the intestines.
TYSABRI increases the risk of progressive multifocal leukoencephalopathy (PML), an opportunistic infection of the brain by the JC virus that usually leads to death or severe disability. Infection by the JC virus (JCV) is required for the development of PML and patients who are anti-JCV antibody positive have a higher risk of developing PML. Factors that increase the risk of PML are presence of anti-JCV antibodies, prior immunosuppressant use, and longer TYSABRI treatment duration. Patients who have all three risk factors have the highest risk of developing PML. Reports of cases of PML in patients treated with TYSABRI in clinical studies led us to voluntarily suspend the marketing and commercial distribution of TYSABRI in February 2005 until its reintroduction to the market in July 2006. Because of the risk of PML, TYSABRI has a boxed warning and is marketed under risk management or minimization plans approved by regulatory authorities. In the U.S., for example, TYSABRI is marketed under the TOUCH Prescribing Program, a restricted distribution program designed to assess and minimize the risk of PML, minimize death and disability due to PML, and promote informed benefit-risk decisions regarding TYSABRI use. |
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| Product | Indication | | Collaborator | | Major Markets |
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| Relapsing forms of MS in the U.S.
Relapsing-remitting MS (RRMS) in the E.U. | | None | | U.S. United Kingdom France Germany Italy Spain |
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| Relapsing forms of MS | | None | | U.S. United Kingdom France Germany Italy Spain |
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| Relapsing forms of MS in the U.S.
RRMS in the E.U. | | None | | U.S. United Kingdom France Germany Italy Spain |
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| Relapsing forms of MS
Crohn's disease in the U.S. | | None | | U.S. United Kingdom France Germany Italy Spain |
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| Walking ability for patients with MS | | Acorda Therapeutics, Inc. (Acorda) | | France Germany Spain Canada |
U.S.Hemophilia
We develop, manufacture and E.U. regulators continuemarket products designed to monitortreat patients with hemophilia A and assess on an ongoing basis the criteriaB. Hemophilia A is caused by having substantially reduced or no Factor VIII activity and hemophilia B is caused by having substantially reduced or no Factor IX activity, each of which is needed for confirming PML diagnosis, the number of PML cases, the incidence of PML in TYSABRI patients, the risk factors for PML,normal blood clotting. People with hemophilia A and TYSABRI's benefit-risk profile, which could result in modifications to the approved labels or other restrictions on TYSABRI treatment. We continue to research and develop protocols and therapiesB experience bleeding episodes that may reduce riskcause pain, irreversible joint damage and improve outcomeslife-threatening hemorrhages. Prophylactic infusions of PMLFactor VIII or Factor IX, as applicable, temporarily replace clotting factor necessary to control bleeding and help protect against new bleeding episodes.
Our products for hemophilia and major markets include:
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| Product | Indication | | Collaborator | | Major Markets |
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| Adults and children with hemophilia A for control of bleeding episodes | | Sobi | | U.S. Japan |
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| Adults and children with hemophilia B for control of bleeding episodes | | Sobi | | U.S. Japan |
In November 2015, the EC approved ELOCTA for the treatment of hemophilia A in patients.
We collaboratethe E.U. Under our collaboration agreement with Elan Pharma International, Ltd (Elan) on theSobi, Sobi has assumed responsibility for final development and commercialization of TYSABRI. ELOCTA in the Sobi Territory.
Genentech Relationships
We have a collaboration agreement with Genentech that entitles us to certain business and financial rights with respect to RITUXAN, GAZYVA and other anti-CD20 product candidates. Current products include:
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| Product | Indication | | Major Markets |
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| Non-Hodgkin's lymphoma CLL Rheumatoid arthritis Two forms of ANCA-associated vasculitis
| | U.S. Canada |
| | | |
| In combination with chlorambucil for previously untreated CLL | | U.S. |
For information about this collaboration,our unconsolidated joint business and agreement with Genentech, please read Note 21,1, Summary of Significant Accounting Policies and Note 19, Collaborative and Other Relationships to our consolidated financial statements included in this report.
2012 - 2013 DevelopmentsOther
|
| | | | | |
| Product | Indication | | Collaborator | | Major Market |
| | | | | |
| Moderate to severe plaque psoriasis | | None | | Germany |
Marketing and Elan Corporation, plc announced the submission of applications to the FDADistribution
Sales Force and European Medicines Agency (EMA) requesting updates to the TYSABRI product labels. The applications request an expanded indication that would include first-line use for people living with certain relapsing forms of MS who have tested negative for antibodies to the JC virus.Marketing
In January 2012, the FDA approved the inclusionWe promote our products worldwide, including in the U.S. product label for TYSABRI of anti-JCV antibody status as an additional factor in stratifying patients for developing PML. The FDA also approved the inclusion of a table summarizing the estimated incidence of PML according to the duration of TYSABRI treatment, prior immunosuppressant use and anti-JCV antibody status. In addition, the FDA granted Quest Diagnostics a de novo classification petition for the STRATIFY JCV Antibody ELISA testing service, which allows neurologists to determine their MS patients' anti-JCV antibody status.
RITUXAN
RITUXAN is a widely prescribed monoclonal antibody used to treat non-Hodgkin's lymphoma, rheumatoid arthritis, chronic lymphocytic leukemia and two forms of ANCA-associated vasculitis. Non-Hodgkin's lymphoma and chronic lymphocytic leukemia are cancers that affect lymphocytes, which are a type of white blood cell that help to fight infection. Rheumatoid arthritis is a chronic disease that occurs when the immune system mistakenly attacks the body's joints, resulting in inflammation, pain and joint damage. ANCA-associated vasculitis is a rare autoimmune disease that largely affects the small blood vessels, most of the kidneys, lungs, sinuses,major countries of the E.U. and a varietyJapan, primarily through our own sales forces and marketing groups. In some countries, particularly in areas where we continue to expand into new geographic areas, we partner with third parties. We focus our sales and marketing efforts on specialist physicians in private practice or at major medical centers. We use customary pharmaceutical company practices to market our products and to educate physicians, such as sales representatives calling on individual physicians, advertisements, professional symposia, direct mail, public relations and other methods.
Distribution Arrangements
We distribute our products in the U.S. principally through wholesale distributors of pharmaceutical products, mail order specialty distributors or shipping service providers. In other organs. countries, the distribution of our products varies from country to country, including through wholesale distributors of pharmaceutical products and third-party distribution partners who are responsible for most marketing and distribution activities.
We collaborate with Genentech, a wholly-owned member ofRITUXAN and GAZYVA are marketed and distributed by the Roche Group and its sublicensees.
Our product sales to two wholesale distributors, AmerisourceBergen and McKesson, each accounted for more than 10% of our total revenues for the years ended December 31, 2015, 2014 and 2013, and on the development and commercializationa combined basis, accounted for approximately 60% of RITUXAN.our gross product revenues for such years, respectively. For additional information, about this collaboration, please read Note 21,1, Collaborative and Other RelationshipsSummary of Significant Accounting Policies to our consolidated financial statements included in this report.
FAMPYRA
FAMPYRA is the first treatment that addresses the
Patient Support and Access
We interact with patients, advocacy organizations and healthcare societies in order to gain insights into unmet medical need of walking improvement in adultneeds. The insights gained from these engagements help us support patients with MS whoservices, programs and applications that are designed to help patients lead better lives. Among other things, we provide customer service and other related programs for our products, such as disease and product specific websites, insurance research services and order, delivery and fulfillment services.
We are dedicated to helping patients obtain access to our therapies. Our patient representatives have walking disability.access to a comprehensive suite of financial assistance tools. With those tools, we help patients and their caregivers and healthcare professionals understand, compare and select insurance options and programs that are available to them. In the U.S., we have established programs that provide qualified uninsured or underinsured patients with marketed products at no or reduced charge, based on specific eligibility criteria. We also provide charitable contributions that may assist eligible commercially-insured patients with out-of-pocket expenses associated with their costs for our products.
Patents and Other Proprietary Rights
Patents are important to obtaining and protecting exclusive rights in our products and product candidates. We regularly seek patent protection in the U.S. and in selected countries outside the U.S. for inventions originating from our research and development efforts. In addition, we license rights to various patents and patent applications.
U.S. patents, as well as most foreign patents, are generally effective for 20 years from the date the earliest application was filed; however, U.S. patents that issue on applications filed before June 8, 1995 may be effective until 17 years from the issue date, if that is later than the 20 year date. In some cases, the patent term may be extended to recapture a portion of the term lost during regulatory review of the claimed therapeutic or, in the case of the U.S., because of U.S. Patent and Trademark Office (USPTO) delays in prosecuting the application. Specifically, in the U.S., under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, a patent that covers an FDA-approved drug may be eligible for patent term extension (for up to five years, but not beyond a total of 14 years from the date of product approval) as compensation for patent term lost during the FDA regulatory review process. The duration and extension of the term of foreign patents varies, in accordance with local law. For example, supplementary protection certificates (SPCs) on some of our products have been granted in a number of European countries, compensating in part for delays in obtaining marketing approval.
Regulatory exclusivity, which may consist of regulatory data protection and market protection, also can provide meaningful protection for our products. Regulatory data protection provides to the holder of a drug or biologic marketing authorization, for a set period of time, the exclusive use of the proprietary pre-clinical and clinical data that it created at significant cost and submitted to the applicable regulatory authority to obtain approval of its product. After the applicable set period of time, third parties are then permitted to rely upon our data to file for approval of their abbreviated applications for, and to market (subject to any applicable market protection), their generic drugs and biosimilars referencing our data. Market protection provides to the holder of a drug or biologic marketing authorization the exclusive right to commercialize its product for a set period of
time, thereby preventing the commercialization of another product containing the same active ingredient(s) during that period. Although the World Trade Organization's agreement on trade-related aspects of intellectual property rights (TRIPS) requires signatory countries to provide regulatory exclusivity to innovative pharmaceutical products, implementation and enforcement varies widely from country to country.
We also rely upon other forms of unpatented confidential information to remain competitive. We protect such information principally through confidentiality agreements with our employees, consultants, outside scientific collaborators, scientists whose research we sponsor and other advisers. In the case of our employees, these agreements also provide, in compliance with relevant law, that inventions and other intellectual property conceived by such employees during their employment shall be our exclusive property.
Our trademarks are important to us and are generally covered by trademark applications or registrations in the USPTO and the patent or trademark offices of other countries. We also use trademarks licensed from third parties, such as the trademark FAMPYRA which we license from Acorda. Trademark protection varies in accordance with local law, and continues in some countries as long as the trademark is a prolonged-release tablet formulationused and in other countries as long as the trademark is registered. Trademark registrations generally are for fixed but renewable terms.
Our Patent Portfolio
The following table describes our patents in the U.S. and Europe that we currently consider of primary importance to our marketed products, including the territory, patent number, general subject matter and expected expiration dates. Except as otherwise noted, the expected expiration dates include any granted patent term extensions and issued SPCs. In some instances, there are later-expiring patents relating to our products directed to, among other things, particular forms or compositions, methods of manufacturing, or use of the drug fampridine. in the treatment of particular diseases or conditions. We also continue to pursue additional patents and patent term extensions in the U.S. and other territories covering various aspects of our products that may, if issued, extend exclusivity beyond the expiration of the patents listed in the table.
|
| | | | | | | | |
| Product | | Territory | | Patent No. | | General Subject Matter | | Patent Expiration(1) |
| TECFIDERA | | U.S. | | 7,619,001 | | Methods of treatment | | 2018 |
| | | U.S. | | 7,803,840 | | Methods of treatment | | 2018 |
| | | U.S. | | 8,399,514 | | Methods of treatment | | 2028 |
| | | U.S. | | 8,524,773 | | Methods of treatment | | 2018 |
| | | U.S. | | 6,509,376 | | Formulations of dialkyl fumarates for use in the treatment of autoimmune diseases | | 2019 |
| | | U.S. | | 8,759,393 | | Formulations | | 2019 |
| | | U.S. | | 7,320,999 | | Methods of treatment | | 2020 |
| | | Europe | | 1131065 | | Formulations of dialkyl fumarates and their use for treating autoimmune diseases | | 2019(2) |
| | | Europe | | 2137537 | | Methods of use | | 2028(3) |
| AVONEX and PLEGRIDY | | U.S. | | 7,588,755 | | Use of recombinant beta interferon for immunomodulation | | 2026 |
| PLEGRIDY | | U.S. | | 7,446,173 | | Polymer conjugates of interferon beta-1a | | 2022 |
| | | U.S. | | 8,524,660 | | Methods of treatment | | 2023 |
| | | U.S. | | 8,017,733 | | Polymer conjugates of interferon beta-1a | | 2025 |
| | | Europe | | 1656952 | | Polymer conjugates of interferon-beta-1a and uses thereof | | 2019 |
| TYSABRI | | U.S. | | 5,840,299 | | Humanized immunoglobulins; nucleic acids; pharmaceutical compositions; methods of use | | 2017 |
| | | U.S. | | 6,602,503 | | Humanized recombinant antibodies; nucleic acids and host cells; processes for production; therapeutic compositions; methods of use | | 2020 |
| | | U.S. | | 7,807,167 | | Methods of treatment | | 2023 |
| | | Europe | | 0804237 | | Humanized immunoglobulins; nucleic acids; pharmaceutical compositions; medical uses | | 2020 |
| | | Europe | | 1485127 | | Methods of use | | 2023 |
| FAMPYRA | | Europe | | 0484186 | | Formulations containing aminopyridines, including fampridine | | 2016(4) |
| | | Europe | | 1732548 | | Sustained-release aminopyridine compositions for increasing walking speed in patients with MS | | 2025(5) |
| | | Europe | | 23775536 | | Sustained-release aminopyridine compositions for treating MS | | 2025(6) |
| ELOCTATE and ALPROLIX | | U.S. | | 7,348,004 | | Methods of treatment | | 2024 |
| | | U.S. | | 7,862,820 | | Methods of treatment | | 2024 |
| | | U.S. | | 8,329,182 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2024 |
| | | U.S. | | 7,404,956 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2025 |
| | | Europe | | 1624891 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2024 |
| | | Europe | | 1625209 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2024 |
| | | Europe | | 2298347 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2024 |
| ELOCTATE | | U.S. | | 9,050,318 | | Methods of treatment | | 2031 |
| | | U.S. | | 9,241,978 | | Methods of treatment | | 2031 |
| ALPROLIX | | U.S. | | 9,233,145 | | Methods of treatment | | 2031 |
Footnotes follow on next page.
| |
| (1) | In addition to patent protection, certain of our products are entitled to regulatory exclusivity in the U.S. and the E.U. expected until the dates set forth below: |
|
| | | | |
| Product | | Territory | | Expected Expiration |
| TECFIDERA | | U.S. | | 2018 |
| | E.U. | | 2024 |
| PLEGRIDY | | U.S. | | 2026 |
| | E.U. | | 2024 |
| TYSABRI | | U.S. | | 2016 |
| | E.U. | | 2016 |
| FAMPYRA | | E.U. | | 2021 |
| ELOCTATE | | U.S. | | 2026 |
| ELOCTA* | | E.U. | | 2025 |
| ALPROLIX | | U.S. | | 2026 |
*ELOCTA is commercially available throughoutcommercialized by Sobi per our collaboration agreement.
| |
| (2) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2024. |
| |
| (3) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2029. |
| |
| (4) | Reflects SPCs granted in most European countries, except for Germany where the application for SPC is pending. |
| |
| (5) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2026. |
| |
| (6) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2026. |
The existence of patents does not guarantee our right to practice the European Unionpatented technology or commercialize the patented product. Patents relating to pharmaceutical, biopharmaceutical and biotechnology products, compounds and processes, such as those that cover our existing compounds, products and processes and those that we will likely file in the future, do not always provide complete or adequate protection. Litigation, interferences, oppositions, inter partes reviews or other proceedings are, have been and may in the future be necessary in some instances to determine the validity and scope of certain of our patents, regulatory exclusivities or other proprietary rights, and in Canada, Australia, New Zealand, Israelother instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. We may also face challenges to our patents, regulatory exclusivities and South Korea,other proprietary rights covering our products by manufacturers of generics and we anticipate making FAMPYRA commercially availablebiosimilars. A discussion of certain risks and uncertainties that may affect our patent position, regulatory exclusivities and other proprietary rights is set forth in additional marketsthe “Risk Factors” section of this report, and a discussion of legal proceedings related to certain patents described above are set forth in 2013.
We have a license from Acorda Therapeutics, Inc. to develop and commercialize FAMPYRA in all markets outside the U.S. For information about this relationship, please read Note 21,20, Collaborative and Other RelationshipsLitigation to our consolidated financial statements included in this report.
2012 Developments
The European Commission previously granted a conditional marketing authorization for FAMPYRA in the E.U. in July 2011. A conditional marketing authorization is renewable annually and is granted to a medicinal product with a positive benefit-risk assessment that fulfills an unmet medical need when the benefit to public health of immediate availability outweighs the risk inherent in the fact that additional data are still required. This marketing authorization was renewed as of July 2012. To meet the conditions of this marketing authorization, we will provide additional data from on-going clinical studies regarding FAMPYRA's benefits and safety in the long term.
FUMADERM
FUMADERM is approved for the treatment of moderate to severe psoriasis in Germany. Psoriasis is a skin disease in which cells build up on the skin surface and form scales and red patches.
Other SourcesCompetition
Competition in the biopharmaceutical industry is intense and comes from many sources, including specialized biotechnology firms and large pharmaceutical companies. Many of Revenueour competitors are working to develop products similar to those we are developing or already market and have considerable experience in undertaking clinical trials and in obtaining regulatory approval to market pharmaceutical products. Certain of these companies have substantially greater financial, marketing and research and development resources than we do.
OurWe believe that competition and leadership in the industry is based on managerial and technological excellence and innovation as well as establishing patent and other sourcesproprietary positions through research and development. The achievement of revenue consist of royalties we receive from net salesa leadership position also depends largely upon our ability to maximize the approval, acceptance and use of products relatedresulting from research and the availability of adequate financial resources to patentsfund facilities, equipment, personnel, clinical testing, manufacturing and marketing. Another key aspect of remaining competitive within the industry is recruiting and retaining leading scientists and technicians. We believe that we licensed (royalty revenues)have been successful in attracting skilled and revenues fromexperienced scientific personnel.
Competition among products approved for sale may be based, among other things, on patent position, product efficacy, safety, convenience/delivery devices, reliability, availability and price. In addition, early entry of a new pharmaceutical product into the market may have important advantages in gaining product acceptance and market share. Accordingly, the relative speed with which we can develop products, complete the testing and approval process and supply commercial quantities of products will have an important impact on our contract manufacturing, product supply and biosimilar arrangements (corporate partner revenues). Summarycompetitive position.
The introduction of new products or technologies, including the development of new processes or technologies by competitors or new information about existing products may result in increased competition for our other sourcesmarketed products or could result in pricing pressure on our products. It is also possible that the development of revenue is set forth innew or improved treatment options or standards of care or cures for the table below:
|
| | | | | | | | | | | | |
| (In millions) | | 2012 | | 2011 | | 2010 |
| Royalty revenues | | $ | 168.7 |
| | $ | 158.5 |
| | $ | 137.4 |
|
| Corporate partner revenues | | $ | 43.8 |
| | $ | 57.4 |
| | $ | 31.7 |
|
Our most significant sourcediseases our products treat could reduce or eliminate the use of royalty revenue is derived from net worldwide salesour products or may limit the utility and application of ANGIOMAX, which is licensed to The Medicines Company (TMC). TMC markets ANGIOMAX primarilyongoing clinical trials for our product candidates. We may also face increased competitive pressures as a result of generics and the emergence of biosimilars in the U.S. and EuropeE.U. If a generic or biosimilar version of one of our products were approved, it could reduce our sales of that product.
Additional information about the competition that our marketed products face is set forth below.
TECFIDERA, AVONEX, PLEGRIDY and TYSABRI
TECFIDERA, AVONEX, PLEGRIDY and TYSABRI each compete with one or more of the following products:
|
| | |
| Competing Product | | Competitor |
COPAXONE (glatiramer acetate) | | Teva Pharmaceuticals Industries Ltd. |
| GLATOPA (glatiramer acetate) | | Sandoz, a division of Novartis AG |
REBIF (interferon-beta-1) | | Merck KGaA (and co-promoted with Pfizer Inc. in the U.S.) |
| BETASERON/BETAFERON (interferon-beta-1b) | | Bayer Group |
EXTAVIA (interferon-beta-1b) | | Novartis AG |
| GILENYA (fingolimod) | | Novartis AG |
| AUBAGIO (teriflunomide) | | Sanofi |
| LEMTRADA (alemtuzumab) | | Sanofi |
Competition in the MS market is intense. Along with us, a number of companies are working to develop additional treatments for useMS that may in the future compete with our MS products. One such product candidate is ocrelizumab, a potential treatment for PPMS being developed by the Roche Group. While we have a financial interest in ocrelizumab, future sales of our MS products may be adversely affected by the commercialization of ocrelizumab, as an anticoagulantwell as by other MS products we or our competitors are developing. Future sales may also be negatively impactedbythe introduction of generics, prodrugs of existing therapeutics or biosimilars of existing products.
FAMPYRA
FAMPYRA is indicated as a treatment to improve walking in adult patients with MS who have walking disability and is the first treatment that addresses this unmet medical need with demonstrated efficacy in people with all types of MS. FAMPYRA is currently the only therapy approved to improve walking in patients undergoing percutaneous coronary intervention. Forwith MS.
ELOCTATE and ALPROLIX
ELOCTATE and ALPROLIX compete with recombinant Factor VIII and IX products, respectively, including:
|
| | |
| Competing Product | | Competitor |
| ELOCTATE: | | |
ADVATE [Antihemophilic Factor (Recombinant)] | | Baxalta |
ADYNOVATE [Antihemophilic Factor (Recombinant), PEGylated] | | Baxalta |
KOGENATE FS [Antihemophilic Factor (Recombinant)] | | Bayer |
HELIXATE FS [Antihemophilic Factor (Recombinant)] | | CSL Behring |
RECOMBINATE [Antihemophilic Factor (Recombinant)] | | Baxalta |
XYNTHA [Antihemophilic Factor (Recombinant)], Plasma/Albumin-Free | | Pfizer |
| ALPROLIX: | | |
| BENEFIX Coagulation Factor IX (Recombinant) | | Pfizer |
| IXINITY Coagulation Factor IX (Recombinant) | | Emergent Biosolutions |
| RIXUBIS [Coagulation Factor IX (Recombinant)] | | Baxalta |
Our hemophilia products also compete with a descriptionnumber of this royalty arrangement, please read the subsection entitled “Other Revenues - Royalty Revenues”plasma-derived Factor VIII and IX products. We are also aware of other longer-acting products as well as other technologies, such as gene therapies, that are in development, and if successfully developed and approved would compete with our hemophilia products.
RITUXAN and GAZYVA in Oncology
RITUXAN and GAZYVA compete with a number of therapies in the “Management's Discussiononcology market, including TREANDA (bendamustine HCL), ARZERRA (ofatumumab), IMBRUVICA (ibrutinib) and Analysis of Financial Condition and Results of Operations” section of this report.ZYDELIG (idelalisib).
2012 Developments
In March 2012, the U.S. Patent and Trademark Office granted the extension of the term of the principal U.S. patentWe also expect that covers ANGIOMAX to December 15, 2014. Under the terms of our royalty arrangement for ANGIOMAX, TMC is obligated to pay us royalties earned, on a country-by-country basis, until the later of (1) twelve years from the date of the first commercial sale of ANGIOMAX in such country or (2) the date upon which the product is no longer covered by a licensed patent in such country. The annual royalty rate is reduced by a specified percentage in any country where the product is no longer covered by a licensed patent and where sales have been reduced to a certain volume-based market share. TMC began selling ANGIOMAXover time GAZYVA will increasingly compete with RITUXAN in the U.S.oncology market. In addition, we are aware of other anti-CD20 molecules, including biosimilars, in January 2001.development that, if successfully developed and approved, may compete with RITUXAN and GAZYVA in the oncology market.
RITUXAN in Rheumatoid Arthritis
RITUXAN competes with several different types of therapies in the rheumatoid arthritis market, including, among others, traditional disease-modifying anti-rheumatic drugs such as steroids, methotrexate and cyclosporine, TNF inhibitors, ORENCIA (abatacept), ACTEMRA (tocilizumab) and XELJANZ (tofacitinib).
We are also aware of other products, including biosimilars, in development that, if successfully developed and approved, may compete with RITUXAN in the rheumatoid arthritis market.
FUMADERM
FUMADERM competes with several different types of therapies in the psoriasis market within Germany, including oral systemics such as methotrexate and cyclosporine.
ResearchPatents and Development ProgramsOther Proprietary Rights
A commitmentPatents are important to research is fundamental toobtaining and protecting exclusive rights in our mission at Biogen Idec. Ourproducts and product candidates. We regularly seek patent protection in the U.S. and in selected countries outside the U.S. for inventions originating from our research and development strategyefforts. In addition, we license rights to various patents and patent applications.
U.S. patents, as well as most foreign patents, are generally effective for 20 years from the date the earliest application was filed; however, U.S. patents that issue on applications filed before June 8, 1995 may be effective until 17 years from the issue date, if that is later than the 20 year date. In some cases, the patent term may be extended to discoverrecapture a portion of the term lost during regulatory review of the claimed therapeutic or, in the case of the U.S., because of U.S. Patent and develop first-in-class molecules or best-in-class moleculesTrademark Office (USPTO) delays in prosecuting the application. Specifically, in the U.S., under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, a patent that improve safety or efficacycovers an FDA-approved drug may be eligible for unmet medical needs. By applying our expertisepatent term extension (for up to five years, but not beyond a total of 14 years from the date of product approval) as compensation for patent term lost during the FDA regulatory review process. The duration and extension of the term of foreign patents varies, in biologics and our growing capabilities in small-molecule drug discovery and development, we target specific medical needs where new or better treatments are needed.
We intend to continue committing significant resources to research and development opportunities and business development activity. As partaccordance with local law. For example, supplementary protection certificates (SPCs) on some of our ongoing researchproducts have been granted in a number of European countries, compensating in part for delays in obtaining marketing approval.
Regulatory exclusivity, which may consist of regulatory data protection and development efforts, we have devotedmarket protection, also can provide meaningful protection for our products. Regulatory data protection provides to the holder of a drug or biologic marketing authorization, for a set period of time, the exclusive use of the proprietary pre-clinical and clinical data that it created at significant resourcescost and submitted to conducting clinical studiesthe applicable regulatory authority to advanceobtain approval of its product. After the developmentapplicable set period of newtime, third parties are then permitted to rely upon our data to file for approval of their abbreviated applications for, and to market (subject to any applicable market protection), their generic drugs and biosimilars referencing our data. Market protection provides to the holder of a drug or biologic marketing authorization the exclusive right to commercialize its product for a set period of
time, thereby preventing the commercialization of another product containing the same active ingredient(s) during that period. Although the World Trade Organization's agreement on trade-related aspects of intellectual property rights (TRIPS) requires signatory countries to provide regulatory exclusivity to innovative pharmaceutical products, implementation and enforcement varies widely from country to explorecountry.
We also rely upon other forms of unpatented confidential information to remain competitive. We protect such information principally through confidentiality agreements with our employees, consultants, outside scientific collaborators, scientists whose research we sponsor and other advisers. In the utilitycase of our existing productsemployees, these agreements also provide, in treating disorders beyond those currently approvedcompliance with relevant law, that inventions and other intellectual property conceived by such employees during their employment shall be our exclusive property.
Our trademarks are important to us and are generally covered by trademark applications or registrations in their labels. The table below highlights our current research and development programs. Drug development involves a high degree of risk and investment,the USPTO and the status, timingpatent or trademark offices of other countries. We also use trademarks licensed from third parties, such as the trademark FAMPYRA which we license from Acorda. Trademark protection varies in accordance with local law, and scopecontinues in some countries as long as the trademark is used and in other countries as long as the trademark is registered. Trademark registrations generally are for fixed but renewable terms.
Our Patent Portfolio
The following table describes our patents in the U.S. and Europe that we currently consider of primary importance to our marketed products, including the territory, patent number, general subject matter and expected expiration dates. Except as otherwise noted, the expected expiration dates include any granted patent term extensions and issued SPCs. In some instances, there are later-expiring patents relating to our products directed to, among other things, particular forms or compositions, methods of manufacturing, or use of the drug in the treatment of particular diseases or conditions. We also continue to pursue additional patents and patent term extensions in the U.S. and other territories covering various aspects of our development programs are subject to change. Important factorsproducts that could adversely affect our drug development efforts are discussedmay, if issued, extend exclusivity beyond the expiration of the patents listed in the “Risk Factors” section of this report.table.
|
| | | | | | | | |
| Product | | Territory | | Patent No. | | General Subject Matter | | Patent Expiration(1) |
| TECFIDERA | | U.S. | | 7,619,001 | | Methods of treatment | | 2018 |
| | | U.S. | | 7,803,840 | | Methods of treatment | | 2018 |
| | | U.S. | | 8,399,514 | | Methods of treatment | | 2028 |
| | | U.S. | | 8,524,773 | | Methods of treatment | | 2018 |
| | | U.S. | | 6,509,376 | | Formulations of dialkyl fumarates for use in the treatment of autoimmune diseases | | 2019 |
| | | U.S. | | 8,759,393 | | Formulations | | 2019 |
| | | U.S. | | 7,320,999 | | Methods of treatment | | 2020 |
| | | Europe | | 1131065 | | Formulations of dialkyl fumarates and their use for treating autoimmune diseases | | 2019(2) |
| | | Europe | | 2137537 | | Methods of use | | 2028(3) |
| AVONEX and PLEGRIDY | | U.S. | | 7,588,755 | | Use of recombinant beta interferon for immunomodulation | | 2026 |
| PLEGRIDY | | U.S. | | 7,446,173 | | Polymer conjugates of interferon beta-1a | | 2022 |
| | | U.S. | | 8,524,660 | | Methods of treatment | | 2023 |
| | | U.S. | | 8,017,733 | | Polymer conjugates of interferon beta-1a | | 2025 |
| | | Europe | | 1656952 | | Polymer conjugates of interferon-beta-1a and uses thereof | | 2019 |
| TYSABRI | | U.S. | | 5,840,299 | | Humanized immunoglobulins; nucleic acids; pharmaceutical compositions; methods of use | | 2017 |
| | | U.S. | | 6,602,503 | | Humanized recombinant antibodies; nucleic acids and host cells; processes for production; therapeutic compositions; methods of use | | 2020 |
| | | U.S. | | 7,807,167 | | Methods of treatment | | 2023 |
| | | Europe | | 0804237 | | Humanized immunoglobulins; nucleic acids; pharmaceutical compositions; medical uses | | 2020 |
| | | Europe | | 1485127 | | Methods of use | | 2023 |
| FAMPYRA | | Europe | | 0484186 | | Formulations containing aminopyridines, including fampridine | | 2016(4) |
| | | Europe | | 1732548 | | Sustained-release aminopyridine compositions for increasing walking speed in patients with MS | | 2025(5) |
| | | Europe | | 23775536 | | Sustained-release aminopyridine compositions for treating MS | | 2025(6) |
| ELOCTATE and ALPROLIX | | U.S. | | 7,348,004 | | Methods of treatment | | 2024 |
| | | U.S. | | 7,862,820 | | Methods of treatment | | 2024 |
| | | U.S. | | 8,329,182 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2024 |
| | | U.S. | | 7,404,956 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2025 |
| | | Europe | | 1624891 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2024 |
| | | Europe | | 1625209 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2024 |
| | | Europe | | 2298347 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2024 |
| ELOCTATE | | U.S. | | 9,050,318 | | Methods of treatment | | 2031 |
| | | U.S. | | 9,241,978 | | Methods of treatment | | 2031 |
| ALPROLIX | | U.S. | | 9,233,145 | | Methods of treatment | | 2031 |
Footnotes follow on next page.
| |
| (1) | In addition to patent protection, certain of our products are entitled to regulatory exclusivity in the U.S. and the E.U. expected until the dates set forth below: |
|
| | | | | | |
Therapeutic AreaProduct | | Product CandidateTerritory | | Targeted IndicationsExpected Expiration |
| TECFIDERA | | Status |
NeurologyU.S. | | TECFIDERA (BG-12) | | MS | | Marketing applications submitted and under regulatory review2018 |
| | | Peginterferon beta-1aE.U. | | MS2024 |
| PLEGRIDY | | Expect to submit marketing applications by mid - 2013U.S. | | 2026 |
| | | DaclizumabE.U. | | MS2024 |
| TYSABRI | | Phase 3U.S. | | 2016 |
| | | TYSABRIE.U. | | Secondary-progressive MS2016 |
| FAMPYRA | | Phase 3 |
| E.U. | | Anti-LINGO | | Optic Neuritis | | Phase 22021 |
| | | | MS | | Phase 1 |
| | BIIB037 | | Alzheimer’s disease | | Phase 1 |
| | ISIS - SMNRx
| | Spinal muscular atrophy | | Phase 1b/2a |
| | Neublastin | | Neuropathic pain | | Phase 1 |
|
Hemophilia | | Factor IX | | Hemophilia BELOCTATE | | U.S. BLA submitted and under regulatory review |
| | Factor VIII2026 |
| ELOCTA* | | Hemophilia AE.U. | | Expect to submit U.S. BLA in 1H 20132025 |
|
ImmunologyALPROLIX | | STX-100U.S. | | Idiopathic pulmonary fibrosis | | Phase 2 |
| | Anti-TWEAK | | Lupus nephritis | | Phase 2 |
| | Anti-CD40 Ligand | | General lupus | | Phase 1 |
|
Other | | GA101 | | Chronic lymphocytic leukemia | | Phase 3 |
| | GA101 | | Non-Hodgkin’s lymphoma | | Phase 32026 |
Late Stage Product Candidates
Additional information about*ELOCTA is commercialized by Sobi per our late stage product candidatescollaboration agreement.
| |
| (2) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2024. |
| |
| (3) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2029. |
| |
| (4) | Reflects SPCs granted in most European countries, except for Germany where the application for SPC is pending. |
| |
| (5) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2026. |
| |
| (6) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2026. |
The existence of patents does not guarantee our right to practice the patented technology or commercialize the patented product. Patents relating to pharmaceutical, biopharmaceutical and biotechnology products, compounds and processes, such as those that cover our existing compounds, products and processes and those that we will likely file in the future, do not always provide complete or adequate protection. Litigation, interferences, oppositions, inter partes reviews or other proceedings are, have been and may in the future be necessary in some instances to determine the validity and scope of certain of our patents, regulatory exclusivities or other proprietary rights, and in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. We may also face challenges to our patents, regulatory exclusivities and other proprietary rights covering our products by manufacturers of generics and biosimilars. A discussion of certain risks and uncertainties that may affect our patent position, regulatory exclusivities and other proprietary rights is set forth below.
TECFIDERA (BG-12)
In February 2012, we submitted a New Drug Application to the FDA for marketing approval of TECFIDERA, our oral small molecule candidate for the treatment of MS. The regulatory submission was based on TECFIDERA's comprehensive development program, in which TECFIDERA demonstrated significant reductions in MS disease activity coupled with favorable safety and tolerability in the Phase 3 DEFINE and CONFIRM studies. The FDA accepted our application for TECFIDERA and granted us a standard review timeline. In October 2012, we announced that the FDA extended the initial PDUFA date for its review of our application by three months, which is a standard extension period. The extended PDUFA target date is in late March 2013. The FDA has indicated that the extension of the PDUFA date is needed to allow additional time for review of our application. The agency has not asked for additional studies.
In March 2012, we submitted a Marketing Authorisation Application for TECFIDERA to the EMA. The EMA has validated our application for review of TECFIDERA in the E.U. We have submitted additional regulatory applications for TECFIDERA in Australia, Canada and Switzerland.
We acquired TECFIDERA as part of our acquisition of Fumapharm AG in 2006. For more information about this acquisition and associated milestone obligations, please read the subsection entitled “Contractual Obligations and Off-Balance Sheet Arrangements-Contingent Consideration“Risk Factors”” in the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section of this report.
Peginterferon beta-1a
Peginterferon beta-1a (Peginterferon) is designedreport, and a discussion of legal proceedings related to prolong the effects and reduce the dosing frequency of interferon beta-1a. The FDA has granted Peginterferon fast track status, which may resultcertain patents described above are set forth in priority review.
In January 2013, we released the primary efficacy analysis and safety data from our Phase 3 study, ADVANCE. Results support Peginterferon as a potential treatment dosed every two weeks or every four weeks for relapsing-remitting MS. The primary endpoint of ADVANCE, annualized relapse rate at one year, was met for both the two-week and four-week dosing regimens. Results showed that Peginterferon also met the secondary endpoints of risk of 12-week confirmed disability progression, proportion of patients who relapsed and magnetic resonance imaging assessments for both dose regimens. We plan to submit marketing applications for Peginterferon in the U.S. and E.U. by mid - 2013.
Daclizumab
Daclizumab is a monoclonal antibody that is being tested in relapsing MS. In May 2010, we began patient enrollment in a Phase 3 study of daclizumab in relapsing MS, known as DECIDE, evaluating the efficacy and safety of daclizumab compared to interferon beta-1a (AVONEX). The DECIDE study is designed to have a two year endpoint and is expected to involve approximately 1,800 patients.
In August 2011, we announced positive results from SELECT, a global, registrational Phase 2b study designed to evaluate daclizumab in relapsing MS over one year. Results showed that daclizumab, administered subcutaneously once every four weeks, met primary and key secondary study endpoints, compared to placebo.
We collaborate with AbbVie Biotherapuetics, Inc., a subsidiary of AbbVie, Inc. on the development and commercialization of daclizumab. For information about this collaboration, please read Note 21,20, Collaborative and Other RelationshipsLitigation to our consolidated financial statements included in this report.
TYSABRI (SPMS)
As part of our efforts with Elan to identify additional applications for TYSABRI, in September 2011 we began patient enrollment in a Phase 3b study of TYSABRI in secondary progressive MS, known as ASCEND. The study is designed to have an endpoint of approximately two years and involve approximately 850 patients. Secondary progressive MS is characterized by a steady progression of nerve damage, symptoms and disability.
Long-Lasting Recombinant Factors VIII and IX
In October 2012, we announced positive top-line results from the Phase 3 study, known as A-LONG, investigating our long-lasting recombinant Factor VIII-Fc fusion protein in hemophilia A, a rare inherited disorder which inhibits blood coagulation. We plan to submit a Biologics License Application to the FDA for our long-lasting Factor VIII product candidate in the first half of 2013.
We submitted a Biologics License Application to the FDA for marketing approval of our long-lasting recombinant Factor IX-Fc fusion protein in hemophilia B, a rare inherited disorder which inhibits blood coagulation, in the fourth quarter of 2012. The regulatory submission was based on the positive top-line results from the Phase 3 study known as B-LONG.
Pediatric data will be required as part of the Marketing Authorization Applications for our long-lasting Factor VIII and IX product candidates that we plan to submit to the EMA, and we have initiated two global pediatric studies of our long-lasting Factor VIII and IX product candidates.
We collaborate with Swedish Orphan Biovitrum AB on the commercialization of long-lasting recombinant Factors VIII and IX. For information about this collaboration, please read Note 21, Collaborative and Other Relationships to our consolidated financial statements included in this report.
GA101
We collaborate with Genentech, Inc., a wholly-owned member of the Roche Group, on the development and commercialization of GA101, a monoclonal antibody. Genentech and Roche are managing the following Phase 3 studies of GA101:
GOYA: investigating the efficacy and safety of GA101 in combination with CHOP chemotherapy compared to RITUXAN with CHOP chemotherapy in previously untreated patients with CD20-positive diffuse large B-cell lymphoma.
GALLIUM: investigating the efficacy and safety of GA101 in combination with chemotherapy followed by maintenance with GA101 compared to RITUXAN in combination with chemotherapy followed by maintenance with RITUXAN in previously untreated patients with indolent non-Hodgkin's lymphoma.
GADOLIN: investigating the efficacy and safety of GA101 plus bendamustine compared with bendamustine alone in patients with RITUXAN-refractory, indolent non-Hodgkin's lymphoma.
CLL11: investigating the safety and efficacy of GA101 plus chlorambucil, a chemotherapy, compared to RITUXAN plus chlorambucil or chlorambucil alone in previously untreated chronic lymphocytic leukemia patients with co-morbidities.
Competition
Competition in the biopharmaceutical industry is intense and comes from many sources, including specialized biotechnology firms and large pharmaceutical companies. Many of our competitors are working to develop products similar to those we are developing or already market and have considerable experience in undertaking clinical trials and in obtaining regulatory approval to market pharmaceutical products. Certain of these companies have substantially greater financial, marketing and research and development resources than we do.
We believe that competition and leadership in the industry is based on managerial and technological excellence and innovation as well as establishing patent and other proprietary positions through research and development. The achievement of a leadership position also depends largely upon our ability to maximize the approval, acceptance and use of products resulting from research and the availability of adequate financial resources to fund facilities, equipment, personnel, clinical testing, manufacturing and marketing. Another key aspect of remaining competitive within the industry is recruiting and retaining leading scientists and technicians. We believe that we have been successful in attracting skilled and experienced scientific personnel.
Competition among products approved for sale may be based, among other things, on patent position, product efficacy, safety, convenience/delivery devices, reliability, availability and price. In January 2013,addition, early entry of a new pharmaceutical product into the market may have important advantages in gaining product acceptance and market share. Accordingly, the relative speed with which we can develop products, complete the testing and approval process and supply commercial quantities of products will have an important impact on our competitive position.
The introduction of new products or technologies, including the development of new processes or technologies by competitors or new information about existing products may result in increased competition for our marketed products or could result in pricing pressure on our products. It is also possible that the development of new or improved treatment options or standards of care or cures for the diseases our products treat could reduce or eliminate the use of our products or may limit the utility and application of ongoing clinical trials for our product candidates. We may also face increased competitive pressures as a result of generics and the emergence of biosimilars in the U.S. and E.U. If a generic or biosimilar version of one of our products were approved, it could reduce our sales of that product.
Additional information about the competition that our marketed products face is set forth below.
TECFIDERA, AVONEX, PLEGRIDY and TYSABRI
TECFIDERA, AVONEX, PLEGRIDY and TYSABRI each compete with one or more of the following products:
|
| | |
| Competing Product | | Competitor |
COPAXONE (glatiramer acetate) | | Teva Pharmaceuticals Industries Ltd. |
| GLATOPA (glatiramer acetate) | | Sandoz, a division of Novartis AG |
REBIF (interferon-beta-1) | | Merck KGaA (and co-promoted with Pfizer Inc. in the U.S.) |
| BETASERON/BETAFERON (interferon-beta-1b) | | Bayer Group |
EXTAVIA (interferon-beta-1b) | | Novartis AG |
| GILENYA (fingolimod) | | Novartis AG |
| AUBAGIO (teriflunomide) | | Sanofi |
| LEMTRADA (alemtuzumab) | | Sanofi |
Competition in the MS market is intense. Along with us, a number of companies are working to develop additional treatments for MS that may in the future compete with our MS products. One such product candidate is ocrelizumab, a potential treatment for PPMS being developed by the Roche Group announcedGroup. While we have a financial interest in ocrelizumab, future sales of our MS products may be adversely affected by the commercialization of ocrelizumab, as well as by other MS products we or our competitors are developing. Future sales may also be negatively impactedbythe introduction of generics, prodrugs of existing therapeutics or biosimilars of existing products.
FAMPYRA
FAMPYRA is indicated as a treatment to improve walking in adult patients with MS who have walking disability and is the first treatment that stage 1 of the CLL11 study met its primary endpointaddresses this unmet medical need with an improvement in progression-free survival (PFS): GA101 plus chlorambucil significantly reduced the risk of disease worsening or death compared to chlorambucil alone. The CLL11 study includes two separate stages. Stage 1 evaluated GA101 plus chlorambucil compared to chlorambucil alone and included a pre-planned PFS futility analysis comparing GA101 plus chlorambucil to RITUXAN plus chlorambucil. The goal of the futility analysis was to evaluate the likelihood that the study would meet its pre-specified endpoint criteria during stage 2 analysis: improveddemonstrated efficacy (PFS) in the direct comparison of GA101 plus chlorambucil versus RITUXAN plus chlorambucil. The independent Data and Safety Monitoring Board assessment concluded that stage 2 of the study should continue until its final analysis.
For information about our collaboration with Genentech, please read Note 21, Collaborative and Other Relationships to our consolidated financial statements included in this report.
Former Registrational Program
At the end of December 2012, we learned that a Phase 3 trial investigating dexpramipexole in people with amyotrophic lateral sclerosis (ALS) did not meet its primary endpoint,all types of MS. FAMPYRA is currently the only therapy approved to improve walking in patients with MS.
ELOCTATE and ALPROLIX
ELOCTATE and ALPROLIX compete with recombinant Factor VIII and IX products, respectively, including:
|
| | |
| Competing Product | | Competitor |
| ELOCTATE: | | |
ADVATE [Antihemophilic Factor (Recombinant)] | | Baxalta |
ADYNOVATE [Antihemophilic Factor (Recombinant), PEGylated] | | Baxalta |
KOGENATE FS [Antihemophilic Factor (Recombinant)] | | Bayer |
HELIXATE FS [Antihemophilic Factor (Recombinant)] | | CSL Behring |
RECOMBINATE [Antihemophilic Factor (Recombinant)] | | Baxalta |
XYNTHA [Antihemophilic Factor (Recombinant)], Plasma/Albumin-Free | | Pfizer |
| ALPROLIX: | | |
| BENEFIX Coagulation Factor IX (Recombinant) | | Pfizer |
| IXINITY Coagulation Factor IX (Recombinant) | | Emergent Biosolutions |
| RIXUBIS [Coagulation Factor IX (Recombinant)] | | Baxalta |
Our hemophilia products also compete with a joint rank analysisnumber of functionplasma-derived Factor VIII and survival,IX products. We are also aware of other longer-acting products as well as other technologies, such as gene therapies, that are in development, and no efficacy was seenif successfully developed and approved would compete with our hemophilia products.
RITUXAN and GAZYVA in Oncology
RITUXAN and GAZYVA compete with a number of therapies in the individual components of function or survival. The trialoncology market, including TREANDA (bendamustine HCL), ARZERRA (ofatumumab), IMBRUVICA (ibrutinib) and ZYDELIG (idelalisib).
We also failed to show efficacy in its key secondary endpoints. Based on these results, we have discontinued development of dexpramipexole in ALS.
Dexpramipexole was being developed pursuant to a license agreementexpect that over time GAZYVA will increasingly compete with Knopp Neurosciences, Inc. For more information about this relationship, please read Note 20, Investments in Variable Interest Entities to our consolidated financial statements included in this report.
Business Development
In December 2012, we entered into an arrangement with Eisai, Inc. to lease a portion of their facility in Research Triangle Park, North Carolina (RTP) to manufacture our and Eisai's oral solid dose products and for Eisai to provide us with vial-filling services for biologic therapies and packaging services for oral solid dose products. For additional information about this transaction, please read Note 12, Property, Plant and Equipment to our consolidated financial statements included in this report.
In December, June and January 2012, we entered into three separate exclusive, worldwide option and collaboration agreements with Isis Pharmaceuticals, Inc. (Isis) under which both companies will develop and commercialize antisense therapeutics for up to three gene targets, Isis’ product candidates for the treatment of myotonic dystrophy type 1 (DM1) and the treatment of spinal muscular atrophy (SMA), respectively. For additional information about these transactions, please read Note 21, Collaborative and Other Relationships to our consolidated financial statements included in this report.
In March 2012, we acquired Stromedix, Inc., a privately held biotechnology company involvedRITUXAN in the discoveryoncology market. In addition, we are aware of antibodies designed to treat fibrosis disorders. Stromedix' lead candidate, STX-100, isother anti-CD20 molecules, including biosimilars, in a Phase 2 study for idiopathic pulmonary fibrosis, a diseasedevelopment that, if successfully developed and approved, may compete with RITUXAN and GAZYVA in which lung tissue becomes scarred over time. There is no FDA-approved treatment for idiopathic pulmonary fibrosis at this time. For additional information about this transaction, please read Note 2, Acquisitions to our consolidated financial statements includedthe oncology market.
RITUXAN in this report.Rheumatoid Arthritis
In February 2012, we finalized an agreementRITUXAN competes with Samsung Biologicsseveral different types of therapies in the rheumatoid arthritis market, including, among others, traditional disease-modifying anti-rheumatic drugs such as steroids, methotrexate and cyclosporine, TNF inhibitors, ORENCIA (abatacept), ACTEMRA (tocilizumab) and XELJANZ (tofacitinib).
We are also aware of other products, including biosimilars, in development that, established an entity, Samsung Bioepis, to develop, manufactureif successfully developed and approved, may compete with RITUXAN in the rheumatoid arthritis market.
FUMADERM
FUMADERM competes with several different types of therapies in the psoriasis market biosimilar pharmaceuticals. For additional information about this transaction, please read Note 21, Collaborativewithin Germany, including oral systemics such as methotrexate and Other Relationships to our consolidated financial statements included in this report.cyclosporine.
Patents and Other Proprietary Rights
Patents are important to developingobtaining and protecting exclusive rights in our competitive position.products and product candidates. We regularly seek patent protection in the U.S. and in selected countries outside the U.S. for inventions originating from our research and development efforts. In addition, we license rights to various patents and patent applications, generally, in return for the payment of royalties to the patent owner. applications.
U.S. patents, as well as most foreign patents, are generally effective for 20 years from the date the earliest (priority) application was filed; however, U.S. patents that issue on applications filed before June 8, 1995 may be effective until 17 years from the issue date, if that is later than the 20 year date. In some cases, the patent term may be extended to recapture a portion of the term lost during FDA regulatory review of the claimed therapeutic or, in the case of the U.S., because of U.S. Patent and Trademark Office (USPTO) delays in prosecuting the application. Specifically, in the U.S., under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, a patent that covers an FDA-approved drug may be eligible for patent term extension (for up to five years, but not beyond a total of 14 years from the date of product approval) as compensation for patent term lost during the FDA regulatory review process. The duration and extension of the term of foreign patents varies, similarly, in accordance with local law. For example, supplementary protection certificates (SPCs) on some of our products have been granted in a number of European countries, compensating in part for delays in obtaining marketing approval.
Regulatory exclusivity, which may consist of regulatory data protection and market protection, also can provide meaningful protection for our products. Regulatory data protection provides to the holder of a drug or biologic marketing authorization, for a set period of time, the exclusive use of the proprietary pre-clinical and clinical data that it compiledcreated at significant cost and submitted to the applicable regulatory authority to obtain approval of its product. After the applicable set period of time, third parties are then permitted to rely upon theour data to obtainfile for approval of their abbreviated applications for, and to market (subject to any applicable market protection), their generic drugs and biosimilars.biosimilars referencing our data. Market protection provides to the holder of a drug or biologic marketing authorization the exclusive right to commercialize its product for a set period of
time, thereby preventing the commercialization of another product containing the same active ingredient(s) during that period. Although the World Trade Organization's agreement on
trade-related aspects of intellectual property rights (TRIPS) requires signatory countries to provide regulatory data protectionexclusivity to innovative pharmaceutical products, implementation and enforcement varies widely from country to country.
We also rely upon other forms of unpatented confidential information to remain competitive. We protect such information principally through confidentiality agreements with our employees, consultants, outside scientific collaborators, scientists whose research we sponsor and other advisers. In the case of our employees, these agreements also provide, in compliance with relevant law, that inventions and other intellectual property conceived by such employees during their employment shall be our exclusive property.
Our trademarks including RITUXAN and AVONEX, are important to us and are generally covered by trademark applications or registrations in the USPTO and the patent or trademark offices of other countries. We also use trademarks licensed from third parties, such as the mark TYSABRItrademark FAMPYRA which we license from Elan.Acorda. Trademark protection varies in accordance with local law, and continues in some countries as long as the marktrademark is used and in other countries as long as the marktrademark is registered. Trademark registrations generally are for fixed but renewable terms.
Our Patent Portfolio
The following table describes our patents in the U.S. and Europe that we currently consider of primary importance to our marketed products, including the territory, patent number, general subject matter and expected expiration dates. Except as otherwise noted, the expected expiration dates include any granted patent term extensions and issued SPCs. In some instances, there are later-expiring patents relating to our products directed to, among other things, particular forms or compositions, methods of manufacturing, or use of the drug in the treatment of particular diseases or conditions. We also continue to pursue additional patents and patent term extensions in the U.S. and other territories covering various aspects of our products that may, if issued, extend exclusivity beyond the expiration of the patents listed in the table.
|
| | | | | | | | |
| Product | | Territory | | Patent No. | | General Subject Matter | | Patent Expiration(1) |
| TECFIDERA | | U.S. | | 7,619,001 | | Methods of treatment | | 2018 |
| | | U.S. | | 7,803,840 | | Methods of treatment | | 2018 |
| | | U.S. | | 8,399,514 | | Methods of treatment | | 2028 |
| | | U.S. | | 8,524,773 | | Methods of treatment | | 2018 |
| | | U.S. | | 6,509,376 | | Formulations of dialkyl fumarates for use in the treatment of autoimmune diseases | | 2019 |
| | | U.S. | | 8,759,393 | | Formulations | | 2019 |
| | | U.S. | | 7,320,999 | | Methods of treatment | | 2020 |
| | | Europe | | 1131065 | | Formulations of dialkyl fumarates and their use for treating autoimmune diseases | | 2019(2) |
| | | Europe | | 2137537 | | Methods of use | | 2028(3) |
| AVONEX and PLEGRIDY | | U.S. | | 7,588,755 | | Use of recombinant beta interferon for immunomodulation | | 2026 |
| PLEGRIDY | | U.S. | | 7,446,173 | | Polymer conjugates of interferon beta-1a | | 2022 |
| | | U.S. | | 8,524,660 | | Methods of treatment | | 2023 |
| | | U.S. | | 8,017,733 | | Polymer conjugates of interferon beta-1a | | 2025 |
| | | Europe | | 1656952 | | Polymer conjugates of interferon-beta-1a and uses thereof | | 2019 |
| TYSABRI | | U.S. | | 5,840,299 | | Humanized immunoglobulins; nucleic acids; pharmaceutical compositions; methods of use | | 2017 |
| | | U.S. | | 6,602,503 | | Humanized recombinant antibodies; nucleic acids and host cells; processes for production; therapeutic compositions; methods of use | | 2020 |
| | | U.S. | | 7,807,167 | | Methods of treatment | | 2023 |
| | | Europe | | 0804237 | | Humanized immunoglobulins; nucleic acids; pharmaceutical compositions; medical uses | | 2020 |
| | | Europe | | 1485127 | | Methods of use | | 2023 |
| FAMPYRA | | Europe | | 0484186 | | Formulations containing aminopyridines, including fampridine | | 2016(4) |
| | | Europe | | 1732548 | | Sustained-release aminopyridine compositions for increasing walking speed in patients with MS | | 2025(5) |
| | | Europe | | 23775536 | | Sustained-release aminopyridine compositions for treating MS | | 2025(6) |
| ELOCTATE and ALPROLIX | | U.S. | | 7,348,004 | | Methods of treatment | | 2024 |
| | | U.S. | | 7,862,820 | | Methods of treatment | | 2024 |
| | | U.S. | | 8,329,182 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2024 |
| | | U.S. | | 7,404,956 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2025 |
| | | Europe | | 1624891 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2024 |
| | | Europe | | 1625209 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2024 |
| | | Europe | | 2298347 | | Composition of matter covering rFIXFc and rFVIIIFc | | 2024 |
| ELOCTATE | | U.S. | | 9,050,318 | | Methods of treatment | | 2031 |
| | | U.S. | | 9,241,978 | | Methods of treatment | | 2031 |
| ALPROLIX | | U.S. | | 9,233,145 | | Methods of treatment | | 2031 |
Footnotes follow on next page.
| |
| (1) | In addition to patent protection, certain of our products are entitled to regulatory exclusivity in the U.S. and the E.U. expected until the dates set forth below: |
|
| | | | |
| Product | | Territory | | Expected Expiration |
| TECFIDERA | | U.S. | | 2018 |
| | E.U. | | 2024 |
| PLEGRIDY | | U.S. | | 2026 |
| | E.U. | | 2024 |
| TYSABRI | | U.S. | | 2016 |
| | E.U. | | 2016 |
| FAMPYRA | | E.U. | | 2021 |
| ELOCTATE | | U.S. | | 2026 |
| ELOCTA* | | E.U. | | 2025 |
| ALPROLIX | | U.S. | | 2026 |
*ELOCTA is commercialized by Sobi per our collaboration agreement.
| |
| (2) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2024. |
| |
| (3) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2029. |
| |
| (4) | Reflects SPCs granted in most European countries, except for Germany where the application for SPC is pending. |
| |
| (5) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2026. |
| |
| (6) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2026. |
The existence of patents does not guarantee our right to practice the patented technology or commercialize the patented product. Patents relating to pharmaceutical, biopharmaceutical and biotechnology products, compounds and processes, such as those that cover our existing compounds, products and processes and those that we will likely file in the future, do not always provide complete or adequate protection. Litigation, interferences, oppositions, inter partes reviews or other proceedings are, have been and may in the future be necessary in some instances to determine the validity and scope of certain of our patents, regulatory exclusivities or other proprietary rights, and in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. We may also face challenges to our patents, regulatory exclusivities and other proprietary rights covering our products by manufacturers of generics and biosimilars. A discussion of certain risks and uncertainties that may affect our patent position, regulatory exclusivities and other proprietary rights is set forth in the ““Risk FactorsFactors”” section of this report.
Additional information about the patentsreport, and other proprietary rights covering our marketed products and several of our late-stage product candidates is set forth below.
AVONEX and Pegylated Beta Interferon
Our U.S. patent No. 7,588,755, granted in September 2009, claims the use of recombinant beta interferon for immunomodulation or treating a viral condition, viral disease, cancers or tumors. This patent, which expires in September 2026, covers, among other things, the treatment of MS with our product AVONEX, as well as the treatment of MS with pegylated beta interferon. A discussion of legal proceedings related to this patent iscertain patents described above are set forth in Note 22,20, Litigation to our consolidated financial statements included in this report.
We have non-exclusive rights under certain third-party patents and patent applications to manufacture, use and sell AVONEX, including a patent owned by the Japanese Foundation for Cancer Research, which expires in 2013 in the U.S. Additionally, we and third parties own pending U.S. patent applications related to recombinant interferon-beta protein and nucleic acid. These applications, which fall outside of the GATT amendments to the U.S. patent statute, are not published by the USPTO and, if they mature into granted patents, may be entitled to a term of seventeen years from the grant date. There are two pending interference proceedings in the USPTO involving such third party applications, and additional interferences could be declared in the future. We do not know which, if any, such applications will mature into patents with claims relevant to our AVONEX product or to pegylated beta interferon.
Additional protection for our pegylated beta interferon is provided by patents and patent applications with expiration dates in 2021 in the U.S. and 2019 in the E.U., with the potential for patent term extension. We also expect our pegylated beta interferon to be granted regulatory exclusivity until 2026 in the U.S. and 2024 in the E.U.
TYSABRI
We and our collaborator, Elan, have patents and patent applications covering TYSABRI in the U.S. and other countries. These patents and patent applications cover TYSABRI and related manufacturing methods, as well as various methods of treatment using the product. In the U.S., the principal patents covering the product and use of the product to treat MS generally expire between 2015 and 2020. Additional U.S. patents and applications covering other indications, including treatment of inflammatory bowel disease, and methods of manufacturing, generally expire between 2012 and 2020. In the rest of world, patents on the product and methods of manufacturing the product generally expire between 2015 and 2020, subject to any supplemental protection (i.e., patent term extension) certificates that may be obtained. In the rest of world, patents and patent applications covering methods of treatment using TYSABRI generally expire between 2012 and 2020.
RITUXAN and Anti-CD20 Antibodies
We have several U.S. patents and patent applications, and numerous corresponding foreign counterparts, directed to anti-CD20 antibody technology, including RITUXAN. The principal patents with claims to RITUXAN or its uses expire in the U.S. between 2015 and 2018 and in the rest of the world in 2013, subject to any available patent term extensions. In addition, we and our collaborator, Genentech, have filed numerous patent applications directed to anti-CD20 antibodies and their uses to treat various diseases. These pending patent applications have the potential of issuing as patents in the U.S. and in the rest of world with claims to anti-CD20 antibody molecules for periods beyond those stated above for RITUXAN. In 2008, a European patent of ours claiming the treatment with anti-CD20 antibodies of certain auto-immune indications, including RA, was revoked by the European Patent Office. We are appealing that decision.
Genentech, our collaborator on RITUXAN, has secured an exclusive license to five U.S. patents and counterpart U.S. and foreign patent applications assigned to Xoma Corporation that relate to chimeric antibodies against the CD20 antigen. These patents expire between 2007 and 2014. We, along with Genentech, share the cost of any royalties due to Xoma in our co-promotion territory on sales of RITUXAN.
FAMPYRA
We have an exclusive license under two European granted patents, several pending European patent applications and numerous corresponding non-U.S. counterpart applications related to FAMPYRA. European patent EP0484186B1 claims pharmaceutical formulations containing aminopyridines including fampridine. This patent expired in November 2011 but is subject to pending and granted supplemental protection (i.e., patent term extension) certificates which, if granted, will extend the patent term to 2016 on a country-by-country basis. European patent EP1732548B1, which claims sustained-release aminopyridine compositions for increasing walking speed in patients with MS, expires in 2025 but is subject to pending and granted supplemental protection certificates which, if granted, will extend the patent term to 2026 on a country-by-country basis. In addition to these patent rights, FAMPYRA is covered by regulatory data protection in Europe until 2021.
TECFIDERA
We have several U.S. patents and patent applications, and a number of corresponding foreign counterparts, related to TECFIDERA. The principal U.S. patents are U.S. 6,509,376, having claims to formulations of dimethyl fumarate (the active ingredient of TECFIDERA) for use in the treatment of autoimmune diseases including MS, and U.S. 7,320,999 having claims to a method of treating MS using dimethyl fumarate. U.S. 6,509,376 and U.S. 7,320,999, expire in 2019 and 2020, respectively, subject to any available patent term extension following product approval. We also own a patent application, recently determined to be allowable by the USPTO, that covers the dosing regimen (240 mg of dimethyl fumarate administered twice a day) stated on our label under current review at the FDA. Once granted, this patent will expire in 2028. The granted European patent, EP 1131065, is directed to formulations of dimethyl fumarate and to uses thereof for treating autoimmune diseases, including MS. EP 1131065 expires in 2019, subject to any potential supplemental patent certificates that may be available. The E.U. counterpart to our recently allowed dosing regimen application is pending at the European Patent Office. Our pending patent applications, if granted, would expire as late as 2033, subject to any potential patent term adjustments or extensions that may be available.
In addition to patent protection, TECFIDERA is entitled to regulatory data protection in both the U.S. and the E.U. In the U.S., TECFIDERA is entitled to the 5 year data exclusivity given to new chemical entities. In the E.U. there are a number of ways to obtain data exclusivity and the EMA has informed us that TECFIDERA is, in principle, eligible for 8 years data exclusivity plus 2 years market exclusivity through the European centralized filing pathway. In both the US and the EU, the period of data exclusivity runs from the date of approval of the marketing application.
Long-Lasting Recombinant Factors VIII and IX
We have several U.S. patents and patent applications, and a number of corresponding foreign counterparts, related to our long-lasting recombinant Factor VIII and Factor IX product candidates and their use, including U.S. patents nos. U.S. 7,404,956; U.S. 8,329,182; U.S. 7,348,004; and U.S. 7,862,820. These patents will expire in 2024 - 2025, and some may be entitled to additional patent term pursuant to the patent term adjustment or patent term extension provisions of the U.S. patent laws. A related European patent, EP 1624891, expires in 2024 and may be entitled to additional patent term in at least some countries. Additionally, pending patent applications, if granted, would provide additional patent protection through 2033.
Sales, Marketing and Distribution
We focus our sales and marketing efforts on specialist physicians in private practice or at major medical centers. We use customary pharmaceutical company practices to market our products and to educate physicians, such as sales representatives calling on individual physicians, advertisements, professional symposia, direct mail, public relations and other methods. We provide customer service and other related programs for our products, such as disease and product-specific websites, insurance research services and order, delivery and fulfillment services. We have also established programs in the U.S. which provide qualified uninsured or underinsured patients with marketed products at no or reduced charge, based on specific eligibility criteria. Additional information about our sales, marketing and distribution efforts for our marketed products is set forth below.
AVONEX
We continue to focus our marketing and sales activities on maximizing the potential of AVONEX in the U.S. and the rest of world in the face of increased competition. The principal markets for AVONEX are the U.S., Germany, France, Italy and the United Kingdom. In the U.S., Canada, Brazil, Argentina, Australia, Japan and most of the major countries of the E.U., we market and sell AVONEX through our own sales forces and marketing groups and distribute AVONEX principally through wholesale distributors of pharmaceutical products, mail order specialty distributors or shipping service providers. In other countries, we sell AVONEX to distribution partners who are then responsible for most marketing and distribution activities.
TYSABRI
The principal markets for TYSABRI are the U.S., the United Kingdom, France, Germany, Italy and Spain.
In the U.S., we are principally responsible for marketing TYSABRI for MS and use our own sales force and marketing group for this. Elan is responsible for TYSABRI distribution in the U.S. and uses a third party distributor to ship TYSABRI directly to customers.
In the rest of world, we are responsible for TYSABRI marketing and distribution and we use a combination of our own sales force and marketing group and third party service providers.
RITUXAN
The Roche Group and its sub-licensees market and sell RITUXAN worldwide. We collaborate with Genentech, a wholly-owned member of the Roche Group, on the development and commercialization of RITUXAN, but Genentech maintains sole responsibility for the U.S. sales and marketing efforts related to RITUXAN. RITUXAN is generally sold to wholesalers, specialty distributors and directly to hospital pharmacies.
FAMPYRA
We market and sell FAMPYRA outside the U.S. through our own sales forces and marketing groups. Our development and commercialization rights do not include the U.S. market.
FUMADERM
FUMADERM is marketed only in Germany, through our own sales force and marketing group.
Competition
Competition in the biotechnology and pharmaceutical industriesbiopharmaceutical industry is intense and comes from many and varied sources, including specialized biotechnology firms and large pharmaceutical companies. Many of our competitors are working to develop products similar to those we are developing or already market and have considerable experience in undertaking clinical trials and in obtaining regulatory approval to market pharmaceutical products. Certain of these companies have substantially greater financial, marketing and research and development resources than we do.
We believe that competition and leadership in the industry is based on managerial and technological superiorityexcellence and innovation as well as establishing patent and other proprietary positions through research and development. The achievement of a leadership position also depends largely upon our ability to identifymaximize the approval, acceptance and exploit commercially theuse of products resulting from research and the availability of adequate financial resources to fund facilities, equipment, personnel, clinical testing, manufacturing and marketing. Another key aspect of remaining competitive within the industry is recruiting and retaining qualifiedleading scientists and technicians. We believe that we have been successful in attracting skilled and experienced scientific personnel.
Competition among products approved for sale may be based, among other things, on patent position, product efficacy, safety, convenience,convenience/delivery devices, reliability, availability and price. In addition, early entry of a new pharmaceutical product into the market may have important advantages in gaining product acceptance and market share. Accordingly, the relative speed with which we can develop products, complete the testing and approval process and supply commercial quantities of products will have an important impact on our competitive position.
new products or technologies, including the development of new processes or technologies by competitors or new information about existing products may result in increased competition for our marketed products or could result in pricing pressure on our products. It is also possible that the development of new or improved treatment options or standards of care or cures for the diseases our products treat could reduce or eliminate the use of our products or may limit the utility and application of ongoing clinical trials for our product candidates. We may also face increased competitive pressures as a result of generics and the emergence of biosimilars. Inbiosimilars in the U.S., most of our marketed products, including AVONEX, TYSABRI and RITUXAN, are licensed under the Public Health Service Act (PHSA) as biological products. In March 2010, U.S. healthcare reform legislation amended the PHSA to authorize the FDA to approve biological products, known as biosimilars or follow-on biologics, that are shown to be highly similar to previously approved biological products based upon potentially abbreviated data packages. The approval pathway for biosimilars does, however, grant a biologics manufacturer a 12 year period of exclusivity from the date of approval of its biological product before biosimilar competition can be introduced. Biosimilars legislation has also been in place in the E.U. since 2003. In December 2012, guidelines issued by the EMA for approving biosimilars of marketed monoclonal antibody products became effective. If a generic or biosimilar version of one of our products were approved, it could reduce our sales of that product.
Additional information about the competition that our marketed products face is set forth below.
TECFIDERA, AVONEX, ANDPLEGRIDY and TYSABRI
Each ofTECFIDERA, AVONEX, PLEGRIDY and TYSABRI competeseach compete with one or more of the following products:
COPAXONE (glatiramer acetate), which is marketed by Teva Pharmaceutical Industries Ltd. COPAXONE generated worldwide revenues of approximately $3.9 billion in 2011.REBIF (interferon-beta-1a), which is marketed by |
| | |
| Competing Product | | Competitor |
COPAXONE (glatiramer acetate) | | Teva Pharmaceuticals Industries Ltd. |
| GLATOPA (glatiramer acetate) | | Sandoz, a division of Novartis AG |
REBIF (interferon-beta-1) | | Merck KGaA (and co-promoted with Pfizer Inc. in the U.S.) |
| BETASERON/BETAFERON (interferon-beta-1b) | | Bayer Group |
EXTAVIA (interferon-beta-1b) | | Novartis AG |
| GILENYA (fingolimod) | | Novartis AG |
| AUBAGIO (teriflunomide) | | Sanofi |
| LEMTRADA (alemtuzumab) | | Sanofi |
Competition in the U.S.). REBIF generated worldwide revenues of approximately $2.2 billion in 2011.
BETASERON/BETAFERON (interferon-beta-1b), whichMS market is marketed by the Bayer Group. BETASERON/BETAFERON generated worldwide revenues of approximately $1.4 billion in 2011.
EXTAVIA (interferon-beta-1b), which is marketed by Novartis AG. EXTAVIA generated worldwide revenues of approximately $154.0 million in 2011.
GILENYA (fingolimod), which is marketed by Novartis AG. GILENYA generated worldwide revenues of approximately $494.0 million in 2011.
AUBAGIO (teriflunomide), which is marketed by Sanofi-Aventis. AUBAGIO was approved in the U.S. in September 2012.
intense. Along with us, a number of companies are working to develop additional treatments for MS that may in the future compete with AVONEX, TYSABRI or both. For example, a marketing application for LEMTRADA (alemtuzumab) (developed by Sanofi-Aventis) has been filed asour MS products. One such product candidate is ocrelizumab, a potential treatment for MS. In addition,PPMS being developed by the Roche Group. While we have a financial interest in ocrelizumab, future sales of our MS products may be adversely affected by the commercialization of certain ofocrelizumab, as well as by other MS products we or our own pipeline product candidates, such as TECFIDERA,competitors are developing. Future sales may also be negatively impact future salesimpactedbythe introduction of AVONEX, TYSABRIgenerics, prodrugs of existing therapeutics or both.biosimilars of existing products.
FAMPYRA
FAMPYRA is indicated as a treatment to improve walking in adult patients with MS who have walking disability and is the first treatment that addresses this unmet medical need with demonstrated efficacy in people with all types of MS. The product benefits from exclusivity rightsFAMPYRA is currently the only therapy approved to improve walking in patients with MS.
ELOCTATE and ALPROLIX
ELOCTATE and ALPROLIX compete with recombinant Factor VIII and IX products, respectively, including:
|
| | |
| Competing Product | | Competitor |
| ELOCTATE: | | |
ADVATE [Antihemophilic Factor (Recombinant)] | | Baxalta |
ADYNOVATE [Antihemophilic Factor (Recombinant), PEGylated] | | Baxalta |
KOGENATE FS [Antihemophilic Factor (Recombinant)] | | Bayer |
HELIXATE FS [Antihemophilic Factor (Recombinant)] | | CSL Behring |
RECOMBINATE [Antihemophilic Factor (Recombinant)] | | Baxalta |
XYNTHA [Antihemophilic Factor (Recombinant)], Plasma/Albumin-Free | | Pfizer |
| ALPROLIX: | | |
| BENEFIX Coagulation Factor IX (Recombinant) | | Pfizer |
| IXINITY Coagulation Factor IX (Recombinant) | | Emergent Biosolutions |
| RIXUBIS [Coagulation Factor IX (Recombinant)] | | Baxalta |
Our hemophilia products also compete with a number of plasma-derived Factor VIII and IX products. We are also aware of other longer-acting products as well as other technologies, such as gene therapies, that prohibit generic versions from being manufactured. However,are in development, and if successfully developed and approved would compete with our hemophilia products.
RITUXAN and GAZYVA in Oncology
RITUXAN and GAZYVA compete with a number of therapies in the exclusivity rightsoncology market, including TREANDA (bendamustine HCL), ARZERRA (ofatumumab), IMBRUVICA (ibrutinib) and ZYDELIG (idelalisib).
We also expect that over time GAZYVA will increasingly compete with RITUXAN in the oncology market. In addition, we are set to expireaware of other anti-CD20 molecules, including biosimilars, in 2017, which isdevelopment that, if successfully developed and approved, may compete with RITUXAN and GAZYVA in the earliest predictable dateoncology market.
RITUXAN in Rheumatoid Arthritis
RITUXAN competes with several different types of therapies in the rheumatoid arthritis market, including, among others, traditional disease-modifying anti-rheumatic drugs such as steroids, methotrexate and cyclosporine, TNF inhibitors, ORENCIA (abatacept), ACTEMRA (tocilizumab) and XELJANZ (tofacitinib).
We are also aware of other products, including biosimilars, in development that, a generic versionif successfully developed and approved, may be available. There are no commercially available generic versions of FAMPYRA.compete with RITUXAN in the rheumatoid arthritis market.
FUMADERM
FUMADERM competes with several different types of therapies in the psoriasis market within Germany, including oral systemics such as methotrexate and cyclosporine.
RITUXAN IN ONCOLOGY
RITUXAN competes with several different types of therapies in the oncology market, including:
TREANDA (bendamustine HCL) (marketed by Cephalon), which is indicated for patients with indolent B-cell NHL that has progressed within 6 months of treatment with RITUXAN and for CLL.
ARZERRA (ofatumumab) (marketed by GenMab in collaboration with GlaxoSmithKline), which is indicated for refractory CLL patients to both alemtuzumab and fludarabine.
We are also aware of other anti-CD20 molecules in development, including our own product candidate GA101, that, if successfully developed and registered, may compete with RITUXAN in the oncology market.
RITUXAN IN RHEUMATOID ARTHRITIS (RA)Research and Development Programs
RITUXAN competes with several different typesA commitment to research is fundamental to our mission. Our research efforts are focused on better understanding the underlying biology of therapiesdiseases so we can discover and deliver treatments that have the potential to make a real difference in the RA market, including:lives of patients with high unmet medical needs. By applying our expertise in biologics and our growing capabilities in small molecule, antisense, gene therapy, gene editing and other technologies, we target specific medical needs where we believe new or better treatments are needed.
traditionalWe intend to continue committing significant resources to research and development opportunities. As part of our ongoing research and development efforts, we have devoted significant resources to conducting clinical studies to advance the development of new pharmaceutical products and technologies and to explore the utility of our existing products in treating disorders beyond those currently approved in their labels.
The table below highlights our current research and development programs that are in clinical trials and the current phase of such programs. Drug development involves a high degree of risk and investment, and the status, timing and scope of our development programs are subject to change. Important factors that could adversely affect our drug development efforts are discussed in the “Risk Factors” section of this report.
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| Product Candidate | Collaborator | PHASE 1 | | PHASE 2 | | PHASE 3 | | FILED |
| ZINBRYTA | AbbVie Therapeutics | Multiple Sclerosis (MS) | |
| | | | | | | | | | | | |
| GAZYVA | Genentech (Roche Group) | RITUXAN-Refractory Indolent Non Hodgkin’s Lymphoma | |
| | | | | | | | | | | | |
| GAZYVA | Genentech (Roche Group) | Front-Line Indolent Non Hodgkin’s Lymphoma | | | | |
| | | | | | | | | | | | |
| GAZYVA | Genentech (Roche Group) | Front-Line Diffuse Large B-Cell Lymphoma | | | | |
| | | | | | | | | | | | |
| Nusinersen | Ionis Pharmaceuticals | Spinal Muscular Atrophy | | | | |
| | | | | | | | | | | | |
| Aducanumab | Neurimmune SubOne AG | Alzheimer's Disease | | | | |
| | | | | | | | | | | | |
| Ocrelizumab | Genentech (Roche Group) | Primary Progressive & Relapsing Multiple Sclerosis | | | | |
| | | | | | | | | | | | |
| Anti-LINGO | None | Optic Neuritis; Multiple Sclerosis | | | | | | | |
| | | | | | | | | | | | |
| Amiselimod | Mitsubishi Tanabe | Multiple Autoimmune Indications | | | | | | | |
| | | | | | | | | | | | |
| BAN2401 | Eisai | Alzheimer's Disease | | | | | | | |
| | | | | | | | | | | | |
| E2609 | Eisai | Alzheimer's Disease | | | | | | | |
| | | | | | | | | | | | |
| Raxatrigine | None | Trigeminal Neuralgia | | | | | | | |
| | | | | | | | | | | | |
| TYSABRI | None | Acute Ischemic Stroke | | | | | | | |
| | | | | | | | | | | | |
| rAAV-XLRS | AGTC | X-linked Juvenile Retinoschisis | | | | | | | |
| | | | | | | | | | | | |
| BG00011 (STX-100) | None | Idiopathic Pulmonary Fibrosis | | | | | | | |
| | | | | | | | | | | | |
| Dapirolizumab pegol | UCB Pharma | SLE* | | | | | | | | | | |
| | | | | | | | | | | | |
| BIIB061 | None | Multiple Sclerosis | | | | | | | | | | |
| | | | | | | | | | | | |
IONIS-DMPKRx | Ionis Pharmaceuticals | Myotonic Dystrophy | | | | | | | | | | |
| | | | | | | | | | | | |
| Anti-BDCA2 | None | SLE* | | | | | | | | | | |
| | | | | | | | | | | | |
| Anti-alpha-synuclein | None | Parkinson’s Disease | | | | | | | | | | |
| | | | | | | | | | | | |
| BIIB063 | None | Sjogren’s Syndrome | | | | | | | | | | |
| | | | | | | | | | | | |
IONIS-SOD1Rx (BIIB067) | Ionis Pharmaceuticals | ALS | | | | | | | | | | |
| | | | | | | | | | | | |
| FLIXABI (infliximab) | Samsung Bioepis | Multiple Immunology Indications in Europe | |
| | | | | | | | | | | | |
| Biosimilar adalimumab | Samsung Bioepis | Multiple Immunology Indications in Europe | | | | |
* Systemic lupus erythematosus
For information about certain of our agreements with collaborators and other third parties, please see “Business Relationships” below and Note 19, Collaborative and Other Relationships to our consolidated financial statements included in this report.
Late Stage Product Candidates
Additional information about our late stage product candidates, which includes programs in Phase 3 development or in registration stage, is set forth below.
|
| |
| Multiple Sclerosis |
| ZINBRYTA (daclizumab high yield process) |
| l | ZINBRYTA is a monoclonal antibody for the treatment of RRMS. |
| |
| l | In June 2014, we announced positive top-line results from the Phase 3 DECIDE clinical trial, which investigated ZINBRYTA as a potential once-monthly, subcutaneous treatment for RRMS. Results showed that ZINBRYTA was superior on the study's primary endpoint, demonstrating a statistically significant reduction in annualized relapse rates when compared to interferon beta-1a. |
| |
| l | Our MAA for ZINBRYTA was validated by the EMA in March 2015, and the BLA was accepted by the FDA in April 2015. |
| TYSABRI (natalizumab) |
| l | In May 2013, we completed patient enrollment in a Phase 3 study of TYSABRI in SPMS, known as ASCEND. The study had a duration of approximately two years and involved approximately 875 patients. SPMS is characterized by a steady progression of nerve damage, symptoms and disability. |
| |
| l | In October 2015, the results of our Phase 3 ASCEND study did not achieve its primary and secondary endpoints, and the development of TYSABRI in SPMS was discontinued. |
|
| |
| Hemophilia |
ALPROLIX[Coagulation Factor IX (Recombinant), Fc Fusion Protein] |
| l | In March 2014, ALPROLIX was approved by the FDA for the treatment of hemophilia B. |
| |
| l | Pediatric data was required as part of the MAA for ALPROLIX that we submitted to the EMA. In February 2015, we and Sobi announced positive top-line results of the Kids B-LONG Phase 3 clinical study that evaluated the safety, efficacy and pharmacokinetics of ALPROLIX in children under age 12 with severe hemophilia B. Following these results, we filed a MAA in the E.U., which was validated by the EMA in June 2015. |
|
| |
| Neurodegeneration |
| Aducanumab (BIIB037) |
| l | In September 2015, we enrolled our first patient in our two global Phase 3 studies, ENGAGE and EMERGE. ENGAGE and EMERGE will assess the efficacy and safety of aducanumab in approximately 2,700 people with early Alzheimer's disease. The studies are identical in design and eligibility criteria. Each study will be conducted in more than 20 countries in North America, Europe and Asia. In October 2015, we announced that we received FDA agreement on a special protocol assessment on the Phase 3 study protocols. |
|
| |
| Other Programs |
Nusinersen (IONIS-SMNRx) |
| l | In August 2014, Ionis announced the initiation of a pivotal Phase 3 study evaluating nusinersen in infants with SMA, the most common genetic cause of infant mortality. This Phase 3 study, known as ENDEAR, is a randomized, double-blind, sham-procedure controlled thirteen month study in approximately 110 infants diagnosed with SMA. The study is evaluating the efficacy and safety of a 12mg dose of nusinersen with a primary endpoint of survival or permanent ventilation. |
| |
| l | In November 2014, Ionis announced the initiation of a pivotal Phase 3 study evaluating the efficacy and safety of nusinersen in non-ambulatory children with SMA. This Phase 3 study, known as CHERISH, is a randomized, double-blind, sham-procedure controlled fifteen month study in approximately 120 children with SMA. The study is evaluating the efficacy and safety of a 12mg dose of nusinersen with a primary endpoint of a change in the Hammersmith Functional Motor Scale-Expanded, a validated method to measure changes in muscle function in patients with SMA. |
|
| |
| Genentech Relationships |
| GAZYVA (obinutuzumab) |
| l | The Roche Group is managing the following Phase 3 studies of GAZYVA: |
| GOYA: investigating the efficacy and safety of GAZYVA in combination with CHOP chemotherapy compared to RITUXAN with CHOP chemotherapy in previously untreated patients with CD20-positive diffuse large B-cell lymphoma. |
| GALLIUM: investigating the efficacy and safety of GAZYVA in combination with chemotherapy followed by maintenance with GAZYVA compared to RITUXAN in combination with chemotherapy followed by maintenance with RITUXAN in previously untreated patients with indolent non-Hodgkin's lymphoma. |
| GADOLIN: investigating the efficacy and safety of GAZYVA plus bendamustine compared with bendamustine alone in patients with RITUXAN-refractory, indolent non-Hodgkin's lymphoma. In February 2015, the Roche Group announced positive results from the Phase 3 GADOLIN study. At a pre-planned interim analysis, an independent data monitoring committee determined that the study met its primary endpoint early, showing that people lived significantly longer without disease worsening or death (progression-free survival) when treated with GAZYVA plus bendamustine followed by GAZYVA alone, compared to bendamustine alone. |
| Ocrelizumab |
| l | In June 2015, the Roche Group announced positive results from two Phase 3 studies evaluating ocrelizumab compared with interferon beta-1a in people with relapsing forms of MS. Treatment with ocrelizumab compared with interferon beta-1a significantly reduced the annualized relapse rate over a two-year period; significantly reduced the progression of clinical disability; and led to a significant reduction in the number of lesions in the brain as measured by MRI. |
| |
| l | In September 2015, the Roche Group announced positive results from a Phase 3 study evaluating ocrelizumab in people with PPMS. Treatment with ocrelizumab significantly reduced the progression of clinical disability compared with placebo, as measured by the Expanded Disability Status Scale. |
|
| |
| Biosimilars (Samsung Bioepis - Biogen's Joint Venture with Samsung Biologics) |
| FLIXABI |
| l | Samsung Bioepis' MAA for FLIXABI, an infliximab biosimilars candidate referencing REMICADE, was validated and accepted by the EMA in March 2015. If approved, under our agreement with Samsung Bioepis, we have commercialization rights to FLIXABI in specified E.U. countries. |
Business Relationships
As part of our business strategy, we establish business relationships, including joint ventures and collaborative arrangements with other companies, universities and medical research institutions to assist in the clinical development and/or commercialization of certain of our products and product candidates and to provide support for our research programs. We also evaluate opportunities for acquiring products or rights to products and technologies that are complementary to our business from other companies, universities and medical research institutions.
Below is a brief description of certain business relationships and collaborations that expand our pipeline and provide us with certain rights to existing and potential new products and technologies. For more information regarding certain of these relationships, including their ongoing financial and accounting impact on our business, please read Note 19, Collaborative and Other Relationships to our consolidated financial statements included in this report.
AbbVie Biotherapeutics, Inc.
We have a collaboration agreement with AbbVie Biotherapeutics, Inc. aimed at advancing the development and commercialization of ZINBRYTA in MS.
Acorda Therapeutics, Inc.
We collaborate with Acorda to develop and commercialize products containing fampridine, such as FAMPYRA, in markets outside the U.S. We also have responsibility for regulatory activities and the future clinical development of related products in those markets.
Applied Genetic Technologies Corporation
In 2015, we entered into a collaboration agreement with AGTC to develop gene-based therapies for RA,multiple ophthalmic diseases. The collaboration focuses on the development of a clinical-stage candidate for X-linked Retinoschisis (XLRS) and a preclinical candidate for the treatment of X-linked Retinitis Pigmentosa (XLRP), for which we were granted worldwide commercialization rights. The agreement also provides us with options to early stage discovery programs in two ophthalmic diseases and one non-ophthalmic condition.
Eisai Co., Ltd.
We have a collaboration with Eisai to jointly develop and commercialize E2609 and BAN2401, two Eisai product candidates for the treatment of Alzheimer’s disease. Eisai serves as the global operational and regulatory lead for E2609 and BAN2401 and all costs, including disease-modifying anti-rheumatic drugs such as steroids, methotrexateresearch, development, sales and cyclosporine,marketing expenses, are shared equally between us and pain relievers such as acetaminophen.Eisai. Following marketing approval in major markets, we will co-promote E2609 and BAN2401 with Eisai and share profits equally. In smaller markets, Eisai will distribute these products and pay us a royalty.
TNF inhibitors, such as REMICADE (infliximab)The agreement also provides Eisai with options to jointly develop and SIMPONI (golimumab) (marketed by Johnson & Johnson), HUMIRA (adalimumab) (marketed by AbbVie,commercialize two of our candidates for Alzheimer’s disease, aducanumab and an anti-tau monoclonal antibody, upon the exchange or provision of clinical data. Upon exercise of the applicable option, we will execute a separate collaboration agreement with Eisai on terms and conditions that mirror the financial arrangements we have with Eisai with respect to E2609 and BAN2401.
Genentech (Roche Group)
We have a collaboration agreement with Genentech which entitles us to certain financial and other rights with respect to RITUXAN, GAZYVA and other anti-CD20 product candidates. Additionally, under our agreement with Genentech, if ocrelizumab is approved, we will receive tiered royalty payments on sales of ocrelizumab.
Ionis Pharmaceuticals, Inc.),
We have three separate exclusive, worldwide option and collaboration agreements with Ionis under which both companies will develop and commercialize antisense therapeutics for up to three gene targets, Ionis’ product candidates for the treatment of myotonic dystrophy type 1, and the antisense investigational candidate, nusinersen for the treatment of SMA. We also have a six-year research collaboration agreement with Ionis, which we entered into in 2013, under which both companies perform discovery level research and will develop and commercialize antisense and other therapeutics for the treatment of neurological disorders.
Mitsubishi Tanabe Pharma Corporation
In 2015, we entered into an agreement with MTPC to exclusively license amiselimod, a late stage experimental medicine with potential in multiple autoimmune indications. Amiselimod is an oral compound that targets the sphingosine 1-phosphate receptor. Under the agreement, we obtained worldwide rights to amiselimod, excluding Asia. We are responsible for commercialization and are covering development costs outside of Asia. MTPC has the right to participate in our global clinical trials and has an option to co-promote non-MS indications in the U.S.
Samsung Bioepis
We and Samsung Biologics established a joint venture, Samsung Bioepis, to develop, manufacture and market biosimilar pharmaceuticals. In December 2013, we entered into an agreement with Samsung Bioepis to commercialize, over a 10-year term, anti-TNF biosimilar product candidates in specified E.U. countries, and, in the case of BENEPALI, Japan. To date, Samsung Bioepis' MAA for BENEPALI, an etanercept biosimilar referencing ENBREL, (etanercept) (marketed by Amgen, Inc. and Pfizer) and CIMZIA (certolizumab pegol) (marketed by UCB, S.A.).
ORENCIA (abatacept) (marketed by Bristol-Myers Squibb Company).
ACTEMRA (tocilizumab) (marketedhas been approved by the Roche Group).EC, and the MAA for FLIXABI, an infliximab biosimilars candidate referencing REMICADE, has been validated by the EMA.
In addition to our joint venture and commercialization agreement with Samsung Bioepis, we license certain of our proprietary technology to Samsung Bioepis in connection with Samsung Bioepis's development, manufacture and commercialization of its biosimilar products. We also provide technical development and technology transfer services to Samsung Bioepis, and manufacture clinical and commercial quantities of bulk drug substance of Samsung Bioepis' biosimilar products.
Sangamo BioSciences, Inc.
We are also awarehave an exclusive, worldwide research, development and commercialization collaboration and license agreement with Sangamo BioSciences, Inc. (Sangamo) under which the companies will develop and commercialize product candidates using gene editing technologies for the treatment of othertwo inherited blood disorders, sickle cell disease and beta-thalassemia.
Swedish Orphan Biovitrum AB (publ)
We collaborate with Sobi to jointly develop and commercialize Factor VIII and Factor IX hemophilia products, inincluding ELOCTATE and ALPROLIX. We have commercial rights for North America and for rest of the world markets outside of the Sobi Territory. Sobi has assumed final development that, if successfully developed and registered, may compete with RITUXANcommercialization of ELOCTA in the RA market.Sobi Territory, and, has elected to opt-in to assume final development and commercialization of ALPROLIX if the MAA is approved by the EMA.
Regulatory
Our current and contemplated activities and the products, technologies and processes that will result from such activities are subject to substantial government regulation.
Regulation of Pharmaceuticals
Product Approval and Post-Approval Regulation in the United StatesU.S.
APPROVAL PROCESS
Before new pharmaceutical products may be sold in the U.S., preclinical studies and clinical trials of the products must be conducted and the results submitted to the FDA for approval. With limited exceptions, the FDA requires companies to register both pre-approval and post-approval clinical trials and disclose clinical trial results in public databases. Failure to register a trial or disclose study results within the required time periods could result in penalties, including civil monetary penalties. Clinical trial programs must establish efficacy, determine an appropriate dose and dosing regimen, and define the conditions for safe use. This is a high-risk process that requires stepwise clinical studies in which the candidate product must successfully meet predetermined endpoints. The results of the preclinical and clinical testing of a product are then submitted to the FDA in the form of a Biologics License Application (BLA)BLA or a New Drug Application (NDA). In response to a BLA or NDA, the FDA may grant marketing approval, request additional information or deny the application if it determines the application does not provide an adequate basis for approval.
The
Product development and receipt of regulatory approval often takes a number of years, involves the expenditure of substantial resources and depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments, potential safety signals observed in preclinical or clinical tests, and the risks and benefits of the product as demonstrated in clinical trials. The FDA has substantial discretion in the product approval process, and it is impossible to predict with any certainty whether and when the FDA will grant marketing approval. The agency may on occasion require the sponsor of a BLA or NDA to conduct additional clinical studies or to provide other scientific or technical information about the product, and these additional requirements may lead to unanticipated delay or expense. Furthermore, even if a product is approved, the approval may be subject to limitations based on the FDA's interpretation of the existing pre-clinical or clinical data.
The FDA has developed four distinct approaches intended to make therapeutically important drugs available as rapidly as possible, especially when the drugs are the first available treatment or have advantages over existing treatments: accelerated approval, fast track, breakthrough therapy, and priority review.
Accelerated Approval: The FDA may grant “accelerated approval” status to products that treat serious or life-threatening illnesses and that provide meaningful therapeutic benefits to patients over existing treatments. Under this pathway, the FDA may approve a product based on surrogate endpoints, or clinical endpoints other than survival or irreversible morbidity. When approval is based on surrogate endpoints or clinical endpoints other than survival or morbidity, the sponsor will be required to conduct additional post-approval clinical studies to verify and describe clinical benefit. Under the agency's accelerated approval regulations, if the FDA concludes that a drug that has been shown to be effective can be safely used only if distribution or use is restricted, it may require certain post-marketing restrictions as necessary to assure safe use. In addition, for products approved under accelerated approval, sponsors may be required to submit all copies of their promotional materials, including advertisements, to the FDA at least thirty days prior to initial dissemination. The FDA may withdraw approval under accelerated approval after a hearing if, for instance, post-marketing studies fail to verify any clinical benefit, it becomes clear that restrictions on the distribution of the product are inadequate to ensure its safe use, or if a sponsor fails to comply with the conditions of the accelerated approval.
In addition, theFast Track Status: The FDA may grant “fast track” status to products that treat serious diseases or conditions and fill an unmet medical need. Fast track is a process designed to expedite the review of such products by providing, among other things, more frequent meetings with the FDA to discuss the product's development plan, more frequent written correspondence from the FDA about trial design, eligibility for accelerated approval, and rolling review, which allows submission of individually completed sections of a NDA or BLA for FDA review before the entire filing is completed. Fast track status does not ensure that a product will be developed more quickly or receive FDA approval.
Breakthrough Therapy: The FDA may also grant “breakthrough therapy” status to drugs designed to treat, alone or in combination with another drug or drugs, a serious or life-threatening disease or condition and for which preliminary evidence suggests a substantial improvement over existing therapies. Such drugs need not address an unmet need, but are nevertheless eligible for expedited review if they offer the potential for an improvement. Breakthrough therapy status entitles the sponsor to earlier and more frequent meetings with the FDA regarding the development of nonclinical and clinical data and permits the FDA to offer product development or regulatory advice for the purpose of shortening the time to product approval. Breakthrough therapy status does not guarantee that a product will be developed or reviewed more quickly and does not ensure FDA approval.
Priority Review: Finally, the FDA may grant “priority review” status to products that offer major advances in treatment or provide a treatment where no adequate therapy exists. Priority review is intended to reduce the time it takes for the FDA to review a NDA or BLA, with the goal for completing a priority review being six months (compared to ten months under standard review).BLA.
POST-MARKETING STUDIES
Regardless of the approval pathway employed, the FDA may require a sponsor to conduct additional post-marketing studies as a condition of approval to provide data on safety and effectiveness. If a sponsor fails to conduct the required studies, the agency may withdraw its approval. In addition, regardless of the approval pathway, if the FDA concludes that a drug that has been shown to be effective can be safely used only if distribution or use is restricted, it can mandate post-marketing restrictions as necessary to assure safe use. In such a case, the sponsor may be required to establish rigorous systems to assure use of the product under safe conditions. These systems are usually referred to as Risk Evaluation and Mitigation Strategies (REMS). The FDA can impose financial penalties for failing to comply with certain post-marketing commitments, including REMS. In addition, any changes to an approved REMS must be reviewed and approved by the FDA prior to implementation.
The FDA tracksADVERSE EVENT REPORTING
We monitor information on side effects and adverse events reported during clinical studies and after marketing approval.approval and report such information and events to regulatory agencies. Non-compliance with the FDA's safety reporting requirements may result in civil or criminal penalties. Side effects or adverse events that are reported during clinical trials can delay, impede, or prevent marketing approval. Based on new safety information that emerges after approval, the FDA can mandate product labeling changes, impose a new REMS or the addition of elements to an existing REMS, require new post-marketing studies (including additional clinical trials), or suspend or withdraw approval of the product. These requirements may affect our ability to maintain marketing approval of our products or require us to make significant expenditures to obtain or maintain such approvals.
APPROVAL OF CHANGES TO AN APPROVED PRODUCT
If we seek to make certain types of changes to an approved product, such as adding a new indication, making certain manufacturing changes, or changing manufacturers or suppliers of certain ingredients or components, the FDA will need to review and approve such changes in advance. In the case of a new indication, we are required to demonstrate with additional clinical data that the product is safe and effective for a use other than that initially approved. FDA regulatory review may result in denial or modification of the planned changes, or requirements to conduct additional tests or evaluations that can substantially delay or increase the cost of the planned changes.
REGULATION OF PRODUCT ADVERTISING AND PROMOTION
The FDA regulates all advertising and promotion activities and communications for products under its jurisdiction both before and after approval. A company can make only those claims relating to safety and efficacy that are approved by the FDA. However, physicians may prescribe legally available drugs for uses that are not described in the drug's labeling. Such off-label uses are common across medical specialties, and often reflect a physician's belief that the off-label use is the best treatment for patients. The FDA does not regulate the behavior of physicians in their choice of treatments, but the FDA regulations do impose stringent restrictions on manufacturers' communications regarding off-label uses. Failure to comply with applicable FDA requirements may subject a company to adverse publicity, enforcement action by the FDA, corrective advertising, and the full range of civil and criminal penalties available to the FDA.government.
Regulation of Combination Products
Combination products are defined by the FDA to include products comprising two or more regulated components (e.g., a biologic and a device). Biologics and devices each have their own regulatory requirements, and combination products may have additional requirements. Some of our marketed products meet this definition and are regulated under this framework and similar regulations outside the U.S., and we expect that some of our pipeline product candidates may be evaluated for regulatory approval under this framework as well.
Product Approval and Post-Approval Regulation Outside the United StatesU.S.
We market our products in numerous jurisdictions outside the U.S. Most of these jurisdictions have product approval and post-approval regulatory processes that are similar in principle to those in the U.S. In Europe, where most of our ex-U.S. efforts are focused, there are several tracks for marketing approval, depending on the type of product for which approval is sought. Under the centralized procedure, a company submits a single application to the EMA. The marketing application is similar to the NDA or BLA in the U.S. and is evaluated by the Committee for Medicinal Products for Human Use (CHMP), the expert scientific committee of the EMA. If the CHMP determines that the marketing application fulfills the requirements for quality, safety, and efficacy, it will submit a favorable opinion to the European Commission (EC).EC. The CHMP opinion is not binding,
but is typically adopted by the EC. A marketing application approved by the EC is valid in all member states. The centralized procedure is required for all biological products, orphan medicinal products, and new
treatments for neurodegenerative disorders, and it is available for certain other products, including those which constitute a significant therapeutic, scientific or technical innovation.
In addition to the centralized procedure, Europe also has: (1)
a nationalized procedure, which requires a separate application to and approval determination by each country; (2)
a decentralized procedure, whereby applicants submit identical applications to several countries and receive simultaneous approval; and (3)
a mutual recognition procedure, where applicants submit an application to one country for review and other countries may accept or reject the initial decision.
Regardless of the approval process employed, various parties share responsibilities for the monitoring, detection, and evaluation of adverse events post-approval, including national authorities, the EMA, the EC, and the marketing authorization holder. In some regions, it is possible to receive an “accelerated” review whereby the national regulatory authority will commit to truncated review timelines for products that meet specific medical needs.
Good Manufacturing Practices
Regulatory agencies regulate and inspect equipment, facilities, and processes used in the manufacturing and testing of pharmaceutical and biologic products prior to approving a product. If, after receiving clearance from regulatory agencies, a company makes a material change in manufacturing equipment, location, or process, additional regulatory review and approval may be required. We also must adhere to current Good Manufacturing Practices (cGMP) and product-specific regulations enforced by regulatory agencies following product approval. The FDA, the EMA and other regulatory agencies also conduct periodic visits to re-inspect equipment, facilities, and processes following the initial approval of a product. If, as a result of these inspections, it is determined that our equipment, facilities, or processes do not comply with applicable regulations and conditions of product approval, regulatory agencies may seek civil, criminal, or administrative sanctions or remedies against us, including significant financial penalties and the suspension of our manufacturing operations.
Good Clinical Practices
The FDA, the EMA and other regulatory agencies promulgate regulations and standards for designing, conducting, monitoring, auditing and reporting the results of clinical trials to ensure that the data and results are accurate and that the rights and welfare of trial participants are adequately protected (commonly referred to as current Good Clinical Practices (cGCP)). Regulatory agencies enforce cGCP through periodic inspections of trial sponsors, principal investigators and trial sites, contract research organizations (CROs), and institutional review boards. If our studies fail to comply with applicable cGCP, the clinical data generated in our clinical trials may be deemed unreliable and relevant regulatory agencies may require us to perform additional clinical trials before approving our marketing applications. Noncompliance can also result in civil or criminal sanctions. We rely on third parties, including CROs, to carry out many of our clinical trial-related activities. Failure of such third parties to comply with cGCP can likewise result in rejection of our clinical trial data or other sanctions.
Approval of Biosimilars
The Affordable Care Act amended the Public Health Service Act (PHSA) to authorize the FDA to approve biological products, referred to as biosimilars or follow-on biologics, that are shown to be highly similar to previously approved biological products based upon potentially abbreviated data packages. The biosimilar must show it has no clinically meaningful differences in terms of safety and effectiveness from the reference product, and only minor differences in clinically inactive components are allowable in biosimilars products. The approval pathway for biosimilars does, however, grant a biologics manufacturer a 12-year period of exclusivity from the date of approval of its biological product before biosimilar competition can be introduced.
Biosimilars legislation has also been in place in the E.U. since 2003. In December 2012, guidelines issued by the EMA for approving biosimilars of marketed monoclonal antibody products became effective. In the E.U., biosimilars have been approved under a specialized pathway of centralized procedures. The pathway allows sponsors of a biosimilar to seek and obtain regulatory approval based in part on the clinical trial data of an innovator product to which the biosimilar has been demonstrated to be “similar”. In many cases, this allows biosimilars to be brought to market without conducting the full complement of clinical trials typically required for novel biologic drugs.
Orphan Drug Act
Under the U.S. Orphan Drug Act, the FDA may grant orphan drug designation to drugs or biologics intended to treat a “rare disease or condition,” which generally is a disease or condition that affects fewer than 200,000 individuals in the U.S. If a product which has an orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, i.e., the FDA may not approve any other applications to market the same drug for the same indication for a period of seven years following marketing approval, except in certain very limited circumstances, such as if the later product is shown to be clinically superior to the orphan product. Legislation similar to the U.S. Orphan Drug Act has been enacted in other countries to encourage the research, development and marketing of medicines to treat, prevent or diagnose rare diseases. In the E.U., medicinal products intended for diagnosis, prevention or treatment of life-threatening or very serious diseases affecting less than five in 10,000 people receive 10-year market exclusivity, protocol assistance, and access to the centralized procedure for marketing authorization.
Regulation Pertaining to Pricing and Reimbursement
In both domestic and foreign markets, sales of our products depend, in part, on the availability and amount of reimbursement by third party payers,third-party payors, including governments, and private health plans.plans and other organizations. Substantial uncertainty exists regarding the pricing reimbursement of our products, and drug prices continue to receive significant scrutiny. Governments may regulate coverage, reimbursement and pricing of our products to control cost or affect utilization of our products. The U.S. and foreign governments have enacted and regularly consider additional reform measures that affect health care coverage and costs. Private health plans may also seek to manage cost and utilization by implementing coverage and reimbursement limitations. Substantial uncertainty exists regardingOther payors, including managed care organizations, health insurers, pharmacy benefit managers, government health administration authorities, and private health insurers, seek price discounts or rebates in connection with the reimbursement by third party payors of newly approved health care products. The U.S. and foreign governments regularly consider reform measures that affect health care coverage and costs. Such reforms may include changes to the coverage and reimbursementplacement of our products which may have a significant impact on our business.their formularies and, in some cases, the imposition of restrictions on access or coverage of particular drugs or pricing determined based on perceived value.
Within the U.S.
Medicaid: Medicaid is a joint federal and state program that is administered by the states for low income and disabled beneficiaries. Under the Medicaid Drug Rebate Program, we are required to pay a rebate for each unit of product reimbursed by the state Medicaid programs. TheFor most brand name drugs, the amount of the basic rebate for each product is set by law as the greater of 23.1% (17.1% for clotting factors and certain other products) of the average manufacturer price (AMP) or the difference between AMP and the best price available from us to any customer (with limited exceptions). The rebate amount must be adjusted upward if AMP increases more than inflation (measured by the Consumer Price Index - Urban). TheThis adjustment can cause the total rebate amount to exceed the minimum 23.1% (or 17.1%) basic rebate amount. The rebate amount is calculated each quarter based on our report of current AMP and best price for each of our products to the Centers for Medicare & Medicaid Services.Services (CMS). The requirements for calculating AMP and best price are complex. We are required to report any revisions to AMP or best price previously reported within a certain period, which revisions could affect our rebate liability for prior quarters. In addition, if we fail to provide information timely or we are found to have knowingly submitted false information to the government, the statute governing the Medicaid Drug Rebate Program provides for civil monetary penalties.
Medicare: Medicare is a federal program that is administered by the federal government that covers individuals age 65 and over as well as those with certain disabilities. Medicare Part B generally covers drugs that must be administered by physicians or other health care practitioners; are provided in connection with certain durable medical equipment; or are certain oral anti-cancer drugs and certain oral immunosuppressive drugs. In addition, clotting factors for hemophilia are typically paid under Medicare Part B. Medicare Part B pays for such drugs under a payment methodology based on the average sales price (ASP) of the drugs. Manufacturers, including us, are required to provide ASP information to the Centers for Medicare & Medicaid ServicesCMS on a quarterly basis. The manufacturer-submitted information is used to calculate Medicare payment rates. The current payment rate for Medicare Part B drugs is ASP plus 6% outside the hospital outpatient setting and ASP plus 4% for most drugs in the hospital outpatient setting.. The payment rates for drugs in the hospital outpatient setting are subject to periodic adjustment. The Centers for Medicare & Medicaid ServicesCMS also has the statutory authority to adjust payment rates for specific drugs outside the hospital outpatient setting
based on a comparison of ASP payment rates to widely available market prices or to AMP, which could decrease Medicare payment rates, but the authority has not yet been implemented. If a manufacturer is found to have made a misrepresentation in the reporting of ASP, the governing statute provides for civil monetary penalties.
Medicare Part D provides coverage to enrolled Medicare patients for self-administered drugs (i.e., drugs that doare not need to be injected or otherwise administered by a physician). Medicare Part D is administered by private prescription drug plans approved by the U.S. government and each drug plan establishes its own Medicare Part D formulary for prescription drug coverage and pricing, which the drug plan may modify from time-to-time. The prescription drug plans negotiate pricing with manufacturers and may condition formulary placement on the availability of manufacturer discounts. Manufacturers,In addition, manufacturers, including us, are required to provide to CMS a 50% discount on brand name prescription drugs utilized by Medicare Part D beneficiaries when those beneficiaries reach the coverage gap in their drug benefits.
Federal Agency Discounted Pricing: Our products are subject to discounted pricing when purchased by federal agencies via the Federal Supply Schedule (FSS). FSS participation is required for our products to be covered and reimbursed by the Veterans Administration (VA), Department of Defense, Coast Guard, and Public Health Service (PHS). Coverage under Medicaid, the Medicare Part B program and the PHS pharmaceutical pricing program is also conditioned upon FSS participation. FSS pricing is negotiated periodically with the Department of Veterans Affairs. FSS pricing is intended not to exceed the price that we charge our most-favored non-federal customer for a product. In addition, prices for drugs purchased by the Veterans Administration,VA, Department of Defense (including drugs purchased by military personnel and dependents through the TriCare retail pharmacy program), Coast Guard, and PHS are subject to a cap on pricing equal to 76% of the non-federal average manufacturer price (non-FAMP). An additional discount applies if non-FAMP increases more than inflation (measured by the Consumer Price Index - Urban). In addition, if we fail to provide information timely or we are found to have knowingly submitted false information to the government, the governing statute provides for civil monetary penalties in addition to other penalties available to the government.penalties.
340B Discounted Pricing: To maintain coverage of our products under the Medicaid Drug Rebate Program and Medicare Part B, we are required to extend significant discounts to certain purchaserscovered entities that purchase products under Section 340B of the PHS pharmaceutical pricing program. Purchasers eligible for discounts include hospitals that serve a disproportionate share of financially needy patients, community health clinics, hemophilia treatment centers and other entities that receive health servicescertain types of grants fromunder the PHS.
15PHSA. For all of our products, we must agree to charge a price that will not exceed the amount determined under statute (the “ceiling price”) when we sell outpatient drugs to these covered entities. In addition, we may, but are not required to, offer these covered entities a price lower than the 340B ceiling price. The 340B discount formula is based on AMP and is generally similar to the level of rebates calculated under the Medicaid Drug Rebate Program.
Outside the U.S.
Outside the U.S., the E.U. represents our major market. Within the E.U., our products are paid for by a variety of payors, with governments being the primary source of payment. Governments may determine or influence reimbursement of products. Governments may also set prices or otherwise regulate pricing. Negotiating prices with governmental authorities can delay commercialization of our products. Governments may use a variety of cost-containment measures to control the cost of products, including price cuts, mandatory rebates, value-based pricing, and reference pricing (i.e., referencing prices in other countries and using those reference prices to set a price). Recent budgetaryBudgetary pressures in many E.U. countries are causingcontinuing to cause governments to consider or implement various cost-containment measures, such as price freezes, increased price cuts and rebates, and expanded generic substitution and patient cost-sharing. If budget pressures continue, governments may implement additional cost-containment measures. For additional information related to our concentration of credit risk associated with certain international accounts receivable balances, please read the subsection below entitled “Market Risk-Credit Risk” in the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section of this report.
Regulation Pertaining to Sales and Marketing
We are subject to various federal and state laws pertaining to health care “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws generally prohibit a prescription drug manufacturer from soliciting, offering, receiving, or paying any remuneration to generate business, including the purchase or prescription of a particular drug. Although the specific provisions of these laws vary, their scope is generally broad and there may be no regulations, guidance or court decisions that clarify how the laws apply to particular industry practices. There is therefore a possibility that our practices might be challenged under the anti-kickback or similar
laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third partythird-party payors (including Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including fines and civil monetary penalties, and exclusion from federal health care programs (including Medicare and Medicaid). FederalIn the U.S., federal and state authorities are paying increased attention to enforcement of these laws within the pharmaceutical industry and private individuals have been active in alleging violations of the laws and bringing suits on behalf of the government under the federal civil False Claims Act. If we were subject to allegations concerning, or were convicted of violating, these laws, our business could be harmed.
Laws and regulations have been enacted by the federal government and various states to regulate the sales and marketing practices of pharmaceutical manufacturers. The laws and regulations generally limit financial interactions between manufacturers and health care providers or require disclosure to the government and public of such interactions. The laws include federal “sunshine” provisions enacted in 2010 as part of the comprehensive federal health care reform legislation.provisions. The sunshine provisions apply to pharmaceutical manufacturers with products reimbursed under certain government programs and require those manufacturers to disclose annually to the federal government (for re-disclosure to the public) certain payments made to physicians and certain other healthcare practitioners or to teaching hospitals. State laws may also require disclosure of pharmaceutical pricing information and marketing expenditures. Many of these laws and regulations contain ambiguous requirements. Given the lack of clarity in laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent federal and state laws and regulations. Outside the U.S., other countries have implemented requirements for disclosure of financial interactions with healthcare providers and additional countries may consider or implement such laws.
Other Regulations
Foreign Anti-Corruption
We are subject to various federal and foreign laws that govern our international business practices with respect to payments to government officials. Those laws include the U.S. Foreign Corrupt Practices Act (FCPA), which prohibits U.S. companies and their representatives from paying, offering to pay, promising, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate for the purpose of obtaining or retaining business or to otherwise obtain favorable treatment or influence a person working in an official capacity. In many countries, the health care professionals we regularly interact with may meet the FCPA's definition of a foreign government official. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls.
The laws to which we are subject also include the U.K. Bribery Act 2010 (Bribery Act) which proscribes giving and receiving bribes in the public and private sectors, bribing a foreign public official, and failing to have adequate procedures to prevent employees and other agents from giving bribes. U.S. companies that conduct business in the United Kingdom generally will be subject to the Bribery Act. Penalties under the Bribery Act include potentially unlimited fines for companies and criminal sanctions for corporate officers under certain circumstances.
NIH Guidelines
We seek to conduct research at our U.S. facilities in compliance with the current U.S. National Institutes of Health Guidelines for Research Involving Recombinant DNA Molecules (NIH Guidelines). By local ordinance, we are required to, among other things, comply with the NIH Guidelines in relation to our facilities in Cambridge, Massachusetts and RTP, North Carolina and are required to operate pursuant to certain permits.
Other Laws
Our present and future business has been and will continue to be subject to various other laws and regulations. Various laws, regulations and recommendations relating to data privacy and protection, safe working conditions, laboratory practices, the experimental use of animals, and the purchase, storage, movement, import, and export and use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research work are or may be applicable to our activities. Certain agreements entered into by us involving exclusive license rights may be subject to national or international antitrust regulatory control, the effect of which cannot be predicted. The extent of government regulation, which might result from future legislation or administrative action, cannot accurately be predicted.
Manufacturing and Raw MaterialsEnvironmental Matters
We strive to comply in all material respects with applicable laws and regulations concerning the environment. While it is impossible to predict accurately the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is not expected to require significant capital expenditures and has not had, and is not expected to have, two “state-of-the-art” licensed biologicsa material adverse effect on our operations or competitive position.
Manufacturing
We are committed to ensuring an uninterrupted supply of medicines to patients around the world. To that end, we continually review our manufacturing capacity, capabilities, processes and facilities. We believe that our manufacturing facilities, in RTPtogether with the third-party contract manufacturing organizations we outsource to, currently provide sufficient capacity for our products and Cambridge, Massachusetts. The RTP site includes a 100,000 square footthe contract manufacturing plant, which contains 6,000 (3 x 2,000) litersservices we provide to Samsung Bioepis, our joint venture that develops, manufactures and markets biosimilars, and other strategic contract manufacturing partners. In light of bioreactorthe development of our pipeline, we have announced our plans to expand our production capacity as well as a 250,000 square foot Large-Scale Manufacturing (LSM) plant which contains 90,000 (6 x 15,000) liters of bioreactor capacity. The Cambridge site is a 70,000 square foot facility that contains 10,000 (5 x 2,000) liters of bioreactor capacity. We also haveby building a large-scale biologics manufacturing facility in Hillerød, DenmarkSolothurn, Switzerland, which contains 90,000 liters of bioreactor capacity and, based on our current global manufacturing strategy, is expected to begin commercial operations in 2013, upon completionbe operational by the end of the facility's validation activities. decade.
Manufacturing Facilities
Our drug substance manufacturing facilities include:
|
| | |
| Facility | | Drug Substance Manufactured |
| RTP, North Carolina | | ALPROLIX AVONEX ELOCTATE PLEGRIDY TYSABRI |
| | |
| Cambridge, MA | | AVONEX ELOCTATE PLEGRIDY |
| | |
| Hillerød, Denmark | | TYSABRI Biosimilars |
In December 2012,addition to our drug substance manufacturing facilities, in August 2015, we entered into an arrangement withexpanded our capabilities by completing the purchase from Eisai Inc. to leaseof a portion of theirdrug product manufacturing facility and supporting infrastructure in RTP, to manufacture ourNorth Carolina. This parenteral facility adds capabilities and Eisai'scapacity for filling biologics into vials.
We also lease from Eisai an oral solid dose products manufacturing facility in RTP, North Carolina, where we manufacture TECFIDERA and other solid dose products, including products for Eisai. This facility supplements our outsourced small molecule manufacturing capabilities. Under our lease arrangement, Eisai tomay provide us with vial-filling services for biologic therapies and packaging services for oral solid dose products. We also utilize an outsourced networkIn August 2015, we agreed to manufacturepurchase this facility following the
expiration of our small molecule products.current three year lease in the third quarter of 2018.
We currently manufacture AVONEX drug substance at our RTP and Cambridge facilities and TYSABRI drug substance at our RTP facility, and plan to also manufacture TYSABRI drug substance in our Hillerød facility in 2013. Genentech is responsible for all worldwide manufacturing activities for bulk RITUXAN and GAZYVA and has sourced the manufacture of certain bulk RITUXAN and GAZYVA requirements to a third party.party, and Acorda Therapeutics supplies FAMPYRA to us pursuant to its supply agreement with Alkermes, Inc.
Third-Party Suppliers and Manufacturers
We principally use third parties to manufacture the active pharmaceutical ingredient (API), and to a lesser extent, the final product for FUMADERM.our small molecule products and product candidates, including TECFIDERA and FUMADERM, and the final drug product for our large molecule products and product candidates.
We source all of our fill-finish and the majority of final product assembly and storage operations for our products, along with a substantial part of our packaging operations, to a concentrated group of third party contractors.third-party contract manufacturing organizations. We have internal label and packpackaging capability for clinical and commercial products at our Cambridge and Hillerød facilities. Raw materials, delivery devices, such as syringes and auto-injectors, and other supplies required for the production of AVONEX, TYSABRI, FAMPYRAour products and FUMADERMproduct candidates are procured from various third-party suppliers and manufacturers in quantities adequate to meet our needs. Continuity of supply of such raw materials, devices and supplies is assured using a strategy of dual sourcing where possible or by a risk-based inventory strategy. Our third partythird-party service providers, suppliers and manufacturers may be subject to routine cGMP inspections by the FDA or comparable agencies in other jurisdictions and undergo assessment and certification by our quality management group.
We believe that our manufacturing facilities represent sufficient capacity for our own growing pipeline of products, as well as the products of potential partners. In February 2012, we finalized an agreement with Samsung Biologics that established an entity based in Korea to develop, manufacture and market biosimilars. Samsung will take a leading role in the entity, which has contracted with us for technical development services and biologics manufacturing.
Important factors that could adversely affect our manufacturing operations are discussed in the “Risk Factors” section of this report.
Our Employees
As of December 31, 2012, we had approximately 5,950 employees worldwide.
Our Executive Officers (as of February 5, 2013)
George A. Scangos, Ph.D., 64, is our Chief Executive Officer and has served in this position since July 2010. From 1996 to July 2010, Dr. Scangos served as President and Chief Executive Officer of Exelixis, Inc., a drug discovery and development company, where he continues to serve on the board. From 1993 to 1996, Dr. Scangos served as President of Bayer Biotechnology, where he was responsible for research, business development, process development, manufacturing, engineering and quality assurance of Bayer’s biological products. Before joining Bayer in 1987, Dr. Scangos was a Professor of Biology at Johns Hopkins University for six years. Dr. Scangos served as non-executive Chairman of Anadys Pharmaceuticals, Inc., a biopharmaceutical company, from 2005 to July 2010 and was a director of the company from 2003 to July 2010. Dr. Scangos served as the Chair of the California Healthcare Institute in 2010 and was a member of the Board of the Global Alliance for TB Drug Developments until 2010. He is also a member of the Board of Visitors of the University of California, San Francisco School of Pharmacy, and the National Board of Visitors of the University of California, Davis School of Medicine. He is currently an Adjunct Professor of Biology at Johns Hopkins. Dr. Scangos received his B.A. in Biology from Cornell University and Ph.D. in Microbiology from the University of Massachusetts, and was a Jane Coffin Childs Post-Doctoral Fellow at Yale University.
Susan H. Alexander, 56, is our Executive Vice President, Chief Legal Officer and Corporate Secretary and has served in these positions since January 2006. From 2003 to January 2006, Ms. Alexander served as the Senior Vice President, General Counsel and Corporate Secretary of PAREXEL International Corporation, a biopharmaceutical services company. From 2001 to 2003, Ms. Alexander served as General Counsel of IONA Technologies, a software company. From 1995 to 2001, Ms. Alexander served as Counsel at Cabot Corporation, a specialty chemicals and performance materials company. Prior to that, Ms. Alexander was a partner at the law firms of Hinckley, Allen & Snyder and Fine & Ambrogne.
Paul J. Clancy, 51, is our Executive Vice President, Finance and Chief Financial Officer and has served in these positions since August 2007. Mr. Clancy joined Biogen, Inc. in 2001 and has held several senior executive positions with us, including Vice President of Business Planning, Portfolio Management and U.S. Marketing, and Senior Vice President of Finance with responsibilities for leading the Treasury, Tax, Investor Relations and Business Planning groups. Prior to that, he spent 13 years at PepsiCo, a food and beverage company, serving in a range of financial and general management positions. Mr. Clancy received his B.S. in Finance from Babson College and M.B.A. from Columbia University.
Gregory F. Covino, 47, is our Vice President, Finance and Chief Accounting Officer and has served in this position since April 2012. Prior to that, Mr. Covino served at Boston Scientific Corporation, a medical device company, as Vice President, Corporate Analysis and Control since March 2010, having responsibility for the company's internal audit function, and as Vice President, Finance, International from February 2008 to March 2010, having responsibility for the financial activities of the company's international division. Prior to that, Mr. Covino held several finance positions at Hubbell Incorporated, an electrical products company, including Vice President, Chief Accounting Officer and Controller from 2002 to January 2008, Interim Chief Financial Officer from 2004 to 2005, and Director, Corporate Accounting from 1999 to 2002.
John G. Cox, 50, is our Executive Vice President, Pharmaceutical Operations and Technology and has served in this position since June 2010. Mr. Cox joined Biogen, Inc. in 2003 and has held several senior executive positions with us, including Senior Vice President of Technical Operations, Senior Vice President of Global Manufacturing, and Vice President of Manufacturing and General Manager of Biogen Idec’s operations in RTP. Prior to that, Mr. Cox held a number of senior operational roles at Diosynth, a life sciences manufacturing and services company, where he worked in technology transfer, validation and purification. Prior to that, Mr. Cox focused on the same areas at Wyeth Corporation, a life sciences company, from 1993 to 2000. Mr. Cox received his M.B.A. from the University of Michigan and M.S. in Cell Biology from California State University.
Kenneth Di Pietro, 54, is our Executive Vice President, Human Resources and has served in this position since January 2012. Mr. Di Pietro joined Biogen Idec from Lenovo Group, a technology company, where he served as Senior Vice President, Human Resources from 2005 to June 2011. From 2003 to 2005, he served as Corporate Vice President, Human Resources at Microsoft Corporation, a technology company. From 1999 to 2002, Mr. Di Pietro worked as Vice President, Human Resources at Dell Inc., a technology company. Prior to that, he spent 17 years at PepsiCo, a food and beverage company, serving in a range of human resource and general management positions. Mr. Di Pietro received his B.S. in Industrial and Labor Relations from Cornell University.
Steven H. Holtzman, 58, is our Executive Vice President, Corporate Development and has served in this position since January 2011. Prior to that, Mr. Holtzman was a founder of Infinity Pharmaceuticals, Inc., a drug discovery and development company, where he served as Chair of the Board of Directors from company inception in 2001 to November 2012, Executive Chair of the Board of Directors in 2010 and as Chief Executive Officer from 2001 to December 2009. From 1994 to 2001, Mr. Holtzman was Chief Business Officer at Millennium Pharmaceuticals Inc., a biopharmaceutical company. From 1986 to 1994, he was a founder, member of the Board of Directors and Executive Vice President of DNX Corporation, a biotechnology company. From 1996 to 2001, Mr. Holtzman served as presidential appointee to the national Bioethics Advisory Commission. Mr. Holtzman received his B.A. from Michigan State University and B.Phil. graduate degree from Oxford University which he attended as a Rhodes Scholar.
Tony Kingsley, 49, is our Executive Vice President, Global Commercial Operations and has served in this position since November 2011. From January 2010 to November 2011, Mr. Kingsley served as our Senior Vice President, U.S. Commercial Operations. Prior to that, he served as Senior Vice President and General Manager of the Gynecological Surgical Products business at Hologic, Inc., a provider of diagnostic and surgical products, from October 2007 to November 2009, and as Division President, Diagnostic Products at Cytyc Corp., a provider of diagnostic and medical device products, from July 2006 to October 2007. In those roles, Mr. Kingsley ran commercial, manufacturing and research and development functions. From 1991 to 2006, he was a Partner at McKinsey & Company focusing on the biotechnology, pharmaceutical and medical device industries. Mr. Kingsley received his B.A. in Government from Dartmouth College and M.B.A. from Harvard Graduate School of Business Administration.
Ray Pawlicki, 52, is our Senior Vice President and Chief Information Officer and has served in this position since September 2008. From 2004 to September 2008, Mr. Pawlicki served as the Chief Information Officer of Novartis Pharmaceuticals, a pharmaceutical company. From 2000 to 2004, he served as Vice President and Chief Information Officer for the U.S. affiliate of Novartis Pharmaceuticals. Prior to that, Mr. Pawlicki held several positions of increasing responsibility with PepsiCo, a food and beverage company, and CitiGroup Inc., a financial services company, where he focused on innovative uses of technology to help drive the business. Mr. Pawlicki received his B.S. in Computer Science from Montclair State University.
Douglas E. Williams, Ph.D., 54, is our Executive Vice President, Research and Development and has served in this position since January 2011. Prior to that, Dr. Williams held several senior executive positions at ZymoGenetics Inc., a biopharmaceutical company, including Chief Executive Officer and a director from January 2009 to October 2010, President and Chief Scientific Officer from July 2007 to January 2009, and Executive Vice President, Research and Development and Chief Scientific Officer from 2004 to July 2007. Prior to that, he held leadership positions within the biotechnology industry, including Chief Scientific Officer and Executive Vice President of Research and Development at Seattle Genetics Inc., a biotechnology company, from 2003 to 2004, and Senior Vice President and Washington Site Leader at Amgen Inc., a biotechnology company, in 2002. Dr. Williams also served in a series of scientific and senior leadership positions over a decade at Immunex Corp., a biopharmaceutical company, including Executive Vice President and Chief Technology Officer, Senior Vice President of Discovery Research, Vice President of Research and Development and as a director. Prior to that, Dr. Williams served on the faculty of the Indiana University School of Medicine and the Department of Laboratory Medicine at the Roswell Park Memorial Institute in Buffalo, New York.
We are substantially dependent on revenues from our three principal products.
Our current and future revenues depend upon continued sales of our three principal products, AVONEX, TYSABRI and RITUXAN, which represented substantially all of our total revenues during 2012. Although we have developed and continue to develop additional products for commercial introduction, we may be substantially dependent on sales from these three products for many years. Any negative developments relating to any of these products, such as safety or efficacy issues, the introduction or greater acceptance of competing products, including biosimilars, or adverse regulatory or legislative developments, may reduce our revenues and adversely affect our results of operations. We and our competitors are introducing additional multiple sclerosis products in an increasingly crowded market and if they have a similar or more attractive profile in terms of efficacy, convenience or safety, future sales of AVONEX, TYSABRI or both could be adversely affected.
TYSABRI's sales growth is important to our success.
We expect that our revenue growth over the next several years will be dependent in part upon sales of TYSABRI. If we are not successful in growing sales of TYSABRI, our future business plans, revenue growth and results of operations may be adversely affected.
TYSABRI's sales growth cannot be certain given the significant restrictions on use and the significant safety warnings in the label, including the risk of developing progressive multifocal leukoencephalopathy (PML), a serious brain infection. The risk of developing PML increases with prior immunosuppressant use, which may cause patients who have previously received immunosuppressants or their physicians to refrain from using or prescribing TYSABRI. The risk of developing PML also increases with longer treatment duration, which may cause prescribing physicians or patients to suspend treatment with TYSABRI. The risk of developing PML also increases with exposure to JC virus, which may be indicated by the presence of anti-JCV antibodies. Patients testing positive for anti-JCV antibodies or their physicians may refrain from using or prescribing TYSABRI. Increased incidences of PML could limit sales growth, prompt regulatory review, require significant changes to the label or result in market withdrawal. Additional regulatory restrictions on the use of TYSABRI or safety-related label changes, including enhanced risk management programs, whether as a result of additional cases of PML, changes to the criteria for confirming PML diagnosis or otherwise, may significantly reduce expected revenues and require significant expense and management time to address the associated legal and regulatory issues.
As we continue to research and develop protocols and therapies intended to reduce risk and improve outcomes of PML in patients, regulatory authorities may not agree with our perspective on such protocols and therapies. Our efforts at stratifying patients into groups with lower or higher risk for developing PML may not result in corresponding changes to the TYSABRI label. Furthermore, our risk stratification efforts may have an adverse impact on prescribing behavior and reduce sales of TYSABRI. The potential utility of the JC virus antibody assay as a risk stratification tool may be diminished as a result of both the assay's false negative rate as well as the possibility that a patient who initially tests negative for the JC virus antibody may acquire the JC virus after testing. An increase in the recommended frequency of retesting with the assay or in the assay's sensitivity may exacerbate these risks or otherwise adversely impact prescribing behavior. In addition, new data may challenge the assumptions or estimates underlying our risk stratification tools, including estimates of the prevalence of JC virus in the general population.
We may be unable to successfully commercialize new product candidates.
We have filed or are preparing to file applications for marketing approval for multiple product candidates. These late-stage product candidates will impact our prospects for additional revenue growth and will require significant pre-launch investments that may not be recovered if they do not receive marketing approval.
Our ability to successfully commercialize a product candidate that does receive marketing approval depends on a number of factors, including the medical community's acceptance of the product, the effectiveness of our sales force and marketing efforts, the size of the patient population and our ability to identify new patients, pricing and the extent of reimbursement from third party payors, the ability to obtain and maintain data or market exclusivity for our products in the relevant indication(s), the availability or introduction of competing treatments that are deemed more effective, safer, more convenient, or less expensive, manufacturing the product in a timely and cost-effective manner, and compliance with complex regulatory requirements.
We have filed applications for marketing approval for TECFIDERA, our investigational oral compound for the treatment of relapsing MS, based on positive results from two pivotal trials. In addition to the risks described above and throughout these “Risk Factors,” other factors that may prevent us from successfully commercializing TECFIDERA, if approved, include:
thereOur Employees
As of December 31, 2015, we had approximately 7,350 employees worldwide.
Our Executive Officers (as of February 3, 2016)
|
| | | | | | |
| Name | | Current Position | | Age | | Year Joined Biogen |
| George A. Scangos, Ph.D. | | Chief Executive Officer | | 67 | | 2010 |
| Susan H. Alexander | | Executive Vice President, Chief Legal Officer and Corporate Secretary | | 59 | | 2006 |
| Spyros Artavanis-Tsakonas, Ph.D. | | Senior Vice President, Chief Scientific Officer | | 69 | | 2012 |
| Paul J. Clancy | | Executive Vice President, Finance and Chief Financial Officer | | 54 | | 2001 |
| Gregory F. Covino | | Vice President, Finance and Chief Accounting Officer | | 50 | | 2012 |
| John G. Cox | | Executive Vice President, Pharmaceutical Operations and Technology | | 53 | | 2003 |
| Kenneth DiPietro | | Executive Vice President, Human Resources | | 57 | | 2012 |
| Steven H. Holtzman | | Executive Vice President, Corporate Development | | 61 | | 2011 |
| Adriana (Andi) Karaboutis | | Executive Vice President, Technology, Business Solutions and Corporate Affairs | | 53 | | 2014 |
| Adam Koppel, M.D., Ph.D. | | Executive Vice President, Strategy and Business Development | | 46 | | 2014 |
| Alfred W. Sandrock, Jr., M.D., Ph.D. | | Chief Medical Officer and Executive Vice President of Neurology Discovery and Development | | 58 | | 1998 |
|
| | |
| George A. Scangos, Ph.D. |
| Experience |
| | Dr. Scangos has served as our Chief Executive Officer since July 2010. Prior to that, he served as the President and Chief Executive Officer of Exelixis, Inc., a drug discovery and development company, from 1996 to July 2010. From 1993 to 1996, Dr. Scangos served as President of Bayer Biotechnology, where he was responsible for research, business development, process development, manufacturing, engineering and quality assurance of Bayer’s biological products. Before joining Bayer in 1987, Dr. Scangos was a professor of biology at Johns Hopkins University for six years, where he is still an adjunct professor. Dr. Scangos served as non-executive Chairman of Anadys Pharmaceuticals, Inc., a biopharmaceutical company, from 2005 to July 2010 and was a director of the company from 2003 to July 2010. He also served as the Chair of the California Healthcare Institute in 2010 and was a member of the board of the Global Alliance for TB Drug Development until 2010. |
| Public Company Boards |
| l | Board of Directors of Agilent Technologies, Inc., a provider of instruments, software, services and consumables for laboratories |
| l | Board of Directors of Exelixis, Inc., a drug discovery and development company |
| Outside Affiliations |
| l | Chairman-elect of the Board of Directors of Pharmaceutical Research and Manufacturers of America |
| l | Board of Trustees of the Boston Museum of Science and the Biomedical Science Careers Program |
| l | National Board of Visitors of the University of California, Davis School of Medicine |
| Education |
| l | Cornell University, B.A. in Biology |
| l | University of Massachusetts, Ph.D. in Microbiology |
| l | Yale University, Jane Coffin Childs Post-Doctoral Fellow |
|
| | |
| Susan H. Alexander |
| Experience |
| | Ms. Alexander has served as our Executive Vice President, Chief Legal Officer and Corporate Secretary since December 2011. Prior to that, from 2006 to December 2011, Ms. Alexander served as our Executive Vice President, General Counsel and Corporate Secretary. From 2003 to January 2006, Ms. Alexander served as the Senior Vice President, General Counsel and Corporate Secretary of PAREXEL International Corporation, a biopharmaceutical services company. From 2001 to 2003, Ms. Alexander served as General Counsel of IONA Technologies, a software company. From 1995 to 2001, Ms. Alexander served as Counsel at Cabot Corporation, a specialty chemicals and performance materials company. Prior to that, Ms. Alexander was a partner at the law firms of Hinckley, Allen & Snyder and Fine & Ambrogne. |
| Education |
| l | Wellesley College, B.A |
| l | Boston University School of Law, J.D. |
|
| | |
| Spyros Artavanis-Tsakonas, Ph.D. |
| Experience |
| | Dr. Artavanis-Tsakonas has served as our Senior Vice President, Chief Scientific Officer since May 2013. Prior to that, Dr. Artavanis-Tsakonas served as our interim Chief Scientific Officer while on sabbatical from Harvard Medical School from March 2012 to May 2013. Dr. Artavanis-Tsakonas has been a Professor of Cell Biology at the Harvard Medical School since 1999. From 1999 through 2012, he was Professor, Collège de France, serving as Chair of Biology and Genetics of Development, and from 1999 to 2007, he was also the K.J. Isselbacher- P. Schwartz Professor at the Massachusetts General Hospital Cancer Center and Director of Developmental Biology and Cancer at the Harvard Medical School. Dr. Artavanis-Tsakonas is the scientific co-founder of Exelixis Pharmaceuticals, Inc., a drug discovery and development company, Cellzome, a drug discovery and development company, and Anadys Pharmaceuticals, Inc., a biopharmaceutical company. |
| Education |
| l | Federal Institute of Technology, Zurich, M.Sc. in Chemistry |
| l | University of Cambridge, England, Ph.D. in Molecular Biology |
| l | Biozentrum, University of Basel and Stanford University, postdoctoral research |
|
| | |
| Paul J. Clancy |
| Experience |
| | Mr. Clancy has served as our Executive Vice President, Finance and Chief Financial Officer since August 2007. Mr. Clancy joined Biogen, Inc. in 2001 and has held several senior executive positions with us, including Vice President of Business Planning, Portfolio Management and U.S. Marketing, and Senior Vice President of Finance with responsibilities for leading the Treasury, Tax, Investor Relations and Business Planning groups. Prior to that, he spent 13 years at PepsiCo, a food and beverage company, serving in a range of financial and general management positions. |
| Public Company Boards |
| l | Board of Directors of Agios Pharmaceuticals, Inc., a biopharmaceutical company |
| l | Board of Directors of Incyte Corporation, a biopharmaceutical company |
| Education |
| l | Babson College, B.S. in Finance |
| l | Columbia University, M.B.A. |
|
| | |
| Gregory F. Covino |
| Experience |
| | Mr. Covino has served as our Vice President, Finance and Chief Accounting Officer since April 2012. Prior to that, Mr. Covino served at Boston Scientific Corporation, a medical device company, as Vice President, Corporate Analysis and Control since March 2010, having responsibility for the company's internal audit function, and as Vice President, Finance, International from February 2008 to March 2010, having responsibility for the financial activities of the company's international division. Prior to that, Mr. Covino held several finance positions at Hubbell Incorporated, an electrical products company, including Vice President, Chief Accounting Officer and Controller from 2002 to January 2008, Interim Chief Financial Officer from 2004 to 2005, and Director, Corporate Accounting from 1999 to 2002. |
| Education |
| l | Bryant University, B.S. in Business Administration |
|
| | |
| John G. Cox |
| Experience |
| | Mr. Cox has served as our Executive Vice President, Pharmaceutical Operations and Technology since June 2010 and has been leading our Global Therapeutic Operations since October 2015. Mr. Cox joined Biogen, Inc. in 2003 and has held several senior executive positions with us, including Senior Vice President of Technical Operations, Senior Vice President of Global Manufacturing, and Vice President of Manufacturing and General Manager of Biogen’s operations in RTP. Prior to that, Mr. Cox held a number of senior operational roles at Diosynth Inc., a life sciences manufacturing and services company, where he worked in technology transfer, validation and purification. Prior to that, Mr. Cox focused on the same areas at Wyeth Corporation, a life sciences company, from 1993 to 2000. |
| Public Company Boards |
| l | Board of Directors of Repligen Corporation, a life sciences company |
| Education |
| l | Arizona State University, B.S. in Biology |
| l | University of Michigan, M.B.A. |
| l | California State University, M.S. in Cell Biology |
|
| | |
| Kenneth DiPietro |
| Experience |
| | Mr. DiPietro has served as our Executive Vice President, Human Resources since January 2012. Mr. DiPietro joined Biogen from Lenovo Group, a technology company, where he served as Senior Vice President, Human Resources from 2005 to June 2011. From 2003 to 2005, he served as Corporate Vice President, Human Resources at Microsoft Corporation, a technology company. From 1999 to 2002, Mr. DiPietro worked as Vice President, Human Resources at Dell Inc., a technology company. Prior to that, he spent 17 years at PepsiCo, a food and beverage company, serving in a range of human resource and general management positions. |
| Public Company Boards |
| l | Board of Directors of InVivo Therapeutics Corporation, a medical device company |
| Education |
| l | Cornell University, B.S. in Industrial and Labor Relations |
|
| | |
| Steven H. Holtzman |
| Experience |
| | Mr. Holtzman has served as our Executive Vice President, Corporate Development since January 2011. Prior to that, Mr. Holtzman was a founder of Infinity Pharmaceuticals, Inc., a drug discovery and development company, where he served as Chair of the Board of Directors from company inception in 2001 to November 2012, Executive Chair of the Board of Directors in 2010 and as Chief Executive Officer from 2001 to December 2009. From 1994 to 2001, Mr. Holtzman was Chief Business Officer at Millennium Pharmaceuticals Inc., a biopharmaceutical company. From 1986 to 1994, he was a founder, member of the Board of Directors and Executive Vice President of DNX Corporation, a biotechnology company. From 1996 to 2001, Mr. Holtzman served as presidential appointee to the national Bioethics Advisory Commission. |
| Education |
| l | Michigan State University, B.A. |
| l | Oxford University, B.Phil. graduate degree, which he attended as a Rhodes Scholar |
|
| | |
| Adriana (Andi) Karaboutis |
| Experience |
| | Ms. Karaboutis has served as our Executive Vice President, Technology, Business Solutions and Corporate Affairs since December 2015 and prior to that served as our Executive Vice President, Technology and Business Solutions since joining Biogen in September 2014. Prior to that, Ms. Karaboutis was Vice President and Global Chief Information Officer of Dell, Inc., where she was responsible for leading a global IT organization focused on powering Dell as an end-to-end technology solutions provider. Prior to joining Dell in 2010, Ms. Karaboutis spent over 20 years at General Motors and Ford Motor Company in various international leadership positions including computer-integrated manufacturing, supply chain operations, and information technology. |
| Public Company Boards |
| l | Board of Directors of Advance Auto Parts, an automotive aftermarket parts provider |
| Education |
| l | Wayne State University, B.S. in Computer Science |
|
| | |
| Adam Koppel, M.D., Ph.D. |
| Experience |
| | Dr. Koppel has served as our Executive Vice President, Strategy and Business Development since November 2015. Prior to that, Dr. Koppel served as our Senior Vice President and Chief Strategy Officer from May 2014 to October 2015, responsible for leading corporate strategy and portfolio management. Prior to joining us, Dr. Koppel served as a Managing Director of Brookside Capital, the public-equity affiliate of Bain Capital, since November 2003. Prior to Brookside Capital, he served as Associate Principal with McKinsey & Company, where he consulted to companies in the pharmaceutical and biotechnology industries. |
| Public Company Boards |
| l | Board of Directors of PTC Therapeutics, Inc., a biopharmaceutical company |
| l | Board of Directors of Trevena, Inc., a biopharmaceutical company |
| Education |
| l | Harvard University, B.A. |
| l | Wharton School of the University of Pennsylvania, M.B.A. |
| l | University of Pennsylvania School of Medicine, M.D. and Ph.D. |
|
| | |
| Alfred W. Sandrock, Jr., M.D., Ph.D. |
| Experience |
| | Dr. Sandrock has served as our Chief Medical Officer and Executive Vice President of Neurology Discovery and Development since November 2015. Prior to that, Dr. Sandrock served as our Chief Medical Officer and Group Senior Vice President from May 2013 to October 2015, and as our Chief Medical Officer and Senior Vice President of Development Sciences from February 2012 to April 2013. Prior to that, Dr. Sandrock held several senior executive positions since joining us in 1998, including Senior Vice President of Neurology Research and Development and Vice President of Clinical Development, Neurology. |
| Public Company Boards |
| l | Board of Directors of Neurocrine Biosciences, Inc., a life sciences company |
| Education |
| l | Stanford University, B.A. in Human Biology |
| l | Harvard Medical School, M.D. |
| l | Harvard University, Ph.D. in Neurobiology |
| l | Massachusetts General Hospital, internship in Medicine, residency and chief residency in Neurology, and clinical fellowship in Neuromuscular Disease and Clinical Neurophysiology (electromyography) |
Available Information
Our principal executive offices are located at 225 Binney Street, Cambridge, MA 02142 and our telephone number is intense competition(617) 679-2000. Our website address is www.biogen.com. We make available free of charge through the Investors section of our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). We include our website address in the increasingly crowded MS market,this report only as an inactive textual reference and do not intend it to be an active link to our website. The contents of our website are not incorporated into this report.
Item 1A. Risk Factors
We are substantially dependent on revenues from our principal products.
Our current revenues depend upon continued sales of our principal products. We may be substantially dependent on sales from our principal products for many years, including the possibility of future competition from generic versionsan increasing reliance on sales and growth of TECFIDERA as we further expand into additional markets. Any of the following negative developments relating to any of our principal products may adversely affect our revenues and results of operations or related prodrug derivatives;could cause a decline in our stock price:
we largely rely on third parties to manufacture TECFIDERA and these third parties may not supply TECFIDERA in a timely and cost-effective mannersafety or in compliance with applicable regulations; and
our sales and marketing efforts may not result in product revenues that meet the investment community's high expectations for TECFIDERA.
In addition, we have filed or are preparing to file applications for marketing approval for our long-lasting blood clotting factor candidates for the treatment of hemophilia. In addition to the risks described above and throughout these “Risk Factors,” other factors that may prevent us from successfully commercializing our long-lasting blood clotting factor candidates, if approved, include:efficacy issues;
the hemophilia treatment market is highly competitive, with current treatments marketed by companies that have substantiallyintroduction or greater financial resourcesacceptance of competing products;
constraints and marketing expertise, and we may have difficulty penetrating this highly competitive market unless our long-lasting blood clotting factor candidates are regarded as offering substantial benefits over current treatments;
we do not have marketing experience within the hemophilia treatment marketadditional pressures on product pricing or well-established relationships with the associated medical and scientific community; and
several companies are workingprice increases, due to develop additional treatments for hemophilia and may file for or obtain marketing approval of their treatments before we do or may introduce longer-lasting or more efficacious, safer, cheaper or more convenient treatments than our long-lasting blood clotting factor candidates.
Our long-term success depends upon the successful development of other product candidates.
Our long-term viability and growth will depend upon the successful development of new products from our research and development activities, including products licensed from third parties. Product development is very expensive and 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 work or early stage clinical trials does not ensure that later stage or larger scale clinical trials will be successful. Conducting clinical trials is a complex, time-consuming and expensive process. Our ability to complete our clinical trials in a timely fashion depends in large part on a number of key factors, including protocol design,governmental or regulatory requirements, increased competition, or changes in reimbursement policies and institutional review board approval, the ratepractices of patient enrollment in clinical trials,payors and compliance with extensive current Good Clinical Practices. We have opened clinical sites and are enrolling patients in a number of countries where our experience is more limited, and we are in most cases using the services ofother third party clinical trial providers. If we fail to adequately manage the design, execution andparties; or
adverse legal, administrative, regulatory aspects of our large, complex and diverse clinical trials, our studies and ultimately our regulatory approvals may be delayed or we may fail to gain approval for our product candidates. Clinical trials may indicate that our product candidates have harmful side effects or raise other safety concerns that may significantly reduce the likelihood of regulatory approval, result in significant restrictions on use and safety warnings in any approved label, adversely affect placement within the treatment paradigm, or otherwise significantly diminish the commercial potential of the product candidate. Also, positive results in a registrational trial may not be replicated in any subsequent confirmatory trials. Even if later stage clinical trials are successful, regulatory authorities may disagree with our view of the data or require additional studies, and may fail to approve or delay approval of our product candidates or may grant marketing approval that is more restricted than anticipated, including indications for a narrower patient population than expected and the imposition of safety monitoring or educational requirements or risk evaluation and mitigation strategies. In addition, if another company is the first to file for marketing approval of a competing orphan drug candidate, that company may ultimately receive marketing exclusivity for its drug candidate, preventing us from commercializing our orphan drug candidate in the applicable market for several years.legislative developments.
If we fail to compete effectively, our business and market position would suffer.
The biotechnologybiopharmaceutical industry and pharmaceutical industry isthe markets in which we operate are intensely competitive. We compete in the marketing and sale of our products, the development of new products and processes, the acquisition of rights to new products with commercial potential and the hiring and retention of personnel. We compete with biotechnology and pharmaceutical companies that have a greater number of products on the market and in the product pipeline, greater financial and other resources and other technological or competitive advantages. One or more of our competitors may benefit from significantly greater sales and marketing capabilities, may develop products that are accepted more widely than ours andor may receive patent protection that dominates, blocks or adversely affects our product development or business. In addition, healthcare reform legislation enacted
Our products are also susceptible to competition from generics and biosimilars in many markets. Generic versions of drugs and biosimilars are likely to be sold at substantially lower prices than branded products. Accordingly, the U.S. in 2010 has created a pathwayintroduction of generic or biosimilar versions of our marketed products likely would significantly reduce both the price that we receive for such marketed products and the U.S. Food and Drug Administration (FDA) to approve biosimilars, which could compete on price and differentiation withvolume of products that we now or couldsell, which may have an adverse impact on our results of operations.
In the MS market, we face intense competition as the number of products and competitors continues to expand. Due to our significant reliance on sales of our MS products, our business may be harmed if we are unable to successfully compete in the futureMS market. TheMore specifically, our ability to compete, maintain and grow our share in the MS market may be adversely affected due to a number of factors, including:
the introduction of more efficacious, safer, less expensive or more convenient alternatives to our MS products, including our own products and products of our collaborators;
the introduction of lower-cost biosimilars, follow-on products or generic versions of branded MS products sold by our competitors, and the possibility of future competition from generic versions or prodrugs of existing therapeutics or from off-label use by physicians of therapies indicated for other conditions to treat MS patients;
patient dynamics, including the size of the patient population and our ability to attract new patients to our therapies;
damage to physician and patient confidence in any of our MS products or to our sales and reputation as a result of label changes or adverse experiences or events that may occur with patients treated with our MS products;
inability to obtain appropriate pricing and reimbursement for our MS products compared to our competitors in key international markets; or
our ability to obtain and maintain patent, data or market exclusivity for our MS products.
competitorsSimilarly, the hemophilia treatment market is highly competitive, with current treatments marketed by companies that have substantially greater financial resources and marketing expertise. Our ability to successfully compete in the hemophilia market and gain share in this market may be adversely affected due to a number of reasons, including:
difficulty in penetrating this market if our therapies are not regarded as offering significant benefits over current treatments;
the introduction by other companies of longer-lasting or more efficacious, safer, cheaper,less expensive or more convenient alternativestreatments than our therapies;
our limited marketing experience within the hemophilia treatment market, which may impact our ability to develop relationships with the associated medical and scientific community; or
if one of several companies that are working to develop additional treatments for hemophilia obtains marketing approval of its treatment in the E.U. before we do, our productsapplication for ALPROLIX with the EMA could reduce our revenues andbe barred under operation of the valueEMA’s orphan medicinal product regulation.
Sales of our product development efforts.
Adverse safety events can negatively affect our business and stock price.
Adverse safety events involving our marketed products may have a negative impact on our commercialization efforts. Discovery of safety issues with our products could cause product liability events, additional regulatory scrutiny and requirements for additional labeling, withdrawal of products from the market and the imposition of fines or criminal penalties. Any of these actions could result in material write-offs of inventory, material impairments of intangible assets, goodwill and fixed assets, material restructuring charges and other adverse impacts on our results of operations. Regulatory authorities have been moving towards more active and transparent pharmacovigilance and are making greater amounts of stand-alone safety information directly available to the public through periodic safety update reports, patient registries and other reporting requirements. The reporting of adverse safety events involving our products and public rumors about such events could cause our product sales or stock price to decline or experience periods of volatility.
We depend, to a significant extent, on adequate coverage, pricing and reimbursement from third partythird-party payors, which are subject to increasing and intense pressure from political, social, competitive and other sources. Our inability to maintain adequate coverage, or a reduction in the extent ofpricing or reimbursement, could reducehave an adverse effect on our product salesbusiness, revenues and revenue.results of operations, and could cause a decline in our stock price.
Sales of our products are dependent, in large part, on the availability and extent of coverage, pricing and reimbursement from government health administration authorities, private health insurers and other organizations. Changes in government regulations or private third-party payors' reimbursement policies may reduce reimbursement for our products and adversely affect our future results. In addition, whenWhen a new medicalpharmaceutical product is approved, the availability of government and private reimbursement for that product ismay be uncertain, as is the pricing and amount for which that product will be reimbursed. We cannot predict the availability or amount of
Pricing and reimbursement for our product candidates.products may be adversely affected by a number of factors, including:
Inchanges in federal, state or foreign government regulations or private third-party payors' reimbursement policies;
pressure by employers on private health insurance plans to reduce costs; and
consolidation and increasing assertiveness of payors, including managed care organizations, health insurers, pharmacy benefit managers, government health administration authorities, private health insurers and other organizations, seeking price discounts or rebates in connection with the U.S., federal and state legislatures, health agencies and third-party payors continue to focus on containing the costplacement of health care. The 2010 Patient Protection and Affordable Care Act encourages the development of comparative effectiveness research and any adverse findings for our products from such research may reduce the extent of reimbursement for our products. In addition, the Budget Control Act of 2011 mandates, among other things, reductions in Medicare payment rates if a sufficient deficit reduction plan is not approved, and a reduction in funding for Medicare, Medicaid or similar government programs may adversely affect our future results. Economic pressure on state budgets may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage or payment for our drugs. In recent years, some states have considered legislation that would control the prices of drugs. State Medicaid programs are increasingly requesting manufacturers to pay supplemental rebates and requiring prior authorization by the state program for use of any drug for which supplemental rebates are not being paid. Managed care organizations continue to seek price discountstheir formularies and, in some cases, to imposethe imposition of restrictions on theaccess or coverage of particular drugs. Government effortsdrugs or pricing determined based on perceived value.
Our ability to reduce Medicaid expenses may lead to increased use of managed care organizations by Medicaid programs. This may result in managed care organizations influencing prescription decisions for a larger segment ofset the population and a corresponding constraint on prices and reimbursementprice for our products.
Inproducts can vary significantly from country to country and as a result so can the European Union and some other international markets, the government provides health care at low cost to consumers and regulates pharmaceutical prices, patient eligibility or reimbursement levels to control costs for the government-sponsored health care system. Many countries are reducing their public expenditures and we expect to see strong efforts to reduce healthcare costs inprice of our international markets, including patient access restrictions, suspensions on price increases, prospective and possibly retroactive price reductions and other recoupments and increased mandatory discounts or rebates, recoveries of past price increases, and greater importation of drugs from lower-cost countries to higher-cost countries. These cost control measures likely would reduce our revenues. In addition, certainproducts. Certain countries set prices by reference to the prices in other countries where our products are marketed. Thus, our inability to secure adequate prices in a particular country may not only limit the marketing of our products within that country, but may also adversely affect our ability to obtain acceptable prices in other markets. This may create the opportunity for third party cross borderthird-party cross-border trade or influence our decision to sell or not to sell a product, thus adversely affecting our geographic expansion plans and revenues.
Adverse marketOur failure to maintain adequate coverage, pricing, or reimbursement for our products would have an adverse effect on our business, revenues and economic conditions may exacerbate certain risks affectingresults of operation, could curtail or eliminate our business.ability to adequately fund research and development programs for the discovery and commercialization of new products, and could cause a decline in our stock price.
Sales ofDrug prices are under significant scrutiny in the markets in which our products are dependent on reimbursement from government health administration authorities, private health insurers, distribution partnersprescribed. Drug pricing and other organizations. These organizationshealth care costs continue to be subject to intense political and societal pressures which we anticipate will continue and escalate on a global basis. As a result, our business and reputation may reduce the extentbe harmed, our stock price may be adversely impacted and experience periods of reimbursements, increase their scrutinyvolatility, and our results of claims, delay payment oroperations may be unable to satisfy their reimbursement obligations due to deteriorating global economic conditions, uncertainty about the direction and relative strength of the U.S. economy and resolution of the U.S. budget deficit, the growing European financial crisis, volatility in the credit and financial markets, and other disruptions due to natural disasters, political instability or otherwise.adversely impacted.
The European market representsOur results of operations may be adversely affected by current and potential future healthcare reforms.
In the U.S., federal and state legislatures, health agencies and third-party payors continue to focus on containing the cost of health care. Legislative and regulatory proposals and enactments to reform health care insurance programs could significantly influence the manner in which our products are prescribed and purchased. For example, provisions of the Patient Protection and Affordable Care Act (PPACA) have resulted in changes in the way health care is paid for by both governmental and private insurers, including increased rebates owed by manufacturers under the Medicaid Drug Rebate Program, annual fees and taxes on manufacturers of certain branded prescription drugs, the requirement that manufacturers participate in a major partdiscount program for certain outpatient drugs under Medicare Part D and the expansion of the number of hospitals eligible for discounts under Section 340B of the Public Health Service Act. These changes have had and are expected to continue to have a significant impact on our business - approximately 39%business.
There is also significant economic pressure on state budgets that may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage or payment for our drugs. In recent years, some states have considered legislation and ballot initiatives that would control the prices of our 2012 product revenues were deriveddrugs, including laws to allow importation of pharmaceutical products from Europe and most of our marketing effortslower cost jurisdictions outside the U.S. and laws intended to impose price controls on state drug purchases. State Medicaid programs are focused on Europe. Thus,increasingly requesting manufacturers to pay supplemental rebates and requiring prior authorization by the deteriorationstate program for use of any drug for which supplemental rebates are not being paid. Government efforts to reduce Medicaid expenses may lead to increased use of managed care organizations by Medicaid programs. This may result in managed care organizations influencing prescription decisions for a larger segment of the creditpopulation and economic conditionsa corresponding constraint on prices and reimbursement for our products. In addition, under the PPACA, as states implement their health care marketplaces or operate under the federal exchange, the impact on drug manufacturers, including us, will depend in certain Europeanpart on the formulary and benefit design decisions made by insurance sponsors or plans participating in these programs. It is possible that we may need to provide discounts or rebates to such plans in order to maintain favorable formulary access for our products for this patient population, which could have an adverse impact on our sales and results of operations.
In the E.U. and some other international markets, the government provides health care at low cost to consumers and regulates pharmaceutical prices, patient eligibility or reimbursement levels to control costs for the government-sponsored health care system. Many countries have announced or implemented measures to reduce health care costs to constrain their overall level of government expenditures. These measures vary by country and may include, among other things, patient access restrictions, suspensions on price increases, prospective and possibly retroactive price reductions and other recoupments and increased mandatory discounts or rebates, recoveries of past price increases, and greater importation of drugs from lower-cost countries to higher-cost countries. These measures have negatively impacted our revenues, and may continue to adversely affect our revenues and results of operations in the future.
Adverse safety events or restrictions on use and safety warnings for our products can negatively affect our business, product sales and stock price.
Adverse safety events involving our marketed products may have a negative impact on our business. Discovery of safety issues with our products could create product liability and could cause additional regulatory scrutiny and requirements for additional labeling or safety monitoring, withdrawal of products from the market, and the imposition of fines or criminal penalties. Adverse safety events may also damage physician and patient confidence in our products and our reputation. Any of these could result in liabilities, loss of revenue, material write-offs of inventory, material impairments of intangible assets, goodwill and fixed assets, material restructuring charges and other adverse impacts on our results of operations.
Regulatory authorities are making greater amounts of stand-alone safety information directly available to the public through periodic safety update reports, patient registries and other reporting requirements. The reporting of adverse safety events involving our products or products similar to ours and public rumors about such events may increase claims against us and may also cause our product sales or stock price to decline or experience periods of volatility.
Restrictions on use or significant safety warnings that may be required to be included in the label of our products, such as the risk of developing progressive multifocal leukoencephalopathy (PML), a serious brain infection, in the label for certain of our products, may significantly reduce expected revenues for those products and require significant expense and management time.
If we are unable to obtain and maintain adequate protection for our data, intellectual property and other proprietary rights, our business may be harmed.
Our success depends in part on our ability to obtain and defend patent and other intellectual property rights that are important to the commercialization of our products and product candidates. The degree of patent protection that will be afforded to our products and processes in the U.S. and in other important markets remains uncertain and is dependent upon the scope of protection decided upon by the patent offices, courts and lawmakers in these countries. We can provide no assurance that we will successfully obtain or preserve patent protection for the technologies incorporated into our products and processes, or that the protection obtained will be of sufficient breadth and degree to protect our commercial interests in all countries where we conduct business. If we cannot prevent others from exploiting our inventions, we will not derive the benefit from them that we currently expect. Furthermore, we can provide no assurance that our products will not infringe patents or other intellectual property rights held by third parties.
We also rely on regulatory exclusivity for protection of our products. Implementation and enforcement of regulatory exclusivity, which may consist of regulatory data protection and market protection, varies widely from country to country. Failure to qualify for regulatory exclusivity, or failure to obtain or maintain the extent or duration of such protections that we expect in each of the markets for our products due to challenges, changes or interpretations in the law or otherwise, could affect our revenue for our products or our decision on whether to market our products in a particular country or countries or could otherwise have an adverse impact on our results of operations. Our accounts receivable in certain European countries
Litigation, interferences, oppositions, inter partes reviews or other proceedings are, subject to significant payment delays due to government funding and reimbursement practices. European governments have announced or implemented austerity measures to constrain the overall level of government expenditures, including reforming health care coverage and reducing health care costs. These measures continue to exert pressure on product pricingbeen and may encourage higher levelsin the future be necessary in some instances to determine the validity and scope of third party cross border trade.
These adverse market and economic conditions could reduce our product sales and revenues, result in additional allowances or significant bad debts, or cause us to recognize revenue in certain countries on a cash basis.
We depend on collaborators and other third-parties for both product and royalty revenue and the clinical development of future products, which are outside of our full control.
We have a numberproprietary rights, and in other instances to determine the validity, scope or non-infringement of collaborators and partners, and have both in-licensed and out-licensed several products and programs. In additioncertain patent rights claimed by third parties to be pertinent to the factors described throughout these “Risk Factors,” these collaborations are subject to several other risks, including:
Our RITUXAN revenues are dependent on the efforts of Genentech and the Roche Group. Their interests may not always be aligned with our interests and they may not market RITUXAN in the same mannermanufacture, use or to the same extent that we would, which could adversely affect our RITUXAN revenues.
Under our collaboration agreement with Genentech, the successful development and commercialization of GA101 and certain other anti-CD20 products will decrease our percentage of the collaboration's co-promotion profits.
Any failure on the partsale of our collaboratorsproducts. We may also face challenges to comply with applicable lawsour patent and regulatory requirements inprotections covering our products by manufacturers of generics and biosimilars that may choose to launch or attempt to launch their products before the sale, marketing and maintenance of the market authorizationexpiration of our productspatent or regulatory exclusivity. Litigation, interference, oppositions, inter partes reviews or other similar types of proceedings are unpredictable and may be protracted, expensive and distracting to fulfill any responsibilities they may have to protect and enforce any intellectual property rights underlying our products could have an adverse effect on our revenues as well as involve us in possible legal proceedings.
Collaborations often require the parties to cooperate, and failure to do so effectively could have an adverse impact on product sales by our collaborators, andmanagement. The outcome of such proceedings could adversely affect the validity and scope of our patent or other proprietary rights, hinder our ability to manufacture and market our products, require us to seek a license for the infringed product or technology or result in the assessment of significant monetary damages against us that may exceed amounts, if any, accrued in our financial statements. An adverse determination in a judicial or administrative proceeding or a failure to obtain necessary licenses could prevent us from manufacturing or selling our products. Furthermore, payments under any licenses that we are able to obtain would reduce our profits derived from the covered products and services.
Our long-term success depends upon the successful development of new products and additional indications for existing products.
Our long-term viability and growth will depend upon successful development of additional indications for our existing products as well as successful development of new products and technologies from our research and development activities, our biosimilars joint venture with Samsung Biologics or licenses or acquisitions from third parties.
Product development is very expensive and involves a high degree of risk. Only a small number of research and development programs result in the commercialization of a product. Clinical trials may indicate that our product candidates lack efficacy, have harmful side effects, result in unexpected adverse events, or raise other concerns that may significantly reduce the likelihood of regulatory approval. This may result in significant restrictions on use and safety warnings in an approved label, adverse placement within the treatment paradigm, or significant reduction in the commercial potential of the product candidate.
Clinical trials and the development of biopharmaceutical products is a lengthy and complex process. If we fail to adequately manage our clinical developmentactivities, our clinical trials or potential regulatory approvals may be delayed or denied.
Conducting clinical trials is a complex, time-consuming and expensive process. Our ability to complete clinical trials in a timely fashion depends in large part on a number of products under joint control.key factors. These factors include protocol design, regulatory and institutional review board approval, patient enrollment rates, and compliance with extensive current Good Clinical Practices. If we or our third-party clinical trial providers or third-party contract research organizations, or CROs, do not successfully carry out these clinical activities, our clinical trials or the potential regulatory approval of a product candidate may be delayed or be unsuccessful.
We have opened clinical sites and are enrolling patients in a number of countries where our experience is more limited. In addition,most cases, we use the services of third parties to carry out our clinical trial related activities and rely on such parties to accurately report their results. Our reliance on third parties for several other aspectsthese activities may impact our ability to control the timing, conduct, expense and quality of our business. As a sponsor of clinical trials of our products, we rely on third party contract research organizations to carry out mosttrials. One CRO has responsibility for substantially all of our clinical trial related activities and accurately report their results. Thesereporting. If this CRO does not adequately perform, many of our trials may be affected. We may need to replace our CROs. Although we believe there are a number of other CROs we could engage to continue these activities, include initiatingthe replacement of an existing CRO may result in the delay of the affected trials or otherwise adversely affect our efforts to obtain regulatory approvals and monitoring the conduct of studies atcommercialize our product candidates.
Successful preclinical work or early stage clinical trial sites and identifying any noncompliance with the study protocoltrials does not ensure success in later stage trials, regulatory approval or current Good Clinical Practices. The failurecommercial viability of a contract research organization to conduct these activities with proper vigilance and competence andproduct.
Positive results in accordance with current Good Clinical Practices can resulta trial may not be replicated in subsequent or confirmatory trials. Additionally, success in preclinical work or early stage clinical trials does not ensure that later stage or larger scale clinical trials will be successful or that regulatory approval will be obtained. In addition, even if later stage clinical trials are successful, regulatory authorities rejectingmay delay or decline approval of our clinicalproduct candidates. Regulatory authorities may disagree with our view of the data, require additional studies or disagree with our trial datadesign or in some circumstances,endpoints. Regulatory authorities may also fail to approve the facilities or the processes used to manufacture a product candidate, our dosing or delivery methods or companion devices. Regulatory authorities may grant marketing approval that is more restricted than anticipated. These restrictions may include limiting indications to narrow patient populations and the imposition of civilsafety monitoring, educational requirements and risk evaluation and mitigation strategies. The occurrence of any of these events could result in significant costs and expenses, have an adverse effect on our business, financial condition and results of operations and cause our stock price to decline or criminal sanctions against us.experience periods of volatility.
Even if we are able to successfully develop new products or indications, sales of new products or products with additional indications may not meet investor expectations. We may also make a strategic decision to discontinue development of a product or indication if, for example, we believe commercialization will be difficult relative to the standard of care or other opportunities in our pipeline.
Manufacturing issues could substantially increase our costs, and limit supply of our products.products and reduce our revenues.
The process of manufacturing our products is complex, highly regulated and subject to several risks:numerous risks, including:
Risk of Product Loss.The manufacturing process of manufacturing biologics, such as AVONEX, TYSABRI and RITUXAN,for our products is extremely susceptible to product loss due to contamination, oxidation, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our products or manufacturing facilities, we may need to close our manufacturing facilities for an extended period of time to investigate and remediate the contaminant.
Risks of Reliance on Third Parties and Single Source Providers.We rely on third partythird-party suppliers and manufacturers for among other things, RITUXAN manufacturing, the majoritymany aspects of our clinicalmanufacturing process for our products and commercial requirements for small molecule product candidates such as TECFIDERA, our fill-finish operations, the majority of our final product storage, and a substantial portion of our packaging operations.candidates. In addition,some cases, due to the unique manner in which our products are manufactured, we rely on single source providers of several raw materials and manufacturing supplies. These third parties are independent entities subject to their own unique operational and financial risks that are outside of our control. These third parties may not perform their obligations in a timely and cost-effective manner or in compliance with applicable regulations, and they may be unable or unwilling to increase production capacity commensurate with demand for our existing or future products. Finding alternative providers could take a significant amount of time and involve significant expense due to the specialized nature of the services and the
need to obtain regulatory approval of any significant changes to our suppliers or manufacturing methods. We cannot be certain that we could reach agreement with alternative providers or that the FDA or other regulatory authorities would approve our use of such alternatives.
Global Bulk Supply Risks.We rely on our manufacturing facilityfacilities in Research Triangle Park,Cambridge, Massachusetts, RTP, North Carolina and Hillerød, Denmark for the production of TYSABRI.drug substance for our large molecule products and product candidates. Our global bulk supply of TYSABRIthese products and product candidates depends on the uninterrupted and efficient operation of this facility,these facilities, which could be adversely affected by equipment failures, labor shortages, natural disasters, power failures and numerous other factors. If we are unable
Risks Relating to meet demand for TYSABRI for any reason, we would need to rely on a limited number of qualified third party contract manufacturers.
Compliance with cGMP.We and our third partythird-party providers are generally required to maintain compliance with current Good Manufacturing PracticescGMP and other stringent requirements and are subject to inspections by the FDA and comparable agencies in other jurisdictions to confirm such compliance. Any delay, interruption or other issues that arise in the manufacture, fill-finish, packaging, or storage of our products as a result of a failure of our facilities or the facilities or operations of third parties to pass any regulatory agency inspection could significantly impair our ability to develop and commercialize our products. Significant noncompliance could also result in the imposition of monetary penalties or other civil or criminal sanctions and damage our reputation.
Any adverse developments affecting our manufacturing operations or the operations of our third-party suppliers and manufacturers may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the commercial supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Such developments could increase our manufacturing costs, cause us to lose revenue or market share as patients and physicians turn to competing therapeutics, diminish our profitability or damage our reputation.
We depend on relationships with collaborators and other third-parties for revenue, and the development, regulatory approval, commercialization and marketing of certain products, which are outside of our full control.
We rely on a number of significant collaborative relationships for revenue, and the development, regulatory approval, commercialization, and marketing of certain of our products and product candidates. Reliance on collaborative relationships subjects us to a number of risks, including:
we may be unable to control the resources our collaborator devotes to our programs or products;
disputes may arise with respect to ownership of rights to technology developed with our collaborator, and the underlying contract with our collaborator may fail to provide significant protection or may fail to be effectively enforced if the collaborator fails to perform;
our collaborator’s interests may not always be aligned with our interests and a collaborator may not pursue regulatory approvals or market a product in the same manner or to the same extent that we would, which could adversely affect our revenues;
collaborations often require the parties to cooperate, and failure to do so effectively could adversely affect product sales by our collaborator or the clinical development or regulatory approvals of products under joint control or could result in termination of the research, development or commercialization of product candidates or result in litigation or arbitration; and
any failure on the part of our collaborator to comply with applicable laws and regulatory requirements in the marketing, sale and maintenance of the market authorization of our products or to fulfill any responsibilities our collaborator may have to protect and enforce any intellectual property rights underlying our products could have an adverse effect on our revenues as well as involve us in possible legal proceedings.
Given these risks, there is considerable uncertainty regarding the success of our current and future collaborative efforts. If these efforts fail, our product development or commercialization of new products could be delayed or revenues from products could decline.
We may fail to achieve the expected financial and operating benefits of our corporate restructuring and the restructuring may harm our business and financial results.
We face significant risks associated with our corporate restructuring actions that may impair our ability to achieve anticipated savings and operational efficiencies or that may otherwise harm our business. These risks include loss of workforce capabilities, loss of continuity, decreases in employee focus and morale, attrition of necessary or key employees, higher than anticipated separation expenses, litigation and the failure to meet financial and operational targets. In addition, the calculation of the anticipated cost savings and other benefits resulting from our corporate restructuring actions are subject to many estimates and assumptions. These estimates and assumptions are subject to significant business, economic, competitive and other uncertainties and contingencies, many of which are beyond our control. If these estimates and assumptions are incorrect or if we experience delays or unforeseen events, our business and financial results could be adversely affected.
Our business may be adversely affected if we do not manage our current growth and do not successfully execute our growth initiatives.
We anticipate growth through internal development projects, commercial initiatives, and external opportunities, which may include the acquisition, partnering and in-licensing of products, technologies and companies or the entry into strategic alliances and collaborations. The availability of high quality development opportunities is limited and competitive, and we are not certain that we will be able to identify candidates that we and our shareholders consider suitable or complete transactions on terms that are acceptable to us and our shareholders. We may fail to complete transactions for other reasons, including if we are unable to obtain desired financing on favorable terms, if at all. Even if we are able to successfully identify and complete acquisitions and other strategic alliances and collaborations, we may face unanticipated costs or liabilities in connection with the transaction or we may not be able to integrate them or take full advantage of them or otherwise realize the benefits that we expect.
To manage our current and future potential growth effectively, we need to continue to enhance our operational, financial and management processes and to expand, train and manage our employee base. Our growth is also dependent upon our ability to attract and retain qualified scientific, information technology, manufacturing, sales and marketing and executive personnel and to develop and maintain relationships with qualified clinical researchers and key distributors in a highly competitive environment. We may face difficulty in attracting and retaining key talent for a number of reasons, such as the underperformance or discontinuation of one or more late stage programs or recruitment by competitors.
Supporting our growth initiatives and the further development of our existing products and potential new products in our pipeline will require significant capital expenditures and management resources, including investments in research and development, sales and marketing, manufacturing capabilities and other areas of our business. If we do not successfully manage our current growth and do not successfully execute our growth initiatives, then our business and financial results may be adversely affected and we may incur asset impairment or restructuring charges.
A breakdown or breach of our technology systems could subject us to liability or interrupt the operation of our business.
We are increasingly dependent upon technology systems and data. Our computer systems continue to increase in multitude and complexity due to the growth in our business, making them potentially vulnerable to breakdown, malicious intrusion and random attack. Likewise, data privacy or security breaches by individuals authorized to access our technology systems or others may pose a risk that sensitive data, including intellectual property, trade secrets or personal information belonging to us, our patients, customers or other business partners, may be exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity. While we continue to build and improve our systems and infrastructure and believe we have taken appropriate security measures to reduce these risks to our data and information technology systems, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business and operations.
If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, penalties and a loss of business.
Our activities, and the activities of our collaborators, distributors and third partyother third-party providers, are subject to extensive government regulation and oversight both in the U.S. and in foreign jurisdictions. The FDA and comparable agencies in other jurisdictions directly regulate many of our most critical business activities, including the conduct of preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting and product risk management. Our interactions in the U.S. or abroad with physicians and other health care providers that prescribe or purchase our products are also subject to government regulation designed to prevent fraud and abuse in the sale and use of the products and place greater restrictions on the marketing practices of health care companies. HealthcareHealth care companies such as ours are facing heightened scrutiny of their relationships with healthcarehealth care providers from anti-corruption enforcement officials. In addition, we along with many other pharmaceutical and biotechnology companies have been the target of lawsuits and investigations alleging violations of government regulation, including claims asserting submission of incorrect pricing information, impermissible off-label promotion of pharmaceutical products, payments intended to influence the referral of health care business, submission of false claims for government reimbursement, antitrust violations, or violations related to environmental matters. These risks may be heightened as we continue to expand our global operations and introduce additional products to the market.enter new therapeutic areas with different patient populations, which may have product distribution methods differing from those we currently utilize.
Regulations governing the health care industry are subject to change, with possibly retroactive effect, including:
new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to health care availability, pricing or marketing practices, compliance with wage and hour laws and other employment practices, method of delivery, payment for health care products and services, compliance with health information and data privacy and security laws and regulations, tracking and reporting payments and other transfers of value made to physicians and teaching hospitals, and extensive anti-bribery and anti-corruption prohibitions;prohibitions, product serialization and labeling requirements, and used product take-back requirements;
changes in the FDA and foreign regulatory approval processes that may delay or prevent the approval of new products and result in lost market opportunity;
requirements that provide for increased transparency of clinical trial results and quality data, such as the EMA’s clinical transparency policy, which could impact our ability to protect trade secrets and competitively-sensitive information contained in approval applications or could be misinterpreted leading to reputational damage, misperception or legal action which could harm our business; and
changes in FDA and foreign regulations that may require additional safety monitoring, labeling changes, restrictions on product distribution or use, or other measures after the introduction of our products to market, which could increase our costs of doing business, adversely affect the future permitted uses of approved products, or otherwise adversely affect the market for our products.
Examples of previously enacted and possible future changes in laws that could adversely affect our business include the enactment in the U.S. of health care reform, potential regulations easing the entry of competing biosimilars in the marketplace, new legislation or implementation of existing statutory provisions on importation of lower-cost competing drugs from other jurisdictions, and enhanced penalties for and investigations into non-compliance with U.S. fraud and abuse laws.
Violations of governmental regulation may be punishable by criminal and civil sanctions against us, including fines and civil monetary penalties and exclusion from participation in government programs, including Medicare and Medicaid, as well as against executives overseeing our business. In addition to penalties for violation of laws and regulations, we could be required to repay amounts we received from government payors, or pay additional rebates and interest if we are found to have miscalculated the pricing information we have submitted to the government. Whether or not we have complied with the law, an investigation into alleged unlawful conduct could increase our expenses, damage our reputation, divert management time and attention and adversely affect our business.
If we are unable to adequately protectOur indebtedness could adversely affect our business and enforce our intellectual property and other proprietary rights, our competitors may take advantage of our development efforts or our acquired technology.
We have filed numerous patent applications in the U.S. and various other countries seeking protection of the processes, products and other inventions originating from our research and development. Patents have been issued on many of these applications. We have also obtained rights to various patents and patent applications under licenses with third parties, which provide for the payment of royalties by us. The ultimate degree of patent protection that will be afforded to drug and biotechnology products and processes, including ours, in the U.S. and in other important markets remains uncertain and is dependent upon the scope of protection decided upon by the patent offices, courts and lawmakers in these countries. Our patents may not afford us substantial protection or commercial benefit. Similarly, our pending patent applications or patent applications licensed from third parties may not ultimately be granted as patents and we may not prevail if patents that have been issued to us are challenged in court. In addition, court decisions or patent office regulations that place additional restrictions on patent claim scope or that facilitate patent challenges could also reducelimit our ability to protectplan for or respond to changes in our intellectual property rights. If we cannot prevent others from exploiting our inventions, we will not derive the benefit from them that we currently expect.business.
Our products may qualifyindebtedness, together with our significant contingent liabilities, including milestone and royalty payment obligations, could have important consequences to our business; for regulatory data protection, which providesexample, such obligations could:
increase our vulnerability to the holder of a marketing authorization, for a set period of time, the exclusive use of the proprietary pre-clinicalgeneral adverse economic and clinical data that it compiled at significant costindustry conditions;
limit our ability to access capital markets and submitted to the applicable regulatory authority to obtain approval of its product. Our products also may qualify for market protection from regulatory authorities, pursuant to which a regulatory authority may not permit, for a set period of time, the approval or commercialization of another product containing the same active ingredient(s) as our product. After the set period of time, third parties are then permitted to rely upon our data to obtain approval of their abbreviated applications to market generic drugs and biosimilars. Although the World Trade Organization's agreement on trade-related aspects of intellectual property rights (TRIPS) requires signatory countries to provide regulatory data protection to innovative pharmaceutical products, implementation and enforcement varies widely from country to country and we may not experience the extent or duration of data protection that we expect in each of the markets for our products.
Our drugs and biologics are susceptible to competition from generics and biosimilars in many markets. The legal and regulatory pathways leading to approval of generics and biosimilars vary widely from country to country and are in a state of rapid flux. Manufacturers of generics and biosimilars may choose to launch or attempt to launch their products before the expiration of patent or regulatory data or market protection and to concurrently challenge the patent and regulatory protections covering our products. In the U.S., a high proportion of all approved innovative drugs are met with generic challenge as early as four years following approval. Generic versions of drugs and biosimilars are likely to be sold at substantially lower prices than branded products because the generic or biosimilar manufacturer would not have to recoup the research and development and marketing costs associated with the branded product. Accordingly, the introduction of generic or biosimilar versions of our marketed products likely would significantly reduce both the price that we receive for such marketed products and the volume of products that we sell, which may have an adverse impact on our results of operations.
We also rely upon unpatented proprietary and confidential information and technologyincur additional debt in the research, development and manufacture of our products. We cannot ensure that others will not independently develop substantially equivalent information and technology or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect such rights. We protect such information principally through confidentiality agreements with our employees, consultants, outside scientific collaborators, scientists whose research we sponsor and other advisers. These agreements may not provide meaningful protection or adequate remedies for our unpatented confidential information in the event of use or disclosure of such information.future;
Uncertainty over intellectual propertyrequire us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including business development efforts, research and development and mergers and acquisitions; and
limit our flexibility in planning for, or reacting to, changes in our business and the biotechnology industry has been the source of litigation and other disputes,in which is inherently costly and unpredictable.
We are aware that others, including various universities and companies working in the biotechnology field, have filed patent applications and have been granted patents in the U.S. and in other countries claiming subject matter potentially usefulwe operate, thereby placing us at a competitive disadvantage compared to our business. Some of those patents and patent applications claim only specific products or methods of making such products, while others claim more general processes or techniques useful or now used in the biotechnology industry. There is considerable uncertainty within our industry about the validity, scope and enforceability of many issued patents in the U.S. and elsewhere in the world, and, to date, the law and practice remains in substantial flux both in the agenciescompetitors that grant patents and in the courts. We cannot currently determine the ultimate scope and validity of patents which may be granted to third parties in the future or which patents might be asserted to be infringed by the manufacture, use and sale of our products, services or technologies.
There has been, and we expect that there may continue to be, significant litigation in the industry regarding patents and other intellectual property rights. Litigation, arbitrations, administrative proceedings and other legal actions with private parties and governmental authorities concerning patents and other intellectual property rights may be protracted, expensive and distracting to management. Competitors may sue us as a way of delaying the introduction of our products. Any litigation, including any interference proceedings to determine priority of inventions, oppositions to patents in foreign countries or litigation against our partners, may be costly and time consuming and could harm our business. We expect that litigation may be necessary in some instances to determine the validity and scope of certain of our proprietary rights. Litigation may be necessary in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. Ultimately, the outcome of such litigation could adversely affect the validity and scope of our patent or other proprietary rights, hinder our ability to manufacture and market our products, or result in the assessment of significant monetary damages against us that may exceed amounts, if any, accrued in our financial statements.
To the extent that valid present or future third party patent or other intellectual property rights cover our products, services or technologies, we or our strategic collaborators may seek licenses or other agreements from the holders of such rights in order to avoid or settle legal claims. Such licenses may not be available on acceptable terms, which may hinder our ability to manufacture and market our products and services. Payments under any licenses that we are able to obtain would reduce our profits derived from the covered products and services. have less debt.
Our sales and operations are subject to the risks of doing business internationally.
We are increasing our presence in international markets, which subjectsparticularly emerging markets, subjecting us to many risks that could adversely affect our business and revenues, such as:
the inability to obtain necessary foreign regulatory or pricing approvals of products in a timely manner;
collectability of accounts receivable;
fluctuations in foreign currency exchange rates;rates, in particular the recent strength of the U.S. dollar versus foreign currencies which has adversely impacted our revenues and net income;
difficulties in staffing and managing international operations;
the imposition of governmental controls;
less favorable intellectual property or other applicable laws;
increasingly complex standards for complying with foreign laws and regulations that may differ substantially from country to country and may conflict with corresponding U.S. laws and regulations;
the emergence of far-reaching anti-bribery and anti-corruption legislation in the U.K., including passage of the U.K. Bribery Act 2010, and elsewhere and escalation of investigations and prosecutions pursuant to such laws;
compliance with complex import and export control laws;
restrictions on direct investments by foreign entities and trade restrictions;
greater political or economic instability; and
changes in tax laws and tariffs.
In addition, our international operations are subject to regulation under U.S. law. For example, the Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad. In many countries, the health care professionals we regularly interact with may meet the definition of a foreign government official for purposes of the Foreign Corrupt Practices Act. Failure to comply with domestic or foreign laws could result in various adverse consequences, includingincluding: possible delay in approval or refusal to approve a product,product; recalls, seizures or withdrawal of an approved product from the market,market; disruption in the supply or availability of our products or suspension of export or import privileges; the imposition of civil or criminal sanctions andsanctions; the prosecution of executives overseeing our international operations.
Our business may be adversely affected if we do not manageoperations; and damage to our current growth and do not successfully execute our growth initiatives.
We have experienced growth in our headcount and operations, which has placed, and will continue to place,reputation. Any significant demands on our management and our operational and financial infrastructure. We anticipate further growing through both internal development projects as well as external opportunities, which include the acquisition, partnering and in-licensing of products, technologies and companies or the entry into strategic alliances and collaborations. The availability of high quality development opportunities is limited and we are not certain that we will be able to identify candidates that we and our shareholders consider suitable or complete transactions on terms that are acceptable to us and our shareholders. In order to pursue such opportunities, we may require significant additional financing, which may not be available to us on favorable terms, if at all. Even if we are able to successfully identify and complete acquisitions, we may not be able to integrate them or take full advantage of them and therefore may not realize the benefits that we expect.
To effectively manage our current and future potential growth, we will need to continue to enhance our operational, financial and management processes and to effectively expand, train and manage our employee base. Supporting our growth initiatives will require significant capital expenditures and management resources, including investments in research and development, sales and marketing, manufacturing and other areasimpairment of our business. If we do not successfully manage our current growth and do not successfully execute our growth initiatives, thenability to sell products outside of the U.S. could adversely impact our business and financial results may be adversely affected and we may incur asset impairment or restructuring charges.
Our investments in properties, including our manufacturing facilities, may not be fully realizable.
We own or lease real estate primarily consisting of buildings that contain research laboratories, office space, and biologic manufacturing operations. For strategic or other operational reasons, we may decide to further consolidate or co-locate certain aspects of our business operations or dispose of one or more of our properties, some of which may be located in markets that are experiencing high vacancy rates and decreasing property values. If we determine that the fair value of any of our owned properties, including any properties we may classify as held for sale, is lower than their book value we may not realize the full investment in these properties and incur significant impairment charges. If we decide to fully or partially vacate a leased property, we may incur significant cost, including lease termination fees, rent expense in excess of sublease income and impairment of leasehold improvements. In addition, we may not fully utilize our manufacturing facilities, resulting in idle time at facilities or substantial excess manufacturing capacity, due to reduced expectations of product demand, improved yields on production and other factors. Any of these events may have an adverse impact on our results of operations.results.
Our effective tax rate may fluctuate and we may incur obligations in tax jurisdictions in excess of accrued amounts.
As a global biotechnologybiopharmaceutical company, we are subject to taxation in numerous countries, states and other jurisdictions. As a result, our effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Our effective tax rate, however, may be different than experienced in the past due to numerous factors, including changes in the mix of our profitability from country to country, the results of examinations and audits of our tax filings, adjustments to the value of our uncertain tax positions, changes in accounting for income taxes and changes in tax laws. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations.
In addition, our inability to secure or sustain acceptable arrangements with tax authorities and previously enacted or future changes in the tax laws, among other things, may result in tax obligations in excess of amounts accrued in our financial statements.
In the U.S., there are several proposals under consideration to reform tax law, including proposals that may reduce or eliminate the deferral of U.S. income tax on our unrepatriated earnings, scrutinizepenalize certain transfer pricing structures, and reduce or eliminate certain foreign or domestic tax credits.credits or deductions. Our future reported financial results may be adversely affected by tax law changes which restrict or eliminate certain foreign tax credits or our ability to deduct expenses attributable to foreign earnings, or otherwise affect the treatment of our unrepatriated earnings.
The growthsome or all of our business depends on our ability to attract and retain qualified personnel and to develop and maintain key relationships.
The achievement of our commercial, research and development and external growth objectives depends upon our ability to attract and retain qualified scientific, manufacturing, sales and marketing and executive personnel and to develop and maintain relationships with qualified clinical researchers and key distributors. Competition for these people and relationships is intense and comes from a variety of sources, including pharmaceutical and biotechnology companies, universities and non-profit research organizations.
Pending and future product liability claims may adversely affect our business and our reputation.
The administration of drugs in humans, whether in clinical studies or commercially, carries the inherent risk of product liability claims whether or not the drugs are actually the cause of an injury. Our products or product candidates may cause, or may appear to have caused, injury or dangerous drug interactions, and we may not learn about or understand those effects until the product or product candidate has been administered to patients for a prolonged period of time.
We are subject from time to time to lawsuits based on product liability and related claims. We cannot predict with certainty the eventual outcome of any pending or future litigation. We may not be successful in defending ourselvesrecommendations set forth in the litigationOrganization for Economic Co-operation and as a result,Development’s project on “Base Erosion and Profit Shifting” (BEPS) by tax authorities in the countries in which we operate, could negatively impact our business could be materially harmed.effective tax rate. These lawsuits may resultrecommendations focus on payments from affiliates in large judgments or settlements against us, any of which could have a negative effect on our financial condition and business ifhigh tax jurisdictions to affiliates in excess of our insurance coverage. Additionally, lawsuits can be expensive to defend, whether or not they have merit,lower tax jurisdictions and the defense of these actions may divert the attention of our management and other resourcesactivities that would otherwise be engagedgive rise to a taxable presence in managing our business.a particular country.
Our operating results are subject to significant fluctuations.
Our quarterly revenues, expenses and net income (loss) have fluctuated in the past and are likely to fluctuate significantly in the future due to the risks described in these “Risk Factors” as well as the timing of charges and expenses that we may take. We have recorded, or may be required to record, charges that include:
the cost of restructurings;
impairments with respect to investments, fixed assets and long-lived assets, including in-process research and developmentR&D and other long-livedintangible assets;
inventory write-downs for failed quality specifications, charges for excess or obsolete inventory and charges for inventory write downs relating to product suspensions;suspensions, expirations or recalls;
changes in the fair value of contingent consideration;
bad debt expenses and increased bad debt reserves;
outcomes of litigation and other legal or administrative proceedings, regulatory matters and tax matters;
milestone payments under license and collaboration agreements; and
payments in connection with acquisitions and other business development activity.activities.
Our revenues are also subject to foreign exchange rate fluctuations due to the global nature of our operations. We recognize foreign currency gains or losses arising from our operations in the period in which we incur those gains or losses. Although we have foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies, our efforts to reducemitigate the impact of fluctuating currency exchange lossesrates may not be successful. As a result, currency fluctuations among our reporting currency, the U.S. dollar, and the currencies in which we do business will affect our operating results, often in unpredictable ways. Our net income may also fluctuate due to the impact of charges we may be required to take with respect to foreign currency hedge transactions. In particular, we may incur higher than expected charges from hedge ineffectiveness or from the termination of a hedge relationship.
These examples are only illustrative and other risks, including those discussed in these “Risk Factors,” could also cause fluctuations in our reported earnings. In addition, ourOur operating results during any one period do not necessarily suggest the anticipated results of future periods.
We are pursuing opportunities to expand our manufacturing capacity for future clinical and commercial requirements for product candidates, which will result in the incurrence of significant investment with no assurance that such investment will be recouped.
While we believe we currently have sufficient manufacturing capacity to meet our near-term manufacturing requirements, it is probable that we would need additional manufacturing capacity to support future clinical and commercial manufacturing requirements for product candidates in our pipeline, if such candidates are successful and approved. We recently announced our intent to build a biologics manufacturing facility in Solothurn, Switzerland and our acquisition of an additional manufacturing facility in RTP, North Carolina. Due to the long lead times necessary for the expansion of manufacturing capacity, we expect to incur significant investment to build or expand our facilities or obtain third-party contract manufacturers with no assurance that such investment will be recouped. If we are unable to adequately and timely manufacture and supply our products and product candidates or if we do not fully utilize our manufacturing facilities, our business may be harmed.
Our investment in Samsung Bioepis, and our success in commercializing biosimilars developed by Samsung Bioepis, are subject to risks and uncertainties inherent in the development, manufacture and commercialization of biosimilars.
Our investment in Samsung Bioepis, and our success in commercializing biosimilars developed by Samsung Bioepis, are subject to a number of risks, including:
Reliance on Third Parties. We are dependent on the efforts of Samsung Bioepis and other third parties over whom we have limited or no control in the development and manufacturing of biosimilars products. If Samsung Bioepis or such other third parties fail to perform successfully, we may not realize the anticipated benefits of our investment in Samsung Bioepis;
Regulatory Compliance. Biosimilar products may face regulatory hurdles or delays due to the evolving and uncertain regulatory and commercial pathway of biosimilars products in certain jurisdictions;
Intellectual Property and Regulatory Challenges. Biosimilar products may face extensive patent clearances, patent infringement litigation, injunctions, or regulatory challenges, which could prevent the commercial launch of a product or delay it for many years;
Failure to Gain Market and Patient Acceptance. Market success of biosimilar products will be adversely affected if patients, physicians and payers do not accept biosimilar products as safe and efficacious products offering a more competitive price or other benefit over existing therapies; and
Competitive Challenges. Biosimilar products face significant competition, including from innovator products and from biosimilar products offered by other companies. In some jurisdictions, local tendering processes may restrict biosimilar products from being marketed and sold in those jurisdictions. The number of competitors in a jurisdiction, the timing of approval, and the ability to market biosimilar products successfully in a timely and cost-effective matter are additional factors that may impact our success and/or the success of Samsung Bioepis in this business area.
Our investments in properties may not be fully realized.
We own or lease real estate primarily consisting of buildings that contain research laboratories, office space, and manufacturing operations. For strategic or other operational reasons, we may decide to further consolidate or co-locate certain aspects of our business operations or dispose of one or more of our properties, some of which may be located in markets that are experiencing high vacancy rates and decreasing property values. If we determine that the fair value of any of our owned properties is lower than their book value we may not realize the full investment in these properties and incur significant impairment charges. If we decide to fully or partially vacate a leased property, we may incur significant cost, including lease termination fees, rent expense in excess of sublease income and impairment of leasehold improvements. Any of these events may have an adverse impact on our results of operations.
Our portfolio of marketable securities is significant and subject to market, interest and credit risk that may reduce its value.
We maintain a significant portfolio of marketable securities.securities for investment of our cash. Changes in the value of thisour portfolio of marketable securities could adversely affect our earnings. In particular, the value of our investments may decline due to increases in interest rates, downgrades of the bonds and other securities included in our portfolio, instability in the global financial markets that reduces the liquidity of securities included in our portfolio, declines in the value of collateral underlying the mortgage and asset-backed securities included in our portfolio, and other factors. Each of these events may cause us to record charges to reduce the carrying value of our investment
portfolio or sell investments for less than our acquisition cost. Although we attempt to mitigate these risks by investing in high quality securitiesthrough diversification of our investments and continuouslycontinuous monitoring of our portfolio's overall risk profile, the value of our investments may nevertheless decline.
There can be no assurance that we will continue to repurchase stock or that we will repurchase stock at favorable prices.
Our Board of Directors has approved stock repurchase programs and may approve additional repurchase programs in the future. The amount and timing of stock repurchases are subject to capital availability and our determination that stock repurchases are in the best interest of our stockholders and are in compliance with all respective laws and our agreements applicable to the repurchase of stock. Our ability to repurchase stock will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, results of operations, financial condition, and other factors beyond our control that we may deem relevant. A reduction in, or the completion or expiration of, our stock repurchase programs could have a negative effect on our stock price. We can provide no assurance that we will repurchase stock at favorable prices, if at all.
We may not be able to access the capital and credit markets on terms that are favorable to us.
We may seek access to the capital markets to supplement our existing funds and cash generated from operations for working capital, capital expenditure and debt service requirements, and other business initiatives. The capital and credit markets have experienced extreme volatility and disruption which leads to uncertainty and liquidity issues for both borrowers and investors. In the event of adverse capital and credit market conditions, we may be unable to obtain capital market financing on favorable terms. Changes in credit ratings issued by nationally recognized credit rating agencies could also adversely affect our cost of financing and the market price of our securities.
Our business involves environmental risks, which include the cost of compliance and the risk of contamination or injury.
Our business and the business of several of our strategic partners including Genentech and Elan, involve the controlled use of hazardous materials, chemicals, biologics and radioactive compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with state, federal and federalforeign standards, there will always be the risk of accidental contamination or injury. If we were to become liable for an accident, or if we were to suffer an extended facility shutdown, we could incur significant costs, damages and penalties that could harm our business. Biologics manufacturingManufacturing of our products and product candidates also requires permits from government agencies for water supply and wastewater discharge. If we do not obtain appropriate permits, orincluding permits for sufficient quantities of water and wastewater, we could incur significant costs and limits on our manufacturing volumes that could harm our business.
ProvisionsThe illegal distribution and sale by third parties of counterfeit versions of our products or stolen products could have a negative impact on our reputation and business.
Third parties might illegally distribute and sell counterfeit or unfit versions of our products, which do not meet our rigorous manufacturing, distribution and testing standards. A patient who receives a counterfeit or unfit drug may be at risk for a number of dangerous health consequences. Our reputation and business could suffer harm as a result of counterfeit or unfit drugs sold under our brand name. Stolen inventory that is not properly stored or sold through unauthorized channels could adversely impact patient safety, our reputation and our business. In addition, thefts of inventory at warehouses, plants or while in-transit, which are not properly stored and which are sold through unauthorized channels, could adversely impact patient safety, our reputation and our business.
The increasing use of social media platforms presents new risks and challenges.
Social media is increasingly being used to communicate about our products and the diseases our therapies are designed to treat. Social media practices in the biopharmaceutical industry continue to evolve and regulations relating to such use are not always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our most significantbusiness. For example, patients may use social media channels to comment on the effectiveness of a product or to report an alleged adverse event. When such disclosures occur, there is a risk that we fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend the company or the public's legitimate interests in the face of the political and market pressures generated by social media due to restrictions on what we may say about our products. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face overly restrictive regulatory actions or incur other harm to our business.
Some of our collaboration agreements contain change in control provisions that may discourage a third party from attempting to acquire us.
Provisions inSome of our collaboration agreements with Elan and Genentech mightinclude change in control provisions that could reduce the potential acquisition price an acquirer is willing to pay or discourage a takeover attempt that could be viewed as beneficial to shareholders who wishshareholders. Upon a change in control, some of these provisions could trigger reduced milestone, profit or royalty payments to receive a premium for their shares from a potential bidder. Ourus or give our collaboration agreements with Elan and Genentech respectively allow Elan to purchase ourpartner rights to TYSABRI and Genentech toterminate our collaboration agreement, acquire operational control or force the purchase our rights to RITUXAN and certain anti-CD20 products developed underor sale of the agreement if we undergo a changeprograms that are the subject of control and certain other conditions are met, which may limit our attractiveness to potential acquirers.the collaboration.
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Item 1B. | Unresolved Staff Comments |
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Below is a summary of our owned and leased properties as of December 31, 2012.2015.
Massachusetts
In Cambridge, Massachusetts, we own approximately 508,000 square feet of real estate space, consisting of a building that houses a research laboratory office space and a cogeneration plant totaling approximately 263,000 square feet and a building that contains research, development and quality laboratories which total approximately 245,000 square feet.
In July 2011, we executed leases for two office buildings currently under construction in Cambridge, with a planned occupancy during the second half of 2013. Construction of these facilities began in late 2011. These buildings, totaling approximately 500,000 square feet, will serve as the future location of our corporate headquarters and will provide additional general and administrative and research and development office space.
In addition, we currently lease a total of approximately 648,0001,312,000 square feet in Massachusetts, which is summarized as follows:
357,000 square feet of office space housing our corporate headquarters in Weston, which we expect will be reduced once we relocate our corporate headquarters to Cambridge;
220,000909,000 square feet in Cambridge, Massachusetts, which is comprised of a 67,000 square foot biologics manufacturing facility and 842,000 square feet for our corporate headquarters, laboratory and additional office space of 153,000 square feet;space;
25,000357,000 square feet of office and laboratory space in Waltham covered by aWeston, Massachusetts, of which 175,000 square feet has been subleased through the remaining term of our lease that will expire in 2013;agreement; and
46,000 square feet of warehouse space in Somerville.Somerville, Massachusetts.
Our Massachusetts lease agreements expire at various dates through the year 2028.
North Carolina
We manufacture bulk AVONEX, TYSABRI and other products in our pipeline at our facilities located in Research Triangle Park,In RTP, North Carolina, where we own approximately 740,000834,000 square feet of real estate space, which is summarized as follows:
357,000 square feet of laboratory and office space;
175,000 square feet related to a large-scale biologics manufacturing facility;
105,000 square feet related to a biologics manufacturing facility;
60,00084,000 square feet of warehouse space;space and utilities;
70,000 square feet related to a parenteral fill-finish facility; and
43,000 square feet related to a large-scale purification facility.
In addition, we leased approximately 50,000lease 188,000 square feet of officea facility in RTP, North Carolina from Eisai to manufacture our and Eisai's oral solid dose products and 10,000 square feet of warehouse space in Durham, North Carolina, which expired December 31, 2012.Carolina.
Denmark
We own approximately 60 acres of land in Hillerød, Denmark, upon which we have completed construction of a large-scale biologics manufacturing facility totaling approximately 225,000228,000 square feet. We began the process of manufacturing clinical products for sale to third parties during 2012. The facility is currently not licensed to produce commercial product, a process we expect to be completedfeet located in 2013.Hillerød, Denmark.
We also own approximately 310,000306,000 square feet of additional space, which is currently in use at this location and is summarized as follows:
140,000139,000 square feet of warehouse, utilities and support space;
70,000 square feet related to a label and packaging facility;
50,00047,000 square feet of administrative space; and
50,000 square feet related to a laboratory facility.
Switzerland
In December 2015, we acquired land in Solothurn, Switzerland, where we plan to build a biologics manufacturing facility in the Commune of Luterbach over the next several years.
Other International
We lease office and laboratory space in Zug, Switzerland, our international headquarters, the United Kingdom, Germany, France, Denmark, and numerous other countries. Our international lease agreements expire at various dates through the year 2023.
Item 3. Legal Proceedings
For a discussion of legal matters as of December 31, 2012,2015, please read Note 22,20, Litigation to our consolidated financial statements included in this report, which is incorporated into this item by reference.
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Item 4. | Mine Safety Disclosures |
Item 4. Mine Safety Disclosures
Not applicable.
PART II
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market and Stockholder Information
Our common stock trades on The NASDAQ Global Select Market under the symbol “BIIB.” The following table shows the high and low sales price for our common stock as reported by The NASDAQ Global Select Market for each quarter in the years ended December 31, 20122015 and 2011:2014:
| | | | Common Stock Price | Common Stock Price |
| | 2012 | | 2011 | 2015 | | 2014 |
| | High | | Low | | High | | Low | High | | Low | | High | | Low |
| First Quarter | $ | 127.85 |
| | $ | 111.44 |
| | $ | 73.53 |
| | $ | 64.28 |
| $ | 480.18 |
| | $ | 334.40 |
| | $ | 358.89 |
| | $ | 270.62 |
|
| Second Quarter | $ | 144.38 |
| | $ | 124.23 |
| | $ | 109.63 |
| | $ | 72.70 |
| $ | 432.88 |
| | $ | 368.88 |
| | $ | 322.25 |
| | $ | 272.02 |
|
| Third Quarter | $ | 157.18 |
| | $ | 137.88 |
| | $ | 109.14 |
| | $ | 83.83 |
| $ | 412.24 |
| | $ | 265.00 |
| | $ | 349.00 |
| | $ | 298.31 |
|
| Fourth Quarter | $ | 155.30 |
| | $ | 134.00 |
| | $ | 120.66 |
| | $ | 87.72 |
| $ | 311.65 |
| | $ | 254.00 |
| | $ | 361.93 |
| | $ | 290.85 |
|
As of January 31, 2013,29, 2016, there were approximately 901742 stockholders of record of our common stock.
In addition, as of January 31, 2013, 82 stockholders of record of Biogen, Inc. common stock have yet to exchange their shares of Biogen, Inc. common stock for our common stock as contemplated by the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in November 2003.
Dividends
We have not paid cash dividends since our inception. WeWhile we historically have not paid cash dividends and do not anticipate paying anyhave a current intention to pay cash dividends, in the near term.we continually review our capital allocation strategies, including, among other things, payment of cash dividends, stock repurchases, or acquisitions.
Issuer Purchases of Equity Securities
In May 2015, our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2015 Share Repurchase Program).
The following table summarizes our common stock repurchase activity under our 2015 Share Repurchase Program during the fourth quarter of 2012:2015:
|
| | | | | | | | | | | |
| Period | Total Number of Shares Purchased (#) | | Average Price Paid per Share ($) | | Total Number of Shares Purchased as Part of Publicly Announced Programs (#) | | Maximum Number of Shares That May Yet Be Purchased Under Our Programs ($ in millions) |
| Oct-12 | — |
| | — |
| | — |
| | 6,326,521 |
|
| Nov-12 | 155,400 |
| | 138.64 |
| | 155,400 |
| | 6,171,121 |
|
| Dec-12 | — |
| | — |
| | — |
| | 6,171,121 |
|
| Total | 155,400 |
| | 138.64 |
| | | | |
|
| | | | | | | | | | | | |
| Period | Total Number of Shares Purchased (#) | | Average Price Paid per Share ($) | | Total Number of Shares Purchased as Part of Publicly Announced Programs (#) | | Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under Our Programs ($ in millions) |
| October 2015 | 4,976,270 |
| | 275.87 |
| | 4,976,270 |
| | $ | 629.0 |
|
| November 2015 | 2,131,417 |
| | 295.12 |
| | 2,131,417 |
| | $ | — |
|
| December 2015 | — |
| | — |
| | — |
| | $ | — |
|
| Total | 7,107,687 |
| | 281.64 |
| | | | |
OnAs of December 31, 2015, the 2015 Share Repurchase Program was completed and we repurchased and retired approximately 16.8 million shares of common stock at a cost of $5.0 billion during the year ended December 31, 2015.
In February 11, 2011, we announced that our Board of Directors authorized thea program to repurchase of up to 20.0 million shares of our common stock. This authorizationstock (2011 Share Repurchase Program), which has been used principally to offset common stock issuances under our share-based compensation plans. The 2011 Share Repurchase Program does not have an expiration date. AsWe did not repurchase any shares of common stock under our 2011 Share Repurchase Program during the year ended December 31, 2012,2015 and have approximately 13.81.3 million shares of our common stock at a cost of $1,482.7 million have been repurchased under this authorization. In 2012, approximately 7.8 million shares were repurchased at a cost of $984.7 million.
Approximately 6.2 million shares of our common stock remainremaining available for repurchase under the 2011this authorization.
Stock Performance Graph
The graph below compares the five-year cumulative total stockholder return on our common stock, the S&P 500 Index, the Nasdaq Pharmaceutical Index and the Nasdaq PharmaceuticalBiotechnology Index assuming the investment of $100.00 on December 31, 20072010 with dividends being reinvested. The stock price performance in the graph below is not necessarily indicative of future price performance.
| | | | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 |
| Biogen Idec Inc. | 100.00 |
| 83.68 |
| 94.02 |
| 117.83 |
| 193.42 |
| 257.27 |
| |
| Biogen Inc. | | 100.00 |
| 164.13 |
| 218.30 |
| 416.96 |
| 506.26 |
| 456.90 |
|
| NASDAQ Pharmaceutical | 100.00 |
| 93.04 |
| 104.54 |
| 113.33 |
| 121.32 |
| 161.39 |
| 100.00 |
| 107.59 |
| 123.00 |
| 166.89 |
| 203.30 |
| 214.35 |
|
| S&P 500 Index | 100.00 |
| 63.01 |
| 79.67 |
| 91.67 |
| 93.61 |
| 108.59 |
| 100.00 |
| 102.11 |
| 118.45 |
| 156.82 |
| 178.28 |
| 180.75 |
|
| NASDAQ Biotechnology | | 100.00 |
| 112.09 |
| 148.78 |
| 247.01 |
| 331.99 |
| 371.06 |
|
| |
Item 6. | Selected Consolidated Financial Data |
Item 6. Selected Financial Data
BIOGEN IDEC INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2012 | | 2011 | | 2010 | | 2009 | | 2008 | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| (In millions, except per share amounts) | (10) (11) (12) | | (7) (8) (9) | | (4) (5) (6) | | (2) (3) | | (1) | (3) (4) | | | | (1) (2) | | | | (1) |
| Results of Operations | | | | | | | | | | | | | | | | | | |
| Product revenues | $ | 4,166.1 |
| | $ | 3,836.1 |
| | $ | 3,470.1 |
| | $ | 3,152.9 |
| | $ | 2,839.7 |
| |
| Product revenues, net | | $ | 9,188.5 |
| | $ | 8,203.4 |
| | $ | 5,542.3 |
| | $ | 4,166.1 |
| | $ | 3,836.1 |
|
| Revenues from unconsolidated joint business | 1,137.9 |
| | 996.6 |
| | 1,077.2 |
| | 1,094.9 |
| | 1,128.2 |
| 1,339.2 |
| | 1,195.4 |
| | 1,126.0 |
| | 1,137.9 |
| | 996.6 |
|
| Other revenues | 212.5 |
| | 215.9 |
| | 169.1 |
| | 129.5 |
| | 129.6 |
| 236.1 |
| | 304.5 |
| | 263.9 |
| | 212.5 |
| | 215.9 |
|
| Total revenues | 5,516.5 |
| | 5,048.6 |
| | 4,716.4 |
| | 4,377.3 |
| | 4,097.5 |
| 10,763.8 |
| | 9,703.3 |
| | 6,932.2 |
| | 5,516.5 |
| | 5,048.6 |
|
| Cost and expenses: | | | | | | | | | | |
| Cost of sales, excluding amortization of acquired intangible assets | 545.5 |
| | 466.8 |
| | 400.3 |
| | 382.1 |
| | 402.0 |
| |
| Research and development | 1,334.9 |
| | 1,219.6 |
| | 1,248.6 |
| | 1,283.1 |
| | 1,072.1 |
| |
| Selling, general and administrative | 1,277.5 |
| | 1,056.1 |
| | 1,031.5 |
| | 911.0 |
| | 925.3 |
| |
| Collaboration profit sharing | 317.9 |
| | 317.8 |
| | 258.1 |
| | 215.9 |
| | 136.0 |
| |
| Amortization of acquired intangible assets | 202.2 |
| | 208.6 |
| | 208.9 |
| | 289.8 |
| | 332.7 |
| |
| Fair value adjustment of contingent consideration | 27.2 |
| | 36.1 |
| | — |
| | — |
| | — |
| |
| Restructuring charge | 2.2 |
| | 19.0 |
| | 75.2 |
| | — |
| | — |
| |
| Acquired in-process research and development | — |
| | — |
| | 245.0 |
| | — |
| | 25.0 |
| |
| Facility impairments and gain on dispositions, net | — |
| | — |
| | — |
| | — |
| | (9.2 | ) | |
| Total cost and expenses | 3,707.4 |
| | 3,323.9 |
| | 3,467.5 |
| | 3,081.9 |
| | 2,883.9 |
| 5,872.8 |
| | 5,747.7 |
| | 4,441.6 |
| | 3,707.4 |
| | 3,323.9 |
|
| Gain on sale of rights | 46.8 |
| | — |
| | — |
| | — |
| | — |
| — |
| | 16.8 |
| | 24.9 |
| | 46.8 |
| | — |
|
| Income from operations | 1,855.9 |
| | 1,724.7 |
| | 1,248.9 |
| | 1,295.4 |
| | 1,213.6 |
| 4,891.0 |
| | 3,972.4 |
| | 2,515.5 |
| | 1,855.9 |
| | 1,724.7 |
|
| Other income (expense), net | (0.7 | ) | | (13.5 | ) | | (19.0 | ) | | 37.3 |
| | (57.7 | ) | (123.7 | ) | | (25.8 | ) | | (34.9 | ) | | (0.7 | ) | | (13.5 | ) |
| Income before income tax expense and equity in loss of investee, net of tax | 1,855.1 |
| | 1,711.2 |
| | 1,229.9 |
| | 1,332.7 |
| | 1,155.9 |
| 4,767.3 |
| | 3,946.6 |
| | 2,480.6 |
| | 1,855.1 |
| | 1,711.2 |
|
| Income tax expense | 470.6 |
| | 444.5 |
| | 331.3 |
| | 355.6 |
| | 365.8 |
| 1,161.6 |
| | 989.9 |
| | 601.0 |
| | 470.6 |
| | 444.5 |
|
| Equity in loss of investee, net of tax | 4.5 |
| | — |
| | — |
| | — |
| | — |
| 12.5 |
| | 15.1 |
| | 17.2 |
| | 4.5 |
| | — |
|
| Net income | 1,380.0 |
| | 1,266.7 |
| | 898.6 |
| | 977.1 |
| | 790.1 |
| 3,593.2 |
| | 2,941.6 |
| | 1,862.3 |
| | 1,380.0 |
| | 1,266.7 |
|
| Net income (loss) attributable to noncontrolling interests, net of tax | — |
| | 32.3 |
| | (106.7 | ) | | 6.9 |
| | 6.9 |
| 46.2 |
| | 6.8 |
| | — |
| | — |
| | 32.3 |
|
| Net income attributable to Biogen Idec Inc. | $ | 1,380.0 |
| | $ | 1,234.4 |
| | $ | 1,005.3 |
| | $ | 970.1 |
| | $ | 783.2 |
| |
| Net income attributable to Biogen Inc. | | $ | 3,547.0 |
| | $ | 2,934.8 |
| | $ | 1,862.3 |
| | $ | 1,380.0 |
| | $ | 1,234.4 |
|
| | | | | | | | | | | |
| Diluted Earnings Per Share | | | | | | | | | | | | | | | | | | |
| Diluted earnings per share attributable to Biogen Idec Inc. | $ | 5.76 |
| | $ | 5.04 |
| | $ | 3.94 |
| | $ | 3.35 |
| | $ | 2.65 |
| |
| Weighted-average shares used in calculating diluted earnings per share attributable to Biogen Idec Inc. | 239.7 |
| | 245.0 |
| | 254.9 |
| | 289.5 |
| | 295.0 |
| |
| Diluted earnings per share attributable to Biogen Inc. | | $ | 15.34 |
| | $ | 12.37 |
| | $ | 7.81 |
| | $ | 5.76 |
| | $ | 5.04 |
|
| Weighted-average shares used in calculating diluted earnings per share attributable to Biogen Inc. | | 231.2 |
| | 237.2 |
| | 238.3 |
| | 239.7 |
| | 245.0 |
|
| | | | | | | | | | | |
| | | As of December 31, |
| | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| (In millions) | | (5) (6) | | | | | | | | |
| Financial Condition | | | | | | | | | | | | | | | | | | |
| Cash, cash equivalents and marketable securities | $ | 3,742.4 |
| | $ | 3,107.4 |
| | $ | 1,950.8 |
| | $ | 2,457.8 |
| | $ | 2,262.8 |
| $ | 6,188.9 |
| | $ | 3,316.0 |
| | $ | 1,848.5 |
| | $ | 3,742.4 |
| | $ | 3,107.4 |
|
| Total assets | $ | 10,130.1 |
| | $ | 9,049.6 |
| | $ | 8,092.5 |
| | $ | 8,551.9 |
| | $ | 8,479.0 |
| $ | 19,504.8 |
| | $ | 14,314.7 |
| | $ | 11,863.3 |
| | $ | 10,130.1 |
| | $ | 9,049.6 |
|
| Notes payable, line of credit and other financing arrangements, less current portion | $ | 687.4 |
| | $ | 1,060.8 |
| | $ | 1,066.4 |
| | $ | 1,080.2 |
| | $ | 1,085.4 |
| $ | 6,521.5 |
| | $ | 580.3 |
| | $ | 592.4 |
| | $ | 687.4 |
| | $ | 1,060.8 |
|
| Total Biogen Idec Inc. shareholders’ equity | $ | 6,961.5 |
| | $ | 6,425.5 |
| | $ | 5,396.5 |
| | $ | 6,221.5 |
| | $ | 5,806.1 |
| |
| Total Biogen Inc. shareholders’ equity | | $ | 9,372.8 |
| | $ | 10,809.0 |
| | $ | 8,620.2 |
| | $ | 6,961.5 |
| | $ | 6,425.5 |
|
In addition to the following notes, the financial data included within the tables above should be read in conjunction with our consolidated financial statements and related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this report and our previously filed Forms 10-K.Form 10-Ks.
| |
| (1) | IncludedOur share of revenues from unconsolidated joint business reflects charges of $50.0 million in total cost2011 and expenses$49.7 million in 2008 is $25.0 million2013 for in-process researchdamages and development relatedinterest awarded to a milestone payment made to the former shareholders of Conforma Therapeutics pursuant to the terms of our acquisition of Conforma TherapeuticsHoechst in 2006.Genentech's arbitration with Hoechst for RITUXAN. |
| |
| (2) | Total costCommencing in the second quarter of 2013, product and expenses in 2009total revenues include 100% of net revenues related to sales of TYSABRI as a result of our acquisition of all remaining rights to TYSABRI from Elan Pharma International, Ltd (Elan), an affiliate of Elan Corporation, plc. Upon the closing, our collaboration agreement was terminated, and we no longer record collaboration profit sharing expense. We recognized collaboration profit sharing expense of $85.4 million, $317.9 million and $317.8 million during the years ended December 31, 2013, 2012 and 2011, respectively. In addition, product and total revenues includes the $110.0 million upfront payment madenet revenues related to Acorda Therapeutics, Inc. pursuant to our June 30, 2009 collaboration and license agreement to develop and commercialize products containing fampridine in markets outside the U.S.sales of TECFIDERA. |
| |
| (3) | ChangesOther revenues reflects a decrease in tax law in certain state jurisdictions in which we operate androyalty revenues due to the resolutionDecember 2014 expiration of multiple federal, state and foreign tax audits, including the effective settlement of several uncertain tax positions resulted in a $58.3 million reductionU.S. patent rights that gave rise to our 2009 income tax expense.royalty payments related to ANGIOMAX. |
| |
| (4) | Included in total cost and expenses in 2010 is a restructuring charge to acquired in-process research and development of $40.093.4 million related toincurred in connection with our corporate restructuring announced on October 21, 2015, which included the achievementtermination of a milestone by Biogen Idec Hemophilia, Inc. (formerly Syntonix Pharmaceuticals, Inc.).certain pipeline programs and an 11% reduction in workforce. |
| |
| (5) | Included in total costNotes payable, line of credit and expenses in 2010 is a charge to acquired in-process research and developmentother financing arrangements, less current portion reflects the issuance of our senior unsecured notes for an aggregate principal amount of $205.0 million6.0 billion incurred in connection with the license agreement entered into with Knopp Neurosciences Inc. (Knopp), which we consolidated as we determined that we are the primary beneficiary of the entity. The $205.0 million charge was partially offset by an attribution of $145.0 million to the noncontrolling interest.on September 15, 2015.
|
| |
| (6) | Net income attributable to noncontrolling interest also includes a charge of $25.0 million related to the payment made in 2010 to Cardiokine Biopharma LLC pursuant to the termination of our lixivaptan collaboration.
|
| |
(7) | In the second quarter of 2011 our share of RITUXAN revenues from unconsolidated joint business was reduced by approximately $50.0 million to reflect our share of the approximately $125.0 million compensatory damages and interest that Genentech estimated might be awarded to Hoechst GmbH (Hoechst), in relation to Genentech’s ongoing arbitration with Hoechst.
|
| |
(8) | Biogen Idec Inc.’s shareholders’'s shareholders' equity in 2011 reflects a reduction in additional paid in capital and noncontrolling interestsretained earnings totaling $187.3 million$5.0 billion resulting from our purchase of the noncontrolling interest in our joint venture investments in Biogen Dompé SRLrepurchase and Biogen Dompé Switzerland GmbH. |
| |
(9) | Included in total cost and expenses in 2011 is a charge to research and development expense of $36.8 million related to an upfront payment made in connection with our collaboration and license agreement entered into with Portola Pharmaceuticals, Inc.
|
| |
(10) | Included in total cost and expenses in 2012 are charges to research and development expense of $71.0 million related to upfront payments made in connection with our collaboration agreements entered into with Isis Pharmaceuticals, Inc.
|
| |
(11) | Gain on sale of rights of $46.8 million relates to the sale of allretirement of our rights, including rights to royalties, related to BENLYSTA.common stock under our 2015 Share Repurchase Program.
|
| |
(12) | Equity in loss of investee, net of tax relates to our agreement with Samsung BioLogics Co. Ltd. that established an entity, Samsung Bioepis, to develop, manufacture and market biosimilar pharmaceuticals. We recognize our share of the results of operations related to our investment in Samsung Bioepis one quarter in arrears. |
| |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and related notes beginning on page F-1 of this report. Certain totals may not sum due to rounding.
Executive Summary
Introduction
Biogen Idec is a global biotechnologybiopharmaceutical company focused on discovering, developing, manufacturing and marketingdelivering therapies to patients for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for multiple sclerosis (MS), ELOCTATE for hemophilia A and other autoimmune disorders, neurodegenerative diseasesALPROLIX for hemophilia B, and hemophilia.FUMADERM for the treatment of severe plaque psoriasis. We also collaborate onhave a collaboration agreement with Genentech, Inc. (Genentech), a wholly-owned member of the developmentRoche Group, which entitles us to certain business and commercialization offinancial rights with respect to RITUXAN and anti-CD20 product candidates for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions.conditions, GAZYVA indicated for the treatment of CLL, and other potential anti-CD20 therapies.
In the near term, ourOur current and future revenues are dependentdepend upon continued sales of our threeprincipal products. We may be substantially dependent on sales from our principal products AVONEX, TYSABRI,for many years, including an increasing reliance on sales and RITUXAN as well as the potential approvalgrowth of TECFIDERA Factor VIII and Factor IX.as we continue to expand into additional markets. In the longer term, our revenue growth will be dependent upon the successful clinical development, regulatory approval and launch of new commercial products as well as additional indications for our existing products, our ability to obtain and maintain patents and other rights related to our marketed products and assets originating from our research and development efforts, and successful execution of external business development opportunities. As part of our on-goingongoing research and development efforts, we have devoted significant resources to conducting clinical studies to advance the development of new pharmaceutical products and to explore the utility of our existing products in treating disorders beyond those currently approved in their labels. In addition to our innovative drug development efforts, we aim to leverage our manufacturing capabilities and scientific expertise to extend our mission to improve the lives of patients living with serious diseases through the development, manufacture and marketing of biosimilars through
Samsung Bioepis, our joint venture with Samsung BioLogics Co. Ltd. (Samsung Biologics).
Financial Highlights
The following table is a summary
Diluted earnings per share attributable to Biogen Inc. were $15.34 for 2015, representing an increase of financial results achieved:24.0% over the same period in 2014.
|
| | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 |
| (In millions, except per share amounts and percentages) | 2012 (4) (5) | | 2011 (1) (2) (3) | |
| Total revenues | $ | 5,516.5 |
| | $ | 5,048.6 |
| | 9.3 | % |
| Income from operations | $ | 1,855.8 |
| | $ | 1,724.7 |
| | 7.6 | % |
| Net income attributable to Biogen Idec Inc. | $ | 1,380.0 |
| | $ | 1,234.4 |
| | 11.8 | % |
| Diluted earnings per share attributable to Biogen Idec Inc. | $ | 5.76 |
| | $ | 5.04 |
| | 14.3 | % |
| |
(1) | Income from operations, as well as net income attributable to Biogen Idec Inc. for 2011, was reduced by a charge of $36.8 million to research and development expense incurred in connection with the collaboration and license agreement entered into with Portola Pharmaceuticals, Inc. in October 2011.
|
| |
(2) | In the second quarter of 2011 our share of RITUXAN revenues from unconsolidated joint business was reduced by approximately $50.0 million to reflect our share of the approximately $125.0 million compensatory damages and interest that Genentech estimated might be awarded to Hoechst GmbH (Hoechst), in relation to Genentech’s ongoing arbitration with Hoechst.
|
| |
(3) | Income from operations, as well as net income attributable to Biogen Idec Inc., for 2011 was reduced by $19.0 million resulting from charges associated with our restructuring initiative announced in November 2010.
|
| |
(4) | Income from operations, as well as net income attributable to Biogen Idec Inc. for 2012, was reduced by charges totaling $71.0 million to research and development expense incurred in connection with our collaboration agreements entered into with Isis Pharmaceuticals, Inc. in January, June and December 2012.
|
| |
(5) | Income from operations, as well as net income attributable to Biogen Idec Inc. for 2012, includes $46.8 million from the sale of all of our rights, including rights to royalties, related to BENLYSTA.
|
As described below under “Results of Operations,” our operating resultsincome from operations for the year ended December 31, 2012, reflect2015, reflects the following:
Worldwide AVONEXTotal revenues totaledwere $2,913.110,763.8 million for 20122015, representing an increase of 8.4%10.9% over the same period in 20112014.
Our share of TYSABRIProduct revenues, net totaled $1,135.99,188.5 million for 20122015, representing an increase of 5.2%12.0% over the same period in 20112014. This increase was driven by a 25.1% increase in worldwide TECFIDERA revenues as well as revenue from our recent product additions PLEGRIDY, ELOCTATE and ALPROLIX, partially offset by a decrease in worldwide AVONEX and TYSABRI revenues. In addition, product revenues, net for 2015, compared to the same period in 2014, were negatively impacted by foreign currency exchange losses of $388.1 million, partially offset by comparative net gains recognized under our foreign currency hedging program of $166.3 million.
Our share of RITUXAN revenuesand GAZYVA operating profits totaled $1,137.91,339.2 million for 20122015, representing an increase of 14.2%12.0% over the same period in 2014. This increase was primarily due to a 4% increase in U.S. product sales of RITUXAN and price increases.
Other revenues totaled $236.1 million for 2015, representing a decrease of 22.5% from the same period in 20112014. This decrease was driven by a 73.1% decrease in royalty revenues primarily due to the expiration of U.S. patent rights that gave rise to royalty payments related to ANGIOMAX, partially offset by a 47.6% increase in corporate partner revenues primarily due to an increase in contract manufacturing activities.
Total cost and expenses increasedtotaled 11.5%$5,872.8 million for 20122015, representing an increase of 2.2% compared to the same period in 20112014. This increase was primarily the result ofdriven by a 16.9% increase in cost of sales, a 9.5%6.3% increase in research and development expense, a 5.9% increase in cost of sales, losses recognized on fair value remeasurement of contingent consideration as well as the recognition of a $93.4 million charge related to our recent corporate restructuring. These increases were partially offset by a 21.9% decrease in the amortization of acquired intangible assets and a 21.0%5.3% increasedecrease in selling, general and administrative costs over the same period in 2011. These increases reflect an increase in manufacturing costs driven by higher sales, spending associated with licensing and development of our early stage product candidates and preparing for the potential launches of TECFIDERA, Factor VIII and Factor IX.expenses.
We generated $1,879.9$3,716.1 million of net cash flows from operations for 2012,2015, which were primarily driven by earnings. Cash, cash equivalents and marketable securities totaled approximately $3,742.4$6,188.9 million as of December 31, 20122015.
On September 15, 2015, we issued senior unsecured notes for an aggregate principal amount of $6.0 billion.
During the year ended December 31, 2015, we repurchased and retired approximately 16.8 million shares of common stock at a cost of $5.0 billion under our share repurchase programs.
Restructuring
On October 21, 2015, we announced a corporate restructuring, which includes the termination of certain pipeline programs and an 11% reduction in workforce. For additional information, please read Restructuring set forth below in this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Acquisitions
On February 12, 2015, we completed the acquisition of all of the outstanding stock of Convergence Pharmaceuticals (Convergence), a clinical-stage biopharmaceutical company with a focus on developing product candidates for neuropathic pain. For additional information related to this transaction, please read Note 2, Acquisitions to our consolidated financial statements included in this report.
Collaborative and Other Relationships
On July 2, 2015, we announced a collaboration and license agreement to develop gene-based therapies for multiple ophthalmic diseases with Applied Genetic Technologies Corporation (AGTC).
On September 9, 2015, we announced an agreement with Mitsubishi Tanabe Pharma Corporation (MTPC) to exclusively license amiselimod (MT-1303), a late stage experimental medicine with potential in multiple autoimmune indications. Amiselimod is an oral compound that targets the sphingosine 1-phosphate receptor.
For additional information related to these transactions, please read Note 19, Collaborative and Other Relationships to our consolidated financial statements included in this report.
Business Environment
We conduct our business withinThe biopharmaceutical industry and the biotechnology and pharmaceutical industries,markets in which we operate are highlyintensely competitive. Many of our competitors are working to develop or have commercialized products similar to those we market or are developing, including oral and other alternative formulations that may compete with AVONEX, TYSABRI or other products we are developing. In addition, the commercialization of certain of our own approved MS products, products of our collaborators and pipeline product candidates such as TECFIDERA, may negatively impact future sales of AVONEX, TYSABRI or both. Weour existing MS products. Our products may also face increased competitive pressures from the emergenceintroduction of biosimilars. generic versions, prodrugs of existing therapeutics or biosimilars of existing products and other technologies, such as gene therapies.
In the U.S., AVONEX, TYSABRI, and RITUXAN are licensed under the Public Health Service Act (PHSA) as biological products. In March 2010, U.S. healthcare reform legislation amended the PHSA to authorize the U.S. Food and Drug Administration (FDA) to approve biological products, known as biosimilars, that are similar to or interchangeable with previously approved biological products based upon potentially abbreviated data packages.
Global economic conditions continue to present challenges for our industry. Governments in many international markets where we operate have announced or implemented austerity measures to constrain the overall leveladdition, sales of government expenditures. These measures, which include efforts aimed at reforming health care coverage and reducing health care costs, particularly in certain countries in Europe, continue to exert pressure on product pricing, have delayed reimbursement for our products are dependent, in large part, on the availability and have negatively impacted our revenuesextent of coverage, pricing and results of operations. reimbursement from government health administration authorities, private health insurers and other organizations.
For additional information about certainrelated to our competition and pricing risks that could negatively impact our financial position or future results of operations,products, please read the “Risk Factors” section of this report.
The Affordable Care Act
On June 28, 2012, the United States Supreme Court upheld the constitutionality of the 2010 Patient Protection and Affordable Care Act’s mandate to purchase health insurance but rejected specific funding provisions that incentivized states to expand their current Medicaid programs. As a result of this ruling, we currently expect implementation of most of the major provisions of the Act to continue. Changes to the Affordable Care Act, or other federal legislation regarding health care access, financing, or delivery and other actions taken by individual states concerning the possible expansion of Medicaid could impact our financial position or results of operations.
The American Taxpayer Relief Act of 2012
The American Taxpayer Relief Act of 2012 (the “TRA”) was passed by the House of Representatives and the Senate on January 1, 2013, and was signed into law by the President on January 2, 2013. The TRA, among other things, extends through 2013 an array of temporary business and individual tax provisions and temporarily delayed the implementation of certain spending reductions (known as “sequestration”). We do not expect that the TRA will have a material impact on our financial position or results of operation.
During 2013 we expect Congress to again consider sequestration and other means of reducing government expenditures, as well as an increase to the government's borrowing authority. Proposals that have been raised to address government finances include changes to the Medicare program, including increases to Part D rebates or co-payments or reductions in premium subsidies, increases to the pharmaceutical fee, changes to the coverage gap and reductions in physician payments for Part B drugs. If enacted, these changes to current policy could have a material impact on our financial position or results of operations.
Key Pipeline DevelopmentsResults of Operations
Peginterferon beta-1aRevenues
In January 2013, we released the primary efficacy analysisRevenues are summarized as follows:
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2015 compared to 2014 | | 2014 compared to 2013 |
| (In millions, except percentages) | 2015 | | 2014 | | 2013 | |
| Product Revenues: | | | | | | | | | |
| United States | $ | 6,545.8 |
| | $ | 5,566.7 |
| | $ | 3,581.0 |
| | 17.6 | % | | 55.5 | % |
| Rest of world | 2,642.7 |
| | 2,636.7 |
| | 1,961.3 |
| | 0.2 | % | | 34.4 | % |
| Total product revenues | 9,188.5 |
| | 8,203.4 |
| | 5,542.3 |
| | 12.0 | % | | 48.0 | % |
| Unconsolidated joint business revenues | 1,339.2 |
| | 1,195.4 |
| | 1,126.0 |
| | 12.0 | % | | 6.2 | % |
| Other revenues | 236.1 |
| | 304.5 |
| | 263.9 |
| | (22.5 | )% | | 15.4 | % |
| Total revenues | $ | 10,763.8 |
| | $ | 9,703.3 |
| | $ | 6,932.2 |
| | 10.9 | % | | 40.0 | % |
Product Revenues
Product revenues are summarized as follows:
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2015 compared to 2014 | | 2014 compared to 2013 |
| (In millions, except percentages) | 2015 | | 2014 | | 2013 | |
| Multiple Sclerosis: | | | | | | | | | |
| TECFIDERA | $ | 3,638.4 |
| | $ | 2,909.2 |
| | $ | 876.1 |
| | 25.1 | % | | 232.1 | % |
| Interferon* | 2,968.7 |
| | 3,057.6 |
| | 3,005.5 |
| | (2.9 | )% | | 1.7 | % |
| TYSABRI | 1,886.1 |
| | 1,959.5 |
| | 1,526.5 |
| | (3.7 | )% | | 28.4 | % |
| FAMPYRA | 89.7 |
| | 80.2 |
| | 74.0 |
| | 11.8 | % | | 8.4 | % |
| Hemophilia: | | | | | | | | | |
| ELOCTATE | 319.7 |
| | 58.4 |
| | — |
| | 447.4 | % | | ** |
|
| ALPROLIX | 234.5 |
| | 76.0 |
| | — |
| | 208.6 | % | | ** |
|
| Other product revenues: | | | | | | | | | |
| FUMADERM | 51.4 |
| | 62.5 |
| | 60.2 |
| | (17.8 | )% | | 3.8 | % |
| Total product revenues | $ | 9,188.5 |
| | $ | 8,203.4 |
| | $ | 5,542.3 |
| | 12.0 | % | | 48.0 | % |
* Interferon includes AVONEX and safety data from our Phase 3 study, ADVANCE. Results support Peginterferon as a potential treatment dosed every two weeks or every four weeks for relapsing-remitting MS. The primary endpointPLEGRIDY.
** Percentage not meaningful.
DexpramipexoleMultiple Sclerosis (MS)
At the end of December 2012, we learned that a Phase 3 trial investigating dexpramipexole in people with amyotrophic lateral sclerosis (ALS) did not meet its primary endpoint, a joint rank analysis of function and survival, and no efficacy was seen in the individual components of function or survival. The trial also failed to show efficacy in its key secondary endpoints. Based on these results, we have discontinued development of dexpramipexole in ALS.
Long-Lasting Recombinant Factors VIII and IX
In October 2012, we announced positive top-line results from the Phase 3 study, known as A-LONG, investigating our long-lasting recombinant Factor VIII-Fc fusion protein in hemophilia A, a rare inherited disorder which inhibits blood coagulation. We plan to submit a Biologics License Application to the FDA for Factor VIII in the first half of 2013.
We submitted a Biologics License Application to the FDA for marketing approval of our long-lasting recombinant Factor IX-Fc fusion protein in hemophilia B, a rare inherited disorder which inhibits blood coagulation, during the fourth quarter of 2012. The regulatory submission was based on the positive top-line results from the Phase 3 study known as B-LONG.
Pediatric data will be required as part of the Marketing Authorization Applications for Factor VIII and Factor IX that we plan to submit to the EMA, and we have initiated two global pediatric studies of Factor VIII and Factor IX.
We collaborate with Swedish Orphan Biovitrum AB on the commercialization of Factor VIII and Factor IX. For information about this collaboration, please read Note 21, Collaborative and Other Relationships to our consolidated financial statements included in this report.
TECFIDERA
In February 2012,
For 2015 compared to 2014, the increase in U.S. TECFIDERA revenues was primarily due to an increase in unit sales volume of 13% as TECFIDERA penetrated the U.S. market, and increases in gross price partially offset by higher discounts and allowances.
For 2014 compared to 2013, the increase in U.S. TECFIDERA revenues was primarily due to increases in unit sales volume.
For 2015 compared to 2014, the increase in rest of world TECFIDERA revenues was primarily due to increases in unit sales volume in existing markets and in additional markets as we submitted a New Drug Applicationcontinue to launch the product and expand our presence around the world. These increases were partially offset by pricing reductions in Germany as described below. Rest of world TECFIDERA revenues for 2015 compared to 2014 were negatively impacted by foreign currency exchange losses totaling $74.1 million. These foreign currency exchange losses were partially offset by comparative net gains recognized under our foreign currency hedging program totaling $47.5 million.
For 2014 compared to 2013, rest of world TECFIDERA revenues increased as sales in Germany began in the first quarter of 2014.
Under German legislation related to the FDA for marketing approvalpricing of TECFIDERA, our oral small molecule candidatenew drug products introduced in the German market, pricing is unregulated for the treatment of MS. The regulatory submission was based on TECFIDERA's comprehensive development program,first 12 months after launch. We launched TECFIDERA in which TECFIDERA demonstrated significant reductionsGermany in MS disease activity coupled with favorable safetyFebruary 2014, and tolerabilityour unregulated pricing ended in the Phase 3 DEFINE and CONFIRM studies.first quarter of 2015, at which time we began recognizing revenue at the fixed price established through our negotiations with the German regulatory authorities. The FDA accepted our applicationnegotiated annual price is fixed for TECFIDERA and granted usthree years.
While we continue to see a standard review timeline. In October 2012, we announced that the FDA extended the initial PDUFA date for its review of our application by three months, which is a standard extension period. The extended PDUFA target date is in late March 2013. The FDA has indicated that the extension of the PDUFA date is needed to allow additional time for review of our application. The agency has not asked for additional studies.
In March 2012, we submitted a Marketing Authorisation Application for TECFIDERA to the European Medicines Agency (EMA). The EMA has validated our application for reviewstrong uptake of TECFIDERA in the E.U. We have submitted additional regulatory applications for TECFIDERAnewly launched territories, total market growth and patient switch rates in Australia, Canada and Switzerland.
We acquired TECFIDERAour maturing markets, such as part of our acquisition of Fumapharm AG in 2006. For more information about this acquisition and associated milestone obligations, please read the subsection entitled “Contractual Obligations and Off-Balance Sheet Arrangements – Contingent Consideration” subsection of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
AVONEX PEN and Dose Titration
In February 2012, the FDA approved two separate dosing innovations designed to improve the treatment experience for patients receiving once-a-week AVONEX for relapsing forms of MS: AVONEX PEN and a new dose titration regimen. AVONEX PEN is the first intramuscular autoinjector approved for MS and is designed to enhance the self-injection process for patients receiving AVONEX therapy. A new dose titration regimen, facilitated by the AVOSTARTGRIP titration devices, provides patients with the option to gradually increase the dose of AVONEX at treatment initiation to reduce the incidence and severity of flu-like symptoms that patients may experience with therapy. These AVONEX dosing innovations are commercially available in the E.U., U.S. and other countries.Germany, have returned to historical averages for MS.
Interferon
AVONEX
For 2015 compared to 2014, the decrease in U.S. AVONEX revenues was primarily due to a decrease in unit sales volume of 17%, which was attributable in part to patients transitioning to PLEGRIDY and oral MS therapies, including TECFIDERA, partially offset by gross price increases.
For 2014 compared to 2013, the increase in U.S. AVONEX revenues was primarily due to price increases, partially offset by a decrease in unit sales volume of 10%, which was attributable in part to patients transitioning to PLEGRIDY and oral MS therapies, including TECFIDERA.
Results of Operations
Revenues
Revenues are summarized as follows:
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Product Revenues: | | | | | | | | | |
| United States | $ | 2,176.8 |
| | $ | 1,954.8 |
| | $ | 1,744.4 |
| | 11.4 | % | | 12.1 | % |
| Rest of world | 1,989.3 |
| | 1,881.3 |
| | 1,725.7 |
| | 5.7 | % | | 9.0 | % |
| Total product revenues | 4,166.1 |
| | 3,836.1 |
| | 3,470.1 |
| | 8.6 | % | | 10.5 | % |
| Unconsolidated joint business revenues | 1,137.9 |
| | 996.6 |
| | 1,077.2 |
| | 14.2 | % | | (7.5 | )% |
| Other revenues | 212.5 |
| | 215.9 |
| | 169.1 |
| | (1.6 | )% | | 27.7 | % |
| Total revenues | $ | 5,516.5 |
| | $ | 5,048.6 |
| | $ | 4,716.4 |
| | 9.3 | % | | 7.0 | % |
Product Revenues
Product revenues are summarized as follows:
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| AVONEX | $ | 2,913.1 |
| | $ | 2,686.6 |
| | $ | 2,518.4 |
| | 8.4 | % | | 6.7 | % |
| TYSABRI | 1,135.9 |
| | 1,079.5 |
| | 900.2 |
| | 5.2 | % | | 19.9 | % |
| Other product revenues | 117.1 |
| | 70.0 |
| | 51.5 |
| | 67.3 | % | | 35.9 | % |
| Total product revenues | $ | 4,166.1 |
| | $ | 3,836.1 |
| | $ | 3,470.1 |
| | 8.6 | % | | 10.5 | % |
AVONEX
Revenues from AVONEX are summarized as follows:
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| United States | $ | 1,793.7 |
| | $ | 1,628.3 |
| | $ | 1,491.6 |
| | 10.2 | % | | 9.2 | % |
| Rest of world | 1,119.4 |
| | 1,058.3 |
| | 1,026.8 |
| | 5.8 | % | | 3.1 | % |
| Total AVONEX revenues | $ | 2,913.1 |
| | $ | 2,686.6 |
| | $ | 2,518.4 |
| | 8.4 | % | | 6.7 | % |
For 20122015 compared to 2011, as well as for 2011 compared to 2010,2014, the increasedecrease in U.S.rest of world AVONEX revenues was primarily due to price increases offset by decreased unit sales volume. U.S. AVONEXa decrease in unit sales volume decreased approximately 2%of 11% primarily in Europe, attributable to patients transitioning to PLEGRIDY and 3%oral MS therapies, including TECFIDERA. Rest of world AVONEX revenues for 2012 and 2011, respectively, over the prior year comparative periods.
For 20122015 compared to 2011, as well as for 20112014, were negatively impacted by foreign currency exchange losses of $153.1 million. These foreign currency exchange losses were partially offset by comparative net gains recognized under our foreign currency hedging program of $58.4 million.
For 2014 compared to 2010,2013, the increasedecrease in rest of world AVONEX revenues was due to increased demand primarilya 7% decrease in unit sales volume in Europe driven by customer penetrationprimarily attributable to the AVONEX PEN launch,patients transitioning to oral therapies including TECFIDERA, partially offset by pricing reductions resulting from austerity measures enacteda 6% increase in some countries.unit demand in the emerging markets region. Rest of world AVONEX unit volume primarily in Europe increased 8% and 6%revenue for 2012 and 2011, respectively, over the prior year comparative periods. The increase in rest of world AVONEX revenues for 20122014 compared to 20112013 also reflects the negative impact of foreign currency exchange rate changes experienced in 2014, partially offset by gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program, whichprogram.
We expect that AVONEX revenues will continue to decline as a result of competition from our own products, including PLEGRIDY and TECFIDERA, and other MS therapies.
PLEGRIDY
For 2015 compared to 2014, the increase in PLEGRIDY revenues was primarily due to increases in unit sales volume. Sales of PLEGRIDY began in the E.U. and the U.S. in the third and fourth quarters of 2014, respectively.
We expect that PLEGRIDY revenues will increase as PLEGRIDY becomes commercially available in additional markets and as patients transition to PLEGRIDY from AVONEX and other therapies.
TYSABRI
For 2015 compared to 2014, the increase in U.S. TYSABRI revenues was primarily due to an increase in unit sales volume of 4% and increases in gross price partially offset negative impactsby higher discounts and allowances.
For 2014 compared to 2013, the increase in U.S. TYSABRI revenues was primarily due to price increases and our recognition, starting in April 2013, of foreign currency100% of net revenues on TYSABRI in-market sales due to our acquisition of the remaining rights to TYSABRI from Elan, partially offset by a 4% decrease in unit sales volume.
Based on data reported by Elan for 2013 and our sales to third-party customers, total U.S. TYSABRI in-market sales were $958.3 million. For 2014 compared to 2013, the increase in U.S. TYSABRI in-market sales was primarily due to price increases, partially offset by patients transitioning to oral MS therapies, including TECFIDERA.
For 2015 compared to 2014, the decrease in rest of world TYSABRI revenues was due to pricing reductions in some European countries and the prior year recognition of $53.5 million of revenue previously deferred in Italy relating to the pricing agreement with the Italian National Medicines Agency (Agenzia Italiana del Farmaco or AIFA) as those gainsdiscussed below. Rest of world TYSABRI revenues for 2015 compared to 2014 were less than the impacts ofnegatively impacted by foreign currency exchange rates on sales. Thelosses of $136.3 million. These foreign currency exchange losses were partially offset by comparative net gains recognized under our foreign currency hedging program of $45.9 million.
For 2014 compared to 2013, the increase in rest of world AVONEXTYSABRI revenues was primarily due to the recognition of $53.5 million of revenue previously deferred in Italy relating to the pricing agreement with AIFA as discussed below, volume increases in Europe of 10% and in our emerging markets region of 18% and a favorable net price in Germany as the mandatory rebate percentage was reduced. Rest of world TYSABRI revenue for 20112014 compared to 20102013 also reflects the favorablenegative impact of foreign currency exchange ratesrate changes experienced in 2014, partially offset by lossesgains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program.
Gains recognizedTYSABRI in relationItaly exceeded a reimbursement limit established pursuant to a Price Determination Resolution granted by AIFA in December 2006 for the settlement of certain cash flow hedge instruments under our foreign currency hedging program totaled $25.4period from mid-February 2009 through January 2013. We could recognize approximately EUR40 million in 2012, comparedrevenue upon resolution of this matter. For information regarding our agreement with AIFA relating to losses recognized of $30.6 million for 2011 and gains recognized of $35.0 million in 2010.
We expect AVONEX to continue facing increased competition in the MS marketplace in both the U.S. and rest of world. We and a number of other companies are working to develop or have commercialized additional treatments for MS, including oral and other alternative formulations that may compete with AVONEX. In addition, the continued growthsales of TYSABRI and the commercialization of certain of our own pipeline product candidates, such as TECFIDERA, may negatively impact future sales of AVONEX. Increased competition also may lead to reduced unit sales of AVONEX, as well as increasing price pressures particularly in geographic markets outside the U.S.
TYSABRI
We collaborate with Elan Pharma International, Ltd (Elan) an affiliate of Elan Corporation, plc, on the development and commercialization of TYSABRI. For additional information about this collaboration,Italy, please read Note 21,17, Collaborative and Other RelationshipsConsolidated Financial Statement Detail to our consolidated financial statements included in this report.
RevenuesWe expect that TYSABRI revenues will continue to face competition from TYSABRI are summarized as follows:additional treatments for MS and certain other pipeline products, including ZINBRYTA and ocrelizumab.
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| United States | $ | 383.1 |
| | $ | 326.5 |
| | $ | 252.8 |
| | 17.3 | % | | 29.2 | % |
| Rest of world | 752.8 |
| | 753.0 |
| | 647.4 |
| | — | % | | 16.3 | % |
| Total TYSABRI revenues | $ | 1,135.9 |
| | $ | 1,079.5 |
| | $ | 900.2 |
| | 5.2 | % | | 19.9 | % |
For 20122015 compared to 2011, as well as for 2011 compared to 2010,2014, the increase in U.S. TYSABRIELOCTATE revenues was primarily due to increasedincreases in unit sales volume and price increases. U.S. TYSABRI unit sales volume increased approximately 11% and 12% for 2012 and 2011, respectively, over the prior year comparative periods. Net salesvolume. Sales of TYSABRI from our collaboration partner, Elan, to third-party customersELOCTATE in the U.S. for 2012, 2011, and 2010 totaled $886.0 million, $746.5 million,Japan began in the third quarter of 2014 and $593.1 million,in the first quarter of 2015, respectively.
ALPROLIX
For 20122015 compared to 2011, the change in rest of world TYSABRI revenues reflects the deferral of a portion of our revenues recognized on sales of TYSABRI in Italy (as described below) and pricing reductions from austerity measures enacted in some countries offset by an increase in demand. Increased demand resulted in increases of approximately 14% and 19% in rest of world TYSABRI unit sales volume for 2012 and 2011, respectively, over the prior year comparative periods. For 2011 compared to 2010,2014, the increase in restALPROLIX revenues was primarily due to increases in unit sales volume. Sales of world TYSABRI revenues reflects an increaseALPROLIX in demand offset by a deferralthe U.S. and Japan began in the second and fourth quarters of a portion of our revenues recognized on sales of TYSABRI in Italy (as described below) and pricing reductions from austerity measures enacted in some countries. The decrease in rest of world TYSABRI revenues for 2012 compared to 2011 also reflects gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program, which only partially offset negative impacts of foreign currency on sales. The increase in rest of world TYSABRI revenues for 2011 compared to 2010 reflects the favorable impact of foreign currency exchange rates offset by losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program.2014, respectively.
Gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program totaled $9.7 million in 2012, compared to losses recognized of $6.3 million for 2011 and gains recognized of $10.7 million in 2010.
In the fourth quarter of 2011, Biogen Idec SRL received a notice from the Italian National Medicines Agency (AIFA) stating that sales of TYSABRI for the period from February 2009 through February 2011 exceeded by EUR30.7 million a reimbursement limit established pursuant to a Price Determination Resolution (Price Resolution) granted by AIFA in February 2007. In December 2011, we filed an appeal against AIFA in administrative court seeking a ruling that the reimbursement limit does not apply and that the position of AIFA is unenforceable. As a result of being notified that AIFA believes a reimbursement limit is in effect, we have deferred $62.7 million and $13.8 million of revenue of TYSABRI in Italy for 2012 and 2011, respectively. We expect to continue to defer a portion of our revenues on future sales of TYSABRI in Italy until this matter is resolved. For additional information, please read Note 22, Litigation to our consolidated financial statements included within this report.
We expect TYSABRI to continue facing increased competition in the MS marketplace in both the U.S. and rest of world. We andcontinued growth with ELOCTATE as there remains a number of other companies are working to develop or have commercialized additional treatments for MS, including oral and other alternative formulations that may compete with TYSABRI. The commercialization of certain of our own pipeline product candidates, such as TECFIDERA, also may negatively impact future sales of TYSABRI. Increased competition may also lead to reduced unit sales of TYSABRI, as well as increasing price pressure. In addition, safety warnings included in the TYSABRI label, such as the risk of progressive multifocal leukoencephalopathy (PML), and any future safety-related label changes, may limit the growth of TYSABRI unit sales. We continue to research and develop protocols and therapies that may reduce risk and improve outcomes of PML in patients. Our efforts to stratify patients into lower or higher risk for developing PML, including through the JCV antibody assay, and other on-going or future clinical trials involving TYSABRI may have a negative impact on prescribing behavior, which may result in decreased product revenues from sales of TYSABRI.
Other Product Revenues
Other product revenues are summarized as follows:
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| FUMADERM | $ | 59.7 |
| | $ | 54.7 |
| | $ | 51.2 |
| | 9.1 | % | | 6.8 | % |
| FAMPYRA | 57.4 |
| | 13.6 |
| | — |
| | ** |
| | ** |
|
| Other | — |
| | 1.7 |
| | 0.3 |
| | (100.0 | )% | | ** |
|
| Total other product revenues | $ | 117.1 |
| | $ | 70.0 |
| | $ | 51.5 |
| | 67.3 | % | | 35.9 | % |
We have a license from Acorda Therapeutics, Inc. (Acorda) to develop and commercialize FAMPYRA in all markets outside the U.S. The European Commission previously granted a conditional marketing authorization for FAMPYRA in the E.U. in July 2011. A conditional marketing authorization is renewable annually and is granted to a medicinal product with a positive benefit-risk assessment that fulfills an unmet medical need when the benefit to public health of immediate availability outweighs the risk inherent in the fact that additional data are still required. To meet the conditions of this marketing authorization, we will provide additional data from on-going clinical studies regarding FAMPYRA's benefits and safety in the long term. This marketing authorization was renewed as of July 2012. FAMPYRA is the first treatment that addresses the unmet medical need of walking improvement in adult patients with MS who have walking disability. FAMPYRA is commercially available throughout the European Union and in Canada, Australia, New Zealand, Israel and South Korea, and we anticipate making FAMPYRA commercially available in additional markets in 2013.
In 2011, the German government implemented new legislation to manage pricing related to new drug products introduced within the German market through a review of each product’s comparative efficacy. We launched FAMPYRA in Germany in August 2011. During the second quarter of 2012, the government agency completed its comparative efficacy assessment of FAMPYRA indicating a range of pricing below our initial launch price, which was unregulated for the first 12 months after launch consistent with German law. Assignificant portion of the third quarter of 2012, we have had pricing negotiations with the German authorities which were resolved in 2013.patient population that can benefit from long-acting therapies. We recognized revenue during the fourth quarter of 2012 based on the lowest point of the initially indicated German pricing authority range. We will recognize revenue at the negotiated fixed price effective upon the signing of the new agreement in 2013.also expect moderating patient additions for ALPROLIX.
For information about our relationship with Acorda, please read Note 21, Collaborative and Other Relationships to our consolidated financial statements included in this report.
Unconsolidated Joint Business Revenues
Revenues from unconsolidated joint business are summarized as follows:
We collaborate*Biogen's share of pre-tax profits includes the reimbursement of selling and development expenses.
Biogen’s Share of Pre-tax Profits in the U.S. for RITUXAN and GAZYVA
The following table provides a summary of amounts comprising our share of pre-tax profits on RITUXAN and GAZYVA in the U.S.:
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| |
| (In millions) | 2015 | | 2014 | | 2013 |
| Product revenues, net | $ | 3,847.9 |
| | $ | 3,556.6 |
| | $ | 3,425.8 |
|
| Cost and expenses | 673.7 |
| | 771.1 |
| | 615.9 |
|
| Pre-tax profits in the U.S. | $ | 3,174.2 |
| | $ | 2,785.5 |
| | $ | 2,809.9 |
|
| Biogen's share of pre-tax profits* | $ | 1,269.8 |
| | $ | 1,117.1 |
| | $ | 1,087.3 |
|
For 2015 compared to 2014, the increase in U.S. product revenues was primarily due to a 4% increase in RITUXAN unit sales volume and price increases, partially offset by higher discounts and allowances.
For 2014 compared to 2013, the increase in U.S. product revenues was primarily due to price increases and an increase in RITUXAN unit sales volume, partially offset by the 2013 recognition of $94.9 million in net revenues resulting from the July 2013 issuance by the Department of Health and Human Services of its final rule on the Exclusion of Orphan Drugs for Certain Covered Entities Under 340B Program. The issuance of the final rule by the Department of Health and Human Services did not have an impact on the amount we recorded as revenues from unconsolidated joint business in our consolidated statements of income because, through June 30, 2013, we had been increasing our share of profits in the U.S. to reflect our interpretation of the proposed 340B rule. The final rule was consistent with Genentech onour prior interpretation.
Collaboration costs and expenses for 2015 compared to 2014 decreased primarily due to the 2014 recognition of $53.9 million of additional Branded Pharmaceutical Drug (BPD) fee expense as well as lower RITUXAN cost of sales, partially offset by higher GAZYVA sales and marketing expenses. During 2014 the Internal Revenue Service issued final regulations related to the BPD fee, which had the effect of changing the recognition of the fee for accounting purposes, from the period in which the fee was paid, to the period when the sale occurs. As a result of these final regulations, we recognized an incremental BPD fee in 2014 for the periods 2013 through the end of the third quarter of 2014. The final regulations did not change the timing of payments.
Collaboration costs and expenses for 2014 compared to 2013 increased primarily due to the recognition of $53.9 million of additional BPD fee expense, as discussed above, as well as GAZYVA sales and marketing and research and development expenses. Upon the first marketing approval of GAZYVA by the FDA in the U.S., we began recognizing all activity, including sales and marketing and research and development expenses related to the GAZYVA program in unconsolidated joint business in our consolidated statements of income. Prior to its first regulatory approval, we recognized our share of GAZYVA development and commercialization expenses as research and development expense and selling, general and administrative expense, respectively, in our consolidated statements of RITUXAN.income.
We expect our share of RITUXAN pre-tax profits in the U.S. to decrease to 39% from 40% if GAZYVA is approved by the FDA in RITUXAN-refractory indolent non-Hodgkin’s lymphoma. For additional information related to thisour collaboration with Genentech, including information regarding the pre-tax co-promotion profit sharing formula for RITUXAN and its impact on future unconsolidated joint business revenues, please read Note 21,19, Collaborative and Other Relationships to our consolidated financial statements included in this report.
Revenues from unconsolidated joint business are summarized as follows:
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Biogen Idec's share of pre-tax co-promotion profits in the U.S. | $ | 1,031.7 |
| | $ | 872.7 |
| | $ | 848.0 |
| | 18.2 | % | | 2.9 | % |
| Reimbursement of our selling and development expenses in the U.S. | 1.6 |
| | 6.1 |
| | 58.3 |
| | (73.8 | )% | | (89.5 | )% |
| Revenue on sales of RITUXAN in the rest of world | 104.6 |
| | 117.8 |
| | 170.9 |
| | (11.2 | )% | | (31.1 | )% |
| Total unconsolidated joint business revenues | $ | 1,137.9 |
| | $ | 996.6 |
| | $ | 1,077.2 |
| | 14.2 | % | | (7.5 | )% |
Biogen Idec’s Share of Pre-tax Co-Promotion Profits in the U.S.
The following table provides a summary of amounts comprising our share of pre-tax co-promotion profits in the U.S.:
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Product revenues, net | $ | 3,131.8 |
| | $ | 2,924.5 |
| | $ | 2,759.2 |
| | 7.1 | % | | 6.0 | % |
| Cost and expenses | 543.7 |
| | 730.8 |
| | 626.8 |
| | (25.6 | )% | | 16.6 | % |
| Pre-tax co-promotion profits in the U.S. | $ | 2,588.1 |
| | $ | 2,193.7 |
| | $ | 2,132.4 |
| | 18.0 | % | | 2.9 | % |
| Biogen Idec's share of pre-tax co-promotion profits in the U.S. | $ | 1,031.7 |
| | $ | 872.7 |
| | $ | 848.0 |
| | 18.2 | % | | 2.9 | % |
For 2012 compared to 2011, as well as for 2011 compared to 2010, the increase in U.S. RITUXAN product revenues was primarily due to price increases and an increase in commercial demand. Increased commercial demand was approximately 3% and 4% in U.S. RITUXAN unit sales volume for 2012 and 2011, respectively, over the prior year comparative periods. The increase in demand was driven by numerous factors including a continued uptake in the rheumatoid arthritis and vasculitis indications.
Collaboration costs and expenses for 2012 compared to 2011 decreased primarily due to a decrease in sales and marketing expenses incurred by the collaboration and a decline in expenditures for the development of RITUXAN for use in other indications. For 2012 and 2011, we have increased our share of co-promotion profits in the U.S. by approximately $14.3 million and $12.0 million, respectively, to reflect our interpretation of a proposed rule within the 2010 healthcare reform legislation related to changes in the exclusion of orphan drugs under Section 340B of the Public Health Services Act. The cumulative amount of these adjustments is $26.3 million, which is reflected as an amount due from Genentech in our consolidated balance sheets and may be subject to adjustment when a final rule on the provisions of 340B is issued.
Collaboration cost and expenses for 2011 compared to 2010 were favorably impacted by Genentech assuming responsibility for the U.S. sales and marketing efforts for RITUXAN in the fourth quarter of 2010. The savings realized from the consolidation of the sales force in 2011 were offset by a charge of approximately $125.0 million recorded to the collaboration, representing Genentech's estimate of compensatory damages and interest that might be awarded to Hoechst GmbH (Hoechst), in relation to an intermediate decision by the arbitrator in Genentech’s ongoing arbitration with Hoechst. As a result of this charge to the collaboration, our share of RITUXAN revenues from unconsolidated joint business was reduced by approximately $50.0 million in the second quarter of 2011. This $50.0 million amount reflects our share of the estimate of the loss that we may incur in the event of a final arbitration award unfavorable to Genentech. The actual amount of our share of any damages may vary from this estimate depending on the nature or amount of any damages awarded to Hoechst. For additional information related to this matter, please read Note 22, Litigation to our consolidated financial statements included within this report.
In addition, total collaboration cost and expenses for 2011 was further negatively impacted by a fee which became payable in 2011 by all branded prescription drug manufacturers and importers. This fee is calculated based upon each organization’s percentage share of total branded prescription drug sales to qualifying U.S. government programs (such as Medicare, Medicaid and Veterans Administration (VA) and Public Health Service (PHS) discount programs). We have reduced our share of pre-tax co-promotion profits in the U.S. by approximately $15.0 million in 2012 and 2011 based upon Genentech's estimate of the fee that will be assessed to Genentech on qualifying sales of RITUXAN.
Under our collaboration agreement, our current pre-tax co-promotion profit-sharing formula, which resets annually, provides for a 40% share of pre-tax co-promotion profits if co-promotion operating profits exceed $50.0 million. For 2012, 2011, and 2010, the 40% threshold was met during the first quarter.
Reimbursement of Selling and Development Expense in the U.S.
In the fourth quarter of 2010, we and Genentech made an operational decision under which we eliminated our RITUXAN oncology and rheumatology sales force, with Genentech assuming responsibility for the U.S. sales and marketing efforts related to RITUXAN. As a result of this change, selling and development expense incurred by us in the U.S. and reimbursed by Genentech decreased for 2011 in comparison to 2010. As discussed in Note 21, Collaborative and Other Relationships to our consolidated financial statements included in this report, Genentech incurs the majority of continuing development costs for RITUXAN. Expenses incurred by Genentech in the development of RITUXAN are not recorded as research and development expense, but rather reduce our share of pre-tax co-promotion profits recorded as a component of unconsolidated joint business revenues.
For 2012 and 2011, amounts received in reimbursement of selling and development expenses in the U.S. were insignificant.
Revenue on Sales of RITUXAN in the Rest of World for RITUXAN
Revenue on sales of RITUXAN in the rest of world for RITUXAN consists of our share of pre-tax co-promotion profits on RITUXAN in Canada and royalty revenue on sales of RITUXAN outside the U.S. and Canada. For 20122015 compared to 2011,2014, revenue on sales of RITUXAN in the rest of world decreased due to the expirations of royalties on a country-by-country basis offset by a portion of the 2011 Hoechst charge, noted above, which was recorded as of June 30, 2011. For 2011 compared to 2010, revenue on sales of RITUXAN in the rest of world decreased due to the expirations of royalties on a country-by-country basis. In addition, revenue on sales of RITUXAN in the rest of world for 2010 were favorably impacted by receiptRITUXAN decreased as a result of $21.3 million representing the cumulative underpayment of past royalties owedlower pre-tax co-promotion profits on RITUXAN in Canada and patent expirations.
For 2014 compared to us2013, revenue on sales of RITUXAN in the rest of world.world for RITUXAN increased primarily due to the prior year recognition of a $41.2 million charge for damages and interest awarded to Hoechst in its arbitration with Genentech.
The royalty period for sales in the rest of world with respect to all products is 11 years from the first commercial sale of such product on a country-by-country basis. The royalty periods for substantially allthe substantial portion of the remaining royalty-bearing sales of RITUXAN in the rest of world markets expired during 2012. After 2012 weand 2013. We expect future revenue on sales of RITUXAN in the rest of world will primarily be limited to our share of pre-tax co-promotion profits in Canada.
Other Revenues
Other revenues are summarized as follows:
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Royalty revenues | $ | 168.7 |
| | $ | 158.5 |
| | $ | 137.4 |
| | 6.4 | % | | 15.4 | % |
| Corporate partner revenues | 43.8 |
| | 57.4 |
| | 31.7 |
| | (23.7 | )% | | 81.1 | % |
| Total other revenues | $ | 212.5 |
| | $ | 215.9 |
| | $ | 169.1 |
| | (1.6 | )% | | 27.7 | % |
Royalty Revenues
We receive royalties from net sales on products related to patents that we licensed. Ourhave out-licensed. Prior to 2015, our most significant source of royalty revenue ishad been derived from net worldwide sales of ANGIOMAX, which is licensedwas out-licensed to The Medicines Company (TMC). RoyaltyCompany. On December 15, 2014 we ceased recognizing royalty revenues from U.S. sales of ANGIOMAX, contemporaneous with the U.S. patent’s expiration.
For 2015 compared to 2014, royalty revenues decreased primarily due to the expiration of U.S. patent rights that gave rise to royalty payments related to ANGIOMAX.
For 2014 compared to 2013, royalty revenues decreased due to a decrease in the net worldwide sales of ANGIOMAX are recognized in an amount equalsubject to the level of net sales achieved during a calendar year multiplied by the royalty rate in effect for that tier under our agreement with TMC. The royalty rate increases based upon which tier of total net sales are earned in any calendar year. For 2012 compared to 2011, as well as for 2011 compared to 2010, the increase in royalty revenues reflects an increase in the net worldwide sales of ANGIOMAX. The increase in royalty revenues related to the sale of ANGIOMAX for 2011 compared to 2010 also reflects a $14.7 million adjustment recorded in the fourth quarter of 2011, as net sales levels for 2011 achieved a new royalty tier.
In March 2012, the U.S. Patent and Trademark Office granted the extension of the term of the principal U.S. patent that covers ANGIOMAX to December 15, 2014. Under the terms of our royalty arrangement for ANGIOMAX, TMC is obligated to pay us royalties earned, on a country-by-country basis, until the later of (1) twelve years from the date of the first commercial sale of ANGIOMAX in such country or (2) the date upon which the product is no longer covered by a licensed patent in such country. The annual royalty rate is reduced by a specified percentage in any country where the product is no longer covered by a licensed patent and where sales have been reduced to a certain volume-based market share. TMC began selling ANGIOMAX in the U.S. in January 2001.payments.
Corporate Partner Revenues
Our corporate partner revenues include amounts earned upon delivery of product under contract manufacturing agreements, including revenues related to our arrangementarrangements with Samsung BioLogics Co. Ltd. (Samsung Biologics)Bioepis and other strategic partners.
For 2015 compared to develop, manufacture and market biosimilar pharmaceuticals and supply agreement revenues covering products previously included within our product line that we have sold or exclusively licensed to third parties.
The decrease2014, the increase in corporate partner revenues for 2012was primarily due to higher contract manufacturing revenue and the start of product shipments to Sobi in relation to our collaboration agreement as Sobi has assumed final development and commercialization of ALPROLIX and ELOCTATE in Europe, North Africa, Russia, and certain markets in the Middle East.
For 2014 compared to 2011, as well as2013, the increase forin corporate partner revenues was primarily due to higher contract manufacturing revenue and increased revenue from our biosimilar arrangements, partially offset by lower revenue associated with our Zevalin supply agreement. Zevalin is a program we sold in 2007 but continued to manufacture in accordance with the amendment to our Zevalin supply agreement. We completed our manufacturing obligation under this amendment in the third quarter of 2014.
For additional information on our relationships with Samsung Bioepis and Sobi, please read Note 19, 2011Collaborative and Other Relationships compared to 2010, is primarily related to a one-time cash payment of approximately $11.0 million receivedour consolidated financial statements included in exchange for entering into an asset transfer agreement in March 2011.this report.
Reserves for Discounts and Allowances
Revenues from product sales are recorded net of applicable allowances for trade term discounts, wholesaler incentives, Medicaid rebates, VA and PHS discounts, managed care rebates, product returns,allowances and other governmental rebates or applicable allowances including those associated with the implementation of pricing actions in certain international markets where we operate.
Reserves established for these discounts and allowances are classified as reductions of accounts receivable (if the amount is payable to our direct customer) or a liability (if the amount is payable to a party other than our customer). These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Our estimates take into consideration our historical experience, current contractual and statutory requirements, specific known market events and trends, and forecasted customer buying and payment patterns. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which couldwill have an effect on earnings in same the period of adjustment. The estimates we make with respect to these allowances represent the most significant judgments with regard to revenue recognition.period. To date, such adjustments have not been significant.
Reserves for discounts, contractual adjustments and returns that reduced gross product revenues are summarized as follows:
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Discounts | $ | 113.5 |
| | $ | 96.0 |
| | $ | 77.9 |
| | 18.2 | % | | 23.2 | % |
| Contractual adjustments | 512.2 |
| | 346.4 |
| | 282.6 |
| | 47.9 | % | | 22.6 | % |
| Returns | 21.9 |
| | 14.8 |
| | 14.3 |
| | 48.0 | % | | 3.5 | % |
| Total allowances | $ | 647.6 |
| | $ | 457.2 |
| | $ | 374.8 |
| | 41.6 | % | | 22.0 | % |
| Gross product revenues | $ | 4,813.7 |
| | $ | 4,293.3 |
| | $ | 3,844.9 |
| | 12.1 | % | | 11.7 | % |
| Percent of gross product revenues | 13.5 | % | | 10.6 | % | | 9.7 | % | | | | |
58
Reserves for discounts and allowances increased in each of the past three years due to increased sales associated with launches of TECFIDERA, PLEGRIDY, ELOCTATE and ALPROLIX. In addition, we began recognizing reserves for discounts and allowances for U.S. TYSABRI revenue in the second quarter of 2013 following our acquisition of all remaining rights to TYSABRI from Elan.
Discount reservesDiscounts
Discounts include trade term discounts and wholesaler incentives.
For 20122015 compared to 2011,2014, the increase in discounts was primarily driven by wholesaler incentivesour recent product additions, gross price increases as a result of price increases. well as increases in contractual rates.
For 20112014 compared to 2010,2013, the increase in discounts was primarily driven by increases in trade term and volume discounts and wholesaler incentives as a result of price increases.our recent product additions.
Contractual adjustment reservesAdjustments
Contractual adjustments relate to Medicaid and managed care rebates, VA, PHSco-payment assistance (copay), Veterans Administration (VA), Public Health Service (PHS) discounts, specialty pharmacy program fees and other government rebates or applicable allowances.
For 20122015 compared to 2011, as well as for 2011 compared to 2010,2014, the increase in contractual adjustments was primarily due to our recent product additions, higher reserves for managed care and Medicaid and VA programs principally associated with higher rebates resulting from price increases as well as an increase inother governmental rebates and allowances in certainthe U.S., and managed care rebates as a result of an increase in contracted business and gross prices.
For 2014 compared to 2013, the international marketsincrease in which we operate. The amount of contractual adjustments was primarily due to our recent product additions, increases in managed care rebates, U.S. governmental rebates and allowances as a result of December 31, 2012 includes our price adjustments related to sales of FAMPYRA described above under the heading "Other Product Revenues".increases and additional managed care contracts.
Returns
43
Product return reserves are established for returns made by wholesalers. In accordance with contractual terms, wholesalers are permitted to return product for reasons such as damaged or expired product. The majority of wholesaler returns are due to product expiration. Reserves for product returns are recorded in the period the related revenue is recognized, resulting in a reduction to product sales.
For 20122015 compared to 2011,2014, return reserves decreased primarily due to a reduction in return rates based on recent experiences of returned products.
For 2014 compared to 2013, return reserves increased primarily due to returns associated with a voluntary withdrawalour acquisition of a limited amountall remaining rights to TYSABRI, the start of commercial sales of TECFIDERA and increased return rates for prior year AVONEX product in the first quarter of 2012 that demonstrated a trend in oxidation that may have ledshipments.
For additional information related to expiry earlier than stated on its label as well as price increases. Forour reserves, please read Note 4, 2011Reserves for Discounts and Allowances compared to 2010, return reserves remained relatively unchanged.our consolidated financial statements included in this report.
Cost and Expenses
A summary of total cost and expenses is as follows:
| | | | For the Years Ended December 31, | | % Change | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 | 2015 compared to 2014 | | 2014 compared to 2013 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 | |
| Cost of sales, excluding amortization of acquired intangible assets | $ | 545.5 |
| | $ | 466.8 |
| | $ | 400.3 |
| | 16.9 | % | | 16.6 | % | $ | 1,240.4 |
| | $ | 1,171.0 |
| | $ | 857.7 |
| | 5.9 | % | | 36.5 | % |
| Research and development | 1,334.9 |
| | 1,219.6 |
| | 1,248.6 |
| | 9.5 | % | | (2.3 | )% | 2,012.8 |
| | 1,893.4 |
| | 1,444.1 |
| | 6.3 | % | | 31.1 | % |
| Selling, general and administrative | 1,277.5 |
| | 1,056.1 |
| | 1,031.5 |
| | 21.0 | % | | 2.4 | % | 2,113.1 |
| | 2,232.3 |
| | 1,712.1 |
| | (5.3 | )% | | 30.4 | % |
| Amortization of acquired intangible assets | | 382.6 |
| | 489.8 |
| | 342.9 |
| | (21.9 | )% | | 42.8 | % |
| Restructuring charges | | 93.4 |
| | — |
| | — |
| | ** |
| | ** |
|
| Collaboration profit sharing | 317.9 |
| | 317.8 |
| | 258.1 |
| | — | % | | 23.1 | % | — |
| | — |
| | 85.4 |
| | ** |
| | (100.0 | )% |
| Amortization of acquired intangible assets | 202.2 |
| | 208.6 |
| | 208.9 |
| | (3.1 | )% | | (0.2 | )% | |
| Fair value adjustment of contingent consideration | 27.2 |
| | 36.1 |
| | — |
| | (24.7 | )% | | ** |
| |
| Restructuring charge | 2.2 |
| | 19.0 |
| | 75.2 |
| | (88.4 | )% | | (74.7 | )% | |
| Acquired in-process research and development | — |
| | — |
| | 245.0 |
| | — | % | | (100.0 | )% | |
| (Gain) loss on fair value remeasurement of contingent consideration | | 30.5 |
| | (38.9 | ) | | (0.5 | ) | | (178.4 | )% | | ** |
|
| Total cost and expenses | $ | 3,707.4 |
| | $ | 3,323.9 |
| | $ | 3,467.5 |
| | 11.5 | % | | (4.1 | )% | $ | 5,872.8 |
| | $ | 5,747.7 |
| | $ | 4,441.6 |
| | 2.2 | % | | 29.4 | % |
** Percentage not meaningful.
Cost of Sales, Excluding Amortization of Acquired Intangible Assets (Cost of Sales)
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Cost of sales, excluding amortization of acquired intangible assets | $ | 545.5 |
| | $ | 466.8 |
| | $ | 400.3 |
| | 16.9 | % | | 16.6 | % |
For 20122015 compared to 2011,2014, the increase in product cost of sales was primarily driven by increased contract manufacturing production and higher revenue fromunit sales volume of our coremarketed products, higher costs of the AVONEX PEN and increased funding related to the JCV antibody assay, nurse training fees, and our arrangement with Samsung Biologics.including newly launched products.
For 20112014 compared to 2010,2013, the increase in product cost of sales was driven by higher unit sales volumes,volume, including due to recent product launches and our contract and biosimilars manufacturing arrangements.
Inventory amounts written down as a result of excess, obsolescence, unmarketability or other reasons totaled $41.9 million, $50.6 million, and $47.3 million for the years ended December 31, 2015, 2014, and 2013, respectively.
Royalty Cost of Sales
For 2015 compared to 2014, the increase in royalty cost of sales was primarily driven by the increase in royalties due to Sobi on increased contract manufacturing and production costs,sales of our hemophilia products and an increase in amounts written downthe contractual rate of TYSABRI contingent payments due to Perrigo Company plc (Perrigo), which is based on the expected level of annual worldwide net sales of TYSABRI, partially offset by a decrease in TYSABRI revenues and the expiration of certain third-party royalties related to excess, obsolete, unmarketable, or other inventory. These increases wereTYSABRI. For additional information on the contingent payments due to Perrigo, please read Note 2, Acquisitions to our consolidated financial statements included in this report.
For 2014 compared to 2013, the increase in royalty cost of sales was primarily driven by our acquisition of all remaining rights to TYSABRI, partially offset by the saleexpiration of inventory produced under our high-titer production process. Cost of sales for 2011 also includes increased costs associated with AVONEX PEN, the JCV antibody assay, and sales of FAMPYRA, while cost of sales for 2010 included $6.7 million of period expensea third-party royalty related to the shutdown for capital upgrades of our manufacturing facility in AVONEX.
Research Triangle Park, North Carolina (RTP).and Development
Our products are subject to strict quality control and monitoring which we perform throughout the manufacturing process. Periodically, certain batches or units of product may no longer meet quality specifications or may expire. The expiry associated with our inventory is generally between 6 months and 5 years, depending on the product. Obsolescence due to expiration has historically been insignificant.
Inventory amounts written down related to excess, obsolete, unmarketable, or other are charged to cost of sales, and totaled $24.8 million, $25.4 million, and $11.8 million for the years ended December 31, 2012, 2011, and 2010, respectively.
Research and Development |
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Marketed products | $ | 128.2 |
| | $ | 111.0 |
| | $ | 109.0 |
| | 15.5 | % | | 1.8 | % |
| Late stage programs | 467.0 |
| | 428.1 |
| | 379.8 |
| | 9.1 | % | | 12.7 | % |
| Early stage programs | 90.7 |
| | 72.5 |
| | 98.5 |
| | 25.1 | % | | (26.4 | )% |
| Research and discovery | 94.6 |
| | 97.3 |
| | 134.0 |
| | (2.8 | )% | | (27.4 | )% |
| Other research and development costs | 479.0 |
| | 465.6 |
| | 458.4 |
| | 2.9 | % | | 1.6 | % |
| Milestone and upfront payments | 75.4 |
| | 45.1 |
| | 68.9 |
| | 67.2 | % | | (34.5 | )% |
| Total research and development | $ | 1,334.9 |
| | $ | 1,219.6 |
| | $ | 1,248.6 |
| | 9.5 | % | | (2.3 | )% |
Research and development expense incurred in support of our marketed products includes costs associated with product lifecycle management activities and,including, if applicable, costs associated with the development of new indications for existing products. Late stage programs are programs in Phase 3 development or in registration stage. Early stage programs are programs in Phase 1 or Phase 2 development. Research and discovery represents costs incurred to support our discovery research and translational science efforts. Other research and development costs consist of indirect costs incurred in support of overall research and development activities and non-specific programs, including activities that benefit multiple programs, such as management costs as well as depreciation and other facility-based expenses. Costs are reflected in the development stage based upon the program status when incurred. Therefore, the same program could be reflected in different development stages in the same year. For several of our programs, the research and development activities are part of our collaborative and other relationships. Our costs reflect our share of the total costs incurred.
For 20122015 compared to 2011,2014, the increase in research and development expense includeswas primarily related to increases in costs incurred in connection with our late and early stage programs additional investments in our marketed products, an increase in upfront and milestone payments, and costs related to reorganizing a group in our research and development function. discovery, partially offset by a decrease in milestone and upfront expenses and the positive impact of foreign currency translation of $34.0 million.
The increase in spending associated with our late stage product candidatesprograms for 2015 compared to 2014 was primarily driven by increased clinical trial activitycosts incurred to advance our aducanumab program for Alzheimer's disease and the nusinersen program for the treatment of SMA, partially offset by a decrease in costs related to ZINBRYTA, which is in registration stage, and the approvals of PLEGRIDY and ELOCTATE in 2014.
The increase in spending associated with our Factor VIII, dexpramipexole, and daclizumab product candidates as well asearly stage programs for 2015 compared to 2014 was primarily due to costs incurred in supportconnection with our aducanumab program for Alzheimer's disease, which advanced to a late stage program during the third quarter of commercial preparatory capabilities2015, the BAN2401 program for Alzheimer’s disease related to Factor VIII.
Atour collaboration with Eisai and our Raxatrigine program for trigeminal neuralgia (TGN). These increases were partially offset by a decrease in costs incurred in connection with the end of December 2012, we learned that a Phase 3 trial investigating dexpramipexole in people with amyotrophic lateral sclerosis (ALS) did not meet its primary endpoint and failed to show efficacy in its key secondary endpoints. Based on these results, we have discontinued development of dexpramipexole in ALS. Prior to our decision to discontinue dexpramipexole, we had started the R&D extensionnusinersen program ENVISION, and had entered into arrangements with certain suppliers for the purchasetreatment of raw materials andSMA as the supplyprogram advanced to a late stage program during the first quarter of drug product. These arrangements have been canceled. We have accrued approximately $12.3 million2015.
For 2014 compared to 2013, the increase in research and development expense as of December 31, 2012,was primarily related to those firm commitments to purchase R&D servicesincreases in costs incurred in connection with our early stage programs, milestone and inventory or to pay cancellation charges.upfront expenses, research and discovery and marketed products, partially offset by a decrease in costs incurred in connection with our late stage programs.
Research and development expense related to our early stage programs increased over the prior year comparative periodin 2014 compared to 2013 primarily due to costs incurred in the advancement of our Anti-TWEAKAnti-LINGO program in lupus nephritis,MS, our BIIB037aducanumab program for Alzheimer’s disease, our Neublastinthe BAN2401 program for neuropathic pain,Alzheimer’s disease related to our collaboration agreement with Eisai and an increase in spending incurred in connection with our collaboration and license agreement with Portola Pharmaceuticals, Inc. for the development of the Syk inhibitor molecule and development of STX-100 for the treatment of idiopathic pulmonary fibrosis following our recent acquisition of Stromedix, Inc.fibrosis.
Research and development expense for 2011The increase in spending associated with marketed products in 2014 compared to 2010, reflects our efforts to allocate resources within our research and development organization consistent with our restructuring initiative, which2013 is described under the heading Restructuring Charge, and resulted in a reduction in spending related to certain programsALPROLIX, ELOCTATE and PLEGRIDY, which were terminated or areapproved in the process of being discontinued. These decreases were offset by research2014, and development costs associated with initiativesTYSABRI, which previously were shared with Elan prior to grow our business, which included increased clinical trial activity for certainacquisition of all remaining rights to TYSABRI from Elan in April 2013.
The decrease in spending associated with our late stage product candidates such as dexpramipexole, Factor VIII, Factor IX, and Peginterferon. Research and development expense for 2011in 2014 compared to 2010, also reflects a reduction2013 was driven by approvals of ALPROLIX, ELOCTATE and PLEGRIDY in milestone2014 and upfront payments recognized within research andGAZYVA in the fourth quarter of 2013, partially offset by costs incurred in the development expense.of nusinersen for the treatment of SMA.
We intend to continue committing significant resources to targeted research and development opportunities where there is a significant unmet need and where the drug candidate has the potential to be highly differentiated. Specifically, we intend to continue to invest in bringing forward our MS pipeline, our aducanumab program, the BAN2401 and in pursuing additional therapies for autoimmune disorders, neurodegenerative diseasesE2609 programs, the nusinersen program, the amiselimod program and hemophilia as well as make investments to enhance our early-stage pipeline.Raxatrigine program.
Milestone and Upfront PaymentsExpenses included in Research and Development Expense
Research and development expense for 2015 includes $60.0 million recorded upon entering into our collaboration with MTPC, $48.1 million recorded upon entering into our collaboration with AGTC, $30.0 million recorded as milestones in relation to our collaboration agreements with Ionis and $16.0 million paid to AbbVie related to milestones for the development of ZINBRYTA as a result of filing with the FDA and EMA during the year. For additional information about these transactions, please read Note 19, Collaborative and Other Relationships to our consolidated financial statements included in this report.
Research and development expense for 2014 includes $139.3 million recorded in connection with our collaboration agreement with Eisai, $25.0 million recorded as milestones in relation to our collaboration agreements with Ionis and an aggregate of $60.0 million related to upfront payments made to Sangamo and Google Inc. and for other strategic business arrangements.
Included in total research and development expense in 2012 are2013 were charges totaling $71.0of $75.0 million related to upfront payments made to Isis Pharmaceuticals, Inc. (Isis) in January, June and December 2012 upon entering into three separate agreements for the development of Isis’ antisense investigational drug ISIS-SMNRx for the treatment of spinal muscular atrophy (SMA), product candidates related to the treatment of mytonic dystrophy (DM1), and antisense therapeutics for up to three gene targets, respectively. Research and development expense in 2011 included a charge of $36.8 million related to an upfront payment made to Ionis in connectionSeptember 2013 upon entering into a six year research collaboration with our collaborationIonis under which we both agreed to perform research and licensethen seek to develop and commercialize antisense or other therapeutics for the treatment of neurological disorders, $36.0 million related to upfront and milestone payments made to Samsung Bioepis in December 2013 upon entering into a development and commercialization agreement entered into with Portola Pharmaceuticals, Inc. Researchand a $10.0 million milestone payment made to Ionis related to the selection and advancement of IONIS-DMPKRxto treat mytonic dystrophy (DM1).
These payments are classified as research and development expense for 2010 includedas the $26.4 million upfront payment madeprograms they relate to Knopp Neurosciences, Inc. (Knopp), which became payable to Knopp upon our entering a license agreement for dexpramipexole as well as a $30.0 million milestone paid to AbbVie Biotherapeutics, Inc. upon initiation of patient enrollment in a Phase 3 trial of daclizumab in relapsing MS.have not achieved regulatory approval.
Selling, General and Administrative
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Selling, general and administrative | $ | 1,277.5 |
| | $ | 1,056.1 |
| | $ | 1,031.5 |
| | 21.0 | % | | 2.4 | % |
For 20122015 compared to 2011,2014, the decrease in selling, general and administrative expenses was driven by a decrease in corporate giving, incentive compensation and the positive impact of foreign currency translation of $87.6 million, partially offset by an increase of $38.9 million of BPD fee expense.
For 2014 compared to 2013, the increase in selling, general and administrative expenseexpenses was primarily driven by costs associated with developing commercial capabilities in preparation for the potentialour recent product launches of TECFIDERA, Factor VIII and Factor IX, an increase in costs associated2014 along with the development of our sales force and promotional spending in support of FAMPYRA, an increase in sales and marketing activities in support of AVONEX and TYSABRI, and an increase in grant and sponsorship activity.our MS products. The successful commercialization of FAMPYRAnew and potential new products requirerequires significant investments.investments, such as sales force build and
development, training, marketing, and other related activities. The increase in selling, general, and administrative expense was offsetalso driven by the positive impact of foreign currency exchange rates.
For 2011 compared to 2010, thean increase in selling, generalcorporate giving and administrative expenses was primarily duethe recognition of $21.9 million of additional BPD fee expense.
Amortization of Acquired Intangible Assets
Our amortization expense is based on the economic consumption of intangible assets. Our most significant intangible assets are related to initiatives to grow our business, the negative impactAVONEX and TYSABRI products. Annually, during our long-range planning cycle, we perform an analysis of foreign currency exchange rates and increased sales and marketing activities in supportanticipated lifetime revenues of AVONEX and TYSABRI, as well as costs incurredTYSABRI. This analysis is also updated whenever events or changes in supportcircumstances would significantly affect the anticipated lifetime revenues of either product.
For 2015 compared to 2014, the potential launchdecrease in amortization of TECFIDERA, offsetacquired intangible assets was primarily driven by a decrease in grantAVONEX revenues during the comparative periods and sponsorship activitythe impact of higher expected lifetime revenues of AVONEX due to a slower than previously expected adoption of PLEGRIDY. Amortization of acquired intangible assets during 2014 included total impairment charges of $50.9 million related to one of our out-licensed patents and savings realizedone of our in-process research and development (IPR&D) intangible assets.
For 2014 compared to 2013, the change in amortization of acquired intangible assets was primarily driven by a $60.2 million increase in amortization of acquired and in-licensed rights and patents as we recognized a full year of expense related to our TYSABRI rights in 2014 versus nine months of expense in 2013, total impairment charges of $50.9 million related to one of our out-licensed patents and one of our IPR&D intangible assets, and lower expected lifetime revenues of AVONEX.
Our most recent long range planning cycle was completed in the third quarter of 2015. Based upon this analysis,the estimated future amortization of acquired intangible assets is expected to be as follows:
|
| | | |
| (In millions) | As of December 31, 2015 |
| 2016 | $ | 346.4 |
|
| 2017 | 318.6 |
|
| 2018 | 291.0 |
|
| 2019 | 275.1 |
|
| 2020 | 269.1 |
|
| Total | $ | 1,500.2 |
|
We monitor events and expectations regarding product performance. If new information indicates that the assumptions underlying our most recent analysis are substantially different than those utilized in our current estimates, our analysis would be updated and may result in a significant change in the anticipated lifetime revenues of the relevant process. The occurrence of an adverse event could substantially increase the amount of amortization expense associated with our acquired intangible assets as compared to previous periods or our current expectations, which may result in a significant negative impact on our future results of operations.
For additional information related to the amortization of acquired intangible assets, please read Note 6, Intangible Assets and Goodwill to our consolidated financial statements included in this report.
Impairment of Intangible Assets
We record charges associated with impairments of intangible assets in amortization of intangible assets. Impairment charges related to our intangible assets during 2015 and 2013 were insignificant.
During 2014, we recorded a charge of $34.7 million related to the impairment of one of our out-licensed patents to reflect a change in its estimated fair value, due to a change in the underlying competitive market for that product.
During 2014, we updated the probabilities of success related to the early stage programs acquired through our restructuring initiatives, which are described underrecent acquisitions. This change in probability of success, combined with a delay in one of the headingprojects, resulted in an impairment loss of $16.2 million.
For additional information, please read Note 6, Restructuring ChargeIntangible Assets and Goodwill. Selling, general to our consolidated financial statements included in this report.
IPR&D
Overall, the value of our acquired IPR&D assets is dependent upon a number of variables, including estimates of future revenues and administrative expenses for 2010 also included incremental charges totaling $18.6 million, which were recognized in relationthe effects of competition, the level of anticipated development costs and the probability and timing of successfully advancing a particular research program from a clinical trial phase to the modificationnext. We are continually reevaluating our estimates concerning these variables and evaluating industry data regarding the productivity of clinical research and the development process. Changes in our estimates of items may result in a significant change to our valuation of these assets.
The field of developing treatments for idiopathic pulmonary fibrosis (IPF) and neuropathic pain, such as TGN, are highly competitive and can be affected by rapid changes to the market. There can be no assurance that we will be able to successfully develop STX-100 for the treatment of IPF or Raxatrigine for the treatment of TGN or that a successfully developed therapy will be able to secure sufficient pricing in a competitive market. We review amounts capitalized as acquired IPR&D for impairment at least annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of the equity based compensationassets might not be recoverable. Our most recent impairment assessment as of October 31, 2015 resulted in no impairments.
Restructuring Charges
On October 21, 2015, we announced a corporate restructuring, which includes the termination of certain pipeline programs and an 11% reduction in workforce. These changes are expected to reduce the current annual run rate of operating expenses by approximately $250 million.
We expect to reinvest the savings resulting from the restructuring to support the advancement of our former Chief Executive Officer.high potential pipeline candidates, including our programs in Alzheimer’s disease, Anti-LINGO for MS, nusinersen
for SMA, Raxatrigine and amiselimod, an oral S1P modulator, and to support key commercial activities, including TECFIDERA. We remain focused on preparingalso have discontinued several programs, including our Phase 3 program for multiple potential product launchesTECFIDERA in the coming years. As discussed above, we continue to invest insecondary progressive MS (SPMS), the development of commercial capabilitiesanti-TWEAK in supportlupus nephritis, and certain activities in immunology and fibrosis research.
We anticipate making cash payments totaling approximately $120 million under this program, which includes approximately $15.9 million related to previously accrued 2015 incentive compensation, for a total net expected restructuring charge of our TECFIDERA program with$105 million. These amounts will be substantially incurred and paid by the expectationend of a U.S. launch in2016.
We recognized $93.4 million of these charges during the secondfourth quarter of 2013. We also have begun2015, of which $86.2 million was related to make investments inour workforce reduction and $7.2 million was related to the developmentpipeline program terminations.
The following table summarizes the charges and spending related to our restructuring efforts during 2015:
|
| | | | | | | | | | | |
| (In millions) | Workforce Reduction | | Pipeline Programs | | Total |
| Restructuring charges incurred during the fourth quarter of 2015 | $ | 86.2 |
| | $ | 7.2 |
| | $ | 93.4 |
|
| Previously accrued incentive compensation | 15.9 |
| | — |
| | 15.9 |
|
| Reserves established | 102.1 |
| | 7.2 |
| | 109.3 |
|
| Amounts paid through December 31, 2015 | (68.4 | ) | | (3.6 | ) | | (72.0 | ) |
| Restructuring reserve as of December 31, 2015 | $ | 33.7 |
| | $ | 3.6 |
| | $ | 37.3 |
|
Collaboration Profit Sharing
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Collaboration profit sharing | $ | 317.9 |
| | $ | 317.8 |
| | $ | 258.1 |
| | — | % | | 23.1 | % |
Upon the closing of our acquisition of all remaining rights to TYSABRI, our collaboration agreement with Elan was terminated, and we no longer record collaboration profit sharing. Collaboration profit sharing includespreviously included the portion of rest of world net operating profits to be shared with Elan under the terms of our collaboration agreement for the development, manufacture and commercialization of TYSABRI. The amount also includesincluded the reimbursement for our portion of third-party royalties paid by Elan on behalf of the collaboration relating to rest of world sales. For 2012 compared to 2011, collaboration profit sharing expense was consistent as a portion of our revenues recognized on sales of TYSABRI in Italy were deferred, as discussed under the heading Product Revenues - TYSABRI, resulting in rest of world net operating profits being lower, offset by unit volume revenue growth. For 2011 compared to 2010, the increase in collaboration profit sharing expense was due to an increase in TYSABRI rest of world sales resulting in higher rest of world net operating profits to be shared with Elan and resulting in growth in the third-party royalties Elan paid on behalf of the collaboration. For 2012, 2011, and 2010, our collaboration profit sharing expense included $53.2 million, $55.5 million and $45.5 million related to the reimbursement of third-party royalty payments made by Elan, which start to expire in 2013. For additional information about this collaboration, please read Note 21,19, Collaborative and Other Relationships to our consolidated financial statements included in this report.
46
Amortization of Acquired Intangible Assets
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Amortization of acquired intangible assets | $ | 202.2 |
| | $ | 208.6 |
| | $ | 208.9 |
| | (3.1 | )% | | (0.2 | )% |
For 2012 compared to 2011, as well as for 2011 compared to 2010, the change in amortization of acquired intangible assets is primarily driven by the amount of amortization recorded in relation to our AVONEX core technology asset.
AVONEX Core Technology Asset
Our most significant intangible asset is the core technology related to our AVONEX product. Our amortization policy reflects our belief that the economic benefit of our core technology is consumed as revenue is generated from our AVONEX product. We refer to this amortization methodology as the economic consumption model. An analysis of the anticipated lifetime revenues of AVONEX is performed annually during our long range planning cycle which is completed in the third quarter of each year, and this analysis serves as the basis for the calculation of our economic consumption model.
Amortization recorded for the first and second quarters of 2010 was recorded based upon the results of the 2009 analysis. Amortization recorded in the third and fourth quarters of 2010 and the first two quarters of 2011 was recorded based upon the results of our 2010 analysis, which did not result in a significant change in the expected lifetime revenues of AVONEX from the 2009 analysis.
The results of our 2011 analysis reflected an increase in the expected lifetime revenue of AVONEX. This increase in the expected lifetime revenues of AVONEX was primarily attributable to changes in expected impact of competitor products. As a result, amortization recorded for the third and fourth quarters of 2011 and the first two quarters of 2012 decreased from those amounts recorded in the previous four quarters.
Our most recent long range planning cycle was completed in the third quarter of 2012, which reflected a small decrease in the expected lifetime revenue of AVONEX. Based upon this analysis, amortization recorded in relation to our core intangible asset for the third and fourth quarters of 2012 increased in comparison to amounts recorded in the first half of 2012.
The estimated future amortization of our core intangible asset related to AVONEX is expected to be as follows:
|
| | | |
| (In millions) | As of December 31, 2012 |
| 2013 | $ | 162.7 |
|
| 2014 | 141.4 |
|
| 2015 | 123.7 |
|
| 2016 | 103.8 |
|
| 2017 | 87.2 |
|
| Total | $ | 618.8 |
|
We monitor events and expectations regarding product performance. If there are any indications that the assumptions underlying our most recent analysis would be different than those utilized within our current estimates, our analysis would be updated and may result in a significant change in the anticipated lifetime revenue of AVONEX determined during our most recent annual review.
(Gain) Loss on Fair Value AdjustmentRemeasurement of Contingent Consideration
|
| | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Fair value adjustment of contingent consideration | $ | 27.2 |
| | $ | 36.1 |
| | $ | — |
| | (24.7 | )% | | ** |
The consideration for certain of our acquisitionsbusiness combinations includes future payments that are contingent upon the occurrence of a particular factor or factors. For acquisitions completed after January 1, 2009, weWe record a contingent considerationan obligation for such contingent consideration payments at its fair value on the acquisition date. We then revalue our acquisition-related contingent consideration obligations each reporting period. Changes in the fair value of our contingent consideration obligations, other than changes due to payments, are recognized as a (gain) loss on fair value adjustmentremeasurement of contingent consideration withinin our consolidated statements of income.
In connection with our acquisitionThe loss on fair value remeasurement of Stromedix, Inc. in March 2012, we recorded a contingent consideration obligation of $122.2 million. The fair value of this contingent consideration obligation as of December 31, 2012 was $135.3 million. The increase in the fair value of this obligation of $13.1 million since the acquisition datefor 2015 was primarily due to changes in the discount rateexpected timing and in the probability and expected timingprobabilities of success related to the achievement of certain developmental milestones.
Upon completion of our purchase of the noncontrolling interest in our joint venture investments in Biogen Dompé SRL and Biogen Dompé Switzerland GmbH in September 2011, we recorded a contingent consideration obligation of $38.8 million. The fair value of this contingent consideration obligation as of December 31, 2012 and 2011 was $29.8 million and $31.9 million, respectively. The decrease in the fair value of this obligation of $9.0 million since the acquisition date was primarily due to changes in the probability and expected timing related to the achievement of certain cumulative sales-based and developmental milestones and in the discount rate as well as the payment of a $4.0 million developmental milestone.rate.
In connection with our acquisitionThe gain on fair value remeasurement of Biogen Idec International Neuroscience GmbH (BIN), formerly Panima Pharmaceuticals AG (Panima), in December 2010, we recorded a contingent consideration obligation of $81.2 million. The fair value of this contingent consideration obligation as of December 31, 2012 and 2011 was $128.8 million and $119.1 million, respectively. The increase in the fair value of this obligation of $47.6 million since the acquisition datefor 2014 was primarily due to changes inan adjustment to the discount rate and invalue of our contingent consideration liabilities as we updated the probability and expected timingprobabilities of success related to the achievement of certain remaining developmental milestones, offset by payments of $7.5 million in developmental milestones.
Restructuring Charge
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Restructuring charge | $ | 2.2 |
| | $ | 19.0 |
| | $ | 75.2 |
| | (88.4 | )% | | (74.7 | )% |
In November 2010, we announced a number of strategic, operational, and organizational initiatives designed to provide a framework for the future growth ofearly stage programs acquired through our business and realign our overall structure to become a more efficient and cost effective organization. As part of this initiative:
We out-licensed or terminated certain research and development programs, including those in oncology and cardiovascular medicine, that are no longer a strategic fit for us.
We completed a 13% reduction in workforce spanning our sales, research and development, and administrative functions.
We vacated and recognized the sale of the San Diego, California facility as well as consolidated certain of our Massachusetts facilities.
As a result of these initiatives, we realized annual operating expense savings of which the substantial majority have been realized within research and development and selling, general and administrative expense. These savings were offset by costs associated with initiatives to grow our business. We have also increased our workforce to support our growth initiatives, including efforts to bring forward our late stage pipeline.
Costs associated with our workforce reduction primarily related to employee severance and benefits. Facility consolidation costs are primarily comprised of charges associated with closing these facilities, related lease obligations and additional depreciation recognized when the expected useful lives of certain assets have been shortened due to the consolidation and closing of related facilities and the discontinuation of certain research and development programs. As of December 31, 2012, substantially all restructuring charges have been incurred and paid.
The following table summarizes the activity of our restructuring liability:
|
| | | | | | | | | | | |
| (In millions) | Workforce Reduction | | Facility Consolidation | | Total |
| Restructuring reserve as of December 31, 2010 | $ | 60.6 |
| | $ | 5.8 |
| | $ | 66.4 |
|
| Expense | 15.8 |
| | 2.4 |
| | 18.2 |
|
| Payments | (81.8 | ) | | (3.9 | ) | | (85.7 | ) |
| Adjustments to previous estimates, net | (2.9 | ) | | — |
| | (2.9 | ) |
| Other adjustments | 8.6 |
| | (3.2 | ) | | 5.4 |
|
| Restructuring reserve as of December 31, 2011 | $ | 0.3 |
| | $ | 1.1 |
| | $ | 1.4 |
|
| Payments | (0.3 | ) | | (1.1 | ) | | (1.4 | ) |
| Restructuring reserve as of December 31, 2012 | $ | — |
| | $ | — |
| | $ | — |
|
Acquired In-process Research and Development (IPR&D)
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Acquired in-process research and development | $ | — |
| | $ | — |
| | $ | 245.0 |
| | — | % | | (100.0 | )% |
In August 2010, we entered into a license agreement with Knopp for the development, manufacture and commercialization of dexpramipexole. We have since discontinued development of dexpramipexole. As we determined that we were the primary beneficiary of this relationship, we consolidated the results of Knopp and recorded an IPR&D charge of approximately $205.0 million upon initial consolidation within our consolidated statements of income for 2010. We attributed approximately $145.0 million of the total IPR&D charge to the noncontrolling interest, representing the noncontrolling interest’s ownership interest in the equity of Knopp.recent acquisitions. For additional information, related to this transaction, please read Note 20,7, Investments in Variable Interest EntitiesFair Value Measurements to our consolidated financial statements included in this report.
In connection with our acquisition of Biogen Idec Hemophilia Inc., formerly Syntonix Pharmaceuticals, Inc. (Syntonix), in January 2007, we agreed to make additional payments based upon the achievement of certain milestone events. One of these milestones was achieved when, in January 2010, we initiated patient enrollment in a registrational trial of Factor IX in hemophilia B. As a result of the achievement of this milestone we paid approximately $40.0 million to the former shareholders of Syntonix, which was reflected as a charge to acquired IPR&D within our consolidated statement of income for 2010.
Gain on Sale of Rights
|
| | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Gain on sale of rights | $ | 46.8 |
| | $ | — |
| | $ | — |
| | ** | | — | % |
During the third quarter of 2012, we sold all of our rights, including rights to royalties, related to BENLYSTA (belimumab) to a DRI Capital managed fund (DRI). We were entitled to these rights pursuant to a license agreement with Human Genome Sciences, Inc. and GlaxoSmithKline plc. For additional information related to this transaction, please read Note 4, Gain on Sale of Rights to our consolidated financial statements included in this report.
Other Income (Expense), Net
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Other income (expense), net | $ | (0.7 | ) | | $ | (13.5 | ) | | $ | (19.0 | ) | | (94.8 | )% | | (28.9 | )% |
For 20122015 compared to 2011,2014, the change in other income (expense), net was primarily due to an increase in interest income due to accelerationexpense as a result of interest imputed on originally discounted accounts receivables during the second quarterissuance of 2012, which were collected in Spain in advance of original estimates, offset by an increase in interest expense due toour senior unsecured notes (2015 Senior Notes), higher foreign exchange losses and a decrease in the amount of capitalized interest. Other income (expense), net in 2012 includes a gain of $9.0 milliongains recognized upon our acquisition of Stromedix in March 2012, which was based on the value derived from the purchase price of our equity interest held in Stromedix prior to the acquisition. The amount in 2011 includes a gain of $13.8 million on the sale of stock from our strategic investments portfolio that was deemed no longer strategic.
For 2011 compared to 2010, the change in other income (expense), net was primarily due to a decrease in interest expense driven by an increase in the amount of capitalized interest and a decrease in losses recognized in our strategic investment portfolio offset by a decrease in interest income due to lower interest yields on cash, cash equivalents, and marketable securities offset by an increase in average cash balances.
securities. For additional information, related to our strategic investments, please read Note 10,17, Other Consolidated Financial InstrumentsStatement Detail, to our consolidated financial statements included in this report.
For 2014 compared to 2013, the change in other income (expense), net was due to lower non-income based state taxes, an increase in interest income due to higher average cash, cash equivalents and marketable securities balances, lower foreign exchange losses and decreased interest expense as we repaid our 6.0% Senior Notes in March 2013, partially offset by lower gains on investments.
We expect interest expense will continue to increase as a result of our issuance of the 2015 Senior Notes. For additional information related to our 2015 Senior Notes, please read Note 11, Indebtedness, to our consolidated financial statements included in this report.
Income Tax Provision
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Effective tax rate on pre-tax income | 25.4 | % | | 26.0 | % | | 26.9 | % | | (2.3 | )% | | (3.3 | )% |
| Income tax expense | $ | 470.6 |
| | $ | 444.5 |
| | $ | 331.3 |
| | 5.9 | % | | 34.2 | % |
Our effective tax rate fluctuates from year to year due to the global nature of our operations. The factors that most significantly impact our effective tax rate include variability in the allocation of our taxable earnings among multiple jurisdictions, changes in tax laws, the amount and characterization of our research and development expenses, the levels of certain deductions and credits, acquisitions, and licensing transactions.
Our effective tax rate for 2015 compared to 2014 benefited from lower anticipated taxes on foreign earnings and reflects a $27.0 million benefit from the 2015 remeasurement of one of our uncertain tax positions, described below.
Our effective tax rate for 20122014 compared to 2011 decreased2013 increased primarily as a result of higher orphan drug credits forthe absence of a benefit related to the 2013 change in our Factor VIII, STX-100, dexpramipexole and other orphan credit eligible clinical trials, the cessation of certain intercompany royalties owed by a foreign wholly owned subsidiary to a U.S. wholly owned subsidiary on the international sales of one of our products and higher deductionsuncertain tax position related to our U.S. federal manufacturing activities. These decreases were partially offset by the correction of an error which had accumulated over several yearsdeduction and our unconsolidated joint business described below under "Accounting for Uncertainty in our deferred tax accounting for capitalized interest which resulted in an expense of Income Taxes"$29.0 million.
Our effective tax rate for 2011 compared to 2010 decreased primarily due to our 2010 license and collaboration agreement with Knopp, which negatively impacted our 2010 effective tax rate due to the attribution to noncontrolling interest of $145.0 million of the associated IPR&D charge. Because the attributed amount was not an expense for tax purposes, our tax rate was unfavorably impacted by 2.8 percentage points. In addition, during 2011, we experienced an increase in research and development expenditures, lower current year expenses eligible for the orphan drug credit and a lower effective state tax rate resulting from a change in state law and the settlement of outstanding matters relatedrelative manufacturing deduction due to state and federal audits. These favorable items wereunqualified products, partially offset by a higher percentage of our 2011 profits2014 income being earned outside the U.S.
Accounting for Uncertainty in higherIncome Taxes
During 2013, we received updated technical guidance from the IRS concerning the calculation of our U.S. federal manufacturing deduction and overall tax classification of our unconsolidated joint business for the current and prior year filings. Based on this guidance we reevaluated the level of our unrecognized benefits related to uncertain tax positions and recorded a $49.8 million income tax benefit. This benefit was for a previously unrecognized position and related to years 2005 through 2012. We recorded an offsetting expense of $11.3 million for non-income based state taxes, which was recorded in other income (expense) in our consolidated statements of income. This uncertain tax position was then remeasured in 2015 resulting in a $27.0 million benefit related to the state tax impacts of the IRS technical guidance.
For more information on our uncertain tax positions and income tax rate jurisdictions, principally the U.S.,reconciliation for 2015, 2014 and a non-deductible charge for contingent consideration associated with the acquisition of Panima.
For additional information related to income taxes for 2012, 2011 and 2010,2013, please read Note 18,16, Income Taxes to our consolidated financial statements included in this report.
Share in Equity in Loss of Investee, Net of Tax
|
| | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Equity in loss of investee, net of tax | $ | 4.5 |
| | $ | — |
| | $ | — |
| | ** | | — | % |
In February 2012, we finalizedentered into an agreement with Samsung BioLogics that establishedBiologics, establishing an entity, Samsung Bioepis, to develop, manufacture and market biosimilar pharmaceuticals. We account for this investment under the equity method of accounting. We recognize our share of the results of operations related to our investment in Samsung Bioepis one quarter in arrears.
During 2015, our share of losses exceeded the carrying value of our investment. We suspended recognizing additional losses and will continue to do so unless we commit to providing additional funding.
For 2015 compared to 2014, the decrease in our equity in loss of investee, net of tax, was due to the suspension of equity method investment losses due to our share of losses exceeding the carrying value of our investment in 2015 and a decrease in our ownership interest.
For 2014 compared to 2013, the decrease in equity in loss of investee, net of tax was due to the joint venture's clinical trial activity, partially offset by our recognition of a gain as Samsung Bioepis secured additional equity financing from Samsung Biologics from a financing in which we did participate.
For additional information related to this transaction, please read Note 21,19, Collaborative and Other Relationships to our consolidated financial statements included in this report.
Noncontrolling Interest
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | |
| Net income (loss) attributable to noncontrolling interests, net of tax | $ | — |
| | $ | 32.3 |
| | $ | (106.7 | ) | | (100.0 | )% | | (130.3 | )% |
For 20122015 compared to 20112014, the change in net income (loss) attributable to noncontrolling interests, net of tax, was primarily related to a $60.0 million milestone payment made to Neurimmune SubOne AG (Neurimmune), partially offset by increases in research expenses attributable to noncontrolling interests.
For 2014 compared to 2013, the change in net income attributable to noncontrolling interests, net of tax, reflectswas related to a reduction$10.0 million milestone payment made to Neurimmune and the consolidation of the research activities of Ataxion, Inc.
For additional information about Neurimmune, please read Note 18, Investments in earnings from our foreign joint ventures dueVariable Interest Entities to our purchaseconsolidated financial statements included in this report.
Financial Condition, Liquidity and Capital Resources
Our financial condition is summarized as follows:
|
| | | | | | | | | | |
| | As of December 31, | | % Change |
| (In millions, except percentages) | 2015 | | 2014 | | 2015 compared to 2014 |
| Financial assets: | | | | | |
| Cash and cash equivalents | $ | 1,308.0 |
| | $ | 1,204.9 |
| | 8.6 | % |
| Marketable securities — current | 2,120.5 |
| | 640.5 |
| | 231.1 | % |
| Marketable securities — non-current | 2,760.4 |
| | 1,470.7 |
| | 87.7 | % |
| Total cash, cash equivalents and marketable securities | $ | 6,188.9 |
| | $ | 3,316.0 |
| | 86.6 | % |
| Borrowings: | | | | | |
| Current portion of notes payable and other financing arrangements | $ | 4.8 |
| | $ | 3.1 |
| | 54.8 | % |
| Notes payable and other financing arrangements | 6,521.5 |
| | 580.3 |
| | ** |
|
| Total borrowings | $ | 6,526.3 |
| | $ | 583.4 |
| | ** |
|
| Working Capital: | | | | | |
| Current assets | $ | 6,700.3 |
| | $ | 4,535.0 |
| | 47.7 | % |
| Current liabilities | (2,577.7 | ) | | (2,218.1 | ) | | 16.2 | % |
| Total working capital | $ | 4,122.6 |
| | $ | 2,316.9 |
| | 77.9 | % |
** Percentage not meaningful.
For the noncontrolling interestyear ended December 31, 2015, certain significant cash flows were as follows:
$5,930.5 million in proceeds from the issuance of our joint venture investments described below. Amounts recognized during 2011 also reflect the attribution of a 2015 Senior Notes;
$10.03,716.1 million in net cash flows provided by operating activities;
$5.0 billion used for share repurchases;
$1,674.8 million in total payments for income taxes;
$850.0 million in contingent payments made to former shareholders of Fumapharm AG and holders of their rights;
$643.0 million used for purchases of property, plant and equipment, including $104.8 million related to the acquisition of Eisai's drug product manufacturing facility in Research Triangle Park (RTP), North Carolina and $62.5 million related to the acquisition of land in Solothurn, Switzerland;
$198.8 million net cash paid for the acquisition of Convergence;
$184.0 million used for upfront payments made to AGTC and MTPC; and
$60.0 million milestone payment made to Knopp upon dosingNeurimmune.
For the first patientyear ended December 31, 2014, certain significant cash flows were as follows:
$2,942.1 million in a registrational studynet cash flows provided by operating activities;
$1,163.2 million in total payments for dexpramipexoleincome taxes;
$886.8 million used for share repurchases;
$375.0 million in contingent payments made to former shareholders of Fumapharm AG and holders of their rights;
$287.8 million used for purchases of property, plant and equipment; and
$286.3 million used for upfront and milestone payments in collaborative arrangements.
Overview
We have historically financed our operating and capital expenditures primarily through cash flows earned through our operations. On September 15, 2015, we issued our 2015 Senior Notes for an aggregate principal amount of $6.0 billion. We expect to continue funding our current and planned operating requirements principally through our cash flows from operations, as well as the attribution of a $15.0 millionour existing cash resources and proceeds received from our 2015 Senior Notes. We believe that our existing funds, when combined with cash generated from operations and our access to additional financing resources, if needed, are sufficient to satisfy our operating, working capital, strategic alliance, milestone payment, capital expenditure and debt service requirements for the foreseeable future. In addition, we may choose to Neurimmune uponopportunistically return cash to shareholders and pursue other business initiatives, including acquisition and licensing activities. We may, from time to time, also seek additional funding through a combination of new collaborative agreements, strategic alliances and additional equity and debt financings or from other sources should we identify a significant new opportunity.
The undistributed cumulative foreign earnings of certain of our submissionforeign subsidiaries, exclusive of earnings that would result in little or no net income tax expense under current U.S. tax law or which has already been subject to tax under U.S. tax law, are invested indefinitely outside the U.S.
Of the total cash, cash equivalents and marketable securities at December 31, 2015, approximately $3.5 billion was generated in foreign jurisdictions and is primarily intended for use in our foreign operations or in connection with business development transactions outside of the U.S. In managing our day-to-day liquidity in the U.S., we do not rely on the unrepatriated earnings as a source of funds and we have not provided for U.S. federal or state income taxes on these undistributed foreign earnings.
For additional information related to certain risks that could negatively impact our financial position or future results of operations, please read the “Risk Factors” and “Quantitative and Qualitative Disclosures About Market Risk” sections of this report.
Share Repurchase Programs
In May 2015, our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2015 Share Repurchase Program). As of December 31, 2015, the 2015 Share Repurchase Program was completed and we repurchased and retired approximately 16.8 million shares of common stock at a cost of $5.0 billion during the year ended December 31, 2015.
In February 2011, our Board of Directors authorized a program to repurchase up to 20.0 million of our common stock (2011 Share Repurchase Program), which has been used principally to offset common stock issuances under our share-based compensation plans. The 2011 Share Repurchase Program does not have an IND applicationexpiration date. During 2014, we purchased approximately 2.9 million shares of common stock at a cost of $886.8 million under our 2011 Share Repurchase Program. We did not repurchase any shares of common stock under our 2011 Share Repurchase Program during the year ended December 31, 2015 and have approximately 1.3 million shares remaining available for BIIB037. repurchase under this authorization.
Cash, Cash Equivalents and Marketable Securities
Until required for another use in our business, we typically invest our cash reserves in bank deposits, certificates of deposit, commercial paper, corporate notes, U.S. and foreign government instruments and other interest bearing marketable debt instruments in accordance with our investment policy. It is our policy to mitigate credit risk in our cash reserves and marketable securities by maintaining a well-diversified portfolio that limits the amount of exposure as to institution, maturity, and investment type.
The increase in cash, cash equivalents and marketable securities at December 31, 2015 from December 31, 2014 is primarily due to the issuance of our 2015 Senior Notes and net cash flows provided by operating activities, offset by purchases of our common stock, contingent payments made to former shareholders of Fumapharm AG and holders of their rights, net purchases of property, plant and equipment and the acquisition of Convergence.
Borrowings
On September 15, 2015, we issued senior unsecured notes for an aggregate principal amount of $6.0 billion, consisting of the following:
$1.5 billion of 2.90% Senior Notes due September 15, 2020, valued at 99.792% of par;
$1.0 billion of 3.625% Senior Notes due September 15, 2022, valued at 99.920% of par;
$1.75 billion of 4.05% Senior Notes due September 15, 2025, valued at 99.764% of par; and
$1.75 billion of 5.20% Senior Notes due September 15, 2045, valued at 99.294% of par.
In addition to the 2015 Senior Notes, we have $550.0 million aggregate principal amount of 6.875% Senior Notes due March 1, 2018 that were originally priced at 99.184% of par.
The discounts are amortized as additional interest expense over the period from issuance through maturity.
In August 2015, we entered into a $1.0 billion, 5-year senior unsecured revolving credit facility under which we are permitted to draw funds for working capital and general corporate purposes. The terms of the revolving credit facility include a financial covenant that requires us not to exceed a maximum consolidated leverage ratio. As of December 31, 2015, we had no outstanding borrowings and were in compliance with all covenants under this facility.
In connection with our 2006 distribution agreement with Fumedica, we issued notes totaling 61.4 million Swiss Francs which were payable to Fumedica in varying amounts from June 2008 through June 2018. Our remaining note payable to Fumedica had a carrying value of 8.9 million Swiss Francs ($9.0 million) and 11.6 million Swiss Francs ($11.7 million) as of December 31, 2015 and 2014, respectively.
For a summary of the fair values of our outstanding borrowings as of December 31, 2015 and 2014, please read Note 7, 2011Fair Value Measurements to our consolidated financial statements included in this report.
Working Capital
We define working capital as current assets less current liabilities. In accordance with ASU No. 2015-17, at December 31, 2015 we reclassified $137.1 million of our deferred tax assets classified as current to noncurrent and $1.6 million of our deferred tax liabilities classified as current to noncurrent in our December 31, 2014 consolidated balance sheet, to conform our prior year presentation to our current year presentation. For additional information related to ASU No. 2015-17, please read Note 1, Summary of Significant Accounting Policies: New Accounting Pronouncements to our consolidated financial statements included in this report.
The increase in working capital at December 31, 2015 from December 31, 2014 reflects an increase in total current assets of $2,165.3 million, partially offset by an increase in current liabilities of $359.6 million. The increase in total current assets was primarily driven by an increase in cash, cash equivalents and marketable securities due to the issuance of our 2015 Senior Notes and an increase in cash from operating activities, partially offset by purchases of our common stock. The increase in total current liabilities primarily resulted from an increase in taxes payable and an increase in accrued expenses and other due to increases in the amount of short-term contingent consideration expected to be paid and revenue-related reserves for discounts and allowances.
Cash Flows
The following table summarizes our cash flow activity:
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2015 compared to 2014 | | 2014 compared to 2013 |
| (In millions, except percentages) | 2015 | | 2014 | | 2013 | |
| Net cash flows provided by operating activities | $ | 3,716.1 |
| | $ | 2,942.1 |
| | $ | 2,345.1 |
| | 26.3 | % | | 25.5 | % |
| Net cash flows used in by investing activities | $ | (4,553.6 | ) | | $ | (1,543.0 | ) | | $ | (1,604.7 | ) | | 195.1 | % | | (3.8 | )% |
| Net cash flows provided by (used in) financing activities | $ | 986.4 |
| | $ | (755.9 | ) | | $ | (716.5 | ) | | (230.5 | )% | | 5.5 | % |
Operating Activities
Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. We expect cash provided from operating activities will continue to be our primary source of funds to finance operating needs and capital expenditures for the foreseeable future.
Operating cash flow is derived by adjusting our net income for:
Non-cash operating items such as depreciation and amortization, impairment charges and share-based compensation charges;
Changes in operating assets and liabilities which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations; and
Changes associated with the fair value of contingent payments associated with our acquisitions of businesses and payments related to collaborations.
For 2015 compared to 2010,2014, the increase in cash provided by operating activities was primarily driven by higher net income and accounts receivable collections, partially offset by income tax payments.
For 2014 compared to 2013, the increase in cash provided by operating activities was primarily driven by higher net income, partially offset by an increase in accounts receivable resulting from increased product revenue.
Investing Activities
For 2015 compared to 2014, the increase in net cash flows used in investing activities was primarily due to an increase in net purchases of marketable securities, an increase in the total amount of contingent consideration paid to the former shareholders of Fumapharm AG, an increase in purchases of property, plant and equipment and cash paid for the acquisition of Convergence.
For 2014 compared to 2013, the decrease in net cash flows used in investing activities was primarily due to the prior year acquisition of all remaining rights to TYSABRI from Elan and a decrease in the net purchases of marketable securities, partially offset by the payment of contingent consideration to former shareholders of Fumapharm AG.
Financing Activities
For 2015 compared to 2014, the change in net income attributablecash flows provided by financing activities was primarily due to noncontrolling interests, net of tax, primarily resulted from the impactissuance of our Knopp transaction2015 Senior Notes, partially offset by an increase in the amount of common stock we repurchased.
For 2014 compared to 2013, the increase in net cash flows used in financing activities was primarily due to an increase in the amount of common stock we repurchased, partially offset by the prior year repayment of the aggregate principal amount of our 6.0% Senior Notes.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2015, excluding amounts related to uncertain tax positions, funding commitments, contingent development, regulatory and commercial milestone payments, TYSABRI contingent payments and contingent consideration related to our business combinations, as described below.
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| (In millions) | Total | | Less than 1 Year | | 1 to 3 Years | | 3 to 5 Years | | After 5 Years |
| Capital leases (1) | $ | 20.7 |
| | $ | 2.0 |
| | $ | 18.7 |
| | $ | — |
| | $ | — |
|
| Non-cancellable operating leases (2), (3) | 672.3 |
| | 69.9 |
| | 131.3 |
| | 117.3 |
| | 353.8 |
|
| Long-term debt obligations (4) | 10,563.7 |
| | 282.6 |
| | 1,095.9 |
| | 1,983.3 |
| | 7,201.9 |
|
| Purchase and other obligations (5) | 380.9 |
| | 258.5 |
| | 79.4 |
| | 24.0 |
| | 19.0 |
|
| Defined benefit obligation | 70.1 |
| | — |
| | — |
| | — |
| | 70.1 |
|
| Total contractual obligations | $ | 11,687.0 |
| | $ | 611.0 |
| | $ | 1,306.6 |
| | $ | 2,124.6 |
| | $ | 7,644.8 |
|
| |
| (1) | During 2015 we amended our existing lease related to Eisai's oral solid dose products manufacturing facility in RTP, North Carolina, where we manufacture our and Eisai's oral solid dose products. Amounts reflected within the table above include the future contractual commitments. For additional information, please read Note 10, Property, Plant and Equipment to our consolidated financial statements included in this report. |
| |
| (2) | We lease properties and equipment for use in our operations. Amounts reflected within the table above detail future minimum rental commitments under non-cancelable operating leases as of December 31 for each of the periods presented. In addition to the minimum rental commitments, these leases may require us to pay additional amounts for taxes, insurance, maintenance and other operating expenses. |
| |
| (3) | Obligations are presented net of sublease income expected to be received for the vacated portion of our Weston, Massachusetts facility. For additional information, please read Note 10, Property, Plant and Equipment to our consolidated financial statements included in this report. |
| |
| (4) | Long-term debt obligations are primarily related to our Senior Notes, including principal and interest payments. |
| |
| (5) | Purchase and other obligations primarily includes our obligations to purchase direct materials and also includes approximately $126.4 million in contractual commitments for the construction of a biologics manufacturing facility in Solothurn, Switzerland and approximately $14.7 million related to the fair value of net liabilities on derivative contracts. |
Tax Related Obligations
We exclude liabilities pertaining to uncertain tax positions from our summary of contractual obligations as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. As of December 31, 2015, we have approximately $45.4 million of net liabilities associated with uncertain tax positions.
Other Funding Commitments
As of December 31, 2015, we have several on-going clinical studies in various clinical trial stages. Our most significant clinical trial expenditures are to contract research organizations (CROs). The contracts with CROs are generally cancellable, with notice, at our option. We have recorded accrued expenses of approximately $25.0 million on our consolidated balance sheet for expenditures incurred by CROs as of December 31, 2015. We have approximately $559.0 million in cancellable future commitments based on existing CRO contracts as of December 31, 2015.
Contingent Development, Regulatory and Commercial Milestone Payments
Based on our development plans as of December 31, 2015, we could make potential future milestone payments to third parties of up to approximately $2.8 billion as part of our various collaborations, including licensing and development programs. Payments under these agreements generally become due and payable upon achievement of certain development, regulatory or commercial milestones. Because the achievement of these milestones had not occurred as of December 31, 2015, such contingencies have not been recorded in 2010, offset by a $25.0our financial statements. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval and commercial milestones.
We anticipate that we may pay approximately $150.0 million payment made of milestone payments in 2016, provided various development, regulatory or commercial milestones are achieved.
TYSABRI Contingent Payments
In 2013, we acquired from Elan full ownership of all remaining rights to Cardiokine for termination of our lixivaptan collaboration agreement.
On September 6, 2011,TYSABRI that we completeddid not already own or control. Under the purchaseterms of the noncontrolling interest in our joint venture investments in Biogen Dompé SRLacquisition agreement, we are obligated to make contingent payments to Elan of 18% on annual worldwide net sales up to $2.0 billion and Biogen Dompé Switzerland GmbH, our respective25% on annual worldwide net sales affiliates in Italythat exceed $2.0 billion. Royalty payments to Elan and Switzerland. Prior to this transaction, our consolidated financial statements reflected 100%other third parties are recognized as cost of the operations of these joint venture investments and we recorded net income (loss) attributable to noncontrolling interestssales in our consolidated statements of incomeincome. Elan was acquired by Perrigo in December 2013. Following that acquisition, we began making these royalty payments to Perrigo.
Contingent Consideration related to Business Combinations
In connection with our acquisitions of Convergence, Stromedix, Inc. (Stromedix), Biogen International Neuroscience GmbH (formerly Biogen Idec International Neuroscience GmbH) (BIN), Biogen Hemophilia Inc. (formerly Biogen Idec Hemophilia Inc.) (BIH) and Fumapharm AG, we agreed to make additional payments based upon the achievement of certain milestone events.
As the acquisitions of Convergence, Stromedix and BIN, formerly Panima Pharmaceuticals AG, occurred after January 1, 2009, we record contingent consideration liabilities at their fair value on the acquisition date and revalue these obligations each reporting period. We may pay up to approximately $1.3 billion in remaining milestones related to these acquisitions. For additional information related to our acquisition of Convergence please read Note 2, Acquisitions, to our consolidated financial statements included in this report.
BIH
In connection with our acquisition of BIH, formerly Syntonix, in 2007, we agreed to pay up to an additional $80.0 million if certain milestone events associated with the development of BIH’s lead product, ALPROLIX are achieved. The final $20.0 million contingent payment will occur if, prior to the tenth anniversary of the closing date, a marketing authorization is granted by the EMA for ALPROLIX. This payment will be accounted for as an increase to intangible assets if achieved. In June 2015, the EMA validated our MAA for ALPROLIX for the treatment of hemophilia B.
Fumapharm AG
In 2006, we acquired Fumapharm AG. As part of this acquisition we acquired FUMADERM and TECFIDERA (together, Fumapharm Products). We are required to make contingent payments to former shareholders of Fumapharm AG or holders of their rights based on the percentageattainment of ownership interest retained by our joint venture partners. certain cumulative sales levels of Fumapharm Products and the level of total net sales of Fumapharm Products in the prior twelve month period, as defined in the acquisition agreement.
During 2015, we paid $850.0 million in contingent payments as we reached the $4.0 billion, $5.0 billion and $6.0 billion cumulative sales levels related to the Fumapharm Products in the fourth quarter of 2014, second quarter of 2015 and third quarter of 2015, respectively, and accrued $300.0 million upon reaching $7.0 billion in total cumulative sales of Fumapharm Products in the fourth quarter of 2015.
We have continued to consolidatewill owe an additional $300.0 million contingent payment for every additional $1.0 billion in cumulative sales level of Fumapharm Products reached if the operations of these entities following our purchaseprior 12 months sales of the noncontrolling interest; however,Fumapharm Products exceed $3.0 billion, until such time as the cumulative sales level reaches $20.0 billion, at which time no further contingent payments shall be due. These payments will be accounted for as an increase to goodwill as incurred, in accordance with the accounting standard applicable to business combinations when we acquired Fumapharm. Any portion of the payment which is tax deductible will be recorded as a reduction to goodwill. Payments are due within 60 days following the end of the quarter in which the applicable cumulative sales level has been reached.
Other Off-Balance Sheet Arrangements
We do not have any relationships with entities often referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. We consolidate variable interest entities if we are the primary beneficiary.
Legal Matters
For a discussion of legal matters as of September 6, 2011, we no longer allocate 50% of the earnings of these venturesDecember 31, 2015, please read Note 20, Litigation to net income (loss) attributable to noncontrolling interests as Biogen Dompé SRL and Biogen Dompé Switzerland GmbH became wholly-owned subsidiaries of ours.
Cambridge Leasesour consolidated financial statements included in this report.
In July 2011, we executed leases for two office buildings currently under construction in Cambridge, Massachusetts with a planned occupancy during the second half of 2013. Construction of these facilities began in late 2011. These buildings will serve as the future locationCritical Accounting Estimates
The preparation of our corporate headquarters and will provide additional general and administrative and research and development office space.
As a result of our decision to relocate our corporate headquarters to Cambridge, Massachusetts, we expect to vacate part of our Weston, Massachusetts facilityconsolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the second halfU.S. (U.S. GAAP), requires us to make estimates, judgments and assumptions that may affect the reported amounts of 2013 upon completionassets, liabilities, equity, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the new buildingsresults of which form the basis for making judgments about the carrying values of assets, liabilities and incur a charge between $15.0 million to $30.0 million. This estimate represents our remaining lease obligation forequity and the vacated portionamount of our Weston facility, net of sublease income expected to be received. In addition, this decision has shortened the expected useful lives of certain leasehold improvementsrevenue and other assets at our Weston facility and will result in approximately $15.0 million to $20.0 million of additional depreciation. As of December 31, 2012 and 2011, approximately $11.4 million and $4.7 million of this additional depreciation has been recognized.expenses. Actual results may differ from these estimates under different assumptions or conditions.
Research Triangle Park LeaseRevenue Recognition and Related Allowances
We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; our price to the customer is fixed or determinable; and collectability is reasonably assured.
Product Revenues
Revenues from product sales are recognized when title and risk of loss have passed to the customer, which is typically upon delivery. The timing of distributor orders and shipments can cause variability in earnings.
Reserves for Discounts and Allowances
We establish reserves for trade term discounts, wholesaler incentives, Medicaid rebates, copay, VA and PHS discounts, managed care rebates, product returns and other governmental rebates or applicable allowances, including those associated with the implementation of pricing actions in certain of the international markets in which we operate. These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Our estimates take into consideration our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. If actual results vary, we may need to adjust these estimates, which could have an effect on earnings in the period of the adjustment.
In December 2012,addition to the discounts and rebates described above and classified as a reduction of revenue, we entered into an arrangementalso maintain certain customer service contracts with Eisai, Inc.distributors and other customers in the distribution channel that provide us with inventory management, data and distribution services, which are generally reflected as a reduction of revenue. To the extent we can demonstrate a separable benefit and fair value for these services, we classify these payments within selling, general and administrative expenses.
Revenues from Unconsolidated Joint Business
Revenues from unconsolidated joint business consists of (i) our share of pre-tax profits and losses in the U.S. for RITUXAN and GAZYVA; (ii) reimbursement of our selling and development expenses in the U.S. for RITUXAN; and (iii) revenue on sales in the rest of world for RITUXAN, which consist of our share of pre-tax co-promotion profits in Canada and royalty revenue on sales outside the U.S. and Canada by the Roche Group and its sublicensees. Pre-tax co-promotion profits on RITUXAN are calculated and paid to leaseus by Genentech in the U.S. and by the Roche Group in Canada. Pre-tax co-promotion profits consist of U.S. and Canadian net sales to third-party customers less the cost to manufacture, third-party royalty expenses, distribution, selling, and marketing expenses, and joint development expenses incurred by Genentech, the Roche Group and us. We record our share of the pre-tax co-promotion profits on RITUXAN in Canada and royalty revenues on sales outside the U.S. on a cash basis as we do not have the ability to estimate these profits or royalty revenue in the period incurred. Additionally, our share of the pre-tax profits on RITUXAN and GAZYVA in the U.S. includes estimates made by Genentech and those estimates are subject to change. Actual results may differ from our estimates.
Concentrations of Credit Risk
The majority of our receivables arise from product sales in the U.S. and Europe and are primarily due from wholesale distributors, public hospitals and other government entities. We monitor the financial performance and creditworthiness of our large customers so that we can properly assess and respond to changes in their credit profile. We continue to monitor these conditions, including the volatility associated with international economies and the relevant financial markets, and assess their possible impact on our business. Credit and economic conditions in the E.U. continue to remain uncertain, which has, from time to time, led to long collection periods for our accounts receivable and greater collection risk in certain countries.
Where our collections continue to be subject to significant payment delays due to government funding and reimbursement practices and a portion of their facilitythese receivables are routinely being collected beyond our contractual payment terms and over periods in RTPexcess of one year, we have discounted our receivables and reduced related revenues based on the period of time that we estimate those amounts will be paid, to the extent such period exceeds one year, using the country’s market-based borrowing rate for such period. The related receivables are classified at the time of sale as non-current assets.
To date, we have not experienced any significant losses with respect to the collection of our accounts receivable. If economic conditions worsen and/or the financial condition of our customers were to further deteriorate, our risk of collectability may increase, which may result in additional allowances and/or significant bad debts.
For additional information related to our concentration of credit risk associated with our accounts receivable balances, please read the subsection entitled “Credit Risk” in the “Quantitative and Qualitative Disclosures About Market Risk” section of this report.
Capitalization of Inventory Costs
We capitalize inventory costs associated with our products prior to regulatory approval, when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. We consider numerous attributes in evaluating whether the costs to manufacture a particular product should be capitalized as an asset. We assess the regulatory approval process and where the particular product stands in relation to that approval process, including any known safety or efficacy concerns, potential labeling restrictions and other impediments to approval. We evaluate our anticipated research and Eisai's oral solid dosedevelopment initiatives and constraints relating to the product and the indication in which it will be used. We consider our manufacturing environment including our supply chain in determining logistical constraints that could hamper approval or commercialization. We consider the shelf life of the product in relation to the expected timeline for approval and we consider patent related or contract issues that may prevent or delay commercialization. We also base our judgment on the viability of commercialization, trends in the marketplace and market acceptance criteria. Finally, we consider the reimbursement strategies that may prevail with respect to the product and assess the economic benefit that we are likely to realize. We expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or significant delay of approval by necessary regulatory bodies. All changes in judgment in relation to pre-approval inventory have historically been insignificant.
Acquired Intangible Assets, including In-process Research and Development (IPR&D)
Effective January 1, 2009, when we purchase a business, the acquired IPR&D is measured at fair value, capitalized as an intangible asset and tested for impairment at least annually, as of October 31, until commercialization, after which time the IPR&D is amortized over its estimated useful life. If we acquire an asset or group of assets that do not meet the definition of a business under applicable accounting standards, the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense as they are incurred.
We have acquired, and expect to continue to acquire, intangible assets through the acquisition of biotechnology companies or through the consolidation of variable interest entities. These intangible assets primarily consist of technology associated with human therapeutic products and IPR&D product candidates. When significant identifiable intangible assets are acquired, we generally engage an independent third-party valuation firm to assist in determining the fair values of these assets as of the acquisition date. Management will determine the fair value of less significant identifiable intangible assets acquired. Discounted cash flow models are typically used in these valuations, and these models require the use of significant estimates and assumptions including but not limited to:
estimating the timing of and expected costs to complete the in-process projects;
projecting regulatory approvals;
estimating future cash flows from product sales resulting from completed products and in process projects; and
developing appropriate discount rates and probability rates by project.
We believe the fair values assigned to the intangible assets acquired are based upon reasonable estimates and assumptions given available facts and circumstances as of the acquisition dates.
If these projects are not successfully developed, the sales and profitability of the company may be adversely affected in future periods. Additionally, the value of the acquired intangible assets may become impaired. We believe that the foregoing assumptions used in the IPR&D analysis were reasonable at the time of the respective acquisition. No assurance can be given, however, that the underlying assumptions used to estimate expected project sales, development costs or profitability, or the events associated with such projects, will transpire as estimated.
Certain IPR&D programs have a fair value that is not significantly in excess of carrying value, including our program for Eisaithe treatment of TGN. Such programs could become impaired if assumptions used in determining the fair value change.
Impairment and Amortization of Long-lived Assets and Accounting for Goodwill
Long-lived Assets Other than Goodwill
Long-lived assets to provide usbe held and used include property, plant and equipment as well as intangible assets, including IPR&D and trademarks. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We review our intangible assets with vial-filling servicesindefinite lives for biologic therapiesimpairment annually, as of October 31, and packaging services for oral solid dose products. The 10 year lease agreement,whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
When performing our impairment assessment, we calculate the fair value using the same methodology as described above under "Acquired Intangible Assets, including In-process Research and Development (IPR&D)". If the carrying value of our intangible assets with indefinite lives exceeds its fair value, then the intangible asset is written-down to its fair value.
Our most significant intangible assets are our acquired and in-licensed rights and patents and developed technology. Acquired and in-licensed rights and patents primarily relates to our acquisition of all remaining rights to TYSABRI from Elan. Developed technology primarily relates to our AVONEX product, which was recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. We amortize the intangible assets related to TYSABRI and AVONEX using the economic consumption method based on revenue generated from the products underlying the related intangible assets. An analysis of the anticipated lifetime revenues of TYSABRI and AVONEX is performed annually during our long range planning cycle, which is cancellablegenerally updated in the third quarter of each year, and whenever events or changes in circumstances
would significantly affect the anticipated lifetime revenues of TYSABRI or AVONEX.
Impairment charges related to our long-lived assets during 2015 and 2013 were insignificant. For additional information on the impairment charges related to our long-lived assets during 2014, please read Note 6, Intangible Assets and Goodwill to our consolidated financial statements included in this report.
Goodwill
Goodwill relates largely to amounts that arose in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003 and amounts that are being paid in connection with the acquisition of Fumapharm AG. Our goodwill balances represent the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the purchase method of accounting.
We assess our goodwill balance within our single reporting unit annually, as of October 31, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable to determine whether any impairment in this asset may exist and, if so, the extent of such impairment. We compare the fair value of our reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of our reporting unit, then we would need to determine the implied fair value of our reporting unit’s goodwill. If the carrying value of our reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.
We completed our required annual impairment test in the fourth quarters of 2015, 2014 and 2013, respectively, and determined in each of those periods that the carrying value of goodwill was not impaired. In each year, the fair value of our reporting unit, which includes goodwill, was significantly in excess of the carrying value of our reporting unit.
Investments, including Fair Value Measures and Impairments
We invest in various types of securities, including short-term and long-term marketable securities, principally corporate notes, government securities including government sponsored enterprise mortgage-backed securities and credit card and auto loan asset-backed securities, in which our excess cash balances are invested.
In accordance with the accounting standard for fair value measurements, we have classified our financial assets as Level 1, 2 or 3 within the fair value hierarchy. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets that we have the ability to access. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates, yield curves and foreign currency spot rates. Fair values determined by Level 3 inputs utilize unobservable data points for the asset.
As noted in Note 7, Fair Value Measurements to our consolidated financial statements, a majority of our financial assets have been classified as Level 2. These assets have been initially valued at the transaction price and subsequently valued utilizing third-party pricing services. The pricing services use many observable market inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. We validate the prices provided by our third-party pricing services by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.
Impairment
We conduct periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment and its application to certain investments. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses on available-for-sale debt securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated other comprehensive income.
For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether we intend to sell or whether we would more likely than not be required to sell the security before the expected recovery of the amortized cost basis. Where we intend to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is reflected within earnings as an impairment loss.
Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security and are reflected within earnings as an impairment loss.
Share-Based Compensation
We make certain assumptions in order to value and record expense associated with awards made under our share-based compensation arrangements. Changes in these assumptions may lead to variability with respect to the amount of expense we recognize in connection with share-based payments.
Determining the appropriate valuation model and related assumptions requires judgment, and includes estimating the expected market price of our stock on vesting date and stock price volatility as well as the term of the expected awards. Determining the appropriate amount to expense based on the anticipated achievement of performance targets requires judgment, including forecasting the achievement of future financial targets. The estimate of expense is revised periodically based on the probability of achieving the required performance targets and adjustments are made throughout the performance as appropriate. The cumulative impact of any revision is reflected in the period of change.
We also estimate forfeitures over the requisite service period when recognizing share-based compensation expense based on historical rates and forward-looking factors; these estimates are adjusted to the extent that actual forfeitures differ, or are expected to materially differ, from our estimates.
Contingent Consideration
For acquisitions completed before January 1, 2009, we record contingent consideration resulting from a business combination when the contingency is resolved. For acquisitions completed after 5 yearsJanuary 1, 2009, we record contingent consideration resulting from a business combination at its fair value on the acquisition date. Each reporting period thereafter, we revalue these obligations and record increases or decreases in their fair value as an adjustment to contingent consideration expense within the consolidated statement of income. Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs including adjustments to the discount rates and achievement and timing of any cumulative sales-based and development milestones, or changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market.
Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions described above, could have a material impact on the amount of contingent consideration expense we record in any given period.
Restructuring Charges
We have made estimates and judgments regarding the amount and timing of our restructuring expense and liability, including current and future period termination benefits, pipeline program termination costs and other exit costs to be incurred when related actions take place. Severance and other related costs are reflected in our consolidated statements of income as a component of total restructuring charges incurred. Actual results may differ from these estimates.
Income Taxes
We prepare and file income tax returns based on our interpretation of each jurisdiction’s tax laws and regulations. In preparing our consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. Significant management judgment is required in assessing the realizability of our deferred tax assets. In performing this assessment, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, under the applicable financial accounting standards, we are allowed to consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and the effects of tax planning strategies. Our estimates of future taxable income include, among other items, our estimates of future income tax deductions related to the exercise of stock options. In the event that actual results differ from our estimates, we adjust our estimates in future periods and we may need to establish a valuation allowance, which could materially impact our financial position and results of operations.
All tax effects associated with intercompany transfers of assets within our consolidated group, both current and deferred, are recorded as a prepaid tax or deferred charge and recognized through the consolidated statement of income when the asset transferred is sold to a third-party or otherwise recovered through amortization of the asset's remaining economic life. If the asset transferred becomes impaired, for example through the discontinuation of a research program, we will expense any remaining deferred charge or prepaid tax. As of December 31, 2015, the total deferred charges and prepaid taxes were $697.9 million.
We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis and consider various factors, that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, information obtained during in February 2013, gives usprocess audit activities and changes in facts or circumstances related to a tax position. We adjust the optionlevel of the liability to purchasereflect any subsequent changes in the facility. relevant facts surrounding the uncertain positions. Our liabilities for uncertain tax positions can be relieved only if the contingency becomes legally extinguished through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the “more-likely-than-not” threshold or the liability becomes effectively settled through the examination process. We consider matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews, we have no plans to appeal or litigate any aspect of the tax position, and we believe that it is highly unlikely that the taxing authority would examine or re-examine the related tax position. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense.
We earn a significant amount of our operating income outside the U.S. As a result, a portion of our cash, cash equivalents, and marketable securities are held by foreign subsidiaries. We currently do not intend or foresee a need to repatriate these funds. We expect existing domestic cash, cash equivalents, marketable securities and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities for the foreseeable future.
As of December 31, 2015, our non-U.S. subsidiaries’ undistributed foreign earnings included in consolidated retained earnings and other basis differences aggregated to approximately $6.0 billion. All undistributed foreign earnings of non-U.S. subsidiaries, exclusive of earnings that would result in little or no net income tax expense or which were previously taxed under current U.S. tax law, are reinvested indefinitely in operations outside the U.S. This determination is made on a jurisdiction-by-jurisdiction basis and takes into the account the liquidity requirements in both the U.S. and within our foreign subsidiaries.
If we decide to repatriate funds in the future to execute our growth initiatives or to fund any other liquidity needs, the resulting tax consequences would negatively impact our results of operations through a higher effective tax rate and dilution of our earnings. The residual U.S. tax liability, if cumulative amounts were repatriated, would be between $1.5 billion to $2.0 billion as of December 31, 2015.
New Accounting Standards
For a discussion of new accounting standards please read Note 1, Summary of Significant Accounting Principles to our consolidated financial statements included in this report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market RiskShare Repurchase Programs
In May 2015, our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2015 Share Repurchase Program). As of December 31, 2015, the 2015 Share Repurchase Program was completed and we repurchased and retired approximately 16.8 million shares of common stock at a cost of $5.0 billion during the year ended December 31, 2015.
In February 2011, our Board of Directors authorized a program to repurchase up to 20.0 million of our common stock (2011 Share Repurchase Program), which has been used principally to offset common stock issuances under our share-based compensation plans. The 2011 Share Repurchase Program does not have an expiration date. During 2014, we purchased approximately 2.9 million shares of common stock at a cost of $886.8 million under our 2011 Share Repurchase Program. We conductdid not repurchase any shares of common stock under our 2011 Share Repurchase Program during the year ended December 31, 2015 and have approximately 1.3 million shares remaining available for repurchase under this authorization.
Cash, Cash Equivalents and Marketable Securities
Until required for another use in our business, globally. Aswe typically invest our cash reserves in bank deposits, certificates of deposit, commercial paper, corporate notes, U.S. and foreign government instruments and other interest bearing marketable debt instruments in accordance with our investment policy. It is our policy to mitigate credit risk in our cash reserves and marketable securities by maintaining a result, our international operations are subjectwell-diversified portfolio that limits the amount of exposure as to certain opportunitiesinstitution, maturity, and risks which may affect our results of operations, including volatilityinvestment type.
The increase in foreign currency exchange rates or weak economic conditions in the foreign markets in which we operate.
Foreign Currency Exchange Risk
Our results of operations are subject to foreign currency exchange rate fluctuationscash, cash equivalents and marketable securities at December 31, 2015 from December 31, 2014 is primarily due to the global natureissuance of our operations. While the financial results2015 Senior Notes and net cash flows provided by operating activities, offset by purchases of our global activitiescommon stock, contingent payments made to former shareholders of Fumapharm AG and holders of their rights, net purchases of property, plant and equipment and the acquisition of Convergence.
Borrowings
On September 15, 2015, we issued senior unsecured notes for an aggregate principal amount of $6.0 billion, consisting of the following:
$1.5 billion of 2.90% Senior Notes due September 15, 2020, valued at 99.792% of par;
$1.0 billion of 3.625% Senior Notes due September 15, 2022, valued at 99.920% of par;
$1.75 billion of 4.05% Senior Notes due September 15, 2025, valued at 99.764% of par; and
$1.75 billion of 5.20% Senior Notes due September 15, 2045, valued at 99.294% of par.
In addition to the 2015 Senior Notes, we have $550.0 million aggregate principal amount of 6.875% Senior Notes due March 1, 2018 that were originally priced at 99.184% of par.
The discounts are reportedamortized as additional interest expense over the period from issuance through maturity.
In August 2015, we entered into a $1.0 billion, 5-year senior unsecured revolving credit facility under which we are permitted to draw funds for working capital and general corporate purposes. The terms of the revolving credit facility include a financial covenant that requires us not to exceed a maximum consolidated leverage ratio. As of December 31, 2015, we had no outstanding borrowings and were in U.S. dollars,compliance with all covenants under this facility.
In connection with our 2006 distribution agreement with Fumedica, we issued notes totaling 61.4 million Swiss Francs which were payable to Fumedica in varying amounts from June 2008 through June 2018. Our remaining note payable to Fumedica had a carrying value of 8.9 million Swiss Francs ($9.0 million) and 11.6 million Swiss Francs ($11.7 million) as of December 31, 2015 and 2014, respectively.
For a summary of the functional currency for mostfair values of our foreign subsidiaries is their respective local currency. Fluctuations in the foreign currency exchange ratesoutstanding borrowings as of the countries in which we do business will affect our operating results, often in ways that are difficult to predict.
Our net income may also fluctuate due to the impact of our foreign currency hedging program, which is designed to mitigate, over time, a portion of the impact resulting from volatility in exchange rate changes on revenues. We use foreign currency forward contracts to manage foreign currency risk with the majority of our forward contracts used to hedge certain forecasted revenue transactions denominated in foreign currencies in the next 12 months. For a more detailed disclosure of our hedges outstanding,December 31, 2015 and 2014, please read Note 11,7, Derivative InstrumentsFair Value Measurements to our consolidated financial statements included in this report. Our ability
Working Capital
We define working capital as current assets less current liabilities. In accordance with ASU No. 2015-17, at December 31, 2015 we reclassified $137.1 million of our deferred tax assets classified as current to mitigatenoncurrent and $1.6 million of our deferred tax liabilities classified as current to noncurrent in our December 31, 2014 consolidated balance sheet, to conform our prior year presentation to our current year presentation. For additional information related to ASU No. 2015-17, please read Note 1, Summary of Significant Accounting Policies: New Accounting Pronouncements to our consolidated financial statements included in this report.
The increase in working capital at December 31, 2015 from December 31, 2014 reflects an increase in total current assets of $2,165.3 million, partially offset by an increase in current liabilities of $359.6 million. The increase in total current assets was primarily driven by an increase in cash, cash equivalents and marketable securities due to the impactissuance of exchange rate changes on revenuesour 2015 Senior Notes and an increase in cash from operating activities, partially offset by purchases of our common stock. The increase in total current liabilities primarily resulted from an increase in taxes payable and an increase in accrued expenses and other due to increases in the amount of short-term contingent consideration expected to be paid and revenue-related reserves for discounts and allowances.
Cash Flows
The following table summarizes our cash flow activity:
|
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | % Change |
| | 2015 compared to 2014 | | 2014 compared to 2013 |
| (In millions, except percentages) | 2015 | | 2014 | | 2013 | |
| Net cash flows provided by operating activities | $ | 3,716.1 |
| | $ | 2,942.1 |
| | $ | 2,345.1 |
| | 26.3 | % | | 25.5 | % |
| Net cash flows used in by investing activities | $ | (4,553.6 | ) | | $ | (1,543.0 | ) | | $ | (1,604.7 | ) | | 195.1 | % | | (3.8 | )% |
| Net cash flows provided by (used in) financing activities | $ | 986.4 |
| | $ | (755.9 | ) | | $ | (716.5 | ) | | (230.5 | )% | | 5.5 | % |
Operating Activities
Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. We expect cash provided from operating activities will continue to be our primary source of funds to finance operating needs and capital expenditures for the foreseeable future.
Operating cash flow is derived by adjusting our net income diminishesfor:
Non-cash operating items such as significant exchange rate fluctuations are sustained over extended periodsdepreciation and amortization, impairment charges and share-based compensation charges;
Changes in operating assets and liabilities which reflect timing differences between the receipt and payment of time. Other foreign currency gains or losses arising from our operationscash associated with transactions and when they are recognized in results of operations; and
Changes associated with the fair value of contingent payments associated with our acquisitions of businesses and payments related to collaborations.
For 2015 compared to 2014, the increase in cash provided by operating activities was primarily driven by higher net income and accounts receivable collections, partially offset by income tax payments.
For 2014 compared to 2013, the increase in cash provided by operating activities was primarily driven by higher net income, partially offset by an increase in accounts receivable resulting from increased product revenue.
Investing Activities
For 2015 compared to 2014, the increase in net cash flows used in investing activities was primarily due to an increase in net purchases of marketable securities, an increase in the total amount of contingent consideration paid to the former shareholders of Fumapharm AG, an increase in purchases of property, plant and equipment and cash paid for the acquisition of Convergence.
For 2014 compared to 2013, the decrease in net cash flows used in investing activities was primarily due to the prior year acquisition of all remaining rights to TYSABRI from Elan and a decrease in the net purchases of marketable securities, partially offset by the payment of contingent consideration to former shareholders of Fumapharm AG.
Financing Activities
For 2015 compared to 2014, the change in net cash flows provided by financing activities was primarily due to the issuance of our 2015 Senior Notes, partially offset by an increase in the amount of common stock we repurchased.
For 2014 compared to 2013, the increase in net cash flows used in financing activities was primarily due to an increase in the amount of common stock we repurchased, partially offset by the prior year repayment of the aggregate principal amount of our 6.0% Senior Notes.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2015, excluding amounts related to uncertain tax positions, funding commitments, contingent development, regulatory and commercial milestone payments, TYSABRI contingent payments and contingent consideration related to our business combinations, as described below.
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| (In millions) | Total | | Less than 1 Year | | 1 to 3 Years | | 3 to 5 Years | | After 5 Years |
| Capital leases (1) | $ | 20.7 |
| | $ | 2.0 |
| | $ | 18.7 |
| | $ | — |
| | $ | — |
|
| Non-cancellable operating leases (2), (3) | 672.3 |
| | 69.9 |
| | 131.3 |
| | 117.3 |
| | 353.8 |
|
| Long-term debt obligations (4) | 10,563.7 |
| | 282.6 |
| | 1,095.9 |
| | 1,983.3 |
| | 7,201.9 |
|
| Purchase and other obligations (5) | 380.9 |
| | 258.5 |
| | 79.4 |
| | 24.0 |
| | 19.0 |
|
| Defined benefit obligation | 70.1 |
| | — |
| | — |
| | — |
| | 70.1 |
|
| Total contractual obligations | $ | 11,687.0 |
| | $ | 611.0 |
| | $ | 1,306.6 |
| | $ | 2,124.6 |
| | $ | 7,644.8 |
|
| |
| (1) | During 2015 we amended our existing lease related to Eisai's oral solid dose products manufacturing facility in RTP, North Carolina, where we manufacture our and Eisai's oral solid dose products. Amounts reflected within the table above include the future contractual commitments. For additional information, please read Note 10, Property, Plant and Equipment to our consolidated financial statements included in this report. |
| |
| (2) | We lease properties and equipment for use in our operations. Amounts reflected within the table above detail future minimum rental commitments under non-cancelable operating leases as of December 31 for each of the periods presented. In addition to the minimum rental commitments, these leases may require us to pay additional amounts for taxes, insurance, maintenance and other operating expenses. |
| |
| (3) | Obligations are presented net of sublease income expected to be received for the vacated portion of our Weston, Massachusetts facility. For additional information, please read Note 10, Property, Plant and Equipment to our consolidated financial statements included in this report. |
| |
| (4) | Long-term debt obligations are primarily related to our Senior Notes, including principal and interest payments. |
| |
| (5) | Purchase and other obligations primarily includes our obligations to purchase direct materials and also includes approximately $126.4 million in contractual commitments for the construction of a biologics manufacturing facility in Solothurn, Switzerland and approximately $14.7 million related to the fair value of net liabilities on derivative contracts. |
Tax Related Obligations
We exclude liabilities pertaining to uncertain tax positions from our summary of contractual obligations as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. As of December 31, 2015, we have approximately $45.4 million of net liabilities associated with uncertain tax positions.
Other Funding Commitments
As of December 31, 2015, we have several on-going clinical studies in various clinical trial stages. Our most significant clinical trial expenditures are to contract research organizations (CROs). The contracts with CROs are generally cancellable, with notice, at our option. We have recorded accrued expenses of approximately $25.0 million on our consolidated balance sheet for expenditures incurred by CROs as of December 31, 2015. We have approximately $559.0 million in cancellable future commitments based on existing CRO contracts as of December 31, 2015.
Contingent Development, Regulatory and Commercial Milestone Payments
Based on our development plans as of December 31, 2015, we could make potential future milestone payments to third parties of up to approximately $2.8 billion as part of our various collaborations, including licensing and development programs. Payments under these agreements generally become due and payable upon achievement of certain development, regulatory or commercial milestones. Because the achievement of these milestones had not occurred as of December 31, 2015, such contingencies have not been recorded in our financial statements. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval and commercial milestones.
We anticipate that we may pay approximately $150.0 million of milestone payments in 2016, provided various development, regulatory or commercial milestones are achieved.
TYSABRI Contingent Payments
In 2013, we acquired from Elan full ownership of all remaining rights to TYSABRI that we did not already own or control. Under the terms of the acquisition agreement, we are obligated to make contingent payments to Elan of 18% on annual worldwide net sales up to $2.0 billion and 25% on annual worldwide net sales that exceed $2.0 billion. Royalty payments to Elan and other third parties are recognized as cost of sales in our consolidated statements of income. Elan was acquired by Perrigo in December 2013. Following that acquisition, we began making these royalty payments to Perrigo.
Contingent Consideration related to Business Combinations
In connection with our acquisitions of Convergence, Stromedix, Inc. (Stromedix), Biogen International Neuroscience GmbH (formerly Biogen Idec International Neuroscience GmbH) (BIN), Biogen Hemophilia Inc. (formerly Biogen Idec Hemophilia Inc.) (BIH) and Fumapharm AG, we agreed to make additional payments based upon the achievement of certain milestone events.
As the acquisitions of Convergence, Stromedix and BIN, formerly Panima Pharmaceuticals AG, occurred after January 1, 2009, we record contingent consideration liabilities at their fair value on the acquisition date and revalue these obligations each reporting period. We may pay up to approximately $1.3 billion in remaining milestones related to these acquisitions. For additional information related to our acquisition of Convergence please read Note 2, Acquisitions, to our consolidated financial statements included in this report.
BIH
In connection with our acquisition of BIH, formerly Syntonix, in 2007, we agreed to pay up to an additional $80.0 million if certain milestone events associated with the development of BIH’s lead product, ALPROLIX are achieved. The final $20.0 million contingent payment will occur if, prior to the tenth anniversary of the closing date, a marketing authorization is granted by the EMA for ALPROLIX. This payment will be accounted for as an increase to intangible assets if achieved. In June 2015, the EMA validated our MAA for ALPROLIX for the treatment of hemophilia B.
Fumapharm AG
In 2006, we acquired Fumapharm AG. As part of this acquisition we acquired FUMADERM and TECFIDERA (together, Fumapharm Products). We are required to make contingent payments to former shareholders of Fumapharm AG or holders of their rights based on the attainment of certain cumulative sales levels of Fumapharm Products and the level of total net sales of Fumapharm Products in the prior twelve month period, as defined in the acquisition agreement.
During 2015, we paid $850.0 million in contingent payments as we reached the $4.0 billion, $5.0 billion and $6.0 billion cumulative sales levels related to the Fumapharm Products in the fourth quarter of 2014, second quarter of 2015 and third quarter of 2015, respectively, and accrued $300.0 million upon reaching $7.0 billion in total cumulative sales of Fumapharm Products in the fourth quarter of 2015.
We will owe an additional $300.0 million contingent payment for every additional $1.0 billion in cumulative sales level of Fumapharm Products reached if the prior 12 months sales of the Fumapharm Products exceed $3.0 billion, until such time as the cumulative sales level reaches $20.0 billion, at which time no further contingent payments shall be due. These payments will be accounted for as an increase to goodwill as incurred, in accordance with the accounting standard applicable to business combinations when we acquired Fumapharm. Any portion of the payment which is tax deductible will be recorded as a reduction to goodwill. Payments are due within 60 days following the end of the quarter in which the applicable cumulative sales level has been reached.
Other Off-Balance Sheet Arrangements
We do not have any relationships with entities often referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements. As such, we incur those gainsare not exposed to any financing, liquidity, market or losses.
Pricing Pressure
Global economic conditions continue to present challenges for our industry. The global economic downturn and the deterioration of credit and economic conditions continue to impact our results of operations, particularlyrisk that could arise if we had engaged in countries where government-sponsored healthcare systemssuch relationships. We consolidate variable interest entities if we are the primary payers for healthcare. Global economic conditions may be further impacted by additional negative economic developmentsbeneficiary.
Legal Matters
For a discussion of legal matters as of December 31, 2015, please read Note 20, Litigation to our consolidated financial statements included in countries such as Italy, Portugal and Spain, whose sovereign debt credit ratingsthis report.
Critical Accounting Estimates
The preparation of our consolidated financial statements, which have been downgraded. As a result, many countries worldwide, particularly those withinprepared in accordance with accounting principles generally accepted in the European Union, are reducing their public expenditures in an effortU.S. (U.S. GAAP), requires us to achieve cost savings.
Governments in a numbermake estimates, judgments and assumptions that may affect the reported amounts of international markets in which we operate, including Germany, France, Italy, the United Kingdom, Portugal and Spain have announced or implemented measures aimed at reducing healthcare costs to constrain the overall level of government expenditures. The implementation of measures varies by country and include, among other things, mandatory rebates and discounts, price reductions and suspensions on pricing increases on pharmaceuticals. Certain implemented measures negatively impacted our revenues in 2011 and 2012. We expect to see continued efforts to achieve additional reductions in public expenditures and consequently expect that ourassets, liabilities, equity, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of operations will be further negatively impacted if these, similar or more extensive measures are, or continue to be, implemented in thesewhich form the basis for making judgments about the carrying values of assets, liabilities and other countries in which we operate. Based upon our most recent estimates, we expect that such measures will reduce our revenues in 2013 by approximately $45.0 to $60.0 million.
In addition, certain countries set prices by reference to the prices in other countries where our products are marketed. Thus, our inability to secure adequate prices in a particular country may impair our ability to obtain acceptable prices in existing and potential new markets and limit market growth. The continued implementation of pricing actions throughout Europe may also lead to higher levels of parallel trade.
Generally, in the United States there are fewer government-imposed constraints on the pricing of pharmaceuticals. However, given current trends in health care costs, we expect increased focus on overall health care expenditures in 2013 and beyond that may result in, among other things, constraints on pharmaceutical pricing, changes in level of rebates and other reimbursement mechanisms, the permissibility of cross-border trade,equity and the useamount of comparative effectiveness research.revenue and expenses. Actual results may differ from these estimates under different assumptions or conditions.
Credit RiskRevenue Recognition and Related Allowances
We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; our price to the customer is fixed or determinable; and collectability is reasonably assured.
Product Revenues
Revenues from product sales are recognized when title and risk of loss have passed to the customer, which is typically upon delivery. The timing of distributor orders and shipments can cause variability in earnings.
Reserves for Discounts and Allowances
We establish reserves for trade term discounts, wholesaler incentives, Medicaid rebates, copay, VA and PHS discounts, managed care rebates, product returns and other governmental rebates or applicable allowances, including those associated with the implementation of pricing actions in certain of the international markets in which we operate. These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Our estimates take into consideration our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. If actual results vary, we may need to adjust these estimates, which could have an effect on earnings in the period of the adjustment.
In addition to the discounts and rebates described above and classified as a reduction of revenue, we also maintain certain customer service contracts with distributors and other customers in the distribution channel that provide us with inventory management, data and distribution services, which are generally reflected as a reduction of revenue. To the extent we can demonstrate a separable benefit and fair value for these services, we classify these payments within selling, general and administrative expenses.
Revenues from Unconsolidated Joint Business
Revenues from unconsolidated joint business consists of (i) our share of pre-tax profits and losses in the U.S. for RITUXAN and GAZYVA; (ii) reimbursement of our selling and development expenses in the U.S. for RITUXAN; and (iii) revenue on sales in the rest of world for RITUXAN, which consist of our share of pre-tax co-promotion profits in Canada and royalty revenue on sales outside the U.S. and Canada by the Roche Group and its sublicensees. Pre-tax co-promotion profits on RITUXAN are calculated and paid to us by Genentech in the U.S. and by the Roche Group in Canada. Pre-tax co-promotion profits consist of U.S. and Canadian net sales to third-party customers less the cost to manufacture, third-party royalty expenses, distribution, selling, and marketing expenses, and joint development expenses incurred by Genentech, the Roche Group and us. We record our share of the pre-tax co-promotion profits on RITUXAN in Canada and royalty revenues on sales outside the U.S. on a cash basis as we do not have the ability to estimate these profits or royalty revenue in the period incurred. Additionally, our share of the pre-tax profits on RITUXAN and GAZYVA in the U.S. includes estimates made by Genentech and those estimates are subject to credit riskchange. Actual results may differ from our accounts receivable related to our product sales. estimates.
Concentrations of Credit Risk
The majority of our accounts receivablereceivables arise from product sales in the U.S. and Europe with concentrations of credit risk limited due to the wide variety of customers and markets using our products, as well as their dispersion across many different geographic areas. Our accounts receivable are primarily due from wholesale distributors, public hospitals and other government entities. We monitor the financial performance and credit worthinesscreditworthiness of our large customers so that we can properly assess and respond to changes in their credit profile. We operate in certain countries where weakness in economic conditions has resulted in extended collection periods. We continue to monitor these conditions, including the volatility associated with international economies and the relevant financial markets, and assess their possible impact on our business. Our historical write-offs ofCredit and economic conditions in the E.U. continue to remain uncertain, which has, from time to time, led to long collection periods for our accounts receivable have not been significant.and greater collection risk in certain countries.
AlthoughWhere our collections continue to be subject to significant payment delays due to government funding and reimbursement practices and a portion of these receivables are routinely being collected beyond our contractual payment terms have not changed,and over the past year we noted greater volatilityperiods in the amount and timingexcess of collections of accounts receivable balances in certain countries. In countries where we have experienced a pattern of extended payments and we expect to collect receivables greater than one year, from the time of sale, we have discounted our receivables and reduced related revenues overbased on the period of time that we estimate those amounts will be paid, to the extent such period exceeds one year, using the country’s market-based borrowing rate for such period. The related receivables are classified at the time of sale as long-termnon-current assets.
Within the European Union, our accounts receivable in Spain, Italy and Portugal continue to be subject to significant payment delays due to government funding and reimbursement practices. Deteriorating credit and economic conditions have generally led to an increase in the average length of time that it takes to collect our accounts receivable in these countries, although these countries have introduced programs to pay down significantly overdue payables. Specifically during the third quarter of 2012, as part of a new program to resolve outstanding amounts long overdue, the Portuguese government paid us approximately $21.2 million, contributing to a decrease in our accounts receivable in Portugal. Also during this period, Portugal enacted legislation to limit their total expenditure on total pharmaceutical products. In recognizing revenue in Portugal, we have estimated the effect of these caps in determining our price. Similarly, in June 2012, the Spanish government paid us approximately $112.0 million, contributing to a significant decrease in our accounts receivables in Spain. Our net accounts receivable balances from product sales in Italy, Portugal and Spain totaled $207.5 million and $235.0 million as of December 31, 2012 and 2011, respectively, of which $17.6 million and $126.5 million were classified as non-current and included within investments and other assets within our consolidated balance sheets as of those dates. Approximately $11.8 million and $56.0 million of the aggregated balances for these four countries were overdue more than one year as of December 31, 2012 and 2011, respectively.
Our balance sheet exposure to Greece has been limited as we maintain no investment holdings backed by the Greek government and our only receivables in this market are due from our distributor, which totaled approximately $0.6 million and $4.0 million as of December 31, 2012 and 2011, respectively. These receivables remain current and in compliance with their contractual due dates. However, due to the current uncertainty, we recognize sales in Greece on a cash collection basis.
We believe that our allowance for doubtful accounts was adequate as of December 31, 2012 and 2011, respectively. However, if significant changes occur in the availability of government funding or the reimbursement practices of these or other governments, we may not be able to collect on amounts due to us from customers in such countries and our results of operations could be adversely affected.
Financial Condition and Liquidity
Our financial condition is summarized as follows:
|
| | | | | | | | | | |
| | As of December 31, | | % Change
|
| (In millions, except percentages) | 2012 | | 2011 | | 2012 compared to 2011 |
| Financial assets: | | | | | |
| Cash and cash equivalents | $ | 570.7 |
| | $ | 514.5 |
| | 10.9 | % |
| Marketable securities — current | 1,135.0 |
| | 1,176.1 |
| | (3.5 | )% |
| Marketable securities — non-current | 2,036.7 |
| | 1,416.7 |
| | 43.8 | % |
| Total cash, cash equivalents and marketable securities | $ | 3,742.4 |
| | $ | 3,107.3 |
| | 20.4 | % |
| Borrowings: | | | | | |
| Current portion of notes payable and line of credit | $ | 453.4 |
| | $ | 3.3 |
| | ** |
|
| Notes payable, line of credit, and other financing arrangements | 687.4 |
| | 1,060.8 |
| | (35.2 | )% |
| Total borrowings | $ | 1,140.8 |
| | $ | 1,064.1 |
| | 7.2 | % |
| Working Capital: | | | | | |
| Current assets | $ | 3,244.3 |
| | $ | 2,975.4 |
| | 9.0 | % |
| Current liabilities | (1,657.4 | ) | | (912.9 | ) | | 81.6 | % |
| Total working capital | $ | 1,586.9 |
| | $ | 2,062.5 |
| | (23.1 | )% |
For the year ended December 31, 2012, certain significant cash flows were as follows:
$133.2 million in cash collections on accounts receivable balances in Spain and Portugal as part of new programs to resolve outstanding amounts long overdue;
$67.5 million in proceeds from the issuance of stock for share-based compensation arrangements;
$46.8 million in proceeds from the sale of our royalty and other rights to BENLYSTA;
$984.7 million used for share repurchases;
$526.6 million in total payments for income taxes;
$254.5 million used for purchases of property, plant and equipment;
$72.4 million of net cash paid for the acquisition of Stromedix, Inc.;
$71.0 million in upfront payments made to Isis, recognized as research and development expense, pursuant to our collaboration agreements dated January, June, and December 2012; and
$32.1 million in contributions made to Samsung Bioepis.
For the year ended December 31, 2011, certain significant cash flows were as follows:
$314.7 million in proceeds from the issuance of stock for share-based compensation arrangements;
$104.6 million in proceeds received from Dompé Farmaceutici SpA for the purchase of Biogen Dompé SRL’s outstanding receivables;
$43.5 million in proceeds received from the sale of strategic investments and long-lived assets;
$498.0 million used for share repurchases;
$332.7 million in total payments for income taxes;
$208.0 million used for purchases of property, plant and equipment;
To date, we have not experienced any significant losses with respect to the collection of our accounts receivable. If economic conditions worsen and/or the financial condition of our customers were to further deteriorate, our risk of collectability may increase, which may result in additional allowances and/or significant bad debts.
$148.3 millionFor additional information related to our concentration of credit risk associated with our accounts receivable balances, please read the subsection entitled “Credit Risk” in the “Quantitative and Qualitative Disclosures About Market Risk” section of payments made forthis report.
Capitalization of Inventory Costs
We capitalize inventory costs associated with our products prior to regulatory approval, when, based on management’s judgment, future commercialization is considered probable and the purchasefuture economic benefit is expected to be realized. We consider numerous attributes in evaluating whether the costs to manufacture a particular product should be capitalized as an asset. We assess the regulatory approval process and where the particular product stands in relation to that approval process, including any known safety or efficacy concerns, potential labeling restrictions and other impediments to approval. We evaluate our anticipated research and development initiatives and constraints relating to the product and the indication in which it will be used. We consider our manufacturing environment including our supply chain in determining logistical constraints that could hamper approval or commercialization. We consider the shelf life of the noncontrolling interestproduct in relation to the expected timeline for approval and we consider patent related or contract issues that may prevent or delay commercialization. We also base our joint venture investments in Biogen Dompé SRL and Biogen Dompé Switzerland GmbH;
$36.8 million in upfront payment to Portola under our October 2011 license agreement and a $8.2 million investmentjudgment on the viability of commercialization, trends in the equitymarketplace and market acceptance criteria. Finally, we consider the reimbursement strategies that may prevail with respect to the product and assess the economic benefit that we are likely to realize. We expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or significant delay of Portola;approval by necessary regulatory bodies. All changes in judgment in relation to pre-approval inventory have historically been insignificant.
$25.0 million milestone payment made to AcordaAcquired Intangible Assets, including In-process Research and Development (IPR&D)
Effective January 1, 2009, when we purchase a business, the acquired IPR&D is measured at fair value, capitalized as an intangible asset.
asset and tested for impairment at least annually, as of October 31, until commercialization, after which time the IPR&D is amortized over its estimated useful life. If we acquire an asset or group of assets that do not meet the definition of a business under applicable accounting standards, the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense as they are incurred.We have historically financed our operatingacquired, and capital expenditures primarily through cash flows earned through our operations. We expect to continue funding our currentto acquire, intangible assets through the acquisition of biotechnology companies or through the consolidation of variable interest entities. These intangible assets primarily consist of technology associated with human therapeutic products and planned operating requirements principally through ourIPR&D product candidates. When significant identifiable intangible assets are acquired, we generally engage an independent third-party valuation firm to assist in determining the fair values of these assets as of the acquisition date. Management will determine the fair value of less significant identifiable intangible assets acquired. Discounted cash flow models are typically used in these valuations, and these models require the use of significant estimates and assumptions including but not limited to:
estimating the timing of and expected costs to complete the in-process projects;
projecting regulatory approvals;
estimating future cash flows from operations,product sales resulting from completed products and in process projects; and
developing appropriate discount rates and probability rates by project.
We believe the fair values assigned to the intangible assets acquired are based upon reasonable estimates and assumptions given available facts and circumstances as of the acquisition dates.
If these projects are not successfully developed, the sales and profitability of the company may be adversely affected in future periods. Additionally, the value of the acquired intangible assets may become impaired. We believe that the foregoing assumptions used in the IPR&D analysis were reasonable at the time of the respective acquisition. No assurance can be given, however, that the underlying assumptions used to estimate expected project sales, development costs or profitability, or the events associated with such projects, will transpire as estimated.
Certain IPR&D programs have a fair value that is not significantly in excess of carrying value, including our program for the treatment of TGN. Such programs could become impaired if assumptions used in determining the fair value change.
Impairment and Amortization of Long-lived Assets and Accounting for Goodwill
Long-lived Assets Other than Goodwill
Long-lived assets to be held and used include property, plant and equipment as well as intangible assets, including IPR&D and trademarks. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We review our existingintangible assets with indefinite lives for impairment annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
When performing our impairment assessment, we calculate the fair value using the same methodology as described above under "Acquired Intangible Assets, including In-process Research and Development (IPR&D)". If the carrying value of our intangible assets with indefinite lives exceeds its fair value, then the intangible asset is written-down to its fair value.
Our most significant intangible assets are our acquired and in-licensed rights and patents and developed technology. Acquired and in-licensed rights and patents primarily relates to our acquisition of all remaining rights to TYSABRI from Elan. Developed technology primarily relates to our AVONEX product, which was recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. We amortize the intangible assets related to TYSABRI and AVONEX using the economic consumption method based on revenue generated from the products underlying the related intangible assets. An analysis of the anticipated lifetime revenues of TYSABRI and AVONEX is performed annually during our long range planning cycle, which is generally updated in the third quarter of each year, and whenever events or changes in circumstances
would significantly affect the anticipated lifetime revenues of TYSABRI or AVONEX.
Impairment charges related to our long-lived assets during 2015 and 2013 were insignificant. For additional information on the impairment charges related to our long-lived assets during 2014, please read Note 6, Intangible Assets and Goodwill to our consolidated financial statements included in this report.
Goodwill
Goodwill relates largely to amounts that arose in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003 and amounts that are being paid in connection with the acquisition of Fumapharm AG. Our goodwill balances represent the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the purchase method of accounting.
We assess our goodwill balance within our single reporting unit annually, as of October 31, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable to determine whether any impairment in this asset may exist and, if so, the extent of such impairment. We compare the fair value of our reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of our reporting unit, then we would need to determine the implied fair value of our reporting unit’s goodwill. If the carrying value of our reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.
We completed our required annual impairment test in the fourth quarters of 2015, 2014 and 2013, respectively, and determined in each of those periods that the carrying value of goodwill was not impaired. In each year, the fair value of our reporting unit, which includes goodwill, was significantly in excess of the carrying value of our reporting unit.
Investments, including Fair Value Measures and Impairments
We invest in various types of securities, including short-term and long-term marketable securities, principally corporate notes, government securities including government sponsored enterprise mortgage-backed securities and credit card and auto loan asset-backed securities, in which our excess cash resources.balances are invested.
In accordance with the accounting standard for fair value measurements, we have classified our financial assets as Level 1, 2 or 3 within the fair value hierarchy. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets that we have the ability to access. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates, yield curves and foreign currency spot rates. Fair values determined by Level 3 inputs utilize unobservable data points for the asset.
As noted in Note 7, Fair Value Measurements to our consolidated financial statements, a majority of our financial assets have been classified as Level 2. These assets have been initially valued at the transaction price and subsequently valued utilizing third-party pricing services. The pricing services use many observable market inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. We validate the prices provided by our third-party pricing services by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.
Impairment
We conduct periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment and its application to certain investments. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses on available-for-sale debt securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated other comprehensive income.
For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether we intend to sell or whether we would more likely than not be required to sell the security before the expected recovery of the amortized cost basis. Where we intend to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is reflected within earnings as an impairment loss.
Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security and are reflected within earnings as an impairment loss.
Share-Based Compensation
We make certain assumptions in order to value and record expense associated with awards made under our share-based compensation arrangements. Changes in these assumptions may lead to variability with respect to the amount of expense we recognize in connection with share-based payments.
Determining the appropriate valuation model and related assumptions requires judgment, and includes estimating the expected market price of our stock on vesting date and stock price volatility as well as the term of the expected awards. Determining the appropriate amount to expense based on the anticipated achievement of performance targets requires judgment, including forecasting the achievement of future financial targets. The estimate of expense is revised periodically based on the probability of achieving the required performance targets and adjustments are made throughout the performance as appropriate. The cumulative impact of any revision is reflected in the period of change.
We also estimate forfeitures over the requisite service period when recognizing share-based compensation expense based on historical rates and forward-looking factors; these estimates are adjusted to the extent that actual forfeitures differ, or are expected to materially differ, from our estimates.
Contingent Consideration
For acquisitions completed before January 1, 2009, we record contingent consideration resulting from a business combination when the contingency is resolved. For acquisitions completed after January 1, 2009, we record contingent consideration resulting from a business combination at its fair value on the acquisition date. Each reporting period thereafter, we revalue these obligations and record increases or decreases in their fair value as an adjustment to contingent consideration expense within the consolidated statement of income. Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs including adjustments to the discount rates and achievement and timing of any cumulative sales-based and development milestones, or changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market.
Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions described above, could have a material impact on the amount of contingent consideration expense we record in any given period.
Restructuring Charges
We have made estimates and judgments regarding the amount and timing of our restructuring expense and liability, including current and future period termination benefits, pipeline program termination costs and other exit costs to be incurred when related actions take place. Severance and other related costs are reflected in our consolidated statements of income as a component of total restructuring charges incurred. Actual results may differ from these estimates.
Income Taxes
We prepare and file income tax returns based on our interpretation of each jurisdiction’s tax laws and regulations. In preparing our consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. Significant management judgment is required in assessing the realizability of our deferred tax assets. In performing this assessment, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, under the applicable financial accounting standards, we are allowed to consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and the effects of tax planning strategies. Our estimates of future taxable income include, among other items, our estimates of future income tax deductions related to the exercise of stock options. In the event that actual results differ from our estimates, we adjust our estimates in future periods and we may need to establish a valuation allowance, which could materially impact our financial position and results of operations.
All tax effects associated with intercompany transfers of assets within our consolidated group, both current and deferred, are recorded as a prepaid tax or deferred charge and recognized through the consolidated statement of income when the asset transferred is sold to a third-party or otherwise recovered through amortization of the asset's remaining economic life. If the asset transferred becomes impaired, for example through the discontinuation of a research program, we will expense any remaining deferred charge or prepaid tax. As of December 31, 2015, the total deferred charges and prepaid taxes were $697.9 million.
We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis and consider various factors, that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, information obtained during in process audit activities and changes in facts or circumstances related to a tax position. We adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Our liabilities for uncertain tax positions can be relieved only if the contingency becomes legally extinguished through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the “more-likely-than-not” threshold or the liability becomes effectively settled through the examination process. We consider matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews, we have no plans to appeal or litigate any aspect of the tax position, and we believe that existing funds, when combined with cash generated from operationsit is highly unlikely that the taxing authority would examine or re-examine the related tax position. We also accrue for potential interest and our accesspenalties related to additional financing resources, if needed, are sufficient to satisfyunrecognized tax benefits in income tax expense.
We earn a significant amount of our operating working capital, strategic alliance, milestone payment, capital expenditure and debt service requirements for the foreseeable future. In addition, we may choose to opportunistically return cash to shareholders and pursue other business initiatives, including acquisition and licensing activities. We may, from time to time, also seek additional funding through a combination of new collaborative agreements, strategic alliances and additional equity and debt financings or from other sources should we identify a significant new opportunity.
We consider the unrepatriated cumulative earnings of certain of our foreign subsidiaries to be invested indefinitelyincome outside the U.S. Of the totalAs a result, a portion of our cash, cash equivalents, and marketable securities at are held by foreign subsidiaries. We currently do not intend or foresee a need to repatriate these funds. We expect existing domestic cash, cash equivalents, marketable securities and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities for the foreseeable future.
As of December 31, 2012,2015, our non-U.S. subsidiaries’ undistributed foreign earnings included in consolidated retained earnings and other basis differences aggregated to approximately $1.4 billion was generated from$6.0 billion. All undistributed foreign earnings of non-U.S. subsidiaries, exclusive of earnings that would result in little or no net income tax expense or which were previously taxed under current U.S. tax law, are reinvested indefinitely in operations outside the U.S. This determination is made on a jurisdiction-by-jurisdiction basis and takes into the account the liquidity requirements in foreign jurisdictionsboth the U.S. and is intended for use inwithin our foreign operations or in connection with business development transactions outside of the U.S. In managing our day-to-day liquiditysubsidiaries.
If we decide to repatriate funds in the U.S., we do not rely onfuture to execute our growth initiatives or to fund any other liquidity needs, the unrepatriated earnings as a source of funds and we have not provided for U.S. federal or state income taxes on these undistributed foreign earnings.
For additional information related to certain risks that couldresulting tax consequences would negatively impact our financial position or future results of operations through a higher effective tax rate and dilution of our earnings. The residual U.S. tax liability, if cumulative amounts were repatriated, would be between $1.5 billion to $2.0 billion as of December 31, 2015.
New Accounting Standards
For a discussion of new accounting standards please read the “Note 1, Risk FactorsSummary of Significant Accounting Principles” and “ to our consolidated financial statements included in this report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk” sections of this report.
Share Repurchase Programs
In May 2015, our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2015 Share Repurchase Program). As of December 31, 2015, the 2015 Share Repurchase Program was completed and we repurchased and retired approximately 16.8 million shares of common stock at a cost of $5.0 billion during the year ended December 31, 2015.
In February 2011, our Board of Directors authorized thea program to repurchase of up to 20.0 million shares of our common stock. This authorizationstock (2011 Share Repurchase Program), which has been used principally to offset common stock issuances under our share-based compensation plans. The 2011 Share Repurchase Program does not have an expiration date. In 2012,During 2014, we purchased approximately 7.82.9 million shares were repurchasedof common stock at a cost of $984.7$886.8 million.
under our 2011 Share Repurchase Program. We repurchased approximately 6.0 million shares at a cost of approximately $498.0 million under the 2011 authorization in 2011.
Approximately 6.2 milliondid not repurchase any shares of our common stock remainunder our 2011 Share Repurchase Program during the year ended December 31, 2015 and have approximately 1.3 million shares remaining available for repurchase under the 2011this authorization.
Cash, Cash Equivalents and Marketable Securities
Until required for another use in our business, we typically invest our cash reserves in bank deposits, certificates of deposit, commercial paper, corporate notes, U.S. and foreign government instruments and other interest bearing marketable debt instruments in accordance with our investment policy. WeIt is our policy to mitigate credit risk in our cash reserves and marketable securities by maintaining a well-diversified portfolio that limits the amount of exposure as to institution, maturity, and investment type. We also limit our exposure to European sovereign debt securities and maintain no holdings with respect to certain euro-zone states, such as Portugal, Italy, Greece, and Spain. The value of our investments, however, may be adversely affected by increases in interest rates, downgrades in the credit rating of the corporate bonds included in our portfolio, instability in the global financial markets that reduces the liquidity of securities included in our portfolio, and by other factors which may result in declines in the value of the investments. Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio if the declines are other-than-temporary or sell investments for less than our acquisition cost which could adversely impact our financial position and our overall liquidity. For a summary of the fair value and valuation methods of our marketable securities please read Note 9, Fair Value Measurements to our consolidated financial statements included in this report.
The increase in cash, cash equivalents and marketable securities from at December 31, 20112015 from December 31, 2014 is primarily due to the issuance of our 2015 Senior Notes and net cash flows provided by operating activities, and proceeds from the issuance of stock for share-based compensation arrangements offset by share repurchases, costs associated with a business acquisitionpurchases of our common stock, contingent payments made to former shareholders of Fumapharm AG and new license agreements andholders of their rights, net purchases of property, plant and equipment.equipment and the acquisition of Convergence.
Borrowings
On September 15, 2015, we issued senior unsecured notes for an aggregate principal amount of $6.0 billion, consisting of the following:
$1.5 billion of 2.90% Senior Notes due September 15, 2020, valued at 99.792% of par;
$1.0 billion of 3.625% Senior Notes due September 15, 2022, valued at 99.920% of par;
$1.75 billion of 4.05% Senior Notes due September 15, 2025, valued at 99.764% of par; and
$1.75 billion of 5.20% Senior Notes due September 15, 2045, valued at 99.294% of par.
In June 2012 our $360.0addition to the 2015 Senior Notes, we have $550.0 million aggregate principal amount of 6.875% Senior Notes due March 1, 2018 that were originally priced at 99.184% of par.
The discounts are amortized as additional interest expense over the period from issuance through maturity.
In August 2015, we entered into a $1.0 billion, 5-year senior unsecured revolving credit facility expiredunder which we are permitted to draw funds for working capital and wasgeneral corporate purposes. The terms of the revolving credit facility include a financial covenant that requires us not renewed.to exceed a maximum consolidated leverage ratio. As of December 31, 2015, we had no outstanding borrowings and were in compliance with all covenants under this facility.
We have $450.0 million aggregate principal amount of 6.0% Senior Notes due March 1, 2013 and $550.0 million aggregate principal amount of 6.875% Senior Notes due March 1, 2018.
In connection with our 2006 distribution agreement with Fumedica, we issued notes totaling 61.4 million Swiss Francs which were payable to Fumedica in varying amounts from June 2008 through June 2018. Our remaining note payable to Fumedica had a presentcarrying value of 16.48.9 million Swiss Francs ($17.9($9.0 million) and 11.6 million) and 18.6 million Swiss Franc ($19.7 million)Francs ($11.7 million) as of December 31, 20122015 and 2011,2014, respectively.
For a summary of the fair and carrying values of our outstanding borrowings as of December 31, 20122015 and 2011,2014, please read Note 9,7, Fair Value Measurements to our consolidated financial statements included in this report.
Working Capital
We define working capital as current assets less current liabilities. In accordance with ASU No. 2015-17, at December 31, 2015 we reclassified $137.1 million of our deferred tax assets classified as current to noncurrent and $1.6 million of our deferred tax liabilities classified as current to noncurrent in our December 31, 2014 consolidated balance sheet, to conform our prior year presentation to our current year presentation. For additional information related to ASU No. 2015-17, please read Note 1, Summary of Significant Accounting Policies: New Accounting Pronouncements to our consolidated financial statements included in this report.
The decreaseincrease in working capital from at December 31, 20112015 from December 31, 2014 reflects an increase in total current assets of $268.9$2,165.3 million, partially offset by a greateran increase in total current liabilities of $744.5$359.6 million. The increase in total current liabilities primarily resulted from the inclusion of our 6.0% Senior Notes, which are due March 1, 2013, as a component of total current liabilities. The increase in total current assets was primarily driven by an increase in inventorycash, cash equivalents and accounts receivablesmarketable securities due to the issuance of our 2015 Senior Notes and an increase in cash from operating activities, partially offset by a decreasepurchases of our common stock. The increase in our total financial assets classified as current.current liabilities primarily resulted from an increase in taxes payable and an increase in accrued expenses and other due to increases in the amount of short-term contingent consideration expected to be paid and revenue-related reserves for discounts and allowances.
Cash Flows
Our netThe following table summarizes our cash flows are summarized as follows:flow activity:
| | | | For the Years Ended December 31, | | % Change | For the Years Ended December 31, | | % Change |
| | 2012 compared to 2011 | | 2011 compared to 2010 | 2015 compared to 2014 | | 2014 compared to 2013 |
| (In millions, except percentages) | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 | |
| Net cash flows provided by operating activities | $ | 1,879.9 |
| | $ | 1,727.7 |
| | $ | 1,624.7 |
| | 8.8 | % | | 6.3 | % | $ | 3,716.1 |
| | $ | 2,942.1 |
| | $ | 2,345.1 |
| | 26.3 | % | | 25.5 | % |
| Net cash flows (used in) provided by investing activities | $ | (950.3 | ) | | $ | (1,650.3 | ) | | $ | 345.3 |
| | (42.4 | )% | | ** |
| |
| Net cash flows used in financing activities | $ | (877.5 | ) | | $ | (319.9 | ) | | $ | (1,784.9 | ) | | ** |
| | (82.1 | )% | |
| Net cash flows used in by investing activities | | $ | (4,553.6 | ) | | $ | (1,543.0 | ) | | $ | (1,604.7 | ) | | 195.1 | % | | (3.8 | )% |
| Net cash flows provided by (used in) financing activities | | $ | 986.4 |
| | $ | (755.9 | ) | | $ | (716.5 | ) | | (230.5 | )% | | 5.5 | % |
Operating Activities
Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. We expect cash provided from operating activities will continue to be our primary source of funds to finance operating needs and capital expenditures for the foreseeable future.
Operating cash flow is derived by adjusting our net income for:
Non-cash operating items such as depreciation and amortization, impairment charges and share-based compensation charges;
Changes in operating assets and liabilities which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations; and
Changes associated with the fair value of contingent milestonespayments associated with our acquisitions of businesses and payments related to collaborations.
For 20122015 compared to 2011,2014, the increase in cash provided by operating activities was primarily driven by an increase inhigher net income primarily resulting from increased product revenue, and higher accrued balancesaccounts receivable collections, partially offset by an increase in deferred income taxes and inventory balances.tax payments.
For 20112014 compared to 2010,2013, the increase in cash provided by operating activities was primarily driven by higher net income, partially offset by an increase in net income primarilyaccounts receivable resulting from increased product revenues and $104.6 million in proceeds from Dompé Farmaceutici SpA for the purchase of Biogen Dompé SRL’s outstanding receivables, offset by increased inventory balances and lower liabilities.
Investing Activities
For 20122015 compared to 2011,2014, the increase in net cash flows provided byused in investing activities iswas primarily due to an increase in net purchases of marketable securities, an increase in the total amount of contingent consideration paid to the former shareholders of Fumapharm AG, an increase in purchases of property, plant and equipment and cash paid for the acquisition of Convergence.
For 2014 compared to 2013, the decrease in net cash flows used in investing activities was primarily due to the prior year acquisition of all remaining rights to TYSABRI from Elan and a decrease in the net purchases of marketable securities, partially offset by the net cash paid for the acquisitionpayment of Stromedix. Net purchasescontingent consideration to former shareholders of marketable securities totaled $584.8 million in 2012,Fumapharm AG.
Financing Activities
For 2015 compared to $1,420.3 million in 2011.
For 2011 compared to 2010,2014, the decreasechange in net cash flows provided by investingfinancing activities iswas primarily due to the issuance of our 2015 Senior Notes, partially offset by an increase in the net purchasesamount of marketable securities. Net purchases of marketable securities totaled $1,420.3 million in 2011,common stock we repurchased.
For 2014 compared to net proceeds received from sales and maturities of marketable securities totaling $680.3 million in 2010. Net cash flows used in investing activities for 2010 also reflect $85.0 million in net payments made to Knopp under our 2010 license and stock purchase agreements.
Financing Activities
For 2012 compared to 2011,2013, the increase in net cash flows used in financing activities iswas primarily due primarily to an increase in the amountsamount of our common stock we repurchased, as well as a decrease in proceeds from the issuance of stock for share-based compensation arrangements. We received $67.5 million in 2012, compared to $314.7 million in 2011, related to stock option exercises and stock issuances under our employee stock purchase plan.
For 2011 compared to 2010, the decrease in net cash flows used in financing activities is due primarily to a decrease in the amounts of our common stock we repurchased and higher proceeds from the issuance of stock for share-based compensation arrangements in 2011,partially offset by the $148.3 million of payments made in 2011 for the purchaseprior year repayment of the noncontrolling interest inaggregate principal amount of our joint venture investments in Biogen Dompé SRL and Biogen Dompé Switzerland GmbH. In addition, we received $314.7 million in 2011 compared to $183.5 million in 2010, related to stock option exercises and stock issuances under our employee stock purchase plan. Cash used in financing activities during 2011, also includes the repayment of amounts outstanding under Biogen Dompé SRL’s line of credit in connection with our recent purchase of the noncontrolling interest in our joint venture investment in Biogen Dompé SRL.6.0% Senior Notes.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2012,2015, excluding amounts related to uncertain tax positions, amounts payable to tax authorities, funding commitments, contingent development, regulatory and commercial milestone payments, TYSABRI contingent payments and contingent consideration andrelated to our financing arrangements,business combinations, as described below.
| | | | Payments Due by Period | Payments Due by Period |
| (In millions) | Total | | Less than 1 Year | | 1 to 3 Years | | 3 to 5 Years | | After 5 Years | Total | | Less than 1 Year | | 1 to 3 Years | | 3 to 5 Years | | After 5 Years |
| Non-cancellable operating leases (1), (2) | $ | 654.8 |
| | $ | 45.6 |
| | $ | 112.2 |
| | $ | 98.8 |
| | $ | 398.2 |
| |
| Notes payable (3) | 1,218.0 |
| | 495.8 |
| | 81.9 |
| | 81.2 |
| | 559.1 |
| |
| Purchase and other obligations (4) | 97.5 |
| | 92.1 |
| | 4.4 |
| | 0.7 |
| | 0.3 |
| |
| Capital leases (1) | | $ | 20.7 |
| | $ | 2.0 |
| | $ | 18.7 |
| | $ | — |
| | $ | — |
|
| Non-cancellable operating leases (2), (3) | | 672.3 |
| | 69.9 |
| | 131.3 |
| | 117.3 |
| | 353.8 |
|
| Long-term debt obligations (4) | | 10,563.7 |
| | 282.6 |
| | 1,095.9 |
| | 1,983.3 |
| | 7,201.9 |
|
| Purchase and other obligations (5) | | 380.9 |
| | 258.5 |
| | 79.4 |
| | 24.0 |
| | 19.0 |
|
| Defined benefit obligation | 36.4 |
| | — |
| | — |
| | — |
| | 36.4 |
| 70.1 |
| | — |
| | — |
| | — |
| | 70.1 |
|
| Total contractual obligations | $ | 2,006.7 |
| | $ | 633.5 |
| | $ | 198.5 |
| | $ | 180.7 |
| | $ | 994.0 |
| $ | 11,687.0 |
| | $ | 611.0 |
| | $ | 1,306.6 |
| | $ | 2,124.6 |
| | $ | 7,644.8 |
|
| |
| (1) | During 2015 we amended our existing lease related to Eisai's oral solid dose products manufacturing facility in RTP, North Carolina, where we manufacture our and Eisai's oral solid dose products. Amounts reflected within the table above include the future contractual commitments. For additional information, please read Note 10, Property, Plant and Equipment to our consolidated financial statements included in this report. |
| |
| (2) | We lease properties and equipment for use in our operations. In addition to rent, the leases may require us to pay additional amounts for taxes, insurance, maintenance and other operating expenses. Amounts reflected within the table above detail future minimum rental commitments under non-cancelable operating leases as of December 31 for each of the periods presented. In addition to the minimum rental commitments, these leases may require us to pay additional amounts for taxes, insurance, maintenance and other operating expenses. |
| |
(2)(3) | Includes future minimum rental commitments relatedObligations are presented net of sublease income expected to leases executedbe received for two buildings currently under construction in Cambridge,the vacated portion of our Weston, Massachusetts with a planned occupancy during the second half of 2013.facility. For additional information, related to our leases in Cambridge, Massachusetts, please read Note 12,10, Property, Plant and Equipment to our consolidated financial statements included in this report.
|
Includes future minimum rental commitments of $9.3 million related to our lease arrangement with Eisai. The 10 year lease agreement, which is cancellable after 5 years and will become effective in February 2013, gives us the option to purchase the facility.
| |
(3) | Notes payable includes principal and interest payments. |
| |
| (4) | Long-term debt obligations are primarily related to our Senior Notes, including principal and interest payments. |
| |
| (5) | Purchase and other obligations includeprimarily includes our obligations to purchase direct materials and also includes approximately $126.4 million in contractual commitments for the construction of a biologics manufacturing facility in Solothurn, Switzerland and approximately $14.414.7 million related to the fair value of net liabilities on derivative contracts due in less than one year, approximately $5.4 million related to fixed obligations for the purchase of natural gas and approximately $4.0 million related to obligations for communication services.contracts. |
Tax Related Obligations
We exclude liabilities pertaining to uncertain tax positions from our summary of contractual obligations as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. As of December 31, 2012,2015, we have approximately $71.7$45.4 million of net liabilities associated with uncertain tax positions.
Other Funding Commitments
As of December 31, 2012, our cash contributions to Samsung Bioepis totaled 36.0 billion South Korean won (approximately $32.1 million). We are obligated to fund an additional 13.5 billion South Korean won (approximately
$12.5 million), which is due within the next year. For additional information related to our relationship with Samsung Bioepis, please read Note 21, Collaborative and Other Relationships to our consolidated financial statements included in this report.
As of December 31, 2012, we have funding commitments of up to approximately $11.6 million as part of our investment in biotechnology oriented venture capital funds.
As of December 31, 2012,2015, we have several on-going clinical studies in various clinical trial stages. Our most significant clinical trial expenditures are to clinicalcontract research organizations (CROs). The contracts with CROs are generally cancellable, with notice, at our option. We have recorded accrued expenses of approximately $26.5$25.0 million on our consolidated balance sheet for expenditures incurred by CROs as of December 31, 2012.2015. We have approximately $440.0$559.0 million in cancellable future commitments based on existing CRO contracts as of December 31, 2012.2015.
Contingent Development, Regulatory and Commercial Milestone Payments
Based on our development plans as of December 31, 2012,2015, we have committed tocould make potential future milestone payments to third parties of up to approximately $1.5$2.8 billion as part of our various collaborations, including licensing and development programs. Payments under these agreements generally become due and payable only upon achievement of certain development, regulatory or commercial milestones. Because the achievement of these milestones had not occurred as of December 31, 2012,2015, such contingencies have not been recorded in our financial statements.
We anticipate that we may pay approximately $14.5 million of milestone payments in 2013, provided various development, regulatory or commercial milestones are achieved. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval and commercial milestones. These
We anticipate that we may pay approximately $150.0 million of milestone payments in 2016, provided various development, regulatory or commercial milestones mayare achieved.
TYSABRI Contingent Payments
In 2013, we acquired from Elan full ownership of all remaining rights to TYSABRI that we did not be achieved.already own or control. Under the terms of the acquisition agreement, we are obligated to make contingent payments to Elan of 18% on annual worldwide net sales up to $2.0 billion and 25% on annual worldwide net sales that exceed $2.0 billion. Royalty payments to Elan and other third parties are recognized as cost of sales in our consolidated statements of income. Elan was acquired by Perrigo in December 2013. Following that acquisition, we began making these royalty payments to Perrigo.
Contingent Consideration related to Business Combinations
In connection with our purchase of the noncontrolling interests in our joint venture investments in Biogen Dompé SRL and Biogen Dompé Switzerland GmbH and our acquisitions of Convergence, Stromedix, Inc. (Stromedix), Biogen International Neuroscience GmbH (formerly Biogen Idec International Neuroscience GmbH,GmbH) (BIN), Biogen Hemophilia Inc. (formerly Biogen Idec Hemophilia Inc.,) (BIH) and Fumapharm AG, we agreed to make additional payments of up to approximately $1.0 billion based upon the achievement of certain milestone events. These milestones may not be achieved.
As the acquisitions of the noncontrolling interests in our joint venture investments and our acquisitions ofConvergence, Stromedix and Biogen Idec International Neuroscience GmbHBIN, formerly Panima Pharmaceuticals AG, occurred after January 1, 2009, we record contingent consideration liabilities at their fair value on the acquisition date and revalue these obligations each reporting period. We may pay up to approximately $1.3 billion in remaining milestones related to these acquisitions. For additional information related to these transactionsour acquisition of Convergence please read Note 2, Acquisitions, to theseour consolidated financial statements.statements included in this report.
BIH
In connection with our acquisition of Biogen Idec Hemophilia Inc. (BIH),BIH, formerly Syntonix, in January 2007, we agreed to pay up to an additional $80.0$80.0 million if certain milestone events associated with the development of BIH’s lead product, long-lasting recombinant Factor IXALPROLIX are achieved. The first $40.0final $20.0 million contingent payment was achieved in the first quarter of 2010. An additional $20.0 million contingent payment will occur if prior to the tenth anniversary of the closing date, the FDA grants approval of a Biologic License Application for Factor IX. A second $20.0 million contingent payment will occur if, prior to the tenth anniversary of the closing date, a marketing authorization is granted by the EMA for Factor IX. For additional information relatedALPROLIX. This payment will be accounted for as an increase to intangible assets if achieved. In June 2015, the EMA validated our acquisitionMAA for ALPROLIX for the treatment of BIH, please read Note 2, Acquisitions to our consolidated financial statements included in this report.hemophilia B.
Fumapharm AG
58
In 2006, we acquired Fumapharm AG. As part of this acquisition we acquired FUMADERM and TECFIDERA (together, Fumapharm Products). We paid $220.0 million upon closing of the transaction and will pay an additional $15.0 million if a Fumapharm Product is approved for MS in the U.S. or E.U. We would also beare required to make the following additional milestonecontingent payments to former shareholders of Fumapharm AG or holders of their rights based on the attainment of certain cumulative sales levels of Fumapharm Products less certain costsand the level of total net sales of Fumapharm Products in the prior twelve month period, as defined in the acquisition agreement:agreement.
During 2015, we paid $850.0 million in contingent payments as we reached the $4.0 billion, $5.0 billion and $6.0 billion cumulative sales levels related to the Fumapharm Products in the fourth quarter of 2014, second quarter of 2015 and third quarter of 2015, respectively, and accrued $300.0 million upon reaching $7.0 billion in total cumulative sales of Fumapharm Products in the fourth quarter of 2015.
|
| | | | | | | | | | | | | | | | | | | |
| | Cumulative Sales Level |
| Prior 12 Month Sales | $500M | | $1.0B | | $2.0B | | $3.0B | | Each additional $1.0B up to $20.0B |
| | Payment Amount (In millions) |
| < $500 million | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| $500 million — $1.0 billion | 22.0 |
| | 25.0 |
| | 50.0 |
| | 50.0 |
| | 50.0 |
|
| $1.0 billion — $1.5 billion | — |
| | 50.0 |
| | 100.0 |
| | 100.0 |
| | 100.0 |
|
| $1.5 billion — $2.0 billion | — |
| | — |
| | 150.0 |
| | 150.0 |
| | 150.0 |
|
| $2.0 billion — $2.5 billion | — |
| | — |
| | 200.0 |
| | 200.0 |
| | 200.0 |
|
| $2.5 billion — $3.0 billion | — |
| | — |
| | — |
| | 250.0 |
| | 250.0 |
|
| > $3.0 billion | — |
| | — |
| | — |
| | — |
| | 300.0 |
|
We will owe an additional $300.0 million contingent payment for every additional $1.0 billion in cumulative sales level of Fumapharm Products reached if the prior 12 months sales of the Fumapharm Products exceed $3.0 billion, until such time as the cumulative sales level reaches $20.0 billion, at which time no further contingent payments shall be due. These payments will be accounted for as an increase to goodwill as incurred, in accordance with the accounting standard applicable to business combinations when we acquired Fumapharm. Any portion of the payment which is tax deductible will be recorded as a reduction to goodwill. Payments are due within 3060 days following the end of the quarter in which the applicable cumulative sales level has been reached and are based upon the total sales of Fumapharm Products in the prior twelve month period.reached.
Financing Arrangement
In July 2011, we executed leases for two office buildings currently under construction in Cambridge, Massachusetts with a planned occupancy during the second half of 2013. Construction of these facilities began in late 2011. In accordance with accounting guidance applicable to entities involved with the construction of an asset that will be leased when the construction is completed, we are considered the owner of these properties during the construction period. Accordingly, we record an asset along with a corresponding financing obligation on our consolidated balance sheet for the amount of total project costs incurred related to the construction in progress for these buildings through completion of the construction period. Upon completion of the buildings, we will assess and determine if the assets and corresponding liabilities should be derecognized. As of December 31, 2012 and 2011, cost incurred by the developer in relation to the construction of these buildings totaled approximately $86.5 million and $2.2 million, respectively.
Other Off-Balance Sheet Arrangements
We do not have any relationships with entities often referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. We consolidate variable interest entities if we are the primary beneficiary.
Legal Matters
For a discussion of legal matters as of December 31, 2012,2015, please read Note 22,20, Litigation to our consolidated financial statements included in this report.
Critical Accounting Estimates
The preparation of our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP), requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and liabilities. We evaluate our estimates, judgmentsequity and assumptions on an ongoing basis.the amount of revenue and expenses. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition and Related Allowances
We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; our price to the customer is fixed or determinable; and collectability is reasonably assured.
Product Revenues
Revenues from product sales are recognized when title and risk of loss have passed to the customer, which is typically upon delivery. However, sales of TYSABRI in the U.S. are recognized on the “sell-through” model, that is, upon shipment of the product by Elan to its third party distributor rather than upon shipment to Elan. The timing of distributor orders and shipments can cause variability in earnings.
Revenues from Unconsolidated Joint Business
We collaborate with Genentech on the development and commercialization of RITUXAN. Revenues from unconsolidated joint business consist of (1) our share of pre-tax co-promotion profits in the U.S.; (2) reimbursement of our selling and development expense in the U.S.; and (3) revenue on sales of RITUXAN in the rest of world, which consists of our share of pre-tax co-promotion profits in Canada and royalty revenue on sales of RITUXAN outside the U.S. and Canada by F. Hoffmann-La Roche Ltd. (Roche) and its sublicensees. Pre-tax co-promotion profits are calculated and paid to us by Genentech in the U.S. and by Roche in Canada. Pre-tax co-promotion profits consist of U.S. and Canadian sales of RITUXAN to third-party customers net of discounts and allowances less the cost to manufacture RITUXAN, third-party royalty expenses, and distribution, selling and marketing, and joint development expenses incurred by Genentech, Roche and us. We record our share of the pre-tax co-promotion profits in Canada and royalty revenues on sales of RITUXAN outside the U.S. on a cash basis. Additionally, our share of the pre-tax co-promotion profits in the U.S. includes estimates made by Genentech and us and those estimates are subject to change. Actual results may ultimately differ from our estimates.
Reserves for Discounts and Allowances
We establish reserves for trade term discounts, wholesaler incentives, Medicaid and managed care rebates, copay, VA and PHS discounts, managed care rebates, product returns and other governmental discountsrebates or applicable allowances, including those associated with the implementation of pricing actions in certain of the international markets in which we operate. These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Our estimates take into consideration our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. If actual results vary, we may need to adjust these estimates, which could have an effect on earnings in the period of the adjustment. The estimates we make with respect to these allowances represent the most significant judgments with regard to revenue recognition.
In addition to the discounts and rebates described above and classified as a reduction of revenue, we also maintain certain customer service contracts with distributors and other customers in the distribution channel that provide us with inventory management, data and distribution services.services, which are generally reflected as a reduction of revenue. To the extent we can demonstrate a separable benefit and fair value for these services, we classify these payments within selling, general and administrative expenses.
Bad Debt Reserves
Bad debt reservesRevenues from Unconsolidated Joint Business
Revenues from unconsolidated joint business consists of (i) our share of pre-tax profits and losses in the U.S. for RITUXAN and GAZYVA; (ii) reimbursement of our selling and development expenses in the U.S. for RITUXAN; and (iii) revenue on sales in the rest of world for RITUXAN, which consist of our share of pre-tax co-promotion profits in Canada and royalty revenue on sales outside the U.S. and Canada by the Roche Group and its sublicensees. Pre-tax co-promotion profits on RITUXAN are basedcalculated and paid to us by Genentech in the U.S. and by the Roche Group in Canada. Pre-tax co-promotion profits consist of U.S. and Canadian net sales to third-party customers less the cost to manufacture, third-party royalty expenses, distribution, selling, and marketing expenses, and joint development expenses incurred by Genentech, the Roche Group and us. We record our share of the pre-tax co-promotion profits on our estimated uncollectible accounts receivable. Given our historical experience with bad debts, combined with our credit management policiesRITUXAN in Canada and practices,royalty revenues on sales outside the U.S. on a cash basis as we do not presently maintain significant bad debt reserves. However certainhave the ability to estimate these profits or royalty revenue in the period incurred. Additionally, our share of our customersthe pre-tax profits on RITUXAN and GAZYVA in the U.S. includes estimates made by Genentech and those estimates are based in countries where the economic conditions continuesubject to present challenges. We continue to monitor these conditions and associated impacts on the financial performance and credit worthiness ofchange. Actual results may differ from our large customers so that we can properly assess and respond to changes in their credit profile. Our historical write-offs of accounts receivable have not exceeded management’s estimates.
Concentrations of Credit Risk
The majority of our receivables arise from product sales in the United StatesU.S. and Europe and are primarily due from wholesale distributors, public hospitals and other government entities. We monitor the financial performance and credit worthinesscreditworthiness of our large customers so that we can properly assess and respond to changes in their credit profile. We continue to monitor economicthese conditions, including the volatility associated with international economies and associated impacts on the relevant financial markets, and assess their possible impact on our business, especially in light of the global economic downturn. The creditbusiness. Credit and economic conditions within many ofin the international markets in which we operate, particularly in certain countries throughout Europe, such as Italy, Spain and Portugal, have continued to deteriorate throughout 2012. These conditions have resulted in, and mayE.U. continue to result in, an increase in the average length ofremain uncertain, which has, from time that it takes to collect ontime, led to long collection periods for our accounts receivable outstandingand greater collection risk in certain countries.
Where our collections continue to be subject to significant payment delays due to government funding and reimbursement practices and a portion of these countries.
In countries where we have experienced a pattern of extended payments and we expect to collect receivables greater than one year, from the time of sale, we have discounted our receivables and reduced related revenues overbased on the period of time that we estimate those amounts will be paid, to the extent such period exceeds one year, using the country’s market-based borrowing rate for such period. The related receivables are classified at the time of sale as long-termnon-current assets.
To date, we have not experienced any significant losses with respect to the collection of our accounts receivable. If economic conditions worsen and/or the financial condition of our customers were to further deteriorate, our risk of collectability may increase, which may result in additional allowances and/or significant bad debts.
For additional information related to our concentration of credit risk associated with our accounts receivable balances, please read the subsection above entitled “Credit Risk” in thisthe “Management’s DiscussionQuantitative and AnalysisQualitative Disclosures About Market Risk” section of Financial Condition and Results of Operations.”this report.
Royalty Revenues
We receive royalty revenues under license agreements with a number of third parties that sell products based on technology we have developed or to which we own rights. The license agreements provide for the payment of royalties to us based on sales of these licensed products. There are no future performance obligations on our part under these license agreements. We record 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 that have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. We maintain regular communication with our licensees in order to assess the reasonableness of our estimates. Differences between actual royalty revenues and estimated royalty revenues are adjusted for in the period in which they become known, typically the following quarter. Historically, adjustments have not been material when compared to actual amounts paid by licensees. To the extent we do not have sufficient ability to accurately estimate revenues, we record such revenues on a cash basis.
Clinical Trial Expenses
Clinical trial expenses include expenses associated with CROs. The invoicing from CROs for services rendered can lag several months. We accrue the cost of services rendered in connection with CRO activities based on our estimate of site management, monitoring costs, and project management costs. We maintain regular communication with our CROs to gauge the reasonableness of our estimates. Differences between actual clinical trial expenses and estimated clinical trial expenses recorded have not been material and are adjusted for in the period in which they become known. We also accrue the costs of ongoing clinical trials associated with programs that have been terminated or discontinued for which there is no future economic benefit at the time the decision is made to terminate or discontinue the program.
Consolidation of Variable Interest Entities
We consolidate variable interest entities in which we are the primary beneficiary. For such consolidated entities where we own or are exposed to less than 100% of the economics, we record noncontrolling interest in our statement of income for the current results allocated to the third party equity interests.
In determining whether we are the primary beneficiary of a variable interest entity, we consider a number of factors, including our ability to direct the activities that most significantly affect the entity’s economic success, our contractual rights and responsibilities under the arrangement and the significance of the arrangement to each party. These considerations impact the way we account for our existing collaborative and joint venture relationships and may result in the future consolidation of companies or entities with which we have collaborative or other arrangements.
Inventory
Inventories are stated at the lower of cost or market with cost determined in a manner that approximates the first-in, first-out (FIFO) method. Included in inventory are raw materials used in the production of multiple pre-clinical and clinical products, which are expensed as research and development costs when consumed.
Capitalization of Inventory Costs
Our policy is toWe capitalize inventory costs associated with our products prior to regulatory approval, when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. We consider numerous attributes in evaluating whether the costs to manufacture a particular product should be capitalized as an asset. We assess the regulatory approval process and where the particular product stands in relation to that approval process, including any known safety or efficacy concerns, potential labeling restrictions and other impediments to approval. We evaluate our anticipated research and development initiatives and constraints relating to the product and the indication in which it will be used. We consider our manufacturing environment including our supply chain in determining logistical constraints that could hamper approval or commercialization. We consider the shelf life of the product in relation to
the expected timeline for approval and we consider patent related or contract issues that may prevent or delay commercialization. We also base our judgment on the viability of commercialization, trends in the marketplace and market acceptance criteria. Finally, we consider the reimbursement strategies that may prevail with respect to the product and assess the economic benefit that we are likely to realize.
We expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or significant delay of approval by necessary regulatory bodies. As of December 31, 2012, $38.3 million of ourAll changes in judgment in relation to pre-approval inventory including costs associated with our TECFIDERA, Serum-Free AVONEX, Factor VIII and Factor IX programs, have historically been capitalized in advance of regulatory approval. As of December 31, 2011, the carrying value of our inventory did not include any costs associated with products that had not yet received regulatory approval.insignificant.
There is a risk inherent in these judgments and any changes we make in these judgments may have a material impact on our results in future periods.
Obsolescence and Unmarketable Inventory
We periodically review our inventories for excess or obsolete inventory and write-down obsolete or otherwise unmarketable inventory to its estimated net realizable value. If the actual net realizable value is less than that estimated by us, or if it is determined that inventory utilization will further diminish based on estimates of demand, additional inventory write-downs may be required. Additionally, our products are subject to strict quality control and monitoring which we perform throughout the manufacturing process. In the event that certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, we will record a charge to cost of sales to write-down any obsolete or otherwise unmarketable inventory to its estimated net realizable value. In all cases, product inventory is carried at the lower of cost or its estimated net realizable value.
Acquired Intangible Assets, including In-process Research and Development (IPR&D)
Effective January 1, 2009, when we purchase a business, the acquired IPR&D is measured at fair value, capitalized as an intangible asset and tested for impairment at least annually, as of October 31, until commercialization, after which time the IPR&D is amortized over its estimated useful life. If we acquire an asset or group of assets that do not meet the definition of a business under applicable accounting standards, the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense as they are incurred.
We have acquired, and expect to continue to acquire, intangible assets through the acquisition of biotechnology companies or through the consolidation of variable interest entities. These intangible assets primarily consist of technology associated with human therapeutic products and in-process research and developmentIPR&D product candidates. When significant identifiable intangible assets are acquired, we generally engage an independent third-party valuation firm to assist in determining the fair values of these assets as of the acquisition date. Management will determine the fair value of less significant identifiable intangible assets acquired. Discounted cash flow models are typically used in these valuations, and these models require the use of significant estimates and assumptions including but not limited to:
estimating the timing of and expected costs to complete the in-process projects;
projecting regulatory approvals;
estimating future cash flows from product sales resulting from completed products and in process projects; and
developing appropriate discount rates and probability rates by project.
We believe the fair values assigned to the intangible assets acquired are based upon reasonable estimates and assumptions given available facts and circumstances as of the acquisition dates.
If these projects are not successfully developed, the sales and profitability of the company may be adversely affected in future periods. Additionally, the value of the acquired intangible assets may become impaired. We believe that the foregoing assumptions used in the IPR&D analysis were reasonable at the time of the respective acquisition. No assurance can be given, however, that the underlying assumptions used to estimate expected project sales, development costs or profitability, or the events associated with such projects, will transpire as estimated.
Effective January 1, 2009, if we are purchasing a business, the acquiredCertain IPR&D is measured atprograms have a fair value capitalized as an intangible asset and testedthat is not significantly in excess of carrying value, including our program for impairment at least annually until commercialization, after which time the IPR&D is amortized over its estimated useful life. If we acquire an asset or grouptreatment of assets, that do not meetTGN. Such programs could become impaired if assumptions used in determining the definition of a business under applicable accounting standards; the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to expense as they are incurred if the technology lacks alternative future uses.fair value change.
Impairment and Amortization of Long-lived Assets and Accounting for Goodwill
Long-lived Assets Other than Goodwill
Long-lived assets to be held and used includinginclude property, plant and equipment as well as intangible assets, including IPR&D and trademarks, totaled approximately $3,373.8 million as of December 31, 2012trademarks. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We review our intangible assets with indefinite lives for impairment annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
When performing our impairment assessment, we first assess qualitative factors to determine whether it is necessary to recalculate the fair value of our intangible assets with indefinite lives. If we believe, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of our intangible assets with indefinite lives is less than its carrying amount, we calculate the fair value using the same methodology as described above.above under "Acquired Intangible Assets, including In-process Research and Development (IPR&D)". If the carrying value of our intangible assets with indefinite lives exceeds its fair value, then the intangible asset is written-down to theirits fair values.value.
Our most significant intangible asset is the core technology relatedassets are our acquired and in-licensed rights and patents and developed technology. Acquired and in-licensed rights and patents primarily relates to our AVONEX product. We believe the economic benefitacquisition of our coreall remaining rights to TYSABRI from Elan. Developed technology is consumed as revenue is generated fromprimarily relates to our AVONEX product, which we referwas recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. We amortize the intangible assets related to asTYSABRI and AVONEX using the economic consumption amortization model. This amortization methodology involves calculating a ratio of actual current period sales to total anticipated sales formethod based on revenue generated from the life ofproducts underlying the product and applying this ratio to the carrying amount of therelated intangible asset.assets. An analysis of the anticipated product saleslifetime revenues of TYSABRI and AVONEX is performed at least annually during our long range planning cycle, and this analysis serves as the basis for the calculation of our economic consumption amortization model. This analysiswhich is based upon certain assumptions that we evaluate on a periodic basis, such as the anticipated product sales of AVONEX and AVONEX related products and expected impact of competitor products and our own pipeline product candidates, as well as the issuance of new patents or the extension of existing patents. We completed our most recent long range planning cyclegenerally updated in the third quarter of 2012.each year, and whenever events or changes in circumstances
We monitor events and expectations regarding product performance. If there are any indications that the assumptions underlying our most recent analysis
would be different than those utilized within our current estimates, our analysis would be updated and may result in a significant change insignificantly affect the anticipated lifetime revenuerevenues of AVONEX determined during our most recent annual review.TYSABRI or AVONEX.
We did not recognize an impairment chargeImpairment charges related to our long-lived assets during 2015 and 2013 were insignificant. For additional information on the impairment charges related to our long-lived assets during 2014, please read Note 6, 2012, 2011Intangible Assets and Goodwill and 2010.to our consolidated financial statements included in this report.
Goodwill
Goodwill totaled approximately $1,201.3 million as of December 31, 2012, and relates largely to amounts that arose in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation.Corporation in 2003 and amounts that are being paid in connection with the acquisition of Fumapharm AG. Our goodwill balances represent the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the purchase method of accounting.
We assess our goodwill balance within our single reporting unit annually, as of October 31, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable to determine whether any impairment in this asset may exist and, if so, the extent of such impairment. We first assess qualitative factors to determine whether it is necessary to perform the current two-step impairment test. If we believe, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of our reporting unit is less than its carrying amount, the quantitative two-step impairment test is required; otherwise, no further testing is required. In the first step, we compare the fair value of our reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of our reporting unit, then the second step of the impairment test is performed in orderwe would need to determine the implied fair value of our reporting unit’s goodwill. If the carrying value of our reporting unit’s goodwill exceeds its implied fair value, then the company recordswe would record an impairment loss equal to the difference.
We completed our required annual impairment test in the fourth quarterquarters of 2012, 20112015, 2014 and 20102013, respectively, and determined in each of those periods that the carrying value of goodwill was not impaired. In each year, the fair value of our reporting unit, which includes goodwill, was significantly in excess of the carrycarrying value of our reporting unit.
Investments, including Fair Value Measures and Impairments
We invest in various types of securities, including short-term and long-term marketable securities, principally corporate notes, government securities including government sponsored enterprise mortgage-backed securities and credit card and auto loan asset-backed securities, in which our excess cash balances are invested.
In accordance with the accounting standard for fair value measurements, we have classified our financial assets as Level 1, 2 or 3 within the fair value hierarchy. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets that we have the ability to access. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates, yield curves and yield curves.foreign currency spot rates. Fair values determined by Level 3 inputs utilize unobservable data points for the asset.
As noted in Note 9,7, Fair Value Measurements to our consolidated financial statements, a majority of our financial assets have been classified as Level 2. These assets have been initially valued at the transaction price and subsequently valued utilizing third partythird-party pricing services. The pricing services use many observable market inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. We validate the prices provided by our third partythird-party pricing services by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.
We also have some investments classified as Level 3 whose fair value is initially measured at transaction prices and subsequently valued using the pricing of recent financing or by reviewing the underlying economic fundamentals and liquidation value of the companies. We apply judgments and estimates when we validate the prices provided by third parties. While we believe the valuation methodologies are appropriate, the use of valuation methodologies is highly judgmental and changes in methodologies can have a material impact on our results of operations.
Impairment
We conduct periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment and its application to certain investments. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses on available-for-sale debt securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated other comprehensive income.
For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether we intend to sell or whether we would more likely than not be required to sell the security before the expected recovery of the amortized cost basis. Where we intend to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is reflected within earnings as an impairment loss.
Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security and are reflected within earnings as an impairment loss.
Share-Based Compensation
We make certain assumptions in order to value and record expense associated with awards made under our share-based compensation arrangements. Changes in these assumptions may lead to variability with respect to the amount of expense we recognize in connection with share-based payments.
Determining the appropriate valuation model and related assumptions requires judgment, and includes estimating the expected market price of our stock on vesting date and stock price volatility as well as the term of the expected awards. Determining the appropriate amount to expense based on the anticipated achievement of performance targets requires judgment, including forecasting the achievement of future financial targets. The estimate of expense is revised periodically based on the probability of achieving the required performance targets and adjustments are made throughout the performance as appropriate. The cumulative impact of any revision is reflected in the period of change.
We also estimate forfeitures over the requisite service period when recognizing share-based compensation expense based on historical rates and forward-looking factors; these estimates are adjusted to the extent that actual forfeitures differ, or are expected to materially differ, from our estimates.
Contingent Consideration
For acquisitions completed before January 1, 2009, we record contingent consideration resulting from a business combination when the contingency is resolved. For acquisitions completed after January 1, 2009, we record contingent consideration resulting from a business combination at its fair value on the acquisition date. Each reporting period thereafter, we revalue these obligations and record increases or decreases in their fair value as an adjustment to contingent consideration expense within the consolidated statement of income. Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs including adjustments to the discount rates and periods, updates in the assumed achievement orand timing of any cumulative sales-based and development milestones, or changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market.
Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions described above, could have a material impact on the amount of contingent consideration expense we record in any given period.
Restructuring Charges
We have made estimates and judgments regarding the amount and timing of our restructuring expense and liability, including current and future period termination benefits, pipeline program termination costs and other exit costs to be incurred when related actions take place. Severance and other related costs are reflected in our consolidated statements of income as a component of total restructuring charges incurred. Actual results may differ from these estimates.
Income Taxes
We prepare and file income tax returns based on our interpretation of each jurisdiction’s tax laws and regulations. In preparing our consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. Significant management judgment is required in assessing the realizability of our deferred tax assets. In performing this assessment, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, under the applicable financial accounting standards, we are allowed to consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and the effects of tax planning strategies. Our estimates of future taxable income include, among other items, our estimates of future income tax deductions related to the exercise of stock options. In the event that actual results differ from our estimates, we adjust our estimates in future periods and we may need to establish a valuation allowance, which could materially impact our financial position and results of operations.
All tax effects associated with intercompany transfers of assets within our consolidated group, both current and deferred, are recorded as a prepaid tax or deferred charge and recognized through the consolidated statement of income when the asset transferred is sold to a third-party or otherwise recovered through amortization of the asset's remaining economic life. If the asset transferred becomes impaired, for example through the discontinuation of a research program, we will expense any remaining deferred charge or prepaid tax. As of December 31, 2015, the total deferred charges and prepaid taxes were $697.9 million.
We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis and consider various factors, that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, newinformation obtained during in process audit activityactivities and changes in facts or circumstances related to a tax position. We adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Our liabilities for uncertain tax positions can be relieved only if the contingency becomes legally extinguished through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the “more-likely-than-not” threshold or the liability becomes effectively settled through the examination process. We consider matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews;reviews, we have no plans to appeal or litigate any aspect of the tax position;position, and we believe that it is highly unlikely that the taxing authority would examine or re-examine the related tax position. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense.
We earn a significant amount of our operating income outside the U.S. As a result, a portion of our cash, cash equivalents, and marketable securities are held by foreign subsidiaries. We currently do not intend or foresee a need to repatriate these funds. We expect existing domestic cash, cash equivalents, marketable securities and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities for the foreseeable future.
As of December 31, 2012,2015, our non-U.S. subsidiaries’ undistributed foreign earnings included in consolidated retained earnings and other basis differences aggregated to approximately $3.3$6.0 billion. We intend to reinvest theseAll undistributed foreign earnings of non-U.S. subsidiaries, exclusive of earnings that would result in little or no net income tax expense or which were previously taxed under current U.S. tax law, are reinvested indefinitely in operations outside the U.S.; however, if This determination is made on a jurisdiction-by-jurisdiction basis and takes into the account the liquidity requirements in both the U.S. and within our foreign subsidiaries.
If we decide to repatriate funds in the future to execute our growth initiatives or to fund any other liquidity needs, the resultantresulting tax consequences would negatively impact our results of operations.operations through a higher effective tax rate and dilution of our earnings. The residual U.S. tax liability, if suchcumulative amounts were remitted,repatriated, would be between $800 million$1.5 billion to $900 million$2.0 billion as of December 31, 2012.2015.
Contingencies
We are currently involved in various claims and legal proceedings. On a quarterly basis, we review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise our estimates. These revisions in the estimates of the potential liabilities could have a material impact on our consolidated results of operations and financial position.
New Accounting Standards
For a discussion of new accounting standards please read Note 1, Summary of Significant Accounting Principles to our consolidated financial statements included in this report.
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Item 7A.
| Quantitative and Qualitative Disclosures About Market Risk |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
We are subject to certain risks which may affect our results of operations, cash flows and fair values of assets and liabilities, including volatility in foreign currency exchange rates, interest rate movements, pricing pressures worldwide and weak economic conditions in the foreign markets in which we operate. We manage the impact of foreign currency exchange rates and interest rates through various financial instruments, including derivative instruments such as foreign currency forward contracts, interest rate lock contracts and interest rate swap contracts. We do not enter into financial instruments for trading or speculative purposes. Further, we only enter into contracts with counterparties that have at least an "A" (or equivalent) credit rating. The counter-parties to these contracts are major financial institutions and there is no significant concentration of exposure with any one counter-party.
Foreign Currency Exchange Risk
Our results of operations are subject to foreign currency exchange rate fluctuations due to the global nature of our operations. We have operations or maintain distribution relationships in the U.S., Europe, Middle East, Canada, Switzerland, Denmark, Japan, Australia, New Zealand and Central and South America, Australia, New Zealand, Japan, China, India and elsewhere in Asia in connection with the sale of AVONEX and TYSABRI and in Germany in connection with the sale of FUMADERM. FAMPYRA is commercially available throughout the European Union and in Canada, Australia, New Zealand, Israel and South Korea.America. In addition, we receive royalty revenues based on worldwide product sales by our licensees and through Genentech on sales of RITUXAN in the rest of world.Canada. As a result, our financial position, results of operations and cash flows can be affected by market fluctuations in foreign exchange rates, primarily with respect to the Euro, British pound sterling, Canadian dollar, Swiss franc, Danish krone, Swedish krona, British pound,Japanese yen and Japanese yen.Australian dollar.
While the financial results of our global activities are reported in U.S. dollars, the functional currency for most of our foreign subsidiaries is their respective local currency. Fluctuations in the foreign currency exchange rates of the countries in which we do business will affect our operating results, often in ways that are difficult to predict. In particular, as the U.S. dollar strengthens versus other currencies, the value of the non-U.S. revenue will decline when reported in U.S. dollars. The impact to net income as a result of a strengthening U.S. dollar will be partially mitigated by the value of non-U.S. expense which will also decline when reported in U.S. dollars. As the U.S. dollar weakens versus other currencies, the value of the non-U.S. revenue and expenses will increase when reported in U.S. dollars.
We have established revenue and operating expense hedging and balance sheet risk management programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by volatility in foreign exchange rates.
Revenue and Operating Expense Hedging Program
Our foreign currency hedging program is designed to mitigate, over time, a portion of the impact resulting from volatility in exchange rate changes on revenues and operating expenses. We use foreign currency forward contracts to manage foreign currency risk, butwith the majority of our forward contracts used to hedge certain forecasted revenue and operating expense transactions denominated in foreign currencies in the next 18 months. We do not engage in currency speculation. The majorityFor a more detailed disclosure of our forwardrevenue and operating expense hedging program, please read Note 9, Derivative Instruments to our consolidated financial statements included in this report.
Our ability to mitigate the impact of exchange rate changes on revenues and net income diminishes as significant exchange rate fluctuations are sustained over extended periods of time. In particular, devaluation or significant deterioration of foreign currency exchange rates are difficult to mitigate and likely to negatively impact earnings. The cash flows from these contracts are used to hedge certain forecasted revenue transactions denominatedreported as operating activities in foreign currencies. our consolidated statements of cash flows.
Balance Sheet Risk Management Hedging Program
We also use forward contracts to mitigate the foreign currency exposure related to certain balance sheet items. The primary objective of our balance sheet risk management program is to mitigate the exposure of foreign currency denominated net monetary assets of foreign affiliates. In these instances, we principally utilize currency forward
contracts. We have not elected hedge accounting for the balance sheet related items. The cash flows from these contracts are reported as operating activities in our consolidated statement of cash flows.
The following quantitative information includes the impact of currency movements on forward contracts used in bothour revenue, operating expense and balance sheet hedging programs. As of December 31, 20122015 and 2011,2014, a hypothetical adverse 10% movement in foreign exchangecurrency rates compared to the U.S. dollar across all maturities (for example, a strengthening of the Euro) would result in a hypothetical decrease in the fair value of forward contracts of approximately $76.7$185.0 million and $79.6$160.0 million, respectively. The estimated fair value change was determined by measuring the impact of the hypothetical exchange rate movement on outstanding forward contracts. Our use of this methodology to quantify the market risk of such instruments should notis subject to assumptions and actual impact could be construed as an endorsement of its accuracy or the accuracy of the related assumptions.significantly different. The quantitative information about market risk is limited because it does not take into account all foreign currency operating transactions.
In addition, theInterest Rate Risk
Our investment portfolio includes cash equivalents and short-term investments. The fair value of our marketable securities is 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. As of December 31, 20122015 and 2011,2014, we estimate that such hypothetical adverse 100 basis point adverse movement would result in a hypothetical loss in fair value of approximately $23.8$43.0 million and $17.9$14.5 million, respectively, to our interest rate sensitive instruments. The fair values of our investments were determined using third-party pricing services or other market observable data.
The returns from cash, cash equivalentsTo achieve a desired mix of fixed and marketable securities will vary as short-termfloating interest rates change. Arate debt, we entered into interest rate swap contracts during 2015 for certain of our fixed-rate debt. These derivative contracts effectively converted a fixed-rate interest coupon to a floating-rate LIBOR-based coupon over the life of the respective note. As of December 31, 2015, a 100 basis-point adverse movement (decrease)(increase in short-termLIBOR) would increase annual interest rates would decrease interest incomeexpense by approximately $17.5 million$6.8 million.
Pricing Pressure
Governments in some international markets in which we operate have implemented measures aimed at reducing healthcare costs to constrain the overall level of government expenditures. These implemented measures vary by country and $14.8 millioninclude, among other things, mandatory rebates and discounts, prospective and possible retroactive price reductions and suspensions on price increases of pharmaceuticals.
In addition, certain countries set prices by reference to the prices in other countries where our products are marketed. Thus, our inability to secure favorable prices in a particular country may impair our ability to obtain acceptable prices in existing and potential new markets and limit market growth. The continued implementation of pricing actions throughout Europe may also lead to higher levels of parallel trade.
In the U.S., federal and state legislatures, health agencies and third-party payors continue to focus on containing the cost of health care. Legislative and regulatory proposals, enactments to reform health care insurance programs and increasing pressure from social sources could significantly influence the manner in which our products are prescribed and purchased. It is possible that additional federal health care reform measures will be adopted in the future, which could result in increased pricing pressure and reduced reimbursement for our products and otherwise have an adverse impact on our financial position or results of operations.
There is also significant economic pressure on state budgets that may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage or payment for our drugs. Managed care organizations are also continuing to seek price discounts and, in some cases, to impose restrictions on the coverage of particular drugs.
Credit Risk
We are subject to credit risk from our accounts receivable related to our product sales. The majority of our accounts receivable arise from product sales in the U.S. and Europe with concentrations of credit risk limited due to the wide variety of customers and markets using our products, as well as their dispersion across many different geographic areas. Our accounts receivable are primarily due from wholesale distributors, public hospitals and other government entities. We monitor the financial performance and creditworthiness of our large customers so that we can properly assess and respond to changes in their credit profile. We operate in certain countries where weakness in economic
conditions can result in extended collection periods. We continue to monitor these conditions, including the volatility associated with international economies and the relevant financial markets, and assess their possible impact on our business. To date, we have not experienced any significant losses with respect to the collection of our accounts receivable.
Credit and economic conditions in the E.U. continue to remain uncertain, which has, from time to time, led to long collection periods for our accounts receivable and greater collection risk in certain countries.
We believe that our allowance for doubtful accounts was adequate as of December 31, 20122015 and 2011,2014, respectively. However, if significant changes occur in the availability of government funding or the reimbursement practices of these or other governments, we may not be able to collect on amounts due to us from customers in such countries and our results of operations could be adversely affected.
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Item 8.Item 8. Financial Statements and Supplementary Data | Consolidated Financial Statements and Supplementary Data |
The information required by this Item 8 is contained on pages F-1 through F-67F-71 of this report and is incorporated herein by reference.
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Item 9.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
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Item 9A.Item 9A. Controls and Procedures | Controls and Procedures |
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Controls and Procedures
We have carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of December 31, 2012.2015. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that (a) the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (b) such
information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 20122015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012.2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Internal Control — Integrated Framework.
Based on our assessment, our management has concluded that, as of December 31, 2012,2015, our internal control over financial reporting is effective based on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 20122015 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their attestation report, which is included herein.
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Item 9B.Item 9B. Other Information | Other Information |
None.
PART III
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Item 10.Item 10. Directors, Executive Officers and Corporate Governance | Directors, Executive Officers and Corporate Governance |
The information concerning our executive officers is set forth under the heading “Our Executive Officers” in Part I of this report. The text of our code of business conduct, which includes the code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions, is posted on our website, www.biogenidec.com,www.biogen.com, under the “Corporate Governance” subsection of the “About Us” section of the site. We intend to make all required disclosures regarding any amendments to, or waivers from, provisions of our code of business conduct at the same location of our website. We include our website address in this report only as an inactive textual reference and do not intend it to be an active link to our website.
The response to the remainder of this item is incorporated by reference from the discussion responsive thereto in the sections entitled “Proposal 1 —- Election of Directors,” “Corporate Governance,” “Stock Ownership —- Section 16(a) Beneficial Ownership Reporting Compliance” and “Miscellaneous —- Stockholder Proposals” contained in the proxy statement for our 20132016 annual meeting of stockholders.
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Item 11.Item 11. Executive Compensation | Executive Compensation |
The response to this item is incorporated by reference from the discussion responsive thereto in the sections entitled “Executive Compensation and Related Information” and “Corporate Governance” contained in the proxy statement for our 20132016 annual meeting of stockholders.
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Item 12.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The response to this item is incorporated by reference from the discussion responsive thereto in the sections entitled “Stock Ownership” and “Equity Compensation Plan Information” contained in the proxy statement for our 20132016 annual meeting of stockholders.
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Item 13.Item 13. Certain Relationships and Related Transactions, and Director Independence | Certain Relationships and Related Transactions, and Director Independence |
The response to this item is incorporated by reference from the discussion responsive thereto in the sections entitled “Certain Relationships and Related Person Transactions” and “Corporate Governance” contained in the proxy statement for our 20132016 annual meeting of stockholders.
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Item 14.Item 14. Principal Accounting Fees and Services | Principal Accountant Fees and Services |
The response to this item is incorporated by reference from the discussion responsive thereto in the section entitled “Proposal 2 — Ratification of the Selection of our Independent Registered Public Accounting Firm” contained in the proxy statement for our 20132016 annual meeting of stockholders.
PART IV
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Item 15. | Exhibits, Financial Statement Schedules |
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a. | Item 15. Exhibits and Financial Statement Schedules a. (1) Consolidated Financial Statements: |
The following financial statements are filed as part of this report:
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| Financial Statements | | Page Number |
| Consolidated Statements of Income | | F-2 |
| Consolidated Statements of Comprehensive Income | | F-3 |
| Consolidated Balance Sheets | | F-4 |
| Consolidated Statements of Cash Flows | | F-5 |
| Consolidated Statements of Equity | | F-6 |
| Notes to Consolidated Financial Statements | | F-9 |
| Report of Independent Registered Public Accounting Firm | | F-68F-71 |
Certain totals may not sum due to rounding.
(2) Financial Statement Schedules
Schedules are omitted because they are not applicable, or are not required, or because the information is included in the consolidated financial statements and notes thereto.
(3) Exhibits
The exhibits listed on the Exhibit Index beginning on page A-1, which is incorporated herein by reference, are filed or furnished as part of this report or are incorporated into this report by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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BIOGEN IDEC INC. |
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| By: | /S/ GEORGE A. SCANGOS |
| | George A. Scangos |
| | Chief Executive Officer |
Date: February 5, 20133, 2016
Pursuant to the requirements the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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| Name | | Capacity | | Date |
| | | | | |
/S/ GEORGE A. SCANGOS | | Director and Chief Executive Officer (principal executive officer) | | February 5, 20133, 2016 |
| George A. Scangos | | |
| | | | | |
/S/ PAUL J. CLANCY | | Executive Vice President, Finance and Chief Financial Officer (principal financial officer) | | February 5, 20133, 2016 |
| Paul J. Clancy | | |
| | | | | |
/S/ GREGORY F. COVINO | | Vice President, Finance, Chief Accounting Officer and Controller (principal accounting officer) | | February 5, 20133, 2016 |
| Gregory F. Covino | | |
| | | | | |
/S/ WSILLIAMTELIOS D. YPOUNGAPADOPOULOS | | Director and Chairman of the Board of Directors | | February 5, 20133, 2016 |
William D. YoungStelios Papadopoulos | | |
| | | | | |
/S/ ALEXANDER J. DENNER | | Director | | February 5, 20133, 2016 |
| Alexander J. Denner | | |
| | | | | |
/S/ CAROLINE D. DORSA | | Director | | February 5, 20133, 2016 |
| Caroline D. Dorsa | | |
| | | | | |
/S/ NANCY L. LEAMING | | Director | | February 5, 20133, 2016 |
| Nancy L. Leaming | | |
| | | | | |
/S/ RICHARD C. MULLIGAN | | Director | | February 1, 20133, 2016 |
| Richard C. Mulligan | | |
| | | | | |
/S/ ROBERT W. PANGIA | | Director | | February 5, 20133, 2016 |
| Robert W. Pangia | | |
| | | | |
/S/ STELIOS PAPADOPOULOS
| | Director | | February 5, 2013 |
Stelios Papadopoulos | | |
| | | | | |
/S/ BRIAN S. POSNER | | Director | | February 5, 20133, 2016 |
| Brian S. Posner | | |
| | | | | |
/S/ ERIC K. ROWINSKY | | Director | | February 5, 20133, 2016 |
| Eric K. Rowinsky | | |
| | | | | |
/S/ LYNN SCHENK | | Director | | February 5, 20133, 2016 |
| Lynn Schenk | | |
| | | | | |
/S/ STEPHEN A. SHERWIN | | Director | | February 5, 20133, 2016 |
| Stephen A. Sherwin | | |
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
|
| | |
| | | Page Number |
| Consolidated Statements of Income | | F-2 |
| Consolidated Statements of Comprehensive Income | | F-3 |
| Consolidated Balance Sheets | | F-4 |
| Consolidated Statements of Cash Flows | | F-5 |
| Consolidated Statements of Equity | | F-6 |
| Notes to Consolidated Financial Statements | | F-9 |
| Report of Independent Registered Public Accounting Firm | | F-68F-71 |
See accompanying notes to these consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands,millions, except per share amounts)
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Revenues: | | | | | | | | | | |
| Product, net | $ | 4,166,074 |
| | $ | 3,836,117 |
| | $ | 3,470,056 |
| $ | 9,188.5 |
| | $ | 8,203.4 |
| | $ | 5,542.3 |
|
| Unconsolidated joint business | 1,137,923 |
| | 996,597 |
| | 1,077,244 |
| 1,339.2 |
| | 1,195.4 |
| | 1,126.0 |
|
| Other | 212,464 |
| | 215,920 |
| | 169,123 |
| 236.1 |
| | 304.5 |
| | 263.9 |
|
| Total revenues | 5,516,461 |
| | 5,048,634 |
| | 4,716,423 |
| 10,763.8 |
| | 9,703.3 |
| | 6,932.2 |
|
| Cost and expenses: | | | | | | | | | | |
| Cost of sales, excluding amortization of acquired intangible assets | 545,494 |
| | 466,780 |
| | 400,262 |
| 1,240.4 |
| | 1,171.0 |
| | 857.7 |
|
| Research and development | 1,334,919 |
| | 1,219,602 |
| | 1,248,604 |
| 2,012.8 |
| | 1,893.4 |
| | 1,444.1 |
|
| Selling, general and administrative | 1,277,465 |
| | 1,056,133 |
| | 1,031,540 |
| 2,113.1 |
| | 2,232.3 |
| | 1,712.1 |
|
| Amortization of acquired intangible assets | | 382.6 |
| | 489.8 |
| | 342.9 |
|
| Restructuring charges | | 93.4 |
| | — |
| | — |
|
| Collaboration profit sharing | 317,895 |
| | 317,771 |
| | 258,071 |
| — |
| | — |
| | 85.4 |
|
| Amortization of acquired intangible assets | 202,204 |
| | 208,566 |
| | 208,928 |
| |
| Fair value adjustment of contingent consideration | 27,202 |
| | 36,065 |
| | — |
| |
| Restructuring charge | 2,225 |
| | 19,026 |
| | 75,153 |
| |
| Acquired in-process research and development | — |
| | — |
| | 244,976 |
| |
| (Gain) loss on fair value remeasurement of contingent consideration | | 30.5 |
| | (38.9 | ) | | (0.5 | ) |
| Total cost and expenses | 3,707,404 |
| | 3,323,943 |
| | 3,467,534 |
| 5,872.8 |
| | 5,747.7 |
| | 4,441.6 |
|
| Gain on sale of rights | 46,792 |
| | — |
| | — |
| — |
| | 16.8 |
| | 24.9 |
|
| Income from operations | 1,855,849 |
| | 1,724,691 |
| | 1,248,889 |
| 4,891.0 |
| | 3,972.4 |
| | 2,515.5 |
|
| Other income (expense), net | (744 | ) | | (13,477 | ) | | (18,983 | ) | (123.7 | ) | | (25.8 | ) | | (34.9 | ) |
| Income before income tax expense and equity in loss of investee, net of tax | 1,855,105 |
| | 1,711,214 |
| | 1,229,906 |
| 4,767.3 |
| | 3,946.6 |
| | 2,480.6 |
|
| Income tax expense | 470,554 |
| | 444,528 |
| | 331,333 |
| 1,161.6 |
| | 989.9 |
| | 601.0 |
|
| Equity in loss of investee, net of tax | 4,518 |
| | — |
| | — |
| 12.5 |
| | 15.1 |
| | 17.2 |
|
| Net income | 1,380,033 |
| | 1,266,686 |
| | 898,573 |
| 3,593.2 |
| | 2,941.6 |
| | 1,862.3 |
|
| Net income (loss) attributable to noncontrolling interests, net of tax | — |
| | 32,258 |
| | (106,700 | ) | |
| Net income attributable to Biogen Idec Inc. | $ | 1,380,033 |
| | $ | 1,234,428 |
| | $ | 1,005,273 |
| |
| Net income attributable to noncontrolling interests, net of tax | | 46.2 |
| | 6.8 |
| | — |
|
| Net income attributable to Biogen Inc. | | $ | 3,547.0 |
| | $ | 2,934.8 |
| | $ | 1,862.3 |
|
| Net income per share: | | | | | | | | | | |
| Basic earnings per share attributable to Biogen Idec Inc. | $ | 5.80 |
| | $ | 5.09 |
| | $ | 3.98 |
| |
| Diluted earnings per share attributable to Biogen Idec Inc. | $ | 5.76 |
| | $ | 5.04 |
| | $ | 3.94 |
| |
| Basic earnings per share attributable to Biogen Inc. | | $ | 15.38 |
| | $ | 12.42 |
| | $ | 7.86 |
|
| Diluted earnings per share attributable to Biogen Inc. | | $ | 15.34 |
| | $ | 12.37 |
| | $ | 7.81 |
|
| Weighted-average shares used in calculating: | | | | | | | | | | |
| Basic earnings per share attributable to Biogen Idec Inc. | 237,938 |
| | 242,395 |
| | 252,307 |
| |
| Diluted earnings per share attributable to Biogen Idec Inc. | 239,740 |
| | 245,033 |
| | 254,867 |
| |
| Basic earnings per share attributable to Biogen Inc. | | 230.7 |
| | 236.4 |
| | 236.9 |
|
| Diluted earnings per share attributable to Biogen Inc. | | 231.2 |
| | 237.2 |
| | 238.3 |
|
See accompanying notes to these consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)millions)
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2012 | | 2011 | | 2010 |
| Net income | $ | 1,380,033 |
| | $ | 1,234,428 |
| | $ | 1,005,273 |
|
| Other comprehensive income: | | | | | |
| Unrealized gains (losses) on securities available for sale: | | | | | |
| Unrealized gains (losses) recognized during the period, net of tax of $2,940, $133 and $6,345 | 5,080 |
| | (224 | ) | | 10,775 |
|
| Less: reclassification adjustment for gains (losses) included in net income, net of tax of $486, $7,155 and $5,656 | (903 | ) | | (12,184 | ) | | (9,631 | ) |
| Unrealized gains (losses) on securities available for sale, net of tax of $2,454, $7,288 and $689 | 4,177 |
| | (12,408 | ) | | 1,144 |
|
| Unrealized gains (losses) on foreign currency forward contracts: | | | | | |
| Unrealized gains (losses) recognized during the period, net of tax of $1,396, $3,647 and $1,268 | (11,808 | ) | | 32,830 |
| | (9,767 | ) |
| Less: reclassification adjustment for gains (losses) included in net income, net of tax of $3,360, $1,268 and $304 | (31,713 | ) | | 9,767 |
| | (1,502 | ) |
| Unrealized gains (losses) on foreign currency forward contracts, net of tax of $4,756, $4,915 and $964 | (43,521 | ) | | 42,597 |
| | (11,269 | ) |
| Unrealized gains (losses) on pension benefit obligation, net of tax | (12,656 | ) | | (9,280 | ) | | (1,942 | ) |
| Currency translation adjustment | 23,230 |
| | (25,834 | ) | | (60,039 | ) |
| Total other comprehensive income (loss), net of tax | (28,770 | ) | | (4,925 | ) | | (72,106 | ) |
| Comprehensive income | 1,351,263 |
| | 1,229,503 |
| | 933,167 |
|
| Comprehensive income attributable to noncontrolling interests, net of tax | 65 |
| | 37,161 |
| | (108,940 | ) |
| Comprehensive income attributable to Biogen Idec Inc. | $ | 1,351,328 |
| | $ | 1,266,664 |
| | $ | 824,227 |
|
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2015 | | 2014 | | 2013 |
| Net income attributable to Biogen Inc. | $ | 3,547.0 |
| | $ | 2,934.8 |
| | $ | 1,862.3 |
|
| Other comprehensive income: | | | | | |
| Unrealized gains (losses) on securities available for sale: | | | | | |
| Unrealized gains (losses) recognized during the period, net of tax | (1.7 | ) | | 0.4 |
| | 11.8 |
|
| Less: reclassification adjustment for (gains) losses included in net income, net of tax | 1.3 |
| | (6.4 | ) | | (10.4 | ) |
| Unrealized gains (losses) on securities available for sale, net of tax | (0.4 | ) | | (6.0 | ) | | 1.4 |
|
| Unrealized gains (losses) on cash flow hedges: | | | | | |
| Unrealized gains (losses) recognized during the period, net of tax | 110.8 |
| | 101.7 |
| | (26.7 | ) |
| Less: reclassification adjustment for (gains) losses included in net income, net of tax | (172.3 | ) | | (6.3 | ) | | 13.7 |
|
| Unrealized gains (losses) on cash flow hedges, net of tax | (61.5 | ) | | 95.4 |
| | (13.0 | ) |
| Unrealized gains (losses) on pension benefit obligation | (6.2 | ) | | (12.0 | ) | | 2.1 |
|
| Currency translation adjustment | (96.4 | ) | | (109.2 | ) | | 37.1 |
|
| Total other comprehensive income (loss), net of tax | (164.5 | ) | | (31.8 | ) | | 27.6 |
|
| Comprehensive income attributable to Biogen Inc. | 3,382.5 |
| | 2,903.0 |
| | 1,889.9 |
|
| Comprehensive income attributable to noncontrolling interests, net of tax | 46.2 |
| | 6.8 |
| | — |
|
| Comprehensive income | $ | 3,428.7 |
| | $ | 2,909.8 |
| | $ | 1,889.9 |
|
See accompanying notes to these consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands,millions, except per share amounts)
| | | | As of December 31, | As of December 31, |
| | 2012 | | 2011 | 2015 | | 2014 |
ASSETS | | Current assets: | | | | | | |
| Cash and cash equivalents | $ | 570,721 |
| | $ | 514,542 |
| $ | 1,308.0 |
| | $ | 1,204.9 |
|
| Marketable securities | 1,134,989 |
| | 1,176,115 |
| 2,120.5 |
| | 640.5 |
|
| Accounts receivable, net | 686,848 |
| | 584,603 |
| 1,227.0 |
| | 1,292.4 |
|
| Due from unconsolidated joint business | 268,395 |
| | 228,724 |
| |
| Due from unconsolidated joint business, net | | 314.5 |
| | 283.4 |
|
| Inventory | 447,373 |
| | 326,843 |
| 893.4 |
| | 804.0 |
|
| Other current assets | 136,011 |
| | 144,600 |
| 836.9 |
| | 309.8 |
|
| Total current assets | 3,244,337 |
| | 2,975,427 |
| 6,700.3 |
| | 4,535.0 |
|
| Marketable securities | 2,036,658 |
| | 1,416,737 |
| 2,760.4 |
| | 1,470.7 |
|
| Property, plant and equipment, net | 1,742,226 |
| | 1,571,387 |
| 2,187.6 |
| | 1,765.7 |
|
| Intangible assets, net | 1,631,547 |
| | 1,608,191 |
| 4,085.1 |
| | 4,028.5 |
|
| Goodwill | 1,201,296 |
| | 1,146,314 |
| 2,663.8 |
| | 1,760.2 |
|
| Investments and other assets | 274,054 |
| | 331,548 |
| 1,107.6 |
| | 754.6 |
|
| Total assets | $ | 10,130,118 |
| | $ | 9,049,604 |
| $ | 19,504.8 |
| | $ | 14,314.7 |
|
LIABILITIES AND EQUITY | | Current liabilities: | | | | | | |
| Current portion of notes payable and line of credit | $ | 453,379 |
| | $ | 3,292 |
| |
| Current portion of notes payable and other financing arrangements | | $ | 4.8 |
| | $ | 3.1 |
|
| Taxes payable | 20,066 |
| | 45,939 |
| 208.7 |
| | 168.1 |
|
| Accounts payable | 203,999 |
| | 186,448 |
| 267.4 |
| | 229.2 |
|
| Accrued expenses and other | 979,945 |
| | 677,210 |
| 2,096.8 |
| | 1,817.7 |
|
| Total current liabilities | 1,657,389 |
| | 912,889 |
| 2,577.7 |
| | 2,218.1 |
|
| Notes payable, line of credit and other financing arrangements | 687,396 |
| | 1,060,808 |
| |
| Notes payable and other financing arrangements | | 6,521.5 |
| | 580.3 |
|
| Long-term deferred tax liability | 217,272 |
| | 248,644 |
| 124.9 |
| | 52.2 |
|
| Other long-term liabilities | 604,266 |
| | 400,276 |
| 905.8 |
| | 650.1 |
|
| Total liabilities | 3,166,323 |
| | 2,622,617 |
| 10,129.9 |
| | 3,500.7 |
|
| Commitments and contingencies |
|
| |
|
|
|
| |
|
|
| Equity: | | | | | | |
| Biogen Idec Inc. shareholders’ equity | | | | |
| Biogen Inc. shareholders’ equity | | | | |
| Preferred stock, par value $0.001 per share | — |
| | — |
| — |
| | — |
|
| Common stock, par value $0.0005 per share | 127 |
| | 128 |
| 0.1 |
| | 0.1 |
|
| Additional paid-in capital | 3,854,525 |
| | 4,185,048 |
| — |
| | 4,196.2 |
|
| Accumulated other comprehensive income (loss) | (55,305 | ) | | (26,535 | ) | |
| Accumulated other comprehensive loss | | (224.0 | ) | | (59.5 | ) |
| Retained earnings | 4,486,794 |
| | 3,106,761 |
| 12,208.4 |
| | 9,283.9 |
|
| Treasury stock, at cost; 17,655 shares and 13,518 shares, respectively | (1,324,618 | ) | | (839,903 | ) | |
| Total Biogen Idec Inc. shareholders’ equity | 6,961,523 |
| | 6,425,499 |
| |
| Treasury stock, at cost; 22.6 million shares, respectively | | (2,611.7 | ) | | (2,611.7 | ) |
| Total Biogen Inc. shareholders’ equity | | 9,372.8 |
| | 10,809.0 |
|
| Noncontrolling interests | 2,272 |
| | 1,488 |
| 2.1 |
| | 5.0 |
|
| Total equity | 6,963,795 |
| | 6,426,987 |
| 9,374.9 |
| | 10,814.0 |
|
| Total liabilities and equity | $ | 10,130,118 |
| | $ | 9,049,604 |
| $ | 19,504.8 |
| | $ | 14,314.7 |
|
See accompanying notes to these consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)millions)
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Cash flows from operating activities: | | | | | | | | | | |
| Net income | $ | 1,380,033 |
| | $ | 1,266,686 |
| | $ | 898,573 |
| $ | 3,593.2 |
| | $ | 2,941.6 |
| | $ | 1,862.3 |
|
| Adjustments to reconcile net income to net cash flows from operating activities: | | | | | | | | | | |
| Depreciation and amortization of property, plant and equipment, and intangible assets | 365,648 |
| | 358,933 |
| | 355,744 |
| |
| Acquired in-process research and development | — |
| | — |
| | 271,376 |
| |
| Depreciation and amortization | | 600.4 |
| | 688.1 |
| | 531.7 |
|
| Share-based compensation | 118,566 |
| | 113,005 |
| | 167,826 |
| 161.4 |
| | 155.3 |
| | 136.3 |
|
| Fair value adjustment of contingent consideration | 27,202 |
| | 36,065 |
| | — |
| |
| Excess tax benefit from share-based compensation | (54,738 | ) | | (50,586 | ) | | (13,136 | ) | |
| Deferred income taxes | (116,900 | ) | | 153,576 |
| | (81,410 | ) | (145.6 | ) | | (308.2 | ) | | (245.1 | ) |
| Write-down of inventory to net realizable value | 24,821 |
| | 25,446 |
| | 11,808 |
| |
| Other | 31,537 |
| | 9,228 |
| | 10,333 |
| 82.2 |
| | (50.3 | ) | | (27.6 | ) |
| Changes in operating assets and liabilities, net: | | | | | | | | | | |
| Accounts receivable | 3,571 |
| | (73,374 | ) | | (99,227 | ) | 29.0 |
| | (512.4 | ) | | (126.7 | ) |
| Due from unconsolidated joint business | (39,671 | ) | | (6,265 | ) | | (28,670 | ) | |
| Inventory | (140,309 | ) | | (59,219 | ) | | (4,527 | ) | (174.4 | ) | | (185.9 | ) | | (243.9 | ) |
| Other assets | (27,347 | ) | | (43,241 | ) | | (12,584 | ) | (156.6 | ) | | (94.5 | ) | | (160.2 | ) |
| Accrued expenses and other current liabilities | 273,372 |
| | 33,722 |
| | 130,875 |
| 74.2 |
| | 244.3 |
| | 284.1 |
|
| Other liabilities and taxes payable | 34,112 |
| | (36,235 | ) | | 17,692 |
| |
| Current taxes payable | | (410.2 | ) | | 61.0 |
| | 156.8 |
|
| Other long-term liabilities and taxes payable | | 93.6 |
| | 33.8 |
| | 161.7 |
|
| Due from unconsolidated joint business | | (31.1 | ) | | (30.7 | ) | | 15.7 |
|
| Net cash flows provided by operating activities | 1,879,897 |
| | 1,727,741 |
| | 1,624,673 |
| 3,716.1 |
| | 2,942.1 |
| | 2,345.1 |
|
| Cash flows from investing activities: | | | | | | | | | | |
| Proceeds from sales and maturities of marketable securities | 2,749,558 |
| | 2,276,720 |
| | 2,668,694 |
| 4,063.0 |
| | 2,718.9 |
| | 5,190.1 |
|
| Purchases of marketable securities | (3,334,434 | ) | | (3,696,995 | ) | | (1,988,394 | ) | (6,864.9 | ) | | (3,583.1 | ) | | (3,278.1 | ) |
| Acquisitions of businesses and variable interest entities, net of cash acquired | (72,401 | ) | | (5,000 | ) | | (157,428 | ) | |
| Acquisition of TYSABRI rights | | — |
| | — |
| | (3,262.7 | ) |
| Contingent consideration related to Fumapharm AG acquisition | | (850.0 | ) | | (375.0 | ) | | (15.0 | ) |
| Acquisitions of businesses | | (198.8 | ) | | — |
| | — |
|
| Purchases of property, plant and equipment | (254,548 | ) | | (208,020 | ) | | (173,055 | ) | (643.0 | ) | | (287.8 | ) | | (246.3 | ) |
| Proceeds from the sale of strategic investments and long-lived assets | 10,058 |
| | 43,480 |
| | — |
| |
| Purchases of intangible assets | (6,634 | ) | | (44,155 | ) | | — |
| |
| Purchases of other investments | (41,941 | ) | | (16,324 | ) | | (4,492 | ) | |
| Net cash flows (used in) provided by investing activities | (950,342 | ) | | (1,650,294 | ) | | 345,325 |
| |
| Other | | (59.9 | ) | | (16.0 | ) | | 7.3 |
|
| Net cash flows used in investing activities | | (4,553.6 | ) | | (1,543.0 | ) | | (1,604.7 | ) |
| Cash flows from financing activities: | | | | | | | | | | |
| Purchase of treasury stock | (984,715 | ) | | (497,975 | ) | | (2,077,579 | ) | (5,000.0 | ) | | (886.8 | ) | | (400.3 | ) |
| Proceeds from issuance of stock for share-based compensation arrangements | 67,493 |
| | 314,650 |
| | 183,486 |
| 54.2 |
| | 54.9 |
| | 66.8 |
|
| Excess tax benefit from share-based compensation | 54,738 |
| | 50,586 |
| | 13,136 |
| 78.2 |
| | 96.4 |
| | 73.5 |
|
| Acquisition of noncontrolling interests | — |
| | (148,264 | ) | | — |
| |
| Net distributions to noncontrolling interests | (2,726 | ) | | (27,062 | ) | | (23,475 | ) | |
| Proceeds from borrowings | | 5,930.5 |
| | — |
| | — |
|
| Repayments of borrowings | (2,428 | ) | | (11,459 | ) | | (18,073 | ) | (2.1 | ) | | (2.7 | ) | | (452.4 | ) |
| Cash payments for contingent consideration | (2,500 | ) | | — |
| | — |
| |
| Net proceeds from financing arrangement for the sale of the San Diego facility | — |
| | — |
| | 126,980 |
| |
| Other | (7,340 | ) | | (338 | ) | | 10,606 |
| (74.4 | ) | | (17.7 | ) | | (4.1 | ) |
| Net cash flows used in financing activities | (877,478 | ) | | (319,862 | ) | | (1,784,919 | ) | |
| Net increase (decrease) in cash and cash equivalents | 52,077 |
| | (242,415 | ) | | 185,079 |
| |
| Net cash flows provided by (used in) financing activities | | 986.4 |
| | (755.9 | ) | | (716.5 | ) |
| Net increase in cash and cash equivalents | | 148.9 |
| | 643.2 |
| | 23.9 |
|
| Effect of exchange rate changes on cash and cash equivalents | 4,102 |
| | (2,641 | ) | | (7,370 | ) | (45.8 | ) | | (40.9 | ) | | 8.0 |
|
| Cash and cash equivalents, beginning of the year | 514,542 |
| | 759,598 |
| | 581,889 |
| 1,204.9 |
| | 602.6 |
| | 570.7 |
|
| Cash and cash equivalents, end of the year | $ | 570,721 |
| | $ | 514,542 |
| | $ | 759,598 |
| $ | 1,308.0 |
| | $ | 1,204.9 |
| | $ | 602.6 |
|
See accompanying notes to these consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred stock | | Common stock | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Retained earnings | | Treasury stock | | Total Biogen Idec Inc. shareholders’ equity | | Noncontrolling interests | | Total equity |
| | Shares | | Amount | | Shares | | Amount | | | | | Shares | | Amount | | | |
| Balance, December 31, 2011 | — |
| | $ | — |
| | 255,633 |
| | $ | 128 |
| | $ | 4,185,048 |
| | $ | (26,535 | ) | | $ | 3,106,761 |
| | (13,518 | ) | | $ | (839,903 | ) | | $ | 6,425,499 |
| | $ | 1,488 |
| | $ | 6,426,987 |
|
| Net income | | | | | | | | | | | | | 1,380,033 |
| | | | | | 1,380,033 |
| | — |
| | 1,380,033 |
|
| Other comprehensive income, net of tax | | | | | | | | | | | (28,770 | ) | | | | | | | | (28,770 | ) | | 65 |
| | (28,705 | ) |
| Distributions to noncontrolling interests | | | | | | | | | | | | | | | | | | | — |
| | 1,199 |
| | 1,199 |
|
| Capital contribution from noncontrolling interests | | | | | | | | | | | | | | | | | | | — |
| | 73 |
| | 73 |
|
| Deconsolidation of noncontrolling interests | | | | | | | | | (3 | ) | | | | | | | | | | (3 | ) | | (553 | ) | | (556 | ) |
| Repurchase of common stock for Treasury pursuant to the 2011 share repurchase plan, at cost | | | | | | | | | | | | | | | (7,811 | ) | | (984,715 | ) | | (984,715 | ) | | | | (984,715 | ) |
| Retirement of common stock pursuant to the 2011 share repurchase plan, at cost | | | | | (3,674 | ) | | (2 | ) | | (499,998 | ) | | | | | | 3,674 |
| | 500,000 |
| | — |
| | | | — |
|
| Issuance of common stock under stock option and stock purchase plans | | | | | 1,039 |
| | — |
| | 67,493 |
| | | | | | | | | | 67,493 |
| | | | 67,493 |
|
| Issuance of common stock under stock award plan | | | | | 1,239 |
| | 1 |
| | (71,358 | ) | | | | | | | | | | (71,357 | ) | | | | (71,357 | ) |
| Compensation expense related to share-based payments | | | | | | | | | 123,956 |
| | | | | | | | | | 123,956 |
| | | | 123,956 |
|
| Tax benefit from share-based payments | | | | | | | | | 49,387 |
| | | | | | | | | | 49,387 |
| | | | 49,387 |
|
| Balance, December 31, 2012 | — |
| | $ | — |
| | 254,237 |
| | $ | 127 |
| | $ | 3,854,525 |
| | $ | (55,305 | ) | | $ | 4,486,794 |
| | (17,655 | ) | | $ | (1,324,618 | ) | | $ | 6,961,523 |
| | $ | 2,272 |
| | $ | 6,963,795 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred stock | | Common stock | | Additional paid-in capital | | Accumulated other comprehensive loss | | Retained earnings | | Treasury stock | | Total Biogen Inc. shareholders’ equity | | Noncontrolling interests | | Total equity |
| | Shares | | Amount | | Shares | | Amount | | | | | Shares | | Amount | | | |
| Balance, December 31, 2014 | — |
| | $ | — |
| | 257.1 |
| | $ | 0.1 |
| | $ | 4,196.2 |
| | $ | (59.5 | ) | | $ | 9,283.9 |
| | (22.6 | ) | | $ | (2,611.7 | ) | | $ | 10,809.0 |
| | $ | 5.0 |
| | $ | 10,814.0 |
|
| Net income | | | | | | | | | | | | | 3,547.0 |
| | | | | | 3,547.0 |
| | 46.2 |
| | 3,593.2 |
|
| Other comprehensive income, net of tax | | | | | | | | | | | (164.5 | ) | | | | | | | | (164.5 | ) | | — |
| | (164.5 | ) |
| Distribution to noncontrolling interests | | | | | | | | | | | | | | | | | | | — |
| | (60.0 | ) | | (60.0 | ) |
| Acquisition of noncontrolling interests | | | | | | | | | | | | | | | | | | | — |
| | 10.9 |
| | 10.9 |
|
| Repurchase of common stock pursuant to the 2015 Share Repurchase Program, at cost | | | | | | | | | | | | | | | (16.8 | ) | | (5,000.0 | ) | | (5,000.0 | ) | | | | (5,000.0 | ) |
| Retirement of common stock pursuant to the 2015 Share Repurchase Program, at cost | | | | | (16.8 | ) | | — |
| | (4,377.5 | ) | | | | (622.5 | ) | | 16.8 |
| | 5,000.0 |
| | — |
| | | | — |
|
| Issuance of common stock under stock option and stock purchase plans | | | | | 0.3 |
| | — |
| | 54.2 |
| | | | | | | | | | 54.2 |
| | | | 54.2 |
|
| Issuance of common stock under stock award plan | | | | | 0.6 |
| | — |
| | (125.1 | ) | | | | | | | | | | (125.1 | ) | | | | (125.1 | ) |
| Compensation expense related to share-based payments | | | | | | | | | 183.2 |
| | | | | | | | | | 183.2 |
| | | | 183.2 |
|
| Tax benefit from share-based payments | | | | | | | | | 69.0 |
| | | | | | | | | | 69.0 |
| | | | 69.0 |
|
| Balance, December 31, 2015 | — |
| | $ | — |
| | 241.2 |
| | $ | 0.1 |
| | $ | — |
| | $ | (224.0 | ) | | $ | 12,208.4 |
| | (22.6 | ) | | $ | (2,611.7 | ) | | $ | 9,372.8 |
| | $ | 2.1 |
| | $ | 9,374.9 |
|
See accompanying notes to these consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY - (Continued)
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred stock | | Common stock | | Additional paid-in capital | | Accumulated other comprehensive loss | | Retained earnings | | Treasury stock | | Total Biogen Inc. shareholders’ equity | | Noncontrolling interests | | Total equity |
| | Shares | | Amount | | Shares | | Amount | | | | | Shares | | Amount | | | |
| Balance, December 31, 2013 | — |
| | $ | — |
| | 256.0 |
| | $ | 0.1 |
| | $ | 4,023.6 |
| | $ | (27.7 | ) | | $ | 6,349.1 |
| | (19.7 | ) | | $ | (1,724.9 | ) | | $ | 8,620.2 |
| | $ | 0.6 |
| | $ | 8,620.8 |
|
| Net income | | | | | | | | | | | | | 2,934.8 |
| | | | | | 2,934.8 |
| | 6.8 |
| | 2,941.6 |
|
| Other comprehensive income, net of tax | | | | | | | | | | | (31.8 | ) | | | | | | | | (31.8 | ) | | — |
| | (31.8 | ) |
| Distribution to noncontrolling interests | | | | | | | | | | | | | | | | | | | — |
| | (9.1 | ) | | (9.1 | ) |
| Other transactions with noncontrolling interests | | | | | | | | | | | | | | | | | | | — |
| | 6.7 |
| | 6.7 |
|
| Repurchase of common stock for Treasury pursuant to the 2011 Share Repurchase Program, at cost | | | | | | | | | | | | | | | (2.9 | ) | | (886.8 | ) | | (886.8 | ) | | | | (886.8 | ) |
| Issuance of common stock under stock option and stock purchase plans | | | | | 0.3 |
| | — |
| | 54.9 |
| | | | | | | | | | 54.9 |
| | | | 54.9 |
|
| Issuance of common stock under stock award plan | | | | | 0.8 |
| | — |
| | (140.3 | ) | | | | | | | | | | (140.3 | ) | | | | (140.3 | ) |
| Compensation expense related to share-based payments | | | | | | | | | 165.0 |
| | | | | | | | | | 165.0 |
| | | | 165.0 |
|
| Tax benefit from share-based payments | | | | | | | | | 93.0 |
| | | | | | | | | | 93.0 |
| | | | 93.0 |
|
| Balance, December 31, 2014 | — |
| | $ | — |
| | 257.1 |
| | $ | 0.1 |
| | $ | 4,196.2 |
| | $ | (59.5 | ) | | $ | 9,283.9 |
| | (22.6 | ) | | $ | (2,611.7 | ) | | $ | 10,809.0 |
| | $ | 5.0 |
| | $ | 10,814.0 |
|
See accompanying notes to these consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY - (Continued)
(In millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred stock | | Common stock | | Additional paid-in capital | | Accumulated other comprehensive loss | | Retained earnings | | Treasury stock | | Total Biogen Inc. shareholders’ equity | | Noncontrolling interests | | Total equity |
| | Shares | | Amount | | Shares | | Amount | | | | | Shares | | Amount | | | |
| Balance, December 31, 2012 | — |
| | $ | — |
| | 254.2 |
| | $ | 0.1 |
| | $ | 3,854.5 |
| | $ | (55.3 | ) | | $ | 4,486.8 |
| | (17.7 | ) | | $ | (1,324.6 | ) | | $ | 6,961.5 |
| | $ | 2.3 |
| | $ | 6,963.8 |
|
| Net income | | | | | | | | | | | | | 1,862.3 |
| | | | | | 1,862.3 |
| | — |
| | 1,862.3 |
|
| Other comprehensive income, net of tax | | | | | | | | | | | 27.6 |
| | | | | | | | 27.6 |
| | — |
| | 27.6 |
|
| Deconsolidation of noncontrolling interests | | | | | | | | | | | | | | | | | | | — |
| | (1.7 | ) | | (1.7 | ) |
| Repurchase of common stock for Treasury pursuant to the 2011 Share Repurchase Program, at cost | | | | | | | | | | | | | | | (2.0 | ) | | (400.3 | ) | | (400.3 | ) | | | | (400.3 | ) |
| Issuance of common stock under stock option and stock purchase plans | | | | | 0.8 |
| | — |
| | 66.7 |
| | | | | | | | | | 66.7 |
| | | | 66.7 |
|
| Issuance of common stock under stock award plan | | | | | 1.0 |
| | — |
| | (89.7 | ) | | | | | | | | | | (89.7 | ) | | | | (89.7 | ) |
| Compensation expense related to share-based payments | | | | | | | | | 146.2 |
| | | | | | | | | | 146.2 |
| | | | 146.2 |
|
| Tax benefit from share-based payments | | | | | | | | | 45.9 |
| | | | | | | | | | 45.9 |
| | | | 45.9 |
|
| Balance, December 31, 2013 | — |
| | $ | — |
| | 256.0 |
| | $ | 0.1 |
| | $ | 4,023.6 |
| | $ | (27.7 | ) | | $ | 6,349.1 |
| | (19.7 | ) | | $ | (1,724.9 | ) | | $ | 8,620.2 |
| | $ | 0.6 |
| | $ | 8,620.8 |
|
See accompanying notes to these consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY - (Continued)
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred stock | | Common stock | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Retained earnings | | Treasury stock | | Total Biogen Idec Inc. shareholders’ equity | | Noncontrolling interests | | Total equity |
| | Shares | | Amount | | Shares | | Amount | | | | | Shares | | Amount | | | |
| Balance, December 31, 2010 | 8 |
| | $ | — |
| | 248,200 |
| | $ | 124 |
| | $ | 3,895,103 |
| | $ | (21,610 | ) | | $ | 1,872,481 |
| | (7,662 | ) | | $ | (349,592 | ) | | $ | 5,396,506 |
| | $ | 52,937 |
| | $ | 5,449,443 |
|
| Net income | | | | | | | | | | | | | 1,234,428 |
| | | | | | 1,234,428 |
| | 32,258 |
| | 1,266,686 |
|
| Other comprehensive income, net of tax | | | | | | | | | | | (4,925 | ) | | | | | | | | (4,925 | ) | | 4,903 |
| | (22 | ) |
| Distributions to noncontrolling interests | | | | | | | | | | | | | (148 | ) | | | | | | (148 | ) | | (26,914 | ) | | (27,062 | ) |
| Acquisitions of noncontrolling interests | | | | | | | | | (125,641 | ) | | | | | | | | | | (125,641 | ) | | (61,696 | ) | | (187,337 | ) |
| Repurchase of common stock for Treasury pursuant to the 2011 share repurchase plan, at cost | | | | | | | | | | | | | | | (6,018 | ) | | (497,975 | ) | | (497,975 | ) | | | | (497,975 | ) |
| Issuance of common and treasury stock under stock option and stock purchase plans | | | | | 5,458 |
| | 3 |
| | 306,982 |
| | | | | | 162 |
| | 7,664 |
| | 314,649 |
| | | | 314,649 |
|
| Issuance of common stock under stock award plan | | | | | 1,482 |
| | 1 |
| | (50,954 | ) | | | | | | | | | | (50,953 | ) | | | | (50,953 | ) |
| Conversion of preferred stock | (8 | ) | | | | 493 |
| | — |
| | — |
| | | | | | | | | | — |
| | | | — |
|
| Compensation expense related to share-based payments | | | | | | | | | 117,347 |
| | | | | | | | | | 117,347 |
| | | | 117,347 |
|
| Recharacterization of share-based awards from equity to cash-settled due to restructuring | | | | | | | | | (8,172 | ) | | | | | | | | | | (8,172 | ) | | | | (8,172 | ) |
| Tax benefit from share-based payments | | | | | | | | | 50,383 |
| | | | | | | | | | 50,383 |
| | | | 50,383 |
|
| Balance, December 31, 2011 | — |
| | $ | — |
| | 255,633 |
| | $ | 128 |
| | $ | 4,185,048 |
| | $ | (26,535 | ) | | $ | 3,106,761 |
| | (13,518 | ) | | $ | (839,903 | ) | | $ | 6,425,499 |
| | $ | 1,488 |
| | $ | 6,426,987 |
|
See accompanying notes to these consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY - (Continued)
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred stock | | Common stock | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Retained earnings | | Treasury stock | | Total Biogen Idec Inc. shareholders’ equity | | Noncontrolling interests | | Total equity |
| | Shares | | Amount | | Shares | | Amount | | | | | Shares | | Amount | | | |
| Balance, December 31, 2009 | 8 |
| | $ | — |
| | 288,494 |
| | $ | 144 |
| | $ | 5,781,920 |
| | $ | 50,496 |
| | $ | 1,068,890 |
| | (13,639 | ) | | $ | (679,920 | ) | | $ | 6,221,530 |
| | $ | 40,352 |
| | $ | 6,261,882 |
|
| Net income | | | | | | | | | | | | | 1,005,273 |
| | | | | | 1,005,273 |
| | (106,700 | ) | | 898,573 |
|
| Other comprehensive income, net of tax | | | | | | | | | | | (72,106 | ) | | | | | | | | (72,106 | ) | | (2,240 | ) | | (74,346 | ) |
| Fair value of assets and liabilities acquired and assigned to noncontrolling interests (Note 20) | | | | | | | | | | | | | | | | | | | — |
| | 145,000 |
| | 145,000 |
|
| Distributions to noncontrolling interests | | | | | | | | | | | | | | | | | | | — |
| | (33,891 | ) | | (33,891 | ) |
| Capital contributions from noncontrolling interests | | | | | | | | | | | | | | | | | | | — |
| | 2,488 |
| | 2,488 |
|
| Termination of relationship with less than majority owned subsidiary | | | | | | | | | | | | | | | | | | | — |
| | 7,928 |
| | 7,928 |
|
| Repurchase of common stock for Treasury pursuant to the 2009 and 2010 share repurchase plans, at cost | | | | | | | | | | | | | | | (40,294 | ) | | (2,077,579 | ) | | (2,077,579 | ) | | | | (2,077,579 | ) |
| Retirement of common stock pursuant to the 2009 and 2010 share repurchase plans | | | | | (40,294 | ) | | (20 | ) | | (2,077,559 | ) | | | | | | 40,294 |
| | 2,077,579 |
| | — |
| | | | — |
|
| Issuance of treasury stock under stock option and stock purchase plans | | | | | | | | | | | | | (28,632 | ) | | 4,020 |
| | 212,118 |
| | 183,486 |
| | | | 183,486 |
|
| Issuance of treasury stock under stock award plans | | | | | | | | | | | | | (173,050 | ) | | 1,957 |
| | 118,210 |
| | (54,840 | ) | | | | (54,840 | ) |
| Compensation expense related to share-based payments | | | | | | | | | 171,435 |
| | | | | | | | | | 171,435 |
| | | | 171,435 |
|
| Tax benefit from share-based payments | | | | | | | | | 19,307 |
| | | | | | | | | | 19,307 |
| | | | 19,307 |
|
| Balance, December 31, 2010 | 8 |
| | $ | — |
| | 248,200 |
| | $ | 124 |
| | $ | 3,895,103 |
| | $ | (21,610 | ) | | $ | 1,872,481 |
| | (7,662 | ) | | $ | (349,592 | ) | | $ | 5,396,506 |
| | $ | 52,937 |
| | $ | 5,449,443 |
|
See accompanying notes to these consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
1. | Summary of Significant Accounting Policies |
1. Summary of Significant Accounting Policies
Business Overview
Biogen Idec is a global biotechnologybiopharmaceutical company focused on discovering, developing, manufacturing and marketingdelivering therapies to patients for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for multiple sclerosis (MS), ELOCTATE for hemophilia A and other autoimmune disorders, neurodegenerative diseasesALPROLIX for hemophilia B, and hemophilia.FUMADERM for the treatment of severe plaque psoriasis. We also collaborate onhave a collaboration agreement with Genentech, Inc. (Genentech), a wholly-owned member of the developmentRoche Group, which entitles us to certain business and commercialization offinancial rights with respect to RITUXAN and anti-CD20 product candidates for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions.conditions, GAZYVA indicated for the treatment of CLL, and other potential anti-CD20 therapies.
In addition to our innovative drug development efforts, we aim to leverage our manufacturing capabilities and scientific expertise to extend our mission to improve the lives of patients living with serious diseases through the development, manufacture and marketing of biosimilars through Samsung Bioepis, our joint venture with Samsung BioLogics Co. Ltd. (Samsung Biologics).
Consolidation
Our consolidated financial statements reflect our financial statements, those of our wholly-owned subsidiaries and those of certain variable interest entities where we are the primary beneficiary. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interests in our consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.
In determining whether we are the primary beneficiary of an entity, and therefore required to consolidate, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. These considerations impact the way we account for our existing collaborative relationships and other arrangements. We continuously assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in us consolidating or deconsolidating one or more of our partner(s) to collaborations and other arrangements.collaborators or partners.
Use of Estimates
The preparation of our consolidated financial statements requires us to make estimates, judgments, and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates, and judgments and methodologies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and liabilities.equity and the amount of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; our price to the customer is fixed or determinable; and collectability is reasonably assured.
Product Revenues
Revenues from product sales are recognized when title and risk of loss have passed to the customer, which is typically upon delivery. However, sales of TYSABRI in the U.S. are recognized on the “sell-through” model, that is, upon shipment of the product by Elan Pharma International, Ltd. (Elan), an affiliate of Elan Corporation, plc, to its third party distributor rather than upon shipment to Elan. Product revenues are recorded net of applicable reserves for discounts and allowances.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reserves for Discounts and Allowances
We establish reserves for trade term discounts, wholesaler incentives, Medicaid rebates, co-payment assistance (copay), Veterans Administration (VA) and Public Health Service (PHS) discounts, managed care rebates, product returns and other governmental rebates or applicable allowances, including those associated with the implementation of pricing actions in certain of the international markets in which we operate. Reserves established for these discounts and allowances are classified as reductions of accounts receivable (if the amount is payable to our direct customer) or a liability (if the amount is payable to a party other than our customer). These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Our estimates take into consideration our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Actual amounts may ultimately differ from our estimates. If actual results vary, we will adjust these estimates, which could have an effect on earnings in the period of adjustment. The estimates we make with respect to these allowances represent the most significant judgments with regard to revenue recognition.
Product revenue reserves are categorized as follows: discounts, contractual adjustments and returns.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Discount reservesDiscounts include trade term discounts and wholesaler incentives. Trade term discounts and wholesaler incentive reservesincentives primarily relate to estimated obligations for credits to be granted to wholesalers for remitting payment on their purchases within established incentive periods and credits to be granted to wholesalers for compliance with various contractually-defined inventory management practices, respectively. We determine these reserves based on our historical experience, including the timing of customer payments.
Contractual adjustment reservesadjustments primarily relate to Medicaid and managed care rebates, patient copay assistance, VA and PHS discounts, specialty pharmacy program fees and other governmental rebates or applicable allowances.
Medicaid rebate reservesrebates relate to our estimated obligations to states under established reimbursement arrangements. Rebate accruals are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability which is included in other current liabilities. Our liability for Medicaid rebates consists of estimates for claims that a state will make for the current quarter, claims for prior quarters that have been estimated for which an invoice has not been received, invoices received for claims from the prior quarters that have not been paid, and an estimate of potential claims that will be made for inventory that exists in the distribution channel at period end.
VAGovernmental rebates or chargeback reserveschargebacks, including VA and PHS discounts, represent our estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices we charge to wholesalers which provide those products. The wholesaler charges us for the difference between what the wholesaler pays for the products and the ultimate selling price to the qualified healthcare providers. Rebate and chargeback reserves are established in the same period as the related revenue is recognized, resulting in a reduction in product revenue and accounts receivable. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider from the wholesaler, and we generally issue credits for such amounts within a few weeks of the wholesaler notifying us about the resale. Our reserves for VA, PHS and chargebacks consists of amounts that we expect to issue for inventory that exists at the wholesalers that we expect will be sold to qualified healthcare providers and chargebacks that wholesalers have claimed for which we have not issued a credit.
Managed care rebate reservesrebates represent our estimated obligations to third parties, primarily pharmacy benefit managers. Rebate accruals are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expenses and other current liabilities. These rebates result from performance-based goals, that are primarily based on attaining contractually specified sales volumes and growthformulary position and price increase limit allowances (price protection). The calculation of the accrual for these rebates is based on an estimate of the customer’s buying patterns and the resulting applicable contractual rebate rate(s) to be earned over a contractual period.
Copay represents financial assistance to qualified patients, assisting them with prescription drug co-payments required by insurance. The calculation of the accrual for copay is based on an estimate of claims and the cost per claim that we expect to receive associated with inventory that exists in the distribution channel at period end.
Other governmental rebates or applicable allowances primarily relate to mandatory rebates and discounts in international markets where government-sponsored healthcare systems are the primary payerspayors for healthcare.
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Product return reservesreturns are established for returns expected to be made by wholesalers and are recorded in the period the related revenue is recognized, resulting in a reduction to product sales. In accordance with contractual terms, wholesalers are permitted to return product for reasons such as damaged or expired product. The majority of wholesaler returns are due to product expiration. Expired product return reserves are estimated through a comparison of historical return data to their related sales on a production lot basis. Historical rates of return are determined for each product and are adjusted for known or expected changes in the marketplace specific to each product.
In addition to the discounts, rebates and rebatesproduct returns described above and classified as a reduction of revenue, we also maintain certain customer service contracts with distributors and other customers in the distribution channel that provide us with inventory management, data and distribution services.
In countries where we expect to collect receivables greater than one year, at the time of sale, we discount our revenues over the period of time that we estimate those amounts will be paid using our estimate of the country’s borrowing rate. The related receivablesservices, which are classified at the time of sale as long-term assets. We accrete interest income on these receivables, which is recognizedgenerally reflected as a componentreduction of other income (expense), net within our consolidated statement of income.
We also distribute no-charge product to qualifying patients under our patient assistancerevenue. To the extent we can demonstrate a separable benefit and patient replacement goods program. This program is administered through one of our distribution partners, which ships productfair value for qualifying patients from its own inventory received from us. Gross revenuethese services, we classify these payments in selling, general and the related reserves are not recorded on product shipped under this program and cost of sales is recorded when the product is shipped.administrative expenses.
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Revenues from Unconsolidated Joint Business
We collaborate with Genentech on the development and commercialization of RITUXAN. For additional information related to our collaboration with Genentech, please read Note 21, Collaborative and Other Relationships, to these consolidated financial statements. Revenues from unconsolidated joint business consistconsists of (1)(i) our share of pre-tax co-promotion profits and losses in the U.S.; (2) for RITUXAN and GAZYVA; (ii) reimbursement of our selling and development expenseexpenses in the U.S.; for RITUXAN; and (3)(iii) revenue on sales of RITUXAN in the rest of world for RITUXAN, which consistsconsist of our share of pre-tax co-promotion profits in Canada and royalty revenue on sales of RITUXAN outside the U.S. and Canada by F. Hoffmann-Lathe Roche Ltd. (Roche)Group and its sublicensees. Pre-tax co-promotion profits on RITUXAN are calculated and paid to us by Genentech in the U.S. and by the Roche Group in Canada. Pre-tax co-promotion profits consist of U.S. and Canadian net sales of RITUXAN to third-party customers net of discounts and allowances less the cost to manufacture, RITUXAN, third-party royalty expenses, and distribution, selling, and marketing expenses, and joint development expenses incurred by Genentech, the Roche Group and us. We record our share of the pretaxpre-tax co-promotion profits on RITUXAN in Canada and royalty revenues on sales of RITUXAN outside the U.S. on a cash basis.basis as we do not have the ability to estimate these profits or royalty revenue in the period incurred. Additionally, our share of the pretax co-promotionpre-tax profits on RITUXAN and GAZYVA in the U.S. includes estimates made by Genentech and us and those estimates are subject to change. Actual results may ultimately differ from our estimates. For additional information related to our collaboration with Genentech, please read Note 19, Collaborative and Other Relationships, to these consolidated financial statements.
Royalty Revenues
We receive royalty revenues on sales by our licensees of other products covered under patents that we own. We do not have future performance obligations under these license arrangements. We record these revenues based on estimates of the sales that occurred during the relevant period.period as a component of other revenues. The relevant period estimates of sales are based on interim data provided by licensees and analysis of historical royalties that have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the following quarter. Historically, adjustments have not been material when compared to actual amounts paid by licensees. If we are unable to reasonably estimate royalty revenue or do not have access to the information, then we record royalty revenues on a cash basis.
Milestone Revenues
We execute collaborative and other agreements which may contain milestone payments. Revenues from milestones, if they are considered substantive, are recognized upon successful accomplishment of the milestones. Determining whether a milestone is substantive involves judgment, including an assessment of our involvement in achieving the milestones and whether the amount of the payment is commensurate to our performance. If not considered substantive, milestones are initially deferred and recognized over the remaining performance obligation.
Multiple-Element Revenue Arrangements
We may enter into transactions that involve the sale of products and related services under multiple element arrangements. In accounting for these transactions, we assess the elements of the contract and whether each element has standalone value and allocate revenue to the various elements based on their estimated selling price.price as a component of total revenues. The selling price of a revenue generating element can be based on current selling prices offered by us or another party for current products or management’s best estimate of a selling price for future products.price. Revenue allocated to an individual element is recognized when all other revenue recognition criteria are met for that element.
Fair Value Measurements
We have certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.
Level 1 — Fair values are determined utilizing quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access;
Level 2 — Fair values are determined by utilizing quoted prices for identical or similar assets and liabilities in active markets or other market observable inputs such as interest rates, yield curves and foreign currency spot rates; and
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Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The majority of our financial assets and liabilities have been classified as Level 2. Our financial assets and liabilities (which include our cash equivalents, derivative contracts, marketable debt securities, and plan assets for deferred compensation) have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third partythird-party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market basedmarket-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events.
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We validate the prices provided by our third partythird-party pricing services by reviewing their pricing methods and matrices, obtaining market values from other pricing sources and analyzing pricing data in certain instances. After completing our validation procedures, we did not adjust or override any fair value measurements provided by our pricing services as of December 31, 20122015 and 2011,2014, respectively.
We also maintain venture capital investments classified as Level 3 whose fair value is initially measured at transaction prices and subsequently valued using the pricing of recent financing or by reviewing the underlying economic fundamentals and liquidation value of the companies. These investments include investments in certain biotechnology oriented venture capital funds which primarily invest in small privately-owned, venture-backed biotechnology companies. The fair value of our investments in these venture capital funds has been estimated using the net asset value of the fund. Gains and losses (realized and unrealized) included in earnings for the period are reported in other income (expense), net. The investments cannot be redeemed within the funds. Distributions from each fund will be received as the underlying investments of the fund are liquidated. The funds and therefore a majority of the underlying assets of the funds will not be liquidated in the near future. We apply judgments and estimates when we validate the prices provided by third parties. While we believe the valuation methodologies are appropriate, the use of valuation methodologies is highly judgmental and changes in methodologies can have a material impact on our results of operations.
Other
The carrying amounts reflected in the consolidated balance sheets for cash equivalents, current accounts receivable, due from unconsolidated joint business, other current assets, accounts payable, and accrued expenses and other, approximate fair value due to their short-term maturities.
Cash and Cash Equivalents
We consider only those investments which are highly liquid, readily convertible to cash and that mature within three months from date of purchase to be cash equivalents. As of December 31, 20122015 and 2011,2014, cash equivalents were comprised of money market funds and commercial paper, overnight reverse repurchase agreements, and other debt securities with maturities less than 90 days from the date of purchase.
Accounts Receivable
The majority of our accounts receivable arise from product sales and primarily represent amounts due from our wholesale distributors, public hospitals and other government entities. We monitor the financial performance and credit worthinesscreditworthiness of our large customers so that we can properly assess and respond to changes in their credit profile. We provide reserves against trade receivables for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve. To date, such lossesour historical reserves and write-offs of accounts receivable have not exceeded management's estimates.been significant.
In countries where we have experienced a pattern of payments extending beyond our contractual payment term and we expect to collect receivables greater than one year from the time of sale, we have discounted our receivables and reduced related revenues over the period of time that we estimate those amounts will be paid using the country’s market-based borrowing rate for such period. The related receivables are classified at the time of sale as non-current assets. We accrete interest income on these receivables, which is recognized as a component of other income (expense), net in our consolidated statement of income.
The credit and economic conditions in certain countries in the E.U. continue to remain uncertain and have, from time to time, led to a lengthening of time to collect our accounts receivable in some of these countries. In recent years, our collection efforts in Portugal and select regions of Spain have been subject to significant payment delays due to government funding and reimbursement practices. As a result, a portion of these receivables have been routinely collected beyond our contractual payment terms and over periods in excess of one year. Our accounts receivable collection efforts in Portugal and Spain have improved during 2015 with our receivables in Spain now expected to be collected within one year. Our net accounts receivable balance from product sales in Portugal and Spain totaled $62.4 million and $90.2 million as of December 31, 2015 and 2014, respectively, of which $6.1 million and $12.6 million were classified as non-current and included in investments and other assets in our consolidated balance sheets.
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Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk include cash and cash equivalents, investments, derivatives, and accounts receivable. We attempt to minimize the risks related to cash and cash equivalents and investments by investing in a broad and diverse range of financial instruments as previously defined by us. We have established guidelines related to credit ratings and maturities intended to safeguard principal balances and maintain liquidity. Our investment portfolio is maintained in accordance with our investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. We minimize credit risk resulting from derivativesderivative instruments by choosing only highly rated financial institutions as counterparties.
Concentrations of credit risk with respect to receivables, which are typically unsecured, are limitedsomewhat mitigated due to the wide variety of customers and markets using our products, as well as their dispersion across many different geographic areas. The majority of our accounts receivable arise from product sales in the United StatesU.S. and Europe and have standard payment terms which generally require payment within 30 to 90 days. We monitor the financial performance and creditworthiness of our large customers so that we can properly assess and respond to changes in their credit profile. We continue to monitor these economic conditions and assess the impacts of such changes in the relevant financial marketstheir possible impact on our business, especially in light of sovereign credit developments. For additional information related to this concentration of credit risk, please read Note 5, Accounts Receivable to these consolidated financial statements.business.
As of December 31, 20122015 and 2011, one2014, two wholesale distributordistributors individually accounted for approximately 14.5%35.4% and 14.1%23.1%, and 34.4% and 23.3%, of consolidated receivables,accounts receivable, net, respectively.
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Marketable Securities and Other Investments
Marketable Debt Securities
Available-for-sale debt securities are recorded at fair market value and unrealized gains and losses are included in accumulated other comprehensive income (loss) in equity, net of related tax effects, unless the security has experienced a credit loss, we have determined that we have the intent to sell the security or we have determined that it is more likely than not that we will have to sell the security before its expected recovery. Realized gains and losses are reported in other income (expense), net, on a specific identification basis.
Marketable Equity Securities
Our marketable equity securities represent investments in publicly traded equity securities and are included in investments and other assets withinin our consolidated balance sheet. When assessing whether a decline in the fair value of a marketable equity security is other-than-temporary, we consider the fair market value of the security, the duration of the security’s decline, and prospects for the underlying business, including favorable or adverse clinical trial results, new product initiatives and new collaborative agreements with the companies in which we have invested.
Non-Marketable Equity Securities
We also invest in equity securities of companies whose securities are not publicly traded and where fair value is not readily available. These investments are recorded using either the cost method or the equity method of accounting, depending on our ownership percentage and other factors that suggest we have significant influence. We monitor these investments to evaluate whether any decline in their value has occurred that would be other-than-temporary, based on the implied value of recent company financings, public market prices of comparable companies, and general market conditions and are included in investments and other assets withinin our consolidated balance sheet.
Evaluating Investments for Other-than-Temporary Impairments
We conduct periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment and its application to certain investments. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses on available-for-sale securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated other comprehensive income.
For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether we intend to sell or whether we would more likely than not be required to sell the security before the expected recovery of the amortized cost basis. Where we intend to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is reflected withinin earnings as an impairment loss.
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Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security.
For equity securities, when assessing whether a decline in value is other-than-temporary, we consider the fair market value of the security, the duration of the security’s decline, and the financial condition of the issuer. We then consider our intent and ability to hold the equity security for a period of time sufficient to recover our carrying value. Where we have determined that we lack the intent and ability to hold an equity security to its expected recovery, the security’s decline in fair value is deemed to be other-than-temporary and is reflected withinin earnings as an impairment loss.
Equity Method of Accounting
In circumstances where we have the ability to exercise significant influence over the operating and financial policies of a company in which we have an investment, we utilize the equity method of accounting for recording investment activity. In assessing whether we exercise significant influence, we consider the nature and magnitude of our investment, the voting and protective rights we hold, any participation in the governance of the other company, and other relevant factors such as the presence of a collaboration or other business relationship. Under the equity method of accounting, we will record withinin our results of operations our share of income or loss of the other company.
Table If our share of Contentslosses exceed the carrying value of our investment, we will suspend recognizing additional losses and will continue to do so unless we commit to providing additional funding.BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inventory
Inventories are stated at the lower of cost or market with cost determined in a manner that approximatesbased on the first-in, first-out (FIFO) method. IncludedWe classify our inventory costs as long-term when we expect to utilize the inventory beyond our normal operating cycle and include these costs in inventory are common or fungible raw materialsinvestments and other assets in our consolidated balance sheets. Inventory that can be used in either the production of pre-clinical and clinical or commercial products which areis expensed as research and development costs when consumed.selected for use in a clinical manufacturing campaign.
Capitalization of Inventory Costs
We capitalize inventory costs associated with our products prior to regulatory approval, when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. We consider numerous attributes in evaluating whether the costs to manufacture a particular product should be capitalized as an asset. We assess the regulatory approval process and where the particular product stands in relation to that approval process, including any known safety or efficacy concerns, potential labeling restrictions and other impediments to approval. We evaluate our anticipated research and development initiatives and constraints relating to the product and the indication in which it will be used. We consider our manufacturing environment including our supply chain in determining logistical constraints that could hamper approval or commercialization. We consider the shelf life of the product in relation to the expected timeline for approval and we consider patent related or contract issues that may prevent or delay commercialization. We also base our judgment on the viability of commercialization, trends in the marketplace and market acceptance criteria. Finally, we consider the reimbursement strategies that may prevail with respect to the product and assess the economic benefit that we are likely to realize. We expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or significant delay of approval by necessary regulatory bodies.
As of December 31, 2012, $38.3 million of our inventory, including costs associated with our TECFIDERA, Serum-Free AVONEX, Factor VIII and Factor IX programs, have been capitalized in advance of regulatory approval. As of December 31, 2011, the carrying value of our inventory did not include any costs associated with products that had not yet received regulatory approval.
Obsolescence and Unmarketable Inventory
We periodically review our inventories for excess or obsolete inventoryobsolescence and write-down obsolete or otherwise unmarketable inventory to its estimated net realizable value. If the actual net realizable value is less than that estimated by us, or if it is determined that inventory utilization will further diminish based on estimates of demand, additional inventory write-downs may be required. Additionally, our products are subject to strict quality control and monitoring which we perform throughout the manufacturing process. In the event that certain batches or units of product no longer meet quality specifications, or become obsolete due to expiration, we will record a charge to cost of sales to write-down any obsolete or otherwise unmarketable inventory to its estimated net realizable value. In all cases, product inventory is carried at the lower of cost or its estimated net realizable value. Amounts written-down due to unmarketable inventory are charged to cost of sales, excluding amortizationsales.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Property, Plant and Equipment
Property, plant and equipment are carried at cost, subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The cost of normal, recurring, or periodic repairs and maintenance activities related to property, plant and equipment are expensed as incurred. The cost for planned major maintenance activities, including the related acquisition or construction of assets, is capitalized if the repair will result in future economic benefits.
Interest costs incurred during the construction of major capital projects are capitalized until the underlying asset is ready for its intended use, at which point the interest costs are amortized as depreciation expense over the life of the underlying asset. We also capitalize certain direct and incremental costs associated with the validation effort required for licensing by regulatory agencies of new manufacturing equipment for the production of a commercially approved drug. These costs primarily include direct labor and material and are incurred in preparing the equipment for its intended use. The validation costs are either amortized over the life of the related equipment.equipment or expensed as cost of sales when the product produced in the validation process is sold.
In addition, we capitalize certain internal use computer software development costs. If the software is an integral part of production assets, these costs are included in machinery and equipment and are amortized on a straight-line basis over the estimated useful lives of the related software, which generally range from three to five years.
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We generally depreciate or amortize the cost of our property, plant and equipment using the straight-line method over the estimated useful lives of the respective assets, which are summarized as follows:
|
| |
| Asset Category | Useful Lives |
| Land | Not depreciated |
| Buildings | 15 to 40 years |
| Leasehold Improvements | Lesser of the useful life or the term of the respective lease |
| Furniture and Fixtures | 5 to 7 years |
| Machinery and Equipment | 5 to 20 years |
| Computer Software and Hardware | 3 to 5 years |
When we dispose of property, plant and equipment, we remove the associated cost and accumulated depreciation from the related accounts on our consolidated balance sheet and include any resulting gain or loss in our consolidated statement of income.
Intangible Assets
Our intangible assets consist of acquired and in-licensed rights and patents, licenses, core developed technology, out-licensed patents, in-process research and development acquired after January 1, 2009, trademarks and trade names, and assembled workforce. The majority of our intangible assets were recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003.names. Our intangible assets are recorded at fair value at the time of their acquisition and are stated withinin our consolidated balance sheets net of accumulated amortization and impairments, if applicable.
Intangible assets related to patents, licenses,acquired and corein-licensed rights and patents, developed technology and out-licensed patents are amortized over their estimated useful lives using the economic consumption method if anticipated future revenues can be reasonably estimated; theestimated. The straight-line method is used when revenues cannot be reasonably estimated. OurAmortization is recorded as amortization policy reflectsof acquired intangible assets in our consolidated statements of income.
Acquired and in-licensed rights and patents primarily relate to our acquisition of all remaining rights to TYSABRI from Elan Pharma International, Ltd (Elan), an affiliate of Elan Corporation, plc. Developed technology primarily relates to our AVONEX product, which was recorded in connection with the pattern that the economic benefitsmerger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. We amortize the intangible assets are consumed. The useful lives of our intangible assets are primarilyrelated to TYSABRI and AVONEX using the economic consumption method based on revenue generated from the legal or contractual lifeproducts underlying the related intangible assets. An analysis of the underlying patentanticipated lifetime revenues of TYSABRI and AVONEX is performed annually during our long range planning cycle, which is generally updated in the third quarter of each year, and whenever events or contract, which does not include additional years forchanges in circumstances would significantly affect the potential extensionanticipated lifetime revenues of TYSABRI or renewalAVONEX.
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Intangible assets related to trademarks, trade names and in-process research and development prior to commercialization are not amortized because they have indefinite lives, however, they are subject to review for impairment. We review our intangible assets with indefinite lives for impairment annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
Our most significant intangible asset is the core technology related to our AVONEX product. We consume the economic benefits of this asset as AVONEX revenue is generated. Thus, our economic consumption model for this asset involves calculating a ratio of actual current period sales to total anticipated sales for the life of the product and applying this ratio to the carrying amount of the intangible asset. An analysis of the anticipated lifetime revenue of AVONEX is performed at least annually during our long range planning cycle, and this analysis serves as the basis for the calculation of our economic consumption amortization model. We believe this process has allowed us to reliably determine the best estimate of the pattern in which we will consume the economic benefits of our core technology intangible asset.
Acquired In-process Research and Development (IPR&D)
Acquired IPR&D represents the fair value assigned to research and development assets that have not been completed at the date of acquisition.reached technological feasibility. The value assigned to acquired IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the net cash flows to present value. The revenue and costs projections used to value acquired IPR&D were,are, as applicable, reduced based on the probability of success of developing a new drug. Additionally, the projections consideredconsider the relevant market sizes and growth factors, expected trends in technology, and the nature and expected timing of new product introductions by us and our competitors. The rates utilized to discount the net cash flows to their present value wereare commensurate with the stage of development of the projects and uncertainties in the economic estimates used in the projections described above.
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We measure acquired IPR&D, we complete an assessment of whether our acquisition constitutes the purchase of a single asset or a group of assets. We consider multiple factors in business combinations completed prior to January 1, 2009, at fair valuethis assessment, including the nature of the technology acquired, the presence or absence of separate cash flows, the development process and expensed it on acquisition date if that technology lacked an alternative future use, or capitalized it as an intangible asset if certain criteria were met; however, effective January 1, 2009, whenstage of completion, quantitative significance and our rationale for entering into the transaction.
If we purchaseacquire a business as defined under applicable accounting standards, then the acquired IPR&D is measured at fair value, capitalized as an intangible asset and amortized upon commercialization over its estimated useful life.asset. If we acquire an asset or group of assets that do not meet the definition of a business, under applicable accounting standards, then the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are expensedrecorded to research and development expense as incurred if the technology lacks alternative future uses.
We review amounts capitalized as acquired IPR&D for impairment at least annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable.they are incurred.
When performing our impairment assessment, we first assess qualitative factors to determine whether it is necessary to recalculate the fair value of our acquired IPR&D. If we believe, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of acquired IPR&D is less than its carrying amount, we calculate the fair value using the same methodology as described above. If the carrying value of our acquired IPR&D exceeds its fair value, then the intangible asset is written-down to theirits fair values.value. Certain IPR&D programs have a fair value that is not significantly in excess of carrying value, including our program for the treatment of TGN. Such programs could become impaired if assumptions used in determining the fair value change.
Goodwill
Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but reviewed for impairment. Goodwill is reviewed annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying value of the goodwill might not be recoverable.
We first assess qualitative factors to determine whether it is necessary to perform the current two-step impairment test. If we believe, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of our reporting unit is less than its carrying amount, the quantitative two-step impairment test is required; otherwise, no further testing is required. In the first step, we compare the fair value of our reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of our reporting unit, then the second step of the impairment test is performed in orderwe would need to determine the implied fair value of our reporting unit’s goodwill. If the carrying value of our reporting unit’s goodwill exceeds its implied fair value, then the company recordswe would record an impairment loss equal to the difference. As described in Note 26,24, Segment Information to these consolidated financial statements, we operate in one businessoperating segment which we consider our only reporting unit.
Impairment of Long-Lived Assets
Long-lived assets to be held and used, including property, plant and equipment and definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable.
Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written-down to their fair values. Long-lived assets to be disposed of are carried at fair value less costs to sell.
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Contingent Consideration
The consideration for our acquisitions often includes future payments that are contingent upon the occurrence of a particular event. For acquisitions completed before January 1, 2009, we record contingent consideration resulting from a business combination when the contingency is resolved. For acquisitions that qualify as business combinations completed after January 1, 2009, we record a contingent considerationan obligation for such contingent payments at fair value on the acquisition date. We estimate the fair value of contingent consideration obligations through valuation models that incorporate probability adjustedprobability-adjusted assumptions related to the achievement of the milestones and thus likelihood of making related payments. We revalue these contingent consideration obligations each reporting period. Changes in the fair value of our contingent consideration obligations are recognized withinin our consolidated statements of income. Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates, and periods utilized, changes in the amount or timing of expected expenditures associated with product development, changes in the amount or timing of cash flows and reserves associated with products upon commercialization, changes in the assumed achievement or timing of any cumulative sales-based and development milestones, changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval.
Discount rates in our valuation models represent a measure of the credit risk associated with settling the liability. The period over which we discount our contingent obligations is based on the current development stage of the product candidates, our specific development plan for that product candidate adjusted for the probability of completing the development step, and
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
when the contingent payments would be triggered. In determiningestimating the probability of success, we utilize data regarding similar milestone events from several sources, including industry studies and our own experience. These fair value measurements are based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense we record in any given period.
Derivative Instruments and Hedging Activities
We recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance sheets. Changes in the fair value of derivatives are recorded each period in current earnings or accumulated other comprehensive income (loss), depending on whether a derivative is designated as part of a hedge transaction and, if it is,so, the type of hedge transaction. We classify the cash flows from these instruments in the same category as the cash flows from the hedged items. We do not hold or issue derivative instruments for trading or speculative purposes.
We assess, both at inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of the hedged items. We also assess hedge ineffectiveness on a quarterly basis and record the gain or loss related to the ineffective portion to current earnings to the extent significant.earnings. If we determine that a forecasted transaction is no longer probable of occurring, we discontinue hedge accounting for the affected portion of the hedge instrument, and any related unrealized gain or loss on the contract is recognized in current earnings.
Translation of Foreign Currencies
The functional currency for most of our foreign subsidiaries is their local currency. For the Company’sour non-U.S. subsidiaries that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of exchange at the balance sheet date. Income and expense items are translated at the average foreign exchange rates for the period. Adjustments resulting from the translation of the financial statements of our foreign operations into U.S. dollars are excluded from the determination of net income and are recorded in accumulated other comprehensive income, a separate component of equity. For subsidiaries where the functional currency differsof the assets and liabilities differ from the local currency, non-monetary assets and liabilities are translated at the rate of exchange in effect on the date assets were acquired while monetary assets and liabilities are translated at current rates of exchange as of the balance sheet date. Income and expense items are translated at the average foreign currency rates for the period. Translation adjustments of these subsidiaries are included in other income (expense), net, in net income.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Royalty Cost of Sales
We make royalty payments to a number of third parties under license or purchase agreements associated with our acquisition of intellectual property. These royalty payments are typically calculated as a percentage (royalty rate) of the sales of our products in a particular year. That royalty rate may remain constant, increase or decrease within each year based on the total amount of sales during the annual period. Each quarterly period, we estimate our total royalty obligation for the full year and recognize the proportional amount as cost of sales based on actual quarterly sales as a percentage of full year estimated sales. For example, if the level of net sales in any calendar year increases the royalty rate within the year, we will record our cost of sales at an even rate over the year, based on the estimated blended royalty rate.
Accounting for Share-Based Compensation
Our share-based compensation programs grant awards whichthat have included stock options, restricted stock units which vest based on stock performance known as market stock units (MSUs), performance-vested restricted stock units which will be settledsettle in cash (CSPSs)(CSPUs), time-vested restricted stock units (RSUs), performance-vested restricted stock units which settlecan be settled in cash or shares (PVRSUs), time-vested restrictedof our common stock units (RSUs)(PUs) at the sole discretion of the Compensation and Management Development Committee of the Board of Directors and shares issued under our employee stock purchase plan (ESPP). We charge the estimated fair value of awards against income over the requisite service period, which is generally the vesting period. Where awards are made with non-substantive vesting periods (for instance, where a portion of the award vests upon retirement eligibility), we estimate and recognize expense based on the period from the grant date to the date on which the employee is retirement eligible.
The fair values of our stock option grants are estimated as of the date of grant using a Black-Scholes option valuation model. The estimated fair values of the stock options are then expensed over the options’ vesting periods.
The fair values of our RSUsMSUs are based on the market value of our stock on the date of grant. Compensation expense for RSUs is recognized over the applicable vesting period.
estimated using a lattice model with a Monte Carlo simulation. We apply an accelerated attribution method to recognize stock basedshare-based compensation expense over the applicable service period, net of estimated forfeitures, when accounting for our MSUs. The probability of actual shares expected to be earned is considered in the grant date valuation, therefore the expense willis not be adjusted to reflect the actual units earned.
The fair values of our RSUs are based on the market value of our stock on the date of grant. Compensation expense for RSUs is recognized straight-line over the applicable service period.
We apply an accelerated attribution method to recognize stock basedshare-based compensation expense when accounting for our CSPSsCSPUs and PUs and the fair value of the liability is remeasured at the end of each reporting period through expected cash settlement. Compensation expense associated with CSPSs isCSPUs and PUs are based upon the stock price and the number of units expected to be earned after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures. Cumulative adjustments are recorded each quarter to reflect changes in the stock price and estimated outcome of the performance-related conditions until the date results are determined and settled.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We apply an accelerated attribution method to recognize stock based compensation expense when accounting for our PVRSUs. The number of units reflected as granted represents the target number of shares that are eligible to vest in full or in part and are earned subject to the attainment of certain performance criteria established at the beginning of the performance period. Compensation expense associated with these units is initially based upon the number of shares expected to vest after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures. Cumulative adjustments are recorded quarterly to reflect subsequent changes in the estimated outcome of performance-related conditions until the date results are determined.
The purchase price of common stock under our ESPP is equal to 85% of the lowerlesser of (i) the fair market value per share of the common stock on the participant’s entry date intofirst business day of an offering period orand (ii) the fair market value per share of the common stock on the purchase date. However, for each participant whose entry date is other than the start date of the offering period, the amount shall in no event be less than the market value per share of the common stock as of the beginning of the related offering period. The fair value of the discounted purchases made under our ESPP is calculated using the Black-Scholes model. The fair value of the look-back provision plus the 15% discount is recognized as compensation expense over the 90 day purchase period. We apply a graded vesting approach since our ESPP provides for multiple purchase periods and is, in substance, a series of linked awards.
Research and Development Expenses
Research and development expenses consist of upfront fees and milestones paid to collaborators and expenses incurred in performing research and development activities, includingwhich include compensation and benefits, facilities expenses,and overhead expenses, clinical trial expenses and related clinical manufacturing expenses, fees paid to clinicalcontract research organizations (CROs), clinical supply and manufacturing expenses, write-offs of inventory that was previously capitalized in anticipation of product launch and determined to no longer be realizable, and other outside expenses. Research and development expenses are expensed as incurred. Payments we make for research and development services prior to the services being rendered are recorded as prepaid assets on our consolidated balance sheets and are expensed as the services are provided. We also accrue the costs of ongoing clinical trials associated with programs that have been terminated or discontinued for which there is no future economic benefit at the time the decision is made to terminate or discontinue the program.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
From time to time, we enter into development agreements in which we share expenses with a collaborative partner. We record payments received from our collaborative partners for their share of the development costs as a reduction of research and development expense, except as discussed withinin Note 21,19, Collaborative and Other Relationships to these consolidated financial statements. ExpensesBecause an initial indication has been approved for both RITUXAN and GAZYVA, expenses incurred by Genentech in the ongoing development of RITUXAN and GAZYVA are not recorded as research and development expense, but rather reduce our share of co-promotion profits recorded as a component of unconsolidated joint business revenues.
For collaborations with commercialized products, if we are the principal, we record revenue and the corresponding operating costs in their respective line items withinin our consolidated statements of income. If we are not the principal, we record operating costs as a reduction of revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses are primarily comprised of compensation and benefits associated with sales and marketing, finance, human resources, legal, information technology and other administrative personnel, outside marketing, advertising and legal expenses and other general and administrative costs.
Advertising costs are expensed as incurred. For the years ended December 31, 2012, 20112015, 2014 and 2010,2013, advertising costs totaled $54.3$108.6 million,, $45.3 $92.9 million and $35.3$72.7 million,, respectively.
Income Taxes
The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. We evaluate the realizability of our deferred tax assets and establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.
All tax effects associated with intercompany transfers of assets in our consolidated group, both current and deferred, are recorded as a prepaid tax or deferred charge and recognized through the consolidated statement of income when the asset transferred is sold to a third party or otherwise recovered through amortization of the asset's remaining economic life. If the asset transferred becomes impaired, for example through the discontinuation of a research program, we will expense any remaining deferred charge or prepaid tax.
We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis and consider various factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, newinformation obtained during in process audit activityactivities and changes in facts or circumstances related to a tax position. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Contingencies
We are currently involved in various claims and legal proceedings. Loss contingency provisions are recorded if the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated or a range of loss can be determined. These accruals represent management’s best estimate of probable loss. Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. On a quarterly basis, we review the status of each significant matter and assess its potential financial exposure. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revisechange our estimates. These revisionschanges in the estimates of the potential liabilities could have a material impact on our consolidated results of operations and financial position.
Restructuring Charges
We have made estimates and judgments regarding the amount and timing of our restructuring expense and liability, including current and future period termination benefits and other exit costs to be incurred when related actions take place. We have also assessed the recoverability of certain long-lived assets employed in the business and, in certain instances shortened the expected useful life of the assets based on changes in their expected use. When we determine that the useful lives of assets are shorter than we had originally estimated, we record additional depreciation to reflect the assets’ new shorter useful lives. Severance and other related costs and asset-related charges are reflected within our consolidated statement of income as a component of total restructuring charges incurred. Actual results may differ from these estimates. For additional information related to our recent restructuring efforts, please read Note 3, Restructuring, to these consolidated financial statements.
Earnings per Share
Basic earnings per share is computed using the two-class method. Under the two-class method,by dividing undistributed net income is allocatedattributable to Biogen Inc. by the weighted-average number of common stock and participating securities based on their respective rights to share in dividends. We have determined that our preferred shares meet the definition of participating securities and, to the extent any are outstanding during a period, have allocated a portionthe period.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASBFinancial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Companywe adopt as of the specified effective date. Unless otherwise discussed, we do not believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
In July 2012,May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. In August 2015, the FASB issued ASU No. 2012-02, Intangibles – Goodwill and Other2015-14, Revenue from Contracts with Customers (Topic 350)606): Testing Indefinite-Lived Intangible Assets for Impairment (ASU 2012-02). This newly issued accounting standard allows an entity the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test for indefinite-lived intangibles other than goodwill. Under that option, an entity would no longer be required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on that qualitative assessment, that it is more likely than not that the fair valueDeferral of the indefinite-lived intangible asset is less than its carrying amount. ThisEffective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. We are currently evaluating the method of adoption and the potential impact that Topic 606 may have on our financial position and results of operations.
In June 2014, the FASB issued ASU is effectiveNo. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosure. The new standard expanded secured borrowing accounting to include repurchase-to-maturity transactions and repurchase financings and set forth new disclosure requirements for annualrepurchase agreements, securities lending transactions, and interim indefinite-lived intangible asset impairment tests performedrepurchase-to-maturity transactions that are accounted for fiscal years beginning after September 15, 2012. Early adoption is permitted.as secured borrowings. We adopted this standard on April 1, 2015 and expanded our disclosures presented in Note 8, Financial Instruments to these consolidated financial statements. The adoption of this standard did not have an impact on our financial position or results of operations.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The new standard requires that debt issuance costs related to a recognized debt liability be presented in the fourth quarterbalance sheet as a direct deduction from the carrying amount of 2012,that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which clarified that debt issuance costs related to line-of-credit arrangements can be presented in the balance sheet as an asset and amortized over the term of the line-of-credit arrangement. We adopted these standards as of September 30, 2015 with retroactive application. The adoption of these standards did not have a materialsignificant impact on our financial position or results of operations. For additional information, please read Note 11, Indebtedness to these consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. Under this standard, if a cloud computing arrangement includes a software license, the software license element of the arrangement should be accounted for consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. The new standard will be effective for us on January 1, 2016. The adoption of this standard is not expected to have an impact on our financial position or results of operations.
In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The new standard removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The new standard will be effective for us on January 1, 2016. Early application is permitted. We maintain investments in certain venture capital funds which primarily invest in small, privately-owned, venture-backed biotechnology companies. The value of our investments in these venture capital funds is estimated using the net asset value of the fund and has been included in the fair value hierarchy disclosure as a Level 3 measurement. These venture capital investments are not material to our financial position or results of operations. We adopted this standard as of June 30, 2015 and our investments in venture capital funds are no longer included in our disclosures reflected in Note 7, Fair Value Measurements to these consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The new standard applies only to inventory for which cost is determined by methods other than last-in, first-out and the retail inventory method, which includes inventory that is measured using first-in, first-out or average cost. Inventory within the scope of this standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard will be effective for us on January 1, 2017. The adoption of this standard is not expected to have an impact on our financial position or results of operations.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The new standard requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined and sets forth new disclosure requirements related to the adjustments. The new standard will be effective for us on January 1, 2016. The adoption of this standard is not expected to have an impact on our financial position or results of operations.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The new standard requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. We adopted this standard as of December 31, 2015 with retroactive application. As a result, we reclassified our deferred tax assets classified as current to noncurrent and our deferred tax liabilities classified as current to noncurrent in our December 31, 2014 consolidated balance sheet, to conform our prior year presentation to our current year presentation. For additional information, please read Note 16, Income Taxes to these consolidated financial statements.
Stromedix, Inc.
Convergence Pharmaceuticals
On March 8, 2012,February 12, 2015, we completed our acquisition of all of the outstanding stock of Stromedix, Inc.Convergence Pharmaceuticals (Convergence), a privately heldclinical-stage biopharmaceutical company located in Cambridge, Massachusetts. Stromedix waswith a business involved in the discovery of antibodies designed to treat fibrosis disorders. Stromedix’focus on developing product candidates for neuropathic pain. Convergence’s lead candidate STX-100, wasis a Phase 2 clinical candidate Raxatrigine (CNV1014802), which has demonstrated clinical activity in Phase 2a of developmentproof-of-concept studies for trigeminal neuralgia (TGN). Additionally, Raxatrigine has potential applicability in patients with idiopathic pulmonary fibrosis (IPF). several other neuropathic pain states.
The purchase price includedconsisted of a $75.0$200.1 million cash payment and up to a maximum of $487.5 million inat closing, plus contingent consideration in the form of development and approval milestones up to a maximum of $450.0 million, of which $275.0$350.0 million relates directly to is associated with the development and approval of STX-100Raxatrigine for the treatment of IPF.TGN. The acquisition was funded from our existing cash on hand and has been accounted for as the acquisition of a business. In addition to acquiring the outstanding stock of the entity and obtaining the rights to STX-100,Raxatrigine and additional product candidates in preclinical development, we obtainedretained the services of key employees and the rights to a second antibody and an antibody conjugate, which are both in preclinical development.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
UponIn connection with our acquisition of Convergence, we recorded a contingent consideration obligationliability of $122.2$274.5 million representing the fair value of the contingent consideration. This amount was estimated through a valuation model that incorporates industry basedindustry-based probability adjusted assumptions relating to the achievement of these milestones and thus the likelihood of us making the contingent payments. This fair value measurement is based upon significant inputs not observable in the market and therefore represents a Level 3 measurement.
The purchase price, as adjusted, consisted of the following:
|
| | | |
| (In millions) | |
| Cash portion of consideration | $ | 200.1 |
|
| Contingent consideration | 274.5 |
|
| Total purchase price | $ | 474.6 |
|
During the second quarter of 2015, we adjusted our preliminary estimate of the fair value of the assets acquired and contingent consideration as of the date of acquisition as a result of finalizing the purchase price accounting. This resulted in an increase in the value of our estimated contingent consideration and goodwill by $36.0 million, respectively. Our revised purchase price allocation is reflected in the chart below. Our purchase price allocation is substantially complete.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Subsequent changes in the fair value of thisthe contingent consideration obligation will be recognized as adjustments to contingent consideration and reflected withinin our condensed consolidated statements of income. For additional information related to ourthe fair value of this obligation, please read Note 9,7, Fair Value Measurements to these consolidated financial statements.
The purchase price consists of the following:
|
| | | |
| (In millions) | |
| Cash portion of consideration | $ | 75.0 |
|
| Fair value of pre-existing equity ownership | 10.2 |
|
| Contingent consideration | 122.2 |
|
| Total purchase price | $ | 207.4 |
|
The following table summarizes the estimated fair values of the separately identifiable assets acquired and liabilities assumed as of March 8, 2012:February 12, 2015, as adjusted:
| | | (In millions) | | |
| In-process research and development | $ | 219.2 |
| $ | 424.6 |
|
| Other intangible assets | | 7.6 |
|
| Goodwill | 48.2 |
| 128.3 |
|
| Deferred tax assets | 17.8 |
| |
| Deferred tax liability | (77.9 | ) | (84.9 | ) |
| Other, net | 0.1 |
| (1.0 | ) |
| Total purchase price | $ | 207.4 |
| $ | 474.6 |
|
We estimatedOur estimate of the fair value of the IPR&D programs acquired was determined through a probability adjusted discounted cash flow analysis utilizing a discount rate of 20.0%11%. Substantially all ofThis valuation was primarily driven by the fair value is attributed to the primary indication ofassociated with the lead candidate, STX-100,Raxatrigine, which is in development for the treatment of TGN and is expected to be completed no earlier than fiscal 2020, at a remaining cost as of the acquisition date of approximately $290.0 million.$145.0 million. The fair value associated with STX-100Raxatrigine for the treatment of IPFTGN was $202.6$200.0 million. We have recorded additional IPR&D assets related to the use of Raxatrigine in two additional neuropathic pain indications, with a total estimated value of $220.0 million. The remaining cost of development for these two indications is approximately $415.0 million,. with an expected completion date of no earlier than 2021. These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 fair value measurements.
TheWe have attributed the goodwill is relatedrecognized to the Convergence workforce's expertise in chronic pain research and clinical development and to establishing a deferred tax liability for the acquired IPR&D intangible assets which have no tax basis and, therefore, arebasis. The goodwill is not tax deductible.
Pro forma results of operations would not be materially different as a result of the acquisition of StromedixConvergence and therefore are not presented. AfterSubsequent to the acquisition date, our results of operations include the results of Stromedix.operations of Convergence.
PriorTYSABRI
On April 2, 2013, we acquired full ownership of all remaining rights to TYSABRI from Elan that we did not already own or control. Upon the acquisition of Stromedix, we had an equity interest equal to approximately 5.0%closing of the company’s total capital stock (ontransaction, we made an “as converted” basis) pursuantupfront payment of $3.25 billion to a license agreement we entered into with Stromedix in 2007 for the development of the STX-100 product candidate. Based on the fair market value of this equity interest derived from the purchase price, we recognized a gain of approximately $9.0 million in the first quarter of 2012,Elan, which was recorded as a component of other income (expense), net within our consolidated statement of income.
Noncontrolling Interest in Joint Ventures
On September 6, 2011, we completed the purchase of the noncontrolling interest in our joint venture investments in Biogen Dompé SRL and Biogen Dompé Switzerland GmbH, our respective sales affiliates in Italy and Switzerland, from our joint venture partners, Dompé Farmaceutici SpA and Dompé International SA, respectively. This transaction was funded from our existing cash, on hand and has beenour collaboration agreement with Elan was terminated.
We accounted for this transaction as the acquisition of a noncontrolling interest.an asset as we did not acquire any employees from Elan nor did we acquire any significant processes that we did not previously perform or manage under the collaboration agreement. Under the collaboration agreement, we manufactured TYSABRI and collaborated with Elan on the product's marketing, commercial, regulatory, distribution and ongoing development activities. The purchase pricecollaboration agreement was designed to effect an equal sharing of these shares was comprised of cash payments totaling $152.9 million plus up to $42.5 million in contingent consideration payable uponworldwide profits and losses generated by the achievement of commercial and regulatory milestones using exchange rates at the timeactivities of the transaction. As these amounts reflect payments to acquire a noncontrolling interest, these payments and the accrual of a liabilitycollaboration. For additional information related to the contingent consideration were recorded as a reductionthis collaboration, please read Note 19, Collaborative and Other Relationships to these consolidated financial statements.
The $3.25 billion upfront payment was capitalized in the noncontrolling interest for these entities withsecond quarter of 2013 as an intangible asset in our consolidated balance sheet as TYSABRI had reached technological feasibility. We adjusted the remaindervalue of this intangible asset by $84.4 million related to additionaldeferred revenue from two sales-based milestones previously paid by Elan as well as transaction costs. The net intangible asset capitalized was $3.18 billion. Commencing in capital.the second quarter of 2013, we began amortizing this intangible asset over the estimated useful life using an economic consumption method based on actual and expected revenue generated from the sales of our TYSABRI product.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Upon acquisition, we recorded a contingent consideration obligation of $38.8 million representingFollowing the acquisition date fair valueApril 2, 2013 closing of the contingent consideration. This amount was estimated through a valuation model that incorporates probability weighted assumptions relatingtransaction, we began recording 100% of U.S. revenues, cost of sales and operating expenses related to the achievement of these milestones and thus the likelihood of us making payments. Subsequent changesTYSABRI in the fair value of this obligation will be recognized as adjustments to contingent consideration within our consolidated statements of income. For additional information related to our valuation of this obligation, please read Note 9, Fair Value Measurements to these consolidated financial statements.
In connection with our purchase of the noncontrolling interest in our joint venture investment in Biogen Dompé SRL, we entered into a credit assignment agreement with Dompé Farmaceutici SpA. Under the terms of thisthe acquisition agreement, Dompé Farmaceutici SpA purchased allwe continued to share TYSABRI profits with Elan on an equal basis until April 30, 2013. We recorded the profit split for the month ended April 30, 2013, as cost of Biogen Dompé SRL’s outstanding receivablessales in our consolidated statements of income as we controlled TYSABRI effective April 2, 2013. Between May 1, 2013 and April 30, 2014, we made contingent payments to Elan of June 30, 2011, adjusted for cash received through September 5, 2011, for $104.6 million. We have no retained interests in the receivables12% on worldwide net sales of TYSABRI. Commencing May 1, 2014 and have accounted for this transaction as a sale. The carrying valuethereafter, we will make contingent payments to Elan of these receivables exceeded their fair value, which was determined by management using significant inputs not observable in the market and thus represents a Level 3 fair value measurement, and accordingly we recognized a loss of $1.8 million upon their disposition.
In addition, balances outstanding under Biogen Dompé SRL’s credit line from Dompé Farmaceutici SpA were repaid in September 2011.
Biogen Idec International Neuroscience GmbH
In December 2010, we acquired 100% of the stock of Biogen Idec International Neuroscience GmbH (BIN), formerly Panima Pharmaceuticals AG, an affiliate of Neurimmune AG. The purchase price was comprised of a $32.5 million cash payment plus18% on annual worldwide net sales up to $395.0 million$2.0 billion and 25% on annual worldwide net sales that exceed $2.0 billion. In 2014, the $2.0 billion threshold was pro-rated for the portion of 2014 remaining after the first 12 months expired. Elan was acquired by Perrigo Company plc (Perrigo) in contingent consideration payable upon the achievement of development milestones. BIN is a business involved in the discovery of antibodies designed to treat neurological disorders. UponDecember 2013. Following that acquisition, we recorded a contingent consideration obligation of $81.2 million representing the acquisition date fair value of the contingent consideration. Subsequent changes in the fair value of this obligationbegan making these royalty payments to Perrigo. Royalty payments to Perrigo and other third parties are recognized as adjustments to contingent consideration withincost of sales in our consolidated statements of income.
3. Restructuring
On October 21, 2015, we announced a corporate restructuring, which includes the termination of certain pipeline programs and an 11% reduction in workforce. We allocated $110.9anticipate making cash payments totaling approximately $120 million under this program, which includes approximately $15.9 million related to previously 2015 accrued incentive compensation, for a total net expected restructuring charge of $105 million. These amounts will be substantially incurred and $25.6paid by the end of 2016.
We recognized $93.4 million of these charges during the total purchase price to acquired IPR&D and goodwill, respectively. The amount allocated to acquired IPR&D represented the fair valuefourth quarter of the IPR&D programs acquired. The goodwill recognized is primarily attributable to establishing a deferred tax liability for the acquired IPR&D asset,2015, of which is not deductible for income tax purposes. For additional information$86.2 million was related to our valuation of our contingent consideration obligation, please read Note 9, Fair Value Measurementsworkforce reduction and $7.2 million was related to these consolidated financial statements.
Biogen Idec Hemophilia Inc.
In connection with our acquisition of Biogen Idec Hemophilia Inc. (BIH), formerly Syntonix Pharmaceuticals, Inc. (Syntonix),the pipeline program terminations. Our restructuring reserve is included in January 2007, we agreed to pay up to an additional $80.0 million if certain milestone events associated with the development of BIH’s lead product, long-lasting recombinant Factor IX, a product for the treatment of hemophilia B, are achieved. The first $40.0 million contingent payment was achievedaccrued expenses and other in the first quarter of 2010 upon initiation of patient enrollment in a registrational trial of Factor IX. We recorded this payment as a charge to acquired IPR&D within our consolidated statement of income in 2010, in accordance with the accounting standards applicable to business combinations when we acquired BIH.
An additional $20.0 million contingent payment will occur if prior to the tenth anniversary of the closing date, the FDA grants approval of a Biologic License Application for Factor IX. A second $20.0 million contingent payment will occur if prior to the tenth anniversary of the closing date, a marketing authorization is granted by the EMA for Factor IX. If earned, these payments will be capitalized as an intangible asset when the related milestones are achieved.
In November 2010, we announced a number of strategic, operational, and organizational initiatives designed to provide a framework for the future growth of our business and realign our overall structure to become a more efficient and cost effective organization. As part of this initiative:
We out-licensed or terminated certain research and development programs, including those in oncology and cardiovascular medicine, that are no longer a strategic fit for us.
We completed a 13% reduction in workforce spanning our sales, research and development, and administrative functions.
We vacated and recognized the sale of the San Diego, California facility as well as consolidated certain of our Massachusetts facilities.
Costs associated with our workforce reduction primarily related to employee severance and benefits. Facility consolidation costs are primarily comprised of charges associated with closing these facilities, related lease obligations and additional depreciation recognized when the expected useful lives of certain assets have been shortened due to the consolidation and closing of related facilities and the discontinuation of certain research and development programs. As of December 31, 2012, substantially all restructuring charges have been incurred and paid.balance sheets.
The following table summarizes the activity ofcharges and spending related to our restructuring liability:efforts during 2015:
|
| | | | | | | | | | | |
| (In millions) | Workforce Reduction | | Facility Consolidation | | Total |
| Restructuring reserve as of December 31, 2010 | $ | 60.6 |
| | $ | 5.8 |
| | $ | 66.4 |
|
| Expense | 15.8 |
| | 2.4 |
| | 18.2 |
|
| Payments | (81.8 | ) | | (3.9 | ) | | (85.7 | ) |
| Adjustments to previous estimates, net | (2.9 | ) | | — |
| | (2.9 | ) |
| Other adjustments | 8.6 |
| | (3.2 | ) | | 5.4 |
|
| Restructuring reserve as of December 31, 2011 | $ | 0.3 |
| | $ | 1.1 |
| | $ | 1.4 |
|
| Payments | (0.3 | ) | | (1.1 | ) | | (1.4 | ) |
| Restructuring reserve as of December 31, 2012 | $ | — |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | |
| (In millions) | Workforce Reduction | | Pipeline Programs | | Total |
| Restructuring charges incurred during the fourth quarter of 2015 | $ | 86.2 |
| | $ | 7.2 |
| | $ | 93.4 |
|
| Previously accrued incentive compensation | 15.9 |
| | — |
| | 15.9 |
|
| Reserves established | 102.1 |
| | 7.2 |
| | 109.3 |
|
| Amounts paid through December 31, 2015 | (68.4 | ) | | (3.6 | ) | | (72.0 | ) |
| Restructuring reserve as of December 31, 2015 | $ | 33.7 |
| | $ | 3.6 |
| | $ | 37.3 |
|
During4. Reserves for Discounts and Allowances
As a result of our acquisition of all remaining rights to TYSABRI from Elan, we began recognizing reserves for discounts and allowances for U.S. TYSABRI revenue in the thirdsecond quarter of 2012,2013. In addition, following our recently launched products, we sold all of our rights, including rights to royalties,began recognizing reserves for discounts and allowances related to BENLYSTA (belimumab) to a DRI Capital managed fund (DRI). We were entitled to these rights pursuant to a license agreement with Human Genome Sciences, Inc. and GlaxoSmithKline plc (collectively the "Licensees"). Under the termsproducts' revenue.
An analysis of the BENLYSTA sale agreement, we will receive payments from DRI equal to a multiple of royalties payable by the Licensees for the period covering October 2011 to September 2014 and a one-time contingency payment that could be paid to us if the cumulative royalties over the full royalty term exceed an agreed amount. DRI will retain all the royalty payments from sales of BENLYSTA. We have accounted for thischange in reserves is summarized as a sale of a long-lived asset with zero cost basis as we have transferred all of our substantive rights related to this asset.follows:
Under the terms of this noncancelable sale, DRI will have no recourse to us for the Licensees' performance with respect to sales of BENLYSTA, even in the event of Licensees' insolvency, nonperformance or inability to comply with terms of the license agreement. We do not have any continuing involvement with DRI or the Licensees with respect to sales of BENLYSTA, and have concluded that the sale of the rights represents the culmination of an earnings process as we cannot reliably estimate the amount and timing of contingent payments.The payments received during 2012, which covered the royalty period from October 1, 2011 to September 30, 2012, totaled $46.8 million, which was recorded as a gain on sale of rights within our consolidated statements of income. The remaining payments, which are contingent upon BENLYSTA sales over the period ending September 2014, will be recognized as the payments become due from DRI.
Our accounts receivable primarily arise from product sales in the U.S. and Europe and mainly represent amounts due from our wholesale distributors, public hospitals and other government entities. Concentrations of credit risk with respect to our accounts receivable, which are typically unsecured, are limited due to the wide variety of customers and markets using our products, as well as their dispersion across many different geographic areas. The majority of our accounts receivable have standard payment terms which generally require payment within 30 to 90 days. We monitor the financial performance and credit worthiness of our large customers so that we can properly assess and respond to changes in their credit profile. We provide reserves against trade receivables for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve. To date, our historical write-offs of accounts receivable have not been significant.
The credit and economic conditions within Italy, Spain, Portugal and Greece, among other members of the European Union, remain uncertain. Deteriorating credit and economic conditions have generally led to an increase in the average length of time that it takes to collect our accounts receivable in some of these countries. In some regions in these countries where our collections have slowed and a significant portion of these receivables are routinely being collected over periods in excess of one year, we have discounted our receivables and reduced related revenues based on the period of time that we estimate those amounts will be paid, to the extent such period exceeds one year, using the country’s market-based borrowing rate for such |
| | | | | | | | | | | | | | | |
| (In millions) | Discounts | | Contractual Adjustments | | Returns | | Total |
| 2015 | | | | | | | |
| Beginning balance | $ | 47.6 |
| | $ | 387.1 |
| | $ | 49.1 |
| | $ | 483.8 |
|
| Current provisions relating to sales in current year | 459.7 |
| | 1,732.1 |
| | 37.6 |
| | 2,229.4 |
|
| Adjustments relating to prior years | (1.3 | ) | | (16.3 | ) | | (14.7 | ) | | (32.3 | ) |
| Payments/returns relating to sales in current year | (405.9 | ) | | (1,258.1 | ) | | (2.6 | ) | | (1,666.6 | ) |
| Payments/returns relating to sales in prior years | (44.0 | ) | | (296.1 | ) | | (11.5 | ) | | (351.6 | ) |
| Ending balance | $ | 56.1 |
| | $ | 548.7 |
| | $ | 57.9 |
| | $ | 662.7 |
|
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | | | | | | | | |
| (In millions) | Discounts | | Contractual Adjustments | | Returns | | Total |
| 2014 | | | | | | | |
| Beginning balance | $ | 47.0 |
| | $ | 345.5 |
| | $ | 33.7 |
| | $ | 426.2 |
|
| Current provisions relating to sales in current year | 347.3 |
| | 1,265.4 |
| | 39.1 |
| | 1,651.8 |
|
| Adjustments relating to prior years | (1.0 | ) | | (28.5 | ) | | 13.5 |
| | (16.0 | ) |
| Payments/returns relating to sales in current year | (299.7 | ) | | (933.4 | ) | | (4.1 | ) | | (1,237.2 | ) |
| Payments/returns relating to sales in prior years | (46.0 | ) | | (261.9 | ) | | (33.1 | ) | | (341.0 | ) |
| Ending balance | $ | 47.6 |
| | $ | 387.1 |
| | $ | 49.1 |
| | $ | 483.8 |
|
|
| | | | | | | | | | | | | | | |
| (In millions) | Discounts | | Contractual Adjustments | | Returns | | Total |
| 2013 | | | | | | | |
| Beginning balance | $ | 14.3 |
| | $ | 196.0 |
| | $ | 26.8 |
| | $ | 237.1 |
|
| Current provisions relating to sales in current year | 236.3 |
| | 861.3 |
| | 22.9 |
| | 1,120.5 |
|
| Adjustments relating to prior years | (0.7 | ) | | (16.4 | ) | | 1.1 |
| | (16.0 | ) |
| Payments/returns relating to sales in current year | (189.7 | ) | | (560.4 | ) | | — |
| | (750.1 | ) |
| Payments/returns relating to sales in prior years | (13.2 | ) | | (135.0 | ) | | (17.1 | ) | | (165.3 | ) |
| Ending balance | $ | 47.0 |
| | $ | 345.5 |
| | $ | 33.7 |
| | $ | 426.2 |
|
The related receivables are classified at the time of sale as long-term assets. We accrete interest income on these receivables, which is recognized as a component of other income (expense), net withintotal revenue-related reserves above, included in our consolidated statements of income.
Our net accounts receivable balances from product sales in these countriesbalance sheets, are summarized as follows:
|
| | | | | | | | | | | |
| | As of December 31, 2012 |
| (In millions) | Current Balance Included within Accounts Receivable, net | | Non-Current Balance Included within Investments and Other Assets | | Total |
| Spain | $ | 78.9 |
| | $ | — |
| | $ | 78.9 |
|
| Italy | $ | 94.4 |
| | $ | 10.2 |
| | $ | 104.6 |
|
| Portugal | $ | 16.6 |
| | $ | 7.4 |
| | $ | 24.0 |
|
| Greece | $ | 0.6 |
| | $ | — |
| | $ | 0.6 |
|
|
| | | | | | | |
| | As of December 31, |
| (In millions) | 2015 | | 2014 |
| Reduction of accounts receivable | $ | 144.6 |
| | $ | 124.6 |
|
| Component of accrued expenses and other | 518.1 |
| | 359.2 |
|
| Total revenue-related reserves | $ | 662.7 |
| | $ | 483.8 |
|
5. Inventory
The components of inventory are summarized as follows:
|
| | | | | | | | | | | |
| | As of December 31, 2011 |
| (In millions) | Current Balance Included within Accounts Receivable, net | | Non-Current Balance Included within Investments and Other Assets | | Total |
| Spain | $ | 68.5 |
| | $ | 65.5 |
| | $ | 134.0 |
|
| Italy | $ | 19.4 |
| | $ | 48.7 |
| | $ | 68.1 |
|
| Portugal | $ | 20.6 |
| | $ | 12.3 |
| | $ | 32.9 |
|
| Greece | $ | 4.0 |
| | $ | — |
| | $ | 4.0 |
|
|
| | | | | | | |
| | As of December 31, |
| (In millions) | 2015 | | 2014 |
| Raw materials | $ | 213.0 |
| | $ | 128.3 |
|
| Work in process | 577.6 |
| | 511.5 |
|
| Finished goods | 143.0 |
| | 164.2 |
|
| Total inventory | $ | 933.6 |
| | $ | 804.0 |
|
| | | | |
| Balance Sheet Classification: | | | |
| Inventory | $ | 893.4 |
| | $ | 804.0 |
|
| Investments and other assets | 40.2 |
| | — |
|
| Total inventory | $ | 933.6 |
| | $ | 804.0 |
|
Approximately $11.8 millionInventory included in investments and $56.0 million of the aggregated balances for these countries were overdue more than one year as of December 31, 2012 and 2011, respectively.
During the third quarter of 2012, as part of a new program to resolve outstanding amounts long overdue, the Portuguese government paid us approximately $21.2 million, contributing to a decreaseother assets in our accounts receivableconsolidated balance sheets primarily consisted of work in Portugal. Similarly, in June 2012, the Spanish government paid us approximately $112.0 million, contributing to a significant decrease in our accounts receivable in Spain.
The increase in accounts receivable related to sales in Italy is driven, in part, by the credit assignment agreement we completed in the third quarter of 2011. As of December 31, 2011, our accounts receivable balances in Italy totaled $68.1 million, all of which resulted from sales of product subsequent to June 30, 2011. As discussed in Note 2, Acquisitions to these consolidated financial statements, in connection with our purchase of the noncontrolling interest in our joint venture investments in Biogen Dompé SRL, which occurred during the third quarter of 2011, we entered into a credit assignment agreement with Dompé Farmaceutici SpA. Under the terms of this agreement, Dompé Farmaceutici SpA purchased all of Biogen Dompé SRL's outstanding receivables as of June 30, 2011. We retained no interests in these receivables and accounted for this transaction as a sale.
In the fourth quarter of 2011, Biogen Idec SRL received a notice from the Italian National Medicines Agency (AIFA) stating that sales of TYSABRI for the period from February 2009 through February 2011 exceeded by EUR30.7 million a reimbursement limit established pursuant to a Price Determination Resolution (Price Resolution) granted by AIFA in February 2007. In December 2011, we filed an appeal against AIFA in administrative court seeking a ruling that the reimbursement limit does not apply and that the position of AIFA is unenforceable. Since being notified that AIFA believes a reimbursement limit is in effect, we have deferred $62.7 million and $13.8 million of revenue in Italy during 2012 and 2011, respectively. We expect to continue to defer a portion of our revenues on future sales of TYSABRI in Italy until this matter is resolved. For additional information, please read Note 22, Litigation to these consolidated financial statements.process.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. Reserves for Discounts and Allowances
An analysis of the amount of, and change in, reserves is summarized as follows:
|
| | | | | | | | | | | | | | | |
| (In millions) | Discounts | | Contractual Adjustments | | Returns | | Total |
| 2012 | | | | | | | |
| Beginning balance | $ | 12.6 |
| | $ | 119.3 |
| | $ | 23.7 |
| | $ | 155.6 |
|
| Current provisions relating to sales in current year | 113.8 |
| | 516.9 |
| | 22.0 |
| | 652.7 |
|
| Adjustments relating to prior years | (0.3 | ) | | (4.7 | ) | | (0.1 | ) | | (5.1 | ) |
| Payments/returns relating to sales in current year | (99.6 | ) | | (347.2 | ) | | (4.3 | ) | | (451.1 | ) |
| Payments/returns relating to sales in prior years | (11.0 | ) | | (89.5 | ) | | (14.5 | ) | | (115.0 | ) |
| Ending balance | $ | 15.5 |
| | $ | 194.8 |
| | $ | 26.8 |
| | $ | 237.1 |
|
| (In millions) | Discounts | | Contractual Adjustments | | Returns | | Total |
| 2011 | | | | | | | |
| Beginning balance | $ | 13.9 |
| | $ | 107.0 |
| | $ | 21.1 |
| | $ | 142.0 |
|
| Current provisions relating to sales in current year | 96.0 |
| | 360.4 |
| | 15.7 |
| | 472.1 |
|
| Adjustments relating to prior years | — |
| | (14.0 | ) | | (0.9 | ) | | (14.9 | ) |
| Payments/returns relating to sales in current year | (84.3 | ) | | (266.0 | ) | | (0.4 | ) | | (350.7 | ) |
| Payments/returns relating to sales in prior years | (13.0 | ) | | (68.1 | ) | | (11.8 | ) | | (92.9 | ) |
| Ending balance | $ | 12.6 |
| | $ | 119.3 |
| | $ | 23.7 |
| | $ | 155.6 |
|
| (In millions) | Discounts | | Contractual Adjustments | | Returns | | Total |
| 2010 | | | | | | | |
| Beginning balance | $ | 13.9 |
| | $ | 70.3 |
| | $ | 18.9 |
| | $ | 103.1 |
|
| Current provisions relating to sales in current year | 80.6 |
| | 285.0 |
| | 16.1 |
| | 381.7 |
|
| Adjustments relating to prior years | (2.7 | ) | | (2.4 | ) | | (1.8 | ) | | (6.9 | ) |
| Payments/returns relating to sales in current year | (68.7 | ) | | (184.3 | ) | | (0.8 | ) | | (253.8 | ) |
| Payments/returns relating to sales in prior years | (9.2 | ) | | (61.6 | ) | | (11.3 | ) | | (82.1 | ) |
| Ending balance | $ | 13.9 |
| | $ | 107.0 |
| | $ | 21.1 |
| | $ | 142.0 |
|
The total reserves above, included in our consolidated balance sheets, are summarized as follows:
|
| | | | | | | |
| | As of December 31, |
| (In millions) | 2012 | | 2011 |
| Reduction of accounts receivable | $ | 46.1 |
| | $ | 40.6 |
|
| Current liability | 191.0 |
| | 115.0 |
|
| Total reserves | $ | 237.1 |
| | $ | 155.6 |
|
The components of inventory are summarized as follows:
|
| | | | | | | |
| | As of December 31, |
| (In millions) | 2012 | | 2011 |
| Raw materials | $ | 101.8 |
| | $ | 83.8 |
|
| Work in process | 230.5 |
| | 169.4 |
|
| Finished goods | 115.1 |
| | 73.6 |
|
| Total inventory | $ | 447.4 |
| | $ | 326.8 |
|
The components of inventory by product are summarized as follows:
|
| | | | | | | |
| | As of December 31, |
| (In millions) | 2012 | | 2011 |
| AVONEX | $ | 144.0 |
| | $ | 113.3 |
|
| TYSABRI | 114.8 |
| | 114.7 |
|
| Other | 86.8 |
| | 15.0 |
|
| Total finished goods and work in process | 345.6 |
| | 243.0 |
|
| Raw materials | 101.8 |
| | 83.8 |
|
| Total inventory | $ | 447.4 |
| | $ | 326.8 |
|
As of December 31, 2012, the carrying value of other2015, our inventory includes $38.3included $24.7 million associated with our TECFIDERA, Serum-Free AVONEX, Factor VIIIZINBRYTA program, $18.4 million associated with our BENEPALI program and Factor IX programs$24.2 million associated with our FLIXABI program, which have been capitalized in advance of regulatory approval. In January 2016, the European Commission (EC) approved the marketing authorization application (MAA) for BENEPALI for marketing in the E.U. As of December 31, 2014, our inventory included $6.3 million associated with our ZINBRYTA program, which has been capitalized in advance of regulatory approval. For information on our pre-approval inventory policy, please read Note 1, Summary of Significant Accounting Policies to these consolidated financial statements
AmountsInventory amounts written down related toas a result of excess, obsolete, unmarketableobsolescence, unmarketability or other inventoryreasons are charged to cost of sales, and totaled $24.8$41.9 million,, $25.4 $50.6 million,, and $11.8$47.3 million for the years ended December 31, 2012, 2011,2015, 2014, and 2010,2013, respectively.
| |
8. | 6. Intangible Assets and Goodwill |
In connection with our acquisition of Stromedix in March 2012, we acquired IPR&D programs with an estimated fair value of $219.2 million and recorded $48.2 million of goodwill, which represents the excess of the purchase price over the fair value of the net assets acquired. For a more detailed description of this transaction, please read Note 2, Acquisitions to these consolidated financial statements.
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments, are summarized as follows:
| | | | | | As of December 31, 2012 | | As of December 31, 2011 | | | As of December 31, 2015 | | As of December 31, 2014 |
| (In millions) | Estimated Life | | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net | Estimated Life | | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net |
| Out-licensed patents | 13-23 years | | $ | 578.0 |
| | $ | (421.0 | ) | | $ | 157.0 |
| | $ | 578.0 |
| | $ | (391.3 | ) | | $ | 186.7 |
| 13-23 years | | $ | 543.3 |
| | $ | (506.0 | ) | | $ | 37.3 |
| | $ | 543.3 |
| | $ | (481.7 | ) | | $ | 61.6 |
|
| Core developed technology | 15-23 years | | 3,005.3 |
| | (1,965.7 | ) | | 1,039.6 |
| | 3,005.3 |
| | (1,801.1 | ) | | 1,204.2 |
| |
| Developed technology | | 15-23 years | | 3,005.3 |
| | (2,552.9 | ) | | 452.4 |
| | 3,005.3 |
| | (2,396.8 | ) | | 608.5 |
|
| In-process research and development | Up to 15 years upon commercialization | | 330.1 |
| | — |
| | 330.1 |
| | 110.9 |
| | — |
| | 110.9 |
| Indefinite until commercialization | | 730.5 |
| | — |
| | 730.5 |
| | 314.1 |
| | — |
| | 314.1 |
|
| Trademarks and tradenames | Indefinite | | 64.0 |
| | — |
| | 64.0 |
| | 64.0 |
| | — |
| | 64.0 |
| Indefinite | | 64.0 |
| | — |
| | 64.0 |
| | 64.0 |
| | — |
| | 64.0 |
|
| In-licensed rights and patents | 6-16 years | | 53.7 |
| | (12.9 | ) | | 40.8 |
| | 47.2 |
| | (4.8 | ) | | 42.4 |
| |
| Assembled workforce | 4 years | | 2.1 |
| | (2.1 | ) | | — |
| | 2.1 |
| | (2.1 | ) | | — |
| |
| Acquired and in-licensed rights and patents | | 6-18 years | | 3,303.2 |
| | (502.3 | ) | | 2,800.9 |
| | 3,280.4 |
| | (300.1 | ) | | 2,980.3 |
|
| Total intangible assets | | $ | 4,033.2 |
| | $ | (2,401.7 | ) | | $ | 1,631.5 |
| | $ | 3,807.5 |
| | $ | (2,199.3 | ) | | $ | 1,608.2 |
| | $ | 7,646.3 |
| | $ | (3,561.2 | ) | | $ | 4,085.1 |
| | $ | 7,207.1 |
| | $ | (3,178.6 | ) | | $ | 4,028.5 |
|
Amortization of acquired intangible assets totaled $202.2$382.6 million,, $208.6 $489.8 million,, and $208.9$342.9 million for the years ended December 31, 2012, 20112015, 2014 and 2010,2013, respectively. The estimated future amortization forAmortization of acquired intangible assets is expectedduring 2014 included total impairment charges of $34.7 million related to be as follows:one of our out-licensed patents and $16.2 million related to one of our IPR&D intangible assets.
|
| | | |
| (In millions) | As of December 31, 2012 |
| 2013 | $ | 207.4 |
|
| 2014 | 190.0 |
|
| 2015 | 166.4 |
|
| 2016 | 147.9 |
|
| 2017 | 113.9 |
|
| Total | $ | 825.6 |
|
TableOut-licensed patents to third-parties primarily relate to patents acquired in connection with the merger of ContentsBiogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. During 2014, we recorded a charge of $34.7 million related to the impairment of one of our out-licensed patents to reflect a change in its estimated fair value, due to a change in the underlying competitive market for that product. The charge was included in amortization of acquired intangible assets. The fair value of the intangible asset was based on a discounted cash flow calculated using Level 3 fair value measurements and inputs including estimated revenues. There were no impairment charges related to our out-licensed patents during 2015.BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Core Developed Technology
Core developedDeveloped technology primarily relates to our AVONEX product, which was recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. Our most recent long range planning cycleThe net book value of this asset as of December 31, 2015, was completed in the third quarter$443.9 million.
In-process Research and Development (IPR&D)BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
IPR&D
In-process research and developmentIPR&D represents the fair value assigned to research and development assets that we acquire that have not been completedreached technological feasibility at the date of acquisition. Upon commercialization, we determine the estimated useful life. In connection with our acquisition of StromedixConvergence in March 2012,February 2015, we acquired IPR&D programs with an estimated fair value of $219.2 million.$424.6 million. This amount has and will be adjusted for foreign exchange rate fluctuations. For a more detailed description of this transaction, please read Note 2, Acquisitions to these consolidated financial statements.
An analysis of anticipated lifetime revenues and anticipated development costs is performed annually during our long- range planning cycle, which was updated in the third quarter of 2015. This analysis is based upon certain assumptions that we evaluate on a periodic basis, including anticipated future product sales, the expected impact of changes in the amount of development costs and the probabilities of our programs succeeding, the introduction of new products by our competitors and changes in our commercial and pipeline product candidates.
During the third quarter of 2014, we updated the probabilities of success related to the early stage programs acquired through our recent acquisitions. The change in probability of success, combined with a delay in one of the projects, resulted in an impairment loss of $16.2 million in one of our IPR&D assets during 2014.
Acquired and In-licensed Rights and Patents
In July 2011, the European Commission (EC) granted a conditional marketing authorization for FAMPYRA in the E.U., which triggered a $25.0 million milestone paymentAcquired and in-licensed rights and patents primarily relate to Acorda Therapeutics, Inc. (Acorda). This payment was made in the third quarter of 2011 and was capitalized as an intangible asset. Under the terms of our 2009 collaboration and license agreement, we pay Acorda additional milestones based on new indications and ex-U.S. net sales. The next expected milestone is $15.0 million, due when ex-U.S. net sales reach $100.0 million over a period of four consecutive quarters. These milestones are capitalized upon achievement as an intangible asset. Amortization utilizes an economic consumption model that includes an estimateacquisition of all remaining rights to TYSABRI from Elan. The net book value of the probable future milestone payments we expect to make, suchthis asset as sales-based milestones, for entering into the license agreement.
of December 31, 2015 was $2,742.9 million. For additional information related to our collaboration with Acorda,a more detailed description of this transaction, please read Note 21,2, Collaborative and Other RelationshipsAcquisitions to these consolidated financial statements.
In the first quarterEstimated Future Amortization of 2011, we also licensed rights for the diagnostic and therapeutic application of recombinant virus-like particles, known as VP1 proteins, to detect antibodies of the JC virus (JCV) in serum or blood. Under the terms of this license, we expect to make payments totaling approximately Intangible Assets$71.5 million through 2016. These payments include upfront and milestone payments as well as the greater of an annual maintenance fee or usage-based royalty payment. As of December 31, 2012 and 2011, we have recognized an intangible asset totaling $25.7 million and $19.2 million, respectively, reflecting the total amount of upfront payments made and other time-based milestone payments we expect to make. We will capitalize any additional payments due under this arrangement as an intangible asset when they become due. Amortization
Our amortization expense is recorded using an economic consumption model based on the numbereconomic consumption of JCV antibody assay tests performed each period comparedintangible assets. Our most significant intangible assets are related to our AVONEX and TYSABRI products. Annually, during our long-range planning cycle, we perform an estimateanalysis of anticipated lifetime revenues of AVONEX and TYSABRI. This analysis is also updated whenever events or changes in circumstances would significantly affect the total tests we expectanticipated lifetime revenues of either product.
Our most recent long range planning cycle was completed in the third quarter of 2015. Based upon this analysis, the estimated future amortization of acquired intangible assets is expected to perform multiplied by payments made to date and an estimatebe as follows:
|
| | | |
| (In millions) | As of December 31, 2015 |
| 2016 | $ | 346.4 |
|
| 2017 | 318.6 |
|
| 2018 | 291.0 |
|
| 2019 | 275.1 |
|
| 2020 | 269.1 |
|
| Total | $ | 1,500.2 |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Goodwill
The following table provides a roll forward of the changes in our goodwill balance:
| | | | As of December 31, | As of December 31, |
| (In millions) | 2012 | | 2011 | 2015 | | 2014 |
| Goodwill, beginning of year | $ | 1,146.3 |
| | $ | 1,146.3 |
| $ | 1,760.2 |
| | $ | 1,232.9 |
|
| Goodwill acquired during the year | 48.2 |
| | — |
| |
| Increase to goodwill | | 908.1 |
| | 527.3 |
|
| Other | 6.8 |
| | — |
| (4.5 | ) | | — |
|
| Goodwill, end of year | $ | 1,201.3 |
| | $ | 1,146.3 |
| $ | 2,663.8 |
| | $ | 1,760.2 |
|
The increase in goodwill during 2015 was related to $900.0 million in contingent milestones achieved (exclusive of $120.2 million in tax benefits) and payable to the former shareholders of Fumapharm AG or holders of their rights and $128.3 million related to our acquisition of Convergence. Other includes changes related to foreign exchange rate fluctuations. The increase in goodwill during 2014 was related to $600.0 million in contingent milestones achieved (exclusive of $72.7 million in tax benefits) and payable to the former shareholders of Fumapharm AG or holders of their rights.
For additional information related to future contingent payments to the year endedformer shareholders of Fumapharm AG, please read Note 21, December 31, 2012, we corrected goodwill by $6.8 millionCommitments and Contingencies to establish a deferred tax liability that existed at the timethese consolidated financial statements. For additional information related to our acquisition of the merger of Biogen, Inc and IDEC Pharmaceuticals Corporation in 2003. Convergence, please read Note 2, Acquisitions to these consolidated financial statements.
As of December 31, 2012,2015, we had no accumulated impairment losses related to goodwill.
| |
9. | Fair Value Measurements |
The tables below present information about our assets and liabilities that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques we utilized to determine such fair value:
| | | (In millions) | As of
December 31,
2012 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | As of
December 31,
2015 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Assets: | | | | | | | | | | | | | | |
| Cash equivalents | $ | 439.4 |
| | $ | — |
| | $ | 439.4 |
| | $ | — |
| $ | 909.5 |
| | $ | — |
| | $ | 909.5 |
| | $ | — |
|
| Marketable debt securities: | | | | | | | | | | | | | | |
| Corporate debt securities | 1,001.0 |
| | — |
| | 1,001.0 |
| | — |
| 1,510.9 |
| | — |
| | 1,510.9 |
| | — |
|
| Government securities | 1,657.8 |
| | — |
| | 1,657.8 |
| | — |
| 2,875.9 |
| | — |
| | 2,875.9 |
| | — |
|
| Mortgage and other asset backed securities | 512.9 |
| | — |
| | 512.9 |
| | — |
| 494.1 |
| | — |
| | 494.1 |
| | — |
|
| Marketable equity securities | 9.0 |
| | 9.0 |
| | — |
| | — |
| 37.5 |
| | 37.5 |
| | — |
| | — |
|
| Venture capital investments | 20.3 |
| | — |
| | — |
| | 20.3 |
| |
| Derivative contracts | 1.8 |
| | — |
| | 1.8 |
| | — |
| 27.2 |
| | — |
| | 27.2 |
| | — |
|
| Plan assets for deferred compensation | 14.3 |
| | — |
| | 14.3 |
| | — |
| 40.1 |
| | — |
| | 40.1 |
| | — |
|
| Total | $ | 3,656.5 |
| | $ | 9.0 |
| | $ | 3,627.2 |
| | $ | 20.3 |
| $ | 5,895.2 |
| | $ | 37.5 |
| | $ | 5,857.7 |
| | $ | — |
|
| Liabilities: | | | | | | | | | | | | | | |
| Derivative contracts | $ | 14.4 |
| | $ | — |
| | $ | 14.4 |
| | $ | — |
| $ | 14.7 |
| | $ | — |
| | $ | 14.7 |
| | $ | — |
|
| Contingent consideration obligations | 293.9 |
| | — |
| | — |
| | 293.9 |
| 506.0 |
| | — |
| | — |
| | 506.0 |
|
| Total | $ | 308.3 |
| | $ | — |
| | $ | 14.4 |
| | $ | 293.9 |
| $ | 520.7 |
| | $ | — |
| | $ | 14.7 |
| | $ | 506.0 |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | (In millions) | As of
December 31,
2011 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | As of
December 31,
2014 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Assets: | | | | | | | | | | | | | | |
| Cash equivalents | $ | 399.8 |
| | $ | — |
| | $ | 399.8 |
| | $ | — |
| $ | 716.3 |
| | $ | — |
| | $ | 716.3 |
| | $ | — |
|
| Marketable debt securities: | | | | | | | | | | | | | | |
| Corporate debt securities | 602.6 |
| | — |
| | 602.6 |
| | — |
| 1,063.0 |
| | — |
| | 1,063.0 |
| | — |
|
| Government securities | 1,716.5 |
| | — |
| | 1,716.5 |
| | — |
| 849.8 |
| | — |
| | 849.8 |
| | — |
|
| Mortgage and other asset backed securities | 273.8 |
| | — |
| | 273.8 |
| | — |
| 198.3 |
| | — |
| | 198.3 |
| | — |
|
| Marketable equity securities | 0.1 |
| | 0.1 |
| | — |
| | — |
| 6.9 |
| | 6.9 |
| | — |
| | — |
|
| Venture capital investments | 23.5 |
| | — |
| | — |
| | 23.5 |
| |
| Derivative contracts | 39.5 |
| | — |
| | 39.5 |
| | — |
| 72.7 |
| | — |
| | 72.7 |
| | — |
|
| Plan assets for deferred compensation | 11.6 |
| | — |
| | 11.6 |
| | — |
| 36.9 |
| | — |
| | 36.9 |
| | — |
|
| Total | $ | 3,067.4 |
| | $ | 0.1 |
| | $ | 3,043.8 |
| | $ | 23.5 |
| $ | 2,943.9 |
| | $ | 6.9 |
| | $ | 2,937.0 |
| | $ | — |
|
| Liabilities: | | | | | | | | | | | | | | |
| Derivative contracts | $ | 0.5 |
| | $ | — |
| | $ | 0.5 |
| | $ | — |
| $ | 5.4 |
| | $ | — |
| | $ | 5.4 |
| | $ | — |
|
| Contingent consideration obligations | 151.0 |
| | — |
| | — |
| | 151.0 |
| 215.5 |
| | — |
| | — |
| | 215.5 |
|
| Total | $ | 151.5 |
| | $ | — |
| | $ | 0.5 |
| | $ | 151.0 |
| $ | 220.9 |
| | $ | — |
| | $ | 5.4 |
| | $ | 215.5 |
|
The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities were determined through valuation models of third partythird-party pricing services. For a description of our validation procedures related to prices provided by third partythird-party pricing services, refer to Note 1, Summary of Significant Accounting Policies: Fair Value Measurements, to these consolidated financial statements.
Marketable Equity Securities and Venture Capital Investments
Our marketable equity securities represent investments in publicly traded equity securities. Our venture capital investments, which are all Level 3 measurements, include investments in certain venture capital funds, accounted for at fair value, which primarily invest in small privately-owned, venture-backed biotechnology companies. These venture capital investments represented approximately 0.2% of total assets of December 31, 2012 and 2011, respectively.
The following table provides a roll forward of the fair value of our venture capital investments, which are all Level 3 assets:
|
| | | | | | | |
| | As of December 31, |
| (In millions) | 2012 | | 2011 |
| Fair value, beginning of year | $ | 23.5 |
| | $ | 20.8 |
|
| Unrealized gains included in earnings | 5.4 |
| | 2.4 |
|
| Unrealized losses included in earnings | (9.2 | ) | | (1.4 | ) |
| Purchases | 0.6 |
| | 1.7 |
|
| Fair value, end of year | $ | 20.3 |
| | $ | 23.5 |
|
Debt Instruments
The fair values of our debt instruments, which are all Level 2 measurements,liabilities, are summarized as follows:
| | | | As of December 31, | As of December 31, |
| (In millions) | 2012 | | 2011 | 2015 | | 2014 |
| Notes payable to Fumedica | $ | 20.0 |
| | $ | 22.4 |
| $ | 9.4 |
| | $ | 12.6 |
|
| 6.0% Senior Notes due March 1, 2013 | 453.7 |
| | 474.1 |
| |
| 6.875% Senior Notes due March 1, 2018 | 681.6 |
| | 663.9 |
| 602.6 |
| | 634.6 |
|
| 2.900% Senior Notes due September 15, 2020 | | 1,497.5 |
| | — |
|
| 3.625% Senior Notes due September 15, 2022 | | 1,014.2 |
| | — |
|
| 4.050% Senior Notes due September 15, 2025 | | 1,764.6 |
| | — |
|
| 5.200% Senior Notes due September 15, 2045 | | 1,757.6 |
| | — |
|
| Total | $ | 1,155.3 |
| | $ | 1,160.4 |
| $ | 6,645.9 |
| | $ | 647.2 |
|
The fair value of our notes payable to Fumedica was estimated using market observable inputs, including current interest and foreign currency exchange rates. The fair valuevalues of each of our series of Senior Notes waswere determined through market, observable, and corroborated sources. For additional information related to our debt instruments, please read Note 11, Indebtedness to these consolidated financial statements.
Contingent Consideration Obligations
The following table provides a roll forward of the fair values of our contingent consideration obligations which are allincludes Level 3 measurements:
| | | | As of December 31, | As of December 31, |
| (In millions) | 2012 | | 2011 | 2015 | | 2014 |
| Fair value, beginning of year | $ | 151.0 |
| | $ | 81.2 |
| $ | 215.5 |
| | $ | 280.9 |
|
| Additions | 122.2 |
| | 38.8 |
| 274.5 |
| | — |
|
| Changes in fair value | 27.2 |
| | 36.0 |
| 30.5 |
| | (38.9 | ) |
| Payments | (6.5 | ) | | (5.0 | ) | (14.5 | ) | | (26.5 | ) |
| Fair value, end of year | $ | 293.9 |
| | $ | 151.0 |
| $ | 506.0 |
| | $ | 215.5 |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 20122015 and 2011,2014, approximately $271.5$301.3 million and $140.3$200.0 million,, respectively, of the fair value of our total contingent consideration obligations werewas reflected as componentsa component of other long-term liabilities withinin our consolidated balance sheets with the remaining balancesbalance reflected as a component of accrued expenses and other.
There were no changes in valuation techniques or transfers between fair value measurement levels during the years ended December 31, 2015 and 2014. During the third quarter 2014, we updated the probabilities of success related to the early stage programs acquired through our recent acquisitions. We adjusted the value of our contingent consideration liabilities to reflect these changes. The change in probability of success, combined with a delay in one of the projects, resulted in a net gain of $49.4 million during 2014, which was recorded in (gain) loss on fair value remeasurement of contingent consideration and reduced the fair value of our contingent consideration obligations. The fair values of the intangible assets and contingent consideration liabilities were based on a probability-adjusted discounted cash flow calculation using Level 3 fair value measurements and inputs including estimated revenues and probabilities of success. For additional information related to the valuation techniques and inputs utilized in valuation of our financial assets and liabilities, please read Note 1, Summary of Significant Accounting Policies to these consolidated financial statements.
In connection with our acquisition of StromedixConvergence in March 2012,February 2015, we recorded a contingent consideration obligationliability of $122.2$274.5 million, representing the fair value of the contingent consideration. This valuation was based on probability weighted net cash outflow projections of $487.5$450.0 million,, discounted using a rate of 2%, which was the estimated cost of debt financing for market participants. This liability reflects the revised estimate from the date of acquisition for our initial clinical development plans, resulting probabilities of success and the timing of certain milestone payments. For a more detailed description of this transaction, please read Note 2, 4.4%Acquisitions to these consolidated financial statements. As of December 31, 2015, the fair value of this contingent consideration obligation was $297.5 million, discounted using a rate of 3%, and approximately $197.2 million is reflected as a component of accrued expenses and other in our consolidated balance sheets as we expect to make the payment within a year.
In connection with our acquisition of Stromedix in March 2012, we recorded a contingent consideration obligation of $122.2 million. As of December 31, 2015 and 2014, the fair value of this contingent consideration obligation was $131.5 million and $130.5 million, respectively. Our most recent valuation was determined based upon probability weighted net cash outflow projections of $419.0 million, discounted using a rate of 2%, which is a measure of the credit risk associated with settling the liability. As of December 31, 2012,For 2015 compared to 2014, the fair value of this contingent consideration obligation was $135.3 million. Our most recent valuation was determined based upon probability weighted net cash outflow projections discounted using a rate of 3.6%. The increase in the fair value of this obligation of $13.1 million since the acquisition date was primarily due to changes in the discount rate, andpartially offset by changes in the probability and expected timing related to the achievement of certain remaining developmental milestones.
Upon completion of our purchase of the noncontrolling interest in our joint venture investments in Biogen Dompé SRL and Biogen Dompé Switzerland GmbH in September 2011, we recorded a contingent consideration obligation of $38.8 million.$38.8 million. As of December 31, 20122015 and 2011,2014, the fair value of this contingent consideration obligation was $29.8$0.0 million and $31.9$15.5 million, respectively. For 2015 compared to 2014, the net decrease in the fair value of this obligation was primarily due to payments of $14.5 million of sales-based milestones. Our obligations under this agreement were completed as of December 31, 2015.
In connection with our acquisition of Biogen Idec International Neuroscience GmbH (BIN), formerly Panima Pharmaceuticals AG (Panima), in December 2010, we recorded a contingent consideration obligation of $81.2 million. As of December 31, 2015 and 2014, the fair value of this contingent consideration obligation was $77.0 million and $69.5 million, respectively. Our most recent valuation was determined based upon probability weighted net cash outflow projections of $38.5$365.0 million,, discounted using a rate of 2.4%3%, which is a measure of the credit risk associated with settling the liability. The decrease inFor 2015 compared to 2014, the fair value of this obligation of $9.0 million since the acquisition date was primarily due to changes in the discount rate and in the probability and expected timing related to the achievement of certain cumulative sales-based and developmental milestones as well as the payment of a $4.0 million developmental milestone.
In connection with our acquisition of BIN in the fourth quarter of 2010, we recorded a contingent consideration obligation of $81.2 million. As of December 31, 2012 and 2011, the fair value of this contingent consideration obligation was $128.8 million and $119.1 million, respectively. Our most recent valuation was determined based upon probability weighted net cash outflow projections of $387.5 million, discounted using a rate of 3.6%, which is a measure of the credit risk associated with settling the liability. The increase in the fair value of this obligation of $47.6 million since the acquisition date was primarily due to changes in the discount rate and in the probability and expected timing related to the achievement of certain remaining developmental milestones offset by paymentsand in the discount rate.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Acquired IPR&D
In connection with our acquisition of Stromedix,Convergence, we also allocated $219.2$424.6 million of the total purchase price to acquired IPR&D, which was capitalized as an intangible asset. The amount allocated to acquired IPR&D was based on significant inputs not observable in the market and thus represented a Level 3 fair value measurement. This estimate was also adjusted from our preliminary estimate as of the date of acquisition to reflect revised estimates to our initial clinical development plans, resulting probabilities of success and the timing of certain milestone payments. These assets arewill be tested for impairment annually until commercialization, after which time the IPR&D iswill be amortized over its estimated useful life. For a more detailed description of this transaction, please read Note 2, Acquisitions to these consolidated financial statements.
There has been no impairment of our assets measured at fair value during the years ended December 31, 2012 and 2011. In addition, there were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the years ended December 31, 2012 and 2011. For additional information related to the valuation techniques and inputs utilized in valuation of our financial assets and liabilities, please read Note 1, Summary of Significant Accounting Policies to these consolidated financial statements.
10.8. Financial Instruments
Marketable Securities
The following tables summarize our marketable debt and equity securities:
|
| | | | | | | | | | | | | | | |
| As of December 31, 2012 (In millions) | Fair Value | | Gross Unrealized Gains | | Gross Unrealized Losses | | Amortized Cost |
| Available-for-sale: | | | | | | | |
| Corporate debt securities | | | | | | | |
| Current | $ | 346.9 |
| | $ | 0.3 |
| | $ | — |
| | $ | 346.6 |
|
| Non-current | 654.1 |
| | 2.8 |
| | (0.6 | ) | | 651.9 |
|
| Government securities | | | | | | | |
| Current | 783.4 |
| | 0.3 |
| | — |
| | 783.1 |
|
| Non-current | 874.4 |
| | 0.8 |
| | — |
| | 873.6 |
|
| Mortgage and other asset backed securities | | | | | | | |
| Current | 4.8 |
| | — |
| | — |
| | 4.8 |
|
| Non-current | 508.1 |
| | 1.4 |
| | (1.3 | ) | | 508.0 |
|
| Total marketable debt securities | $ | 3,171.7 |
| | $ | 5.6 |
| | $ | (1.9 | ) | | $ | 3,168.0 |
|
| Marketable equity securities, non-current | $ | 9.0 |
| | $ | 3.0 |
| | $ | — |
| | $ | 6.0 |
|
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | | | | | | | | |
| As of December 31, 2011 (In millions) | Fair Value | | Gross Unrealized Gains | | Gross Unrealized Losses | | Amortized Cost |
| Available-for-sale: | | | | | | | |
| Corporate debt securities | | | | | | | |
| Current | $ | 155.0 |
| | $ | 0.2 |
| | $ | (0.1 | ) | | $ | 154.9 |
|
| Non-current | 447.6 |
| | 1.2 |
| | (1.5 | ) | | 447.9 |
|
| Government securities | | | | | | | |
| Current | 1,021.0 |
| | 0.4 |
| | — |
| | 1,020.6 |
|
| Non-current | 695.5 |
| | 0.9 |
| | (0.2 | ) | | 694.8 |
|
| Mortgage and other asset backed securities | | | | | | | |
| Current | 0.1 |
| | — |
| | — |
| | 0.1 |
|
| Non-current | 273.7 |
| | 0.5 |
| | (1.3 | ) | | 274.5 |
|
| Total marketable debt securities | $ | 2,592.9 |
| | $ | 3.2 |
| | $ | (3.1 | ) | | $ | 2,592.8 |
|
| Marketable equity securities, non-current | $ | 0.1 |
| | $ | — |
| | $ | (0.1 | ) | | $ | 0.2 |
|
In the table above, as of December 31, 2011, government securities included $214.0 million of Federal Deposit Insurance Corporation (FDIC) guaranteed senior notes issued by financial institutions under the Temporary Liquidity Guarantee Programs. We no longer own securities with an FDIC guarantee because this program ended on December 31, 2012.
The following table summarizes our financial assets with maturities of less than 90 days from the date of purchase included withinin cash and cash equivalents on the accompanying consolidated balance sheet:
| | | | As of December 31, | As of December 31, |
| (In millions) | 2012 | | 2011 | 2015 | | 2014 |
| Commercial paper | $ | 40.7 |
| | $ | — |
| $ | 21.9 |
| | $ | 54.2 |
|
| Repurchase agreements | 67.4 |
| | 8.8 |
| |
| Overnight reverse repurchase agreements | | 134.7 |
| | 305.0 |
|
| Money market funds | | 673.8 |
| | 321.2 |
|
| Short-term debt securities | 331.3 |
| | 391.0 |
| 79.1 |
| | 35.9 |
|
| Total | $ | 439.4 |
| | $ | 399.8 |
| $ | 909.5 |
| | $ | 716.3 |
|
The carrying values of our commercial paper, including accrued interest, overnight reverse repurchase agreements, money market funds and our short-term debt securities approximate fair value.value due to their short term maturities. Our overnight reverse repurchase agreements are collateralized with agency-guaranteed mortgage-backed securities and represent approximately 0.7% and 2.1% of total assets as of December 31, 2015 and 2014, respectively.
The following tables summarize our marketable debt and equity securities:
|
| | | | | | | | | | | | | | | |
| As of December 31, 2015 (In millions) | Fair Value | | Gross Unrealized Gains | | Gross Unrealized Losses | | Amortized Cost |
| Corporate debt securities | | | | | | | |
| Current | $ | 394.3 |
| | $ | — |
| | $ | (0.5 | ) | | $ | 394.8 |
|
| Non-current | 1,116.6 |
| | 0.1 |
| | (4.1 | ) | | 1,120.6 |
|
| Government securities | | | | | | | |
| Current | 1,723.4 |
| | 0.1 |
| | (1.1 | ) | | 1,724.4 |
|
| Non-current | 1,152.5 |
| | — |
| | (3.1 | ) | | 1,155.6 |
|
| Mortgage and other asset backed securities | | | | | | | |
| Current | 2.8 |
| | — |
| | — |
| | 2.8 |
|
| Non-current | 491.3 |
| | 0.1 |
| | (1.8 | ) | | 493.0 |
|
| Total marketable debt securities | $ | 4,880.9 |
| | $ | 0.3 |
| | $ | (10.6 | ) | | $ | 4,891.2 |
|
| Marketable equity securities, non-current | $ | 37.5 |
| | $ | 9.2 |
| | $ | — |
| | $ | 28.3 |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | | | | | | | | |
| As of December 31, 2014 (In millions) | Fair Value | | Gross Unrealized Gains | | Gross Unrealized Losses | | Amortized Cost |
| Corporate debt securities | | | | | | | |
| Current | $ | 370.4 |
| | $ | — |
| | $ | (0.2 | ) | | $ | 370.6 |
|
| Non-current | 692.6 |
| | 0.2 |
| | (1.5 | ) | | 693.9 |
|
| Government securities | | | | | | | |
| Current | 269.9 |
| | — |
| | (0.1 | ) | | 270.0 |
|
| Non-current | 579.9 |
| | 0.3 |
| | (0.4 | ) | | 580.0 |
|
| Mortgage and other asset backed securities | | | | | | | |
| Current | 0.2 |
| | — |
| | — |
| | 0.2 |
|
| Non-current | 198.1 |
| | 0.2 |
| | (0.2 | ) | | 198.1 |
|
| Total marketable debt securities | $ | 2,111.1 |
| | $ | 0.7 |
| | $ | (2.4 | ) | | $ | 2,112.8 |
|
| Marketable equity securities, non-current | $ | 6.9 |
| | $ | 1.2 |
| | $ | (0.2 | ) | | $ | 5.9 |
|
Summary of Contractual Maturities: Available-for-Sale Securities
The estimated fair value and amortized cost of our marketable debt securities available-for-sale by contractual maturity are summarized as follows:
| | | | As of December 31, 2012 | | As of December 31, 2011 | As of December 31, 2015 | | As of December 31, 2014 |
| (In millions) | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value | | Amortized Cost | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value | | Amortized Cost |
| Due in one year or less | $ | 1,135.0 |
| | $ | 1,134.5 |
| | $ | 1,176.1 |
| | $ | 1,175.6 |
| $ | 2,120.5 |
| | $ | 2,122.0 |
| | $ | 640.5 |
| | $ | 640.8 |
|
| Due after one year through five years | 1,744.3 |
| | 1,741.2 |
| | 1,251.6 |
| | 1,251.4 |
| 2,575.9 |
| | 2,583.9 |
| | 1,343.7 |
| | 1,345.2 |
|
| Due after five years | 292.4 |
| | 292.3 |
| | 165.2 |
| | 165.8 |
| 184.5 |
| | 185.3 |
| | 126.9 |
| | 126.8 |
|
| Total available-for-sale securities | $ | 3,171.7 |
| | $ | 3,168.0 |
| | $ | 2,592.9 |
| | $ | 2,592.8 |
| $ | 4,880.9 |
| | $ | 4,891.2 |
| | $ | 2,111.1 |
| | $ | 2,112.8 |
|
The average maturity of our marketable debt securities available-for-sale as of December 31, 20122015 and 20112014, was 14 months.16 months and 15 months, respectively.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Proceeds from Marketable Debt Securities
The proceeds from maturities and sales of marketable debt securities and resulting realized gains and losses are summarized as follows:
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Proceeds from maturities and sales | $ | 2,749.6 |
| | $ | 2,276.7 |
| | $ | 2,668.7 |
| $ | 4,063.0 |
| | $ | 2,718.9 |
| | $ | 5,190.1 |
|
| Realized gains | $ | 2.1 |
| | $ | 3.9 |
| | $ | 18.8 |
| $ | 1.5 |
| | $ | 0.7 |
| | $ | 6.6 |
|
| Realized losses | $ | 3.5 |
| | $ | 2.3 |
| | $ | 2.5 |
| $ | 3.5 |
| | $ | 0.5 |
| | $ | 2.1 |
|
Proceeds were generally reinvested. Realized losses for the year ended December 31, 2012,2015, primarily relate to sales of corporate bonds, agency mortgage-backed securities and other asset-backed securities. Realized losses for the year ended December 31, 2014, primarily relate to sales of agency mortgage-backed securities and government securities. Realized losses for the year ended December 31, 2011,2013, primarily relate to sales of government and corporate securities. Realized losses for the year ended December 31, 2010, primarily relate to the sale of agency mortgage-backed securities and corporate debt securities.
Strategic Investments
As of December 31, 20122015 and 2011,2014, our strategic investment portfolio was comprised of investments totaling $64.2$96.0 million and $62.8$47.8 million,, respectively, which are included in investments and other assets in our accompanying consolidated balance sheets.
Our strategic investment portfolio includes investments in marketable equity securities of certain biotechnology companies and our investments in venture capital funds accounted for at fair value which totaled $29.3 million and $23.6 million as of December 31, 2012 and 2011, respectively. Our strategic investment portfolio also includes other equitywhere the underlying investments are in privately-held companies and additional investments in venture capital funds accounted for under the cost method. The carrying value of these investments totaled $34.9 million and $39.2 million, as of December 31, 2012 and 2011, respectively.
Net Gains, Impairments and Changes to Fair Value
During the years ended December 31, 2012, 2011, and 2010, we realized net gains, impairments and changes to fair value recorded through income of $6.5 million and $7.3 million and net losses of $20.1 million, respectively, on our strategic investment portfolio. Included within the net gains recognized during the year ended December 31, 2012, was a gain of $9.0 million recognized upon our acquisition of Stromedix as we previously held an equity interest. For a more detailed description of this transaction, please read Note 2, Acquisitions to these consolidated financial statements. In 2011, we sold four strategic investments for $40.6 million, which resulted in a net gain of $13.5 million. In 2010 we sold one strategic investment for $1.8 million, which resulted in an insignificant loss.
Impairments
During the years ended December 31, 2012, 2011, and 2010, we recognized impairment charges on our marketable equity securities of certain biotechnology companies, investments in venture capital funds accounted for under the cost method, investments in venture capital funds accounted for under the equity method and investments in privately-held companies totaling $5.5 million, $9.9 million, and $19.2 million, respectively.companies.
| |
11. | Derivative Instruments |
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. Derivative Instruments
Foreign Currency Forward Contracts - Hedging Instruments
Due to the global nature of our operations, portions of our revenues and operating expenses are earnedrecorded in currencies other than the U.S. dollar. The value of revenues and operating expenses measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. In order to mitigate these changes we use foreign currency forward contracts to lock in exchange rates associated with a portion of our forecasted international revenues.revenues and operating expenses.
Foreign currency forward contracts in effect as of December 31, 20122015 and 20112014, had durations of 1 to 1218 months. and 1 to 15 months, respectively. 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 accumulated other comprehensive income (loss) (referred to as AOCI in the tables below). Realized gains and losses for the effective portion of such contracts are recognized in revenue when the sale of product in the currency being hedged is recognized.recognized and, beginning in the fourth quarter of 2015, in operating expenses when the expense in the currency being hedged is recorded. To the extent ineffective, hedge transaction gains and losses are reported in other income (expense), net.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The notional value of foreign currency forward contracts that were entered into to hedge forecasted revenues and expenses is summarized as follows:
| | | | Notional Amount As of December 31, | Notional Amount As of December 31, |
| Foreign Currency: (In millions) | 2012 | | 2011 | 2015 | | 2014 |
| Euro | $ | 492.2 |
| | $ | 496.4 |
| $ | 945.5 |
| | $ | 1,174.6 |
|
| Swiss francs | | 80.8 |
| | — |
|
| Canadian dollar | 31.8 |
| | 22.9 |
| 76.7 |
| | 56.7 |
|
| Swedish krona | — |
| | 13.0 |
| |
| British pound sterling | | — |
| | 34.5 |
|
| Australian dollar | | — |
| | 19.9 |
|
| Japanese yen | | — |
| | 16.6 |
|
| Total foreign currency forward contracts | $ | 524.0 |
| | $ | 532.3 |
| $ | 1,103.0 |
| | $ | 1,302.3 |
|
The portion of the fair value of these foreign currency forward contracts that was included in accumulated other comprehensive income (loss) withinin total equity reflected losses of $11.8 million, gains of $36.5$1.8 million and $72.1 million and losses of $11.0$23.6 million for the years ended December 31, 2012, 20112015, 2014 and 2010,2013, respectively. We expect all contracts to be settled over the next 1218 months and any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to revenue.revenue or operating expense. We consider the impact of our and our counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its contractual obligations. As of December 31, 20122015 and 2011, respectively,2014, credit risk did not materially change the fair value of our foreign currency forward contracts.
In relation to our foreign currency forward contracts, due to hedge ineffectiveness we recognized in other income (expense) net gains of $4.8 million, net losses of $3.9 million, and net gains of $0.4 million for the years ended December 31, 2012, 2011 and 2010, respectively.
In addition, we recognized in product revenue net gains of $35.1 million, net losses of $36.9 million, and net gains of $45.7 million, for the years ended December 31, 2012, 2011 and 2010, respectively, for the settlement of certain effective cash flow hedge instruments. These settlements were recorded in the same period as the related forecasted revenues.
Summary of Derivatives Designated as Hedging Instruments
The following table summarizes the fair value and presentation in our consolidated balance sheets for derivativeseffect of foreign currency forward contracts designated as hedging instruments:instruments on our consolidated statements of income related to our forecasted revenues:
|
| | | | |
| (In millions) | Balance Sheet Location | Fair Value
As of December 31, 2012 |
| Foreign Currency Contracts: | | |
| Asset derivatives | Other current assets | $ | 0.6 |
|
| Liability derivatives | Accrued expenses and other | $ | 11.5 |
|
|
| | | | |
| (In millions) | Balance Sheet Location | Fair Value
As of December 31, 2011 |
| Foreign Currency Contracts: | | |
| Asset derivatives | Other current assets | $ | 32.6 |
|
| Liability derivatives | Accrued expenses and other | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
Net Gains/(Losses) Reclassified from AOCI into Net Income (Effective Portion) | | Net Gains/(Losses) Recognized into Net Income (Ineffective Portion) |
| Location | | 2015 | | 2014 | | 2013 | | Location | | 2015 | | 2014 | | 2013 |
| Revenue | | $ | 173.2 |
| | $ | 6.8 |
| | $ | (13.2 | ) | | Other income (expense) | | $ | 4.9 |
| | $ | (1.5 | ) | | $ | (0.2 | ) |
The effect of foreign currency forward contracts designated as hedging instruments on our consolidated statements of income related to our forecasted operating expenses was immaterial for 2015.
Interest Rate Contracts - Hedging Instruments
We have entered into interest rate lock contracts or interest rate swap contracts on certain borrowing transactions to manage our exposure to interest rate changes and to reduce our overall cost of borrowing.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the effectInterest Rate Lock Contracts
During 2015, we entered into treasury rate locks, with an aggregated notional amount of derivatives$1.1 billion, that were designated as cash flow hedges to hedge against changes in the 10-year and 30-year U.S. treasury interest rates that could have impacted our anticipated debt offering. In connection with the issuance of our 4.05% and 5.20% Senior Notes, as described in Note 11, Indebtedness, we settled the treasury rate locks and realized an $8.5 million gain. As the hedging instrumentsrelationship was effective, the gain was recorded in AOCI and will be recognized in other income (expense), net over the life of the 4.05% and 5.20% Senior Notes.
Interest Rate Swap Contracts
In connection with the issuance of our 2.90% Senior Notes, as described in Note 11, Indebtedness, we entered into interest rate swaps with an aggregate notional amount of $675.0 million, which expire on September 15, 2020. The interest rate swap contracts are designated as hedges of the fair value changes in the 2.90% Senior Notes attributable to changes in interest rates. Since the specific terms and notional amount of the swaps match the debt being hedged, it is assumed to be a highly effective hedge and all changes in the fair value of the swaps are recorded as a component of the 2.90% Senior Notes with no net impact recorded in income. Any net interest payments made or received on the interest rate swap contracts are recognized as a component of interest expense in our consolidated statements of income:income.
|
| | | | | | | | | | | | | | | |
| For the Years Ended (In millions) | Amount Recognized in Accumulated Other Comprehensive Income (Loss) on Derivative Gain/(Loss) (Effective Portion) | | Income Statement Location (Effective Portion) | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) into Income Gain/(Loss) (Effective Portion) | | Income Statement Location (Ineffective Portion) | | Amount of Gain/(Loss) Recorded (Ineffective Portion) |
| December 31, 2012: | | | | | | | | | |
| Foreign currency contracts |
| ($11.8 | ) | | Revenue | |
| $35.1 |
| | Other income (expense) | |
| $4.8 |
|
| December 31, 2011: | | | | | | | | | |
| Foreign currency contracts |
| $36.5 |
| | Revenue | |
| ($36.9 | ) | | Other income (expense) | |
| ($3.9 | ) |
| December 31, 2010: | | | | | | | | | |
| Foreign currency contracts |
| ($11.0 | ) | | Revenue | |
| $45.7 |
| | Other income (expense) | |
| $0.4 |
|
Foreign Currency Forward Contracts - Other Derivatives
We also enter into other foreign currency forward contracts, usually with one month durations, to mitigate the foreign currency risk related to certain balance sheet positions. We have not elected hedge accounting for these transactions.
The aggregate notional amount of these other outstanding foreign currency contracts was $243.2$721.0 million and $263.7$365.2 million as of December 31, 20122015 and 2011,2014, respectively. The fair valueNet losses of these contracts was a$23.8 million and $15.5 million and net liability of $1.7 million as of December 31, 2012 compared to a net asset of $6.4 million as of December 31, 2011. Net gains of $4.2$5.2 million and $12.1 million related to these contracts were recognized as a component of other income (expense), net, for the years ended December 31, 20122015, 2014 and 2011,2013, respectively.
Summary of Derivatives
While certain of our derivatives are subject to netting arrangements with our counterparties, we do not offset derivative assets and liabilities in our consolidated balance sheets.
The following table summarizes the fair value and presentation in our consolidated balance sheets for our outstanding derivatives including those designated as hedging instruments:
|
| | | | |
| (In millions) | Balance Sheet Location | Fair Value
As of December 31, 2015 |
| Hedging Instruments: | | |
| Asset derivatives | Other current assets | $ | 16.6 |
|
| | Investments and other assets | $ | 0.3 |
|
| Liability derivatives | Accrued expenses and other | $ | 10.2 |
|
| | Other long-term liabilities | $ | 2.5 |
|
| Other Derivatives: | | |
| Asset derivatives | Other current assets | $ | 10.3 |
|
| Liability derivatives | Accrued expenses and other | $ | 2.0 |
|
|
| | | | |
| (In millions) | Balance Sheet Location | Fair Value
As of December 31, 2014 |
| Hedging Instruments: | | |
| Asset derivatives | Other current assets | $ | 69.5 |
|
| | Investments and other assets | $ | 1.9 |
|
| Other Derivatives: | | |
| Asset derivatives | Other current assets | $ | 1.3 |
|
| Liability derivatives | Accrued expenses and other | $ | 5.4 |
|
| |
12. | Property, Plant and Equipment |
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10. Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost, net of accumulated depreciation. Components of property, plant and equipment, net are summarized as follows:
| | | | As of December 31, | As of December 31, |
| (In millions) | 2012 | | 2011 | 2015 | | 2014 |
| Land | $ | 55.7 |
| | $ | 51.9 |
| $ | 74.7 |
| | $ | 56.9 |
|
| Buildings | 902.5 |
| | 597.9 |
| 1,035.6 |
| | 947.7 |
|
| Leasehold improvements | 107.3 |
| | 102.7 |
| 166.6 |
| | 155.5 |
|
| Machinery and equipment | 882.0 |
| | 570.1 |
| 1,079.6 |
| | 1,011.3 |
|
| Computer software and hardware | 476.6 |
| | 439.7 |
| 647.1 |
| | 547.8 |
|
| Furniture and fixtures | 46.9 |
| | 37.6 |
| 72.9 |
| | 64.3 |
|
| Construction in progress | 212.3 |
| | 553.6 |
| 441.2 |
| | 168.6 |
|
| Total cost | 2,683.3 |
| | 2,353.5 |
| 3,517.7 |
| | 2,952.1 |
|
| Less: accumulated depreciation | (941.1 | ) | | (782.1 | ) | (1,330.1 | ) | | (1,186.4 | ) |
| Total property, plant and equipment, net | $ | 1,742.2 |
| | $ | 1,571.4 |
| $ | 2,187.6 |
| | $ | 1,765.7 |
|
Depreciation expense totaled $164.3$217.9 million,, $143.9 $198.4 million and $144.9$187.8 million for 2012, 20112015, 2014 and 2010,2013, respectively.
For 2012, 20112015, 2014 and 2010,2013, we capitalized interest costs related to construction in progress totaling approximately $25.4$10.4 million, $6.4 million and $7.8 million, respectively.
Research Triangle Park Facility Purchase
On August 24, 2015, we purchased from Eisai, Inc. (Eisai) its drug product manufacturing facility and supporting infrastructure in Research Triangle Park (RTP), $32.6North Carolina for $104.8 million. The purchase price consisted of the following:
|
| | | |
| (In millions) | |
| Buildings | $ | 58.6 |
|
| Machinery and equipment | 25.9 |
|
| Land | 20.3 |
|
| Total purchase price | $ | 104.8 |
|
On August 24, 2015, we also amended our existing 10 year lease related to Eisai's oral solid dose products manufacturing facility in RTP, North Carolina where we manufacture our and Eisai's oral solid dose products. As amended, the lease provides for a 3 year term and our agreement to purchase the facility upon expiration of the lease term and Eisai's completion of certain activities. Accordingly, we recorded the assets along with a corresponding financing obligation on our consolidated balance sheet for $20.3 million, the net present value of the future minimum lease payments. The assets were recorded as a component of buildings and $28.6machinery and equipment. We expect to complete the purchase of the oral solid products manufacturing facility at the end of the lease term in the third quarter of 2018.
Solothurn, Switzerland Facility
On December 1, 2015, we purchased land in Solothurn, Switzerland for 64.4 million, respectively. Capitalized interest costs are primarily Swiss Francs (approximately $62.5 million). We plan to build a biologics manufacturing facility on this land in the Commune of Luterbach over the next several years. As of December 31, 2015, we have approximately $99.0 million capitalized in construction in progress related to the developmentconstruction of this facility.
Weston Exit Costs
As a result of our large-scale biologics manufacturingdecision to relocate our corporate headquarters to Cambridge, Massachusetts, we vacated part of our Weston, Massachusetts facility in Hillerød, Denmark.the fourth quarter of 2013. We incurred a charge of $27.2 million in connection with this move. This charge represented our remaining lease obligation for the vacated portion of our Weston, Massachusetts facility, net of sublease income expected to be received. The term of our sublease for the
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Hillerød, Denmark Facility
As of September 1, 2012, our large-scale biologics manufacturing facility in Hillerød, Denmark was ready for its intended use as we began the process of manufacturing clinical products for sale to third parties. As a result, we transferred $465.9 million from construction in progress to various fixed asset accounts. We ceased capitalizing a majority of the interest expense and began recording depreciation on the various assets during the third quarter of 2012. The average estimated useful life for the facility and its assets is 20 years. The facility is currently not licensed to produce commercial product, a process we expect to be completed in 2013.
Research Triangle Park, North Carolina Facility
In October 2012, we opened a new laboratory and office facility in Research Triangle Park, North Carolina. As a result, we transferred $47.8 million from construction in progress to various fixed asset accounts. We began recording depreciation on the various assets during the fourth quarter of 2012. The average estimated useful life for the facility and its assets is 15 years.
Cambridge Leases
In July 2011, we executed leases for two office buildings currently under construction in Cambridge, Massachusetts with a planned occupancy during the second half of 2013. Construction of these facilities began in late 2011. In accordance with accounting guidance applicable to entities involved with the construction of an asset that will be leased when the construction is completed, we are considered the owner of these properties during the construction period. Accordingly, we record an asset along with a corresponding financing obligation on our consolidated balance sheet for the amount of total project costs incurred related to the construction in progress for these buildings. Upon completion of the buildings, we will assess and determine if the assets and corresponding liabilities should be derecognized. As of December 31, 2012 and 2011, cost incurred by the developer in relation to the construction of these buildings totaled approximately $86.5 million and $2.2 million, respectively.
As a result of our decision to relocate our corporate headquarters in Cambridge, Massachusetts, we expect to vacate partvacated portion of our Weston, Massachusetts facility started in January 2014 and will continue through the second half of 2013 upon completion of the new buildings and incur a charge between $15.0 million to $30.0 million. This estimate represents our remaining lease obligation for the vacated portionterm of our Weston facility, net of sublease income expected to be received.
Research Triangle Park Lease
In December 2012, we entered into an arrangement with Eisai, Inc. to lease a portion of their facility in RTP to manufacture our and Eisai's oral solid dose products and for Eisai to provide us with vial-filling services for biologic therapies and packaging services for oral solid dose products. The 10 year lease agreement, which is cancellable after 5 years and will become effective in February 2013, gives us the option to purchase the facility. agreement.
11. Indebtedness
Our indebtedness is summarized as follows:
|
| | | | | | | |
| | As of December 31, |
| (In millions) | 2012 | | 2011 |
| Current portion: | | | |
| 6.0% Senior notes due March 1, 2013 | $ | 450.0 |
| | $ | — |
|
| Note payable to Fumedica | 3.4 |
| | 3.3 |
|
| Current portion of notes payable and line of credit | $ | 453.4 |
| | $ | 3.3 |
|
| Non-current portion: | | | |
| 6.0% Senior notes due March 1, 2013 | $ | — |
| | $ | 449.9 |
|
| 6.875% Senior notes due March 1, 2018 | 586.4 |
| | 592.3 |
|
| Note payable to Fumedica | 14.5 |
| | 16.4 |
|
| Financing arrangement for the construction of the Cambridge facilities | 86.5 |
| | 2.2 |
|
| Non-current portion of notes payable, line of credit and other financing arrangements | $ | 687.4 |
| | $ | 1,060.8 |
|
|
| | | | | | | |
| | As of December 31, |
| (In millions) | 2015 | | 2014 |
| Current portion: | | | |
| Notes payable to Fumedica | $ | 3.1 |
| | $ | 3.1 |
|
| Financing arrangement for the purchase of the RTP facility | 1.7 |
| | — |
|
| Current portion of notes payable and other financing arrangements | $ | 4.8 |
| | $ | 3.1 |
|
| Non-current portion: | | | |
| 2008 Senior Notes | | | |
| 6.875% Senior Notes due March 1, 2018 | $ | 565.3 |
| | $ | 571.7 |
|
| 2015 Senior Notes | | | |
| 2.900% Senior Notes due September 15, 2020 | 1,485.5 |
| | — |
|
| 3.625% Senior Notes due September 15, 2022 | 992.2 |
| | — |
|
| 4.050% Senior Notes due September 15, 2025 | 1,733.4 |
| | — |
|
| 5.200% Senior Notes due September 15, 2045 | 1,721.1 |
| | — |
|
| Notes payable to Fumedica | 5.9 |
| | 8.6 |
|
| Financing arrangement for the purchase of the RTP facility | 18.1 |
| | — |
|
| Non-current portion of notes payable and other financing arrangements | $ | 6,521.5 |
| | $ | 580.3 |
|
The following is a summary description of our principal indebtedness as of December 31, 2015:
2015 Senior Notes
On September 15, 2015, we issued senior unsecured notes for an aggregate principal amount of $6.0 billion, consisting of the following:
$1.5 billion of 2.90% Senior Notes due September 15, 2020, valued at 99.792% of par;
$1.0 billion of 3.625% Senior Notes due September 15, 2022, valued at 99.920% of par;
$1.75 billion of 4.05% Senior Notes due September 15, 2025, valued at 99.764% of par; and
$1.75 billion of 5.20% Senior Notes due September 15, 2045, valued at 99.294% of par.
These notes are senior unsecured obligations and may be redeemed at our option at any time at 100% of the principal amount plus accrued interest and a specified make-whole amount. The notes also contain a change of control provision that may require us to purchase the notes at a price equal to 101% of the principal amount plus accrued and unpaid interest to the date of purchase under certain circumstances.
The costs associated with this offering of approximately $47.5 million have been recorded as a reduction to the carrying amount of the debt on our consolidated balance sheet. These costs along with the discounts will be amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. Interest on the notes is payable March 15 and September 15 of each year.
In connection with this offering, we also entered into interest rate swaps. The carrying value of the 2.90% Senior Notes includes approximately $1.8 million related to changes in the fair value of the interest rate swaps. For additional information, please read Note 9, Derivative Instruments, to these consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a summary description of our principal indebtedness as of December 31, 2012:
2008 Senior Notes
On March 4, 2008, we issued $450.0$550.0 million aggregate principal amount of 6.0% Senior Notes due March 1, 2013 and $550.0 million aggregate principal amount of 6.875% Senior Notes due March 1, 2018 that were originally priced at 99.886% and 99.184% of par, respectively.par. The discount is amortized as additional interest expense over the period from issuance through maturity. These notes are senior unsecured obligations. Interest on the notes is payable March 1 and September 1 of each year. The notes may be redeemed at our option at any time at 100% of the principal amount plus accrued interest and a specified make-whole amount. The notes contain a change of control provision that may require us to purchase the notes under certain circumstances. There is also an interest rate adjustment feature that requires us to pay interest at an increased rate on the notes if the credit rating on the notes declines below investment grade. In accordance with ASU No. 2015-03, during 2015, we reclassified $1.8 million of our debt issuance costs related to our 6.875% Senior Notes from an asset to a reduction to the carrying amount of the 6.875% Senior Notes in our 2014 consolidated balance sheet.
Upon the issuance of the debt6.875% Senior Notes due in 2018, we entered into interest rate swap contracts where we received a fixed rate and paid a variable rate. These contracts were terminated in December 2008. Upon termination of these swaps, the carrying amount of the 6.875% Senior Notes due in 2018 was increased by $62.8$62.8 million and is being amortized using the effective interest rate method over the remaining life of the Senior Notes and is being recognized as a reduction of interest expense. As of December 31, 2012, $39.12015, $17.8 million remains to be amortized.
Revolving Credit Facility
In June 2012 our $360.0 million senior unsecured revolving credit facility expired and was not renewed.
Notes Payable to Fumedica
In connection with our 2006 distribution agreement with Fumedica, we issued notes totaling 61.4 million Swiss Francs which were payable to Fumedica in varying amounts from June 2008 through June 2018. Our remaining note payable to Fumedica had a presentcarrying value of 16.48.9 million Swiss Francs ($17.9($9.0 million) and 11.6 million) and 18.6 million Swiss Francs ($19.7 million)($11.7 million) as of December 31, 20122015 and 2011,2014, respectively.
Credit Facility
In August 2015, we entered into a $1.0 billion, 5-year senior unsecured revolving credit facility under which we are permitted to draw funds for working capital and general corporate purposes. The terms of the revolving credit facility include a financial covenant that requires us not to exceed a maximum consolidated leverage ratio. As of December 31, 2015, we had no outstanding borrowings and were in compliance with all covenants under this facility.
In March 2013, we entered into a $750.0 million 364-day senior unsecured revolving credit facility. In March 2014, the revolving credit facility expired and was not renewed.
Financing ArrangementsArrangement
During 20112015 we recorded a financing obligation in relation to the constructionamendment of the two office buildingsour lease agreement of Eisai's oral solid dose products manufacturing facility in Cambridge, Massachusetts.RTP, North Carolina where we manufacture our and Eisai's oral solid dose products. As of December 31, 2012 and 2011, cost incurred by2015, the developer in relation to the construction of these buildingsfinancing obligation totaled approximately $86.5 million and $2.2 million, respectively.$19.8 million. For additional information, related to these transactions, please read Note 12,10, Property, Plant &and Equipment to these consolidated financial statements.
Debt Maturity
OurThe total debt,gross payments, excluding amounts related to our financing arrangement, due under our debt arrangements matureare as follows:
| | | (In millions) | As of December 31, 2012 | As of December 31, 2015 |
| 2013 | $ | 453.4 |
| |
| 2014 | 3.5 |
| |
| 2015 | 3.5 |
| |
| 2016 | 3.5 |
| $ | 3.2 |
|
| 2017 | 3.5 |
| 3.2 |
|
| 2018 and thereafter | 553.5 |
| |
| 2018 | | 553.2 |
|
| 2019 | | — |
|
| 2020 | | 1,500.0 |
|
| 2021 and thereafter | | 4,500.0 |
|
| Total | $ | 1,020.9 |
| $ | 6,559.6 |
|
The fair value of our debt is disclosed in Note 9,7, Fair Value Measurements to these consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. Equity
Preferred Stock
The following table describes the number of shares authorized, issued and outstanding of our preferred stock as of December 31, 2012 and 2011:
|
| | | | | | | | | | | | | | | | | |
| | As of December 31, 2012 | | As of December 31, 2011 |
| (In thousands) | Authorized | | Issued | | Outstanding | | Authorized | | Issued | | Outstanding |
| Series A | 1,750 |
| | — |
| | — |
| | 1,750 |
| | — |
| | — |
|
| Series X junior participating | 1,000 |
| | — |
| | — |
| | 1,000 |
| | — |
| | — |
|
| Undesignated | 5,250 |
| | — |
| | — |
| | 5,250 |
| | — |
| | — |
|
| Total preferred stock | 8,000 |
| | — |
| | — |
| | 8,000 |
| | — |
| | — |
|
We have 8,000,0008.0 million shares of Preferred Stock authorized.authorized, of which 1.75 million shares are authorized as Series A, 1.0 million shares are authorized as Series X junior participating and 5.25 million shares are undesignated. Shares may be issued without a vote or action of stockholders from time to time in classes or series with the designations, powers, preferences, and the relative, participating, optional or other special rights of the shares of each such class or series and any qualifications, limitations or restrictions thereon as set forth in the instruments governing such shares. Any such Preferred Stock may rank prior to common stock as to dividend rights, liquidation preference or both, and may have full or limited voting rights and may be convertible into shares of common stock. No shares of Preferred Stock were issued and outstanding during 2015, 2014 and 2013.
Common Stock
The following table describes the number of shares authorized, issued and outstanding of our common stock as of December 31, 20122015 and 2011:2014:
| | | | As of December 31, 2012 | | As of December 31, 2011 | As of December 31, 2015 | | As of December 31, 2014 |
| (In thousands) | Authorized | | Issued | | Outstanding | | Authorized | | Issued | | Outstanding | |
| (In millions) | | Authorized | | Issued | | Outstanding | | Authorized | | Issued | | Outstanding |
| Common stock | 1,000,000 |
| | 254,237 |
| | 236,582 |
| | 1,000,000 |
| | 255,633 |
| | 242,115 |
| 1,000.0 |
| | 241.2 |
| | 218.6 |
| | 1,000.0 |
| | 257.1 |
| | 234.6 |
|
Share Repurchases
In May 2015, our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2015 Share Repurchase Program). As of December 31, 2015, the 2015 Share Repurchase Program was completed and we repurchased and retired approximately 16.8 million shares of common stock at a cost of $5.0 billion during the year ended December 31, 2015.
In February 2011, our Board of Directors authorized thea program to repurchase of up to 20.0 million shares of our common stock. This authorizationstock (2011 Share Repurchase Program), which has been used principally to offset common stock issuances under our share-based compensation plans. The 2011 Share Repurchase Program does not have an expiration date. In 2012,During 2014, we purchased approximately 7.82.9 million shares were repurchasedof common stock at a cost of $984.7$886.8 million.
under our 2011 Share Repurchase Program. We repurchased approximately 6.0 million shares at a cost of approximately $498.0 million under the 2011 authorization in 2011.
Approximately 6.2 milliondid not repurchase any shares of our common stock remainunder our 2011 Share Repurchase Program during the year ended December 31, 2015 and have approximately 1.3 million shares remaining available for repurchase under the 2011this authorization.
| |
15. | Accumulated Other Comprehensive Income (Loss) |
13. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss) consisted, net of the following:tax by component:
|
| | | | | | | |
| | As of December 31, |
| (In millions) | 2012 | | 2011 |
| Translation adjustments | $ | (27.1 | ) | | $ | (50.3 | ) |
| Unrealized gains (losses) on securities available for sale | 4.2 |
| | — |
|
| Unrealized gains (losses) on foreign currency forward contracts | (10.7 | ) | | 32.8 |
|
| Unfunded status of pension and postretirement benefit plans | (21.7 | ) | | (9.0 | ) |
| Accumulated other comprehensive income (loss) | $ | (55.3 | ) | | $ | (26.5 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| (In millions) | Unrealized Gains (Losses) on Securities Available for Sale | | Unrealized Gains (Losses) on Cash Flow Hedges | | Unfunded Status of Postretirement Benefit Plans | | Translation Adjustments | | Total |
| Balance, December 31, 2014 | $ | (0.4 | ) | | $ | 71.7 |
| | $ | (31.6 | ) | | $ | (99.2 | ) | | $ | (59.5 | ) |
| Other comprehensive income (loss) before reclassifications | (1.7 | ) | | 110.8 |
| | (6.2 | ) | | (96.4 | ) | | 6.5 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | 1.3 |
| | (172.3 | ) | | — |
| | — |
| | (171.0 | ) |
| Net current period other comprehensive income (loss) | (0.4 | ) | | (61.5 | ) | | (6.2 | ) | | (96.4 | ) | | (164.5 | ) |
| Balance, December 31, 2015 | $ | (0.8 | ) | | $ | 10.2 |
| | $ | (37.8 | ) | | $ | (195.6 | ) | | $ | (224.0 | ) |
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unrealized holding gains on securities available for sale is shown net |
| | | | | | | | | | | | | | | | | | | |
| (In millions) | Unrealized Gains (Losses) on Securities Available for Sale | | Unrealized Gains (Losses) on Cash Flow Hedges | | Unfunded Status of Postretirement Benefit Plans | | Translation Adjustments | | Total |
| Balance, December 31, 2013 | $ | 5.6 |
| | $ | (23.7 | ) | | $ | (19.6 | ) | | $ | 10.0 |
| | $ | (27.7 | ) |
| Other comprehensive income (loss) before reclassifications | 0.4 |
| | 101.7 |
| | (12.0 | ) | | (109.2 | ) | | (19.1 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) | (6.4 | ) | | (6.3 | ) | | — |
| | — |
| | (12.7 | ) |
| Net current period other comprehensive income (loss) | (6.0 | ) | | 95.4 |
| | (12.0 | ) | | (109.2 | ) | | (31.8 | ) |
| Balance, December 31, 2014 | $ | (0.4 | ) | | $ | 71.7 |
| | $ | (31.6 | ) | | $ | (99.2 | ) | | $ | (59.5 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| (In millions) | Unrealized Gains (Losses) on Securities Available for Sale | | Unrealized Gains (Losses) on Cash Flow Hedges | | Unfunded Status of Postretirement Benefit Plans | | Translation Adjustments | | Total |
| Balance, December 31, 2012 | $ | 4.2 |
| | $ | (10.7 | ) | | $ | (21.7 | ) | | $ | (27.1 | ) | | $ | (55.3 | ) |
| Other comprehensive income (loss) before reclassifications | 11.8 |
| | (26.7 | ) | | 2.1 |
| | 37.1 |
| | 24.3 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | (10.4 | ) | | 13.7 |
| | — |
| | — |
| | 3.3 |
|
| Net current period other comprehensive income (loss) | 1.4 |
| | (13.0 | ) | | 2.1 |
| | 37.1 |
| | 27.6 |
|
| Balance, December 31, 2013 | $ | 5.6 |
| | $ | (23.7 | ) | | $ | (19.6 | ) | | $ | 10.0 |
| | $ | (27.7 | ) |
The following table summarizes the amounts reclassified from accumulated other comprehensive income:
|
| | | | | | | | | | | | |
| (In millions) | Income Statement Location | Amounts Reclassified from Accumulated Other Comprehensive Income |
| For the Years Ended December 31, |
| 2015 | | 2014 | | 2013 |
| Gains (losses) on securities available for sale | Other income (expense) | $ | (2.0 | ) | | $ | 9.9 |
| | $ | 15.9 |
|
| | Income tax benefit (expense) | 0.7 |
| | (3.5 | ) | | (5.5 | ) |
| | | | | | | |
| Gains (losses) on cash flow hedges | Revenues | 173.2 |
| | 6.8 |
| | (13.2 | ) |
| | Other income (expense) | (0.1 | ) | | — |
| | — |
|
| | Income tax benefit (expense) | (0.8 | ) | | (0.5 | ) | | (0.5 | ) |
| | | | | | | |
| Total reclassifications, net of tax | | $ | 171.0 |
| | $ | 12.7 |
| | $ | (3.3 | ) |
Comprehensive income (loss) and its components are presented in the consolidated statements of comprehensive income.BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
14. Earnings per Share
Basic and diluted earnings per share are calculated as follows:
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Numerator: | | | | | | | | | | |
| Net income attributable to Biogen Idec Inc. | $ | 1,380.0 |
| | $ | 1,234.4 |
| | $ | 1,005.3 |
| |
| Adjustment for net income allocable to preferred stock | — |
| | (0.5 | ) | | (2.0 | ) | |
| Net income used in calculating basic and diluted earnings per share | $ | 1,380.0 |
| | $ | 1,233.9 |
| | $ | 1,003.3 |
| |
| Net income attributable to Biogen Inc. | | $ | 3,547.0 |
| | $ | 2,934.8 |
| | $ | 1,862.3 |
|
| Denominator: | | | | | | | | | | |
| Weighted average number of common shares outstanding | 237.9 |
| | 242.4 |
| | 252.3 |
| 230.7 |
| | 236.4 |
| | 236.9 |
|
| Effect of dilutive securities: | | | | | | | | | | |
| Stock options and employee stock purchase plan | 0.5 |
| | 1.0 |
| | 0.9 |
| 0.1 |
| | 0.1 |
| | 0.3 |
|
| Time-vested restricted stock units | 1.0 |
| | 1.3 |
| | 1.6 |
| 0.3 |
| | 0.5 |
| | 0.8 |
|
| Market stock units | 0.3 |
| | 0.3 |
| | 0.1 |
| 0.1 |
| | 0.2 |
| | 0.3 |
|
| Dilutive potential common shares | 1.8 |
| | 2.6 |
| | 2.6 |
| 0.5 |
| | 0.8 |
| | 1.4 |
|
| Shares used in calculating diluted earnings per share | 239.7 |
| | 245.0 |
| | 254.9 |
| 231.2 |
| | 237.2 |
| | 238.3 |
|
Amounts excluded from the calculation of net income per diluted share because their effects were anti-dilutive were insignificant.
Earnings per share for the years ended December 31, 2012, 20112015, 2014 and 20102013, reflects, on a weighted average basis, the repurchase of 5.84.6 million shares, 6.01.0 million shares and 40.30.9 million shares, respectively, of our common stock under our share repurchase authorizations.
15. Share-based Payments
Share-based Compensation Expense
The following table summarizes share-based compensation expense included withinin our consolidated statements of income:
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Research and development | $ | 74.7 |
| | $ | 62.0 |
| | $ | 62.7 |
| $ | 88.6 |
| | $ | 102.1 |
| | $ | 95.6 |
|
| Selling, general and administrative | 109.6 |
| | 88.7 |
| | 123.6 |
| 127.3 |
| | 150.3 |
| | 160.3 |
|
| Restructuring charges | — |
| | (0.6 | ) | | 6.8 |
| |
| Reversal of previously accrued incentive compensation included in restructuring charges | | (8.6 | ) | | — |
| | — |
|
| Subtotal | 184.3 |
| | 150.1 |
| | 193.1 |
| 207.3 |
| | 252.4 |
| | 255.9 |
|
| Capitalized share-based compensation costs | (5.4 | ) | | (4.5 | ) | | (3.5 | ) | (11.0 | ) | | (10.0 | ) | | (9.8 | ) |
| Share-based compensation expense included in total cost and expenses | 178.9 |
| | 145.6 |
| | 189.6 |
| 196.3 |
| | 242.4 |
| | 246.1 |
|
| Income tax effect | (53.4 | ) | | (44.6 | ) | | (60.3 | ) | (55.8 | ) | | (72.2 | ) | | (73.3 | ) |
| Share-based compensation expense included in net income attributable to Biogen Idec Inc. | $ | 125.5 |
| | $ | 101.0 |
| | $ | 129.3 |
| |
| Share-based compensation expense included in net income attributable to Biogen Inc. | | $ | 140.5 |
| | $ | 170.2 |
| | $ | 172.8 |
|
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes share-based compensation expense associated with each of our share-based compensation programs:
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Stock options | $ | 2.3 |
| | $ | 5.9 |
| | $ | 26.1 |
| $ | — |
| | $ | — |
| | $ | 0.6 |
|
| Market stock units | 23.3 |
| | 14.6 |
| | 10.0 |
| 38.1 |
| | 37.4 |
| | 32.8 |
|
| Time-vested restricted stock units | 93.0 |
| | 89.6 |
| | 129.4 |
| 119.0 |
| | 115.4 |
| | 103.5 |
|
| Performance-vested restricted stock units settled in shares | 0.1 |
| | 1.0 |
| | 5.3 |
| |
| Cash settled performance shares | 60.4 |
| | 32.7 |
| | 15.0 |
| |
| Cash settled performance units | | 22.4 |
| | 65.5 |
| | 109.8 |
|
| Performance units | | 13.9 |
| | 21.9 |
| | — |
|
| Employee stock purchase plan | 5.2 |
| | 6.3 |
| | 7.3 |
| 13.9 |
| | 12.2 |
| | 9.2 |
|
| Subtotal | 184.3 |
| | 150.1 |
| | 193.1 |
| 207.3 |
| | 252.4 |
| | 255.9 |
|
| Capitalized share-based compensation costs | (5.4 | ) | | (4.5 | ) | | (3.5 | ) | (11.0 | ) | | (10.0 | ) | | (9.8 | ) |
| Share-based compensation expense included in total cost and expenses | $ | 178.9 |
| | $ | 145.6 |
| | $ | 189.6 |
| $ | 196.3 |
| | $ | 242.4 |
| | $ | 246.1 |
|
Windfall tax benefits from vesting of stock awards, exercises of stock options and ESPP participation were $54.7$78.2 million,, $50.6 $96.4 million and $13.1$73.5 million in 2012, 20112015, 2014 and 2010,2013, respectively. These amounts have been calculated under the alternative transition method in accordance with U.S. GAAP.method.
As of December 31, 2012,2015, unrecognized compensation cost related to unvested share-based compensation was approximately $164.4$184.3 million,, net of estimated forfeitures. We expect to recognize the cost of these unvested awards over a weighted-average period of 1.41.8 years.
Share-Based Compensation Plans
We have three share-based compensation plans pursuant to which awards are currently being made: (1)(i) the Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan (2006 Directors Plan); (2)(ii) the Biogen Idec Inc. 2008 Amended and Restated Omnibus Equity Plan (2008 Omnibus Plan); and (3)(iii) the Biogen Idec Inc. 19952015 Employee Stock Purchase Plan (ESPP). We have five share-based compensation plans under which there are outstanding awards, but from which no further awards can or will be made: (i) the IDEC Pharmaceuticals Corporation 1993 Non-Employee Directors Stock Option Plan; (ii) the IDEC Pharmaceuticals Corporation 1988 Stock Option Plan; (iii) the Biogen, Inc. 1985 Non-Qualified Stock Option Plan; (iv) the Biogen Idec Inc. 2003 Omnibus Equity Plan; and (v) the Biogen Idec Inc. 2005 Omnibus Equity Plan (2005 Omnibus Plan). We have not made any awards pursuant to the 2005 Omnibus Plan since our stockholders approved the 2008 Omnibus Plan and do not intend to make any awards pursuant to the 2005 Omnibus Plan in the future, except that unused shares under the 2005 Omnibus Plan have been carried over for use under the 2008 Omnibus Plan.
Directors Plan
In May 2006, our stockholders approved the 2006 Directors Plan for share-based awards to our directors. Awards granted from the 2006 Directors Plan may include stock options, shares of restricted stock, restricted stock units, stock appreciation rights and other awards in such amounts and with such terms and conditions as may be determined by a committee of our Board of Directors, subject to the provisions of the plan. We have reserved a total of 1.6 million shares of common stock for issuance under the 2006 Directors Plan. The 2006 Directors Plan provides that awards other than stock options and stock appreciation rights will be counted against the total number of shares reserved under the plan in a 1.5-to-1 ratio. In June 2015, our stockholders approved an amendment to extend the term of the 2006 Directors Plan until June 10, 2025.
Omnibus Plans
In June 2008, our stockholders approved the 2008 Omnibus Plan for share-based awards to our employees. Awards granted from the 2008 Omnibus Plan may include stock options, shares of restricted stock, restricted stock units, performance shares, shares of phantom stock, stock appreciation rights and other awards in such amounts and with such terms and conditions as may be determined by a committee of our Board of Directors, subject to the provisions of the plan. Shares of common stock available for issuance under the 2008 Omnibus Plan consist of 15.0 million shares reserved for this purpose, plus shares of common stock that remained available for issuance under theour 2005 Omnibus Equity Plan on the date that our stockholders approved the 2008 Omnibus Plan, plus shares that arewere subject to awards under the 2005 Omnibus Equity Plan which remain unissued upon the cancellation, surrender, exchange or termination of such awards. The 2008 Omnibus Equity Plan provides that awards other than stock options and stock appreciation rights will be counted against the total number of shares available under the plan in a 1.5-to-1 ratio.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We have not made any awards pursuant to the 2005 Omnibus Equity Plan since our stockholders approved the 2008 Omnibus Plan, and do not intend to make any awards pursuant to the 2005 Omnibus Equity Plan in the future, except that unused shares under the 2005 Omnibus Equity Plan have been carried over for use under the 2008 Omnibus Plan.
Stock Options
We no longercurrently do not grant stock options to our employees or directors. Outstanding stock options previously granted to our employees and directors generally have a ten-year term and vest over a period of between one and four years, provided the individual continues to serve at Biogen Idec through the vesting dates. Options granted under all plans are exercisable at a price per share not less than the fair market value of the underlying common stock on the date of grant. The estimated fair value of options, including the effect of estimated forfeitures, is recognized over the options’ vesting periods. The fair value of the stock options granted in 2010 was estimated as of the date of grant using a Black-Scholes option valuation model that uses the following weighted-average assumptions:
|
| | | | | | | |
| | For the Years Ended December 31, |
| | 2012 | | 2011 | | 2010 |
| Expected option life (in years) | ** | | ** | | 4.5 |
|
| Expected stock price volatility | ** | | ** | | 30.8 | % |
| Risk-free interest rate | ** | | ** | | 2.0 | % |
| Expected dividend yield | ** | | ** | | — | % |
| Per share grant-date fair value | ** | | ** | | $ | 16.52 |
|
**model. There were no grants of stock options made in 20122015, 2014 and 2011.2013. As of December 31, 2015, all outstanding options were exercisable.
The expected life of options granted is derived using assumed exercise rates based on historical exercise patterns and represents the period of time that options granted are expected to be outstanding. Expected stock price volatility is based upon implied volatility for our exchange-traded options and other factors, including historical volatility. After assessing all available information on either historical volatility, implied volatility, or both, we have concluded that a combination of both historical and implied volatility provides the best estimate of expected volatility. The risk-free interest rate used is determined by the market yield curve based upon risk-free interest rates established by the Federal Reserve, or non-coupon bonds that have maturities equal to the expected term. The dividend yield of zero is based upon the fact that we have not historically granted cash dividends, and do not expect to issue dividends in the foreseeable future. Stock options granted prior to January 1, 2006 were valued based on the grant date fair value of those awards, using the Black-Scholes option pricing model, as previously calculated for pro-forma disclosures.
The following table summarizes our stock option activity:
| | | | Shares | | Weighted Average Exercise Price | Shares | | Weighted Average Exercise Price |
| Outstanding at December 31, 2011 | 1,691,000 |
| | $ | 52.75 |
| |
| Outstanding at December 31, 2014 | | 221,000 |
| | $ | 56.98 |
|
| Granted | — |
| | $ | — |
| — |
| | $ | — |
|
| Exercised | (765,000 | ) | | $ | 50.72 |
| (114,000 | ) | | $ | 59.82 |
|
| Cancelled | (19,000 | ) | | $ | 51.99 |
| — |
| | $ | — |
|
| Outstanding at December 31, 2012 | 907,000 |
| | $ | 54.48 |
| |
| Outstanding at December 31, 2015 | | 107,000 |
| | $ | 53.94 |
|
The total intrinsic values of options exercised in 2012, 20112015, 2014 and 20102013 totaled $63.0$38.0 million,, $149.0 $42.7 million,, and $50.5$86.2 million,, respectively. The aggregate intrinsic values of options outstanding as of December 31, 20122015 totaled $83.3 million.$27.0 million. The weighted average remaining contractual term for options outstanding as of December 31, 20122015 was 4.43.2 years.
Of the options outstanding, 0.8 million were exercisable as of December 31, 2012. The exercisable options had a weighted-average exercise price of $54.87. The aggregate intrinsic value of options exercisable as of December 31, 2012 was $72.1 million. The weighted average remaining contractual term for options exercisable as of December 31, 2012 was 4.1 years.
A total of 0.9 million vested and expected to vest options were outstanding as of December 31, 2012. These vested and expected to vest options had a weighted average exercise price of $54.48 and an aggregated intrinsic value of $83.1 million. The weighted average remaining contractual term of vested and expected to vest options as of December 31, 2012 was 4.4 years.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the amount of tax benefit realized for stock options and cash received from the exercise of stock options:
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Tax benefit realized for stock options | $ | 20.9 |
| | $ | 47.5 |
| | $ | 16.0 |
| $ | 11.9 |
| | $ | 13.0 |
| | $ | 29.4 |
|
| Cash received from the exercise of stock options | $ | 38.8 |
| | $ | 291.9 |
| | $ | 160.0 |
| $ | 6.3 |
| | $ | 8.5 |
| | $ | 28.1 |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Market Stock Units (MSUs)
MSUs awarded to employees vestprior to 2014 vested in four equal annual increments beginning on the first anniversary of the grant date. Participants may ultimately earn between 0% and 150% of the target number of units granted based on actual stock performance.
MSUs awarded to employees in 2014 and 2015 vest in three equal annual increments beginning on the first anniversary of the grant date, and participants may ultimately earn between 0% and 200% of the target number of units granted based on actual stock performance.
The vesting of these awards is subject to the respective employee’s continued employment. The number of MSUs granted represents the target number of units that are eligible to be earned based on the attainment of certain market-based criteria involving our stock price. The number of MSUs earned is calculated at each annual anniversary from the date of grant over the respective vesting periods, resulting in multiple performance periods. Participants may ultimately earn between 0% and 150% of the target number of units granted based on actual stock performance. Accordingly, additional MSUs may be issued or currently outstanding MSUs may be cancelled upon final determination of the number of awards earned. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.
The following table summarizes our MSU activity:
| | | | Shares | | Weighted Average Grant Date Fair Value | Shares | | Weighted Average Grant Date Fair Value |
| Unvested at December 31, 2011 | 581,000 |
| | $ | 69.49 |
| |
| Unvested at December 31, 2014 | | 403,000 |
| | $ | 219.29 |
|
| Granted (a) | 319,000 |
| | $ | 134.95 |
| 185,000 |
| | $ | 493.43 |
|
| Vested | (244,000 | ) | | $ | 121.40 |
| (277,000 | ) | | $ | 165.63 |
|
| Forfeited | (50,000 | ) | | $ | 75.94 |
| (42,000 | ) | | $ | 294.85 |
|
| Unvested at December 31, 2012 | 606,000 |
| | $ | 94.73 |
| |
| Unvested at December 31, 2015 | | 269,000 |
| | $ | 339.89 |
|
| |
| (a) | MSUs granted in 20122015 include approximately 39,0008,000, 19,000, 24,000 and 42,00034,000 MSUs issued in 20122015 based upon the attainment of performance criteria set for 20112014, 2013, 2012 and 2010,2011, respectively, in relation to sharesawards granted in those years. The remainder of MSUs granted during 20122015 include awards granted in conjunction with our annual awards made in February 20122015 and MSUs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant. |
We value grants of MSUs using a lattice model with a Monte Carlo simulation. This valuation methodology utilizes several key assumptions, including the 60 calendar day average closing stock price on grant date for MSUs awarded prior to 2014, the 30 calendar day average closing stock price on the date of grant for MSUs awarded in 2014 and 2015, expected volatility of our stock price, risk-free rates of return and expected dividend yield. The assumptions used in our valuation are summarized as follows:
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2012 | | 2011 | 2015 | | 2014 | | 2013 |
| Expected dividend yield | —% | | —% | —% | | —% | | —% |
| Range of expected stock price volatility | 29.6% - 34.0% | | 25.7% - 33.4% | 31.0% - 33.2% | | 31.7% - 35.1% | | 21.7% - 25.7% |
| Range of risk-free interest rates | 0.2% - 0.6% | | 0.3% - 1.9% | 0.2% - 1.0% | | 0.1% - 0.7% | | 0.1% - 0.7% |
| 30 calendar day average stock price on grant date | | $277.35 - $426.27 | | $280.88 - $335.65 | | ** |
| 60 calendar day average stock price on grant date | $113.83 - $149.79 | | $66.78 - $101.16 | ** | | ** | | $150.33 - $240.14 |
| Weighted-average per share grant date fair value | $134.95 | | $74.19 | $493.43 | | $395.22 | | $193.45 |
The total fair values of MSUs vested in 2015, 2014 and 2013 totaled $109.0 million, $117.4 million, and $50.9 million, respectively.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash Settled Performance Shares (CSPSs)Units (CSPUs)
CSPSsCSPUs awarded to employees vest in three equal annual increments beginning on the first anniversary of the grant date. The vesting of these awards is subject to the respective employee’s continued employment with such awards settled in cash. The number of CSPSsCSPUs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established at the beginning of the performance period, which ends on December 31st of each year. Participants may ultimately earn between 0% and 200% of the target number of units granted based on the degree of actual performance metric achievement. Accordingly, additional CSPSsCSPUs may be issued or currently outstanding CSPSsCSPUs may be cancelled upon final determination of the number of units earned. CSPSsCSPUs awarded prior to 2014 are settled in cash based on the 60 calendar day average closing stock price through each vesting date once the actual vested and earned number of units is known. CSPUs awarded in 2014 and 2015 will be settled in cash based on the 30 calendar day average closing stock price through each vesting date, once the actual vested and earned number of units is known. Since no shares are issued, these awards willdo not dilute equity. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.
The following table summarizes our CSPSCSPU activity:
|
| | |
| | Shares |
Unvested at December 31, 20112014 | 562,000335,000 |
|
| Granted (a) | 327,000115,000 |
|
| Vested | (280,000222,000 | ) |
| Forfeited | (17,00036,000 | ) |
Unvested at December 31, 20122015 | 592,000192,000 |
|
| |
| (a) | CSPSsCSPUs granted in 20122015 include approximately 68,00048,000 CSPSsCSPUs issued in 20122015 based upon the attainment of performance criteria set for 20112014 in relation to sharesawards granted in 2011.2014. The remainder of the CSPSsCSPUs granted in 20122015 include awards granted in conjunction with our annual awards made in February 20122015 and CSPSsCSPUs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant.
|
During 2012, weThe total cash paid$28.7 million of cash in settlement of CSPSCSPUs vested in 2015, 2014 and 2013 totaled $79.8 million, $92.8 million, and $48.3 million, respectively.
Performance-vested Restricted Stock Units (PUs)
Beginning in the first quarter of 2014, we revised our long term incentive program to include a new type of award granted to certain employees in the form of restricted stock units that may be settled in cash or shares of our common stock at the sole discretion of the Compensation and Management Development Committee of our Board of Directors. These awards are structured and accounted for the same way as the cash settled performance units, and vest in three equal annual increments beginning on the first anniversary of the grant date. The number of PUs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established at the beginning of the performance period, which ends on December 31 of each year. Participants may ultimately earn between 0% and 200% of the target number of units granted based on the degree of actual performance metric achievement. Accordingly, additional PUs may be issued or currently outstanding PUs may be cancelled upon vesting.final determination of the number of units earned. PUs settling in cash are based on the 30 calendar day average closing stock price through each vesting date once the actual vested and earned number of units is known. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.
The following table summarizes our PU activity:
|
| | |
| Shares |
| Unvested at December 31, 2014 | 57,000 |
|
| Granted (a) | 89,000 |
|
| Vested | (33,000 | ) |
| Forfeited | (10,000 | ) |
| Unvested at December 31, 2015 | 103,000 |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
| (a) | PUs granted in 2015 include approximately 42,000 PUs issued in 2015 based upon the attainment of performance criteria set for 2014 in relation to awards granted in 2014. The remainder of the PUs granted in 2015 include awards granted in conjunction with our annual awards made in February 2015 and PUs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant. |
During 2015, 32,000 PUs were converted to share settlements, of which approximately 11,000 shares were vested and issued. All other PUs that vested in 2015 were settled in cash totaling $12.4 million.
Time-Vested Restricted Stock Units (RSUs)
RSUs awarded to employees generally vest no sooner than one-third per year over three years on the anniversary of the date of grant, or upon the third anniversary of the date of the grant, provided the employee remains continuously employed with us, except as otherwise provided in the plan. Shares of our common stock will be delivered to the employee upon vesting, subject to payment of applicable withholding taxes. RSUs awarded to directors for service on our Board of Directors vest on the first anniversary of the date of grant, provided in each case that the director continues to serve on our Board of Directors through the vesting date. Shares of our common stock will be delivered to the director upon vesting and are not subject to any withholding taxes. The fair value of all RSUs is based on the market value of our stock on the date of grant. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.
The following table summarizes our RSU activity:
| | | | Shares | | Weighted Average Grant Date Fair Value | Shares | | Weighted Average Grant Date Fair Value |
| Unvested at December 31, 2011 | 2,924,000 |
| | $ | 60.72 |
| |
| Unvested at December 31, 2014 | | 1,137,000 |
| | $ | 221.01 |
|
| Granted (a) | 1,013,000 |
| | $ | 124.54 |
| 459,000 |
| | $ | 388.88 |
|
| Vested | (1,540,000 | ) | | $ | 121.06 |
| (626,000 | ) | | $ | 190.65 |
|
| Forfeited | (210,000 | ) | | $ | 79.55 |
| (160,000 | ) | | $ | 302.35 |
|
| Unvested at December 31, 2012 | 2,187,000 |
| | $ | 90.37 |
| |
| Unvested at December 31, 2015 | | 810,000 |
| | $ | 323.87 |
|
| |
| (a) | RSUs granted in 20122015 primarily represent RSUs granted in conjunction with our annual awards made in February 20122015 and awards made in conjunction with the hiring of new employees. RSUs granted in 20122015 also include approximately 24,0007,000 RSUs granted to our Board of Directors. |
RSUs granted in 20112014 and 20102013 had weighted average grant date fair values of $70.01$321.72 and $54.79$176.53, respectively.
The total fair values of RSUs vested in 2015, 2014 and 2013 totaled $239.7 million, $281.1 million, and $209.7 million, respectively.
Employee Stock Purchase Plan (ESPP)
In June 2015, our stockholders approved the Biogen Inc. 2015 ESPP (2015 ESPP). The 2015 ESPP, which became effective on July 1, 2015, replaced the Biogen Idec Inc. 1995 ESPP (1995 ESPP), respectively.which expired on June 30, 2015. The maximum aggregate number of shares of our common stock that may be purchased under the 2015 ESPP is 6.2 million.
The following table summarizes our ESPP activity:
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In millions, except share amounts) | 2015 | | 2014 | | 2013 |
| Shares issued under the 2015 ESPP | 78,000 |
| | ** | | ** |
| Shares issued under the 1995 ESPP | 98,000 |
| | 180,000 |
| | 245,000 |
|
| Cash received under the 2015 ESPP | $ | 19.3 |
| | ** | | ** |
| Cash received under the 1995 ESPP | $ | 30.0 |
| | $ | 46.4 |
| | $ | 38.7 |
|
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Performance-Vested Restricted Stock Units (PVRSUs)16. Income Taxes
The following table summarizes our PVRSU activity:
|
| | | | | | |
| | Shares | | Weighted Average Grant Date Fair Value |
| Unvested at December 31, 2011 | 47,000 |
| | $ | 49.34 |
|
| Granted | — |
| | $ | — |
|
| Vested | (46,000 | ) | | $ | 119.03 |
|
| Forfeited | (70 | ) | | $ | 49.65 |
|
| Unvested at December 31, 2012 | 930 |
| | $ | 53.64 |
|
Grant Activity
In 2011 and 2010, approximately 1,000 and 4,000 and PVRSUs were granted with weighted average grant date fair values of $53.64 per share, respectively. The number of PVRSUs reflected as granted represents the target number of shares that are eligible to vest in full or in part and are earned subject to the attainment of certain performance criteria established at the beginning of the performance period, which ended December 31, 2009. Participants may ultimately earn up to 200% of the target number of shares granted in the event that the maximum performance thresholds are attained. Accordingly, additional PVRSUs may be issued upon final determination of the number of awards earned.
Once the earned number of performance-vested awards has been determined, the earned PVRSUs will then vest in three equal increments on (1) the later of the first anniversary of the grant date or the date of results determination; (2) the second anniversary of the grant date; and (3) the third anniversary of the grant date. The vesting of these awards is also subject to the respective employees’ continued employment. Compensation expense associated with these PVRSUs is initially based upon the number of shares expected to vest after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures. Cumulative adjustments are recorded quarterly to reflect subsequent changes in the estimated outcome of performance-related conditions until the date results are determined.
Employee Stock Purchase Plan (ESPP)
The following table summarizes our ESPP activity:
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 |
| Shares issued under ESPP | 0.3 |
| | 0.4 |
| | 0.6 |
|
| Cash received under ESPP | $ | 28.7 |
| | $ | 22.8 |
| | $ | 23.5 |
|
Other
As part of the employee severance and benefits packages offered to employees affected by our workforce reduction made in connection with our 2010 restructuring initiative, we agreed to settle certain existing equity awards in cash, which resulted in an incremental charge of approximately $6.8 million recognized in the fourth quarter of 2010. This charge is reflected within our consolidated statement of income as a component of our total restructuring charge incurred in 2010.
In accordance with the transition agreement entered into with James C. Mullen who retired as our President and Chief Executive Officer on June 8, 2010, we agreed with Mr. Mullen, amongst other provisions, to vest all of Mr. Mullen’s then-unvested equity awards on the date of his retirement and allow Mr. Mullen to exercise his vested stock options until June 8, 2013 or their expiration, whichever is earlier. The modifications to Mr. Mullen’s existing stock options, RSUs and PVRSUs resulted in an incremental charge of approximately $18.6 million, which was recognized evenly over the service period from January 4, 2010 to June 8, 2010 as per the terms of the transition agreement.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income Tax Expense
Income before income tax provision and the income tax expense consist of the following:
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Income before income taxes (benefit): | | | | | | | | | | |
| Domestic | $ | 1,398.0 |
| | $ | 1,408.9 |
| | $ | 846.4 |
| $ | 3,386.7 |
| | $ | 2,557.4 |
| | $ | 1,953.0 |
|
| Foreign | 457.1 |
| | 302.3 |
| | 383.5 |
| 1,380.6 |
| | 1,389.2 |
| | 527.6 |
|
| Total | $ | 1,855.1 |
| | $ | 1,711.2 |
| | $ | 1,229.9 |
| $ | 4,767.3 |
| | $ | 3,946.6 |
| | $ | 2,480.6 |
|
| Income tax expense (benefit): | | | | | | | | | | |
| Current: | | | | | | | | | | |
| Federal | $ | 507.9 |
| | $ | 231.7 |
| | $ | 357.7 |
| $ | 1,214.1 |
| | $ | 1,159.5 |
| | $ | 700.9 |
|
| State | 35.6 |
| | 15.1 |
| | 19.6 |
| 38.6 |
| | 65.2 |
| | 98.4 |
|
| Foreign | 44.0 |
| | 44.1 |
| | 35.4 |
| 54.5 |
| | 73.4 |
| | 46.8 |
|
| Total | 587.5 |
| | 290.9 |
| | 412.7 |
| 1,307.2 |
| | 1,298.1 |
| | 846.1 |
|
| Deferred: | | | | | | | | | | |
| Federal | $ | (133.0 | ) | | $ | 160.9 |
| | $ | (70.6 | ) | $ | (129.6 | ) | | $ | (280.9 | ) | | $ | (200.6 | ) |
| State | (13.0 | ) | | (8.1 | ) | | (6.6 | ) | (1.9 | ) | | (21.0 | ) | | (35.9 | ) |
| Foreign | 29.1 |
| | 0.8 |
| | (4.2 | ) | (14.1 | ) | | (6.3 | ) | | (8.6 | ) |
| Total | (116.9 | ) | | 153.6 |
| | (81.4 | ) | (145.6 | ) | | (308.2 | ) | | (245.1 | ) |
| Total income tax expense | $ | 470.6 |
| | $ | 444.5 |
| | $ | 331.3 |
| $ | 1,161.6 |
| | $ | 989.9 |
| | $ | 601.0 |
|
The 2012 deferred tax expense on foreign earnings includes an expense of $33.1 million related to capitalized interest at our Denmark manufacturing facility. Of this amount, $29.0 million represents the correction of an error in our accounting that had accumulated over several prior years. We do not consider this correction to be material.
Deferred Tax Assets and Liabilities
Significant components of our deferred tax assets and liabilities are summarized as follows:
| | | | As of December 31, | As of December 31, |
| (In millions) | 2012 | | 2011 | 2015 | | 2014 |
| Deferred tax assets: | | | | | | |
| Tax credits | $ | 69.3 |
| | $ | 60.0 |
| $ | 189.3 |
| | $ | 69.0 |
|
| Inventory, other reserves, and accruals | 118.3 |
| | 104.1 |
| 243.9 |
| | 217.3 |
|
| Capitalized costs | 7.6 |
| | 5.3 |
| |
| Intangibles, net | 84.5 |
| | 75.8 |
| 328.3 |
| | 251.7 |
|
| Net operating loss | 37.5 |
| | 22.9 |
| 24.7 |
| | 20.6 |
|
| Share-based compensation | 58.6 |
| | 54.7 |
| 63.8 |
| | 86.0 |
|
| Other | 57.8 |
| | 45.7 |
| 35.8 |
| | 60.0 |
|
| Valuation allowance | (12.3 | ) | | (10.8 | ) | (14.1 | ) | | (11.5 | ) |
| Total deferred tax assets | $ | 421.3 |
| | $ | 357.7 |
| $ | 871.7 |
| | $ | 693.1 |
|
| Deferred tax liabilities: | | | | | | |
| Purchased intangible assets | $ | (411.3 | ) | | $ | (384.8 | ) | $ | (440.1 | ) | | $ | (432.8 | ) |
| Unrealized gain on investments and cumulative translation adjustment | (1.2 | ) | | (3.5 | ) | |
| Inventory | (50.8 | ) | | (76.8 | ) | |
| Depreciation, amortization and other | (146.4 | ) | | (133.1 | ) | (102.7 | ) | | (107.0 | ) |
| Total deferred tax liabilities | $ | (609.7 | ) | | $ | (598.2 | ) | $ | (542.8 | ) | | $ | (539.8 | ) |
In accordance with ASU No. 2015-17, at December 31, 2015 we reclassified $137.1 million of our deferred tax assets classified as current to noncurrent and $1.6 million of our deferred tax liabilities classified as current to noncurrent in our December 31, 2014 consolidated balance sheet, to conform our prior year presentation to our current year presentation.
In addition to deferred tax assets and liabilities, we have recorded prepaid tax and deferred charges related to intercompany transactions. As of December 31, 2015 and 2014, the total deferred charges and prepaid taxes were $697.9 million and $238.9 million, respectively.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During 2013, we recorded a deferred charge of $203.7 million in connection with an intercompany transfer of the intellectual property for ZINBRYTA. The net book value of this deferred charge as of December 31, 2015 and 2014 was $166.3 million and $179.9 million, respectively. The deferred charge will be amortized to income tax expense over the economic life of the ZINBRYTA program. Our regulatory submissions in Europe and the U.S. have been accepted for review by the relevant authorities. If the ZINBRYTA applications are not approved, we may have to accelerate the amortization of this deferred charge and record an expense equal to its remaining net book value.
Tax Rate
ReconciliationA reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State taxes | 0.9 |
| | 1.7 |
| | 1.7 |
| 0.5 |
| | 1.2 |
| | 3.1 |
|
| Taxes on foreign earnings | (6.2 | ) | | (5.9 | ) | | (10.7 | ) | (10.0 | ) | | (9.5 | ) | | (6.7 | ) |
| Credits and net operating loss utilization | (3.5 | ) | | (4.4 | ) | | (3.0 | ) | (1.3 | ) | | (1.1 | ) | | (2.6 | ) |
| Purchased intangible assets | 1.2 |
| | 1.3 |
| | 1.9 |
| 1.0 |
| | 1.2 |
| | 1.5 |
|
| IPR&D | — |
| | — |
| | 5.0 |
| |
| Permanent items | (2.5 | ) | | (1.2 | ) | | (2.0 | ) | |
| Contingent consideration | 0.5 |
| | 0.7 |
| | — |
| |
| Other | — |
| | (1.2 | ) | | (1.0 | ) | |
| Manufacturing deduction | | (1.8 | ) | | (1.8 | ) | | (6.6 | ) |
| Other permanent items | | 0.7 |
| | 0.5 |
| | 0.8 |
|
| Contingent consideration and other | | 0.3 |
| | (0.4 | ) | | (0.3 | ) |
| Effective tax rate | 25.4 | % | | 26.0 | % | | 26.9 | % | 24.4 | % | | 25.1 | % | | 24.2 | % |
Our effective tax rate for 2015 compared to 2014 benefited from lower anticipated taxes on foreign earnings and reflects a $27.0 million benefit from the 2015 remeasurement of one of our uncertain tax positions, described below under "Accounting for Uncertainty in Income Taxes".
Our effective tax rate for 2014 compared to 2013 increased primarily as a result of the absence of a benefit related to the 2013 change in our uncertain tax position related to our U.S. federal manufacturing deduction and our unconsolidated joint business described below under "Accounting for Uncertainty in Income Taxes", lower current year expenses eligible for the orphan drug credit and a lower relative manufacturing deduction due to unqualified products, partially offset by a higher percentage of our 2014 income being earned outside the U.S.
As of December 31, 2012,2015, we had net operating losses and general business credit carry forwards for federal income tax purposes of approximately $63.2$25.3 million and $2.9$127.6 million, respectively, which begin to expire in 2020. Additionally, for state income tax purposes, we had net operating loss carry forwards of approximately $95.6$91.7 million,, which begin to expire in 2013.2016. For state income tax purposes, we also had research and investment credit carry forwards of approximately $114.7$125.5 million,, of which approximately $3.5 million begin to expire in 2013.2016. For foreign income tax purposes, we had $8.8$53.4 million of net operating loss carryforwards, which do not expire.begin to expire in 2021.
In assessing the realizability of our deferred tax assets, we have considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, under the applicable financial reporting standards, we are allowed to consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. Our estimates of future taxable income take into consideration, among other items, our estimates of future income tax deductions related to the exercise of stock options. Based upon the level of historical taxable income and income tax liability and projections for future taxable income over the periods in which the deferred tax assets are utilizable, we believe it is more likely than not that we will realize the benefits of the deferred tax assets of our wholly owned subsidiaries. At December 31, 2012, we have a full valuation allowance on the deferred tax assets of a variable interest entity which we consolidate, based on uncertainties related to the realization of all of those assets. These assets totalling $10.9 million are excluded from our credit and loss carryforwards described above. In the event that actual results differ from our estimates or we adjust our estimates in future periods, we may need to establish a valuation allowance, which could materially impact our financial position and results of operations.
As of December 31, 2012,2015, undistributed foreign earnings of non-U.S. subsidiaries included in consolidated retained earnings and other basis differences aggregated approximately $3.3 billion.$6.0 billion. We intend to reinvest these earnings indefinitely in operations outside the U.S. The residual U.S. tax liability, if suchcumulative amounts were remitted,repatriated, would be between $800 million$1.5 billion to $900 million$2.0 billion as of December 31, 2012.2015.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accounting for Uncertainty in Income Taxes
A reconciliation of the beginning and ending amount of our unrecognized tax benefits is summarized as follows:
| | | (In millions) | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Balance at January 1, | $ | 64.4 |
| | $ | 121.5 |
| | $ | 147.1 |
| $ | 131.5 |
| | $ | 110.1 |
| | $ | 125.9 |
|
| Additions based on tax positions related to the current period | 13.0 |
| | 2.2 |
| | 3.6 |
| 10.5 |
| | 20.8 |
| | 11.9 |
|
| Additions for tax positions of prior periods | 69.8 |
| | 48.6 |
| | 13.3 |
| 19.5 |
| | 86.1 |
| | 71.7 |
|
| Reductions for tax positions of prior periods | (18.6 | ) | | (75.8 | ) | | (18.5 | ) | (49.9 | ) | | (23.4 | ) | | (92.1 | ) |
| Statute expirations | (1.9 | ) | | (2.3 | ) | | (3.7 | ) | (1.2 | ) | | (1.6 | ) | | (1.9 | ) |
| Settlements | (0.8 | ) | | (29.8 | ) | | (20.3 | ) | (42.5 | ) | | (60.5 | ) | | (5.4 | ) |
| Balance at December 31, | $ | 125.9 |
| | $ | 64.4 |
| | $ | 121.5 |
| $ | 67.9 |
| | $ | 131.5 |
| | $ | 110.1 |
|
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in the U.S. federal jurisdiction, various U.S. states, and foreign jurisdictions. With few exceptions, including the proposed disallowance we discuss below, we are no longer subject to U.S. federal tax examination for years before 20102013 or state, local, or non-U.S. income tax examinations for years before 2004. During
Included in the year, we adjusted ourbalance of unrecognized tax benefits to reflect new information arising during our on-goingas of December 31, 2015, 2014 and 2013 are $15.7 million, $53.6 million and $32.5 million (net of the federal andbenefit on state audit examinations includingissues), respectively, of unrecognized tax benefits that, if recognized, would affect the filing of amended federaleffective income tax returnsrate in future periods.
We recognize potential interest and penalties accrued related to claimunrecognized tax benefits in income tax expense. In 2015, we recognized a net interest expense of $3.1 million. During 2014, we recognized net interest expense of $4.1 million. In 2013, we recognized a net interest expense of approximately $4.5 million. We have accrued approximately $12.5 million and $17.6 million for the payment of interest as of December 31, 2015 and 2014, respectively.
In March 2015, we received a final assessment from the Danish Tax Authority (SKAT) for fiscal 2009, regarding withholding taxes and the treatment of certain deductions.intercompany transactions involving our Danish affiliate and another of our affiliates. The audits of our tax filings for 2010 through 2013 are not completed but have been prepared in a manner consistent with prior filings, with similar transactions. In December 2015, we received draft assessments for these periods. The total amount assessed for all periods is $60.9 million, including interest. For all periods potentially under dispute, we believe that positions taken in our tax filings are valid and we are contesting the assessment vigorously.
Federal Uncertain Tax Positions
During 2013, we received updated technical guidance from the IRS concerning our current and prior year filings and calculation of our U.S. federal manufacturing deduction and overall tax classification of our unconsolidated joint business. Based on this guidance we reevaluated the level of our unrecognized benefits related to uncertain tax positions, and recorded a $49.8 million income tax benefit. This benefit is for a previously unrecognized position and relates to years 2005 through 2012. We recorded an offsetting expense of $11.3 million for non-income based state taxes, which is recorded in other income (expense) in our consolidated statements of income.
In October 2011, in conjunction with our examination, the IRS has proposed a disallowance of approximately $130$130 million in deductions for tax years 2007, 2008 and 2009 related to payments for services provided by our wholly owned Danish subsidiary located in Hillerød, Denmark. We believe that these items represent valid deductible business expenses and willare vigorously defenddefending our position.
Included in the balance of unrecognized tax benefits as of December 31, 2012, 2011, and 2010 are $109.5 million, $31.3 million, and $26.2 million (net of the federal benefit on state issues), respectively, of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future periods.
We recognize potential interest and penalties accrued related to unrecognized tax benefits in income tax expense. In 2012, we recognized a net interest expense of $0.1 million. During 2011, we recognized net interest benefit of $12.9 million. In 2010, we recognized a net interest expense of approximately $0.7 million. We have accrued approximately $2.5 millioninitiated a mutual agreement procedure between the IRS and $3.9 millionSKAT for the payment of interest as of December 31, 2012 and 2011, respectively.
We do not anticipate any significant changesyears 2001 through 2009, in our positions in the next twelve months other than expected settlements which have been classified as current liabilities within the accompanying balance sheet.
Contingencies
In 2006, the Massachusetts Department of Revenue (DOR) issued a Notice of Assessment against Biogen Idec MA Inc. (BIMA), one of our wholly-owned subsidiaries, for $38.9 million of corporate excise tax for 2002, which includes associated interest and penalties. The assessment asserted that the portion of sales attributablean attempt to Massachusetts (sales factor), the computation of BIMA’s research and development credits and certain deductions claimed by BIMA were not appropriate, resulting in unpaid taxes for 2002. We filed an abatement application with the DOR seeking abatements for 2001, 2002 and 2003. Our abatement application was denied and on July 25, 2007, we filed a petition with the Massachusetts Appellate Tax Board (Massachusetts ATB) seeking, among other items, abatements of corporate excise tax for 2001, 2002 and 2003 and adjustments in certain credits and credit carry forwards for 2001, 2002 and 2003. On August 18, 2011, we reached a settlement with the DOR under which we agreed to pay $7.0 million in taxes, plus $5.0 million of interest, and agreedreach agreement on the nature and amount of tax credits carried forward into 2004. This resolution did notissue. In addition, we have applied for a significant impact on our results of operations, is related onlybilateral advanced pricing agreement for the years 2010 through 2014 to resolve similar issues for the 2001, 2002 and 2003 tax years, and does not resolve matters in dispute for subsequent periods.
On June 8, 2010, we received Notices of Assessment from the DOR against BIMA for $103.5 million of corporate excise tax, including associated interest and penalties, related to our 2004, 2005 and 2006 tax filings. We filed an abatement application with the DOR seeking abatement for 2004, 2005 and 2006. Our abatement application was denied in December 2010, and we filed a petition appealing the denial with the ATB on February 3, 2011, and hearing has been scheduled for April 2013. For all periods under dispute, we believe that positions taken in our tax filings are valid and we are contesting the assessments vigorously.
The audits of our tax filings for 2007 and 2008 are not completed. As these filings were prepared in a manner consistent with prior filings, we may receive an assessment for those years as well. Due to tax law changes effective January 1, 2009, the computation and deductions at issue in previous tax filings are not part of our subsequent tax filings in Massachusetts.
We believe that these assessments do not impact the amount of liabilities for income tax contingencies. However, there is a possibility that we may not prevail in defending all of our assertions with the DOR. If these matters are resolved unfavorably in the future, the resolution could have a material adverse impact on our effective tax rate and our results of operations.years.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
19. | Other Consolidated Financial Statement Detail |
During the year ended December 31, 2015, the net effect of adjustments to our uncertain tax positions was a net benefit of approximately $25.0 million. It is reasonably possible that we will adjust the value of our uncertain tax positions related to our unconsolidated joint business and certain transfer pricing issues as we receive additional information from various taxing authorities, including reaching settlements with the authorities. In addition, the IRS and other national tax authorities routinely examine our intercompany transfer pricing with respect to intellectual property related transactions and it is possible that they may disagree with one or more positions we have taken with respect to such valuations.
17. Other Consolidated Financial Statement Detail
Supplemental Cash Flow Information
Supplemental disclosure of cash flow information for the years ended December 31, 2012, 20112015, 2014 and 20102013, is as follows:
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Cash paid during the year for: | | | | | | | | | | |
| Interest | $ | 65.4 |
| | $ | 66.7 |
| | $ | 68.1 |
| $ | 39.1 |
| | $ | 41.2 |
| | $ | 53.6 |
|
| Income taxes | $ | 526.6 |
| | $ | 332.7 |
| | $ | 394.7 |
| $ | 1,674.8 |
| | $ | 1,163.2 |
| | $ | 643.2 |
|
Non-cash Investing and Financing Activity
In March 2012,the fourth quarter of 2015, we accrued $300.0 million upon completionreaching $7.0 billion in total cumulative sales of our acquisitionFumapharm Products. The amount, net of Stromedix,tax benefit, was accounted for as an increase to goodwill in accordance with the accounting standard applicable to business combinations when we recordedacquired Fumapharm and is expected to be paid in the first quarter of 2016. For additional information related to this transaction, please read Note 21, $219.2 millionCommitment and Contingencies of in-process research and development and $48.2 million of goodwill. In addition, we also recorded a contingent consideration obligation of $122.2 million.
In September 2011, upon completion of our acquisition of the noncontrolling interest in our joint venture investments in Biogen Dompé SRL and Biogen Dompé Switzerland GmbH, we recorded a contingent consideration obligation of $38.8 million.to these consolidated financial statements.
In connection with the construction of the Cambridge facilities that will be leased by us when the construction is completed,our manufacturing facility in Solothurn, Switzerland, we have recorded an asset along with a corresponding financing obligation onaccrued charges related to processing equipment and engineering services of approximately $59.1 million in our consolidated balance sheet as of December 31, 2012 and 2011, totaling approximately $86.5 million and $2.2 million, respectively.sheet. For additional information related to these transactions,this transaction, please read Note 12, 10,Property, Plant &and Equipment to these consolidated financial statements.
In December 2010,February 2015, upon completion of our acquisition of BIN,Convergence, we recorded$110.9 million of in-process research and development and $25.6 million of goodwill. In addition, we also assumed a contingent consideration obligation of $274.5 million as part of the purchase price. For additional information related to this transaction, please read Note 2, $81.2 millionAcquisitions to these consolidated financial statements.
In July and a deferred tax liabilityNovember 2013, the construction of $23.7two office buildings in Cambridge, Massachusetts was completed and we started leasing the facilities. Upon completion of the construction of the buildings, we determined that we were no longer considered the owner of the buildings because we did not have any unusual or significant continuing involvement. Consequently, we derecognized the buildings and their associated financing obligation of approximately $161.5 million. from our consolidated balance sheet.
Other Income (Expense), Net
Components of other income (expense), net, are summarized as follows:
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Interest income | $ | 29.5 |
| | $ | 19.2 |
| | $ | 22.3 |
| $ | 22.1 |
| | $ | 12.2 |
| | $ | 8.2 |
|
| Interest expense | (36.5 | ) | | (33.0 | ) | | (36.1 | ) | (95.5 | ) | | (29.5 | ) | | (31.9 | ) |
| Impairments on investments | (5.5 | ) | | (9.9 | ) | | (19.2 | ) | — |
| | — |
| | (2.8 | ) |
| Gain (loss) on investments, net | 10.6 |
| | 18.8 |
| | 14.2 |
| (3.8 | ) | | 11.8 |
| | 21.7 |
|
| Foreign exchange gains (losses), net | (2.5 | ) | | (6.3 | ) | | (3.5 | ) | (32.7 | ) | | (11.6 | ) | | (15.2 | ) |
| Other, net | 3.7 |
| | (2.3 | ) | | 3.3 |
| (13.8 | ) | | (8.7 | ) | | (14.9 | ) |
| Total other income (expense), net | $ | (0.7 | ) | | $ | (13.5 | ) | | $ | (19.0 | ) | $ | (123.7 | ) | | $ | (25.8 | ) | | $ | (34.9 | ) |
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Current Assets
Other current assets includes prepaid taxes totaling approximately $550.6 million and $57.6 million as of December 31, 2015 and 2014, respectively.
Accrued Expenses and Other
Accrued expenses and other consists of the following:
| | | | As of December 31, | As of December 31, |
| (In millions) | 2012 | | 2011 | 2015 | | 2014 |
| Revenue-related reserves for discounts and allowances | | $ | 518.1 |
| | $ | 359.2 |
|
| Current portion of contingent consideration obligations | | 504.7 |
| | 265.5 |
|
| Employee compensation and benefits | $ | 248.5 |
| | $ | 176.3 |
| 270.8 |
| | 393.8 |
|
| Revenue-related rebates | 191.0 |
| | 115.0 |
| |
| Royalties and licensing fees | | 167.9 |
| | 172.4 |
|
| Deferred revenue | 148.0 |
| | 69.6 |
| 55.7 |
| | 120.9 |
|
| Clinical development expenses | 51.6 |
| | 40.8 |
| |
| Royalties and licensing fees | 45.2 |
| | 47.4 |
| |
| Collaboration expenses | 37.4 |
| | 44.2 |
| |
| Current portion of contingent consideration obligations | 22.4 |
| | 10.8 |
| |
| Other | 235.8 |
| | 173.1 |
| 579.6 |
| | 505.9 |
|
| Total accrued expenses and other | $ | 979.9 |
| | $ | 677.2 |
| $ | 2,096.8 |
| | $ | 1,817.7 |
|
Other Long-Term Liabilities
Other long-term liabilities consists of the following:
|
| | | | | | | |
| | As of December 31, |
| (In millions) | 2015 | | 2014 |
| Contingent consideration obligation | $ | 301.3 |
| | $ | 200.0 |
|
| Employee compensation and benefits | 235.4 |
| | 200.7 |
|
| Other | 369.1 |
| | 249.4 |
|
| Total other long-term liabilities | $ | 905.8 |
| | $ | 650.1 |
|
Pricing of TYSABRI in Italy - AIFA
In the fourth quarter of 2011, Biogen Italia SRL (formerly Biogen Idec Italia SRL), our Italian subsidiary, received a notice from the Italian National Medicines Agency (Agenzia Italiana del Farmaco or AIFA) that sales of TYSABRI after mid-February 2009 through mid-February 2011 exceeded by EUR30.7 million a reimbursement limit established pursuant to a Price Determination Resolution granted by AIFA in December 2006. In December 2011, we filed an appeal against AIFA in administrative court in Rome, Italy seeking a ruling that the reimbursement limit in the Price Determination Resolution should apply as written to only “the first 24 months” of TYSABRI sales, which ended in mid-February 2009. That appeal is still pending. Since being notified in the fourth quarter of 2011 that AIFA believed a reimbursement limit was still in effect, we deferred revenue on sales of TYSABRI as if the reimbursement limit were in effect for each biannual period beginning in mid-February 2009.
In July 2013, we negotiated an agreement in principle with AIFA's Price and Reimbursement Committee that would have resolved all of AIFA's claims relating to sales of TYSABRI in excess of the reimbursement limit for the periods from February 2009 through January 2013 for an aggregate repayment of EUR33.3 million. The agreement was sent to the Avvocatura Generale dello Stato (Attorney General) for its opinion. As a result of this agreement in principle, we recorded a liability and reduction to revenue of EUR15.4 million at June 30, 2013, which approximated 50% of the claim related to the period from mid-February 2009 through mid-February 2011. In October 2014, we proposed a revised settlement for the period from February 2009 through January 2013 of EUR35.6 million to be paid in one payment. AIFA and Biogen Italia SRL are still discussing a possible resolution for the period from February 2009 through January 2013.
In June 2014, AIFA approved a resolution affirming that there is no reimbursement limit from and after February 2013. As a result, we recognized $53.5 million of TYSABRI revenues related to the periods beginning February 2013 that were previously deferred.
We have approximately EUR75 million recorded as accrued expenses and long-term deferred revenue in our consolidated balance sheets for this matter as of December 31, 2015 and 2014, respectively.
| |
20. | Investments in Variable Interest Entities |
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
18. Investments in Variable Interest Entities
Consolidated Variable Interest Entities
Our consolidated financial statements include the financial results of variable interest entities in which we are the primary beneficiary.
Investments in Joint Ventures
On September 6, 2011, we completed the purchase of the noncontrolling The following are our significant variable interest in our joint venture investments in Biogen Dompé SRL and Biogen Dompé Switzerland GmbH, our respective sales affiliates in Italy and Switzerland, from our joint venture partners, Dompé Farmaceutici SpA and Dompé International SA, respectively. Prior to this transaction, our consolidated financial statements reflected 100% of the operations of these joint venture investments and we recorded net income (loss) attributable to noncontrolling interests in our consolidated statements of income based on the percentage of ownership interest retained by our joint venture partners as we retained the power to direct the activities which most significantly and directly impacted their economic performance. We have continued to consolidate the operations of these entities following our purchase of the noncontrolling interest; however, as of September 6, 2011, we no longer allocate 50% of the earnings of these affiliates to net income (loss) attributable to noncontrolling interests as Biogen Dompé SRL and Biogen Dompé Switzerland GmbH became wholly-owned subsidiaries of the Company.
Until we completed our purchase of the noncontrolling interests, the assets of these joint ventures were restricted, from the standpoint of Biogen Idec, in that they were not available for our general business use outside the context of each joint venture. The joint ventures’ most significant assets were accounts receivable from the ordinary course of business. The holders of the liabilities of each joint venture, including the credit line from Dompé Farmaceutici SpA to Biogen Dompé SRL, had no recourse to Biogen Idec. Balances outstanding under Biogen Dompé SRL’s credit line were repaid in connection with this transaction. In addition, Dompé Farmaceutici SpA purchased all of Biogen Dompé SRL’s outstanding receivables as of June 30, 2011, adjusted for cash received through September 5, 2011. For additional information related to this transaction, please read Note 2, Acquisitions to these consolidated financial statements.
Knopp
In August 2010, we entered into a license agreement with Knopp Neurosciences, Inc. (Knopp), a subsidiary of Knopp Holdings, LLC, for the development, manufacture and commercialization of dexpramipexole. Under the terms of the license agreement we made a $26.4 million upfront payment and agreed to pay Knopp development and sales-based milestone payments as well as royalties on future commercial sales. In addition, we also purchased 30.0% of the Class B common shares of Knopp for $60.0 million.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At the end of December 2012, we learned that a Phase 3 trial investigating dexpramipexole in people with amyotrophic lateral sclerosis (ALS) did not meet its primary endpoint and failed to show efficacy in its key secondary endpoints. Based on these results, we have discontinued development of dexpramipexole in ALS. Prior to our decision to discontinue dexpramipexole, we had started the R&D extension program, ENVISION, and had entered into arrangements with certain suppliers for the purchase of raw materials and the supply of drug product. These arrangements have been canceled. We have accrued approximately $12.3 million of research and development expense, as of December 31, 2012, related to those firm commitments to purchase R&D services and inventory or to pay cancellation charges.
In addition, we expect to terminate the license agreement and exercise our put option on the 30.0% of the Class B common shares to Knopp.
Due to the terms of the license agreement and our investment in Knopp, we had determined that we were the primary beneficiary of Knopp as we had the power to direct the activities that most significantly impacted Knopp’s economic performance. As such, we consolidated the results of Knopp. As the license agreement with Knopp only gave us access to the underlying intellectual property of dexpramipexole and we did not acquire any employees or other processes, we determined that the transaction was an acquisition of an asset rather than a business. Therefore, we recorded an IPR&D charge of approximately $205.0 million upon the initial consolidation of Knopp, which was included within our consolidated statement of income for 2010. The amount allocated to IPR&D represented the fair value of the intellectual property of Knopp, which as of the effective date of the agreement, had not reached technological feasibility and had no alternative future use. This charge was determined using internal models based on projected revenues and development costs and adjusted for industry-specific probabilities of success. We attributed approximately $145.0 million of the IPR&D charge to the noncontrolling interest.
In March 2011, we dosed the first patient in a registrational study for dexpramipexole. The achievement of this milestone resulted in a $10.0 million payment due to Knopp. As we consolidated Knopp, we recognized this payment as a charge to noncontrolling interests in 2011.
A summary of activity related to this collaboration, excluding the initial accounting for the consolidation of Knopp, was as follows:
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 |
| Total upfront payments made to Knopp | $ | — |
| | $ | — |
| | $ | 26.4 |
|
| Milestone payments made to Knopp | $ | — |
| | $ | 10.0 |
| | $ | — |
|
| Total development expense incurred by the collaboration excluding upfront and milestone payments | $ | 96.3 |
| | $ | 44.8 |
| | $ | 5.0 |
|
| Total expense incurred by the collaboration associated with commercial capabilities in preparation for the potential product launch | $ | 16.7 |
| | $ | — |
| | $ | — |
|
| Biogen Idec’s share of expense reflected within our consolidated statements of income | $ | 113.0 |
| | $ | 54.8 |
| | $ | 31.4 |
|
| Collaboration expense attributed to noncontrolling interests, net of tax | $ | — |
| | $ | 8.6 |
| | $ | — |
|
The assets and liabilities of Knopp were not significant to our financial position or results of operations. We had provided no financing to Knopp other than previously contractually required amounts disclosed above.entities.
Neurimmune SubOne AG
In 2007, we entered into a collaboration agreement with Neurimmune SubOne AG (Neurimmune), a subsidiary of Neurimmune AG, for the development and commercialization of antibodies for the treatment of Alzheimer’s disease. Neurimmune conducts research to identify potential therapeutic antibodies and we are responsible for the development, manufacturing and commercialization of all products. Our anti-amyloid beta antibody, aducanumab (BIIB037), for the treatment of Alzheimer’s disease resulted from this collaboration. In September 2015, we announced that the first patient had been enrolled in a Phase 3 trial for aducanumab, which triggered a $60.0 million milestone payment due to Neurimmune. As we consolidate the financial results of Neurimmune, we recognized this payment as a charge to noncontrolling interest in the third quarter of 2015. Based upon our current development plans for aducanumab, we may pay Neurimmune up to $345.0$275.0 million in remaining milestone payments, as well aspayments. We may also pay royalties in the low-to-mid-teens on sales of any resulting commercial products.
We determined that we are the primary beneficiary of Neurimmune because we have the power through the collaboration to direct the activities that most significantly impact the entity’s economic performance and are required to fund 100% of the research and development costs incurred in support of the collaboration agreement.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Amounts that are incurred by Neurimmune for research and development expenses incurred in support of the collaboration that we reimburse are reflected in research and development expense in our consolidated statements of income. In April 2011, we submitted an Investigational New Drug application for BIIB037 (human anti-Amyloid ß mAb) a beta-amyloid removal therapy, which triggered a $15.0 million milestone payment due to Neurimmune. As we consolidate Neurimmune, we recognized this payment as a charge to noncontrolling interests inDuring the second quarter of 2011.years ending December 31, 2015, 2014 and 2013, these amounts were immaterial. Future milestone payments and royalties, if any, will be reflected withinin our consolidated statements of income as a charge to the noncontrolling interest, net of tax, when such milestones are achieved.
A summary of activity related to this collaboration is as follows:
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 |
| Milestone payments made to Neurimmune | $ | — |
| | $ | 15.0 |
| | $ | — |
|
| Total development expense incurred by the collaboration, excluding upfront and milestone payments | $ | 13.3 |
| | $ | 9.2 |
| | $ | 15.5 |
|
| Biogen Idec’s share of expense reflected within our consolidated statements of income | $ | 13.3 |
| | $ | 24.2 |
| | $ | 15.5 |
|
| Collaboration expense attributed to noncontrolling interests, net of tax | $ | — |
| | $ | 14.7 |
| | $ | 1.0 |
|
A summary of activity related to this collaboration since inception, along with an estimate of additional future development expenses expected to be incurred by us, is as follows:
|
| | | |
| (In millions) | As of December 31, 2012 |
| Total upfront and milestone payments made to Neurimmune | $ | 35.0 |
|
| Total expense incurred by Biogen Idec, excluding upfront and milestone payments | $ | 53.5 |
|
| Estimate of additional amounts to be incurred by us in development of the lead compound | $ | 783.1 |
|
The assets and liabilities of Neurimmune are not significant to our financial position or results of operations as it is a research and development organization. We have provided no financing to Neurimmune other than previously contractually required amounts.
Rodin Therapeutics, Inc.
In December 2010,2015, we completedpaid $8.0 million for preferred stock in Rodin Therapeutics, Inc. (Rodin) and entered into an option and collaboration agreement which gives us the right to purchase all remaining outstanding shares of Rodin, at any time until 35 days after acceptance of an Investigational New Drug (IND) application by the FDA. Rodin is a discovery-stage biotechnology company developing novel therapeutics for neurological disorders. We committed to make additional investments in Rodin’s preferred shares of $4.0 million, if certain development milestones are achieved. If we exercise our acquisitionoption to purchase the outstanding shares of BIN from Neurimmune AG,Rodin, we could pay additional amounts upon achievement of clinical and commercial milestones.
Through our fixed price option to purchase Rodin, purchases of equity, our collaboration and presence on the program advisory committee and Rodin Board of Directors, we are deemed to be the primary beneficiary of Rodin, a related partyvariable interest entity. Therefore, we consolidate the results of Rodin. As part of the initial consolidation of Rodin, we recorded an IPR&D intangible asset of approximately $8.7 million and assigned approximately $10.9 million to this collaboration. For additional information relatedminority interest in our stockholder's equity.
The assets and liabilities of Rodin are not significant to this transaction, please read Note 2, Acquisitionsour financial position or results of operations as it is a research and development organization. We have provided no financing to these consolidated financial statements.Rodin other than contractually required amounts.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unconsolidated Variable Interest Entities
We have relationships with other variable interest entities whichthat we do not consolidate as we lack the power to direct the activities that significantly impact the economic success of these entities. These relationships include investments in certain biotechnology companies and research collaboration agreements. For additional information related to our significant collaboration arrangements with unconsolidated variable interest entities, please read Note 21, Collaborative and Other Relationships to these consolidated financial statements.
As of December 31, 20122015 and 2011,2014, the total carrying value of our investments in biotechnology companies that we have determined to be variable interest entities, but do not consolidate as we do not have the power to direct their activities, totaled $9.4$29.2 million and $14.6$7.9 million,, respectively. Our maximum exposure to loss related to these variable interest entities is limited to the carrying value of our investments.
We have entered into research collaborationscollaboration agreements with certain variable interest entities where we are required to fund certain development activities. These development activities are included in research and development expense withinin our consolidated statements of income, as they are incurred.
We have provided no financing to these variable interest entities other than previously contractually required amounts.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
21. | Collaborative and Other Relationships |
In connection with our business strategy, we have entered into various collaboration agreements which provide us with rights to develop, produce and market products using certain know-how, technology and patent rights maintained by our collaborative partners. Terms of the various collaboration agreements may require us to make milestone payments upon the achievement of certain product research and development objectives and pay royalties on future sales, if any, of commercial products resulting from the collaboration.
Depending on the collaborative arrangement, we may record funding receivables or payable balances with our partners, based on the nature of the cost-sharing mechanism and activity within the collaboration. We had noOur significant receivables or payables related to cost sharingcollaboration arrangements with unconsolidated variable interest entities at December 31, 2012 and 2011, respectively.are discussed below.
Genentech (Roche Group)
We collaborate with Genentech Inc., a wholly-owned member of the Roche Group, on the development and commercialization of RITUXANRITUXAN. In addition, in the U.S., we share operating profits and other anti-CD20 products. Our collaboration rights are limitedlosses relating to GAZYVA with Genentech. The Roche Group and its sub-licensees maintain sole responsibility for the development, manufacturing and commercialization of GAZYVA in the U.S. and our rights to products licensed by Genentech are dependent upon Genentech’s underlying license rights.
Our collaboration agreement does not have a fixed term and will continue in effect until we mutually agree to terminate the collaboration, except that if we undergo a change in control, as defined in the collaboration agreement, Genentech has the right to present an offer to buy the rights to RITUXAN and we must either accept Genentech’s offer or purchase Genentech’s rights on the same terms as its offer. Genentech will also be deemed concurrently to have purchased our rights to theany other anti-CD20 products now in development in exchange for a royalty.royalty and our rights to GAZYVA in exchange for the compensation described in the table below. Our collaboration with Genentech was created through a contractual arrangement and not through a joint venture or other legal entity.
In October 2010, we amended our collaboration agreement with Genentech with regard to the development of ocrelizumab and agreed to terms for the development of GA101, as summarized below. This amendment did not have an impact on our share of the co-promotion operating profits of RITUXAN in either 2012, 2011 or 2010.
Ocrelizumab
Genentech is now solely responsible for the further development and commercialization of ocrelizumab and funding future costs. Genentech cannot develop ocrelizumab in CLL, NHL or RA without our consent. We will receive tiered royalties between 13.5% and 24% on U.S. sales of ocrelizumab. Commercialization of ocrelizumab will not impact the percentage of the co-promotion profits we receive for RITUXAN.
GA101
We pay 35% of the development and commercialization expenses of GA101, which is recognized as research and development expense in our consolidated statements of income, and will receive between 35% and 39% of the profits of GA101 based upon the achievement of certain sales milestones. Before the October 2010 amendment and restatement of our collaboration agreement, we had paid 30% of the GA101 development expenses. During the fourth quarter of 2010, we paid approximately $10.0 million to compensate Genentech for our increased share of such previously incurred expenses. Commercialization of GA101 will impact our percentage of the co-promotion profits for RITUXAN, as summarized in the table below.
RITUXAN
While Genentech is responsible for the worldwide manufacturing of RITUXAN, developmentRITUXAN. Development and commercialization rights and responsibilities under this collaboration are divided as follows:
U.S.
We share with Genentech co-exclusive rights to develop, commercialize and market RITUXAN in the U.S. For 2010, we contributed to the marketing and continued development of RITUXAN by maintaining a limited sales force dedicated to RITUXAN and performing limited development activity. However, during the fourth quarter of 2010, we agreed with Genentech to eliminate our current RITUXAN oncology and rheumatology sales force, with Genentech assuming sole responsibility for the U.S. sales and marketing of RITUXAN.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Canada
We and Genentech have assigned our rights under our collaboration agreement with respect to Canada to Roche.the Roche Group.
Outside the U.S. and Canada
We have granted Genentech exclusive rights to develop, commercialize and market RITUXAN outside the U.S. and Canada. Under the terms of separate sublicense agreements between Genentech and the Roche Group, development and commercialization of RITUXAN outside the U.S. and Canada is the responsibility of the Roche Group and its sublicensees. We do not have any direct contractual arrangements with the Roche Group or it sublicensees.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Under the terms of the collaboration agreement, we will be paidthe Roche Group pays us royalties between 10% and 12% on sales of RITUXAN outside the U.S. and Canada, with the royalty period lasting 11 years from the first commercial sale of RITUXAN on a country-by-country basis. The royalty periods for substantially allthe substantial portion of the remaining royalty-bearing sales of RITUXAN in the rest of world markets expired in 2012. Afterduring 2012 weand 2013. We expect future revenue on sales of RITUXAN in the rest of world will primarily be limited to our share of pre-tax co-promotion profits in Canada.
Co-promotion GAZYVA
Prior to FDA approval of GAZYVA, we recognized 35% of the development and commercialization expenses as research and development expense and selling, general and administrative expense, respectively, in our consolidated statements of income. After GAZYVA was approved by the FDA in the fourth quarter of 2013, we began to recognize our share of the development and commercialization expenses as a reduction of our share of pre-tax profits in revenues from unconsolidated joint business.
Commercialization of GAZYVA will impact our percentage of the co-promotion profits for RITUXAN, as summarized in the table below.
Ocrelizumab
Genentech is solely responsible for development and commercialization of ocrelizumab, a humanized anti-CD20 monoclonal antibody currently in development for MS, and funding future costs. Genentech cannot develop ocrelizumab in CLL, NHL or RA. We will receive tiered royalties between 13.5% and 24% on U.S. net sales of ocrelizumab if approved for commercial sale by the FDA. There will be a 50% reduction to these royalties if a biosimilar to ocrelizumab is approved in the U.S. In addition, we will receive a 3% royalty on worldwide net sales of ocrelizumab outside the U.S., with the royalty period lasting 11 years from the first commercial sale of ocrelizumab on a country-by-country basis.
Commercialization of ocrelizumab will not impact the percentage of the co-promotion profits we receive for RITUXAN or GAZYVA.
Profit-sharing FormulaFormulas
RITUXAN Profit Share
Our current pretax co-promotion profit-sharing formula for RITUXAN which resets annually, provides for a 30% share of co-promotion profits on the first $50.0$50.0 million of co-promotion operating profit with our share increasing to 40% if co-promotion operating profits exceed $50.0 million. Under the amended agreement, ourearned each calendar year. Our share of theannual co-promotion profits for RITUXAN will change,in excess of $50.0 million varies, as summarized in the table below, upon the following events:
|
| | |
| Until GAZYVA First Non-CLL FDA Approval | 40.0 | % |
| After GAZYVA First Non-CLL FDA Approval until First GAZYVA Threshold Date | 39.0 | % |
| After First GAZYVA Threshold Date until Second GAZYVA Threshold Date | 37.5 | % |
| After Second GAZYVA Threshold Date | 35.0 | % |
First New ProductNon-CLL GAZYVA FDA Approval: means the FDA’s first approval of an anti-CD20 product other than ocrelizumab and GA101 that is acquired or developed by Genentech and is subject to the collaboration agreement (New Product).
First Non-CLL GA101 FDA Approval: the FDA’s first approval of GA101GAZYVA in an indication other than CLL.
GA101 CLL Sales TriggerFirst GAZYVA Threshold Date: means the earlier of (1) the date of the First Non-CLL GAZYVA FDA approval if U.S. gross sales of GAZYVA for the preceding consecutive 12 month period were at least $150.0 million or (2) the first day of the calendar quarter after the date of the First Non-CLL GAZYVA FDA Approval that U.S. gross sales of GA101 inGAZYVA within any consecutive 12 month period reach $500.0 million.have reached $150.0 million.
Our share of the co-promotion operating profits for RITUXAN is calculated as follows:
|
| | | | | | | | |
| | | | Before First New Product FDA Approval |
| Co-promotion Operating Profits† | After First New Product FDA Approval | | First Non-CLL GA101 FDA Approval Occurs First | | GA101 CLL Sales Trigger Occurs First |
| I. First $50.0 million | 30 | % | | 30 | % | | 30 | % |
| II. Above $50.0 million | — | % | | — | % | | 35 | % |
| A. Until First GA101 Threshold Date | 38 | % | | 39 | % | | — | % |
| B. After First GA101 Threshold Date | | | | | |
| 1(a). Until First Threshold Date | 37.5 | % | | — | % | | — | % |
| 1(b). After First Threshold Date and until Second Threshold Date | 35 | % | | — | % | | — | % |
| 1(c). After Second Threshold Date | 30 | % | | — | % | | — | % |
| 2. Until Second GA101 Threshold Date | — | % | | 37.5 | % | | — | % |
| C. After Second GA101 Threshold Date | — | % | | 35 | % | | — | % |
| |
† | First GA101 Threshold Date means the earlier of (1) the date of the First Non-CLL GA101 FDA Approval if U.S. gross sales of GA101 for the preceding consecutive 12 month period were at least $150.0 million or (2) the first day of the calendar quarter after the date of the First Non-CLL GA101 FDA Approval that U.S. gross sales of GA101 within any consecutive 12 month period have reached $150.0 million.
|
Second GA101GAZYVA Threshold Date means the first day of the calendar quarter after U.S. gross sales of GA101GAZYVA within any consecutive 12 month period have reached $500.0 million.
First Threshold Date means the earlier of (1) the GA101 CLL Sales Trigger, (2) the$500.0 million. The Second GA101GAZYVA Threshold Date can be achieved regardless of whether GAZYVA has been approved in a non-CLL indication.
We expect our share of RITUXAN pre-tax profits in the U.S. to decrease to 39% from 40% if GAZYVA is approved by the FDA in RITUXAN-refractory indolent non-Hodgkin’s lymphoma.
In addition, should the FDA approve an anti-CD20 product other than ocrelizumab or GAZYVA that is acquired or developed by Genentech and (3)subject to the later of (a) the first date that U.S. gross sales of New Products in any calendar year reach $150.0 million and (b) January 1collaboration agreement, our share of the calendar year following the calendar year in which the First New Product FDA Approval occurs if gross sales of New Products reached $150.0 million within the same calendar year in which the First New Product FDA Approval occurred.co-promotion operating profits would be between 30% and 38% based on certain events.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Second Threshold Date means the later of (1)GAZYVA Profit Share
Our current pretax profit-sharing formula for GAZYVA provides for a 35% share on the first date that U.S. gross sales$50.0 million of New Productsoperating profits earned each calendar year. Our share of annual profits in any calendar year reach $350.0excess of $50.0 million varies, as summarized in the table below, upon the following events:
|
| | |
| Until First GAZYVA Threshold Date | 39.0 | % |
| After First GAZYVA Threshold Date until Second GAZYVA Threshold Date | 37.5 | % |
| After Second GAZYVA Threshold Date | 35.0 | % |
In 2015, 2014, and (2) January 12013, our share of the calendar year following the calendar year in which the First Threshold Date occurs.
Our collaboration agreement also provides that we will be paid low single digit royaltiesoperating losses on sales outside the U.S. and Canada of new anti-CD20 products developed or licensed by Genentech or controlled by us. These royalties will be payable for a period of 11 years from the first commercial sale of such products on a country-by-country basis.GAZYVA was 35%.
Unconsolidated Joint Business Revenues
Revenues from unconsolidated joint business consistsDuring the first quarter of (1) our share of pre-tax co-promotion profits in the U.S. (2) reimbursement of our selling and development expenses in the U.S.; and (3) revenue on sales of RITUXAN in the rest of world, which consist of our share of pre-tax co-promotion profits in Canada and royalty revenue on sales of RITUXAN outside the U.S. and Canada by Roche, and its sublicensees. Pre-tax co-promotion profits are calculated and paid to us by Genentech in the U.S. and by Roche in Canada. Pre-tax co-promotion profits consist of U.S. and Canadian sales of RITUXAN to third-party customers net of discounts and allowances less the cost to manufacture RITUXAN, third-party royalty expenses, distribution, selling, and marketing expenses, and joint development expenses incurred by Genentech, Roche and us. We record our share of the pretax co-promotion profits in Canada and royalty revenues on sales of RITUXAN outside the U.S. on a cash basis as2013, we don't have access to the information or ability to estimate these profits or royalty revenue in the period incurred. Additionally, our share of the pre-tax co-promotion profits in the U.S. includes estimates made by Genentech and those estimates are subject to change. Actual results may ultimately differ from our estimates.
In June 2011, the collaboration recognized a charge of approximately $125.0 million, representing an estimate of compensatory damages and interest that might be awarded to Hoechst GmbH (Hoechst), in relation to an intermediate decision by the arbitrator in Genentech’s ongoing arbitration with Hoechst. As a result of this charge to the collaboration,reduced our share of RITUXAN revenues from unconsolidated joint business was reduced by approximately $50.0$49.7 million, in the second quarter of 2011, a portion of which was recorded as a reduction in revenue on sales of RITUXAN in the rest of world for RITUXAN was reduced by $41.2 million and pre-tax profits in the world. The actual amount ofU.S. were reduced by $8.5 million, to reflect our share of any damages may vary from our estimate depending on the nature of amount of any damagesroyalties and interest awarded to Hoechst. For additional information related to this matter, please read Note 22, Litigation to these consolidated financial statements.Hoechst in its arbitration with Genentech.
Revenues from unconsolidated joint business are summarized as follows:
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 |
| Biogen Idec’s share of pre-tax co-promotion profits in the U.S. | $ | 1,031.7 |
| | $ | 872.7 |
| | $ | 848.0 |
|
| Reimbursement of selling and development expenses in the U.S. | 1.6 |
| | 6.1 |
| | 58.3 |
|
| Revenue on sales of RITUXAN in the rest of world | 104.6 |
| | 117.8 |
| | 170.9 |
|
| Total unconsolidated joint business revenues | $ | 1,137.9 |
| | $ | 996.6 |
| | $ | 1,077.2 |
|
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In millions) | 2015 | | 2014 | | 2013 |
| Biogen's share of pre-tax profits in the U.S. for RITUXAN and GAZYVA, including the reimbursement of selling and development expenses (1) | $ | 1,269.8 |
| | $ | 1,117.1 |
| | $ | 1,087.3 |
|
| Revenue on sales in the rest of world for RITUXAN | 69.4 |
| | 78.3 |
| | 38.7 |
|
| Total unconsolidated joint business revenues | $ | 1,339.2 |
| | $ | 1,195.4 |
| | $ | 1,126.0 |
|
(1) GAZYVA sales began in the fourth quarter of 2013.
In 2012, 2011,2015, 2014, and 2010,2013, the 40% co-promotion profit-sharing threshold was met during the first quarter.
Currently,Prior to regulatory approval, we record our share of the expenses incurred by the collaboration for the development of anti-CD20 products in research and development expense in our consolidated statements of income. We incurred $35.4$25.7 million, $26.9 million, and $50.6 million in development expense for the years ended December 31, 2012, 2011, and 2010, respectively.2013. After an anti-CD20 product is approved, we will record our share of the development expenses related to that product as a reduction of our share of pre-tax co-promotion profits in revenues from unconsolidated joint business. As a result
Elan
On April 2, 2013, we acquired full ownership of all remaining rights to TYSABRI from Elan that we did not already own or control. Upon the closing of the October 2010 amendment oftransaction, our collaboration agreement with Genentech, we are no longer responsible for any development costs for ocrelizumab.Elan was terminated. For additional information related to this transaction, please read Note 2, Acquisitions to these consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Elan
We collaboratepreviously collaborated with Elan on the development, manufacture and commercialization of TYSABRI. Under the terms of our collaboration agreement, we manufacturemanufactured TYSABRI and collaboratecollaborated with Elan on the product’s marketing, commercial distribution and ongoing development activities. The agreement iswas designed to effect an equal sharing of profits and losses generated by the activities of our collaboration. Under the agreement, however, once sales of TYSABRI exceeded specific thresholds, Elan was required to make milestone payments to us in order to continue sharing equally in the collaboration’s results. Elan has made milestone payments to us of $75.0 million in the third quarter of 2008 and $50.0 million in the first quarter of 2009. These amounts were recorded as deferred revenue upon receipt and are recognized as revenue in our consolidated statements of income based on the ratio of units shipped in the current period over the total units expected to be shipped over the remaining term of the collaboration. No additional milestone payments are required under the agreement to maintain the current profit sharing split and as of December 31, 2012, $92.4 million remains to be amortized. The term of our collaboration agreement extends until November 2019. Each of Biogen Idec and Elan has the option to buy the other party’s rights to TYSABRI upon expiration of the term or if the other party undergoes a change of control (as defined in the collaboration agreement). In addition, each of Biogen Idec and Elan can terminate the agreement for convenience or material breach by the other party, in which case, among other things, certain licenses, regulatory approvals and other rights related to the manufacture, sale and development of TYSABRI are required to be transferred to the party that is not terminating for convenience or is not in material breach of the agreement.
In the U.S., we sellpreviously sold TYSABRI to Elan who sellsthen sold the product to third partythird-party distributors. Our sales price to Elan in the U.S. iswas set prior to the beginning of each quarterly period to effect an approximate equal sharing of the gross profit between Elan and us. We recognizerecognized revenue for sales in the U.S. of TYSABRI upon Elan’s shipment of the product to the third partythird-party distributors, at which time all revenue recognition criteria havehad been met. As of December 31, 2012 and 2011, we had deferred revenue of $24.9 million and $23.8 million, respectively, for shipments to Elan that remained in Elan’s ending inventory pending shipment of the product to the third party distributors. We incurincurred manufacturing and distribution costs, research and development expenses, commercial expenses, and general and administrative expenses related to TYSABRI. We recordrecorded these expenses to their respective line items withinin our consolidated statements of income when they arewere incurred. Research and development and sales and marketing expenses arewere shared equally with Elan and the reimbursement of these expenses iswas recorded as
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
reductions of the respective expense categories. During the years ended December 31, 2012, 2011, and 2010,2013, we recorded $43.7$11.7 million, $47.5 million and $49.8 million, respectively, as reductionsa reduction of research and development expense forresulting from reimbursements from Elan. In addition, for the years ended December 31, 2012, 2011, and 2010,2013, we recorded $99.9$20.6 million, $77.3 million and $68.5 million, respectively, as reductionsa reduction of selling, general and administrative expense forresulting from reimbursements from Elan.
In the rest of world, we arepreviously were responsible for distributing TYSABRI to customers and arewere primarily responsible for all operating activities. Generally, we recognizerecognized revenue for sales of TYSABRI in the rest of world at the time of product delivery to our customers. Payments areWe made payments to Elan for their share of the rest of world net operating profits to effectwhich effected an equal sharing of rest of world collaboration operating profit.profits. These payments also includeincluded the reimbursement we paid to Elan for our portionhalf of the third-party royalties that Elan payspaid on behalf of the collaboration relating to rest of world sales. As rest of world sales of TYSABRI increase, our collaboration profit sharing expense is expected to increase. These amounts arewere reflected in the collaboration profit sharing line in our consolidated statements of income. For the years ended December 31, 2012, 2011 and 2010, $317.92013, $85.4 million, $317.8 million and $258.1 million, respectively, was reflected in the collaboration profit sharing line for our collaboration with Elan.
Acorda
In 2009, we entered into a collaboration and license agreement with Acorda Therapeutics, Inc. (Acorda) to develop and commercialize products containing fampridine in markets outside the U.S. We also have responsibility for regulatory activities and the future clinical development of related products in those markets.
In July 2011, the European Commission (EC) granted a conditional marketing authorization for fampridine in the E.U., under the trade name FAMPYRA, which triggered a $25.0 million milestone payment. This payment was made to Acorda Therapeutics, Inc. (Acorda) in 2011 and was capitalized as an intangible asset. A conditional marketing authorization is renewable annually and is granted to a medicinal product with a positive benefit/risk assessment that fulfills an unmet medical need when the benefit to public health of immediate availability outweighs the risk inherent in the fact that additional data are still required. This marketing authorization was renewed as of July 2012. As part of the conditions of the conditional marketing authorization for FAMPYRA, we will provide additional data from on-going clinical studies regarding FAMPYRA’s benefits and safety in the long term. FAMPYRA is commercially available throughout the European Union and in Canada, Australia, New Zealand, Israel and South Korea.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Under the terms of the collaboration and license agreement, we pay Acorda tiered royalties based on the level of ex-U.S. net sales. We may pay up to $375.0$375.0 million of additional milestone payments to Acorda, based on the successful achievement of certain regulatory and commercial milestones. The next expected milestone would be $15.0$15.0 million,, due if ex-U.S. net sales reach $100.0$100.0 million over a period of four consecutive quarters. We will capitalize these additional milestones as intangible assets upon achievement of the milestone which will then be amortized utilizing an economic consumption model and recognized as amortization of acquired intangible assets. Royalty payments are recognized as a cost of goods sold.
In connection with the collaboration and license agreement, we have also entered into a supply agreement with Acorda for the commercial supply of FAMPYRA. This agreement is a sublicense arrangement of an existing agreement between Acorda and Alkermes, who acquired Elan Drug Technologies, the original party to the license with Acorda.
A summary During the years ending December 31, 2015, 2014 and 2013, total cost of activitysales related to this collaboration is as follows:
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 |
| Upfront and milestones payments made to Acorda | $ | — |
| | $ | 25.0 |
| | $ | — |
|
| Total development expense incurred by Biogen Idec Inc. excluding upfront and milestones payments | $ | 18.6 |
| | $ | 22.3 |
| | $ | 22.8 |
|
| Total commercialization expense incurred by Biogen Idec | $ | 51.2 |
| | $ | 14.7 |
| | $ | — |
|
| Total expense reflected within our statements of income | $ | 69.8 |
| | $ | 37.0 |
| | $ | 22.8 |
|
| Total capitalized as an intangible asset | $ | — |
| | $ | 25.0 |
| | $ | — |
|
A summaryroyalties and commercial supply of activity related to this collaboration since inception, along with an estimateFAMPRYA reflected in our consolidated statement of additional future development expense expected to be incurred by us, is as follows:
|
| | | |
| (In millions) | As of December 31, 2012 |
| Total upfront and milestone payments made to Acorda | $ | 135.0 |
|
| Total expense incurred by Biogen Idec, excluding upfront and milestone payments | $ | 134.3 |
|
Swedish Orphan Biovitrum AB (publ)
In January 2007, we acquired 100% of the stock of Syntonix. Syntonix had previously entered into a collaboration agreement with Swedish Orphan Biovitrum AB (publ) (Sobi) to jointly develop and commercialize Factor VIII and Factor IX hemophilia products.products, including ELOCTATE and ALPROLIX. In February 2010, we restructured the collaboration agreement and assumed full development responsibilities and costs, as well as manufacturing rights. In addition, the cross-royalty rates were reduced and commercial rights for certain territories were changed. As a result, we now have commercial rights for North America (the Biogen North America Territory) and for rest of the world markets outside of, essentially, Europe, North Africa, Russia Turkey and certain countries in the Middle East (the Biogen Direct Territory). Subject to the exercise of an option right that Sobi controls, Sobi will have commercial rights in, essentially, Europe, North Africa, Russia Turkey and certain countries in the Middle East (the Sobi Territory). The collaboration agreement was amended and restated in April 2014. (References to the collaboration agreement refer to the amended and restated collaboration agreement).
In October 2012, we announced positive top-line results from the Phase 3 study, known as A-LONG, investigating our long-lasting recombinant Factor VIII-Fc fusion protein in hemophilia A, a rare inherited disorder which inhibits blood coagulation. We planNovember 2014, Sobi exercised its option to submit a Biologics License Application to the FDA for our long-lasting Factor VIII product candidate in the first half of 2013.
We submitted a Biologics License Application to the FDA for marketing approval of our long-lasting recombinant Factor IX-Fc fusion protein in hemophilia B, a rare inherited disorder which inhibits blood coagulation, in the fourth quarter of 2012. The regulatory submission was based on the positive top-line results from the Phase 3 study known as B-LONG.
Under the terms of the option right, Sobi may, following our submission of a marketing authorization application to the EMA for each product developed under the collaboration, opt to take overassume final regulatory approval, pre-launchdevelopment and commercialization activities in the Sobi Territory by makingfor ELOCTA (the trade name for ELOCTATE in the E.U.). In July 2015, Sobi exercised its option to assume final development and commercialization of ALPROLIX within the Sobi Territory. Upon each exercise of opt-in right under the terms of the collaboration agreement, Sobi made a $10.0 million payment into escrow of $10.0 million per product. in escrow.
Upon EMA regulatory approval of each such product, Sobi will be liable to reimburse us 50% of the sum of all shared manufacturing and development expenses incurred by us from October 1, 2009 through the earlier of the date on which Sobi is registered as the marketing authorization holder for the applicable product or 90 days post-regulatory approval, as well as 100% of certain development expenses incurred exclusively for the benefit of the Sobi Territory (the Opt-In Consideration). This reimbursement will be recognized in proportion to collaboration revenues, over a ten year period, consistent with the initial patent terms of the products.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ELOCTA was approved by the EC in November 2015. Through December 31, 2015, approximately $200 million in expenditures for ELOCTA, net of the $10.0 million escrow payment discussed above, are reimbursable by Sobi under the collaboration agreement due to its election to assume final development and commercialization of ELOCTA within the Sobi Territory. Approximately $175 million in expenditures for ALPROLIX may be reimbursable by Sobi under the collaboration agreement due to its election to assume final development and commercialization of ALPROLIX within the Sobi Territory. The escrow payment made with respect to ALPROLIX will be applied to the amount of the Opt-In Consideration to be reimbursed by Sobi upon EMA regulatory approval.
To effect Sobi’s reimbursement to us for the Opt-In Consideration exceeding the escrow payment for eachthe applicable product, the cross-royalty cash payment structure for direct sales in each company’s respective
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
territories will be adjusted until the Opt-In Consideration is paid in full (the Reimbursement Period). The mechanism for reimbursement is outlined in the table below.
Under the amendedcollaboration agreement, amountscash payments are payable as follows:
| | | | | | | | Rates should Sobi exercise its option right(3) | | | | | Rates post Sobi Opt-In(3) |
| Royalty and Net Revenue Share Rates: | Method | | Rate prior to 1st commercial sale in the Sobi Territory: | | Base Rate following 1st commercial sale in the Sobi Territory: | | Rate during the Reimbursement Period: | Method | | Rate prior to 1st commercial sale in the Sobi Territory: | | Base Rate following 1st commercial sale in the Sobi Territory: | | Rate during the Reimbursement Period: |
| Sobi rate to Biogen on net sales in the Sobi Territory | Royalty | | N/A | | 10 to 12% | | Base Rate plus 5% | Royalty | | N/A | | 10 or 12% | | Base Rate
plus 5% |
| Biogen rate to Sobi on net sales in the Biogen North America Territory | Royalty | | 2% | | 10 to 12% | | Base Rate less 5% | Royalty | | 2% | | 10 or 12% | | Base Rate
less 5% |
| Biogen rate to Sobi on net sales in the Biogen Direct Territory | Royalty | | 2% | | 15 to 17% | | Base Rate less 5% | Royalty | | 2% | | 15 or 17% | | Base Rate
less 5% |
Biogen rate to Sobi on net revenue(1) from the Biogen Distributor Territory(2) | Net Revenue Share | | 10% | | 50% | | Base Rate less 15% | Net
Revenue
Share | | 10% | | 50% | | Base Rate
less 15% |
| |
| (1) | Net revenue represents Biogen Idec’sBiogen’s pre-tax receipts from third-party distributors, less expenses incurred by Biogen Idec in the conduct of commercialization activities supporting the distributor activities. |
| |
| (2) | The Biogen Distributor Territory represents Biogen territories where sales are derived utilizing a third-party distributor. |
| |
| (3) | A credit will be issued to Sobi against its reimbursement of the Opt-in Consideration in an amount equal to the difference in the rate paid by Biogen Idec to Sobi on sales in the Biogen territories for certain periods prior to the first commercial sale in the Sobi Territory versus the rate that otherwise would have been payable on such sales. |
If the reimbursement of the opt-in considerationOpt-in Consideration has not been achieved within six years of the first commercial sale of such product, we maintain the right to require Sobi to pay any remaining balances due to us within 90 days of the six year anniversary date of the first commercial sale.
Should Sobi not exercise its option right with respectWe expect to one or both products or shouldrecognize the effect of the cash reimbursement as an adjustment to the Base Rate in the table above.
Should Sobi terminate the collaboration agreement with respect to one or both productsALPROLIX, we will obtain full worldwide development and commercialization rights for such affected products and we will be obligated to pay royalties to Sobi subject to separate terms, as defined underin the restructured collaboration agreement. In addition, if EMA approval for any productALPROLIX is not granted within 18 months of the applicable EMA filing date, Sobi shall have the right to require that the escrow payment be refunded and revoke its option right for such product.
Amounts incurred by us in the development of long-lasting recombinant Factor VIII and Factor IX are reflected as research and development expenses in our consolidated statements of income. Prior to the restructuring of our collaboration agreement, our research and development expenses reflected reimbursement from Sobi in accordance with a cost-sharing agreement then in effect. Following the restructuring of our collaboration agreement, amounts incurred by us in the development of long-lasting recombinant Factor VIII and Factor IX are reflected as research and development expenses in our consolidated statements of income which include reimbursement of certain ongoing Sobi development expenses. A summary of collective activity related to these programs is as follows:
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 |
| Total development expense incurred by Biogen Idec Inc. | $ | 142.9 |
| | $ | 129.6 |
| | $ | 78.9 |
|
| Total expense incurred by Biogen Idec Inc. associated with commercial capabilities in preparation for the potential product launch | $ | 44.7 |
| | $ | 18.6 |
| | $ | — |
|
| Total expense reflected within our consolidated statements of income | $ | 187.6 |
| | $ | 148.2 |
| | $ | 78.5 |
|
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of activity related to this collaboration since inception, along with an estimate of additional future development expense expected to be incurred by us, is as follows:
|
| | | |
| (In millions) | As of December 31, 2012 |
| Total upfront and milestone payments received from Sobi | $ | 5.0 |
|
| Total expense incurred by Biogen Idec Inc., excluding upfront and milestone payments | $ | 468.9 |
|
| Estimate of additional amounts expected to be incurred by Biogen Idec in development of Factors VIII and IX | $ | 373.0 |
|
AbbVie Biotherapeutics, Inc.
We have a collaboration agreement with AbbVie Biotherapeutics, Inc., a subsidiary of AbbVie, Inc. (AbbVie) aimed at advancing the development and commercialization of daclizumabZINBRYTA in MS.
Under the agreement, we and AbbVie will conduct ZINBRYTA co-promotion activities in the E.U., U.S. and Canada territories (Collaboration Territory), where development and commercialization costs and profits are shared equally. We are responsible for all manufacturing activities in the Collaboration Territory.
In January 2010,the U.S., AbbVie will recognize revenues on sales to third parties and we agreedwill recognize our 50% share of the co-promotion profits or losses as a component of total revenues in our consolidated statements of income.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In the E.U. and Canada, we will reflect revenues on sales to third parties in product revenues, net in our consolidated statements of income. We will record the related cost of revenues and sales and marketing expenses to their respective line items in our consolidated statements of income when these costs are incurred. The reimbursement with AbbVie for the 50% sharing of the co-promotion profits or losses in the E.U. and Canada will be recognized in our collaborator,total costs and expenses.
Outside of the Collaboration Territory, we are solely responsible for development and commercialization where we will pay a tiered royalty to AbbVie on net sales in the low to assumehigh teens.
We are the manufactureresponsible party for manufacturing and research and development activities in both the Collaboration Territory and outside the Collaboration Territory and will record these activities to their respective lines in our consolidated statements of daclizumab.income, net of any reimbursement of research and development expenditures from AbbVie.
Based uponDuring 2015, we made milestone payments of $16.0 million for the development of ZINBRYTA as a result of filing for regulatory approval in the U.S. and E.U. during the year. These payments were recorded as research and development expense in our current development plans, weconsolidated statements of income. We may incur up to an additional $60.0$32.0 million of milestone payments upon achievement of development and commercial milestones related to the development of daclizumab.ZINBRYTA, of which $20.0 million is due upon regulatory approval in the U.S. and $12.0 million is due upon regulatory approval in the E.U. These future payments will be capitalized as an intangible asset in our consolidated balance sheets.
A summary of activity related to this collaboration is as follows:
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| Total development expense incurred by the collaboration | $ | 128.0 |
| | $ | 105.2 |
| | $ | 74.8 |
| $ | 113.8 |
| | $ | 117.8 |
| | $ | 133.4 |
|
| Biogen Idec’s share of expense reflected within our consolidated statements of income | $ | 65.6 |
| | $ | 54.2 |
| | $ | 37.4 |
| |
| Biogen’s share of development expense reflected in our consolidated statements of income | | $ | 60.8 |
| | $ | 67.4 |
| | $ | 71.0 |
|
Total expense incurred by the collaboration in 2010 reflects the $30.0 million milestone paid to AbbVie in May 2010 upon initiation of patient enrollment in a Phase 3 trial of daclizumab in relapsing MS. A summary of activity related to this collaboration since inception, along with an estimate of additional future development expense expected to be incurred by us, is as follows:
|
| | | |
| (In millions) | As of December 31, 2012 |
| Total upfront and milestone payments made to AbbVie | $ | 80.0 |
|
| Total expense incurred by Biogen Idec, excluding upfront and milestone payments | $ | 279.7 |
|
| Estimate of additional amounts to be incurred by us in development of current indications of daclizumab | $ | 222.1 |
|
PortolaIonis Pharmaceuticals, Inc.
On October 26, 2011,Long-Term Strategic Research Collaboration
In September 2013, we entered into an exclusive, worldwidea six year research collaboration and license agreement with PortolaIonis Pharmaceuticals, Inc. (Portola)(Ionis), formerly known as Isis Pharmaceuticals Inc. under which both companies willcollaborate to perform discovery level research and then develop and commercialize highly selective, novel oral Syk inhibitorsantisense or other therapeutics for the treatment of various autoimmuneneurological disorders. Under the collaboration, Ionis will perform research on a set of neurological targets identified within the agreement. Once the research has reached a specific stage of development, we will make the determination whether antisense is the preferred approach to develop a therapeutic candidate or whether another modality is preferred. If antisense is selected, Ionis will continue development and inflammatory diseases, including asthma, rheumatoid arthritisidentify a product candidate. If another modality is used, we will assume the responsibility for identifying a product candidate and systemic lupus erythematosus.developing it.
Under the terms of thethis agreement, we provided Portola withpaid Ionis an upfront amount of $100.0 million. Of this payment, we recorded prepaid research and discovery services of $36.8approximately $25.0 million, in cash representing the value of the Ionis full time equivalent employee resources which are required by the collaboration to provide research and purchased discovery services to us over the next six years. The remaining $75.0 million of the upfront payment was recorded as research and development expense as it represented the purchase of intellectual property that had not reached technological feasibility.
$8.2 million in Portola equity,Ionis is also eligible to receive milestone payments, license fees and royalty payments for all product candidates developed through this collaboration, with potential additional paymentsthe specific amount dependent upon the modality of up to $406.8 million based on the achievement of certain development and regulatory milestones.product candidate advanced by us. During the third quarteryears ending December 31, 2015 and 2014, we triggered milestones of 2012, we decided$20.0 million and $20.0 million, respectively, related to stop developmentthe advancement of the Syk inhibitorIONIS-SOD1Rx for the treatment of rheumatoid arthritis. We are pursuing the development of the Syk inhibitor for the treatment of asthma.ALS and other neurological targets identified.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summaryFor non-ALS antisense product candidates, Ionis will be responsible for global development through the completion of collective activitya Phase 2 trial and we will provide advice on the clinical trial design and regulatory strategy. For ALS antisense product candidates, we are responsible for global development, clinical trial design and regulatory strategy. We have an option to license a product candidate until completion of the Phase 2 trial. If we exercise our option, we will pay Ionis up to a $70.0 million license fee and assume global development, regulatory and commercialization responsibilities. Ionis could receive additional milestone payments upon the achievement of certain regulatory milestones of up to $130.0 million, plus additional amounts related to these programs is as follows:the cost of clinical trials conducted by Ionis under the collaboration, and royalties on future sales if we successfully develop the product candidate after option exercise.
For product candidates using a different modality, we will be responsible for global development through all stages and will pay Ionis up to $90.0 million upon the achievement of certain regulatory milestones and royalties on future sales if we successfully develop the product candidate. |
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 |
| Total expense incurred by the collaboration | $ | 18.8 |
| | $ | 1.1 |
| | $ | — |
|
| Total expense reflected within our consolidated statements of income, excluding upfront and milestone payments | $ | 14.2 |
| | $ | 0.9 |
| | $ | — |
|
A summary of activity related to this collaboration since inception, along with an estimate of additional future development expense expected to be incurred by us, is as follows:
|
| | | |
| (In millions) | As of December 31, 2012 |
| Total upfront payments paid to Portola | $ | 36.8 |
|
| Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments | $ | 15.1 |
|
| Estimate of additional amounts to be incurred by Biogen Idec in development of current indications of Syk inhibitor | $ | 695.1 |
|
Isis Pharmaceuticals, Inc.
In December, June and January 2012, we entered into three separate exclusive, worldwide option and collaboration agreements with Isis Pharmaceuticals, Inc. (Isis)Ionis under which both companies will develop and commercialize antisense therapeutics for up to three gene targets, and Isis’Ionis’ product candidates for the treatment of myotonic dystrophy type 1 (DM1), and the antisense investigational candidate nusinersen (ISIS-SMNRx) for the treatment of spinal muscular atrophy (SMA), respectively.
Antisense Therapeutics
Under the terms of the December 2012 agreement relating to the development and commercialization of up to three gene targets we provided IsisIonis with an upfront payment of $30.0$30.0 million and will make potential additional payments, prior to licensing, of up to $10.0$10.0 million based on the development of the selected product candidate as well as a mark-up of the cost estimate of the Phase 1 and Phase 2 trials. IsisDuring 2015, we triggered a $10.0 million milestone payment. Ionis will be responsible for global development of any product candidate through the completion of a Phase 2 trial and we will provide advice on the clinical trial design and regulatory strategy. We have an option to license the product candidate until completion of the Phase 2 trial. If we exercise our option, we will pay IsisIonis up to a $70.0$70.0 million license fee and assume global development, regulatory and commercialization responsibilities. IsisIonis could receive up to another $148.0$130.0 million in milestone payments upon the achievement of certain regulatory milestones as well as royalties on future sales if we successfully develop the product candidate after option exercise.
IONIS-DMPKRx
Under the terms of the June 2012 agreement for the DM1 candidate, we provided IsisIonis with an upfront payment of $12.0$12.0 million and willagreed to make potential additional payments, prior to licensing, of up to $59.0$59.0 million based on the development of the selected product candidate. IsisDuring 2015, we amended the agreement to adjust the amount of potential additional payments by an additional $4.2 million due to changes in the clinical trial design.
During 2015, 2014 and 2013, we triggered milestones of $2.8 million, $14.0 million and $10.0 million, respectively, related to the selection and advancement of IONIS-DMPKRxto treat DM1. Ionis will be responsible for global development of any product candidate through the completion of a Phase 2 trial and we will provide advice on the clinical trial design and regulatory strategy. We also have an option to license the product candidate until completion of the Phase 2 trial. If we exercise our option, we will pay IsisIonis up to a $70.0$70.0 million license fee and assume global development, regulatory and commercialization responsibilities. IsisIonis could receive up to another $130.0$130.0 million in milestone payments upon the achievement of certain regulatory milestones as well as royalties on future sales if we successfully develop the product candidate after option exercise.
During the years ending December 31, 2015, 2014 and 2013, $9.0 million, $10.9 million and $11.2 million, respectively, were reflected in research and development expense in our consolidated statements of income.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Nusinersen
Under the terms of the January 2012 agreement for the antisense investigationinvestigational drug ISIS-SMNRx,candidate, nusinersen, we paid Isis $29.0Ionis $29.0 million as an upfront paymentpayment.
During 2014, we amended the agreement to adjust the amount of potential additional payments and agreed to pay up to $45.0 million in milestones related to the clinical development of ISIS-SMNRx of which $18.0 million will become payable upon initiationterms of the first Phase 2/3 studyexercise of ISIS-SMNRx. Isis will beour opt-in right to license nusinersen. Consistent with the initial agreement, Ionis remains responsible for global development of ISIS-SMNRx throughconducting the completion of pivotal/Phase 2/3 trials and we will provide advicetrials. We are providing input on the clinical trial design and regulatory strategy.strategy for the development of nusinersen. During 2015 and 2014, we triggered clinical trial payments of $42.8 million and $57.3 million related to the advancement of the program. We also haveare recognizing these payments as research and development expenses as the trial costs are incurred.
During 2015, we amended the agreement and may pay up to an optionadditional $92.0 million due to license ISIS-SMNRx untilchanges in the clinical trial design.
We may exercise our opt-in right upon completion of and data review of the first successful Phase 2/3 trial. Iftrial or completion of both Phase 2/3 trials. An amendment in December 2014 provided for additional opt-in scenarios, based on the filing or the acceptance of a new drug application or marketing authorization application with the FDA or EMA. Under the amended collaboration agreement, we exercise our option, we willmay pay IsisIonis up to approximately $325.0 million in a$75.0 million license fee and assume globalpayments, including $100.0 million in payments associated with the clinical development regulatoryof nusinersen prior to licensing, a license fee and commercialization responsibilities. Isis could receive up to another $150.0$150.0 million in milestone payments upon the achievement of certain regulatory milestones as well as royalties on future sales of ISIS-SMNRxnusinersen if we successfully develop ISIS-SMNRxnusinersen after option exercise.
During the years ending December 31, 2015, 2014 and 2013, $74.9 million, $27.7 million and $13.6 million, respectively, were reflected in research and development expense in our consolidated statements of income.
Eisai Co., Ltd.
BAN2401 and E2609 Collaboration
On March 4, 2014, we entered into a collaboration agreement with Eisai Co., Ltd. (Eisai) to jointly develop and commercialize two Eisai product candidates for the treatment of Alzheimer’s disease, BAN2401, a monoclonal antibody that targets amyloid-beta aggregates, and E2609, a BACE inhibitor, (Eisai Collaboration Agreement). Under the Eisai Collaboration Agreement, Eisai serves as the global operational and regulatory lead for both compounds and all costs, including research, development, sales and marketing expenses, will be shared equally by us and Eisai. Following marketing approval in major markets, such as the U.S., the E.U. and Japan, we will co-promote BAN2401 and E2609 with Eisai and share profits equally. In smaller markets, Eisai will distribute these products and pay us a royalty. The Eisai Collaboration Agreement also provides the parties with certain rights and obligations in the event of a change in control of either party.
The Eisai Collaboration Agreement also provides Eisai an option to jointly develop and commercialize aducanumab, our anti-amyloid beta antibody candidate for Alzheimer’s disease (Aducanumab Option) and an option to jointly develop and commercialize one of our anti-tau monoclonal antibodies (Anti-Tau Option). Upon exercise of each of the Aducanumab Option and the Anti-Tau Option, we will execute a separate collaboration agreement with Eisai on terms and conditions that mirror the Eisai Collaboration Agreement.
Aducanumab Option
Eisai may exercise the Aducanumab Option after either (i) completion of both the current Phase 1b clinical trial for aducanumab and the current Phase 2 clinical trial for BAN2401 (Post-Phase 2 Aducanumab Option), or (ii) completion of the Phase 3 clinical trial for aducanumab (Post-Phase 3 Aducanumab Option) under certain conditions.
The consideration we will receive if Eisai exercises the Post-Phase 2 Aducanumab Option depends on the development status of BAN2401. If BAN2401 is then determined to advance to Phase 3, we will be entitled to receive a single payment from Eisai upon regulatory approval of aducanumab and we will no longer be required to pay Eisai any milestone payments for products containing BAN2401 under the Eisai Collaboration Agreement. If the development of BAN2401 has instead been terminated, we will receive development and commercial milestone payments from Eisai (Post-Phase 2 Aducanumab Milestone Payments). If Eisai does not exercise its Post-Phase 2 Aducanumab Option, we may elect to terminate the Eisai Collaboration Agreement with respect to BAN2401 but, under certain conditions, will have the option to reinstate the Eisai Collaboration Agreement after completion of a BAN2401 Phase 3 clinical trial.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summaryIf Eisai exercises its Post-Phase 3 Aducanumab Option, Eisai will be required to pay us all Phase 3 development and commercialization costs plus a mark-up and an amount equal to any unpaid Post-Phase 2 Aducanumab Milestone Payments that would have been payable if Eisai had exercised its Post-Phase 2 Aducanumab Option.
Anti-Tau Option
Eisai may exercise the Anti-Tau Option after completion of collective activitythe Phase 1 clinical trial of such anti-tau monoclonal antibody. If Eisai exercises its Anti-Tau Option, we will receive an upfront payment from Eisai and will be entitled to additional development and commercial milestone payments.
Upon the effective date of the Eisai Collaboration Agreement, we paid Eisai $100.0 million and recorded $17.7 million, reflecting the fair value of the options granted under the Eisai Collaboration Agreement, both of which were classified as research and development expense in our consolidated statements of income. During the second quarter of 2014, Eisai exercised its option under the Eisai Collaboration Agreement to expand the joint development and commercialization activities to include Japan. Upon such exercise, we paid Eisai an additional $35.0 million, and recorded $21.6 million as research and development expense in our consolidated statements of income, which represented the difference between the payment made upon exercise of the option and the fair value of that option recorded as research and development expense upon closing of the agreement in the first quarter of 2014. We could pay Eisai up to an additional $1.0 billion under the Eisai Collaboration Agreement based on the future achievement of certain development, regulatory and commercial milestones.
In addition to our arrangements with Eisai, Neurimmune is entitled to milestone and royalty payments related to the development and commercialization of aducanumab and certain anti-tau antibodies. For additional information regarding our agreement with Neurimmune, please see Note 18, Investments in Variable Interest Entities to these programs is as follows:consolidated financial statements.
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In millions) | 2012 | | 2011 | | 2010 |
| Total expense incurred by Biogen Idec Inc. | $ | 0.6 |
| | $ | — |
| | $ | — |
|
| Total expense reflected within our consolidated statements of income, excluding upfront and milestone payments | $ | 0.6 |
| | $ | — |
| | $ | — |
|
A summary of activity related to these collaborations since inception, along with an estimate of additional future development expense expected to be incurred by us,this collaboration is as follows:
|
| | | |
| (In millions) | As of December 31, 2012 |
| Total upfront payments paid to Isis | $ | 71.0 |
|
| Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments | $ | 0.6 |
|
| Estimate of additional amounts to be incurred by Biogen Idec in development of DM1 and SMA | $ | 697.6 |
|
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In millions) | 2015 | | 2014 | | 2013 |
| Total development expense incurred by the collaboration | $ | 84.1 |
| | $ | 57.5 |
| | $ | — |
|
| Biogen’s share of development expense, excluding upfront and milestone payments, reflected in our consolidated statements of income | $ | 40.4 |
| | $ | 29.1 |
| | $ | — |
|
Sangamo BioSciences, Inc.
On February 22, 2014, we completed an exclusive worldwide research, development and commercialization collaboration and license agreement with Sangamo BioSciences, Inc. (Sangamo) under which both companies will develop and commercialize product candidates for the treatment of two inherited blood disorders, sickle cell disease and beta-thalassemia. The collaboration is currently in the research stage of development.
Under the terms of the agreement, we paid Sangamo an upfront payment of $20.0 million in cash, with additional payments of up to approximately $300.0 million based on the achievement of certain development, regulatory and commercial milestones, plus royalties based on sales. We recorded the $20.0 million upfront payment as research and development expense. Under this arrangement, Sangamo will be responsible for identifying a product candidate for the treatment of beta-thalassemia and advancing that candidate through a completed Phase 1 human clinical trial, at which point we would assume responsibility for development. We will jointly develop a sickle cell disease candidate through the potential filing of an investigative new drug application, after which we would assume clinical responsibilities. We will lead the global development and commercialization efforts and Sangamo will have the option to assume co-promotion responsibilities in the U.S.
During the years ending December 31, 2015 and 2014, $13.6 million and $28.9 million, respectively, of expense was reflected in our consolidated statements of income.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Applied Genetic Technologies Corporation
On July 2, 2015, we announced a collaboration and license agreement to develop gene-based therapies for multiple ophthalmic diseases with Applied Genetic Technologies Corporation (AGTC). The collaboration will focus on the development of a portfolio of AGTC’s therapeutic programs, including both a clinical-stage candidate for X-linked Retinoschisis (XLRS) and a pre-clinical candidate for the treatment of X-Linked Retinitis Pigmentosa (XLRP). The agreement also includes options for early stage discovery programs in two ophthalmic diseases and one non-ophthalmic condition, as well as an equity investment in AGTC.
During the third quarter of 2015, we made an upfront payment of $124.0 million, which included a $30.0 million equity investment in AGTC, prepaid research and development expenditures of $58.4 million and total licensing and other fees of $35.6 million. The $58.4 million of prepaid research and development expenditures were recorded in investments and other assets in our consolidated balance sheets and will be expensed as the services are provided. During 2015, we recorded $54.5 million as research and development expense associated with AGTC in our consolidated statements of income, including the $35.6 million total licensing and other fees, $6.5 million in research and development services, a $7.5 million premium on our equity investment and a $5.0 million clinical development milestone related to XLRS.
AGTC is eligible to receive development, regulatory and commercial milestone payments aggregating in excess of $1.1 billion, which includes up to $472.5 million collectively for the two lead programs and up to $592.5 million across the discovery programs. AGTC is also eligible to receive royalties in the mid-single digit to mid-teen percentages of annual net sales.
We were granted worldwide commercialization rights for the XLRS and XLRP programs. AGTC has an option to share development costs and profits after the initial clinical trial data are available, and an option to co-promote the second of these products to be approved in the U.S. AGTC will lead the clinical development programs of XLRS through product approval and of XLRP through the completion of first-in-human trials. We will support the clinical development costs, subject to certain conditions, following the first-in-human study for XLRS and IND-enabling studies for XLRP. Under the manufacturing license, we have received an exclusive license to use AGTC’s proprietary technology platform to make AAV vectors for up to six genes, three of which are in AGTC’s discretion, in exchange for payment of milestones and royalties.
Mitsubishi Tanabe Pharma Corporation
On September 9, 2015, we announced an agreement with Mitsubishi Tanabe Pharma Corporation (MTPC) to exclusively license amiselimod (MT-1303), a late stage experimental medicine with potential in multiple autoimmune indications. Amiselimod is an oral compound that targets the sphingosine 1-phosphate receptor. Under the terms of the agreement, we will receive worldwide rights to amiselimod, excluding Asia. We will be responsible for global commercialization and development costs except for costs related to the Asian territories, which are the responsibility of MTPC.
During the fourth quarter of 2015, the agreement became effective and we made an upfront payment of $60.0 million, which was recorded as research and development expense in our consolidated statements of income. In the future we may pay up to approximately $484.0 million in milestone payments for multiple indications and territories, along with average royalties in the mid- to high-teen percentages of annual net sales. MTPC has the right to participate in our global clinical trials related to amiselimod and has an option to co-promote non-MS indications in the U.S.
Other Research and Discovery Arrangements
During the years ended December 31, 2015 and 2014, we entered into several research, discovery and other related arrangements that resulted in $9.7 million and $40.0 million, respectively, recorded as research and development expense in our consolidated statements of income.
These additional arrangements include the potential for future milestone payments based on clinical and commercial development over a period of several years.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Samsung Biosimilar AgreementBioepis
In February 2012, we finalized anentered into a joint venture agreement with Samsung BioLogics Co. Ltd. (Samsung Biologics) that established, establishing an entity, Samsung Bioepis, to develop, manufacture and market biosimilar pharmaceuticals. Under the terms of the agreement, Samsung Biologics will contribute contributed 280.5 billion South Korean won (approximately $250.0 million)$250.0 million) for an 85 percent85% stake in Samsung Bioepis and we will contributecontributed approximately 49.5 billion South Korean won (approximately $45.0 million)$45.0 million) for the remaining 15 percent15% ownership interest. Our investment will be limited to this contribution asUnder the joint venture agreement, we have no obligation to provide any additional funding; however,funding and our ownership interest may be diluted due to financings in which we do not participate. As of December 31, 2015, our ownership interest is approximately 9%, which reflects our additional contribution of 6.3 billion South Korean won (approximately $5.7 million) in the first quarter of 2015 and the effect of additional equity financings in which we did not participate. We maintain an option to purchase additional stock in Samsung Bioepis in orderthat would allow us to increase our ownership percentage up to 49.9 percent49.9%. The exercise of this option is within our control.control and is based on paying for 49.9% of the total investment made by Samsung Biologics into Samsung Bioepis in excess of what we have already contributed under the agreement plus a rate that will represent their return on capital.
Samsung Biologics has the power to direct the activities of Samsung Bioepis which will most significantly and directly impact its economic performance. We account for this investment under the equity method of accounting as we maintain the ability to exercise significant influence over Samsung Bioepis through a presence on the entity’s Board of Directors and our contractual relationship. Under the equity method, we recordrecorded our original investment at cost and subsequently adjust the carrying value of our investmentsinvestment for our share of equity in the entity’s income or losses according to our percentage of ownership. If losses accumulate, we will recordDuring 2015, our share of losses untilexceed the carrying value of our investment has been fully depleted. Once our investment has been fully depleted, we will recognizeinvestment. We suspended recognizing additional losses only ifand will continue to do so unless we provide or are requiredcommit to provideproviding additional funding. As of December 31, 2012, our cash contributions to Samsung Bioepis totaled 36.0 billion South Korean won (approximately $32.1 million). As of December 31, 2012,2014, the carrying value of our investment in Samsung Bioepis totaled 29.79.1 billion South Korean won (approximately $27.8 million)$8.6 million), which iswas classified as a component of investments and other assets withinin our consolidated balance sheets. We are obligated to fund an additional 13.5 billion South Korean won (approximately $12.5 million), which is due within the next year. We recognize our share of the results of operations related to our investment in Samsung Bioepis one quarter in arrears when the results of the entity become available, which will beis reflected as equity in earnings (loss)loss of investee, net of tax withinin our consolidated statements of income. During the yearyears ended December 31, 2012,2015, 2014 and 2013, we recognized a loss on our equity method investment of $4.5$12.5 million,. $15.1 million and $17.2 million, respectively.
Commercial Agreement
On December 17, 2013, pursuant to our rights under the joint venture agreement with Samsung Biologics, we entered into an agreement with Samsung Bioepis to commercialize, over a 10-year term, anti-tumor necrosis factor (TNF) biosimilar product candidates in Europe and in the case of one anti-TNF biosimilar, Japan. Under the terms of this agreement, we have paid $46.0 million, which has been recorded as a research and development expense in our consolidated statements of income as the programs they relate to had not achieved regulatory approval. Samsung Bioepis is eligible to receive an additional $75.0 million in additional milestones, including $25.0 million upon the regulatory approval of each anti-TNF biosimilar product candidate in the E.U. In January 2016, the EC approved the MAA for BENEPALI for marketing in the E.U.
Upon commercialization, we will reflect revenues on sales to third parties in product revenues, net in our consolidated statements of income. We will record the related cost of revenues and sales and marketing expenses in our consolidated statements of income to their respective line items when these costs are incurred. A 50% profit share with Samsung Bioepis will be recognized in costs and expenses.
License Agreement
Simultaneous with the formation of Samsung Bioepis, we entered into a license agreement and technical development and manufacturing services agreements with Samsung Bioepis. Under the terms of the license agreement, we granted Samsung Bioepis an exclusive license to use, develop, manufacture, and commercialize biosimilar products created by Samsung Bioepis using Biogen Idec product-specific technology. In exchange, we will receive single digit royalties on all biosimilar products developed and commercialized by Samsung Bioepis.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Services
In addition, we entered into a technical development services agreement and a manufacturing agreement with Samsung Bioepis. Under the terms of the technical development services agreement, we will provide Samsung Bioepis technical development services and technology transfer services, which include, but are not limited to, cell culture development, purification process development, formulation development, and analytical development. Under the terms of our manufacturing agreement, we will manufacture certain clinical and commercial quantities of bulk drug substance clinical drug product, commercial drug substance and commercial drug productof biosimilar products for Samsung Bioepis pursuant to contractual terms. Under limited circumstances, we may also supply Samsung Bioepis with quantities of drug product of biosimilar products for use in clinical trials through arrangements with third-party contract manufacturers.
For the yearyears ended December 31, 2012,2015, 2014 and 2013, we recognized $13.3$62.9 million, $58.5 million and $43.1 million, respectively, in revenues in relation to these services, which is reflected as a component of other revenues withinin our consolidated statement of income.
20. Litigation
We are currently involved in various claims and legal proceedings, including the matters described below. For information as to our accounting policies regarding contingencies, see Note 1, Summary of Significant Accounting Policies.
Patent Matters
Forward Pharma German Patent Litigation
On November 18, 2014 Forward Pharma A/S (Forward Pharma) filed suit against us in the Regional Court of Dusseldorf, Germany alleging that TECFIDERA infringes German Utility Model DE 20 2005 022 112 U1, which was issued in April 2014 and expired in October 2015. Forward Pharma subsequently extended its allegations to assert that TECFIDERA infringes Forward Pharma's European Patent No. 2,801,355, which was issued in May 2015 and expires in October 2025. Forward Pharma seeks declarations of infringement and damages for our sales of TECFIDERA in Germany. Under German law, disgorgement of profits on infringing sales is a measure of damages. A hearing has been scheduled for early 2016.
Interference Proceeding with Forward Pharma
In addition, we have recordedApril 2015, the U.S. Patent and Trademark Office (USPTO) declared an interference between Forward Pharma’s pending U.S. Patent Application No. 11/576,871 and our U.S. Patent No. 8,399,514 (the '514 patent). The '514 patent includes claims covering the treatment of multiple sclerosis with 480 mg of dimethyl fumarate as provided for in our TECFIDERA label. A hearing has been scheduled for early 2017.
Inter Partes Review Proceeding
On September 28, 2015, the Coalition for Affordable Drugs V LLC, an entity associated with a hedge fund, filed a petition with the USPTO for $11.2 millioninter partes review of the '514 patent, which we opposed. The USPTO has not yet decided whether to institute review.
European Patent Office Oppositions
Several parties have filed oppositions in the European Patent Office requesting revocation of our European patent number 2 137 537 (the '537 patent), which includes claims covering the treatment of multiple sclerosis with 480 mg of dimethyl fumarate as deferred revenue, which willprovided for in our TECFIDERA label. The '537 patent expires in 2028. A hearing has been scheduled for early 2016.
Patent Licensing Matter
We are in discussions with Pfizer regarding its proposal that we take a license to its U.S. Patent No. 8,603,777 (Expression of Factor VII and IX Activities in Mammalian Cells) and pay royalties on sales of ALPROLIX. An estimate of the possible loss or range of loss cannot be recognized as revenue when the drug substance or product is shipped.made at this time.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Massachusetts DepartmentPatent Revocation Matter
In December 2015, Swiss Pharma International AG brought an action in the Patents Court of Revenue
On June 8, 2010, we received Noticesthe United Kingdom to revoke the UK counterpart of Assessment from the Massachusetts DOR against BIMA for $103.5 millionour European Patent Number 1 485 127 (“Administration of corporate excise tax, including associated interest and penalties, relatedagents to our 2004, 2005 and 2006 tax filings. We filed an abatement application with the DOR,treat inflammation”) (the '127 patent), which was denied, and we filed a petition appealing the denial with the Massachusetts ATB on February 3,issued in June 2011 and aconcerns administration of natalizumab (TYSABRI) to treat multiple sclerosis. The patent expires in February 2023. On January 11, 2016 the same entity brought an action in the District Court of The Hague seeking to revoke the Dutch counterpart of the '127 patent. A hearing has been scheduled for April 2013. For all periods under dispute, we believe that positions taken in our tax filings are valid and we are contesting the assessments vigorously.
Hoechst — Genentech Arbitration
On October 24, 2008, Hoechst GmbH (Hoechst), affiliate of Sanofi-Aventis Deutschland GmbH (Sanofi), filed with the ICC International Court of Arbitration (Paris) a request for arbitration against Genentech, claiming a breach of a license agreement (the Hoechst License) between one of Hoechst’s predecessors and Genentech that was entered as of January 1, 1991 and terminated by Genentech effective October 27, 2008. The Hoechst License granted Genentech certain rights with respect to later-issued U.S. Patents 5,849,522 (’522 patent) and 6,218,140 (’140 patent) and other potential patents outside the U.S. The Hoechst License provided for potential royalty payments of 0.5% on net sales of certain products defined by the agreement. In that proceeding, Genentech maintains that no royalties are due because it does not infringe any of the relevant patents. Although we are not a party to the arbitration, we expect that any damages that may be awarded to Hoechst (should Hoechst attempt to enforce an arbitral award) may be a cost charged to our collaboration with Genentech.
In September 2012, the arbitrator ruled that Genentech is liable to Hoechst for royalties with respect to RITUXAN under the Hoechst License, and held a hearing on damages in November 2012, at which Hoechst claimed damages and interest of approximately EUR181.0 million, plus attorneys' fees and costs to be determined in a later proceeding. A decision on damages is pending. In December 2012, Genentech filed a Declaration of Appeal in the Paris Court of Appeal to vacateDutch action for early 2017. No hearing has yet been scheduled in the arbitrator's decision on liability, and the appeal is pending. In the second quarter of 2011, we reduced our share of RITUXAN revenues from unconsolidated joint business by approximately $50.0 million to reflect our share of the approximately $125.0 million compensatory damages and interest that Genentech estimated might be awarded to Hoechst. The actual amount of our share of any damages may vary from this estimate depending on the nature or amount of any damages awarded to Hoechst, or if any final decision awarding damages is successfully challenged by Genentech.UK action.
Sanofi ’522 and ’140'755 Patent Litigation
On October 27, 2008, Sanofi filed suit against Genentech andMay 28, 2010, Biogen MA Inc. (formerly Biogen Idec in federal court in Texas (E.D. Tex.MA Inc.) (Texas Action) claiming that RITUXAN and certain other Genentech products infringe the ’522 patent and the ’140 patent, and on the same day Genentech and Biogen Idec filed a complaint against Sanofi in federal court in California (N.D. Cal.) (California Action) seeking declaratory judgments that RITUXAN and the other Genentech products do not infringe the ‘522 patent or the ’140 patent and that those patents are invalid and unenforceable. The Texas Action was ordered transferred to the federal court in the NorthernU.S. District Court for the District of CaliforniaNew Jersey alleging infringement by Bayer Healthcare Pharmaceuticals Inc. (Bayer) (manufacturer, marketer and consolidated with the California Action.
On April 21, 2011, the district court entered a separateseller of BETASERON and final judgment that the manufacturemanufacturer of EXTAVIA), EMD Serono, Inc. (manufacturer, marketer and saleseller of RITUXAN do not infringe the ’522 patent or the ’140 patent. The district court stayed further proceedings relating to Biogen Idec’sREBIF), Pfizer Inc. (co-marketer of REBIF), and Genentech’s claims seeking a declaration that the asserted patent claims are invalidNovartis Pharmaceuticals Corp. (marketer and unenforceable. On March 22, 2012, the U.S. Courtseller of Appeals for the Federal Circuit affirmed the judgmentEXTAVIA) of non-infringement. No trial date has yet been set on the stayed claims. On May 1, 2012, Genentech filed a motion to enjoin Sanofi and those acting in concert with it, including Hoechst, from continuing the arbitration described above or enforcing any award of royalties under the Hoechst License, but the motion was denied on May 25, 2012. On June 6, 2012, Genentech appealed the denial to the U.S. Court of Appeals for the Federal Circuit and the appeal is pending.
’755 Patent Litigation
On September 15, 2009, we were issuedour U.S. Patent No. 7,588,755 (’755('755 Patent), which claims the use of interferon beta for immunomodulation or treating a viral condition, viral disease, cancers or tumors. This patent, which expires in September 2026, covers, among other things, the treatment of MS with our product AVONEX. On May 27, 2010,The complaint seeks monetary damages, including lost profits and royalties. Bayer Healthcare Pharmaceuticals Inc. (Bayer)had previously filed a lawsuitcomplaint against us in the U.S. District Court for the District of New Jerseysame court, on May 27, 2010, seeking a declaratory judgment ofthat it does not infringe the '755 Patent and that the patent invalidity and non-infringementis invalid, and seeking monetary relief in the form of attorneys’attorneys' fees, costs and expenses. On May 28, 2010, BIMA filed a lawsuit in the U.S. District Court for the District of New Jersey alleging infringement of the ’755 Patent by EMD Serono, Inc. (manufacturer, marketer and seller of REBIF), Pfizer, Inc. (co-marketer of REBIF), Bayer (manufacturer, marketer and seller of BETASERON and manufacturer of EXTAVIA), and Novartis
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pharmaceuticals Corp. (marketer and seller of EXTAVIA) and seeking monetary damages, including lost profits and royalties. The court has consolidated the two lawsuits, and we refer to the two actions as the “Consolidated ’755'755 Patent Actions”.Actions.”
Bayer, Pfizer, Novartis and EMD Serono have all filed counterclaims in the Consolidated ’755'755 Patent Actions seeking declaratory judgments of patent invalidity and noninfringement,non-infringement, and seeking monetary relief in the form of costs and attorneys’attorneys' fees, and EMD Serono and Bayer have each filed a counterclaim seeking a declaratory judgment that the ’755'755 Patent is unenforceable based on alleged inequitable conduct. Bayer has also amended its complaint to seek such a declaration. No trial date has yet been ordered, but we expect that the trial of the Consolidated ’755 Patent Actions will take place in 2014.set.
GSK ’612 Patent Litigation
On March 23, 2010, we and Genentech were issued U.S. Patent No. 7,682,612 (’612 Patent) relating to a method of treating CLL using an anti-CD20 antibody. The patent, which expires in November 2019, covers, among other things, the treatment of CLL with RITUXAN. On March 23, 2010, we and Genentech filed a lawsuit in federal court in the Southern District of California against Glaxo Group Limited and GlaxoSmithKline LLC (collectively, GSK) alleging infringement of that patent based upon GSK’s manufacture, marketing and sale, offer to sell, and importation of ARZERRA. We seek damages, including a royalty and lost profits, and injunctive relief. GSK has filed a counterclaim seeking a declaratory judgment of patent invalidity, noninfringement, unenforceability, and inequitable conduct, and seeking monetary relief in the form of costs and attorneys’ fees.
On November 15, 2011, the district court entered a separate and final judgment in favor of GSK on Biogen Idec’s and Genentech’s claims, and in favor of GSK on GSK’s counterclaim for non-infringement, and stayed all further proceedings pending the outcome on appeal. Biogen Idec and Genentech filed a notice of appeal in the United States Court of Appeals for the Federal Circuit on December 5, 2011 and the appeal is pending.
Novartis V&D ’688 Patent Litigation
On January 26, 2011, Novartis Vaccines and Diagnostics, Inc. (Novartis V&D) filed suit against us in federal district court in Delaware, alleging that TYSABRI infringes U.S. Patent No. 5,688,688 “Vector for Expression of a Polypeptide in a Mammalian Cell” (’688 Patent), which was granted in November 1997 and expires in November 2014. Novartis V&D seeks a declaration of infringement, a finding of willful infringement, compensatory damages, treble damages, interest, costs and attorneys’ fees. On July 18, 2012, the court granted Novartis V&D leave to add Novartis Pharma AG, an alleged exclusive licensee of the ’688 Patent, as co-plaintiff. We have not formed an opinion that an unfavorable outcome is either “probable” or “remote”, and are unable to estimate the magnitude or range of any potential loss. We believe that we have good and valid defenses to the complaint and will vigorously defend against it. A trial has been set for January 2014.
Italian National Medicines Agency
In the fourth quarter of 2011, Biogen IdecItalia SRL received a notice from the Italian National Medicines Agency (Agenzia Italiana del Farmaco or AIFA) stating that sales of TYSABRI for the period from Februaryafter mid-February 2009 through February 2011 exceeded by EUR30.7 million a reimbursement limit established pursuant to a Price Determination Resolution (Price Resolution) granted by AIFA in February 2007. The Price Resolution set the initial price for the sale of TYSABRI in Italy and limited the amount of government reimbursement “for the first 24 months ” of TYSABRI sales. As the basis for the claim, the AIFA notice referred to a 2001 Decree that provides for an automatic 24-month renewal of the terms of all Price Resolutions that are not renegotiated prior to the expiration of their term.
On November 17, 2011, Biogen Idec SRL responded to AIFA that the reimbursement limit in the Price Resolution by its terms relates only to the first 24 months of TYSABRI sales, which began in February 2007.December 2006. On December 23, 2011, we filed an appeal in the Regional Administrative Tribunal of Lazio (Il Tribunale Amministrativo Regionale per il Lazio) in Rome, against AIFA,Italy seeking a ruling that our interpretation ofthe reimbursement limit in the Price Resolution is valid and that the positionshould apply as written to only “the first 24 months” of AIFA is unenforceable, and theTYSABRI sales, which ended in mid-February 2009. The appeal is still pending. On November 21, 2012, the tribunal ruledIn June 2014, AIFA approved a resolution affirming that the Price Resolution would not automatically renew for another 24-month term pendingthere is no reimbursement limit from and after February 2013. AIFA and Biogen Italia SRL are discussing a possible resolution of the dispute. We have not formed an opinion that an unfavorable outcome of the dispute is either “probable” or “remote”. We believe that we have good and valid grounds for our appeal and will vigorously pursue it.
Average Manufacturer Price Litigation
On September 6, 2011, we and several other pharmaceutical companies were served with a complaint originally filed under seal on October 28, 2008 in the United States District Court for the Eastern District of Pennsylvania by Ronald Streck (the relator) on behalf of himself and the United States, and the states of New Jersey, California, Rhode Island, Michigan, Montana, Wisconsin, Massachusetts, Tennessee, Oklahoma, Texas, Indiana, New Hampshire, North Carolina, Florida, Georgia,
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
New Mexico, Illinois, New York, Virginia, Delaware, Hawaii, Louisiana, Connecticut, and Nevada, (collectively States), and the District of Columbia, alleging violations of the False Claims Act, 31 U.S.C. § 3729 et seq. and state and District of Columbia statutory counterparts. The United States and the States have declined to intervene, and the District of Columbia has not intervened. The complaint was subsequently unsealed and served, and then amended. The amended complaint alleges that Biogen Idec and other defendants underreport Average Manufacturer Price (AMP) information to the Centers for Medicare and Medicaid Services, thereby causing Biogen Idec and other defendants to underpay rebates under the Medicaid Drug Rebate Program. The relator alleges that the underreporting has occurred because Biogen Idec and other defendants improperly consider various payments that they make to drug wholesalers to be discounts under applicable federal law. We and the other defendants filed a motion to dismiss the complaint, which was granted in part and denied in part on July 3, 2012. As to AMP submissions beforeperiod from February 2009 through January 1, 2007, the court dismissed all state and federal claims against us. As to AMP submissions after January 1, 2007, the court denied our motion to dismiss federal law claims. Plaintiff's remaining state-law claims were dismissed in whole as to claims under New Mexico law and in part as to claims under the laws of Delaware, New Hampshire, Texas, Connecticut, Georgia, Indiana, Montana, New York, Oklahoma, and Rhode Island. A trial has been set for September, 2014. We have not formed an opinion that an unfavorable outcome under the remaining claims is either “probable” or “remote,” and are unable at this stage of the litigation to form an opinion as to the magnitude or range of any potential loss. We believe that we have good and valid defenses and intend vigorously to defend against the allegations.2013.
Government Review of Sales and Promotional PracticesMatters
We have learned that state and federal governmental authorities are investigating our sales and promotional practices.practices and have received related subpoenas. We are cooperating with the government.government in this matter.
We also received a subpoena from the federal government for documents relating to our relationship with certain pharmacy benefit managers, with which we cooperated. We do not anticipate any further involvement.
Qui Tam Litigation
In August, 2012, we learned that a relator,On July 6, 2015, four qui tam actions filed against us by relators suing on behalf of the United States and certain states filed a suit under seal on February 17, 2011 against us, Elan Corporation, plc, and Elan Pharmaceuticals, Inc. inwere unsealed by the United StatesU.S. District Court for the Western District of Virginia. WeMassachusetts. The actions, which have neither seen nor been served withadministratively consolidated, allege sales and promotional activities in violation of the complaint, but understand that it was filed under the Federalfederal False Claims Act.
Canada Lease Dispute
On April 18, 2008, First Real Properties Limited filed suit against Biogen Idec Canada Inc. (BI Canada)Act and state law counterparts, and seek single and treble damages, civil penalties, interest, attorneys’ fees and costs. The United States declined to intervene in two of the actions, both of which have since been voluntarily dismissed, and has not made an intervention decision in the Superiorother two actions, which we have moved to dismiss. An estimate of the possible loss or range of loss cannot be made at this time.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Securities Litigation
We and certain current and former officers are defendants in In re Biogen Inc. Securities Litigation, filed by a shareholder on August 18, 2015 in the U.S. District Court for the District of Justice in London, Ontario alleging breachMassachusetts. The amended complaint alleges violations of an offer for leasefederal securities laws under 15 U.S.C. §78j(b) and §78t(a) and 17 C.F.R. §240.10b-5. The lead plaintiff seeks a declaration of property signed by BI Canada in 2007the action as a class action, certification as a representative of the class and its counsel as class counsel, and an unsigned proposed lease foraward of damages, interest, and attorneys' fees. An estimate of the same property. The plaintiff’s complaint seeks $7.0 million in damages, but the plaintiff submitted an expert report estimating the plaintiff’s damages topossible loss or range of loss cannot be approximately $2.5 million after mitigation. The plaintiff also seeks costs of approximately $0.4 million and interest. Trial began in January 2013 and is ongoing.made at this time.
Product Liability and Other Legal Proceedings
We are also involved in product liability claims and other legal proceedings generally incidental to our normal business activities. While the outcome of any of these proceedings cannot be accurately predicted, we do not believe the ultimate resolution of any of these existing matters would have a material adverse effect on our business or financial condition.
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23. | Commitments and Contingencies |
21. Commitments and Contingencies
Leases
We rent laboratory and office space and certain equipment under non-cancelable operating leases. These lease agreements contain various clauses for renewal at our option and, in certain cases, escalation clauses typically linked to rates of inflation. Rental expense under these leases, net of amounts recognized in relation to exiting our Weston, Massachusetts facility, which terminate at various dates through 2028, amounted to $49.0$68.6 million and $62.4 million in 2012, $46.22015 and 2014, respectively. Rent expense was $56.1 million in 2011 and $44.8 million in 2010.2013. In addition to rent, the leases may require us to pay additional amounts for taxes, insurance, maintenance and other operating expenses.
As of December 31, 2012,2015, minimum rental commitments under non-cancelable leases, net of income from subleases, for each of the next five years and total thereafter were as follows:
| | | (In millions) | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | Thereafter | | Total | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | Thereafter | | Total |
| Minimum lease payments (1) | $ | 45.6 |
| | $ | 58.5 |
| | $ | 53.7 |
| | $ | 49.7 |
| | $ | 49.1 |
| | $ | 398.2 |
| | $ | 654.8 |
| $ | 75.9 |
| | $ | 75.7 |
| | $ | 67.9 |
| | $ | 66.7 |
| | $ | 63.2 |
| | $ | 382.7 |
| | $ | 732.1 |
|
| Less: income from subleases | (0.5 | ) | | (0.5 | ) | | — |
| | — |
| | — |
| | — |
| | (1.0 | ) | (6.0 | ) | | (6.0 | ) | | (6.3 | ) | | (6.3 | ) | | (6.3 | ) | | (28.9 | ) | | (59.8 | ) |
| Net minimum lease payments | $ | 45.1 |
| | $ | 58.0 |
| | $ | 53.7 |
| | $ | 49.7 |
| | $ | 49.1 |
| | $ | 398.2 |
| | $ | 653.8 |
| $ | 69.9 |
| | $ | 69.7 |
| | $ | 61.6 |
| | $ | 60.4 |
| | $ | 56.9 |
| | $ | 353.8 |
| | $ | 672.3 |
|
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
| (1) | Includes future minimum rental commitments relatedAs a result of our decision to leases executed for two office buildings currently under construction inrelocate our corporate headquarters to Cambridge, Massachusetts, with a planned occupancy duringwe vacated part of our Weston, Massachusetts facility in the second halffourth quarter of 2013. The leases both haveWe incurred a charge of 15$27.2 million year terms and we have optionsin connection with this move. This charge represented our remaining lease obligation for the vacated portion of our Weston, Massachusetts facility, net of sublease income expected to extend thebe received. The term of eachour sublease to the vacated portion of our Weston, Massachusetts facility started in January 2014 and will continue through the remaining term of our lease for two additional five-year terms. Future minimum rental commitments under these leases will total approximately $340.0 million over the initial 15 year lease terms.agreement.
|
Includes future minimum rental commitments of $9.3 million related to our lease arrangement with Eisai. The 10 year lease agreement, which is cancellable after 5 years and will become effective in February 2013, gives us the option to purchase the facility.
Balances also include remaining total minimum lease payments through 2025, totaling approximately $240.0 million, related to our current corporate headquarters in Weston, Massachusetts, which we expect will be reduced once we relocate our corporate headquarters to Cambridge Massachusetts.
For additional information related to these transactions, please read Note 12, Property, Plant and Equipment to these consolidated financial statements.
Under certain of our lease agreements, we are contractually obligated to return leased space to its original condition upon termination of the lease agreement. At the inception of a lease with such conditions, we record an asset retirement obligation liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. In subsequent periods, for each such lease, we record interest expense to accrete the asset retirement obligation liability to full value and depreciate each capitalized asset retirement obligation asset, both over the term of the associated lease agreement. Our asset retirement obligations were not significant as of December 31, 20122015 or 2014.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Eisai Financing Arrangement
During 2015 we amended our existing lease related to Eisai's oral solid dose products manufacturing facility in RTP, North Carolina where we manufacture our and Eisai's oral solid dose products. For additional information, please read Note 10, Property, Plant and Equipment or to these consolidated financial statements. As of December 31, 2015, the net present value of the future minimum lease payments were as follows:2011.
|
| | | |
| (In millions) | As of December 31, 2015 |
| 2016 | $ | 2.0 |
|
| 2017 | 2.0 |
|
| 2018 | 16.7 |
|
| 2019 | — |
|
| 2020 | — |
|
| Thereafter | — |
|
| Total | 20.7 |
|
| Less: interest | (0.9 | ) |
| Net present value of the future minimum lease payments | $ | 19.8 |
|
Tax Related Obligations
We exclude liabilities pertaining to uncertain tax positions from our summary of contractual obligations as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. As of December 31, 2012,2015, we have approximately $71.7$45.4 million of net liabilities associated with uncertain tax positions.
Other Funding Commitments
As of December 31, 2012, our cash contributions to Samsung Bioepis totaled 36.0 billion South Korean won (approximately $32.1 million). We are obligated to fund an additional 13.5 billion South Korean won (approximately
$12.5 million), which is due within the next year. For additional information related to our relationship with Samsung Bioepis, please read Note 21, Collaborative and Other Relationships to these consolidated financial statements.
As of December 31, 2012, we have funding commitments of up to approximately $11.6 million as part of our investment in biotechnology oriented venture capital funds.
As of December 31, 2012,2015, we have several on-going clinical studies in various clinical trial stages. Our most significant clinical trial expenditures are to clinicalcontract research organizations (CROs). The contracts with CROs are generally cancellable, with notice, at our option. We have recorded accrued expenses of approximately $26.5$25.0 million on our consolidated balance sheet for expenditures incurred by CROs as of December 31, 2012.2015. We have approximately $440.0$559.0 million in cancellable future commitments based on existing CRO contracts as of December 31, 2012.2015.
Contingent Development, Regulatory and Commercial Milestone Payments
Based on our development plans as of December 31, 2012,2015, we have committed tocould make potential future milestone payments to third parties of up to approximately $1.5$2.8 billion as part of our various collaborations, including licensing and development programs. Payments under these agreements generally become due and payable only upon achievement of certain development, regulatory or commercial milestones. Because the achievement of these milestones had not occurred as of December 31, 2012,2015, such contingencies have not been recorded in our financial statements. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval and commercial milestones.
Manufacturing Commitments
On December 1, 2015, we purchased land in Solothurn, Switzerland where we plan to build a biologics manufacturing facility over the next several years. As of December 31, 2015, we had contractual commitments of $126.4 million for the construction of this facility.
TYSABRI Contingent Payments
In 2013, we acquired from Elan full ownership of all remaining rights to TYSABRI that we did not already own or control. Under the terms of the acquisition agreement, we are obligated to make contingent payments to Elan of 18% on annual worldwide net sales up to $2.0 billion and 25% on annual worldwide net sales that exceed $2.0 billion. Royalty payments to Elan and other third parties are recognized as cost of sales in our consolidated statements of income. Elan was acquired by Perrigo in December 2013. Following that acquisition, we began making these royalty payments to Perrigo.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Contingent Consideration related to Business Combinations
In connection with our purchase of the noncontrolling interests in our joint venture investments in Biogen Dompé SRL and Biogen Dompé Switzerland GmbH and our acquisitions of Convergence, Stromedix, Inc. (Stromedix), Biogen International Neuroscience GmbH (formerly Biogen Idec International Neuroscience GmbHGmbH) (BIN), Biogen Hemophilia Inc. (formerly Biogen Idec Hemophilia Inc.) (BIH), and Fumapharm AG, we agreed to make additional payments based upon the achievement of certain milestone events. These milestones may not be achieved.
As the acquisitions of the noncontrolling interests in our joint venture investments and our acquisitions ofConvergence, Stromedix and BIN, formerly Panima Pharmaceuticals AG, occurred after January 1, 2009, we record contingent consideration liabilities at their fair value on the acquisition date and revalue these obligations each reporting period. We may pay up to approximately $1.3 billion in remaining milestones related to these acquisitions. For additional information related to these transactionsour acquisition of Convergence please read Note 2, Acquisitions, to these consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In connection with our acquisition of BIH, formerly Syntonix, in January 2007, we agreed to pay up to an additional $80.0$80.0 million if certain milestone events associated with the development of BIH’s lead product, long-lasting recombinant Factor IXALPROLIX are achieved. The first $40.0$40.0 million contingent payment was achieved in 2010. We paid an additional $20.0 million during the firstsecond quarter of 2010. An additional $20.0 million contingent payment will occur if prior to2014 as ALPROLIX was approved for the tenth anniversarytreatment of the closing date, the FDA grants approval of a Biologic License Application for Factor IX.hemophilia B. A second $20.0$20.0 million contingent payment will occur if, prior to the tenth anniversary of the closing date, a marketing authorization is granted by the EMA for Factor IX. For additional information relatedALPROLIX. This payment will be accounted for as an increase to these transactions please read Note 2, Acquisitions to these consolidated financial statements.intangible assets if achieved.
Fumapharm AG
In 2006, we acquired Fumapharm AG. As part of this acquisition we acquired FUMADERM and TECFIDERA (together, Fumapharm Products). We paid $220.0$220.0 million upon closing of the transaction and willagreed to pay an additional $15.0$15.0 million if a Fumapharm Product iswas approved for MS in the U.S. or E.U. In the second quarter of 2013, we paid this $15.0 million contingent payment as TECFIDERA was approved in the U.S. for MS by the FDA. We wouldare also be required to make additional milestonecontingent payments to former shareholders of Fumapharm AG or holders of their rights based on the attainment of certain cumulative sales levels of Fumapharm Products less certain costsand the level of total net sales of Fumapharm Products in the prior twelve month period, as defined in the acquisition agreement.
During 2015, we paid $850.0 million in contingent payments as we reached the $4.0 billion, $5.0 billion and $6.0 billion cumulative sales levels related to the Fumapharm Products in the fourth quarter of 2014, second quarter of 2015 and third quarter of 2015, respectively, and accrued $300.0 million upon reaching $7.0 billion in total cumulative sales of Fumapharm Products in the fourth quarter of 2015.
We will owe an additional $300.0 million contingent payment for every additional $1.0 billion in cumulative sales level of Fumapharm Products reached if the prior 12 months sales of the Fumapharm Products exceed $3.0 billion, until such time as the cumulative sales level reaches $20.0 billion, at which time no further contingent payments shall be due. These milestone payments are considered contingent consideration and will be accounted for as an increase to goodwill as incurred, in accordance with the accounting standard applicable to business combinations when we acquired Fumapharm. Any portion of the payment which is tax deductible will be recorded as a reduction to goodwill. Payments are due within 60 days following the end of the quarter in which the applicable cumulative sales level has been reached.
22. Guarantees
As of December 31, 20122015 and 2011,2014, we did not have significant liabilities recorded for guarantees.
We enter into indemnification provisions under our agreements with other companies in the ordinary course of business, typically with business partners, contractors, clinical sites and customers. Under these provisions, we generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of our activities. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. However, to date we have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these agreements as of December 31, 20122015 and 2011.2014.
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25. | Employee Benefit Plans |
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
23. Employee Benefit Plans
We sponsor various retirement and pension plans. Our estimates of liabilities and expenses for these plans incorporate a number of assumptions, including expected rates of return on plan assets and interest rates used to discount future benefits.
401(k) Savings Plan
We maintain a 401(k) Savings Plan which is available to substantially all regular employees in the U.S. over the age of 21.21. Participants may make voluntary contributions. We make matching contributions according to the 401(k) Savings Plan’s matching formula. Beginning in January 2008, all past and currentAll matching contributions will vest immediately. Previously, the matching contributions vested over 4 years of service by the employee. Participantand participant contributions vest immediately. The 401(k) Savings Plan also holds certain transition contributions on behalf of participants who previously participated in the Biogen, Inc. Retirement Plan. The expense related to our 401(k) Savings Plan primarily consists of our matching contributions.
Expense related to our 401(k) Savings Plan totaled $32.8$51.8 million,, $24.8 $49.3 million and $26.3$39.3 million for the years ended December 31, 2012, 20112015, 2014 and 2010,2013, respectively.
Deferred Compensation Plan
We maintain a non-qualified deferred compensation plan, known as the Supplemental Savings Plan (SSP), which allows a select group of management employees in the U.S. to defer a portion of their compensation. The SSP also provides certain credits to highly compensated U.S. employees, which are paid by the company. These credits are known as the Restoration Match. The deferred compensation amounts are accrued when earned. Such deferred compensation is distributable in cash in accordance with the rules of the SSP. Deferred compensation amounts under such plan as of December 31, 20122015 and 20112014 totaled approximately $66.9$126.9 million and $60.1$105.2 million,, respectively, and are included in other long-term liabilities within the accompanyingin our consolidated balance sheets. The SSP also holds certain transition contributions on behalf of participants who previously participated in the Biogen, Inc. Retirement Plan. Beginning in 2008, the Restoration Match vests immediately. Previously, theThe Restoration Match and transition contributions vested over four and seven years of service, respectively, by the employee. Participantparticipant contributions vest immediately. Distributions to participants can be either in one lump sum payment or annual installments as elected by the participants.
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pension PlanPlans
Our retiree benefit plans include defined benefit plans for employees in our affiliates in Switzerland and Germany as well as other insignificant defined benefit plans in certain other countries in which we maintain an operating presence.
Our Swiss plan is a government-mandated retirement fund that provides employees with a minimum investment return. The minimum investment return is determined annually by Swiss government and was 1.5%1.75% in 20122015 and 2.0%2014 and 1.5% in 2011 and 2010,2013, respectively. Under thisthe Swiss plan, both we and certain of our employees with annual earnings in excess of government determined amounts are required to make contributions into a fund managed by an independent investment fiduciary. Employer contributions must be in an amount at least equal to the employee’s contribution. Minimum employee contributions are based on the respective employee’s age, salary, and gender. As of December 31, 20122015 and 2011,2014, the Planthe Swiss plan had an unfunded net pension obligation of approximately $20.5$42.4 million and $10.0$31.9 million,, respectively, and plan assets which totaled approximately $28.1$63.9 million and $20.1$43.9 million,, respectively. In 2012, 20112015, 2014 and 2010,2013, we recognized expense totaling $3.8$12.9 million,, $3.6 $9.8 million and $3.0$10.9 million,, respectively, related to our Swiss plan.
The obligations under the German planplans are unfunded and totaled $15.9$27.6 million and $8.6$24.8 million as of December 31, 20122015 and 2011,2014, respectively. Net periodic pension cost related to the German planplans totaled $1.9$4.0 million,, $1.8 $3.5 million and $1.1$3.3 million for the years ended December 31, 2012, 20112015, 2014 and 2010,2013, respectively.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
24. Segment Information
We operate as one business operating segment, which is the business of discovering, developing, manufacturing and marketingdelivering therapies to patients for the treatment of multiple sclerosis and other autoimmune disorders, neurodegenerative diseases, hematologic conditions and hemophiliaautoimmune disorders, and, therefore, our chief operating decision-maker manages the operations of our Companycompany as a single operating segment. Enterprise-wide disclosures about product revenues, other revenues and long-lived assets by geographic area and information relating to major customers are presented below. Revenues are primarily attributed to individual countries based on location of the customer or licensee.
Revenue by product is summarized as follows:
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2012 | | 2011 | | 2010 | 2015 | | 2014 | | 2013 |
| (In millions) | United States | | Rest of World | | Total | | United States | | Rest of World | | Total | | United States | | Rest of World | | Total | United States | | Rest of World | | Total | | United States | | Rest of World | | Total | | United States | | Rest of World | | Total |
| Multiple Sclerosis (MS): | | | | | | | | | | | | | | | | | | |
| TECFIDERA | | $ | 2,908.2 |
| | $ | 730.2 |
| | $ | 3,638.4 |
| | $ | 2,426.6 |
| | $ | 482.6 |
| | $ | 2,909.2 |
| | $ | 864.4 |
| | $ | 11.7 |
| | $ | 876.1 |
|
| AVONEX | $ | 1,793.7 |
| | $ | 1,119.4 |
| | $ | 2,913.1 |
| | $ | 1,628.3 |
| | $ | 1,058.3 |
| | $ | 2,686.6 |
| | $ | 1,491.6 |
| | $ | 1,026.8 |
| | $ | 2,518.4 |
| 1,790.2 |
| | 840.0 |
| | 2,630.2 |
| | 1,956.7 |
| | 1,056.4 |
| | 3,013.1 |
| | 1,902.4 |
| | 1,103.1 |
| | 3,005.5 |
|
| PLEGRIDY | | 227.1 |
| | 111.4 |
| | 338.5 |
| | 27.8 |
| | 16.7 |
| | 44.5 |
| | — |
| | — |
| | — |
|
| TYSABRI | 383.1 |
| | 752.8 |
| | 1,135.9 |
| | 326.5 |
| | 753.0 |
| | 1,079.5 |
| | 252.8 |
| | 647.4 |
| | 900.2 |
| 1,103.1 |
| | 783.0 |
| | 1,886.1 |
| | 1,025.1 |
| | 934.4 |
| | 1,959.5 |
| | 814.2 |
| | 712.3 |
| | 1,526.5 |
|
| Other | — |
| | 117.1 |
| | 117.1 |
| | — |
| | 70.0 |
| | 70.0 |
| | — |
| | 51.5 |
| | 51.5 |
| |
| FAMPYRA | | — |
| | 89.7 |
| | 89.7 |
| | — |
| | 80.2 |
| | 80.2 |
| | — |
| | 74.0 |
| | 74.0 |
|
| Hemophilia: | | | | | | | | | | | | | | | | | | |
| ELOCTATE | | 308.3 |
| | 11.4 |
| | 319.7 |
| | 58.4 |
| | — |
| | 58.4 |
| | — |
| | — |
| | — |
|
| ALPROLIX | | 208.9 |
| | 25.6 |
| | 234.5 |
| | 72.1 |
| | 3.9 |
| | 76.0 |
| | — |
| | — |
| | — |
|
| Other product revenues: | | | | | | | | | | | | | | | | | | |
| FUMADERM | | — |
| | 51.4 |
| | 51.4 |
| | — |
| | 62.5 |
| | 62.5 |
| | — |
| | 60.2 |
| | 60.2 |
|
| Total product revenues | $ | 2,176.8 |
| | $ | 1,989.3 |
| | $ | 4,166.1 |
| | $ | 1,954.8 |
| | $ | 1,881.3 |
| | $ | 3,836.1 |
| | $ | 1,744.4 |
| | $ | 1,725.7 |
| | $ | 3,470.1 |
| $ | 6,545.8 |
| | $ | 2,642.7 |
| | $ | 9,188.5 |
| | $ | 5,566.7 |
| | $ | 2,636.7 |
| | $ | 8,203.4 |
| | $ | 3,581.0 |
| | $ | 1,961.3 |
| | $ | 5,542.3 |
|
Geographic Information
The following tables contain certain financial information by geographic area:
| | | December 31, 2012 (In millions) | U.S. | | Europe(1) | | Germany | | Asia | | Other | | Total | |
| December 31, 2015 (In millions) | | U.S. | | Europe(1) | | Germany | | Asia | | Other | | Total |
| Product revenues from external customers | $ | 2,176.8 |
| | $ | 1,216.2 |
| | $ | 409.2 |
| | $ | 93.2 |
| | $ | 270.7 |
| | $ | 4,166.1 |
| $ | 6,545.8 |
| | $ | 1,497.6 |
| | $ | 668.1 |
| | $ | 143.7 |
| | $ | 333.3 |
| | $ | 9,188.5 |
|
| Revenues from unconsolidated joint business | $ | 1,033.3 |
| | $ | 14.3 |
| | $ | — |
| | $ | 27.5 |
| | $ | 62.8 |
| | $ | 1,137.9 |
| |
| Unconsolidated joint business revenues | | $ | 1,269.8 |
| | $ | 3.5 |
| | $ | — |
| | $ | — |
| | $ | 65.9 |
| | $ | 1,339.2 |
|
| Other revenues from external customers | $ | 170.2 |
| | $ | 27.9 |
| | $ | 1.1 |
| | $ | 13.3 |
| | $ | — |
| | $ | 212.5 |
| $ | 142.0 |
| | $ | 29.6 |
| | $ | 1.6 |
| | $ | 62.9 |
| | $ | — |
| | $ | 236.1 |
|
| Long-lived assets | $ | 996.6 |
| | $ | 738.6 |
| | $ | 1.9 |
| | $ | 2.9 |
| | $ | 2.2 |
| | $ | 1,742.2 |
| $ | 1,296.5 |
| | $ | 879.4 |
| | $ | 2.3 |
| | $ | 7.7 |
| | $ | 1.7 |
| | $ | 2,187.6 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2011 (In millions) | U.S. | | Europe(1) | | Germany | | Asia | | Other | | Total | |
| December 31, 2014 (In millions) | | U.S. | | Europe(1) | | Germany | | Asia | | Other | | Total |
| Product revenues from external customers | $ | 1,954.8 |
| | $ | 1,163.3 |
| | $ | 377.5 |
| | $ | 88.7 |
| | $ | 251.8 |
| | $ | 3,836.1 |
| $ | 5,566.7 |
| | $ | 1,383.9 |
| | $ | 811.8 |
| | $ | 112.8 |
| | $ | 328.2 |
| | $ | 8,203.4 |
|
| Revenues from unconsolidated joint business | $ | 878.8 |
| | $ | 29.9 |
| | $ | — |
| | $ | 30.7 |
| | $ | 57.2 |
| | $ | 996.6 |
| |
| Unconsolidated joint business revenues | | $ | 1,117.1 |
| | $ | 7.7 |
| | $ | — |
| | $ | — |
| | $ | 70.6 |
| | $ | 1,195.4 |
|
| Other revenues from external customers | $ | 187.0 |
| | $ | 28.3 |
| | $ | 0.6 |
| | $ | — |
| | $ | — |
| | $ | 215.9 |
| $ | 212.6 |
| | $ | 31.6 |
| | $ | 1.8 |
| | $ | 58.5 |
| | $ | — |
| | $ | 304.5 |
|
| Long-lived assets | $ | 1,012.5 |
| | $ | 816.6 |
| | $ | 1.6 |
| | $ | 5.3 |
| | $ | 2.4 |
| | $ | 1,838.4 |
| $ | 1,055.5 |
| | $ | 701.9 |
| | $ | 2.5 |
| | $ | 2.6 |
| | $ | 3.2 |
| | $ | 1,765.7 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2010 (In millions) | U.S. | | Europe(1) | | Germany | | Asia | | Other | | Total | |
| December 31, 2013 (In millions) | | U.S. | | Europe(1) | | Germany | | Asia | | Other | | Total |
| Product revenues from external customers | $ | 1,744.4 |
| | $ | 1,090.7 |
| | $ | 362.4 |
| | $ | 69.0 |
| | $ | 203.6 |
| | $ | 3,470.1 |
| $ | 3,581.0 |
| | $ | 1,170.2 |
| | $ | 417.7 |
| | $ | 93.2 |
| | $ | 280.2 |
| | $ | 5,542.3 |
|
| Revenues from unconsolidated joint business | $ | 906.3 |
| | $ | 95.3 |
| | $ | — |
| | $ | 26.0 |
| | $ | 49.6 |
| | $ | 1,077.2 |
| |
| Unconsolidated joint business revenues | | $ | 1,087.3 |
| | $ | 1.6 |
| | $ | — |
| | $ | 3.2 |
| | $ | 33.9 |
| | $ | 1,126.0 |
|
| Other revenues from external customers | $ | 136.0 |
| | $ | 32.6 |
| | $ | 0.5 |
| | $ | — |
| | $ | — |
| | $ | 169.1 |
| $ | 193.5 |
| | $ | 26.1 |
| | $ | 1.2 |
| | $ | 43.1 |
| | $ | — |
| | $ | 263.9 |
|
| Long-lived assets | $ | 1,100.3 |
| | $ | 717.4 |
| | $ | 1.5 |
| | $ | 5.4 |
| | $ | 1.6 |
| | $ | 1,826.2 |
| $ | 984.4 |
| | $ | 758.3 |
| | $ | 2.5 |
| | $ | 2.1 |
| | $ | 3.3 |
| | $ | 1,750.7 |
|
| |
| (1) | Represents amounts related to Europe less those attributable to Germany. |
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenues from Unconsolidated Joint Business
Approximately 21%12%, 20%12% and 23%16% of our total revenues in 2012, 20112015, 2014 and 2010,2013, respectively, are derived from our joint business arrangement with Genentech. For additional information related to our collaboration with Genentech, please read Note 21,19, Collaborative and Other Relationships to these consolidated financial statements.
Significant Customers
We recorded revenue from two wholesale distributorswholesalers accounting for 20%34% and 10%26% of gross product revenues in 2012, 18%2015, 33% and 10% of gross product revenue in 2011, and 18% and 11%27% of gross product revenues in 2010.2014, and 32% and 24% of gross product revenues in 2013, respectively.
Other
As of December 31, 2012, 20112015, 2014 and 2010,2013, approximately $713.4$684.9 million,, $668.5 $676.0 million and $644.7$731.1 million,, respectively, of our long-lived assets were related to our manufacturing facilities in Denmark.
25. Quarterly Financial Data (Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| (In millions, except per share amounts) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total Year |
| 2015 | | | | | (a) (b) | | (c) (d) | | |
| Product revenues, net | $ | 2,172.3 |
| | $ | 2,198.6 |
| | $ | 2,391.7 |
| | $ | 2,425.9 |
| | $ | 9,188.5 |
|
| Unconsolidated joint business revenues | $ | 330.6 |
| | $ | 337.5 |
| | $ | 337.2 |
| | $ | 333.9 |
| | $ | 1,339.2 |
|
| Other revenues | $ | 52.0 |
| | $ | 55.6 |
| | $ | 49.0 |
| | $ | 79.5 |
| | $ | 236.1 |
|
| Total revenues | $ | 2,555.0 |
| | $ | 2,591.6 |
| | $ | 2,777.9 |
| | $ | 2,839.3 |
| | $ | 10,763.8 |
|
| Gross profit (1) | $ | 2,242.6 |
| | $ | 2,305.5 |
| | $ | 2,467.9 |
| | $ | 2,507.5 |
| | $ | 9,523.4 |
|
| Net income | $ | 820.2 |
| | $ | 924.8 |
| | $ | 1,019.5 |
| | $ | 828.7 |
| | $ | 3,593.2 |
|
| Net income attributable to Biogen Inc. | $ | 822.5 |
| | $ | 927.3 |
| | $ | 965.6 |
| | $ | 831.6 |
| | $ | 3,547.0 |
|
| Net income per share: | | | | | | | | | |
| Basic earnings per share attributable to Biogen Inc. | $ | 3.50 |
| | $ | 3.94 |
| | $ | 4.16 |
| | $ | 3.77 |
| | $ | 15.38 |
|
| Diluted earnings per share attributable to Biogen Inc. | $ | 3.49 |
| | $ | 3.93 |
| | $ | 4.15 |
| | $ | 3.77 |
| | $ | 15.34 |
|
| Weighted-average shares used in calculating: | | | | | | | | | |
| Basic earnings per share attributable to Biogen Inc. | 235.0 |
| | 235.3 |
| | 232.2 |
| | 220.4 |
| | 230.7 |
|
| Diluted earnings per share attributable to Biogen Inc. | 235.6 |
| | 235.7 |
| | 232.6 |
| | 220.8 |
| | 231.2 |
|
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
27. | Quarterly Financial Data (Unaudited) |
| | | (In millions, except per share amounts) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total Year | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total Year |
| 2012 | (a) | | (b) | | | | (c) (d) | | | |
| Product revenues | $ | 975.4 |
| | $ | 1,076.8 |
| | $ | 1,039.1 |
| | $ | 1,074.7 |
| | $ | 4,166.1 |
| |
| 2014 | | (e) | | (f) (g) | | (f) | | (f) | | |
| Product revenues, net | | $ | 1,742.8 |
| | $ | 2,056.3 |
| | $ | 2,117.3 |
| | $ | 2,287.0 |
| | $ | 8,203.4 |
|
| Unconsolidated joint business revenues | $ | 284.6 |
| | $ | 284.6 |
| | $ | 287.8 |
| | $ | 280.9 |
| | $ | 1,137.9 |
| $ | 296.9 |
| | $ | 303.3 |
| | $ | 290.7 |
| | $ | 304.5 |
| | $ | 1,195.4 |
|
| Other revenues | $ | 32.0 |
| | $ | 59.6 |
| | $ | 58.6 |
| | $ | 62.3 |
| | $ | 212.5 |
| $ | 90.1 |
| | $ | 61.9 |
| | $ | 103.4 |
| | $ | 49.2 |
| | $ | 304.5 |
|
| Total revenues | $ | 1,292.0 |
| | $ | 1,421.0 |
| | $ | 1,385.5 |
| | $ | 1,417.9 |
| | $ | 5,516.5 |
| $ | 2,129.8 |
| | $ | 2,421.5 |
| | $ | 2,511.4 |
| | $ | 2,640.7 |
| | $ | 9,703.3 |
|
Gross profit | $ | 1,158.8 |
| | $ | 1,281.8 |
| | $ | 1,246.2 |
| | $ | 1,284.1 |
| | $ | 4,971.0 |
| $ | 1,850.5 |
| | $ | 2,129.6 |
| | $ | 2,208.8 |
| | $ | 2,343.4 |
| | $ | 8,532.3 |
|
| Net income | $ | 302.4 |
| | $ | 387.1 |
| | $ | 398.4 |
| | $ | 292.1 |
| | $ | 1,380.0 |
| $ | 479.7 |
| | $ | 723.1 |
| | $ | 856.1 |
| | $ | 882.6 |
| | $ | 2,941.6 |
|
| Net income attributable to Biogen Idec Inc. | $ | 302.7 |
| | $ | 386.8 |
| | $ | 398.4 |
| | $ | 292.1 |
| | $ | 1,380.0 |
| |
| Basic earnings per share attributable to Biogen Idec Inc. | $ | 1.26 |
| | $ | 1.62 |
| | $ | 1.68 |
| | $ | 1.24 |
| | $ | 5.80 |
| |
| Diluted earnings per share attributable to Biogen Idec Inc. | $ | 1.25 |
| | $ | 1.61 |
| | $ | 1.67 |
| | $ | 1.23 |
| | $ | 5.76 |
| |
| Net income attributable to Biogen Inc. | | $ | 480.0 |
| | $ | 714.5 |
| | $ | 856.9 |
| | $ | 883.5 |
| | $ | 2,934.8 |
|
| Net income per share: | | | | | | | | | | |
| Basic earnings per share attributable to Biogen Inc. | | $ | 2.03 |
| | $ | 3.02 |
| | $ | 3.63 |
| | $ | 3.75 |
| | $ | 12.42 |
|
| Diluted earnings per share attributable to Biogen Inc. | | $ | 2.02 |
| | $ | 3.01 |
| | $ | 3.62 |
| | $ | 3.74 |
| | $ | 12.37 |
|
| Weighted-average shares used in calculating: | | | | | | | | | | |
| Basic earnings per share attributable to Biogen Inc. | | 236.8 |
| | 236.7 |
| | 236.2 |
| | 235.5 |
| | 236.4 |
|
| Diluted earnings per share attributable to Biogen Inc. | | 237.8 |
| | 237.4 |
| | 237.0 |
| | 236.3 |
| | 237.2 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (In millions, except per share amounts) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total Year |
| 2011 | | | (e) | | | | (f) | | |
| Product revenues | $ | 907.1 |
| | $ | 956.7 |
| | $ | 975.8 |
| | $ | 996.6 |
| | $ | 3,836.1 |
|
| Unconsolidated joint business revenues | $ | 256.1 |
| | $ | 216.5 |
| | $ | 266.5 |
| | $ | 257.5 |
| | $ | 996.6 |
|
| Other revenues | $ | 40.1 |
| | $ | 35.5 |
| | $ | 67.7 |
| | $ | 72.6 |
| | $ | 215.9 |
|
| Total revenues | $ | 1,203.3 |
| | $ | 1,208.6 |
| | $ | 1,309.9 |
| | $ | 1,326.7 |
| | $ | 5,048.6 |
|
| Gross profit | $ | 1,100.2 |
| | $ | 1,108.1 |
| | $ | 1,186.4 |
| | $ | 1,187.1 |
| | $ | 4,581.9 |
|
| Net income | $ | 308.8 |
| | $ | 304.0 |
| | $ | 353.7 |
| | $ | 300.2 |
| | $ | 1,266.7 |
|
| Net income attributable to Biogen Idec Inc. | $ | 294.3 |
| | $ | 288.0 |
| | $ | 351.8 |
| | $ | 300.2 |
| | $ | 1,234.4 |
|
| Basic earnings per share attributable to Biogen Idec Inc | $ | 1.22 |
| | $ | 1.19 |
| | $ | 1.45 |
| | $ | 1.24 |
| | $ | 5.09 |
|
| Diluted earnings per share attributable to Biogen Idec Inc | $ | 1.20 |
| | $ | 1.18 |
| | $ | 1.43 |
| | $ | 1.22 |
| | $ | 5.04 |
|
Full year amounts may not sum due to rounding.(1) Gross profit is calculated as total revenues less cost of sales, excluding amortization of acquired intangible assets.
| |
| (a) | Net income and net income attributable to Biogen Idec Inc., for the firstthird quarter of 2012 includes2015, include a pre-tax charge to research and development expense of $29.048.1 million related to an upfront payment made in connectionrecorded upon entering into the collaboration agreement with our development agreement entered into with Isis Pharmaceuticals, Inc. and a $12.4 million reduction resulting from an increase in our returns reserve and write-offs of unsold inventory due to a voluntary withdrawal of a limited amount of AVONEX product that has demonstrated a trend in oxidation that may lead to expiry earlier than stated on its label.AGTC. |
| |
| (b) | Net income and net income attributable to Biogen Idec Inc., for the secondthird quarter of 2012 includes2015, reflects the attribution of a$60.0 million charge to research and development expensenoncontrolling interests, net of $12.0 milliontax, related to an upfronta milestone payment madedue Neurimmune upon the enrollment of the first patient in connection with our development agreement entered into with Isis Pharmaceuticals, Inc.a Phase 3 trial for aducanumab. |
| |
| (c) | Net income and net income attributable to Biogen Idec Inc., for the fourth quarter of 2012 includes the correction of an error that had accumulated over several prior years in our deferred tax accounting for capitalized interest which resulted in an2015, include a pre-tax charge to research and development expense of $29.060.0 million. recorded upon entering into the collaboration agreement with MTPC. |
| |
| (d) | Net income and net income attributable to Biogen Idec Inc., for the fourth quarter of 2012 includes a charge to research and development expense of2015, include pre-tax restructuring charges totaling $30.093.4 million related to an upfront payment made in connection with our development agreement entered into with Isis Pharmaceuticals, Inc.. |
| |
| (e) | Our share of RITUXAN revenues from unconsolidated joint business was reduced by approximately $50.0 million in the second quarter of 2011 as a result of an accrual for estimated compensatory damages (including interest) relating to Genentech’s ongoing arbitration with Hoechst GmbH. For additional information related to this matter, please read Note 22, Litigation to these consolidated financial statements.
|
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
(f) | Net income and net income attributable to Biogen Idec Inc., for the fourthfirst quarter of 2011 includes a charge2014, include pre-tax charges to research and development expense of $36.8117.7 million recorded upon entering into the collaboration agreement with Eisai. |
| |
| (f) | Product revenues, net and total revenues for the second, third and fourth quarters of 2014 include net revenues related to an upfront payment madeALPROLIX as commercial sales of ALPROLIX commenced in connectionthe second quarter of 2014. Product revenues, net and total revenues for the third and fourth quarters of 2014 include net revenues related to ELOCTATE and PLEGRIDY as commercial sales of ELOCTATE and PLEGRIDY commenced in the third quarter of 2014. |
| |
| (g) | Product revenues, net and total revenues for the second quarter of 2014 include the recognition of $53.5 million of revenue previously deferred in Italy relating to the pricing agreement with our collaboration and license agreement entered into with Portola Pharmaceuticals, Inc.AIFA. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Biogen Idec Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, equity and cash flows present fairly, in all material respects, the financial position of Biogen Idec Inc. and its subsidiaries at December 31, 20122015 and 2011,December 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20122015 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012,2015, based on criteria established in Internal Control —- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’sCompany's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s AnnualManagement's Report on Internal Control over Financial Reporting appearing under item 9A. Our responsibility is to express opinions on these financial statements and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 16 to the consolidated financial statements, the Company changed the manner in which it classifies deferred taxes in 2015 and 2014 due to the adoption of Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 5, 20133, 2016
EXHIBIT INDEX
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| Exhibit No. | | Description |
| 2.1† | | Asset Purchase Agreement among Biogen Idec International Holding Ltd., Elan Pharma International Limited and Elan Pharmaceuticals, Inc., dated as of February 5, 2013. Filed as Exhibit 2.1 to our Current Report on Form 8-K/A filed on February 12, 2013. |
| 3.1 | | Amended and Restated Certificate of Incorporation, as amended. Filed as Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012. |
| 3.2 | | Second Amended and Restated Bylaws, as amended.Certificate of Amendment to the Certificate of Incorporation. Filed as Exhibit 3.1 to our QuarterlyCurrent Report on Form 10-Q for the quarter ended September 30, 2012.8-K filed on March 27, 2015. |
| 3.3 | | Third Amended and Restated Bylaws. Filed as Exhibit 3.2 to our Current Report on Form 8-K filed on March 27, 2015. |
| 4.1 | | Reference is made to Exhibit 3.1 for a description of the rights, preferences and privileges of our Series A Preferred Stock and Series X Junior Participating Preferred Stock. |
| 4.2 | | Indenture between Biogen Idec and The Bank of New York Trust Company, N.A. dated as of February 26, 2008. Filed as Exhibit 4.1 to our Registration Statement on Form S-3 (File No. 333-149379). |
| 4.3 | | First Supplemental Indenture between Biogen Idec and The Bank of New York Trust Company, N.A. dated as of March 4, 2008. Filed as Exhibit 4.1 to our Current Report on Form 8-K filed on March 4, 2008. |
10.14.4 | | Credit Agreement amongIndenture, dated September 15, 2015, between Biogen Idec,Inc. and U.S. Bank of America, N.A. as administrative agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman Sachs Credit Partners L.P. as co-syndication agents, and the other lenders party thereto dated June 29, 2007.National Association. Filed as Exhibit 99.24.1 to our Current Report on Form 8-K filed on July 2, 2007.September 16, 2015. |
10.24.5 | | Amendment No. 1First Supplemental Indenture, dated September 15, 2015, between Biogen Inc. and U.S. Bank National Association. Filed as Exhibit 4.2 to our Current Report on Form 8-K filed on September 16, 2015. |
| 10.1 | | Credit Agreement, amongdated August 28, 2015, between Biogen Idec,Inc., Bank of America, N.A., as administrative agent, swing line lender and an L/C issuer, and the other lenders party thereto dated as of March 5, 2009.thereto. Filed as Exhibit 10.1 to our QuarterlyCurrent Report on Form 10-Q for the quarter ended March 31, 2009.8-K filed on September 1, 2015. |
10.3†10.2† | | Expression Technology Agreement between Biogen Idec and Genentech. Inc. dated March 16, 1995. Filed as an exhibit to Biogen Idec’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. |
10.410.3 | | Letter Agreement between Biogen Idec and Genentech, Inc. dated May 21, 1996. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on June 6, 1996. |
10.5†10.4† | | Second Amended and Restated Collaboration Agreement between Biogen Idec and Genentech, Inc. dated as of October 18, 2010. Filed as Exhibit 10.5 to our Annual Report on Form 10-K for the year ended December 31, 2010. |
10.6†10.5† | | Letter agreement regarding GA101 financial terms between Biogen Idec and Genentech, Inc. dated October 18, 2010. Filed as Exhibit 10.6 to our Annual Report on Form 10-K for the year ended December 31, 2010. |
10.7†10.6* | | ANTEGREN (now TYSABRI) Development and Marketing Collaboration Agreement between Biogen Idec Inc. 2008 Amended and Elan Pharma International Limited dated August 15, 2000.Restated Omnibus Equity Plan. Filed as Exhibit 10.4810.1 to Biogen, Inc.’s Annualour Quarterly Report on Form 10-K10-Q for the yearquarter ended DecemberMarch 31, 2002 (File No. 0-12042) and incorporated herein by reference.2014. |
10.8*10.7* | | Form of performance unit award agreement under the Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Appendix AExhibit 10.2 to our Definitive Proxy StatementQuarterly Report on Schedule 14A filed on May 8, 2008.Form 10-Q for the quarter ended March 31, 2014. |
10.9*10.8* | | Amendment toForm of market stock unit award agreement under the Biogen Idec Inc. 2008 Omnibus Equity Plan dated October 13, 2008.Plan. Filed as Exhibit 10.1910.3 to our AnnualQuarterly Report on Form 10-K10-Q for the yearquarter ended DecemberMarch 31, 2008.2014. |
10.10*10.9* | | Form of restricted stock unit award agreement under the Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on August 1, 2008. |
10.11*10.10* | | Form of nonqualified stock option award agreement under the Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Exhibit 10.2 to our Current Report on Form 8-K filed on August 1, 2008. |
10.12*10.11* | | Form of cash-settled performance shares award agreement under the Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010. |
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| Exhibit No. | | Description |
| 10.12* | | Form of performance shares award agreement under the Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Exhibit 10.12 to our Annual Report on Form 10-K for the year ended December 31, 2013. |
| 10.13* | | Form of market stock unit award agreement under the Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010. |
| 10.14* | | Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan, as amended. Filed as Appendix A to our Definitive Proxy Statement on Schedule 14A filed on April 28, 2010. |
10.15* | | Amendment to Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan dated June 1, 2011. Filed as Exhibit 10.410.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.March 31, 2015. |
10.16*10.15* | | Biogen Idec Inc. 2005 Omnibus Equity Plan. Filed as Appendix A to our Definitive Proxy Statement on Schedule 14A filed on April 15, 2005. |
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Exhibit No. | | Description |
10.17*10.16* | | Amendment No. 1 to the Biogen Idec Inc. 2005 Omnibus Equity Plan dated April 4, 2006. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007. |
10.18*10.17* | | Amendment No. 2 to the Biogen Idec Inc. 2005 Omnibus Equity Plan dated February 12, 2007. Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007. |
10.19*10.18* | | Amendment to the Biogen Idec Inc. 2005 Omnibus Equity Plan dated April 18, 2008. Filed as Exhibit 10.7 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. |
10.20*10.19* | | Amendment to Biogen Idec Inc. 2005 Omnibus Equity Plan dated October 13, 2008. Filed as Exhibit 10.30 to our Annual Report on Form 10-K for the year ended December 31, 2008. |
10.21*10.20* | | Biogen Idec Inc. 2003 Omnibus Equity2015 Employee Stock Purchase Plan. Filed as Exhibit 10.73Appendix A to our Current Report on Form 8-K filed on November 12, 2003. |
10.22* | | Amendment to Biogen Idec Inc. 2003 Omnibus Equity Plan. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
10.23* | | Amendment to Biogen Idec Inc. 2003 Omnibus Equity Plan dated April 18, 2008. Filed as Exhibit 10.6 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. |
10.24* | | Amendment to Biogen Idec Inc. 2003 Omnibus Equity Plan dated October 13, 2008. Filed as Exhibit 10.34 to our Annual Report on Form 10-K for the year ended December 31, 2008. |
10.25* | | Biogen Idec Inc. 1995 Employee Stock Purchase Plan as amended and restated effective April 6, 2005. Filed as Appendix B to ourBiogen's Definitive Proxy Statement on Schedule 14A filed on April 15, 2005.30, 2015. |
10.26* | | IDEC Pharmaceuticals Corporation 1993 Non-Employee Directors Stock Option Plan, as amended and restated through February 19, 2003. Filed as Appendix B to our Definitive Proxy Statement on Schedule 14A filed on April 11, 2003. |
10.27* | | Amendment to IDEC Pharmaceuticals Corporation 1993 Non-Employee Directors Stock Option Plan dated April 18, 2008. Filed as Exhibit 10.5 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. |
10.28* | | Amendment to IDEC Pharmaceuticals Corporation 1993 Non-Employee Directors Stock Option Plan dated June 1, 2011. Filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011. |
10.29* | | IDEC Pharmaceuticals Corporation 1988 Stock Option Plan, as amended and restated through February 19, 2003. Filed as Appendix A to our Definitive Proxy Statement on Schedule 14A filed on April 11, 2003. |
10.30* | | Amendment to the IDEC Pharmaceuticals Corporation 1988 Stock Option Plan dated April 16, 2004. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004. |
10.31* | | Amendment to IDEC Pharmaceuticals Corporation 1988 Stock Option Plan dated April 18, 2008. Filed as Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. |
10.32* | | Biogen, Inc. 1985 Non-Qualified Stock Option Plan, as amended and restated through April 11, 2003. Filed as Exhibit 10.22 to our Annual Report on Form 10-K for the year ended December 31, 2007. |
10.33* | | Amendment to Biogen, Inc. 1985 Non-Qualified Stock Option Plan dated April 18, 2008. Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. |
10.34* | | Amendment to Biogen, Inc. 1985 Non-Qualified Stock Option Plan dated October 13, 2008. Filed as Exhibit 10.45 to our Annual Report on Form 10-K for the year ended December 31, 2008. |
10.35*10.21* | | Biogen Idec Inc. 2008 Performance-Based Management Incentive Plan. Filed as Appendix B to Biogen Idec’s Definitive Proxy Statement on Schedule 14A filed on May 8, 2008. |
10.36*10.22* | | Voluntary Executive Supplemental Savings Plan, as amended and restated effective January 1, 2004. Filed as Exhibit 10.13 to our Annual Report on Form 10-K for the year ended December 31, 2003. |
10.37*10.23*+ | | Supplemental Savings Plan, as amended. |
| 10.24*+ | | Voluntary Board of Directors Savings Plan, as amended. |
| 10.25* | | Biogen Idec Inc. Executive Severance Policy — U.S. Executive Vice President, as amended and restated effective January 1, 2012.2014. Filed as Exhibit 10.39 to our Annual Report on Form 10-K for the year ended December 31, 2011. |
| 2013. |
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Exhibit No. | | Description |
10.38* | | Voluntary Board of Directors Savings Plan, as amended and restated effective January 1, 2012. Filed as Exhibit 10.40 to our Annual Report on Form 10-K for the year ended December 31, 2011. |
10.39* | | Biogen Idec Inc. Executive Severance Policy — U.S. Executive Vice President, as amended effective October 13, 2008. Filed as Exhibit 10.51 to our Annual Report on Form 10-K for the year ended December 31, 2008. |
10.40*10.26* | | Biogen Idec Inc. Executive Severance Policy — International Executive Vice President, as amended effective October 13, 2008.January 1, 2014. Filed as Exhibit 10.52 to our10.40 Annual Report on Form 10-K for the year ended December 31, 2008.2013. |
10.41*10.27* | | Biogen Idec Inc. Executive Severance Policy — U.S. Senior Vice President, as amended effective October 13, 2008. Filed as Exhibit 10.53 to our Annual Report on Form 10-K for the year ended December 31, 2008. |
10.42*10.28* | | Biogen Idec Inc. Executive Severance Policy — International Senior Vice President, as amended effective October 13, 2008. Filed as Exhibit 10.54 to our Annual Report on Form 10-K for the year ended December 31, 2008. |
10.43*10.29* | | Annual Retainer Summary for Board of Directors. Filed as Exhibit 10.210.1 to our Quarterly Report on Form 10-Q for the quarter ended JuneSeptember 30, 2011.2014. |
10.44*10.30* | | Form of indemnification agreement for directors and executive officers. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on June 7, 2011. |
10.45*10.31* | | Employment Agreement between Biogen Idec and George A. Scangos datedamended as of June 28, 2010.August 23, 2013. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on July 1, 2010.August 26, 2013. |
10.46*10.32* | | Letter regarding employment arrangement of Paul J. Clancy dated August 17, 2007. Filed as Exhibit 10.49 to our Annual Report on Form 10-K for the year ended December 31, 2007. |
10.47*10.33* | | Letter regarding employment arrangement of Douglas E. Williams dated December 7, 2010. Filed as Exhibit 10.57 to our Annual Report on Form 10-K for the year ended December 31, 2011. |
10.48* |
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| Exhibit No. | | Description |
| 10.34* | | Letter regarding employment arrangement of Steven H. Holtzman dated November 19, 2010. Filed as Exhibit 10.58 to our Annual Report on Form 10-K for the year ended December 31, 2011. |
10.49*+10.35* | | Letter regarding employment arrangement of Kenneth DiPietro dated December 12, 2011. Filed as Exhibit 10.49 to our Annual Report on Form 10-K for the year ended December 31, 2012. |
| 10.36* | | Letter regarding employment arrangement of Alfred Sandrock dated May 7, 2013. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013. |
| 10.37*+ | | Letter regarding employment arrangement of Alfred Sandrock dated October 19, 2015. |
| 10.38* | | Letter regarding employment arrangement of Adam Koppel dated January 10, 2014. Filed as Exhibit 10.43 to our Annual Report on Form 10-K for the year ended December 31, 2014. |
| 10.39* | | Letter regarding employment arrangement of Susan Alexander dated December 13, 2005. Filed as Exhibit 10.58 to our Annual Report on Form 10-K for the year ended December 31, 2009. |
| 10.40* | | Letter regarding employment arrangement of Adriana Karaboutis dated August 7, 2014. Filed as Exhibit 10.44 to our Annual Report on Form 10-K for the year ended December 31, 2014. |
| 10.41*+ | | Letter regarding employment arrangement of John Cox dated September 7, 2010. |
| 10.42*+ | | Letter regarding separation arrangement of Tony Kingsley dated November 12, 2015. |
| 21+ | | Subsidiaries. |
| 23+ | | Consent of PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm. |
| 31.1+ | | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2+ | | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1++ | | Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101++ | | The following materials from Biogen Idec Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012,2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) Notes to Consolidated Financial Statements. |
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| ^ | References to “our” filings mean filings made by Biogen Inc. (formerly Biogen Idec Inc.) and filings made by IDEC Pharmaceuticals Corporation prior to the merger with Biogen, Inc. Unless otherwise indicated, exhibits were previously filed with the Securities and Exchange Commission under Commission File Number 0-19311 and are incorporated herein by reference. |
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| * | Management contract or compensatory plan or arrangement. |
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| † | Confidential treatment has been granted or requested with respect to portions of this exhibit. |
