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 viable 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.
FASB Interpretation No. 48
Effective January 1, 2007, we adopted FIN 48. FIN 48 clarifiesWe account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes in tax law, the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109,Accounting for Income Taxes,or SFAS 109. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of each tax positionpositions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax return. Asposition. We evaluate uncertain tax positions on a resultquarterly basis and adjust the level of the adoption of FIN 48, we recognized a reductionliability 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 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 of $14.2 million, which was recorded as a $1.8 million reduction to the January 1, 2007 balance of our accumulated deficit, a $9.1 million reduction in goodwill and a $3.3 million increase in our deferredincome tax liability.expense.
A reconciliationContingencies
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 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 beginningpotential liabilities could have a material impact on our consolidated results of operations and ending amount of unrecognized tax benefits is as follows (in millions):
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Balance at January 1 | | $ | 221.1 | | | $ | 196.8 | |
| Additions based on tax positions related to the current period | | | 21.8 | | | | 29.7 | |
| Additions for tax positions of prior periods | | | 20.4 | | | | 83.5 | |
| Reductions for tax positions of prior periods | | | (13.7 | ) | | | (70.2 | ) |
| Settlements | | | — | | | | (18.7 | ) |
| | | | | | | | | |
| Balance at December 31 | | $ | 249.6 | | | $ | 221.1 | |
| | | | | | | | | |
Included in the balance of unrecognized tax benefits at December 31, 2008, December 31, 2007, and January 1, 2007, are $155.1 million, $110.5 million, and $98.2 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 any future periods. We do not anticipate any significant changes in our positions in the next twelve months.financial position.
New Accounting Standards
SeePlease read Note 27, 23,New Accounting Pronouncementsto our Consolidated Financial Statements for a discussion of new accounting standards.
| |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
We have operations in Canada, Brazil, Argentina, Australia, New Zealand, Japan, China, and India and throughout Europe in connection with the sale of AVONEX and TYSABRI and in Germany in connection with the sale of FUMADERM. We also receive royalty revenues based on worldwide product sales by our licensees and through Genentech on sales of RITUXAN outsidein the rest of the U.S.world. As a result, our financial position, results of operations and cash flows can be affected by market fluctuations in foreign currency exchange rates, (primarilyprimarily with respect to the Euro, Danish kroner, Swedish krona, British pound, Japanese yen, Canadian dollar and Swiss franc).franc.
63
We use foreign currency forward contracts to manage foreign currency risk but do not engage in currency speculation. We use theseThe majority of our forward contracts are used to hedge certain forecasted revenue transactions
61
denominated in foreign currencies. AWe also use forward contracts to mitigate the foreign currency exposure related to certain balance sheet items. We have not elected hedge accounting for the balance sheet related items.
The following quantitative information includes the impact of currency movements on forward contracts used in both programs. As of December 31, 2009 and 2008, a hypothetical adverse 10% movement in foreign exchange 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 $64.4 million and $52.4 million.million, respectively. Our use of this methodology to quantify the market risk of such instruments should not be construed as an endorsement of its accuracy or the accuracy of the related assumptions. The quantitative information about market risk is necessarily limited because it does not take into account all foreign currency operating transactions.
Certain of our debt instruments are variable rate instruments and our interest expense associated with these instruments is, therefore, subject to changes in market interest rates. AAs of December 31, 2009 and 2008, a 100 basis-point adverse movement (increase in LIBOR) would increase annual interest expense by approximately $0.2 million.million in each period.
In addition, 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. WeAs of December 31, 2009 and 2008, we estimate that such hypothetical adverse 100 basis point movement would result in a hypothetical loss in fair value of approximately $16.9 million and $12.2 million, respectively, to our interest rate sensitive instruments.
The returns from cash, cash equivalents and marketable securities will vary as short-term interest rates change. A 100 basis-point adverse movement (decrease) in short-term interest rates would decrease interest income by approximately $12.5 million and $11.9 million.million as of December 31, 2009 and 2008, respectively.
We are exposed to equity price risks on the marketable portion of equity securities included in our portfolio of investments entered into for the promotion of business and strategic objectives. These investments are generally in small capitalization stocks in the biotechnology industry sector. We regularly review the market prices of these investments for impairment purposes. A hypothetical adverse 10% movement in market values would result in a hypothetical loss in fair value of approximately $1.0 million and $0.9 million.million as of December 31, 2009 and 2008, respectively.
| |
| Item 8. | Consolidated Financial Statements and Supplementary Data |
The information required by this Item 8 is contained on pagesF-1 throughF-64 F-65 of this Annual Report onForm 10-Kreport and is incorporated herein by reference.
| |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.None.
| |
| Item 9A. | 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 inRules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Securities Exchange Act)amended), as of December 31, 2008.2009. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of thatthe period covered by this report, our disclosure controls and procedures are effective in providing reasonable assuranceensuring 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
62
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,
64
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
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate annually the effectiveness of our internal controls over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal control over financial reporting in all annual reports. There were no changes in our internal control over financial reporting during the quarter ended December 31, 20082009 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 inRules 13a-15(f) and15d-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 generally accepted accounting principles.principles in the U.S. (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 theour transactions and dispositions of our assets; |
| |
| | • | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,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 theour 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, 2008.2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.
Based on our assessment, our management has concluded that, as of December 31, 2008,2009, 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, 20082009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
| |
| Item 9B. | Other Information |
Not applicable.None.
6563
PART III
| |
| Item 10. | 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 thisForm 10-K. 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, under the “Corporate“Board of Directors — Corporate Governance” subsection of the “Company”“About Us” section of the site. Disclosure regarding any amendments to, or waivers from, provisions of our code of business conduct, if required, will be included in a Current Report onForm 8-K within four business days following the date of the amendment or waiver, unless website posting of such amendments or waivers is permitted by the rules of The NASDAQ Stock Market, Inc. Our corporate governance principles (also posted on www.biogenidec.com) prohibit our Board of Directors from granting any waiver of the code of ethics for any of our directors or executive officers. We include our website address in this Annual Report onForm 10-Kreport 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 labeledentitled “Proposal 1, — Election of Directors, — Information about our Board of Directors and its Committees” and” “Stock Ownership — Section 16(a) Beneficial Ownership Reporting Compliance” and “Miscellaneous — Stockholder Proposals” contained in the proxy statement for our 20092010 annual meeting of stockholders.
| |
| Item 11. | Executive Compensation |
The response to this item is incorporated by reference from the discussion responsive thereto in the section labeledsections entitled “Executive Compensation and Related Information” and “Proposal 1, Election of Directors — Compensation Committee Interlocks and Insider Participation” contained in the proxy statement for our 20092010 annual meeting of stockholders.
| |
| Item 12. | 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 labeledentitled “Stock Ownership” and “Disclosure with Respect to our Equity Compensation Plans” contained in the proxy statement for our 20092010 annual meeting of stockholders.
| |
| Item 13. | 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 labeled “Proposal 1 — Election of Directors — Information about our Board of Directors and its Committees,” “Executive Compensation and Related Information — Potential Payments Upon Termination or Change in Control,” andentitled “Certain Relationships and Related Person Transactions” and “Proposal 1, Election of Directors — Director Independence” contained in the proxy statement for our 20092010 annual meeting of stockholders.
| |
| Item 14. | Principal Accountant Fees and Services |
The response to this item is incorporated by reference from the discussion responsive thereto in the section labeledentitled “Proposal 2, — Ratification of the Selection of our Independent Registered Public Accounting Firm” contained in the proxy statement for our 20092010 annual meeting of stockholders.
6664
PART IV
| |
| Item 15. | Exhibits, Financial Statement Schedules |
a. (1) Consolidated Financial Statements:
The Financial Statementsfinancial statements required to be filed by Item 8 of this Annual Report onForm 10-K,report and filed in this Item 15, are as follows:
| | | | | |
| | Page Number
|
| | in This
|
Financial Statements | | Form 10-KPage Number |
| |
| | | F-2 | |
| | | F-3 | |
| | | F-4 | |
| | | F-5 | |
| | | F-7 | |
| | | F-64 | |
(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 which are filed or furnished with this report or which are incorporated herein by reference are set forth in the Exhibit Index beginning onpage A-1, which is incorporated herein by reference.
6765
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIOGEN IDEC INC.
James C. Mullen
Chief Executive Officer and President
Date: February 6, 20099, 2010
Pursuant to the requirements the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrantregistrant and in the capacities and on the dates indicated.
| | | | | | | |
Name | | Capacity | | Date |
| |
| | | | | |
/s/ James C. Mullen
James C. Mullen | | Director, Chief Executive Officer and President (principal executive officer) | | February 6, 20099, 2010 |
| | | | | |
/s/ Paul J. Clancy
Paul J. Clancy | | Executive Vice President, Finance and Chief
Financial Officer (principal
financial officer) | | February 6, 20099, 2010 |
| | | | | |
/s/ Michael F. MacLean
Michael F. MacLean | | Senior Vice President and Chief Accounting Officer
(principal (principal accounting officer) | | February 6, 20099, 2010 |
| | | | | |
/s/ Bruce R. RossWilliam D. Young
Bruce R. RossWilliam D. Young | | Director;Director and Chairman of the Board of Directors | | February 6, 20099, 2010 |
| | | | | |
/s/ Lawrence C. BestAlexander J. Denner
Lawrence C. BestAlexander J. Denner | | Director | | February 6, 20099, 2010 |
| | | | | |
/s/ Marijn E. DekkersCaroline D. Dorsa
Marijn E. DekkersCaroline D. Dorsa | | Director | | February 3, 2009 |
| | | | |
/s/ Alan B. Glassberg
Alan B. Glassberg, M.D. | | Director | | February 6, 20099, 2010 |
| | | | | |
/s/ Nancy L. Leaming
Nancy L. Leaming | | Director | | February 6, 20099, 2010 |
| | | | |
| Richard C. Mulligan | | Director | | |
| | | | | |
/s/ Robert W. Pangia
Robert W. Pangia | | Director | | February 6, 20099, 2010 |
| | | | | |
/s/ Stelios Papadopoulos
Stelios Papadopoulos | | Director | | February 6, 20099, 2010 |
6866
| | | | | | | |
Name | | Capacity | | Date |
| |
| | | | | |
/s/ Cecil B. PickettBrian S. Posner Cecil B. PickettBrian S. Posner | | Director | | February 6, 20099, 2010 |
| | | | | |
/s/ Brian S. PosnerBruce R. Ross Brian S. PosnerBruce R. Ross | | Director | | February 6, 20099, 2010 |
| | | | | |
/s/ Lynn Schenk Lynn Schenk | | Director | | February 6, 2009 |
| | | | |
/s/ Phillip A. Sharp
Phillip A. Sharp, Ph.D. | | Director | | February 6, 2009 |
| | | | |
/s/ William D. Young
William D. Young | | Director | | February 6, 20099, 2010 |
6967
BIOGEN IDEC INC. AND SUBSIDIARIES
| | | | | |
| | | Page | |
| |
| | | F-2 | |
| | | F-3 | |
| | | F-4 | |
| | | F-5 | |
| | | F-7 | |
| | | F-64 | |
F-1
BIOGEN IDEC INC. AND SUBSIDIARIES
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | (In thousands, except per share amounts) | |
| |
| Revenues: | | | | | | | | | | | | |
| Product | | $ | 2,839,651 | | | $ | 2,136,821 | | | $ | 1,781,313 | |
| Unconsolidated joint business | | | 1,128,238 | | | | 926,098 | | | | 810,864 | |
| Other revenues | | | 129,618 | | | | 108,698 | | | | 90,872 | |
| | | | | | | | | | | | | |
| Total revenues | | | 4,097,507 | | | | 3,171,617 | | | | 2,683,049 | |
| | | | | | | | | | | | | |
| Costs and expenses: | | | | | | | | | | | | |
| Cost of sales, excluding amortization of acquired intangible assets | | | 401,989 | | | | 335,192 | | | | 274,383 | |
| Research and development | | | 1,072,058 | | | | 925,164 | | | | 718,390 | |
| Selling, general and administrative | | | 925,305 | | | | 776,103 | | | | 685,067 | |
| Collaboration profit (loss) sharing | | | 136,041 | | | | 14,079 | | | | (9,682 | ) |
| Amortization of acquired intangible assets | | | 332,745 | | | | 257,495 | | | | 266,998 | |
| Acquired in-process research and development | | | 25,000 | | | | 84,172 | | | | 330,520 | |
| Facility impairments and gain on disposition, net | | | (9,242 | ) | | | (360 | ) | | | (16,507 | ) |
| Gain on settlement of license agreements, net | | | — | | | | — | | | | (6,140 | ) |
| | | | | | | | | | | | | |
| Total costs and expenses | | | 2,883,896 | | | | 2,391,845 | | | | 2,243,029 | |
| | | | | | | | | | | | | |
| Income from operations | | | 1,213,611 | | | | 779,772 | | | | 440,020 | |
| Other income (expense), net | | | (64,668 | ) | | | 130,823 | | | | 52,143 | |
| | | | | | | | | | | | | |
| Income before income tax provision and cumulative effect of accounting change | | | 1,148,943 | | | | 910,595 | | | | 492,163 | |
| Income tax expense | | | 365,776 | | | | 272,423 | | | | 278,431 | |
| | | | | | | | | | | | | |
| Income before cumulative effect of accounting change | | | 783,167 | | | | 638,172 | | | | 213,732 | |
| Cumulative effect of accounting change, net of income tax expense | | | — | | | | — | | | | 3,779 | |
| | | | | | | | | | | | | |
| Net income | | $ | 783,167 | | | $ | 638,172 | | | $ | 217,511 | |
| | | | | | | | | | | | | |
| Basic earnings per share: | | | | | | | | | | | | |
| Income before cumulative effect of accounting change | | $ | 2.67 | | | $ | 2.02 | | | $ | 0.63 | |
| Cumulative effect of accounting change, net of income tax | | | — | | | | — | | | | 0.01 | |
| | | | | | | | | | | | | |
| Basic earnings per share | | $ | 2.67 | | | $ | 2.02 | | | $ | 0.64 | |
| | | | | | | | | | | | | |
| Diluted earnings per share: | | | | | | | | | | | | |
| Income before cumulative effect of accounting change | | $ | 2.65 | | | $ | 1.99 | | | $ | 0.62 | |
| Cumulative effect of accounting change, net of income tax | | | — | | | | — | | | | 0.01 | |
| | | | | | | | | | | | | |
| Diluted earnings per share | | $ | 2.65 | | | $ | 1.99 | | | $ | 0.63 | |
| | | | | | | | | | | | | |
| Weighted-average shares used in calculating: | | | | | | | | | | | | |
| Basic earnings per share | | | 292,332 | | | | 315,836 | | | | 338,585 | |
| | | | | | | | | | | | | |
| Diluted earnings per share | | | 294,984 | | | | 320,171 | | | | 345,281 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Revenues: | | | | | | | | | | | | |
| Product | | $ | 3,152,941 | | | $ | 2,839,651 | | | $ | 2,136,821 | |
| Unconsolidated joint business | | | 1,094,863 | | | | 1,128,238 | | | | 926,098 | |
| Other | | | 129,544 | | | | 129,618 | | | | 108,698 | |
| | | | | | | | | | | | | |
| Total revenues | | | 4,377,348 | | | | 4,097,507 | | | | 3,171,617 | |
| | | | | | | | | | | | | |
| Costs and expenses: | | | | | | | | | | | | |
| Cost of sales, excluding amortization of acquired intangible assets | | | 382,104 | | | | 401,989 | | | | 335,192 | |
| Research and development | | | 1,283,068 | | | | 1,072,058 | | | | 925,164 | |
| Selling, general and administrative | | | 911,034 | | | | 925,305 | | | | 776,103 | |
| Collaboration profit sharing | | | 215,904 | | | | 136,041 | | | | 14,079 | |
| Amortization of acquired intangible assets | | | 289,811 | | | | 332,745 | | | | 257,495 | |
| Acquired in-process research and development | | | — | | | | 25,000 | | | | 84,172 | |
| Gain on dispositions, net | | | — | | | | (9,242 | ) | | | (360 | ) |
| | | | | | | | | | | | | |
| Total costs and expenses | | | 3,081,921 | | | | 2,883,896 | | | | 2,391,845 | |
| | | | | | | | | | | | | |
| Income from operations | | | 1,295,427 | | | | 1,213,611 | | | | 779,772 | |
| Other income (expense), net | | | 37,252 | | | | (57,728 | ) | | | 72,396 | |
| | | | | | | | | | | | | |
| Income before income tax expense | | | 1,332,679 | | | | 1,155,883 | | | | 852,168 | |
| Income tax expense | | | 355,617 | | | | 365,776 | | | | 272,423 | |
| | | | | | | | | | | | | |
| Net income | | | 977,062 | | | | 790,107 | | | | 579,745 | |
| Net income (loss) attributable to noncontrolling interest, net of tax | | | 6,930 | | | | 6,940 | | | | (58,427 | ) |
| | | | | | | | | | | | | |
| Net income attributable to Biogen Idec Inc. | | $ | 970,132 | | | $ | 783,167 | | | $ | 638,172 | |
| | | | | | | | | | | | | |
| Net income per share: | | | | | | | | | | | | |
| Basic earnings per share attributable to Biogen Idec Inc. | | $ | 3.37 | | | $ | 2.67 | | | $ | 2.02 | |
| | | | | | | | | | | | | |
| Diluted earnings per share attributable to Biogen Idec Inc. | | $ | 3.35 | | | $ | 2.65 | | | $ | 1.99 | |
| | | | | | | | | | | | | |
| Weighted-average shares used in calculating: | | | | | | | | | | | | |
| Basic earnings per share attributable to Biogen Idec Inc. | | | 287,356 | | | | 292,332 | | | | 315,836 | |
| | | | | | | | | | | | | |
| Diluted earnings per share attributable to Biogen Idec Inc. | | | 289,476 | | | | 294,984 | | | | 320,171 | |
| | | | | | | | | | | | | |
See accompanying notes to thethese consolidated financial statementsstatements.
F-2
BIOGEN IDEC INC. AND SUBSIDIARIES
| | | | | | | | | | |
| | | As of December 31, | | | | | | | | | |
| | | 2008 | | 2007 | | | As of December 31, | |
| | | (In thousands, except per share amounts) | | | 2009 | | 2008 | |
| |
ASSETS | ASSETS | ASSETS |
| Current assets: | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 622,385 | | | $ | 659,662 | | | $ | 581,889 | | | $ | 622,385 | |
| Marketable securities | | | 719,586 | | | | 319,408 | | | | 681,835 | | | | 719,586 | |
| Collateral received for loaned securities | | | 29,991 | | | | 208,209 | | | | — | | | | 29,991 | |
| Accounts receivable, net of allowances of $32,047 and $29,341 at December 31, 2008 and 2007, respectively | | | 446,665 | | | | 392,646 | | |
| Accounts receivable, net of allowances of $43,818 and $32,047 at December 31, 2009 and 2008, respectively | | | | 551,208 | | | | 446,665 | |
| Due from unconsolidated joint business | | | 206,925 | | | | 166,686 | | | | 193,789 | | | | 206,925 | |
| Loaned securities | | | 29,446 | | | | 204,433 | | | | — | | | | 29,446 | |
| Inventory | | | 263,602 | | | | 233,987 | | | | 293,950 | | | | 263,602 | |
| Other current assets | | | 139,400 | | | | 183,376 | | | | 177,924 | | | | 139,400 | |
| | | | | | | | | | | |
| Total current assets | | | 2,458,000 | | | | 2,368,407 | | | | 2,480,595 | | | | 2,458,000 | |
| | | | | | | | | | | |
| Marketable securities | | | 891,406 | | | | 932,271 | | | | 1,194,080 | | | | 891,406 | |
| Property, plant and equipment, net | | | 1,594,754 | | | | 1,497,383 | | | | 1,637,083 | | | | 1,594,754 | |
| Intangible assets, net | | | 2,161,058 | | | | 2,492,354 | | | | 1,871,078 | | | | 2,161,058 | |
| Goodwill | | | 1,138,621 | | | | 1,137,372 | | | | 1,138,621 | | | | 1,138,621 | |
| Investments and other assets | | | 235,152 | | | | 201,028 | | | | 230,397 | | | | 235,152 | |
| | | | | | | | | | | |
| Total assets | | $ | 8,478,991 | | | $ | 8,628,815 | | | $ | 8,551,854 | | | $ | 8,478,991 | |
| | | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | Current liabilities: | | | | | | | | | | | | | | | | |
| Collateral payable on loaned securities | | $ | 29,991 | | | $ | 208,209 | | | $ | — | | | $ | 29,991 | |
| Accounts payable | | | 107,417 | | | | 90,672 | | | | 118,534 | | | | 107,417 | |
| Taxes payable | | | 223,260 | | | | 11,274 | | | | 75,891 | | | | 223,260 | |
| Accrued expenses and other | | | 534,887 | | | | 367,885 | | | | 500,755 | | | | 534,887 | |
| Current portion of notes payable and line of credit | | | 27,667 | | | | 1,511,135 | | | | 19,762 | | | | 27,667 | |
| | | | | | | | | | | |
| Total current liabilities | | | 923,222 | | | | 2,189,175 | | | | 714,942 | | | | 923,222 | |
| | | | | | | | | | | |
| Notes payable | | | 1,085,431 | | | | 51,843 | | |
| Notes payable and line of credit | | | | 1,080,207 | | | | 1,085,431 | |
| Long-term deferred tax liability | | | 356,017 | | | | 521,525 | | | | 240,618 | | | | 356,017 | |
| Other long-term liabilities | | | 308,238 | | | | 331,977 | | | | 254,205 | | | | 280,369 | |
| | | | | | | | | | | |
| Total liabilities | | | 2,672,908 | | | | 3,094,520 | | | | 2,289,972 | | | | 2,645,039 | |
| | | | | | | | | | | |
| Commitments and contingencies (Notes 15, 16, 18 and 19) | | | | | | | | | |
| Commitments and contingencies (Notes 16,17,18 and 19) | | | | | | | | | |
| Shareholders’ equity: | | | | | | | | | | | | | | | | |
| Preferred stock, par value $0.001 per share (8,000 shares authorized, of which 1,750 are designated Series A and 1,000 are designated Series X Junior Participating; 8 shares of Series A issued and outstanding with a $551 liquidation value at December 31, 2008 and 2007) | | | — | | | | — | | |
| Common stock, par value $0.0005 per share (1,000,000 shares authorized; 297,253 and 295,698 shares, and 288,046 and 295,698 shares issued and outstanding at December 31, 2008 and 2007, respectively) | | | 149 | | | | 147 | | |
| Preferred stock, par value $0.001 per share (8,000 shares authorized, of which 1,750 are designated Series A and 1,000 are designated Series X Junior Participating; 8 shares of Series A issued and outstanding with a $551 liquidation value at December 31, 2009 and 2008) | | | | — | | | | — | |
| Common stock, par value $0.0005 per share (1,000,000 shares authorized; 288,494 shares issued and 274,855 shares outstanding at December 31, 2009; 297,253 shares issued and 288,046 shares outstanding at December 31, 2008) | | | | 144 | | | | 149 | |
| Additional paid-in capital | | | 6,073,957 | | | | 5,807,071 | | | | 5,781,920 | | | | 6,073,957 | |
| Accumulated other comprehensive income | | | (11,106 | ) | | | 79,246 | | |
| Retained Earnings (Accumulated deficit) | | | 270,180 | | | | (352,169 | ) | |
| Treasury stock, at cost; 9,207 and 0 shares at December 31, 2008 and 2007, respectively | | | (527,097 | ) | | | — | | |
| Accumulated other comprehensive income (loss) | | | | 50,496 | | | | (11,106 | ) |
| Retained earnings | | | | 1,068,890 | | | | 270,180 | |
| Treasury stock, at cost; 13,639 and 9,207 shares at December 31, 2009 and 2008, respectively | | | | (679,920 | ) | | | (527,097 | ) |
| | | | | | | |
| Total Biogen Idec Inc. shareholders’ equity | | | | 6,221,530 | | | | 5,806,083 | |
| Noncontrolling interest | | | | 40,352 | | | | 27,869 | |
| | | | | | | | | | | |
| Total shareholders’ equity | | | 5,806,083 | | | | 5,534,295 | | | | 6,261,882 | | | | 5,833,952 | |
| | | | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 8,478,991 | | | $ | 8,628,815 | | | $ | 8,551,854 | | | $ | 8,478,991 | |
| | | | | | | | | | | |
See accompanying notes to thethese consolidated financial statementsstatements.
F-3
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | |
| | | For the Years Ended December 31, | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | 2006 | | | For the Years Ended December 31, | |
| | | (In thousands) | | | 2009 | | 2008 | | 2007 | |
| |
| Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 783,167 | | | $ | 638,172 | | | $ | 217,511 | | | $ | 977,062 | | | $ | 790,107 | | | $ | 579,745 | |
| Adjustments to reconcile net income to net cash flows from operating activities Depreciation and amortization of fixed and intangible assets | | | 462,059 | | | | 380,293 | | | | 375,870 | | |
| Adjustments to reconcile net income to net cash flows from operating activities: | | | | | | | | | | | | | |
| Depreciation and amortization of property, plant and equipment and intangible assets | | | | 427,961 | | | | 462,059 | | | | 380,293 | |
| Acquired in process research and development and license | | | 25,000 | | | | 136,172 | | | | 330,520 | | | | — | | | | 25,000 | | | | 136,172 | |
| Minority interest in subsidiaries | | | 6,940 | | | | (58,427 | ) | | | 6,770 | | |
| Gain on settlement of license agreements, net | | | — | | | | — | | | | (6,140 | ) | |
| Share based compensation | | | 146,207 | | | | 123,129 | | | | 126,783 | | |
| Share-based compensation | | | | 160,902 | | | | 146,207 | | | | 123,129 | |
| Cash received upon termination of interest rate swap | | | 53,873 | | | | — | | | | — | | | | — | | | | 53,873 | | | | — | |
| Non-cash interest (income) expense and foreign exchange translation loss (gain) | | | (4,934 | ) | | | 1,444 | | | | 1,521 | | |
| Non-cash interest (income) expense and foreign exchange remeasurement, net | | | | (7,892 | ) | | | (4,934 | ) | | | 1,444 | |
| Deferred income taxes | | | (139,549 | ) | | | (81,555 | ) | | | (106,337 | ) | | | (137,351 | ) | | | (139,549 | ) | | | (81,555 | ) |
| Realized (gain) loss on sale of marketable securities and strategic investments | | | 1,078 | | | | (16,732 | ) | | | (1,169 | ) | | | (23,974 | ) | | | 1,078 | | | | (16,732 | ) |
| Write-down of inventory to net realizable value | | | 29,850 | | | | 21,599 | | | | 12,989 | | | | 16,924 | | | | 29,850 | | | | 21,599 | |
| Facility impairments and (gain) loss on disposition, net | | | (9,242 | ) | | | (360 | ) | | | (16,507 | ) | |
| Impairment of investments and other assets | | | 61,644 | | | | 24,445 | | | | 34,424 | | |
| Gain on sale of property, plant and equipment, net | | | | — | | | | (9,242 | ) | | | (360 | ) |
| Impairment of marketable securities, investments and other assets | | | | 16,184 | | | | 61,644 | | | | 24,445 | |
| Excess tax benefit from stock options | | | (27,990 | ) | | | (69,666 | ) | | | (31,682 | ) | | | (3,436 | ) | | | (27,990 | ) | | | (69,666 | ) |
| Changes in assets and liabilities, net: | | | | | | | | | | | | | |
| Changes in operating assets and liabilities, net: | | | | | | | | | | | | | |
| Accounts receivable | | | (57,565 | ) | | | (70,701 | ) | | | (37,009 | ) | | | (100,442 | ) | | | (57,565 | ) | | | (70,701 | ) |
| Due from unconsolidated joint business | | | (40,239 | ) | | | 2,022 | | | | (27,649 | ) | | | 13,136 | | | | (40,239 | ) | | | 2,022 | |
| Inventory | | | (54,204 | ) | | | (83,192 | ) | | | (36,637 | ) | | | (42,772 | ) | | | (54,204 | ) | | | (83,192 | ) |
| Other assets | | | 3,711 | | | | 238 | | | | (20,737 | ) | | | 22,271 | | | | 3,711 | | | | 238 | |
| Accrued expenses and other current liabilities | | | 148,467 | | | | 32,460 | | | | 13,812 | | | | (48,942 | ) | | | 146,420 | | | | 30,579 | |
| Other liabilities and taxes payable | | | 176,219 | | | | 41,294 | | | | 4,935 | | | | (194,733 | ) | | | 176,219 | | | | 41,294 | |
| | | | | | | | | | | | | | | |
| Net cash flows provided by operating activities | | | 1,564,492 | | | | 1,020,635 | | | | 841,268 | | | | 1,074,898 | | | | 1,562,445 | | | | 1,018,754 | |
| | | | | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of marketable securities | | | (3,163,824 | ) | | | (2,945,244 | ) | | | (1,949,907 | ) | | | (3,548,119 | ) | | | (3,163,824 | ) | | | (2,945,244 | ) |
| Proceeds from sales and maturities of marketable securities | | | 2,941,060 | | | | 3,154,290 | | | | 1,787,139 | | | | 3,319,007 | | | | 2,941,060 | | | | 3,154,290 | |
| Proceeds from sale of product line | | | — | | | | — | | | | 59,800 | | |
| Acquisitions, net of cash acquired | | | (25,000 | ) | | | (95,789 | ) | | | (363,251 | ) | | | — | | | | (25,000 | ) | | | (95,789 | ) |
| Purchases of property, plant and equipment | | | (275,954 | ) | | | (284,106 | ) | | | (198,312 | ) | | | (165,646 | ) | | | (275,954 | ) | | | (284,106 | ) |
| Proceeds from sale of property, plant and equipment | | | — | | | | 16,669 | | | | 74,216 | | | | — | | | | — | | | | 16,669 | |
| Purchase of other investments | | | (20,373 | ) | | | (23,672 | ) | | | (9,458 | ) | |
| Purchases of other investments | | | | (44,086 | ) | | | (20,373 | ) | | | (23,672 | ) |
| Proceeds from the sale of strategic investments | | | — | | | | 99,489 | | | | — | | | | 13,822 | | | | — | | | | 99,489 | |
| Collateral received under securities lending | | | 178,218 | | | | (208,209 | ) | | | — | | | | 29,991 | | | | 178,218 | | | | (208,209 | ) |
| | | | | | | | | | | | | | | |
| Net cash flows used in investing activities | | | (365,873 | ) | | | (286,572 | ) | | | (599,773 | ) | | | (395,031 | ) | | | (365,873 | ) | | | (286,572 | ) |
| | | | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchase of treasury stock | | | (738,938 | ) | | | (2,991,184 | ) | | | (320,268 | ) | | | (751,170 | ) | | | (738,938 | ) | | | (2,991,184 | ) |
| Proceeds from issuance of stock for share based compensation arrangements | | | 178,486 | | | | 489,180 | | | | 146,959 | | |
| Proceeds from issuance of stock for share-based compensation arrangements | | | | 47,810 | | | | 178,486 | | | | 489,180 | |
| Change in cash overdraft | | | (498 | ) | | | (5,399 | ) | | | (11,860 | ) | | | 12,275 | | | | (498 | ) | | | (5,399 | ) |
| Excess tax benefit from stock options | | | 27,990 | | | | 69,666 | | | | 31,682 | | | | 3,436 | | | | 27,990 | | | | 69,666 | |
| Proceeds from borrowings | | | 986,980 | | | | 1,512,913 | | | | 17,694 | | | | — | | | | 986,980 | | | | 1,512,913 | |
| Repayments of borrowings | | | (1,512,474 | ) | | | (12,042 | ) | | | (12,617 | ) | | | (10,867 | ) | | | (1,512,474 | ) | | | (12,042 | ) |
| Repayments of long-term debt | | | — | | | | (6,563 | ) | | | — | | | | — | | | | — | | | | (6,563 | ) |
| Net capital contribution from noncontrolling interest | | | | 4,356 | | | | 2,047 | | | | 1,881 | |
| Obligation under securities lending | | | (178,218 | ) | | | 208,209 | | | | — | | | | (29,991 | ) | | | (178,218 | ) | | | 208,209 | |
| | | | | | | | | | | | | | | |
| Net cash flows used in financing activities | | | (1,236,672 | ) | | | (735,220 | ) | | | (148,410 | ) | | | (724,151 | ) | | | (1,234,625 | ) | | | (733,339 | ) |
| | | | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | (38,053 | ) | | | (1,157 | ) | | | 93,085 | | |
| Net decrease in cash and cash equivalents | | | | (44,284 | ) | | | (38,053 | ) | | | (1,157 | ) |
| Effect of exchange rate changes on cash and cash equivalents | | | 776 | | | | (558 | ) | | | 124 | | | | 3,788 | | | | 776 | | | | (558 | ) |
| | | | | | | | | | | | | | | |
| Cash and cash equivalents, beginning of the year | | | 659,662 | | | | 661,377 | | | | 568,168 | | | | 622,385 | | | | 659,662 | | | | 661,377 | |
| | | | | | | | | | | | | | | |
| Cash and cash equivalents, end of the year | | $ | 622,385 | | | $ | 659,662 | | | $ | 661,377 | | | $ | 581,889 | | | $ | 622,385 | | | $ | 659,662 | |
| | | | | | | | | | | | | | | |
| Supplemental cash flow disclosures: | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash paid during the year for: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest | | $ | 40,026 | | | $ | 35,439 | | | $ | — | | | $ | 68,094 | | | $ | 40,026 | | | $ | 35,439 | |
| Income taxes | | $ | 371,978 | | | $ | 251,928 | | | $ | 397,931 | | | $ | 745,402 | | | $ | 371,978 | | | $ | 251,928 | |
| Non-cash financing activity: | | | | | | | | | | | | | | | | | | | | | | | | |
| Conversion of subordinated notes to common and treasury stock | | $ | — | | | $ | 38,986 | | | $ | — | | | $ | — | | | $ | — | | | $ | 38,986 | |
| Issuance of notes to Fumedica | | $ | — | | | $ | — | | | $ | 39,196 | | |
See Note 1, Business Overview and Summary of Significant Accounting Policiesto our Consolidated Financial Statements for a discussion of non-cash securities lending activities that occurred during the period.
See Note 14,Other Consolidated Financial Statement Detailto our Consolidated Financial Statements for discussion of a non monetary transaction under which we sold the development rights on a parcel of land in Cambridge, MA during 2008.
See accompanying notes to thethese consolidated financial statementsstatements.
F-4
BIOGEN IDEC INC. AND SUBSIDIARIES
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated
| | | | | | | | | | | | | | | | | | | | | | | Accumulated
| | Retained
| | | | | | | | | | | |
| | | Convertible
| | | | | | Additional
| | Other
| | Deferred
| | | | | | | | Total
| | | | | | | | | | | Additional
| | Other
| | Earnings/
| | | | | | Biogen Idec Inc.
| | | | Total
| |
| | | Preferred Stock | | Common Stock | | Paid-in
| | Comprehensive
| | Stock-Based
| | Accumulated
| | Treasury Stock | | Shareholders’
| | | Preferred Stock | | Common Stock | | Paid-in
| | Comprehensive
| | (Accumulated
| | Treasury Stock | | Shareholders’
| | Noncontrolling
| | Shareholders’
| |
| | | Shares | | Amount | | Shares | | Amount | | Capital | | (Loss) Income | | Compensation | | Deficit | | Shares | | Amount | | Equity | | | Shares | | Amount | | Shares | | Amount | | Capital | | Income | | Deficit) | | Shares | | Amount | | Equity | | Interest | | Equity | |
| | | (In thousands, except share amounts) | |
| | |
Balance, December 31, 2005 | | | 8 | | | $ | — | | | | 345,712 | | | $ | 173 | | | $ | 8,206,911 | | | $ | (13,910 | ) | | $ | (42,894 | ) | | $ | (1,021,644 | ) | | | (5,751 | ) | | $ | (222,760 | ) | | $ | 6,905,876 | | |
Balance, December 31, 2006 | | | | 8 | | | $ | — | | | | 345,637 | | | $ | 173 | | | $ | 8,308,232 | | | $ | 21,855 | | | $ | (860,827 | ) | | | (7,463 | ) | | $ | (319,655 | ) | | $ | 7,149,778 | | | $ | 9,839 | | | $ | 7,159,617 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 217,511 | | | | | | | | | | | | 217,511 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 638,172 | | | | | | | | | | | | 638,172 | | | | (58,427 | ) | | | 579,745 | |
| Unrealized gains on securities available for sale, net of tax of $3,062 | | | | | | | | | | | | | | | | | | | | | | | 4,793 | | | | | | | | | | | | | | | | | | | | 4,793 | | |
| Unrealized gains on foreign currency forward contracts, net of tax of $236 | | | | | | | | | | | | | | | | | | | | | | | 510 | | | | | | | | | | | | | | | | | | | | 510 | | |
| Unrealized gains on securities available for sale, net of tax of ($3,984) | | | | | | | | | | | | | | | | | | | | | | | | 9,124 | | | | | | | | | | | | | | | | 9,124 | | | | | | | | 9,124 | |
| Unrealized loss on foreign currency forward contracts, net of tax of $2,263 | | | | | | | | | | | | | | | | | | | | | | | | (3,962 | ) | | | | | | | | | | | | | | | (3,962 | ) | | | | | | | (3,962 | ) |
| Unrealized gains on pension benefit obligation, net of tax of ($370) | | | | | | | | | | | | | | | | | | | | | | | | 2,421 | | | | | | | | | | | | | | | | 2,421 | | | | | | | | 2,421 | |
| Translation adjustment | | | | | | | | | | | | | | | | | | | | | | | 31,205 | | | | | | | | | | | | | | | | | | | | 31,205 | | | | | | | | | | | | | | | | | | | | | | | | 49,808 | | | | | | | | | | | | | | | | 49,808 | | | | 1,397 | | | | 51,205 | |
| | | | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 254,019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 695,563 | | | | (57,030 | ) | | | 638,533 | |
| | | | | |
| Unrealized losses on pension benefit obligation, net of tax of $437 | | | | | | | | | | | | | | | | | | | | | | | (743 | ) | | | | | | | | | | | | | | | | | | | (743 | ) | |
| Repurchase of common stock for treasury, at cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (7,479 | ) | | | (320,268 | ) | | | (320,268 | ) | |
| Issuance of treasury stock under stock option and stock purchase plans | | | | | | | | | | | | | | | | | | | (30,360 | ) | | | | | | | | | | | (56,694 | ) | | | 5,767 | | | | 223,373 | | | | 136,319 | | |
| Forfeiture of common stock under restricted stock plan | | | | | | | | | | | (75 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortization of deferred stock compensation, net of forfeitures | | | | | | | | | | | | | | | | | | | | | | | | | | | 229 | | | | | | | | | | | | | | | | 229 | | |
| Deferred stock compensation adjustment for FAS 123R | | | | | | | | | | | | | | | | | | | (42,665 | ) | | | | | | | 42,665 | | | | | | | | | | | | | | | | — | | |
| Compensation expense related to share-based payments | | | | | | | | | | | | | | | | | | | 131,539 | | | | | | | | | | | | | | | | | | | | | | | | 131,539 | | |
| Tax benefit from share-based payments | | | | | | | | | | | | | | | | | | | 42,807 | | | | | | | | | | | | | | | | | | | | | | | | 42,807 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2006 | | | 8 | | | $ | — | | | | 345,637 | | | $ | 173 | | | $ | 8,308,232 | | | $ | 21,855 | | | $ | — | | | $ | (860,827 | ) | | | (7,463 | ) | | $ | (319,655 | ) | | $ | 7,149,778 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 638,172 | | | | | | | | | | | | 638,172 | | |
| Unrealized gains on securities available for sale, net of tax of $3,984 | | | | | | | | | | | | | | | | | | | | | | | 9,124 | | | | | | | | | | | | | | | | | | | | 9,124 | | |
| Unrealized loss on foreign currency forward contracts, net of tax of $2,263 | | | | | | | | | | | | | | | | | | | | | | | (3,962 | ) | | | | | | | | | | | | | | | | | | | (3,962 | ) | |
| Unrealized gains on pension benefit obligation, net of tax of $370 | | | | | | | | | | | | | | | | | | | | | | | 2,421 | | | | | | | | | | | | | | | | | | | | 2,421 | | |
| Translation adjustment | | | | | | | | | | | | | | | | | | | | | | | 49,808 | | | | | | | | | | | | | | | | | | | | 49,808 | | |
| | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 695,563 | | |
| | | | | |
| Repurchase and retirement of common stock pursuant to tender offer (Note 21) | | | | | | | | | | | (56,424 | ) | | | (29 | ) | | | (2,991,155 | ) | | | | | | | | | | | | | | | | | | | | | | | (2,991,184 | ) | |
| Fair value of assets and liabilities acquired and assigned to noncontrolling interest due to the adoption of a new accounting standard for the consolidation of variable interests | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 65,038 | | | | 65,038 | |
| Capital contribution from noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,881 | | | | 1,881 | |
| Repurchase and retirement of common stock pursuant to tender offer | | | | | | | | | | | | (56,424 | ) | | | (29 | ) | | | (2,991,155 | ) | | | | | | | | | | | | | | | | | | | (2,991,184 | ) | | | | | | | (2,991,184 | ) |
| Issuance of treasury stock from conversion of subordinated notes payable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (83,682 | ) | | | 2,850 | | | | 119,795 | | | | 36,113 | | | | | | | | | | | | | | | | | | | | | | | | | | | | (83,682 | ) | | | 2,850 | | | | 119,795 | | | | 36,113 | | | | | | | | 36,113 | |
| Issuance of common stock from conversion of subordinated notes payable | | | | | | | | | | | 182 | | | | — | | | | 2,371 | | | | | | | | | | | | | | | | | | | | | | | | 2,371 | | | | | | | | | | | | 182 | | | | — | | | | 2,371 | | | | | | | | | | | | | | | | | | | | 2,371 | | | | | | | | 2,371 | |
| Issuance of treasury stock under stock option and stock purchase plans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (33,824 | ) | | | 2,994 | | | | 135,720 | | | | 101,896 | | | | | | | | | | | | | | | | | | | | | | | | | | | | (33,824 | ) | | | 2,994 | | | | 135,720 | | | | 101,896 | | | | | | | | 101,896 | |
| Issuance of common stock under stock option and stock purchase plans | | | | | | | | | | | 8,017 | | | | 4 | | | | 386,928 | | | | | | | | | | | | | | | | | | | | | | | | 386,932 | | | | | | | | | | | | 8,017 | | | | 4 | | | | 386,928 | | | | | | | | | | | | | | | | | | | | 386,932 | | | | | | | | 386,932 | |
| Issuance of treasury stock under stock award plans | | | | | | | | | | | | | | | | | | | (48,292 | ) | | | | | | | | | | | 135 | | | | 465 | | | | 18,076 | | | | (30,081 | ) | | | | | | | | | | | | | | | | | | | (48,292 | ) | | | | | | | 135 | | | | 465 | | | | 18,076 | | | | (30,081 | ) | | | | | | | (30,081 | ) |
| Issuance of common stock under stock award plans | | | | | | | | | | | 45 | | | | — | | | | (2,744 | ) | | | | | | | | | | | (676 | ) | | | | | | | | | | | (3,420 | ) | | | | | | | | | | | 45 | | | | — | | | | (2,744 | ) | | | | | | | (676 | ) | | | | | | | | | | | (3,420 | ) | | | | | | | (3,420 | ) |
| Forfeiture of common stock under restricted stock plan | | | | | | | | | | | (16 | ) | | | — | | | | | | | | | | | | | | | | 2,378 | | | | (50 | ) | | | (2,378 | ) | | | — | | | | | | | | | | | | (16 | ) | | | — | | | | | | | | | | | | 2,378 | | | | (50 | ) | | | (2,378 | ) | | | — | | | | | | | | — | |
| Compensation expense related to share-based payments | | | | | | | | | | | | | | | | | | | 128,101 | | | | | | | | | | | | | | | | | | | | | | | | 128,101 | | | | | | | | | | | | | | | | | | | | 128,101 | | | | | | | | | | | | | | | | | | | | 128,101 | | | | | | | | 128,101 | |
| Tax benefit from share-based payments | | | | | | | | | | | | | | | | | | | 67,227 | | | | | | | | | | | | | | | | | | | | | | | | 67,227 | | | | | | | | | | | | | | | | | | | | 67,227 | | | | | | | | — | | | | | | | | | | | | 67,227 | | | | | | | | 67,227 | |
| Cumulative effect adjustment from adoption of FIN 48 | | | | | | | | | | | | | | | | | | | (10,583 | ) | | | | | | | | | | | 1,585 | | | | | | | | | | | | (8,998 | ) | |
| Adjustment for adoption for accounting of uncertain tax positions | | | | | | | | | | | | | | | | | | | | (10,583 | ) | | | | | | | 1,585 | | | | | | | | | | | | (8,998 | ) | | | | | | | (8,998 | ) |
| Treasury stock reclassifications | | | | | | | | | | | | (1,743 | ) | | | (1 | ) | | | (33,014 | ) | | | | | | | (15,430 | ) | | | 1,204 | | | | 48,442 | | | | (3 | ) | | | | | | | (3 | ) |
| �� | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2007 | | | | 8 | | | $ | — | | | | 295,698 | | | $ | 147 | | | $ | 5,807,071 | | | $ | 79,246 | | | $ | (352,169 | ) | | | — | | | $ | — | | | $ | 5,534,295 | | | $ | 19,728 | | | $ | 5,554,023 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | | 783,167 | | | | | | | | | | | | 783,167 | | | | 6,940 | | | | 790,107 | |
| Unrealized loss on securities available for sale, net of tax of ($1,123) | | | | | | | | | | | | | | | | | | | | | | | | (67 | ) | | | | | | | | | | | | | | | (67 | ) | | | | | | | (67 | ) |
| Unrealized loss on foreign currency forward contracts, net of tax of $1,522 | | | | | | | | | | | | | | | | | | | | | | | | (36,140 | ) | | | | | | | | | | | | | | | (36,140 | ) | | | | | | | (36,140 | ) |
| Unrealized loss on pension benefit obligation, net of tax of $0 | | | | | | | | | | | | | | | | | | | | | | | | (43 | ) | | | | | | | | | | | | | | | (43 | ) | | | | | | | (43 | ) |
| Translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | (54,102 | ) | | | | | | | | | | | | | | | (54,102 | ) | | | (846 | ) | | | (54,948 | ) |
| | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 692,815 | | | | 6,094 | | | | 698,909 | |
| Distribution to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (2,817 | ) | | | (2,817 | ) |
| Capital contribution from noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,864 | | | | 4,864 | |
| Repurchase of common stock for Treasury, at cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (12,778 | ) | | | (738,938 | ) | | | (738,938 | ) | | | | | | | (738,938 | ) |
| Issuance of common stock from conversion of subordinated notes payable | | | | | | | | | | | | 16 | | | | — | | | | 227 | | | | | | | | | | | | | | | | | | | | 227 | | | | | | | | 227 | |
| Issuance of common stock under stock option and stock purchase plans | | | | | | | | | | | | 852 | | | | 1 | | | | 34,297 | | | | | | | | (56,223 | ) | | | 3,380 | | | | 200,411 | | | | 178,486 | | | | | | | | 178,486 | |
| Issuance of common stock under stock award plans | | | | | | | | | | | | 688 | | | | 1 | | | | (29,800 | ) | | | | | | | (26,026 | ) | | | 191 | | | | 11,430 | | | | (44,395 | ) | | | | | | | (44,395 | ) |
| Forfeiture of common stock under restricted stock plan | | | | | | | | | | | | (1 | ) | | | — | | | | — | | | | | | | | | | | | | | | | | | | | — | | | | | | | | — | |
| Compensation expense related to share-based payments | | | | | | | | | | | | | | | | | | | | 153,748 | | | | | | | | | | | | | | | | | | | | 153,748 | | | | | | | | 153,748 | |
| Tax benefit from share-based payments | | | | | | | | | | | | | | | | | | | | 29,845 | | | | | | | | | | | | | | | | | | | | 29,845 | | | | | | | | 29,845 | |
| Treasury stock reclassifications | | | | | | | | | | | (1,743 | ) | | | (1 | ) | | | (33,014 | ) | | | | | | | | | | | (15,430 | ) | | | 1,204 | | | | 48,442 | | | | (3 | ) | | | | | | | | | | | | | | | | | | | 78,569 | | | | | | | | (78,569 | ) | | | | | | | | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2007 | | | 8 | | | $ | — | | | | 295,698 | | | $ | 147 | | | $ | 5,807,071 | | | $ | 79,246 | | | $ | — | | | $ | (352,169 | ) | | | — | | | $ | — | | | $ | 5,534,295 | | |
Balance, December 31, 2008 | | | | 8 | | | $ | — | | | | 297,253 | | | $ | 149 | | | $ | 6,073,957 | | | $ | (11,106 | ) | | $ | 270,180 | | | | (9,207 | ) | | $ | (527,097 | ) | | $ | 5,806,083 | | | $ | 27,869 | | | $ | 5,833,952 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to thethese consolidated financial statements.
F-5
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY — (Continued)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Accumulated
| | | | | | | | | | | | | | | | |
| | | Convertible
| | | | | | | | | Additional
| | | Other
| | | Deferred
| | | | | | | | | | | | Total
| |
| | | Preferred Stock | | | Common Stock | | | Paid-in
| | | Comprehensive
| | | Stock-Based
| | | Retained
| | | Treasury Stock | | | Shareholders’
| |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | (Loss) Income | | | Compensation | | | Earnings | | | Shares | | | Amount | | | Equity | |
| | | (In thousands, except share amounts) | |
| |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 783,167 | | | | | | | | | | | | 783,167 | |
| Unrealized gains on securities available for sale, net of tax of $(1,123) | | | | | | | | | | | | | | | | | | | | | | | (67 | ) | | | | | | | | | | | | | | | | | | | (67 | ) |
| Unrealized loss on foreign currency forward contracts, net of tax of $(1,522) | | | | | | | | | | | | | | | | | | | | | | | (36,140 | ) | | | | | | | | | | | | | | | | | | | (36,140 | ) |
| Unrealized gains on pension benefit obligation, net of tax of $0 | | | | | | | | | | | | | | | | | | | | | | | (43 | ) | | | | | | | | | | | | | | | | | | | (43 | ) |
| Translation adjustment | | | | | | | | | | | | | | | | | | | | | | | (54,102 | ) | | | | | | | | | | | | | | | | | | | (54,102 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 692,815 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Repurchase of common stock for Treasury, at cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (12,778 | ) | | | (738,938 | ) | | | (738,938 | ) |
| Issuance of common stock from conversion of subordinated notes payable | | | | | | | | | | | 16 | | | | — | | | | 227 | | | | | | | | | | | | | | | | — | | | | — | | | | 227 | |
| Issuance of common stock under stock option and stock purchase plans | | | | | | | | | | | 852 | | | | 1 | | | | 34,297 | | | | | | | | | | | | (56,223 | ) | | | 3,380 | | | | 200,411 | | | | 178,486 | |
| Issuance of common stock under stock award plans | | | | | | | | | | | 688 | | | | 1 | | | | (29,800 | ) | | | | | | | | | | | (26,026 | ) | | | 191 | | | | 11,430 | | | | (44,395 | ) |
| Forfeiture of common stock under restricted stock plan | | | | | | | | | | | (1 | ) | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | — | |
| Compensation expense related to share-based payments | | | | | | | | | | | | | | | | | | | 153,748 | | | | | | | | | | | | | | | | | | | | | | | | 153,748 | |
| Tax benefit from share-based payments | | | | | | | | | | | | | | | | | | | 29,845 | | | | | | | | | | | | | | | | | | | | | | | | 29,845 | |
| Treasury stock reclassification | | | | | | | | | | | | | | | | | | | 78,569 | | | | | | | | | | | | (78,569 | ) | | | | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2008 | | | 8 | | | $ | — | | | | 297,253 | | | $ | 149 | | | $ | 6,073,957 | | | $ | (11,106 | ) | | $ | — | | | $ | 270,180 | | | | (9,207 | ) | | $ | (527,097 | ) | | $ | 5,806,083 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Accumulated
| | | Retained
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Additional
| | | Other
| | | Earnings/
| | | | | | | | | Biogen Idec Inc.
| | | | | | Total
| |
| | | Preferred Stock | | | Common Stock | | | Paid-in
| | | Comprehensive
| | | (Accumulated
| | | Treasury Stock | | | Shareholders’
| | | Noncontrolling
| | | Shareholders’
| |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Income | | | Deficit) | | | Shares | | | Amount | | | Equity | | | Interest | | | Equity | |
| |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | 970,132 | | | | | | | | | | | | 970,132 | | | | 6,930 | | | | 977,062 | |
| Unrealized gains on securities available for sale, net of tax of $(379) | | | | | | | | | | | | | | | | | | | | | | | 795 | | | | | | | | | | | | | | | | 795 | | | | | | | | 795 | |
| Unrealized gains on foreign currency forward contracts, net of tax of $(3,582) | | | | | | | | | | | | | | | | | | | | | | | 41,668 | | | | | | | | | | | | | | | | 41,668 | | | | | | | | 41,668 | |
| Unrealized gains on pension benefit obligation, net of tax of $(67) | | | | | | | | | | | | | | | | | | | | | | | 501 | | | | | | | | | | | | | | | | 501 | | | | | | | | 501 | |
| Translation adjustment | | | | | | | | | | | | | | | | | | | | | | | 18,638 | | | | | | | | | | | | | | | | 18,638 | | | | 1,197 | | | | 19,835 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,031,734 | | | | 8,127 | | | | 1,039,861 | |
| Distrbution to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | (2,832 | ) | | | (2,832 | ) |
| Capital contribution from noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 7,188 | | | | 7,188 | |
| Repurchase of common stock for Treasury, at cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (15,982 | ) | | | (751,170 | ) | | | (751,170 | ) | | | | | | | (751,170 | ) |
| Retirement of common stock pursuant to 2009 stock repurchase plan | | | | | | | | | | | (8,759 | ) | | | (5 | ) | | | (422,415 | ) | | | | | | | | | | | 8,759 | | | | 422,420 | | | | — | | | | | | | | — | |
| Issuance of treasury stock under stock option and stock purchase plans | | | | | | | | | | | | | | | | | | | | | | | | | | | (27,191 | ) | | | 1,181 | | | | 75,001 | | | | 47,810 | | | | | | | | 47,810 | |
| Issuance of treasury stock under stock award plans | | | | | | | | | | | | | | | | | | | | | | | | | | | (144,231 | ) | | | 1,610 | | | | 100,926 | | | | (43,305 | ) | | | | | | | (43,305 | ) |
| Compensation expense related to share-based payments | | | | | | | | | | | | | | | | | | | 167,207 | | | | | | | | | | | | | | | | | | | | 167,207 | | | | | | | | 167,207 | |
| Tax benefit from share-based payments | | | | | | | | | | | | | | | | | | | (36,829 | ) | | | | | | | | | | | | | | | | | | | (36,829 | ) | | | | | | | (36,829 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to thethese consolidated financial statements.
BIOGEN IDEC INC. AND SUBSIDIARIES
| |
| 1. | Business Overview and Summary of Significant Accounting Policies |
OverviewBasis of Presentation
Consolidation
Biogen Idec Inc. (“Biogen Idec,” “we,” “us” or “the Company”) is an internationala global biotechnology company that creates new standards of care in therapeutic areas with high unmet medical needs. We currently market four products: AVONEX®, RITUXAN®, TYSABRI® and FUMADERM®.
Principles of Consolidation
TheOur consolidated financial statements reflect our financial statements, those of our wholly-owned subsidiaries, certain variable interest entities in which we are the primary beneficiary and those of our joint ventures in Italy and Switzerland, Biogen DompeDompé SRL and Biogen DompeDompé Switzerland Gmbh,GmbH, respectively. In accordance with FASB Interpretation No. 46 (Revised 2003),Consolidation of Variable Interest Entities, or FIN 46(R), we consolidate variable interest entities in which we are the primary beneficiary. For such consolidated entities in which we own less than a 100% interest, we record minoritynet income (loss) attributable to noncontrolling interest in our statementconsolidated statements of income forequal to the ownership interestpercentage of the minority owner.interest retained in the collaborative arrangement by the respective noncontrolling parties. All material intercompany balances and transactions have been eliminated in consolidation.
In determining whether we are the primary beneficiary, we consider a number of factors, including determining the expected losses and residual returns of the technologies being developed pursuant to collaborations and other economic risk and reward of such collaborations; these considerations impact the way we account for our existing collaborative relationships and may result in the future consolidation of companies or entities with which we have a collaborative arrangement.
Use of Estimates
The preparation of consolidated financial statements in accordance with generally accepted accounting principlesU.S. GAAP requires our management to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-goingongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition and related allowances, marketable securities, derivatives and hedging activities, inventory, impairments of long-lived assets including intangible assets, impairments of goodwill, income taxes including the valuation allowance for deferred tax assets, valuation of long-lived assets and investments, research and development expenses, contingencies and litigation, and share-based payments. 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 and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Reclassifications
Where specified, certain prior-year amounts have been reclassified to conform to the current year’s presentation.
Translation of Foreign CurrenciesSubsequent Events
The functional currencyWe evaluated all events and transactions through February 9, 2009, the date we issued these financial statements. During this period we did not have any material recognizable subsequent events. However, we did have the following nonrecognizable subsequent events:
| | |
| • | In January 2010, Syntonix Pharmaceuticals, Inc. (Syntonix) achieved a significant development milestone obligating us to pay $40.0 million to its former shareholders. As the milestone occurred after December 31, 2009, the obligation is not reflected within our consolidated balance sheet as of that date. Such obligations are recorded when the milestone has been achieved due to the uncertainty surrounding triggering events. Refer to Note 2,Acquisitions and Dispositionsto our Consolidated Financial Statements for additional discussion. |
F-7
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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; the seller’s price to the buyer is fixed or determinable; and collectibility 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, Elan to its third party distributor rather than upon shipment to Elan.
Product revenues are recorded net of applicable reserves for mosttrade term discounts, wholesaler incentives, Medicaid rebates, Veterans Administration (VA) rebates, managed care rebates, product returns and other applicable allowances.
Revenues from Unconsolidated Joint Business
We collaborate with the Roche Group, through its wholly-owned member Genentech, Inc., 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 foreign subsidiaries is their local currency. Assetsselling and liabilitiesdevelopment expense in the U.S.; and (3) revenue on sales of RITUXAN in the rest of world, which consist of our share of pretax 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 translated at current ratescalculated and paid to us by Genentech in the U.S. and by Roche in Canada. Pre-tax co-promotion profits consist of exchange atU.S. and Canadian sales of RITUXAN to third-party customers net of discounts and allowances less the balance sheet date. Incomecost to manufacture RITUXAN,third-party royalty expenses, distribution, selling and expense itemsmarketing, and joint development expenses incurred by Genentech, Roche and us. We record our royalty and co-promotion profits revenue on sales of RITUXAN in the rest of world on a cash basis.
Royalty Revenues
We receive royalty revenues on sales by our licensees of other products covered under patents that we own. There are translated at the average exchange rates for the period. Adjustments resulting from the translationno future performance obligations on our part under these license arrangements. We record these revenues based on estimates of the financialsales 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 revenue, we record revenues on a cash basis.
Milestone Revenues
Under the terms of our collaboration agreement with Elan was required to make milestone payments to us in order to continue sharing equally in the collaboration’s results. These amounts, recorded as deferred revenue upon receipt, are recognized as product revenue in our consolidated statements of income over the term of the collaboration agreement based on a units of revenue method whereby the revenue recognized is 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reserves for Discounts and Allowances
We establish reserves for trade term discounts, wholesaler incentives, Medicaid rebates, Veteran’s Administration (VA) rebates, managed care rebates, product returns and other applicable allowances. Reserves established for these discounts and allowances are classified as reductions of accounts receivable (if the amount is payable to our foreign operations into U.S. dollarscustomer) or a liability (if the amount is payable to a party other than our customer).
In addition, we distribute no-charge product to qualifying patients under our patient assistance and patient replacement goods programs. This program is administered through one of our distribution partners, who ships product for qualifying patients from their own inventory purchased from us. Gross revenue and the related reserves are excluded fromnot recorded on product shipped under this program and cost of sales is recorded when the determinationproduct is shipped.
Product revenue reserves are categorized as follows: discounts, contractual adjustments, and returns.
Discount reserves include trade term discounts and wholesaler incentives. Trade term discounts and wholesaler incentive reserves 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 experience, including the timing of net incomecustomer payments.
Contractual adjustment reserves primarily relate to Medicaid, VA and managed care rebates.
| | |
| • | Medicaid rebate reserves 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 accrued expenses and other current liabilities. Rebate amounts are generally determined at the time of claim by the state, and we generally make cash payments for such amounts within a few weeks of receiving billings from the state. |
|
| • | VA rebates or chargeback reserves 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 accruals 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 receiving notification from the wholesaler. |
|
| • | Managed care rebates reserves 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 to product revenue and the establishment of a liability which is included in accrued expenses and other current liabilities. These rebates result from performance-based offers that are primarily based on attaining contractually specified sales volumes and growth. 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. |
Allowances for product returns are established for returns made by wholesalers and patients and are recorded in accumulatedthe period the related revenue is recognized, resulting in a reduction to product revenue. In accordance with contractual terms, wholesalers are permitted to return product for reasons such as damaged or expired product. We also accept returns from our patients for various reasons.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Bad debt reserves are based on our estimated uncollectible accounts receivable. Given our historical experiences with bad debts, combined with our credit management policies and practices, we do not presently maintain significant bad debt reserves.
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 comprehensive income,customers in the distribution channel that provide us with inventory management and distribution services. We have established the fair value of these services and classified these customer service contracts as sales and marketing expense. If we had concluded that we did not receive a separate componentidentifiable benefit or have sufficient evidence that the fair value did not exist for these services, we would have been required to classify these costs as a reduction of shareholders’ equity.
Foreign exchange transaction gains and losses are included in the results of operations in other income (expense), net. We had net foreign exchange gains (losses) of $(9.8) million, $3.0 million, and $4.9 million in 2008, 2007, and 2006, respectively.revenue.
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, 2009, cash equivalents were comprised of money market funds and commercial paper.
Fair Value Measurements
Effective January 1, 2009, we adopted a newly issued accounting standard for fair value measurements of all nonfinancial assets and nonfinancial liabilities not recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of the accounting standard for these assets and liabilities did not have a material impact on our financial position or results of operations; however, this standard may impact us in subsequent periods and require additional disclosures.
In the second quarter of 2009, we implemented newly issued accounting standards which provide guidance for determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying circumstances that indicate that a transaction is not orderly. Specifically, the new standards provide additional guidelines for making fair value measurements more consistent with the principles presented and provide authoritative guidance in determining whether a market is active or inactive, and whether a transaction is distressed. This guidance is applicable to all assets and liabilities (i.e. financial and nonfinancial) and requires enhanced disclosures, including interim and annual disclosure of the input and valuation techniques (or changes in techniques) used to measure fair value and the defining of the major security types comprising debt and equity securities held based upon the nature and risk of the security. The adoption of the new standards did not impact our financial position or results of operations; however, adoption has enhanced disclosures for our investments in marketable debt securities and resulted in the reclassification of certain amounts included within our previously reported disclosures to conform to the presentation adopted in the current year.
Effective January 1, 2008, we implemented Statement of Financial Accounting Standard No. 157, Fair Value Measurement, or SFAS 157,adopted a standard for fair value measurements for our financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
annually. In accordance with the provisions of FSPNo. FAS 157-2, Effective Date of FASB Statement No. 157, we have elected to defer implementation of SFAS 157 as it relates to our non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until January 1, 2009.
The adoption of SFAS 157 for financial assets and liabilities and non-financial assets and liabilities that are re-measured and reported at fair value at least annuallythis guidance did not have an impact on our consolidated financial results.position or results of operations.
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 SFAS 157. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active marketsthe accounting standards for identical assets or liabilities 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 and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability.fair value measurements.
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| • | 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; |
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| • | 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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BIOGEN IDEC INC. AND SUBSIDIARIES
Our publicly traded strategic investments have been classified as Level 1 because their fair value are based on quoted market prices. All of our marketable debt securities have been classified as Level 2. These assets have been initially valued at the transaction price and subsequently valued utilizing market-based inputs, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates, other industry, and economic events. The fair values of our foreign currency forward contracts, interest rate swaps, debt instruments and plan assets for deferred compensation are based on market inputs and have been classified as Level 2. 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 financingand/orNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) by reviewing the underlying economic fundamentals and liquidation value of the companies.
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| • | Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
The carrying amounts reflected in the consolidated balance sheets for cash, and cash equivalents, 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.
InventoryConcentration of Credit Risks
Inventories are stated at the lower of cost or market with cost determined under thefirst-in, first-out, or FIFO, method. Included in inventory are raw materials used in the production of pre-clinicalOur primary exposure to credit risk derives from our cash, cash equivalents, marketable securities, and clinical products, which are charged to researchreceivables from customers and development expense when consumed.
The components of inventories are as follows (in millions):
| | | | | | | | | |
| | | December 31, | |
| | | 2008 | | | 2007 | |
| |
| Raw materials | | $ | 29.8 | | | $ | 46.4 | |
| Work in process | | | 180.0 | | | | 155.4 | |
| Finished goods | | | 53.8 | | | | 32.2 | |
| | | | | | | | | |
| | | $ | 263.6 | | | $ | 234.0 | |
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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 product stands in relation to that approval process including any known constraints and impediments to approval, including safety, efficacy and potential labeling restrictions. We evaluate our anticipated research and development initiatives and constraints relating to the particular product and the indication in which it will be used. We consider our
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
manufacturing environment including our supply chain in determining logistical constraints that could possibly 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 cause delay in commercialization. We are sensitive to the significant commitment of capital to scale up production and to launch commercialization strategies. 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 delay of approval by necessary regulatory bodies. As of December 31, 2008 and 2007, the carrying value of our inventory did not include any costs associated with products that had not yet received regulatory approval.
Inventory Write-Offs
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 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.
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. As a result, included in cost of sales were write-downs of commercial inventory that did not meet quality specifications or that became obsolete due to dating expiration. In all cases product inventory is written-down to its estimated net realizable value.
We have written-down the following unmarketable inventory, which was charged to cost of sales (in millions):
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| AVONEX | | $ | 14.9 | | | $ | 11.1 | | | $ | 4.4 | |
| TYSABRI | | | 7.6 | | | | 4.0 | | | | 2.9 | |
| FUMADERM | | | — | | | | 0.1 | | | | — | |
| AMEVIVE | | | 6.0 | | | | 0.1 | | | | 2.4 | |
| ZEVALIN | | | 1.3 | | | | 6.3 | | | | 3.3 | |
| | | | | | | | | | | | | |
| | | $ | 29.8 | | | $ | 21.6 | | | $ | 13.0 | |
| | | | | | | | | | | | | |
The write-downs were the result of the following (in millions):
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| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Failed quality specifications | | $ | 16.0 | | | $ | 12.0 | | | $ | 11.2 | |
| Excess and/or obsolescence | | | 13.8 | | | | 9.6 | | | | 1.8 | |
| | | | | | | | | | | | | |
| | | $ | 29.8 | | | $ | 21.6 | | | $ | 13.0 | |
| | | | | | | | | | | | | |
Marketable Securities and Investments
Marketable Securities, including Strategic Investmentscollaborative partners.
Until required for use in the business, we invest our cash reserves in bank deposits, certificates of deposit, commercial paper, corporate notes, foreign and U.S. government instruments, asset backedincluding government sponsored enterprise mortgage-backed securities, credit card and auto loan asset-backed securities and other marketable debt instruments.instruments in accordance with our investment policy. We limitmitigate credit risk by maintaining a well diversified portfolio and limiting the amount of investment exposure as to institution, maturity and investment type. At
Concentrations of credit risk with respect to receivables, which are typically unsecured, are generally 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 payable by wholesale distributors, large pharmaceutical companies and public hospitals. 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. Our historical write-offs of accounts receivable have not been significant. As of December 31, 2009 and 2008, allone wholesale distributor accounted for approximately 8.1% and 11.0% of these securities were classified as “available-for-sale” in accordance with Statement ofconsolidated receivables, respectively.
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BIOGEN IDEC INC. AND SUBSIDIARIES
Marketable Securities and Other Investments
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Marketable Debt Securities
Financial Accounting Standards No. 115,Accounting for Certain Investments in Debt and Equity Securities, or SFAS 115. All available-for-saleAvailable-for-sale debt securities are recorded at fair market value and unrealized gains and losses to the extent deemed temporary, are included in accumulated other comprehensive income in shareholders’ equity, net of related tax effects.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. Declines in value determined to be other than temporary, net, on available for sale securities are reported in other income (expense) net. This can include losses due to, among other factors, changes in credit quality, interest rates, or value declines resulting from the disruption in the capital markets during the latter half of 2008. Valuation of available-for-sale securities for purposes of determining the amount of gains and losses is based on thea specific identification method.basis.
Strategic Investments
As part of our strategic product development efforts, we invest in equity securities of certain biotechnology companies some of which we have collaborative agreements with suchcompanies. These investments are known as strategic investments and are classified as available for saleavailable-for-sale and accounted for as marketable securitiesequity investments or as cost investments under Accounting Principles Board Opinion No. 18,The Equity Methodbased upon our percentage ownership interest and other factors which may indicate the presumption of Accounting for Investments in Common Stock,or APB 18 and related interpretations.significant influence. When assessing whether a decline in the fair value of a strategic investment below our cost basis isother-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 clinical trial results, new product initiatives and new collaborative agreements.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 percentage ownership interest and other factors which may indicate the existencepresence of significant influence, as required by APB 18 and related interpretations.influence. We monitor these investments to evaluate whether any decline in their value has occurred that
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
would be other than temporary,other-than-temporary, based on the implied value from any recent rounds of financing completed by the investee,company, public market prices of comparable public companies, and general market conditions.
Securities lendingLending
We are able to loan certain securities from our portfolio to other institutions. Such securities are classified as loaned securities on the accompanying consolidated balance sheet.sheets. Collateral for the loaned securities, consisting of cash or other securities, is maintained at a rate of approximately 102% of the market value of each loaned security. We previously loaned certain securities from our portfolio to other institutions and held cash as collateral in the amount of $30.0 million and $208.2 million as of December 31, 2008 and 2007, respectively.in relation to such loans. The cash collateral iswas recorded as collateral received for loaned securities on the consolidated balance sheet. We have a current obligation to return the collateral which is reflected as collateral received on loaned securities on the accompanying consolidated balance sheet. IncomeNo such loans were outstanding as of December 31, 2009; accordingly, no collateral was held as of December 31, 2009.
Other-than-Temporary Impairments
In April 2009, we implemented a newly issued accounting standard which provides guidance for the recognition, measurement and presentation ofother-than-temporary impairments. This newly issued standard amended theother-than-temporary impairment model for debt securities and requires additional disclosures regarding the calculation of credit losses and the factors considered in reaching a conclusion that an investment isother-than-temporarily impaired. The impairment model for equity securities was not affected.
Prior to our adoption of this new accounting standard, we recognized allother-than-temporary impairment amounts related to our debt securities in earnings as required under the previously effective guidance which required that management assert that it had the ability and intent to hold a debt security until maturity or until we recovered the cost of our investment. Under the new accounting standards, another-than-temporary impairment must be recognized through earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost basis. However, even if an investor does not expect to sell a debt security, expected cash flows to be received must be evaluated to determine if a credit loss has occurred. In the event of a credit loss, only the amount associated with the credit loss is recognized in income. The amount of losses relating to other factors, including those resulting from lending securities ischanges in interest rates, are recorded in accumulated other income (expense), net.comprehensive income. The adoption of this guidance did not have a material impact on our financial position or results of operations.
Inventory
Inventories are stated at the lower of cost or market with cost determined under thefirst-in, first-out (FIFO) method. Included in inventory are raw materials used in the production of pre-clinical and clinical products, which are charged to research and development expense when consumed.
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.
Inventory Write-Offs
We periodically review our inventories for excess or obsolete inventory and write-down obsolete or otherwise unmarketable inventory to its estimated net realizable value.
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. Depreciation is generally calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the useful life or the term of the respective lease. Maintenance costs are expensed as incurred. Buildings and building components are depreciated over estimated useful lives ranging from 15 to 40 years, machinery and equipment from 6 to 15 years, furniture and fixtures for 7 years and computer software and hardware from 3 to 5 years. Interest costs incurred during the construction of major capital projects are capitalized in accordance with Statement of Financial Accounting Standards No. 34,Capitalization of Interest Costs,or SFAS 34. The interest is capitalized until the underlying asset is ready for its intended use, at which point the interest cost is amortized as depreciation expense over the life of the underlying asset. We capitalize certain direct
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 manufacturing equipment for the production of a commercially approved drug. These costs include primarily direct labor and material and are incurred in preparing the equipment for its intended use. The validation costs are amortized over the life of the related equipment. Maintenance costs are expensed as incurred.
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 |
| Machinery and Equipment | | 6 to 15 years |
| Furniture and Fixtures | | 7 years |
| Computer Software and Hardware | | 3 to 5 years |
Intangible Assets excluding Goodwill
Effective January 1, 2009, we implemented an amendment to the accounting and disclosure requirements related to intangible assets. This amendment provides guidance for determining the useful life of a recognized intangible asset and requires enhanced disclosures so that users of financial statements are able to assess the extent to which the expected future cash flows associated with the asset are affected by our intent and ability to renew or extend the arrangement. The adoption of this guidance did not impact our financial position or results of operations as this standard was required to be implemented prospectively; however, this standard may impact us in subsequent periods.
Our intangible assets consist of patents, licenses, core developed technology, trademarks, and tradenames, core technology, licenses, assembled workforce, and distribution rights, the majority of which arose in connection with the merger of Biogen Inc. and IdecIDEC Pharmaceuticals Corporation or the Merger.Corporation. These intangible assets were recorded at fair value and are stated net of accumulated amortization and impairments.
Intangible assets related to patents, core technology, licenses, assembled workforce and distribution rights are amortized over their remaining estimatedThe useful lives ranging from 2 to 20 years.of our intangible assets are primarily based on the legal or contractual life of the underlying patent or contract, which does not include additional years for the potential extension or renewal of the contract or patent. Our amortization policy for intangible assets is based on the generally accepted accounting principles in Statementfor amortization of Financial Standards No. 142,Goodwill and Other Intangible Assets, or SFAS 142,intangible assets, which requires that the amortization of intangible assets reflect the pattern that the economic benefits of the intangible assetassets are consumed. We believe the economic benefit of our core technology is consumed as revenue is generated from our AVONEX product. Every year during the third quarter we complete our long range planning cycle, which includes an analysis of the anticipated product sales of AVONEX. The results of this forecast serve as the basis for our assumptions used in the economic consumption amortization model for our core technology intangible assets. Although we believe our process has allowed us to reliably determine our best estimate of the pattern in which we will consume the economic benefits of the core technology intangible assets, the model results in deferring amortization charges to future periods in certain instances, including the impact of continued sales of the product at a nominal level after patent expiration. Consequently, in establishing our methodology, we considered models that would prevent deferring amortization charges to future periods such as the model described in paragraph 8 of Statement of Financial Standards No. 86,Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,or SFAS 86. In order to ensure amortization charges are not unreasonably deferred to future periods, we use the straight-line method to determine the minimum annual amount of amortization expense, or the minimum. The long range planning process determines whether amortization will be based on an economic consumption or the minimum and, thus, the amount of amortization for the next four quarters. Amortization is currently based on the economic consumption model.
Intangible assets related to patents, licenses, core developed technology, assembled workforce, and distribution rights are amortized over their remaining estimated useful lives. Intangible assets related to trademarks and tradenames have indefinite lives, and as a result are not amortized, but 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 which was established at the time of the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation. The net book value of this asset as of December 31, 2009 was $1,516.7 million.
We believe the economic benefit of this core technology is consumed as revenue is generated from our AVONEX product. An analysis of the anticipated lifetime revenue of AVONEX is performed at least annually during our long range planning cycle. The results of this forecast serve as the basis for our assumptions used in the economic consumption amortization model for our core technology intangible asset. Although 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, the model could result in deferring amortization charges to future periods in certain instances due to continued sales of the product at a nominal level after patent expiration or
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
otherwise. In order to ensure amortization charges are not unreasonably deferred to future periods, we use the straight-line method to determine the minimum annual amount of amortization expense (the minimum amortization amount). This minimum amortization amount is recalculated each year based on the remaining unamortized balance of the intangible asset and the remaining estimated useful life of the intangible asset and is compared to the amount of amortization determined under the economic consumption model. We record amortization based upon the higher of the amount of amortization determined under the economic consumption model or the minimum amortization amount determined under the straight-line method.
ImpairmentConcentration of Long-Lived AssetsCredit Risks
Long-lived assetsOur primary exposure to be heldcredit risk derives from our cash, cash equivalents, marketable securities, and used,receivables from customers and collaborative partners.
Until required for use in the business, we invest our cash in bank deposits, certificates of deposit, commercial paper, corporate notes, foreign and U.S. government instruments, including property plantgovernment sponsored enterprise mortgage-backed securities, credit card and equipmentauto loan asset-backed securities and other marketable debt instruments in accordance with our investment policy. We mitigate credit risk by maintaining a well diversified portfolio and limiting the amount of investment exposure as to institution, maturity and investment type.
Concentrations of credit risk with respect to receivables, which are typically unsecured, are generally limited due to the wide variety of customers and markets using our products, as well as intangible assetstheir dispersion across many different geographic areas. Our accounts receivable are reviewed for impairment whenever events orpayable by wholesale distributors, large pharmaceutical companies and public hospitals. We monitor the financial performance and credit worthiness of our large customers so that we can properly assess and respond to changes in circumstancestheir credit profile. Our historical write-offs of accounts receivable have not been significant. As of December 31, 2009 and 2008, one wholesale distributor accounted for approximately 8.1% and 11.0% of consolidated receivables, respectively.
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 in shareholders’ 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.
Strategic Investments
As part of our strategic product development efforts, we invest in equity securities of certain biotechnology companies. These investments are known as strategic investments and are classified asavailable-for-sale and accounted for as marketable equity investments or as cost investments based upon our percentage ownership interest and other factors which may indicate that the carrying amountpresumption of the assets may not be recoverable. Conditions that would necessitate an impairment assessment includesignificant influence. When assessing whether a significant decline in the observablefair value of a strategic investment below our cost basis isother-than-temporary, we consider the fair market value of an asset, a significant change in the extent or mannersecurity, the duration of the security’s decline, and prospects for the underlying business, including favorable clinical trial results, new product initiatives and new collaborative agreements with the companies in which an asset is used, or a significant adverse change that would indicate that the carrying amountwe have invested.
Non-Marketable Equity Securities
We also invest in equity securities of an asset or group of assetscompanies whose securities are not publicly traded and where fair value is not recoverable. Determinationreadily available. These investments are recorded using either the cost method or the equity method of recoverability is basedaccounting, depending on an estimateour percentage ownership interest and other factors which may indicate the presence of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the eventsignificant influence. We monitor these investments to evaluate whether any decline in their value has occurred 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 estimated fair values. Long-lived assets to be disposed of are carried at fair value less costs to sell.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
would beother-than-temporary, based on the implied value from any recent rounds of financing completed by the company, public market prices of comparable companies, and general market conditions.
Securities Lending
We are able to loan certain securities from our portfolio to other institutions. Such securities are classified as loaned securities on the accompanying consolidated balance sheets. Collateral for the loaned securities, consisting of cash or other securities, is maintained at a rate of approximately 102% of the market value of each loaned security. We previously loaned certain securities from our portfolio to other institutions and held collateral in the amount of $30.0 million as of December 31, 2008 in relation to such loans. The cash collateral was recorded as collateral received for loaned securities on the accompanying consolidated balance sheet. No such loans were outstanding as of December 31, 2009; accordingly, no collateral was held as of December 31, 2009.
Other-than-Temporary Impairments
In April 2009, we implemented a newly issued accounting standard which provides guidance for the recognition, measurement and presentation ofother-than-temporary impairments. This newly issued standard amended theother-than-temporary impairment model for debt securities and requires additional disclosures regarding the calculation of credit losses and the factors considered in reaching a conclusion that an investment isother-than-temporarily impaired. The impairment model for equity securities was not affected.
Prior to our adoption of this new accounting standard, we recognized allother-than-temporary impairment amounts related to our debt securities in earnings as required under the previously effective guidance which required that management assert that it had the ability and intent to hold a debt security until maturity or until we recovered the cost of our investment. Under the new accounting standards, another-than-temporary impairment must be recognized through earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost basis. However, even if an investor does not expect to sell a debt security, expected cash flows to be received must be evaluated to determine if a credit loss has occurred. In the event of a credit loss, only the amount associated with the credit loss is recognized in income. The amount of losses relating to other factors, including those resulting from changes in interest rates, are recorded in accumulated other comprehensive income. The adoption of this guidance did not have a material impact on our financial position or results of operations.
GoodwillInventory
Goodwill relates largelyInventories are stated at the lower of cost or market with cost determined under thefirst-in, first-out (FIFO) method. Included in inventory are raw materials used in the production of pre-clinical and clinical products, which are charged to amounts that arose in connectionresearch and development expense when consumed.
We capitalize inventory costs associated with the Merger and represents the difference between the purchase priceour products prior to regulatory approval when, based on management’s judgment, future commercialization is considered probable and the fair value of the identifiable tangiblefuture economic benefit is expected to be realized.
Inventory Write-Offs
We periodically review our inventories for excess or obsolete inventory and intangiblewrite-down obsolete or otherwise unmarketable inventory to its estimated net assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but isrealizable value.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, subject to periodic review for impairment. Goodwill is reviewed annually, as of October 31, andimpairment whenever events or changes in circumstances indicate that the carrying amount of the goodwill mightasset may not be recoverable.
Income Taxes
The provision Interest costs incurred during the construction of major capital projects are capitalized until the underlying asset is ready 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.
We account for uncertain tax positions in accordance with FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109, or FIN 48. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest and penalties, and disclosure. We also accrue for potential interest and penalties, related to unrecognized tax benefits in income tax expense.
Derivatives and Hedging Activities
Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activities,or SFAS 133, requires that all derivatives be recognized on the balance sheet at their fair value. 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, the type of hedge transaction. We assess, both at inception and on an on-going basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting the changes in cash flows 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. 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.
Comprehensive Income (Loss)
Statement of Financial Accounting Standards No. 130,Reporting Comprehensive Income,or SFAS 130, requires us to display comprehensive income (loss) and its components as part of our financial statements. Comprehensive income (loss) is comprised of net income and other comprehensive income (loss). Other comprehensive income (loss) includes changes in equity that are excluded from net income, such as foreign currency translation adjustments and unrealized holding gains and losses on available-for-sale marketable securities and certain derivative instruments, and effective December 31, 2006, the unfunded amount of our postretirement and pension plans. All of these changes in equity are reflected net of tax.
Segment Information
Statement of Financial Accounting Standards No. 131,Disclosures about Segments of an Enterprise and Related Information,or SFAS 131, establishes standards for reporting information on operating segments in interimintended
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 annual financial statements. incremental costs associated with the validation effort required for licensing by regulatory agencies of manufacturing equipment for the production of a commercially approved drug. These costs include primarily direct labor and material and are incurred in preparing the equipment for its intended use. The validation costs are amortized over the life of the related equipment. Maintenance costs are expensed as incurred.
We operate in one segment,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 is the business of development, manufacturing and commercialization of novel therapeutics for human health care. Our chief operating decision-maker reviews our operating results on an aggregate basis and manages our operationsare summarized as a single operating segment.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 |
| Machinery and Equipment | | 6 to 15 years |
| Furniture and Fixtures | | 7 years |
| Computer Software and Hardware | | 3 to 5 years |
Revenue RecognitionIntangible Assets
Product RevenuesEffective January 1, 2009, we implemented an amendment to the accounting and disclosure requirements related to intangible assets. This amendment provides guidance for determining the useful life of a recognized intangible asset and requires enhanced disclosures so that users of financial statements are able to assess the extent to which the expected future cash flows associated with the asset are affected by our intent and ability to renew or extend the arrangement. The adoption of this guidance did not impact our financial position or results of operations as this standard was required to be implemented prospectively; however, this standard may impact us in subsequent periods.
We recognize revenue when allOur intangible assets consist of patents, licenses, core developed technology, trademarks, tradenames, assembled workforce, and distribution rights, the majority of which arose in connection with the merger of Biogen Inc. and IDEC Pharmaceuticals Corporation. These intangible assets were recorded at fair value and are stated net of accumulated amortization and impairments.
The useful lives of our intangible assets are primarily based on the legal or contractual life of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurredunderlying patent or services have been rendered;contract, which does not include additional years for the seller’s price to the buyer is fixedpotential extension or determinable; and collectibility is reasonably assured.
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 shipmentrenewal 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 are recorded net of applicable allowances for trade term discounts, wholesaler incentives, Medicaid rebates, Veteran’s Administration,contract or VA, rebates, managed care rebates, product returns and other applicable allowances.
TYSABRI
In November 2004, TYSABRI was approved by the U.S. Food and Drug Administration, or FDA, as a treatment for relapsing forms of MS to reduce the frequency of clinical relapses. In February 2005, in consultation with the FDA, we and Elan voluntarily suspended the marketing and commercial distribution of TYSABRI, and we informed physicians that they should suspend dosing of TYSABRI until further notification. On June 5, 2006, the FDA approved a supplemental Biologics License Application, or sBLA, for the reintroduction of TYSABRI as a monotherapy treatment for relapsing forms of MS to slow the progression of disability and reduce the frequency of clinical relapses. On June 29, 2006, we and Elan announced that the European Medicines Agency, or EMEA, had approved TYSABRI as a similar treatment. In July 2006, we began to ship TYSABRI in both the United States and rest of world.
Subsequent to the reintroduction of TYSABRI for sale in the U.S. and approval for sale in Europe, we began to ship TYSABRI into both regions in the third quarter of 2006. We manufacture TYSABRI and collaborate with Elan on the product’s marketing, distribution and on-going development activities. The collaboration agreement with Elan is designed to effect an equal sharing of profits and losses generated by the activities of the collaboration between us and Elan. Under our agreement with Elan, however, in the event that sales of TYSABRI exceed specified thresholds, Elan is required to make milestone payments to us in order to continue sharing equally in the collaboration’s results. During the year ended December 31, 2008, pursuant to our collaboration agreement with Elan, Elan paid us a $75.0 million milestone payment in order to maintain the current collaboration profit sharing split. We recorded this amount as deferred revenue upon receipt and are recognizing this $75.0 million as product revenue in our consolidated statement of income over the term of our collaboration with Elan based on a units of revenue method, whereby the revenue recognizedpatent. Our policy is based on the ratiogenerally accepted accounting principles for amortization of units shippedintangible assets, which requires that the amortization of intangible assets reflect the pattern that the economic benefits of the intangible assets are consumed.
Intangible assets related to patents, licenses, core developed technology, assembled workforce, and distribution rights are amortized over their remaining estimated useful lives. Intangible assets related to trademarks and tradenames have indefinite lives, and as a result are not amortized, but 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 which was established at the time of the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation. The net book value of this asset as of December 31, 2009 was $1,516.7 million.
We believe the economic benefit of this core technology is consumed as revenue is generated from our AVONEX product. An analysis of the anticipated lifetime revenue of AVONEX is performed at least annually during our long range planning cycle. The results of this forecast serve as the basis for our assumptions used in the current period overeconomic consumption amortization model for our core technology intangible asset. Although we believe this process has allowed us to reliably determine the total units expected to be shipped over the remaining termbest estimate of the collaboration. We have recognized $1.5 millionpattern in which we will consume the economic benefits of this milestone as revenue forour core technology intangible asset, the year ended December 31, 2008. Based on the TYSABRImodel could result in deferring amortization charges to future periods in certain instances due to continued sales levels achieved through the fourth quarter of 2008, in January 2009, Elan paid us an additional milestone payment of $50.0 million in order to maintain the current collaboration profit sharing split. Revenue from this milestone payment will also be deferred and recognized on a units of revenue model.
In the U.S., we sell TYSABRI to Elan who sells the product to third party distributors. We and Elan co-market the product. The sales price to Elan in the U.S. is set at the beginning of each quarterly period to effect an equala nominal level after patent expiration or
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
sharingotherwise. In order to ensure amortization charges are not unreasonably deferred to future periods, we use the straight-line method to determine the minimum annual amount of amortization expense (the minimum amortization amount). This minimum amortization amount is recalculated each year based on the remaining unamortized balance of the gross margin between Elanintangible asset and us. In addition, both parties share equally in the operating costs, which include research and development, selling, general and administrative expenses and other similar costs. Elan’s reimbursement of TYSABRI operating costs is reflected as a reductionremaining estimated useful life of the respective costs within our consolidated statement of income. Sales of TYSABRIintangible asset and is compared to Elan are reported as revenues and are recognized upon Elan’s shipment of the product to third party distributors, at which time all revenue recognition criteria have been met. As of December 31, 2008 and 2007, we had deferred revenue of $6.2 million and $9.0 million, respectively, for shipments to Elan that remained in Elan’s ending inventory.
For sales outside the U.S., we are responsible for distributing TYSABRI to customers and are primarily responsible for all operating activities. Both parties share equally in the operating results of TYSABRI operations outside the U.S. Sales of TYSABRI are reported as revenue and are recognized at the time of shipment of product to our customer, as all revenue recognition criteria have been met. Payments to or from Elan for their share of collaboration net operating profits or losses relating to sales outside the U.S. are reflected in the collaboration profit (loss) sharing line in our consolidated statement of income. For 2008, 2007, and 2006, collaboration profit (loss) sharing was $136.0 million, $14.1 million, and ($9.7) million, respectively, in connection with this arrangement.
Reserves for Discounts and Allowances
We establish reserves for trade term discounts, wholesaler incentives, Medicaid rebates, VA rebates, managed care rebates, product returns and other applicable allowances and in 2006, patient assistance and patient replacement goods. Such reserves are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (ifof amortization determined under the amount is payable to a party other than our customer).
Effective January 1, 2007, we changedeconomic consumption model. We record amortization based upon the manner in which we administer our patient assistance and patient replacement goods programs. Prior to January 1, 2007, AVONEX product shipped for these programs was invoiced and recorded as gross product revenue and an offsetting provision for discount and returns was recorded for expected credit requests from the distributor that administers these programs on our behalf (as such, no net revenue was recorded for these shipments). Effective January 1, 2007, we entered into a new arrangement with the distributor. Under the new arrangement, gross revenue is not recorded for product shipped to satisfy these programs, and cost of sales is recorded when the product is shipped.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
An analysishigher of the amount of and change in, reserves is as follows (in millions):
| | | | | | | | | | �� | | | | | | | |
| | | | | | Contractual
| | | | | | | |
| | | Discounts | | | Adjustments | | | Returns | | | Total | |
| |
2008 | | | | | | | | | | | | | | | | |
| Beginning Balance | | $ | 6.4 | | | $ | 33.1 | | | $ | 20.4 | | | $ | 59.9 | |
| Current provisions relating to sales in current year | | | 67.1 | | | | 150.6 | | | | 14.7 | | | | 232.4 | |
| Adjustments relating to prior years | | | — | | | | (1.6 | ) | | | (2.5 | ) | | | (4.1 | ) |
| Payments/returns relating to sales in current year | | | (57.8 | ) | | | (101.2 | ) | | | (0.1 | ) | | | (159.1 | ) |
| Payments/returns relating to sales in prior years | | | (6.5 | ) | | | (32.8 | ) | | | (14.4 | ) | | | (53.7 | ) |
| Other adjustments | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Ending Balance | | $ | 9.2 | | | $ | 48.1 | | | $ | 18.1 | | | $ | 75.4 | |
| | | | | | | | | | | | | | | | | |
2007 | | | | | | | | | | | | | | | | |
| Beginning Balance | | $ | 12.7 | | | $ | 30.5 | | | $ | 17.8 | | | $ | 61.0 | |
| Current provisions relating to sales in current year | | | 45.7 | | | | 113.1 | | | | 17.1 | | | | 175.9 | |
| Adjustments relating to prior years | | | — | | | | (7.9 | ) | | | 5.0 | | | | (2.9 | ) |
| Payments/returns relating to sales in current year | | | (39.4 | ) | | | (72.3 | ) | | | (0.4 | ) | | | (112.1 | ) |
| Payments/returns relating to sales in prior years | | | (12.6 | ) | | | (30.3 | ) | | | (19.1 | ) | | | (62.0 | ) |
| Other adjustments | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Ending Balance | | $ | 6.4 | | | $ | 33.1 | | | $ | 20.4 | | | $ | 59.9 | |
| | | | | | | | | | | | | | | | | |
2006 | | | | | | | | | | | | | | | | |
| Beginning Balance | | $ | 11.6 | | | $ | 35.7 | | | $ | 2.3 | | | $ | 49.6 | |
| Current provisions relating to sales in current year | | | 102.9 | | | | 96.4 | | | | 31.6 | | | | 230.9 | |
| Adjustments relating to prior years | | | — | | | | (3.1 | ) | | | 7.1 | | | | 4.0 | |
| Payments/returns relating to sales in current year | | | (90.2 | ) | | | (63.1 | ) | | | (16.1 | ) | | | (169.4 | ) |
| Payments/returns relating to sales in prior years | | | (11.6 | ) | | | (35.4 | ) | | | (12.5 | ) | | | (59.5 | ) |
| Other adjustments | | | — | | | | — | | | | 5.4 | | | | 5.4 | |
| | | | | | | | | | | | | | | | | |
| Ending Balance | | $ | 12.7 | | | $ | 30.5 | | | $ | 17.8 | | | $ | 61.0 | |
| | | | | | | | | | | | | | | | | |
The total reserves above were included inamortization determined under the consolidated balance sheet as follows (in millions):
| | | | | | | | | | | | | |
| | | Reduction of
| | | Current
| | | | |
As of December 31, | | Accounts Receivable | | | Liability | | | Total | |
| |
| 2008 | | $ | 31.6 | | | $ | 43.8 | | | $ | 75.4 | |
| 2007 | | $ | 28.5 | | | $ | 31.4 | | | $ | 59.9 | |
The reserves are based on estimates ofeconomic consumption model or the amounts earned or to be claimed onminimum amortization amount determined under the related sales. These estimates take into consideration our historical experience, current contractual requirements and statutory requirements, specific known market events and trends and forecasted customer buying patterns. If actual future results vary, we may need to adjust these estimates, which could have an effect on earnings in the period of the adjustment.
Product revenue reserves are categorized as follows: discounts, contractual adjustments, and returns.
Discounts
Discount reserves include trade term discounts, wholesaler incentives and, in 2006, patient assistance.
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BIOGEN IDEC INC. AND SUBSIDIARIES
straight-line method.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Trade term discounts and wholesaler incentive reserves 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 experience, including the timing of customer payments.
In 2006, patient assistance reserves were established to cover no-charge product that we distribute to qualifying patients under our indigent program, Patient Access. The program is administered through one of our distribution partners, who ship product for qualifying patients from their own inventory that was purchased from us. In 2006, the distributor received a credit at the end of each period for product that was administered during the period. A reserve was established through a reduction of product revenues for sales made to the distributor which we estimated may be used to administer our patient assistance program. We determined this reserve based on our experience with the activity under the program. Effective January 1, 2007, gross revenue and the related reserves are not recorded on product shipped under this program.
Contractual Adjustments
Contractual adjustment reserves relate to Medicaid, VA and managed care rebates and other applicable allowances.
Medicaid rebates reserves 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. Rebate amounts are generally determined at the time of claim by the state, and we generally make cash payments for such amounts within a few weeks of receiving billings from the state.
VA rebates or chargeback reserves represent our estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices we charge the 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 accruals are established in the same period as the related revenue is recognized resulting in a reduction in product revenue. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider, and we generally issue credits for such amounts within a few weeks of receiving notification from the wholesaler.
Managed care rebates reserves 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 to product revenue and the establishment of a liability which is included in other accrued liabilities. These rebates result from performance-based offers that are primarily based on attaining contractually specified sales volumes and growth. 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.
Returns
Allowances for product returns are established for returns made by wholesalers and patients. In accordance with contractual terms, wholesalers are permitted to return product for reasons such as damaged or expired product. We also accept returns from our patients for various reasons.
Reserves for product returns are recorded in the period the related revenue is recognized, resulting in a reduction to product revenue. 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. As noted above, in 2007, pursuant to the change in the way we administered our patient assistance program, revenue is no longer recorded under this program. The patient return program is administered by the same distribution partner as the patient assistance program. As noted above, in
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2006, revenue related to product sold to this distribution partner that was used to satisfy patient returns was fully reserved.
During the second quarter of 2006, we recorded an increase in our allowance for expired products of $12.3 million to correct for prior period errors. This increase in the allowance was recorded through an out of period reduction in net product revenue of $6.9 million and an increase in goodwill of $5.4 million. We identified and quantified the errors through an analysis of the historical rate for returns based on volumes of returns and the amount of credit granted to the returning distributors in past periods. At the time of the Merger with Biogen, Inc. in 2003, Biogen, Inc. had understated its allowance for expired product by an estimated $5.4 million due to an incorrect methodology applied in calculating its reserve balance. Had we identified this error at the time of the Merger, the recorded goodwill would have been approximately $5.4 million higher than has been previously reflected. Biogen, Inc.’s methodology was in error because it did not utilize known information in determining critical assumptions used in the basis of calculation. Our application of this incorrect methodology in the post-Merger period resulted in understating this reserve by an additional $6.9 million. In all cases, the correctly calculated rate of return is less than one percent of related gross product revenues. We have determined that the out of period correction of this error in 2006 is not material to our reported results. Additionally, we have determined that the error at the merger date is not material to any prior period balance sheet amounts and the error in the post-merger period is not material to any prior period reported results.
Other
Bad debt reserves are based on our estimated uncollectible accounts receivable. Given our historical experiences with bad debts, combined with our credit management policies and practices, we do not presently maintain significant bad debt reserves.
We have various contracts with distributors that provide for discounts and rebates. These discounts and rebates are classified as a reduction of revenue. We also maintain select customer service contracts with distributors and other customers in the distribution channel. We have established the fair value of these services and classified these customer service contracts as sales and marketing expense. If we had concluded that sufficient evidence of the fair value did not exist for these services, we would have been required to classify these costs as a reduction of revenue.
Concentration of Credit Risks
Our primary exposure to credit risk derives from our cash, cash equivalents, marketable securities, and accounts receivable balances.receivables from customers and collaborative partners.
Until required for use in the business, we invest our cash reserves in bank deposits, certificates of deposit, commercial paper, corporate notes, foreign and U.S. government instruments, asset backedincluding government sponsored enterprise mortgage-backed securities, credit card and auto loan asset-backed securities and other marketable debt instruments.instruments in accordance with our investment policy. We mitigate credit risk in our cash reserves by maintaining a well diversified portfolio byand limiting the amount of investment exposure as to institution, maturity and investment type.
Concentrations of credit risk with respect to receivables, which are typically unsecured, are generally limited due to the wide variety of customers and markets using our products, as well as their dispersion across many different geographic areas. One customerOur accounts receivable are payable by wholesale distributors, large pharmaceutical companies and public hospitals. 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. Our historical write-offs of accounts receivable have not been significant. As of December 31, 2009 and 2008, one wholesale distributor accounted for approximately 11%8.1% and 11.0% of consolidated receivables, at December 31, 2008.respectively.
Revenues from Unconsolidated Joint BusinessMarketable Securities and Other Investments
Revenues from unconsolidated joint business consistMarketable 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 in shareholders’ 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.
Strategic Investments
As part of our sharestrategic product development efforts, we invest in equity securities of certain biotechnology companies. These investments are known as strategic investments and are classified asavailable-for-sale and accounted for as marketable equity investments or as cost investments based upon our percentage ownership interest and other factors which may indicate the presumption of significant influence. When assessing whether a decline in the fair value of a strategic investment below our cost basis isother-than-temporary, we consider the fair market value of the pretax co-promotion profits generated fromsecurity, the duration of the security’s decline, and prospects for the underlying business, including favorable 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 co-promotion arrangement with Genentech, Inc., or Genentech, reimbursement from Genentechpercentage ownership interest and other factors which may indicate the presence of our RITUXAN-related sales force and development expenses and royalties from Genentech for sales of RITUXANsignificant influence. We monitor these investments to evaluate whether any decline in their value has occurred that
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
outsidewould beother-than-temporary, based on the U.S.implied value from any recent rounds of financing completed by F. Hoffmann-La Roche Ltd.,the company, public market prices of comparable companies, and general market conditions.
Securities Lending
We are able to loan certain securities from our portfolio to other institutions. Such securities are classified as loaned securities on the accompanying consolidated balance sheets. Collateral for the loaned securities, consisting of cash or Roche, Zenyaku Kogyo Co. Ltd.,other securities, is maintained at a rate of approximately 102% of the market value of each loaned security. We previously loaned certain securities from our portfolio to other institutions and held collateral in the amount of $30.0 million as of December 31, 2008 in relation to such loans. The cash collateral was recorded as collateral received for loaned securities on the accompanying consolidated balance sheet. No such loans were outstanding as of December 31, 2009; accordingly, no collateral was held as of December 31, 2009.
Other-than-Temporary Impairments
In April 2009, we implemented a newly issued accounting standard which provides guidance for the recognition, measurement and presentation ofother-than-temporary impairments. This newly issued standard amended theother-than-temporary impairment model for debt securities and requires additional disclosures regarding the calculation of credit losses and the factors considered in reaching a conclusion that an investment isother-than-temporarily impaired. The impairment model for equity securities was not affected.
Prior to our adoption of this new accounting standard, we recognized allother-than-temporary impairment amounts related to our debt securities in earnings as required under the previously effective guidance which required that management assert that it had the ability and intent to hold a debt security until maturity or Zenyaku and Chugai Pharmaceutical Co., Ltd, or Chugai, an affiliateuntil we recovered the cost of Roche.our investment. Under the co-promotion arrangement, all U.S. salesnew accounting standards, another-than-temporary impairment must be recognized through earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of RITUXAN andits amortized cost basis. However, even if an investor does not expect to sell a debt security, expected cash flows to be received must be evaluated to determine if a credit loss has occurred. In the event of a credit loss, only the amount associated costs and expenseswith the credit loss is recognized in income. The amount of losses relating to other factors, including those resulting from changes in interest rates, are recognized by Genentech and we recordrecorded in accumulated other comprehensive income. The adoption of this guidance did not have a material impact on our sharefinancial position or results of the pretax co-promotion profits as defined in our amended and restated collaboration agreement with Genentech. Pretax co-promotion profits under the co-promotion arrangement are derived by taking U.S. net sales of RITUXAN to third-party customers less cost of sales, third-party royalty expenses, distribution, selling and marketing expenses and joint development expenses incurred by Genentech and us. We record royalty revenue on sales of RITUXAN outside the U.S. on a cash basis.operations.
Royalty RevenuesInventory
Inventories are stated at the lower of cost or market with cost determined under thefirst-in, first-out (FIFO) method. Included in inventory are raw materials used in the production of pre-clinical and clinical products, which are charged to research and development expense when consumed.
We receive royalty revenues under license agreementscapitalize inventory costs associated with a number of third parties that sellour products prior to regulatory approval when, based on technologymanagement’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized.
Inventory Write-Offs
We periodically review our inventories for excess or obsolete inventory and write-down obsolete or otherwise unmarketable inventory to its estimated net realizable value.
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. Interest costs incurred during the construction of major capital projects are capitalized until the underlying asset is ready for its intended
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 manufacturing equipment for the production of a commercially approved drug. These costs include primarily direct labor and material and are incurred in preparing the equipment for its intended use. The validation costs are amortized over the life of the related equipment. Maintenance costs are expensed as incurred.
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 |
| Machinery and Equipment | | 6 to 15 years |
| Furniture and Fixtures | | 7 years |
| Computer Software and Hardware | | 3 to 5 years |
Intangible Assets
Effective January 1, 2009, we have developed orimplemented an amendment to the accounting and disclosure requirements related to intangible assets. This amendment provides guidance for determining the useful life of a recognized intangible asset and requires enhanced disclosures so that users of financial statements are able to assess the extent to which we have rights.the expected future cash flows associated with the asset are affected by our intent and ability to renew or extend the arrangement. The license agreements provideadoption of this guidance did not impact our financial position or results of operations as this standard was required to be implemented prospectively; however, this standard may impact us in subsequent periods.
Our intangible assets consist of patents, licenses, core developed technology, trademarks, tradenames, assembled workforce, and distribution rights, the majority of which arose in connection with the merger of Biogen Inc. and IDEC Pharmaceuticals Corporation. These intangible assets were recorded at fair value and are stated net of accumulated amortization and impairments.
The useful lives of our intangible assets are primarily based on the legal or contractual life of the underlying patent or contract, which does not include additional years for the paymentpotential extension or renewal of royaltiesthe contract or patent. Our policy is based on the generally accepted accounting principles for amortization of intangible assets, which requires that the amortization of intangible assets reflect the pattern that the economic benefits of the intangible assets are consumed.
Intangible assets related to patents, licenses, core developed technology, assembled workforce, and distribution rights are amortized over their remaining estimated useful lives. Intangible assets related to trademarks and tradenames have indefinite lives, and as a result are not amortized, but 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 which was established at the time of the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation. The net book value of this asset as of December 31, 2009 was $1,516.7 million.
We believe the economic benefit of this core technology is consumed as revenue is generated from our AVONEX product. An analysis of the anticipated lifetime revenue of AVONEX is performed at least annually during our long range planning cycle. The results of this forecast serve as the basis for our assumptions used in the economic consumption amortization model for our core technology intangible asset. Although we believe this process has allowed us based onto reliably determine the best estimate of the pattern in which we will consume the economic benefits of our core technology intangible asset, the model could result in deferring amortization charges to future periods in certain instances due to continued sales of the licensed product.product at a nominal level after patent expiration or
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
otherwise. In order to ensure amortization charges are not unreasonably deferred to future periods, we use the straight-line method to determine the minimum annual amount of amortization expense (the minimum amortization amount). This minimum amortization amount is recalculated each year based on the remaining unamortized balance of the intangible asset and the remaining estimated useful life of the intangible asset and is compared to the amount of amortization determined under the economic consumption model. We record these revenuesamortization based upon the higher of the amount of amortization determined under the economic consumption model or the minimum amortization amount determined under the straight-line method.
Impairment of Long-Lived Assets
Long-lived assets to be held and used, including property, plant and equipment as well as intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. Determination of recoverability is based on estimatesan estimate of undiscounted future cash flows resulting from the use of the salesasset and its eventual disposition. In the event that occurred duringsuch cash flows are not expected to be sufficient to recover the relevant period. The relevant period estimatescarrying amount of salesthe assets, the assets are based on interim data provided by licenseeswritten-down to their estimated fair values. Long-lived assets to be disposed of are carried at fair value less costs to sell.
Goodwill
Goodwill relates largely to amounts that arose in connection with the merger of Biogen, Inc. and analysisIDEC Pharmaceuticals Corporation and represents the difference between the purchase price and the fair value of historical royalties we have been paid (adjustedthe identifiable tangible and intangible net assets when accounted for anyusing the purchase method of accounting. Goodwill is not amortized, but is subject to periodic review for impairment. Goodwill is reviewed annually, as of October 31, and whenever events or changes in facts and circumstances as appropriate). indicate that the carrying amount of the goodwill might not be recoverable.
We maintain regular communication with our licenseesperform a two-step impairment test. In the first step, we compare the fair value of the reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the second step of the impairment test is performed in order to gaugedetermine the reasonablenessimplied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then the company records an impairment loss equal to the difference. As described in Note 20,Segment Informationto our estimates. Differences between actual royalty revenues and estimated royalty revenues are reconciled and adjusted forConsolidated Financial Statements, we operate in the period inone business segment which they become known, typically the following quarter. Historically, adjustments have not been material based on actual amounts paid by licensees. There are no future performance obligations onwe consider our part under these license agreements. To the extent we do not have sufficient ability to accurately estimate revenue, we record it on a cash basis.only reporting unit.
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 including salaries and benefits, facilities expenses, overhead expenses, clinical trial and related clinical manufacturing expenses, contract services and other outside expenses.activities. 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 sheetsheets and are expensed as the services are provided. We have entered
From time to time, we enter into certain researchdevelopment agreements in which we share expenses with our collaborator.a collaborative partner. We have entered into other collaborations where we are reimbursed for work performed on behalf ofrecord payments received from our collaborative partners. We record the expenses for such work as research and development expenses. If the arrangement is a cost-sharing arrangement and there is a period during which we receive payments from the collaborator, we record payments by the collaboratorpartners for their share of the development effortcosts as a reduction of research and development expense. If the arrangement is a reimbursement of research and development expenses, we record the reimbursement as corporate partner revenue.
FIN 46(R)
Under FIN 46(R),we consolidate variable interest entities for which we are the primary beneficiary. For such consolidated entities in which we own less than a 100% interest, we record minority interest in our statement of income for the current results allocable to the outside equity interests. FIN 46(R) impacts the way we account for certain collaborations and future events may result in our consolidation of companies or related entities with which we have a collaborative arrangement. The consolidation of variable interest entities may have a material effect on our financial conditionand/or results of operation in future periods.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Acquired In-Process Research and Development (IPR&D)
Acquired IPR&D represents the fair value assigned to research and development projects that we acquire that have not been completed at the date of acquisition and which have no future alternative use. Accordingly, the fair value of such projects is recorded as in process research and development expense as of the acquisition date.
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 net cash flows from the projects, and discounting the net cash flows to present
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
value. The revenue and costs projections used to value acquired IPR&D were, as applicable, reduced based on the probability of developing a new drug. Additionally, the projections considered 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 resulting net cash flows from such projects are based on management’s estimates of cost of sales, operating expenses, and income taxes from such projects. The rates utilized to discount the net cash flows to their present value were commensurate with the stage of development of the projects and uncertainties in the economic estimates used in the projections described above.
If these projects are not successfully developed,Effective January 1, 2009, we account for business combinations completed on or after January 1, 2009 in accordance with the salesrevised guidance for accounting for business combinations, which modifies the criteria that must be met to qualify as a business combination and profitabilityprescribes new accounting requirements, including the accounting treatment associated with acquired IPR&D. Prior to January 1, 2009, we measured acquired IPR&D at fair value and expensed it on acquisition date, or capitalized as an intangible assets if certain criteria were met; however, effective January 1, 2009, acquired IPR&D will be measured at fair value and capitalized as an intangible assets and tested for impairment until completion of the company may be adversely affected in future periods. Additionally,programs and amortized from the valuedate of other acquired intangible assets may become impaired. We believe thatcompletion over 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.estimated useful life.
Earnings per Share
We calculate earnings per share in accordance with Statement of Financial Accounting Standards No. 128,Earnings per Share, or SFAS 128, andEITF 03-06,Participating Securities and the Two — Class Method Under SFAS 128,orEITF 03-06. SFAS 128 andEITF 03-06 together require the presentation of “basic” earnings per share and “diluted” earnings per share.
Basic earnings per share is computed using the two-class method. Under the two-class method, undistributed net income is allocated to 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 have allocated a portion of net income to our preferred shares on a pro rata basis. Net income allocated to preferred shares is excluded from the calculation of basic earnings per share. For basic earnings per share, net income available to holders of common stock is divided by the weighted average number of shares of common stock outstanding. For purposes of calculating diluted earnings per share, net income is adjusted for the after-tax amount of interest associated with convertible debt and net income allocable to preferred shares, and the denominator includes both the weighted average number of shares of common stock outstanding and potential dilutive shares of common stock from stock options, unvested restricted stock awards, restricted stock units and other convertible securities, to the extent they are dilutive.
Accounting for Share-based Compensation
Our share-based compensation programs consist of share-basedgrant awards granted to employees includingwhich have included stock options, restricted stock, performance and time-vested restricted stock units, as well asperformance-vested restricted stock units, restricted stock awards and shares issued under our employee stock purchase plan or ESPP and are accounted for under Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payments, or SFAS 123(R)(ESPP). Under this methodology,We charge the estimated fair value of awards is charged 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. For
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, including the effect of estimated forfeitures, are then expensed over the options’ vesting periods. The fair values of our time-vested restricted units and restricted stock awards are based on the market value of our stock on the date of grant. Compensation expense for restricted stock units and restricted stock awards are recognized over the applicable service period, adjusted for the effect of estimated forfeitures.
We apply a graded vesting expense methodology when accounting for our performance-vested restricted stock units. 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. The vesting of these awards is also subject to the respective employees’ continued employment. 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 the ESPP weis equal to 85% of the lower of (i) the market value per share of the common stock on the participant’s entry date into an offering period or (ii) the 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 the employee stock purchase plan 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 purchase period. We apply a graded vesting approach because thesince our ESPP provides for multiple purchase periods and is, in substance, a series of linked awards.
F-19F-15
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Earnings per Share
We calculate earnings per share in accordance with theEarning Per ShareTopic of the Codification which requires the presentation of “basic” earnings per share and “diluted” earnings per share.
Basic earnings per share is computed using the two-class method. Under the two-class method, undistributed net income is allocated to 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 have allocated a portion of net income to our preferred shares on a pro rata basis. Net income allocated to preferred shares is excluded from the calculation of basic earnings per share. For basic earnings per share, net income available to holders of common stock is divided by the weighted average number of shares of common stock outstanding. For purposes of calculating diluted earnings per share, net income is adjusted for the after-tax amount of interest associated with convertible debt and net income allocable to preferred shares, and the denominator includes both the weighted average number of shares of common stock outstanding and potential dilutive shares of common stock from stock options, unvested restricted stock awards, restricted stock units and other convertible securities, to the extent they are dilutive.
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.
We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on 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, new audit activity and changes in facts or circumstances related to a tax position. We evaluate this tax position on a quarterly basis. We also accrue for potential interest and penalties, related to unrecognized tax benefits in income tax expense.
Derivatives and Hedging Activities
Accounting standards require that all derivatives be recognized on the balance sheets at their fair value. 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, the stock option grants is basedtype of hedge transaction. We assess, both at inception and on estimates asan 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 datehedged 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. If we determine that a forecasted transaction is no longer probable of grant using a Black-Scholes option valuation model. The fair valueoccurring, we discontinue hedge accounting for the affected portion of all time vested restricted unitsthe hedge instrument, and restricted stock is basedany related unrealized gain or loss on the market valuecontract is recognized in current earnings.
Translation of Foreign Currencies
The functional currency for most of our stock onforeign subsidiaries is their local currency. Assets and liabilities are translated at current rates of exchange at the datebalance sheet date. Income and expense items are translated at the average foreign exchange rates for the period. Adjustments resulting from the translation of grant. Compensation expense for restricted stock and restricted stock units, including the effect of forfeitures, is recognized over the applicable service period. The fair value of performance based stock units is based on the market pricefinancial statements of our stock onforeign operations into U.S. dollars are excluded from the datedetermination of grantnet income and assumes that the performance criteria will be metare recorded in accumulated other comprehensive income, a separate component of shareholders’ equity.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Foreign exchange transaction gains and the target payout level will be achieved. Compensation cost is adjusted for subsequent changeslosses are included in the outcomeresults of performance-related conditions until the vesting dates. For certain performance based stock units, we apply a graded vesting approachoperations in other income (expense), net. We had net foreign exchange gains (losses) of $11.4 million, $(9.8) million, and the fair value is based on the market price on the date of the vesting.$3.0 million in 2009, 2008, and 2007, respectively.
Assets Held for Sale
We consider certain real property and certain other miscellaneous assets as held for sale when they meet the criteria set out in Statementthe accounting standard for impairment or disposal of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, or SFAS 144.long-lived assets.
As of December 31, 20082009 and 2007,2008, there were no assets held for sale on the accompanying consolidated balance sheet.sheets.
| |
| 2. | Acquisitions and Dispositions |
Syntonix Pharmaceuticals, Inc.
In January 2007, we acquired 100% of the stock of Syntonix Pharmaceuticals, Inc., or Syntonix, a privately held biopharmaceutical company based in Waltham, Massachusetts.Syntonix. Syntonix focuses on discovering and developing long-acting therapeutic products to improve treatment regimens for chronic diseases, and is engaged in multiple pre-clinical programs in hemophilia. The purchase price was $44.4 million, including transaction costs, and could increase to as much as $124.4 million if certain development milestones with respect to Syntonix’s lead product, long actinglong-acting recombinant Factor IX, a proprietary long-acting factorFactor IX product for the treatment of hemophilia B, are achieved. The purpose ofUnder the acquisition wasagreement we also agreed to enhance our pipelinemake additional future consideration payments upon the achievement of certain milestone events. Future contingent consideration payments, if any, will be recorded as IPR&D. Due to the uncertainty surrounding triggering events related to the attainment of milestones, such charges and to expand into additional specialized markets.
related obligations are generally recorded when the milestone has been achieved. The acquisition was funded from our existing cash on hand and was accounted for as an asset acquisition as Syntonix iswas a development-stage company. As
The purpose of the acquisition was to enhance our pipeline and to expand into additional specialized markets and as a result of the acquisition we obtained the rights to the in-process technology of the Fc-fusion technology platform. Syntonix has two programs in development using the Fc-fusion platform, long actinglong-acting recombinant Factor IX and long actinglong-acting recombinant Factor VIII. Syntonix’s lead product, long actinglong-acting recombinant Factor IX, is a proprietary long-acting factorFactor IX product for the treatment of hemophilia B. Syntonix filed an investigational new drug application with the Food and Drug Administration, or FDA, for long acting recombinant Factor IX in 2007. Long actingLong-acting recombinant Factor VIII is a product being developed for the treatment of hemophilia A and is approximately two years from filingthe subject of a Phase 1 study in hemophilia A.
In January 2010, we initiated patient enrollment in a registrational study for long-acting recombinant Factor IX in hemophilia B. The initiation of this study resulted in the investigational new drug application withachievement of a significant milestone, obligating us to pay $40.0 million to the FDA.former shareholders of Syntonix. As the milestone occurred subsequent to December 31, 2009, the obligation is not reflected in our consolidated balance sheet as of that date and will be reflected as IPR&D expense in the first quarter of 2010.
The results of operations of Syntonix are included in our consolidated results of operations from the date of acquisition. We have completed our purchase price allocation for the acquisition as set out below (in millions):below:
| | | | | | |
| (In millions) | | | Total | |
| | | | | |
| Current assets | | $ | 0.3 | | | $ | 0.3 | |
| Fixed assets | | | 0.2 | | | | 0.2 | |
| Deferred tax asset | | | 27.8 | | | | 27.8 | |
| Assembled workforce | | | 0.7 | | | | 0.7 | |
| In-process research and development | | | 18.4 | | | | 18.4 | |
| Current liabilities | | | (3.0 | ) | | | (3.0 | ) |
| | | | | | | |
| Total purchase price | | | $ | 44.4 | |
| | | $ | 44.4 | | | | |
| | | | | |
F-20F-17
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The purchase price included $2.0 million in loan forgiveness and $0.7 million in transaction fees. In addition, $0.3 million of severance charges were accrued as a result of the acquisition.
The amount allocated to IPR&D relates to the development of long actinglong-acting recombinant Factor IX and long actinglong-acting recombinant Factor VIII, which are in a development stage. Since the acquisition in January 2007, we have spent approximately $26.1 million and $5.5 million in research and development costs related to long acting recombinant Factor IX and long acting recombinant Factor VIII, respectively. We expect to incur an additional $29.7 million to complete long acting recombinant Factor IX and an additional $30.3 million to complete long acting recombinant Factor VIII. The estimated revenues from long acting recombinant Factor IX and long acting recombinant Factor VIII are expected to be recognized beginning in 2012 and 2013, respectively. A discount rate of 13% was used to value these projects, which we believe to be commensurate with the stage of development and the uncertainties in the economic estimates described above. At the date of acquisition, these compounds were in development stage, had not reached technological feasibility and had no alternative future use. Accordingly, $18.4 million in IPR&D was expensed upon acquisition.
Upon acquisition, we recognized a deferred tax asset of $27.8 million. The deferred tax asset included approximately $12.8 million of net operating loss and research credit carryovers that will be utilized prior to applicable expiration dates, as well as approximately $15.3 million of other deferred tax assets primarily related tostart-up and research expenditures that have been capitalized for tax purposes and are being amortized over the next several years.
Future contingent consideration payments, if any, will be recorded as IPR&D. The pro forma impact on total revenue, operating income (loss) and net income (loss) pro forma impacts of the acquisition was not material for the yearsyear ended December 31, 20072007.
We collaborate with Swedish Orphan Biovitrum AB (Biovitrum) on the development and 2006 were not material.commercialization of long-acting recombinant Factor VIII and Factor IX. Please read Note 17,Collaborationsto our Consolidated Financial Statements for a description and summary of activities related to this collaboration.
Fumedica AgreementsZEVALIN
Our product line previously included ZEVALIN (ibritumomab tiuxetan), which is part of a treatment regimen for certain B-cell NHL. In December 2006,2007, we entered into an agreement with Fumedica. Fumedica is a privately held pharmaceutical company based in Germany and Switzerland that maintains distribution rights to FUMADERM and to whom we were contingently obligated to make royalty payments with respect to a successful launch of BG-12 for psoriasis in Germany. Fumedica hadsold the rights to distribute FUMADERMmarket, sell, manufacture and develop ZEVALIN in Germanythe U.S. to Cell Therapeutics, Inc. (CTI), for an upfront payment of $10.0 million and agreed to supply ZEVALIN product to CTI through April 2009. 2014. In the European Union, we continue to sell ZEVALIN to Bayer Schering Pharma AG (Schering), our licensee for sales of ZEVALIN outside the U.S.
Under the terms of our agreement with CTI, we are further entitled to receive additional payments contingent upon the achievement of certain milestone events. In September 2009, the FDA approved an expansion of ZEVALIN’s label as part of the first line therapy in the treatment of follicular non-Hodgkin’s lymphoma. This approval triggered a $5.5 million payment to us in October 2009. We may receive up to an additional $10.0 million in milestone payments.
In addition, during December 2008 we received an additional $2.2 million payment from CTI pursuant to an amendment to our agreement we have obtained all distribution and marketingwith CTI as well as a $0.8 million consent fee received from CTI upon assigning their rights to FUMADERM effective May 2007. No royalty payments were due under the agreement to a third party in March 2009.
We recognize our sales of ZEVALIN to Schering for distribution in the European Union as product revenue, and underwe recognize sales related to our supply of ZEVALIN to CTI as corporate partner revenue. We continue to recognize royalties received from Schering on their sales of ZEVALIN in the termsEuropean Union within the royalty revenue component of other revenues. The $10.0 million upfront and $7.7 million milestone payments received to date are being recognized in our results of operations over the term of our supply agreement with CTI.
Reserves for Discounts and Allowances
Revenues are recorded net of applicable reserves for trade term discounts, wholesaler incentives, Medicaid rebates, VA rebates, managed care rebates, product returns and other applicable allowances. Reserves established for these discounts and allowances are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer).
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our product revenue reserves are based on estimates of the transition agreement,amounts earned or to be claimed on the related sales. These estimates take into consideration our historical experience, current contractual requirements and statutory requirements, specific known market events and trends and forecasted customer buying patterns. If actual future results vary, we will not be requiredmay need to make any royalty payments to Fumedica if BG-12adjust these estimates, which could have an effect on earnings in the period of the adjustment.
An analysis of the amount of, and change in, reserves is successfully launched for psoriasis in Germany.summarized as follows:
| | | | | | | | | | | | | | | | | |
| | | | | | Contractual
| | | | | | | |
| (In millions) | | Discounts | | | Adjustments | | | Returns | | | Total | |
| |
2009 | | | | | | | | | | | | | | | | |
| Beginning balance | | $ | 9.2 | | | $ | 48.1 | | | $ | 18.1 | | | $ | 75.4 | |
| Current provisions relating to sales in current year | | | 74.0 | | | | 192.5 | | | | 15.8 | | | | 282.3 | |
| Adjustments relating to prior years | | | — | | | | — | | | | 0.8 | | | | 0.8 | |
| Payments/returns relating to sales in current year | | | (60.8 | ) | | | (124.4 | ) | | | (0.6 | ) | | | (185.8 | ) |
| Payments/returns relating to sales in prior years | | | (8.5 | ) | | | (45.9 | ) | | | (15.2 | ) | | | (69.6 | ) |
| | | | | | | | | | | | | | | | | |
| Ending balance | | $ | 13.9 | | | $ | 70.3 | | | $ | 18.9 | | | $ | 103.1 | |
| | | | | | | | | | | | | | | | | |
2008 | | | | | | | | | | | | | | | | |
| Beginning balance | | $ | 6.4 | | | $ | 33.1 | | | $ | 20.4 | | | $ | 59.9 | |
| Current provisions relating to sales in current year | | | 67.1 | | | | 150.6 | | | | 14.7 | | | | 232.4 | |
| Adjustments relating to prior years | | | — | | | | (1.6 | ) | | | (2.5 | ) | | | (4.1 | ) |
| Payments/returns relating to sales in current year | | | (57.8 | ) | | | (101.2 | ) | | | (0.1 | ) | | | (159.1 | ) |
| Payments/returns relating to sales in prior years | | | (6.5 | ) | | | (32.8 | ) | | | (14.4 | ) | | | (53.7 | ) |
| | | | | | | | | | | | | | | | | |
| Ending balance | | $ | 9.2 | | | $ | 48.1 | | | $ | 18.1 | | | $ | 75.4 | |
| | | | | | | | | | | | | | | | | |
2007 | | | | | | | | | | | | | | | | |
| Beginning balance | | $ | 12.7 | | | $ | 30.5 | | | $ | 17.8 | | | $ | 61.0 | |
| Current provisions relating to sales in current year | | | 45.7 | | | | 113.1 | | | | 17.1 | | | | 175.9 | |
| Adjustments relating to prior years | | | — | | | | (7.9 | ) | | | 5.0 | | | | (2.9 | ) |
| Payments/returns relating to sales in current year | | | (39.4 | ) | | | (72.3 | ) | | | (0.4 | ) | | | (112.1 | ) |
| Payments/returns relating to sales in prior years | | | (12.6 | ) | | | (30.3 | ) | | | (19.1 | ) | | | (62.0 | ) |
| | | | | | | | | | | | | | | | | |
| Ending balance | | $ | 6.4 | | | $ | 33.1 | | | $ | 20.4 | | | $ | 59.9 | |
| | | | | | | | | | | | | | | | | |
The fair value of the acquired FUMADERM distribution rights was approximately $11.1 million. This amount has been capitalized andtotal reserves above, included in our consolidated balance sheets, are summarized as follows:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Reduction of accounts receivable | | $ | 43.3 | | | $ | 31.6 | |
| Current liability | | | 59.8 | | | | 43.8 | |
| | | | | | | | | |
| Total reserves | | $ | 103.1 | | | $ | 75.4 | |
| | | | | | | | | |
F-19
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reserves for discounts, contractual adjustments and returns that reduced gross product revenues are summarized as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions, except percentages) | | 2009 | | | 2008 | | | 2007 | |
| |
| Discounts | | $ | 74.0 | | | $ | 67.1 | | | $ | 45.7 | |
| Contractual adjustments | | | 192.5 | | | | 149.0 | | | | 105.2 | |
| Returns | | | 16.6 | | | | 12.2 | | | | 22.1 | |
| | | | | | | | | | | | | |
| Total reserves | | $ | 283.1 | | | $ | 228.3 | | | $ | 173.0 | |
| | | | | | | | | | | | | |
| Gross product revenues | | $ | 3,436.0 | | | $ | 3,068.0 | | | $ | 2,309.8 | |
| | | | | | | | | | | | | |
| Percent of gross product revenues | | | 8.2 | % | | | 7.4 | % | | | 7.5 | % |
| | | | | | | | | | | | | |
The components of inventories are summarized as follows:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Raw materials | | $ | 49.2 | | | $ | 29.8 | |
| Work in process | | | 174.0 | | | | 180.0 | |
| Finished goods | | | 70.8 | | | | 53.8 | |
| | | | | | | | | |
| Total inventory | | $ | 294.0 | | | $ | 263.6 | |
| | | | | | | | | |
The following table provides a summary of work in process and finished goods by product:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| AVONEX | | $ | 76.8 | | | $ | 79.2 | |
| TYSABRI | | | 144.0 | | | | 126.2 | |
| Other | | | 24.0 | | | | 28.4 | |
| | | | | | | | | |
| Total finished goods and work in process | | $ | 244.8 | | | $ | 233.8 | |
| | | | | | | | | |
| Raw materials | | | 49.2 | | | | 29.8 | |
| | | | | | | | | |
| Total inventory | | $ | 294.0 | | | $ | 263.6 | |
| | | | | | | | | |
Write-downs from Unmarketable Inventory
Amounts written-down related to unmarketable inventory are charged to cost of sales, excluding amortization of acquired intangible assets. Amounts written-down during 2009, 2008, and 2007 totaled $16.9 million, $29.8 million and $21.6 million, respectively.
F-20
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
| 5. | Intangible Assets and Goodwill |
Intangible assets, net of accumulated amortization, impairment charges and will be amortized over approximately two years beginning in May 2007, based on the remaining term of the distribution agreement. The fair value of terminating the pre-existing agreement was approximately $28.1 million. This amount has been expensedadjustments, are summarized as it relates to a product that has not reached technological feasibility. In addition, in connection with this transaction, we committed to total payments of 61.4 million Swiss Francs or approximately $50.5 million, which will be paid to Fumedica in varying amounts from June 2008 through June 2018. Through December 31, 2008, 12 million Swiss Francs or approximately $11.8 million have been paid andfollows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | As of December 31, 2009 | | | As of December 31, 2008 | |
| | | Estimated
| | | | | Accumulated
| | | | | | | | | Accumulated
| | | | |
| (In millions) | | Life | | Cost | | | Amortization | | | Net | | | Cost | | | Amortization | | | Net | |
| |
| Out-licensed patents | | 12 years | | $ | 578.0 | | | $ | (306.0 | ) | | $ | 272.0 | | | $ | 578.0 | | | $ | (250.3 | ) | | $ | 327.7 | |
| Core developed technology | | 15-23 years | | | 3,005.3 | | | | (1,472.4 | ) | | | 1,532.9 | | | | 3,005.3 | | | | (1,241.0 | ) | | | 1,764.3 | |
| Trademarks and tradenames | | Indefinite | | | 64.0 | | | | — | | | | 64.0 | | | | 64.0 | | | | — | | | | 64.0 | |
| In-licensed patents | | 14 years | | | 3.0 | | | | (1.1 | ) | | | 1.9 | | | | 3.0 | | | | (0.9 | ) | | | 2.1 | |
| Assembled workforce | | 4 years | | | 2.1 | | | | (1.8 | ) | | | 0.3 | | | | 2.1 | | | | (1.2 | ) | | | 0.9 | |
| Distribution rights | | 2 years | | | 12.7 | | | | (12.7 | ) | | | — | | | | 12.7 | | | | (10.6 | ) | | | 2.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total intangible assets | | | | $ | 3,665.1 | | | $ | (1,794.0 | ) | | $ | 1,871.1 | | | $ | 3,665.1 | | | $ | (1,504.0 | ) | | $ | 2,161.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intangible Assets
Intangible assets were unchanged as of December 31, 2009 as compared to December 31, 2008 the present valueexclusive of the remaining obligation is $38.6 millionimpact of foreign exchange and amortization.
The present valueIn September 2009, we were issued a U.S. patent for the use of beta interferon for immunomodulation or treating a viral condition, viral disease, cancers or tumors. This patent, expiring in September 2026, covers the treatment of multiple sclerosis with AVONEX, which is our brand of recombinant beta interferon and extends the expected remaining life of the payments due under the agreements will be accreted to future value at an interest rate of 5.75%, our incremental borrowing rate at the time of the acquisition.related core intangible asset.
FumapharmAmortization of Acquired Intangible Assets
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Amortization of acquired intangible assets | | $ | 289.8 | | | $ | 332.7 | | | $ | 257.5 | |
In June 2006,
Our most significant intangible asset is the core technology related to our AVONEX product. We believe the economic benefit of our core technology is consumed as revenue is generated from our AVONEX product, which we completedrefer to as the acquisition of 100%economic consumption amortization model. An analysis of the stockanticipated product sales of Fumapharm, a privately held pharmaceutical company basedAVONEX is performed annually during our long range planning cycle each year. This analysis serves as the basis for the calculation of economic consumption for the core technology intangible asset.
We completed our most recent long range planning cycle in Switzerland that develops therapeutics derived from fumaric acid esters. As partthe third quarter of 2009, which includes an analysis of the acquisition, we acquired FUMADERM, a commercialanticipated product availablesales of AVONEX. Based upon our most recent analysis, amortization of intangible assets included within our consolidated balance sheet as of December 31, 2009 is expected to be in Germanythe range of approximately $160.0 million to $220.0 million for each of the treatment of psoriasis, and BG-12, a clinical-stage compound being studied for the treatment of MS and psoriasis that was being jointlynext five years.
F-21
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
developed by Fumapharm and us. The purpose of this acquisition was to support our goal of developing innovative therapeutic options for people living with MS.
As part of the acquisition, we agreed to pay $220.0 million, of which $218.0 million was paid at closing and $2.0 million was paid in 2008 as partial coverage for any losses incurred as a result of any breach of representations and warranties. We agreed to additional payments of $15.0 million upon achievement of certain regulatory approvals, and additional payments in the event that annual and cumulative sales targets, as defined, are achieved.
The acquisition was funded from our existing cash on hand and has been accounted for as a business combination. Assets and liabilities assumed have been recorded at their fair values as of the date of acquisition. The results of operations for Fumapharm are included from the date of acquisition. Our purchase price allocation for the acquisition is set forth below (in millions):
| | | | | |
| Current assets | | $ | 6.5 | |
| In process research and development | | | 207.4 | |
| Core technology | | | 16.9 | |
| Developed technology | | | 9.5 | |
| Goodwill | | | 18.5 | |
| Other assets | | | 1.2 | |
| Deferred tax liabilities | | | (2.8 | ) |
| Other liabilities | | | (2.7 | ) |
| | | | | |
| | | $ | 254.5 | |
| | | | | |
| Consideration and Gain | | | | |
| Consideration | | $ | 220.0 | |
| Gain on settlement of pre-existing license agreement | | | 34.2 | |
| Transaction costs | | | 0.3 | |
| | | | | |
| | | $ | 254.5 | |
| | | | | |
The purchase price allocation was completed during the fourth quarter of 2006.
The amount allocated to IPR&D projects relates to the development of BG-12. BG-12 has received positive results from a Phase 2 study of its efficacy and safety for patients with relapsing-remitting MS and, subsequent to the acquisition, we initiated Phase 3 clinical trials. Since the acquisition in June of 2006, we have incurred $129.3 million in research and development costs. We expect to incur approximately an additional $169.0 million to complete the development of BG-12. The estimated revenues from BG-12 are expected to be recognized beginning in 2012. A discount rate of 12% was used to value the project, which we believe to be commensurate with the stage of development and the uncertainties in the economic estimates described above. At the date of acquisition, the development of BG-12 had not yet reached technological feasibility, and the research and development in progress had no alternative future use. Accordingly, $207.4 million in IPR&D was expensed in 2006.
The fair value of intangible assets was based on valuations using an income approach, with estimates and assumptions determined by management. The core technology asset represents a combination of Fumapharm’s processes and procedures related to the design and development of its application products. The developed technology relates to processes and procedures related to products that have reached technological feasibility. Core technology is being amortized over approximately 12 years and the developed technology over approximately 3 years. The excess of purchase price over tangible assets, identifiable intangible assets and assumed liabilities represents goodwill. None of the goodwill or intangible assets acquired is deductible for income tax purposes. As a result, we recorded a deferred tax liability of $2.8 million, based on the tax effect of the amount of the acquired intangible assets other than goodwill with no tax basis.
F-22
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In addition to the assets acquired, a gain of $34.2 million was recognized coincident with the acquisition of Fumapharm in accordance withEITF 04-1,Accounting for Preexisting Relationships between the Parties to a Business Combination.The gain related to the settlement of a preexisting license agreement between Fumapharm and us. The license agreement in question had been entered into in October 2003 and required us to make payments to Fumapharm of certain royalty amounts. The market rate for such payments was determined to have increased due, principally, to the increased technical feasibility of BG-12. The gain primarily relates to the difference between i) the royalty rates at the time the agreement was entered into as compared to ii) the expected higher royalty rates that would result at the time the agreement was effectively settled by virtue of our acquisition of Fumapharm.
Future contingent consideration payments, if any, will be accounted for as increases to goodwill. The total revenue, operating income (loss) and net income (loss) impacts of the acquisition for the year ended December 31, 2006 was not material.
ConformaGoodwill
In May 2006, we completed the acquisition of 100% of the stock of Conforma, a privately-held development stage biopharmaceutical company based in California that focused on the design and development of drugs for the treatment of cancer. The goal of this acquisition wasfollowing table summarizes changes to enable us to broaden our therapeutic opportunities in the field of oncology.goodwill:
We acquired all of the issued and outstanding shares of the capital stock of Conforma for $150.0 million, paid at closing. Of this amount, $15.0 million has been escrowed by the sellers pending satisfaction of customary representations and warranties made by Conforma. In 2008, we recorded an IPR&D charge of $25.0 million related to an HSP90 related milestone payment made to the former shareholders of Conforma. Up to an additional $75.0 million could be payable to the sellers upon the achievement of certain future development milestones. Additionally, $0.5 million in transaction costs were incurred and loans of approximately $2.3 million were made to certain non-officer employees of Conforma, which are included in other assets in the accompanying consolidated balance sheet. Such loans are fully collateralized and were made for the purpose of assisting the employees in meeting their tax liabilities.
The acquisition was funded from our existing cash on hand and was accounted for as an asset acquisition as Conforma is a development-stage company. As a result of the acquisition, we obtained the rights to two compounds in Phase 1 clinical trials: CNF1010, a proprietary form of the geldanamycin derivative17-AAG; and CNF2024, or HSP90, a totally synthetic, orally bioavailable heat shock protein 90 inhibitor.
The results of operations of Conforma are included in our results from the date of acquisition. Our completed purchase price allocation for the acquisition is set forth below (in millions):
| | | | | |
| Current assets | | $ | 2.5 | |
| Fixed assets | | | 0.8 | |
| Deferred tax asset | | | 24.0 | |
| Assembled workforce | | | 1.4 | |
| In process research and development | | | 123.1 | |
| Current liabilities | | | (1.3 | ) |
| | | | | |
| | | $ | 150.5 | |
| | | | | |
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Balance as of January 1 | | $ | 1,138.6 | | | $ | 1,137.4 | |
| Foreign currency translation | | | — | | | | 1.2 | |
| | | | | | | | | |
| Balance as of December 31 | | $ | 1,138.6 | | | $ | 1,138.6 | |
| | | | | | | | | |
The amount allocated to IPR&D relates to the developmentAs of HSP90, which is in Phase 1 clinical trials. Since the acquisition in June of 2006,December 31, 2009 we have incurred $36.3 million in research and development costs. We expect to incur approximately an additional $242 million to complete the development of HSP90. The estimated revenues from HSP90, if any, are expected to be recognized beginning in 2013. A discount rate of 12% was used to value the project, which we believe to be commensurate with the stage of development and the uncertainties in the economic
F-23
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
estimates described above. At the date of acquisition, this compound had not reached technological feasibility and had no alternative future use. Accordingly, $123.1 million in IPR&D was expensed in 2006.
Upon acquisition, we recognized a deferred tax asset of $24.0 million relating to US federal and state net operating losses and tax credit carryforwards that we acquired from Conforma. The amount allocated to deferred tax assets does not include certain tax attributes, such as net operating losses and research credits, that may not be realized because they are subject to annual limitations under the Internal Revenue Code due to a cumulative ownership change of more than 50% which occurred in connection with our acquisition of Conforma.
Future contingent consideration payments, if any, will be recorded as IPR&D. The total revenue, operating income (loss) and net income (loss) impacts of the acquisition for the year ended December 31, 2006 was not material.
ZEVALIN
In December 2007, we sold the U.S. marketing, sales, and manufacturing and development rights of ZEVALIN® to Cell Therapeutics, Inc., or CTI, for an upfront purchase price of $10.0 million. In December 2008, we received an additional $2.2 million milestone payment pursuant to an amendment to the agreement. We may receive up to an additional $20.0 million in milestone payments. In addition, we will receive royalty payments on future sales of ZEVALIN. As part of the overall agreement, we entered into a supply agreement with CTI to sell ZEVALIN product through 2014. Our sales of ZEVALIN to Bayer Schering Pharma AG, or Schering AG, for distribution in the EU will be recognized as product revenue and our supply of ZEVALIN to CTI will be recognized as corporate partner revenue. We will continue to receive royalty revenues from Schering AG on their sales of ZEVALIN in the EU. The $10.0 million upfront and $2.2 million milestone payment are being recognized in our results of operations over the term of the supply agreement.accumulated impairment losses.
| |
3.6. | Fair Value Measurements |
Summary of Assets and Liabilities Recorded at Fair Value
The following tables below present information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2009 and 2008 and indicatesindicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value. In general, fair values determined by Levelvalue, which is described further within Note 1, inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability.Summary of Significant Accounting Policiesto our Consolidated Financial Statements.
A majority of our financial assets and liabilities have been classified as Level 2. These assets and liabilities have been initially valued at the transaction price and subsequently valued typically 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 obtain an understanding of the models and 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. The fair values ofinstances and confirming those securities trade in active markets. After completing our foreign currency forward contracts, interest rate swaps, debt instruments and plan assets for deferred compensation are based on market inputs and have been classified as Level 2. As of December 31, 2008 and after completing our
F-24
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
validation procedures, we did not adjust or override any fair value measurements provided by our pricing services. (in millions):
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Significant Other
| | | Significant
| |
| | | Balance at
| | | Quoted Prices in
| | | Observable
| | | Unobservable
| |
| | | December 31,
| | | Active Markets
| | | Inputs
| | | Inputs
| |
Description | | 2008 | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| |
| Assets: | | | | | | | | | | | | | | | | |
| Cash equivalents | | $ | 500.9 | | | $ | — | | | $ | 500.9 | | | $ | — | |
| Marketable debt securities | | | 1,640.4 | | | | — | | | | 1,640.4 | | | | — | |
| Strategic investments | | | 4.6 | | | | 4.6 | | | | — | | | | — | |
| Venture capital investments | | | 23.9 | | | | — | | | | — | | | | 23.9 | |
| Derivative contracts | | | 1.9 | | | | — | | | | 1.9 | | | | — | |
| Plan assets for deferred compensation | | | 13.3 | | | | — | | | | 13.3 | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 2,185.0 | | | $ | 4.6 | | | $ | 2,156.5 | | | $ | 23.9 | |
| | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Derivative contracts | | $ | 46.0 | | | $ | — | | | $ | 46.0 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 46.0 | | | $ | — | | | $ | 46.0 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
services as of December 31, 2009 and 2008.
The fair values of our cash equivalents, marketable debt securities, derivative instruments and plan assets for deferred compensation are determined through market and observable sources. Our strategic investments are investments in publicly traded equity securities whereare classified as Level 1 assets as their fair value isvalues are readily determinable.
The following table is a roll forward of the fair value of our venture capital investments, where fair value is determined by Level 3 inputs (in millions):
| | | | | |
| | | Year
| |
| | | Ended
| |
| | | December 31,
| |
Description | | 2008 | |
| |
| Beginning Balance | | $ | 28.1 | |
| Total net unrealized gains (losses) included in earnings | | | (7.6 | ) |
| Purchases, issuances, and settlements | | | 3.4 | |
| | | | | |
| Ending Balance | | $ | 23.9 | |
| | | | | |
determinable and based on quoted market prices.
Our venture capital investments which represent approximately 0.3% of the total assets at December 31, 2008, are the only assets wherefor which we used Level 3 inputs to determine the fair value. Venture capital investments represented approximately 0.3% of total assets as of December 31, 2009 and 2008. We have funding commitments of up to approximately $24.8 million as part of our investment in these funds. These funds primarily invest in small privately-owned, ventured-backed, biotechnology companies. The fair value of funds has been estimated using the net asset value of our ownership interest in partner’s capital. The investments cannot be redeemed within the funds. Distributions from each 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. The underlying assets in these funds are initially measured at transaction prices and subsequently valued using the pricing of recent financingand/or by reviewing the underlying economic fundamentals and liquidation value of the companies. Gains and losses (realized and unrealized) included in earnings for the period are reported in other income (expense), net.
The carrying amounts reflected in the consolidated balance sheets for cash, 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.
At December 31, 2008, the fair values of our debt instruments were as follows (in millions):
| | | | | |
| Credit line from Dompé | | $ | 16.4 | |
| Notes payable to Fumedica | | $ | 37.5 | |
| 6.0% Senior Notes due 2013 | | $ | 429.8 | |
| 6.875% Senior Notes due 2018 | | $ | 562.4 | |
F-25F-22
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables set forth our financial assets and liabilities that were recorded at fair value:
| | | | | | | | | | | | | | | | | |
| | | | | | Quoted
| | | Significant
| | | | |
| | | | | | Prices
| | | Other
| | | Significant
| |
| | | As of
| | | in Active
| | | Observable
| | | Unobservable
| |
| | | December 31,
| | | Markets
| | | Inputs
| | | Inputs
| |
| (In millions) | | 2009 | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| |
| Assets: | | | | | | | | | | | | | | | | |
| Cash equivalents | | $ | 476.4 | | | $ | — | | | $ | 476.4 | | | $ | — | |
| Marketable debt securities: | | | | | | | | | | | | | | | | |
| Corporate debt securities | | | 504.1 | | | | — | | | | 504.1 | | | | — | |
| Government securities | | | 1,133.5 | | | | — | | | | 1,133.5 | | | | — | |
| Mortgage and other asset backed securities | | | 238.3 | | | | — | | | | 238.3 | | | | — | |
| Strategic investments | | | 5.9 | | | | 5.9 | | | | — | | | | — | |
| Venture capital investments | | | 21.9 | | | | — | | | | — | | | | 21.9 | |
| Derivative contracts | | | 15.8 | | | | — | | | | 15.8 | | | | — | |
| Plan assets for deferred compensation | | | 13.6 | | | | — | | | | 13.6 | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 2,409.5 | | | $ | 5.9 | | | $ | 2,381.7 | | | $ | 21.9 | |
| | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Derivative contracts | | $ | 11.1 | | | $ | — | | | $ | 11.1 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 11.1 | | | $ | — | | | $ | 11.1 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | Quoted
| | | Significant
| | | | |
| | | | | | Prices
| | | Other
| | | Significant
| |
| | | As of
| | | in Active
| | | Observable
| | | Unobservable
| |
| | | December 31,
| | | Markets
| | | Inputs
| | | Inputs
| |
| (In millions) | | 2008 | | | (Level 1) | | | (Level 2) | | | (Level 3) | |
| |
| Assets: | | | | | | | | | | | | | | | | |
| Cash equivalents | | $ | 500.9 | | | $ | — | | | $ | 500.9 | | | $ | — | |
| Marketable debt securities: | | | | | | | | | | | | | | | | |
| Corporate debt securities | | | 328.5 | | | | — | | | | 328.5 | | | | — | |
| Government securities | | | 1,005.0 | | | | — | | | | 1,005.0 | | | | — | |
| Mortgage and other asset backed securities | | | 306.9 | | | | — | | | | 306.9 | | | | — | |
| Strategic investments | | | 4.6 | | | | 4.6 | | | | — | | | | — | |
| Venture capital investments | | | 23.9 | | | | — | | | | — | | | | 23.9 | |
| Derivative contracts | | | 1.9 | | | | — | | | | 1.9 | | | | — | |
| Plan assets for deferred compensation | | | 13.3 | | | | — | | | | 13.3 | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 2,185.0 | | | $ | 4.6 | | | $ | 2,156.5 | | | $ | 23.9 | |
| | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Derivative contracts | | $ | 46.0 | | | $ | — | | | $ | 46.0 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 46.0 | | | $ | — | | | $ | 46.0 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
The fair values of our cash equivalents, marketable debt securities, derivative contracts and plan assets for deferred compensation are determined through market and observable sources.
F-23
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides a roll forward of the fair value of our venture capital investments, where fair value is determined by Level 3 inputs:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Beginning balance | | $ | 23.9 | | | $ | 28.1 | |
| Total net unrealized gains (losses) included in earnings | | | (3.6 | ) | | | (7.6 | ) |
| Purchases, issuances, and settlements | | | 1.6 | | | | 3.4 | |
| | | | | | | | | |
| Ending balance | | $ | 21.9 | | | $ | 23.9 | |
| | | | | | | | | |
The fair values of our debt instruments are summarized as follows:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Credit line from Dompé | | $ | 17.2 | | | $ | 16.4 | |
| Notes payable to Fumedica | | | 31.3 | | | | 37.5 | |
| 6.0% Senior Notes due 2013 | | | 475.7 | | | | 429.8 | |
| 6.875% Senior Notes due 2018 | | | 589.1 | | | | 562.4 | |
| | | | | | | | | |
| Total fair value | | $ | 1,113.3 | | | $ | 1,046.1 | |
| | | | | | | | | |
The fair values of our credit line from Dompe and our note payable to Fumedica were estimated using market observable inputs. The fair value of our Senior Notes was determined through market, observable and corroborated sources. Within the hierarchy of fair value measurements, these are Level 2 fair values.
| |
4.7. | Financial Instruments |
Financial instruments that potentially subject us to concentrations of credit risk are accounts receivable and marketable securities. Wholesale distributors and large pharmaceutical companies account for the majority of our accounts receivable and collateral is generally not required from these customers. To mitigate credit risk, we monitor the financial performance and credit worthiness of our customers. We also maintain a well diversified portfolio of marketable securities that limits our credit exposure through concentration limits set within our investment policy.
Marketable Securities, including Strategic Investments
The following is a summarytables summarize our marketable securities and strategic investments:
| | | | | | | | | | | | | | | | | |
| | | | | | Gross
| | | Gross
| | | | |
| | | Fair
| | | Unrealized
| | | Unrealized
| | | Amortized
| |
| As of December 31, 2009 (In millions): | | Value | | | Gains | | | Losses | | | Cost | |
| |
Available-for-Sale | | | | | | | | | | | | | | | | |
| Corporate debt securities | | | | | | | | | | | | | | | | |
| Current | | $ | 177.2 | | | $ | 1.5 | | | $ | — | | | $ | 175.7 | |
| Non-current | | | 326.9 | | | | 5.7 | | | | (0.3 | ) | | | 321.5 | |
| Government securities | | | | | | | | | | | | | | | | |
| Current | | | 501.6 | | | | 1.2 | | | | — | | | | 500.4 | |
| Non-current | | | 631.9 | | | | 4.1 | | | | (0.5 | ) | | | 628.3 | |
| Mortgage and other asset backed securities | | | | | | | | | | | | | | | | |
| Current | | | 3.0 | | | | 0.1 | | | | — | | | | 2.9 | |
| Non-current | | | 235.3 | | | | 4.1 | | | | (0.5 | ) | | | 231.7 | |
| | | | | | | | | | | | | | | | | |
Totalavailable-for-sale securities | | $ | 1,875.9 | | | $ | 16.7 | | | $ | (1.3 | ) | | $ | 1,860.5 | |
| | | | | | | | | | | | | | | | | |
Other Investments | | | | | | | | | | | | | | | | |
| Strategic investments, non-current | | $ | 5.9 | | | $ | 2.7 | | | $ | (0.3 | ) | | $ | 3.5 | |
| | | | | | | | | | | | | | | | | |
F-24
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | |
| | | | | | Gross
| | | Gross
| | | | |
| | | Fair
| | | Unrealized
| | | Unrealized
| | | Amortized
| |
| As of December 31, 2008 (In millions): | | Value | | | Gains | | | Losses | | | Cost | |
| |
Available-for-Sale | | | | | | | | | | | | | | | | |
| Corporate debt securities | | | | | | | | | | | | | | | | |
| Current | | $ | 128.2 | | | $ | 0.4 | | | $ | — | | | $ | 127.8 | |
| Non-current | | | 200.3 | | | | 2.6 | | | | — | | | | 197.7 | |
| Government securities | | | | | | | | | | | | | | | | |
| Current | | | 582.8 | | | | 1.5 | | | | — | | | | 581.3 | |
| Non-current | | | 422.2 | | | | 8.7 | | | | — | | | | 413.5 | |
| Mortgage and other asset backed securities | | | | | | | | | | | | | | | | |
| Current | | | 13.9 | | | | — | | | | — | | | | 13.9 | |
| Non-current | | | 293.0 | | | | 3.3 | | | | (0.3 | ) | | | 290.0 | |
| | | | | | | | | | | | | | | | | |
Totalavailable-for-sale securities | | $ | 1,640.4 | | | $ | 16.5 | | | $ | (0.3 | ) | | $ | 1,624.2 | |
| | | | | | | | | | | | | | | | | |
Other Investments | | | | | | | | | | | | | | | | |
| Strategic investments, non-current | | $ | 4.6 | | | $ | 0.5 | | | $ | (0.1 | ) | | $ | 4.2 | |
| | | | | | | | | | | | | | | | | |
In the tables above, as of December 31, 2009 and 2008, government securities included $298.8 million and $139.1 million, respectively, of Federal Deposit Insurance Corporation (FDIC) guaranteed senior notes issued by financial institutions under the Temporary Liquidity Guarantee Programs.
Certain commercial paper and short-term debt securities with original maturities of less than 90 days are included in cash and cash equivalents on the accompanying consolidated balance sheets and are not included in the tables above. As of December 31, 2009 and 2008, such commercial paper, including accrued interest, had fair and carrying values of $76.9 million and $42.7 million, respectively, and short-term debt securities had fair and carrying values of $399.5 million and $458.2 million, respectively.
In addition, the balances as of December 31, 2008 include amounts related to loaned securities under our securities lending program.
Summary of Contractual Maturities:Available-for-Sale Securities
The estimated fair value and amortized cost of securities, excluding strategic investments,available-for-sale by contractual maturity are summarized as follows:
| | | | | | | | | | | | | | | | | |
| | | As of December 31, 2009 | | | As of December 31, 2008 | |
| | | Estimated
| | | Amortized
| | | Estimated
| | | Amortized
| |
| (In millions) | | Fair Value | | | Cost | | | Fair Value | | | Cost | |
| |
| Due in one year or less | | $ | 522.0 | | | $ | 519.5 | | | $ | 714.9 | | | $ | 713.0 | |
| Due after one year through five years | | | 1,143.7 | | | | 1,133.4 | | | | 733.7 | | | | 722.0 | |
| Due after five years | | | 210.2 | | | | 207.6 | | | | 191.8 | | | | 189.2 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 1,875.9 | | | $ | 1,860.5 | | | $ | 1,640.4 | | | $ | 1,624.2 | |
| | | | | | | | | | | | | | | | | |
The average maturity of our marketable securities as of December 31, 2009 and 2008 was 15 months and 13 months, respectively.
F-25
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Proceeds from Maturities and Sales of Marketable Securities, excluding Strategic Investments
The proceeds from maturities and sales of marketable securities, excluding strategic investments, which were primarily reinvested and investments (in millions):resulting realized gains and losses, are summarized as follows:
| | | | | | | | | | | | | | | | | |
| | | | | | Gross
| | | Gross
| | | | |
| | | Fair
| | | Unrealized
| | | Unrealized
| | | Amortized
| |
December 31, 2008: | | Value | | | Gains | | | Losses | | | Cost | |
| |
Available-for-sale | | | | | | | | | | | | | | | | |
| Corporate debt securities | | | | | | | | | | | | | | | | |
| Current | | $ | 84.8 | | | $ | 0.4 | | | $ | — | | | $ | 84.4 | |
| Non-current | | | 200.3 | | | | 2.6 | | | | — | | | | 197.7 | |
| U.S. Government securities | | | | | | | | | | | | | | | | |
| Current | | | 582.8 | | | | 1.5 | | | | — | | | | 581.3 | |
| Non-current | | | 422.2 | | | | 8.7 | | | | — | | | | 413.5 | |
| Other interest bearing securities | | | | | | | | | | | | | | | | |
| Current | | | 57.3 | | | | — | | | | — | | | | 57.3 | |
| Non-current | | | 293.0 | | | | 3.3 | | | | (0.3 | ) | | | 290.0 | |
| | | | | | | | | | | | | | | | | |
| Total available-for-sale securities | | $ | 1,640.4 | | | $ | 16.5 | | | $ | (0.3 | ) | | $ | 1,624.2 | |
| | | | | | | | | | | | | | | | | |
Other Investments | | | | | | | | | | | | | | | | |
| Strategic investments, non-current | | $ | 4.6 | | | $ | 0.5 | | | $ | (0.1 | ) | | $ | 4.2 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Proceeds from maturities and sales | | $ | 3,319.0 | | | $ | 2,941.1 | | | $ | 3,154.3 | |
| Realized gains | | $ | 19.8 | | | $ | 15.9 | | | $ | 4.5 | |
| Realized losses | | $ | 4.0 | | | $ | 17.0 | | | $ | 4.9 | |
The realized losses for the year ended December 31, 2009 and 2008 primarily relate to losses on the sale of corporate debt securities and non-agency mortgage-backed securities.
Strategic Investments
In 2009 we sold two strategic investments for $5.9 million, which resulted in a $3.0 million gain. In 2008, we did not sell any portion of our strategic investments. In 2007, we sold our share in one strategic investment for $99.5 million, which resulted in a $17.2 million gain. Strategic investments are included in investments and other assets on the accompanying consolidated balance sheets.
In addition to the strategic investments and venture capital investments noted in Note 6,Fair Value Measurements, to our Consolidated Financial Statements, we hold other investments in equity securities of certain privately held biotechnology companies and biotechnology oriented venture capital funds accounted for using the cost method. The cost basis of these securities as of December 31, 2009 and 2008 is $73.9 million and $40.8 million, respectively. These securities are also included in investments and other assets on the accompanying consolidated balance sheets.
Impairments
Evaluating Investments forOther-than-Temporary Impairments
We conduct periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning ofother-than-temporary impairment and its application to certain investments, as required by U.S. GAAP. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses onavailable-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.
Foravailable-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 beother-than-temporary and the full amount of the unrealized loss is recorded 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.
For equity securities, when assessing whether a decline in fair value below our cost basis isother-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 beother-than-temporary and is recorded within earnings as an impairment loss.
F-26
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | |
| | | | | | Gross
| | | Gross
| | | | |
| | | Fair
| | | Unrealized
| | | Unrealized
| | | Amortized
| |
December 31, 2007: | | Value | | | Gains | | | Losses | | | Cost | |
| |
Available-for-sale | | | | | | | | | | | | | | | | |
| Corporate debt securities | | | | | | | | | | | | | | | | |
| Current | | $ | 178.3 | | | $ | 0.2 | | | $ | (0.3 | ) | | $ | 178.4 | |
| Non-current | | | 309.7 | | | | 3.5 | | | | (0.1 | ) | | | 306.3 | |
| U.S. Government securities | | | | | | | | | | | | | | | | |
| Current | | | 192.5 | | | | 0.2 | | | | (0.1 | ) | | | 192.4 | |
| Non-current | | | 232.5 | | | | 4.7 | | | | — | | | | 227.8 | |
| Other interest bearing securities | | | | | | | | | | | | | | | | |
| Current | | | 6.1 | | | | — | | | | — | | | | 6.1 | |
| Non-current | | | 537.0 | | | | 5.2 | | | | (0.5 | ) | | | 532.3 | |
| | | | | | | | | | | | | | | | | |
| Total available-for-sale securities | | $ | 1,456.1 | | | $ | 13.8 | | | $ | (1.0 | ) | | $ | 1,443.3 | |
| | | | | | | | | | | | | | | | | |
Other Investments | | | | | | | | | | | | | | | | |
| Strategic investments, non-current | | $ | 16.8 | | | $ | 2.9 | | | $ | (0.1 | ) | | $ | 14.0 | |
| | | | | | | | | | | | | | | | | |
Recognition and Measurement ofOther-than-Temporary Impairment
Prior to the adoption of new accounting standards for the recognition, measurement and presentation ofother-than-temporary impairments in April 2009, we recognized allother-than-temporary impairment amounts related to our marketable debt securities in earnings as required under the previously effective guidance which required that management assert that it had the ability and intent to hold a debt security until maturity or until we recovered the cost of our investment.
In 2009, 2008, and 2007, we recognized $3.8 million, $16.3 million, and $17.6 million in charges, respectively, for the table above, at December 31,impairment of publicly-held strategic investments and for declines in value of funds that were determined to beother-than-temporary.
In 2009, 2008, U.S. Government securities includes $139.1and 2007, we recorded $3.2 million, $2.3 million, and $0.8 million, respectively, in charges for the impairment for certain investments in privately-held companies and declines in value of FDIC guaranteed senior notes issued by financial institutionsfunds recorded under the Temporary Liquidity Guarantee Program (TLGP). Certain commercial paper and short-term debt securities with original maturities of less than 90 days are included in cash and cash equivalents on the accompanying balance sheet and are not included in the table above. The commercial paper, including accrued interest, has a fair and carrying value of $42.7 million and $368.2 million and short-term debt securities has a fair and carrying value of $458.2 million and $195.1 million at December 31, 2008 and December 31, 2007, respectively.cost method that were determined to beother-than-temporary.
The tables above include our loanedIn 2009, we recognized $3.6 million in charges for theother-than-temporary impairment on marketable debt securities. In the years ended December 31,For 2008 and 2007, we recognized $41.7 million and $7.5 million, respectively, in charges for theother-than-temporary impairment of available-for-salemarketable debt securities primarily related to mortgage and asset backed securities that were determined to be other-than-temporary following a decline in value primarily related to adverse market conditions, including less active trading markets, and a change in our investment strategy regarding these assets which no longer provided us with the ability and intent to hold the securities to maturity or until we recovered the cost of our investment. No such charges were recognized in 2006.asset-backed securities.
Unrealized losses relate to various debt securities, including U.S. Government issues, corporate bonds and asset-backed securities. The unrealized losses on these securities were primarily caused by a rise in interest ratesand/or an increase in credit spreads subsequent to purchase. We believe that these unrealized losses are temporary, and we have the intent and ability to hold these securities to recovery, which may be at maturity.
The proceeds from maturities and sales of marketable securities, excluding strategic investments, which were primarily reinvested, and resulting realized gains and losses were as follows (in millions):
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Proceeds from maturities and sales | | $ | 2,941.1 | | | $ | 3,154.3 | | | $ | 1,787.1 | |
| Realized gains | | $ | 15.9 | | | $ | 4.5 | | | $ | 1.9 | |
| Realized losses | | $ | 17.0 | | | $ | 4.9 | | | $ | 4.7 | |
F-27
| |
| 8. | Derivative Instruments |
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The estimated fair value and amortized cost of securities, excluding strategic investments, available-for-sale by contractual maturity are as follows (in millions):
| | | | | | | | | |
| | | December 31, 2008 | |
| | | Estimated Fair Value | | | Amortized Cost | |
| |
| Due in one year or less | | $ | 714.9 | | | $ | 713.0 | |
| Due after one year through five years | | | 733.7 | | | | 722.0 | |
| Due after five years | | | 191.8 | | | | 189.2 | |
| | | | | | | | | |
| Total | | $ | 1,640.4 | | | $ | 1,624.2 | |
| | | | | | | | | |
Mortgage and other asset backed securities totaled $306.8 million and include $66.5 million of non-agency mortgage backed securities at December 31, 2008. The average maturity of our marketable securities at December 31, 2008 and 2007 was 13 months and 15 months, respectively.
Strategic Investments
In 2007, we sold our share in one strategic investment for $99.5 million, which resulted in a $17.2 million gain. In 2008 and 2006, we did not sell any portion of strategic investments. Strategic investments are included in investments and other assets on the accompanying balance sheet.
In 2008, 2007, and 2006, we recognized $8.6 million, $16.0 million, and $30.5 million in charges, respectively, for the impairment of publicly-held strategic investments for declines in value that were determined to be other-than-temporary.
We hold other investments in equity securities of certain privately held biotechnology companies or biotechnology oriented venture capital funds. The cost basis of these securities at December 31, 2008 and 2007 is $64.7 million and $52.9 million, respectively. These securities are included in investments and other assets on the accompanying consolidated balance sheet.
In 2008, 2007, and 2006, we recorded $2.3 million, $2.4 million, and $3.9 million, respectively, in charges for the impairment for certain investments in privately held companies or funds that were determined to be other than temporary.
Forward Contracts and Interest Rate Swaps
On January 1, 2009, we adopted a newly issued accounting standard which requires additional disclosure about our objectives for using derivative instruments, the level of derivative activity we engage in, and the effect of derivative instruments and related hedged items on our financial position and performance. The adoption of this standard did not impact our financial position or results of operations.
Our primary market exposure is to foreign exchange rates and interest rates. We use certain derivative instruments to help manage these exposures. We execute these instruments with financial institutions we judge to be creditworthy and the majority of these instruments are denominated in currencies of major industrial countries. We do not hold or issue derivative instruments for trading or speculative purposes.
We recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance sheets. We classify the cash flows from these instruments in the same category as the cash flows from the hedged items.
Forward Contracts
Due to the global nature of our operations, portions of our revenues are in currencies other than the U.S. dollar. The value of revenue measured in U.S. dollars is subject to changes in foreign currencyexchange rates. In order to mitigate these changes we use forward contracts to hedge specific forecasted transactions denominatedlock in foreign currencies. exchange rates. We do not engage in currency speculation.
All foreign currency forward contracts in effect atas of December 31, 2009 and 2008 had durations of 1 to 12 months. These contracts have been designated as cash flow hedges and accordingly, to the extent effective, any unrealized gains or losses on these foreign currency forward contracts are reported in accumulated other comprehensive income (loss). Realized gains and losses for the effective portion of such contracts are recognized within revenue when the completionsale of product in the underlying hedge transaction.currency being hedged is recognized. To the extent ineffective, hedge transaction gains and losses are reported in other income (expense)., net at each reporting date.
F-27
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Foreign currency forward contracts that were entered into to hedge forecasted revenue are summarized as follows:
| | | | | | | | | |
| | | Notional Amount
| |
| | | As of December 31, | |
| Foreign Currency: (In millions) | | 2009 | | | 2008 | |
| |
| Euro | | $ | 495.9 | | | $ | 489.4 | |
| Canadian Dollar | | | 22.3 | | | | 34.1 | |
| | | | | | | | | |
| Total | | $ | 518.2 | | | $ | 523.5 | |
| | | | | | | | | |
The notional settlement amountportion of the foreign currency forward contracts outstanding at December 31, 2008 was approximately $523.5 million. The fair value of these contracts was a net unrealized loss of $44.1 million andthat was included in accumulated other comprehensive income (loss) within the shareholder’stotal equity atreflected gains of $1.2 million and losses of $44.1 million as of December 31, 2008.2009 and 2008, respectively. 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 obligations under the contract. As of December 31, 2009 and 2008, respectively, credit risk did not materially change the fair value of our foreign currency forward contracts. The notional settlement amount of the
In relation to our foreign currency forward contracts, outstanding atwe recognize gains and losses in earnings due to hedge ineffectiveness. During the years ended December 31, 2009, 2008 and 2007 we recognized net losses of $1.1 million, $0.2 million, and $2.6 million, respectively. In addition, we recognized $49.7 million, $8.5 million, and $13.1 million, respectively, of losses in product revenue for the settlement of certain effective cash flow hedge instruments for the years ended December 31, 2009, 2008 and 2007, respectively. These settlements were recorded in the same period as the related forecasted revenue.
Interest Rate Swaps
In connection with the issuance of our 6.875% Senior Notes in March 2008, we entered into interest rate swap contracts with an aggregate notional amount of $550.0 million. These contracts were settled in December 2008. Under the settlement we received $53.9 million. As the interest rate swaps were settled in 2008, no hedge ineffectiveness was recognized for the year ended December 31, 2009. In the year ended December 31, 2008, we recognized a net loss of $8.9 million in earnings due to hedge ineffectiveness.
Additionally, upon termination of the swaps in December 2008, the carrying amount of the 6.875% Senior Notes increased $62.8 million. This amount will be recognized as a reduction of interest expense and amortized using the effective interest rate method over the remaining life of the 6.875% Senior Notes. In 2009, approximately $409.2 million. $5.4 million was recorded as a reduction of interest expense.
Summary of Derivatives Designated as Hedging Instruments
The following table summarizes the fair value of theseand presentation in the consolidated balance sheets for derivatives designated as hedging instruments:
| | | | | | | | | | | | | | | | | |
| | | Foreign Currency Contracts | |
| | | Asset Derivatives | | | Liability Derivatives | |
| (In millions) | | Balance Sheet Location | | | Fair Value | | | Balance Sheet Location | | | Fair Value | |
| |
| December 31, 2009 | | | Other Current Assets | | | $ | 10.8 | | | | Accrued Expenses and Other | | | $ | 9.8 | |
| December 31, 2008 | | | Other Current Assets | | | $ | 1.9 | | | | Accrued Expenses and Other | | | $ | 46.0 | |
As noted above, the interest rate swap contracts was a loss of $6.4 million and was includedwere settled in other current liabilities at December 31, 2007.2008.
F-28
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For ourThe following table summarizes the effect of derivatives designated as hedging instruments on the consolidated statements of income:
| | | | | | | | | | | | | | | | | | | |
| | | Amount
| | | | | | Amount
| | | | | | |
| | | Recognized in
| | | | | | Reclassified from
| | | | | | |
| | | Accumulated Other
| | | | | | Accumulated Other
| | | | | | |
| | | Comprehensive
| | | | | | Comprehensive
| | | | | | |
| | | Income
| | | | | | Income
| | | | | Amount of
| |
| | | on Derivative
| | | Income Statement
| | | into Income
| | | Income Statement
| | Gain/(Loss)
| |
| | | Gain/(Loss)
| | | Location
| | | Gain/(Loss)
| | | Location
| | Recorded
| |
| For the Years Ended (In millions) | | (Effective Portion) | | | (Effective Portion) | | | (Effective Portion) | | | (Ineffective Portion) | | (Ineffective Portion) | |
| |
December 31, 2009: | | | | | | | | | | | | | | | | | | |
| Foreign currency contracts | | $ | 1.2 | | | | Revenue | | | $ | (49.7 | ) | | Other income
(expense) | | $ | (1.1 | ) |
December 31, 2008: | | | | | | | | | | | | | | | | | | |
| Foreign currency contracts | | $ | (44.1 | ) | | | Revenue | | | $ | (8.5 | ) | | Other income
(expense) | | $ | 0.2 | |
| Interest rate swap | | $ | — | | | | Interest Expense | | | $ | — | | | Interest Expense | | $ | (8.9 | ) |
| | | | | | | | | | | | | | | | | | | |
December 31, 2007: | | | | | | | | | | | | | | | | | | |
| Foreign currency contracts | | $ | (6.4 | ) | | | Revenue | | | $ | (13.1 | ) | | Other income
(expense) | | $ | (2.6 | ) |
Other Derivatives
In 2009, we entered into several foreign currency forward contracts in 2008, there was $0.2 million recognized in earnings as a loss due to hedge ineffectiveness. We recognized an $8.5 million negative impact on product revenue formitigate the settlement of certain effective cash flow hedge instruments in 2008. These settlements were recorded in the same period as the related forecasted transactions affecting earnings.
For our foreign currency forward contracts in 2007, there was $2.6 million recognized in earnings as a loss duerisk related to hedge ineffectiveness.certain balance sheet items. We recognized $13.1 million of losses in product revenue for the settlement of certain effective cash flow hedge instruments in 2007. These settlements were recorded in the same period as the related forecasted transactions affecting earnings.
In 2006, there was $0.6 million recognized in earnings as a loss due to hedge ineffectiveness and $0.9 million recognized in earnings as a loss as a result of the discontinuance of cash flowhave not elected hedge accounting because it was no longer probable that the hedge forecasted transaction would occur. We recognized $11.2 millionfor these items. As of losses in product revenue for the settlement of certain effective cash flow hedge instruments through December 31, 2006. These settlements were recorded in2009, the same period as the related forecasted transactions affecting earnings.
As described in Note 8, Indebtedness, we entered into interest rate swaps during 2008 for an aggregate notional amount of our outstanding foreign currency contracts was $188.0 million. The fair value of these contracts was a net asset of $3.8 million. Net gains of $2.5 million were recognized as a component of other income (expense), net related to these contracts in the year ended December 31, 2009.
Our indebtedness is summarized as follows:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Current portion: | | | | | | | | |
| Notes payable to Fumedica | | $ | 11.2 | | | $ | 10.9 | |
| Credit line from Dompé | | | 8.6 | | | | 16.8 | |
| | | | | | | | | |
| Current portion of notes payable and line of credit | | $ | 19.8 | | | $ | 27.7 | |
| | | | | | | | | |
| Non-current portion: | | | | | | | | |
| 6.0% Senior notes due 2013 | | $ | 449.6 | | | $ | 449.6 | |
| 6.875% Senior notes due 2018 | | | 603.2 | | | | 608.2 | |
| Notes payable to Fumedica | | | 18.8 | | | | 27.6 | |
| Credit line from Dompé | | | 8.6 | | | | — | |
| | | | | | | | | |
| Notes payable and line of credit | | $ | 1,080.2 | | | $ | 1,085.4 | |
| | | | | | | | | |
The following is a summary description of our principal indebtedness as of December 31, 2009.
Senior Notes
On March 4, 2008, we issued $450.0 million aggregate principal amount of 6.0% Senior Notes due March 1, 2013 and $550.0 million which were due to expire in March 2018. These interest rate swaps had been designated as fair value hedges and were being used to manage our exposure to changes in interest rates. The interest rate swaps had the effect of changing our fixed interest rate to variable interest rate on $550.0 million of our Senior Notes balance outstanding. During 2008, we recognized a net loss of $8.9 million in earnings due to hedge ineffectiveness. In December 2008, the interest rate swaps were settled. Under the settlement we received $53.9 million. The proceeds from this settlement upon termination are included within the operating section of the statement of cash flows. Upon termination of the swaps, the carryingaggregate principal amount of the 6.875% Senior Notes due inMarch 1, 2018 increased $62.8 million as it was accounted for as a fair value hedge. This will be recognized as a reduction of interest expenseat 99.886% and amortized using the effective interest rate method over the remaining life of the Senior Notes.
F-29
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Basic99.184% of par, respectively. 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 diluted earnings per shareSeptember 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 interest rate on the notes if the credit rating on the notes declines below investment grade. Offering costs of approximately $8.0 million have been recorded as debt issuance costs on our consolidated balance sheet and are calculatedamortized as follows (in millions):
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Numerator: | | | | | | | | | | | | |
| Income before cumulative effect of accounting change | | $ | 783.2 | | | $ | 638.2 | | | $ | 213.7 | |
| Cumulative effect of accounting change, net of income tax | | | — | | | | — | | | | 3.8 | |
| | | | | | | | | | | | | |
| Net income | | | 783.2 | | | | 638.2 | | | | 217.5 | |
| Adjustment for net income allocable to preferred stock | | | (1.3 | ) | | | (1.0 | ) | | | (0.3 | ) |
| | | | | | | | | | | | | |
| Net income used in calculating basic earnings per share | | | 781.9 | | | | 637.2 | | | | 217.2 | |
| Adjustment for interest, net of interest capitalized and tax | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net income used in calculating diluted earnings per share | | $ | 781.9 | | | $ | 637.2 | | | $ | 217.2 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | | | 292.3 | | | | 315.8 | | | | 338.6 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Stock options and ESPP | | | 1.3 | | | | 2.6 | | | | 2.0 | |
| Restricted stock awards | | | 0.1 | | | | 0.5 | | | | 0.8 | |
| Time-vested restricted stock units | | | 1.3 | | | | 1.1 | | | | 0.4 | |
| Performance-based restricted stock units | | | — | | | | — | | | | 0.3 | |
| Convertible promissory notes due 2019 | | | — | | | | 0.2 | | | | 3.1 | |
| Convertible promissory notes due 2032 | | | — | | | | — | | | | 0.1 | |
| | | | | | | | | | | | | |
| Dilutive potential common shares | | | 2.7 | | | | 4.4 | | | | 6.7 | |
| | | | | | | | | | | | | |
| Shares used in calculating diluted earnings per share | | | 295.0 | | | | 320.2 | | | | 345.3 | |
| | | | | | | | | | | | | |
additional interest expense using the effective interest rate method over the period from issuance through maturity.
The following amounts were not includedUpon the issuance of the debt we entered into interest rate swap contracts where we received a fixed rate and paid a variable rate, as further described in Note 8,Derivative Instrumentsto our Consolidated Financial Statements. These contracts have been subsequently terminated. Upon termination of these swaps, the calculationcarrying amount of net income per share because their effects were anti-dilutive (in millions):the 6.875% Senior Notes due in 2018 was increased by $62.8 million. This increase is 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.
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net income allocable to preferred stock | | $ | 1.3 | | | $ | 1.0 | | | $ | 0.3 | |
| Adjustment for interest, net of tax | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total | | $ | 1.3 | | | $ | 1.0 | | | $ | 0.3 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Stock options | | | 6.9 | | | | 8.2 | | | | 16.5 | |
| Time-vested restricted stock units | | | 1.5 | | | | 0.1 | | | | 0.1 | |
| Convertible preferred stock | | | 0.5 | | | | 0.5 | | | | 0.5 | |
| | | | | | | | | | | | | |
| Total | | | 8.9 | | | | 8.8 | | | | 17.1 | |
| | | | | | | | | | | | | |
We used the proceeds of this borrowing, along with cash and the proceeds from the liquidation of marketable securities, to repay the full $1,500.0 million outstanding under the term loan facility we had entered into in July 2007 in connection with the funding of our June 2007 common stock tender offer. This term loan facility expired upon repayment.
Revolving Credit Facility
We have a $360.0 million senior unsecured revolving credit facility, which may be used for future working capital and general corporate purposes. The facility terminates in June 2012. As of December 31, 2009 and 2008, there were no borrowings under this credit facility and we were in compliance with applicable covenants.
Biogen-Dompé
As a result of the tender offer described in Note 21, Tender Offer, earnings per share for the year ended December 31, 2007 reflects2009 and 2008, Biogen-Dompé SRL, a consolidated joint venture, has a loan balance of 12.0 million Euros ($17.2 million) and 12.0 million Euros ($16.7 million), respectively. These balances represent a line of credit from us and Dompé Farmaceutici SpA of 24.0 million Euros, half of which has been eliminated for purposes of presenting our consolidated financial position as it is an intercompany loan. Borrowings under this line of credit are to be made equally between the partners, with any repayments paid in a similar manner. The loan was originally due June 1, 2009; however, a new loan was subsequently executed with a maturity date of December 1, 2011. The interest rate on the line of credit under the new agreements is determined at a weighted averagerate of three month Euro LIBOR plus 150 basis the repurchase of 56,424,155 sharespoints and was 2.2% as of December 31, 2009. The interest rate is reset quarterly and payable quarterly in arrears.
Notes Payable to Fumedica
As of December 31, 2009 and 2008, the notes payable to Fumedica have a present value of 31.2 million Swiss Francs ($30.0 million) and 41.2 million Swiss Francs ($38.6 million), respectively. The notes, which were entered into in connection with the settlement of various agreements associated with Fumedica, are non-interest bearing, have been discounted for financial statement presentation purposes and are being accreted at a rate of 5.75% and are payable in a series of payments through June 27, 2007,2018.
F-30
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the date the obligation was incurred,Debt Maturity
Our total debt matures as follows:
| | | | | |
| (In millions) | | As of December 31, 2009 |
| |
| 2010 | | $ | 20.1 | |
| 2011 | | | 11.6 | |
| 2012 | | | 3.1 | |
| 2013 | | | 453.1 | |
| 2014 | | | 3.1 | |
| 2015 and thereafter | | | 562.3 | |
| | | | | |
| Total | | $ | 1,053.3 | |
| | | | | |
The fair value of our debt is disclosed in accordance with FASB Statement No. 150,Note 6,Accounting for CertainFair Value Measurementsto our Consolidated Financial Instruments with Characteristics of Both Liabilities and Equity, or SFAS 150.Statements.
| |
6.10. | Share-based PaymentsShareholders’ Equity |
Share-based compensation expensePreferred Stock
Preferred stock was comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2009 | | | As of December 31, 2008 | | | As of December 31, 2007 | |
| (In thousands) | | Authorized | | | Issued | | | Outstanding | | | Authorized | | | Issued | | | Outstanding | | | Authorized | | | Issued | | | Outstanding | |
| |
| Series A Preferred Stock | | | 1,750 | | | | 8 | | | | 8 | | | | 1,750 | | | | 8 | | | | 8 | | | | 1,750 | | | | 8 | | | | 8 | |
| Series X Junior Participating Preferred Stock | | | 1,000 | | | | — | | | | — | | | | 1,000 | | | | — | | | | — | | | | 1,000 | | | | — | | | | — | |
| Undesignated | | | 5,250 | | | | — | | | | — | | | | 5,250 | | | | — | | | | — | | | | 5,250 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 8,000 | | | | 8 | | | | 8 | | | | 8,000 | | | | 8 | | | | 8 | | | | 8,000 | | | | 8 | | | | 8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
We have 8,000,000 shares of Preferred Stock authorized, of which 1,750,000 shares have been designated as Series A Preferred Stock and 1,000,000 shares have been designated as Series X Junior Participating Preferred Stock. The balance 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 stock certificate. 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. As of December 31, 2009, 2008 and 2007, there were 8,221 shares of Series A Preferred Stock issued and outstanding. These shares carry a liquidation preference of $67 and are convertible into 60 shares of common stock per share of Preferred Stock. No other shares of Preferred Stock are issued and outstanding as of December 31, 2009, 2008 and 2007.
Stockholder Rights Plan
In January 2009, our Board of Directors voted to terminate our stockholders rights plan effective as of January 30, 2009. The plan was scheduled to expire on July 26, 2011 and was originally adopted by the years endedBoard of Directors in 1997. Under the rights plan, each share of our common stock had one “right” attached to it that entitled the holder to purchase our Series X Junior Participating Preferred Stock under the circumstances specified in the rights plan. As a result of our Board of Director’s action, no rights are outstanding or exercisable.
Stock Repurchase Programs
In October 2009, our Board of Directors authorized the repurchase of up to $1.0 billion of our common stock with repurchased shares being retired. This repurchase program does not have an expiration date. As of December 31, 2008 and 2007, we recorded share-based compensation expense2009, approximately 8.8 million shares at a cost of $146.2$422.4 million and $123.1 million, respectively, associated with SFAS 123(R). In the year ended December 31, 2006, we recorded share-based compensation expense of $126.8 million associated with SFAS 123(R), which is net of a cumulative effect pre-tax adjustment of $5.6 million, or $3.8 million after-tax. The cumulative effect results from the application of an estimated forfeiture rate for current and prior period unvested restricted stock awards.
For 2008, 2007, and 2006, share based compensation expense reduced our results of operations as follows (in millions except for earnings per share):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Year Ended December 31, 2006 | |
| | | Year Ended
| | | Year Ended
| | | Impact Before
| | | | | | | |
| | | December 31,
| | | December 31,
| | | Cumulative
| | | Cumulative
| | | | |
| | | 2008 | | | 2007 | | | Effect of
| | | Effect of
| | | Effect
| |
| | | Effect on
| | | Effect on
| | | Accounting
| | | Accounting
| | | on Net
| |
| | | Net Income | | | Net Income | | | Change | | | Change | | | Income | |
| |
| Income before income taxes | | $ | 146.2 | | | $ | 123.1 | | | $ | 132.4 | | | $ | (5.6 | ) | | $ | 126.8 | |
| Tax effect | | | 45.4 | | | | 37.5 | | | | 42.3 | | | | (1.8 | ) | | | 40.5 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 100.8 | | | $ | 85.6 | | | $ | 90.1 | | | $ | (3.8 | ) | | $ | 86.3 | |
| | | | | | | | | | | | | | | | | | | | | |
| Basic earnings per share | | $ | 0.34 | | | $ | 0.27 | | | $ | 0.27 | | | $ | (0.01 | ) | | $ | 0.26 | |
| Diluted earnings per share | | $ | 0.34 | | | $ | 0.27 | | | $ | 0.26 | | | $ | (0.01 | ) | | $ | 0.25 | |
Share-based compensation expense and cost for 2008, 2007, and 2006 is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2008 | | | Year Ended December 31, 2007 | | | Year Ended December 31, 2006 | |
| | | | | | Restricted
| | | | | | | | | Restricted
| | | | | | | | | Restricted
| | | | |
| | | Stock
| | | Stock &
| | | | | | Stock
| | | Stock &
| | | | | | Stock
| | | Stock &
| | | | |
| | | Options
| | | Restricted
| | | | | | Options
| | | Restricted
| | | | | | Options
| | | Restricted
| | | | |
| | | & ESPP | | | Stock Units | | | Total | | | & ESPP | | | Stock Units | | | Total | | | & ESPP | | | Stock Units | | | Total | |
| |
| Research and development | | $ | 8.2 | | | $ | 51.7 | | | $ | 59.9 | | | $ | 13.0 | | | $ | 38.7 | | | $ | 51.7 | | | $ | 19.5 | | | $ | 33.4 | | | $ | 52.9 | |
| Selling, general and administrative | | | 18.3 | | | | 75.5 | | | | 93.8 | | | | 22.9 | | | | 53.2 | | | | 76.1 | | | | 29.3 | | | | 53.5 | | | | 82.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 26.5 | | | $ | 127.2 | | | $ | 153.7 | | | $ | 35.9 | | | $ | 91.9 | | | $ | 127.8 | | | $ | 48.8 | | | $ | 86.9 | | | $ | 135.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pre-tax cumulative effect ofcatch-up | | | | | | | | | | | — | | | | | | | | | | | | — | | | | | | | | | | | | (5.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | $ | 153.7 | | | | | | | | | | | $ | 127.8 | | | | | | | | | | | $ | 130.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Capitalized share-based payment costs | | | | | | | | | | | (7.5 | ) | | | | | | | | | | | (4.7 | ) | | | | | | | | | | | (3.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share-based compensation expense | | | | | | | | | | $ | 146.2 | | | | | | | | | | | $ | 123.1 | | | | | | | | | | | $ | 126.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For 2008, 2007, and 2006, we capitalized total costs of $7.5 million, $4.7 million, and $3.3 million, respectively, associated with share-based compensation costs to inventory and fixed assets.were repurchased under this
F-31
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
authorization, all of which were retired. From January 1, 2010 through February 5, 2010, we repurchased approximately an additional 5.4 million shares under this program at a total cost of approximately $289.4 million, all of which were also retired. Approximately $288.2 million remains available for the repurchase of our common stock under the 2009 program.
In October 2006, our Board of Directors authorized the repurchase of up to 20.0 million shares of our common stock. As of December 31, 2009, all shares under this program have been repurchased as approximately 7.2 million shares of our common stock were repurchased in 2009 for approximately $328.8 million. In 2008, approximately 12.8 million shares of our common stock were repurchased under this program for approximately $738.9 million.
Reclassifications
The adoption of a newly issued accounting standard for noncontrolling interests on January 1, 2009, changed the accounting and reporting for our minority interests by recharacterizing them as noncontrolling interests and classifying them as a separate component of total shareholders’ equity in our accompanying consolidated balance sheets and consolidated statements of shareholders’ equity. Additionally, net income attributable to noncontrolling interest is now shown separately from net income in the consolidated statements of income. As a result, prior year amounts related to noncontrolling interest have been reclassified to conform to the current year presentation. This reclassification had no effect on our previously reported financial position or results of operations.
In the year ended December 31, 2008, we reclassified amounts within our consolidated statement of shareholders’ equity, resulting in an approximately $78.6 million correction in Additional Paid-in Capital and Retained Earnings (Accumulated Deficit) balances in connection with the re-issuance of treasury stock at a loss.
In the year ended December 31, 2007 we reclassified amounts within our consolidated statements of equity, resulting in an approximately $48.0 million correction in the treasury stock and common stock balances.
Basic and diluted earnings per share are calculated as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net income attributable to Biogen Idec Inc. | | $ | 970.1 | | | $ | 783.2 | | | $ | 638.2 | |
| Adjustment for net income allocable to preferred shares | | | (1.7 | ) | | | (1.3 | ) | | | (1.0 | ) |
| | | | | | | | | | | | | |
| Net income used in calculating basic and diluted earnings per share | | $ | 968.4 | | | $ | 781.9 | | | $ | 637.2 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | | | 287.4 | | | | 292.3 | | | | 315.8 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Stock options and employee stock purchase plan | | | 0.6 | | | | 1.3 | | | | 2.6 | |
| Restricted stock awards | | | — | | | | 0.1 | | | | 0.5 | |
| Time-vested restricted stock units | | | 1.4 | | | | 1.3 | | | | 1.1 | |
| Performance-vested restricted stock units | | | 0.1 | | | | — | | | | — | |
| Convertible promissory notes due 2019 | | | — | | | | — | | | | 0.2 | |
| Convertible promissory notes due 2032 | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Dilutive potential common shares | | | 2.1 | | | | 2.7 | | | | 4.4 | |
| | | | | | | | | | | | | |
| Shares used in calculating diluted earnings per share | | | 289.5 | | | | 295.0 | | | | 320.2 | |
| | | | | | | | | | | | | |
F-32
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following amounts were not included in the calculation of net income per basic and diluted share because their effects were anti-dilutive:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net income allocable to preferred stock | | $ | 1.7 | | | $ | 1.3 | | | $ | 1.0 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Stock options | | | 8.5 | | | | 6.9 | | | | 8.2 | |
| Time-vested restricted stock units | | | 2.1 | | | | 1.5 | | | | 0.1 | |
| Performance-vested restricted stock units | | | 0.2 | | | | — | | | | — | |
| Convertible preferred stock | | | 0.5 | | | | 0.5 | | | | 0.5 | |
| | | | | | | | | | | | | |
| Total | | | 11.3 | | | | 8.9 | | | | 8.8 | |
| | | | | | | | | | | | | |
Earnings per share for the year ended December 31, 2009 reflects, on a weighted average basis, the repurchase of 16.0 million shares of our common stock under our 2009 and 2006 share repurchase programs.
As a result of our 2007 tender offer, earnings per share for the year ended December 31, 2007 reflects, on a weighted average basis, the repurchase of 56.4 million shares as of June 27, 2007, the date the obligation was incurred, in accordance with SFAS 123(R), windfallaccounting standards for earning per share.
Share-based Compensation Expense
The following table summarizes share-based compensation expense included within our consolidated statements of income:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Research and development | | $ | 60.8 | | | $ | 59.9 | | | $ | 51.7 | |
| Selling, general and administrative | | | 106.4 | | | | 93.8 | | | | 76.1 | |
| | | | | | | | | | | | | |
| Subtotal | | $ | 167.2 | | | $ | 153.7 | | | $ | 127.8 | |
| Capitalized share-based compensation costs | | | (6.3 | ) | | | (7.5 | ) | | | (4.7 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in total costs and expenses | | $ | 160.9 | | | $ | 146.2 | | | $ | 123.1 | |
| Income tax effect | | | (49.4 | ) | | | (45.4 | ) | | | (37.5 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in net income attributable to Biogen Idec Inc. | | $ | 111.5 | | | $ | 100.8 | | | $ | 85.6 | |
| | | | | | | | | | | | | |
F-33
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our share-based compensation programs include stock options, time-vested restricted stock units, performance-vested restricted stock units, restricted stock and shares issued under our ESPP. The following table summarizes share-based compensation expense associated with each of these programs:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Stock options | | $ | 21.6 | | | $ | 20.0 | | | $ | 30.7 | |
| Time-vested restricted stock units | | | 133.7 | | | | 125.6 | | | | 75.2 | |
| Performance-vested restricted stock units | | | 4.6 | | | | 1.1 | | | | 5.0 | |
| Restricted stock awards | | | — | | | | 0.5 | | | | 11.7 | |
| Employee stock purchase plan | | | 7.3 | | | | 6.5 | | | | 5.2 | |
| | | | | | | | | | | | | |
| Subtotal | | $ | 167.2 | | | $ | 153.7 | | | $ | 127.8 | |
| Capitalized share-based compensation costs | | | (6.3 | ) | | | (7.5 | ) | | | (4.7 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in total costs and expenses | | $ | 160.9 | | | $ | 146.2 | | | $ | 123.1 | |
| | | | | | | | | | | | | |
Windfall tax benefits from vesting of stock awards, exercises of stock options and ESPP participation ofwere $3.4 million, $28.0 million, and $69.7 million in 2009, 2008, and $31.7 million were recorded as cash inflows from financing activities in our consolidated statement of cash flows for 2008, 2007, and 2006, respectively. This amount hasThese amounts have been calculated in accordance withunder the alternative transition method described in FSP FAS 123(R) — 3, which we adopted effective the fourth quarter of 2006.accordance with U.S. GAAP.
The total amountAs of tax benefit realized during 2008, 2007, and 2006, was $69.9 million, $103.6 million, and $42.8 million, respectively. Cash received from the exercise of stock options in 2008, 2007, and 2006 was approximately $158.3 million, $471.0 million, and $131.8 million, respectively.
At December 31, 2008,2009, unrecognized compensation costs relatingcost related to unvested share-based compensation was approximately $200.0 million.$178.1 million, net of estimated forfeitures. We expect to recognize the cost of these unvested awards over a weighted-average period of 1.4 years.
Share-based Compensation Plans
We have three share-based compensation plans pursuant to which awards are currently being made: (i)(1) the Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan or the 2006(2006 Directors Plan; (ii)Plan); (2) the Biogen Idec Inc. 2008 Omnibus Equity Plan or the 2008(2008 Omnibus Plan;Plan); and (iii)(3) the Biogen Idec Inc. 1995 Employee Stock Purchase Plan or ESPP.(ESPP). We have six share-based compensation plans pursuant to which outstanding awards have been made, but from which no further awards can or will be made: (i) the IdecIDEC Pharmaceuticals Corporation 1993 Non-Employee Directors Stock Option Plan, or the 1993 Directors Plan; (ii) the IdecIDEC Pharmaceuticals Corporation 1988 Stock Option Plan; (iii) the Biogen, Inc. 1985 Non-Qualified Stock Option Plan; (iv) the Biogen, Inc. 1987 Scientific Board Stock Option Plan:Plan; (v) the Biogen Idec Inc. 2003 Omnibus Equity Plan or the 2003(2003 Omnibus Plan:Plan); and (vi) the Biogen Idec Inc. 2005 Omnibus Equity Plan or the 2005(2005 Omnibus Plan.Plan). We have not made any awards frompursuant to the 2005 Omnibus Plan since our stockholders approved the 2008 Omnibus Plan and do not intend to make any awards frompursuant to the 2005 Omnibus Plan in the future.future, except that unused shares under the 2005 Omnibus Plan have been carried over for use under the 2008 Omnibus Plan.
Directors Plan: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 options, shares of restricted stock awards, 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 850,000 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.
F-34
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Omnibus Plans:Plans
In June 2008, our stockholders approved the 2008 Omnibus Equity Plan for share-based awards to our employees. Awards granted from the 2008 Omnibus Plan may include options, shares of restricted stock awards, restricted stock units, performance shares, shares of phantom stock, stock bonuses, 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 Equity Plan consist of 15.0 million shares reserved for this purpose, plus shares of common stock that remained available for issuance under the 2005 Omnibus Plan on the date that our stockholders approved the 2008 Omnibus Equity Plan, plus shares that are subject to awards under the 2005 Omnibus 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.
Stock Options
All stock option grants to employees are for a ten-year term and generally vest one-fourth per year over four years on the anniversary of the date of grant, provided the employee remains continuously employed with us. Stock option grants to directors are for ten-year terms and generally vest as follows: (i)(1) grants made on the date of a
F-32
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
director’s initial election to our Board of Directors vest one-third per year over three years on the anniversary of the date of grant, and (ii)(2) grants made 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. 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 option grants awarded in 2009, 2008, 2007, and 20062007 was estimated as of the date of grant using a Black-Scholes option valuation model that uses the following weighted-average assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended
| | | For the Years Ended December 31, | |
| | | December 31, | | | 2009 | | 2008 | | 2007 | |
| | | 2008 | | 2007 | | 2006 | |
| | |
| Expected dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | |
| Expected option life (in years) | | | | 4.7 | | | | 5.1 | | | | 4.9 | |
| Expected stock price volatility | | | 34.4 | % | | | 33.6 | % | | | 34.8 | % | | | 39.3 | % | | | 34.4 | % | | | 33.6 | % |
| Risk-free interest rate | | | 2.4 | % | | | 4.4 | % | | | 4.4 | % | | | 1.9 | % | | | 2.4 | % | | | 4.4 | % |
| Expected option life in years | | | 5.10 | | | | 4.87 | | | | 4.87 | | |
| Expected dividend yield | | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Per share grant-date fair value | | $ | 20.85 | | | $ | 18.78 | | | $ | 16.90 | | | $ | 18.00 | | | $ | 20.85 | | | $ | 18.78 | |
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 expected term 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. 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 under SFAS 123. For 2008, 2007 and 2006, we recorded $20.1 million, $30.7 million and $43.6 million, respectively, of stock compensation cost related to stock options.disclosures.
F-33F-35
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of stock option activity is presented in the following table (shares are in thousands):table:
| | | | | | | | | | | | | | | | | |
| | | | | Weighted
| | | | | Weighted
| |
| | | | | Average
| | | | | Average
| |
| | | | | Exercise
| | | | | Exercise
| |
| | | Shares | | Price | | |
| | |
| Outstanding at December 31, 2005 | | | 31,306 | | | $ | 45.71 | | |
| | | | | |
| Granted | | | 1,928 | | | $ | 45.18 | | |
| Exercised | | | (4,725 | ) | | $ | 27.90 | | |
| Cancelled | | | (3,403 | ) | | $ | 53.55 | | |
| (In thousands, except weighted average exercise price) | | | Shares | | Price | |
| | | | |
| Outstanding at December 31, 2006 | | | 25,106 | | | $ | 47.96 | | | | 25,106 | | | $ | 47.96 | |
| | | | | | | | | |
| Granted | | | 1,470 | | | $ | 51.23 | | | | 1,470 | | | $ | 51.23 | |
| Exercised | | | (10,524 | ) | | $ | 44.84 | | | | (10,524 | ) | | $ | 44.84 | |
| Cancelled | | | (1,152 | ) | | $ | 53.97 | | | | (1,152 | ) | | $ | 53.97 | |
| | | | | | | | | |
| Outstanding at December 31, 2007 | | | 14,900 | | | $ | 50.03 | | | | 14,900 | | | $ | 50.03 | |
| | | | | | | | | |
| Granted | | | 1,475 | | | $ | 60.23 | | | | 1,475 | | | $ | 60.23 | |
| Exercised | | | (3,769 | ) | | $ | 41.99 | | | | (3,769 | ) | | $ | 41.99 | |
| Cancelled | | | (506 | ) | | $ | 55.70 | | | | (506 | ) | | $ | 55.70 | |
| | | | | | | | | |
| Outstanding at December 31, 2008 | | | 12,100 | | | $ | 53.53 | | | | 12,100 | | | $ | 53.53 | |
| | | | | | | | | |
| Granted | | | | 1,031 | | | $ | 49.96 | |
| Exercised | | | | (637 | ) | | $ | 40.16 | |
| Cancelled | | | | (1,664 | ) | | $ | 60.74 | |
| | | | | | | |
| Outstanding at December 31, 2009 | | | | 10,830 | | | $ | 52.88 | |
| | | | | | | |
The total intrinsic values of options exercised in 2008, 2007, and 2006, were $85.1 million, $226.7 million, and $92.5 million, respectively. The aggregate intrinsic values of options outstanding at December 31, 2008 and 2007, were $71.4 million and $102.7 million, respectively. The weighted average remaining contractual terms for options outstanding at December 31, 2008 was 5.2 years.
Of the options outstanding, 9.28.3 million were exercisable atas of December 31, 2008.2009. The exercisable options had a weighted-average exercise price of $53.48.$52.80. The aggregate intrinsic value of options exercisable as of December 31, 2008 and 20072009 was $53.7 million and $78.5 million, respectively.$45.2 million. The weighted average remaining contractual term for options exercisable atas of December 31, 20082009 was 4.23.8 years.
A total of 10.3 million vested and expected to vest options were outstanding as of December 31, 2009. These vested and expected to vest options had a weighted average exercise price of $52.87 and an aggregated intrinsic value of $51.0 million. The weighted average remaining contractual term of vested and expected to vest options as of December 31, 2009 was 4.6 years.
The total intrinsic values of options exercised in 2009, 2008, and 2007, were $6.7 million, $85.1 million, and $226.7 million, respectively. The aggregate intrinsic values of options outstanding as of December 31, 2009 was $52.8 million. The weighted average remaining contractual term for options outstanding as of December 31, 2009 was 4.8 years.
A summary of the amount of tax benefit realized for stock options and cash received from the exercise of stock options is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Tax benefit realized for stock options | | $ | 1.5 | | | $ | 28.0 | | | $ | 72.4 | |
| Cash received from the exercise of stock options | | $ | 25.2 | | | $ | 158.3 | | | $ | 471.0 | |
F-36
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Time-Vested Restricted Stock UnitsSenior Notes
Time-vested restricted stock units, or 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. Time-vested 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. The fair value of all time-vested 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. For 2008, 2007, and 2006, we recorded $125.6 million, $75.2 million, and $31.3 million, respectively, of stock compensation cost related to time-vested RSUs.
F-34
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of time-vested RSU activity is presented in the following table (shares are in thousands):
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| | | Shares | | | Fair Value | |
| |
| Unvested at December 31, 2005 | | | — | | | $ | — | |
| | | | | | | | | |
| Granted | | | 2,731 | | | $ | 44.47 | |
| Vested | | | (5 | ) | | $ | 44.24 | |
| Forfeited | | | (218 | ) | | $ | 44.36 | |
| | | | | | | | | |
| Unvested at December 31, 2006 | | | 2,508 | | | $ | 44.48 | |
| | | | | | | | | |
| Granted | | | 3,387 | | | $ | 51.19 | |
| Vested | | | (845 | ) | | $ | 44.58 | |
| Forfeited | | | (458 | ) | | $ | 47.38 | |
| | | | | | | | | |
| Unvested at December 31, 2007 | | | 4,592 | | | $ | 49.12 | |
| | | | | | | | | |
| Granted | | | 3,129 | | | $ | 58.42 | |
| Vested | | | (1,645 | ) | | $ | 47.93 | |
| Forfeited | | | (499 | ) | | $ | 53.95 | |
| | | | | | | | | |
| Unvested at December 31, 2008 | | | 5,577 | | | $ | 54.26 | |
| | | | | | | | | |
The weighted average remaining contractual term for the time-vested RSUs was 1 year at December 31, 2008.
Performance-Based Restricted Stock Units
In the first quarter of 2007, our Board of Directors awarded 30,000 RSUs to our President, Research and Development, under the 2005 Omnibus Plan, subject to certain performance criteria and the employee’s continued employment through December 31, 2007. In February 2008, 27,000 of these RSUs vested and converted into shares of our common stock based on the determination by our Board of Directors that approximately 90% of these RSUs had been earned. A total of 17,227 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes. Additionally, during the second quarter of 2007, our Board of Directors awarded 90,000 RSUs to our President, Research and Development, under the 2005 Omnibus Plan, subject to certain performance criteria. We apply graded vesting when accounting for these RSU’s and the fair value will be based on the market price on the date of vesting. These RSUs will vest annually in equal increments of 30,000 shares over three years and convert into shares of our common stock, subject to attainment of certain performance goals and the employee’s continued employment through the three performance periods, which end December 31, 2008, December 31, 2009, and September 30, 2010, respectively.
In the first quarter of 2006, our Board of Directors awarded 100,000 RSUs to our CEO, under the 2005 Omnibus Plan, subject to certain 2006 financial performance criteria. In February 2007, our Board of Directors determined that the performance criteria had been attained and that 100,000 RSUs would convert into shares of our common stock. A total of 58,250 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes.
During the third quarter of 2005, we granted 1.2 million performance-based RSUs, to be settled in shares of our common stock, to a group of approximately 200 senior employees excluding our CEO. The grants were made under the 2005 Omnibus Plan as part of an initiative to retain certain key personnel. On September 14, 2006, 70% of the RSUs for all employees still in active employment, or 758,262 shares, vested as the required performance goals had been determined to have been achieved. A total of 510,859 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes.
F-35
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On March 14, 2007, the remaining 30% of the RSUs granted during the third quarter of 2005 were scheduled to vest and convert into shares if the performance goals were attained and the employee was still in active employment. On March 14, 2007, 258,387 shares vested based on the determination by our Board of Directors that approximately 83% of these RSUs had been earned. A total of 172,054 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes.
For 2008, 2007, and 2006, we recorded compensation charges of approximately $1.1 million, $5.0 million, and $33.6 million, respectively, related to performance-based restricted stock units. Compensation cost is adjusted quarterly for subsequent changes in the outcome of performance-related conditions until the vesting date.
A summary of performance-based RSU activity is presented in the following table (shares are in thousands):
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| | | Shares | | | Fair Value | |
| |
| Unvested at December 31, 2005 | | | 1,154 | | | $ | 40.67 | |
| | | | | | | | | |
| Granted | | | 100 | | | $ | 44.59 | |
| Vested | | | (758 | ) | | $ | 40.67 | |
| Forfeited | | | (85 | ) | | $ | 40.67 | |
| | | | | | | | | |
| Unvested at December 31, 2006 | | | 411 | | | $ | 41.62 | |
| | | | | | | | | |
| Granted | | | 120 | | | $ | 51.55 | |
| Vested | | | (357 | ) | | $ | 41.76 | |
| Forfeited | | | (54 | ) | | $ | 40.67 | |
| | | | | | | | | |
| Unvested at December 31, 2007 | | | 120 | | | $ | 51.55 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (27 | ) | | $ | 49.33 | |
| Forfeited | | | (3 | ) | | $ | 49.33 | |
| | | | | | | | | |
| Unvested at December 31, 2008 | | | 90 | | | $ | 52.29 | |
| | | | | | | | | |
The weighted average remaining contractual term for the performance-based RSUs was 1.8 years at December 31, 2008.
Restricted Stock Awards
In 2005, we awarded restricted common stock to our employees under the 2005 Omnibus Plan and the 2003 Omnibus Plan at no cost to the employees. The restricted stock awards, or RSAs, granted under the 2003 Omnibus Plan vested in full on the third anniversary of the date of grant for employees that remained continuously employed with us through the vesting dates. The RSAs granted under the 2005 Omnibus Plan vested at a rate of approximately one-third per year over three years on the anniversary of the date of grant for employees that remained continuously employed with us through the vesting dates.
For 2008 and 2007, we recorded $0.5 million and $11.7 million, respectively, of stock compensation cost related to restricted stock awards. The fair value of all time-vested RSAs 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. For 2006, we recorded $21.9 million of stock compensation cost related to restricted stock awards, prior to a first quarter pre-tax cumulative effect catch up credit of $5.6 million or $3.8 million after-tax, resulting from the application of an estimated forfeiture rate for prior period unvested restricted stock awards.
F-36
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of restricted stock award activity is presented in the following table (shares are in thousands):
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| | | Shares | | | Fair Value | |
| |
| Unvested at December 31, 2005 | | | 1,440 | | | $ | 53.87 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (13 | ) | | $ | 42.99 | |
| Forfeited | | | (180 | ) | | $ | 56.25 | |
| | | | | | | | | |
| Unvested at December 31, 2006 | | | 1,247 | | | $ | 53.64 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (713 | ) | | $ | 44.10 | |
| Forfeited | | | (79 | ) | | $ | 59.64 | |
| | | | | | | | | |
| Unvested at December 31, 2007 | | | 455 | | | $ | 67.54 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (454 | ) | | $ | 67.54 | |
| Forfeited | | | (1 | ) | | $ | 67.57 | |
| | | | | | | | | |
| Unvested at December 31, 2008 | | | — | | | $ | — | |
| | | | | | | | | |
ESPP
Under the terms of the ESPP, employees can elect to have up to ten percent of their annual compensation (subject to certain dollar limits) withheld to purchase shares of our common stock. The purchase price of the common stock is equal to 85% of the lower of the fair market value of the common stock on the enrollment or purchase date under a look-back provision. In June 2005, our stockholders approved the amendment and restatement of the ESPP, including an increase in the number of shares available for issuance under the ESPP from 4.2 million to 6.2 million shares. At December 31, 2008, a total of 4.4 million shares of our common stock were available for issuance. During 2008, 2007, and 2006, 0.5 million, 0.5 million, and 0.5 million shares, respectively, were issued under the ESPP. We utilize the Black-Scholes model to calculate the fair value of these discounted purchases. The fair value of the look-back provision plus the 15% discount amount is recognized as compensation expense over the purchase period. We apply a graded vesting approach because the plan provides for multiple purchase periods and is, in substance, a series of linked awards. In 2008, 2007, and 2006, we recorded stock compensation cost of approximately $6.5 million, $5.2 million, and $5.2 million, respectively.
Cash received under the ESPP in 2008, 2007, and 2006 was approximately $21.3 million, $18.2 million, and $15.2 million, respectively.
F-37
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
7. | Accumulated Other Comprehensive Income (Loss) |
The accumulated balances in comprehensive income (loss) were as follows (in millions):
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Translation adjustments | | $ | 16.9 | | | $ | 71.0 | | | $ | 21.2 | |
| Unrealized holding gains (losses) on investments, net of tax of $(6.2) million, $(5.1) million, and $(1.1) million, respectively | | | 10.5 | | | | 10.5 | | | | 1.4 | |
| Unfunded status of pension and postretirement benefit plans, net of tax of $0.1 million, $0.1 million, and $0.4 million, respectively | | | 1.6 | | | | 1.7 | | | | (0.7 | ) |
| Unrealized losses on derivative instruments, net of tax of $3.9 million, $2.4 million, and $0.1 million, respectively | | | (40.2 | ) | | | (4.0 | ) | | | — | |
| | | | | | | | | | | | | |
| Total comprehensive income (loss) | | $ | (11.2 | ) | | $ | 79.2 | | | $ | 21.9 | |
| | | | | | | | | | | | | |
See Note 13, Employee Benefit Plans, for discussion of unfunded status of pension and postretirement benefit plans.
Notes payable consists of the following (in millions):
| | | | | | | | | |
| | | December 31, | |
| | | 2008 | | | 2007 | |
| |
| Current portion: | | | | | | | | |
| Term loan facility | | $ | — | | | $ | 1,500.0 | |
| Note payable to Fumedica | | | 10.9 | | | | 10.3 | |
| Credit line from Dompé | | | 16.8 | | | | — | |
| Other | | | — | | | | 0.8 | |
| | | | | | | | | |
| | | $ | 27.7 | | | $ | 1,511.1 | |
| | | | | | | | | |
| Non-current portion: | | | | | | | | |
| 6.0% Senior Notes due 2013 | | $ | 449.6 | | | $ | — | |
| 6.875% Senior Notes due 2018 | | | 608.2 | | | | — | |
| Note payable to Fumedica | | | 27.6 | | | | 34.3 | |
| Credit line from Dompé | | | — | | | | 17.5 | |
| | | | | | | | | |
| | | $ | 1,085.4 | | | $ | 51.8 | |
| | | | | | | | | |
On March 4, 2008, we issued $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 at 99.886% and 99.184% of par, respectively.
In June and July 2007, in connection with the tender offer described in Note 21, Tender Offer, we entered into a $1,500.0 million term loan facility and borrowed the full $1,500.0 million available under this facility. In March 2008, we used the proceeds from the Senior Notes, along with cash and the proceeds from the liquidation of marketable securities, to repay the $1,500.0 million term loan facility.
In June 2007, we also entered into a five year $400.0 million Senior Unsecured Revolving Credit Facility, which we may use for working capital and general corporate purposes. The bankruptcy of Lehman Brothers
F-38F-29
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Holdings Inc. has eliminated their $40.0 million commitment, thereby reducing99.184% of par, respectively. The discount is amortized as additional interest expense over the availabilityperiod 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 interest rate on the notes if the credit rating on the notes declines below investment grade. Offering costs of approximately $8.0 million have been recorded as debt issuance costs on our consolidated balance sheet and are amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity.
Upon the issuance of the debt we entered into interest rate swap contracts where we received a fixed rate and paid a variable rate, as further described in Note 8,Derivative Instrumentsto our Consolidated Financial Statements. These contracts have been subsequently terminated. Upon termination of these swaps, the carrying amount of the 6.875% Senior Notes due in 2018 was increased by $62.8 million. This increase is 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.
We used the proceeds of this borrowing, along with cash and the proceeds from the liquidation of marketable securities, to repay the full $1,500.0 million outstanding under the term loan facility we had entered into in July 2007 in connection with the funding of our June 2007 common stock tender offer. This term loan facility expired upon repayment.
Revolving Credit Facility
We have a $360.0 million senior unsecured revolving credit facility, which may be used for future working capital and general corporate purposes. The facility terminates in June 2012. As of December 31, 2009 and 2008, there were no borrowings under this credit facility and we were in compliance with applicable covenants.
Biogen-Dompé
As of December 31, 2009 and 2008, Biogen-Dompé SRL, a consolidated joint venture, has a loan balance of 12.0 million Euros ($17.2 million) and 12.0 million Euros ($16.7 million), respectively. These balances represent a line of credit from us and Dompé Farmaceutici SpA of 24.0 million Euros, half of which has been eliminated for purposes of presenting our consolidated financial position as it is an intercompany loan. Borrowings under this line of credit are to $360.0be made equally between the partners, with any repayments paid in a similar manner. The loan was originally due June 1, 2009; however, a new loan was subsequently executed with a maturity date of December 1, 2011. The interest rate on the line of credit under the new agreements is determined at a rate of three month Euro LIBOR plus 150 basis points and was 2.2% as of December 31, 2009. The interest rate is reset quarterly and payable quarterly in arrears.
Notes Payable to Fumedica
As of December 31, 2009 and 2008, the notes payable to Fumedica have a present value of 31.2 million Swiss Francs ($30.0 million) and 41.2 million Swiss Francs ($38.6 million), respectively. The notes, which were entered into in connection with the settlement of various agreements associated with Fumedica, are non-interest bearing, have been discounted for financial statement presentation purposes and are being accreted at a rate of 5.75% and are payable in a series of payments through June 2018.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Debt Maturity
Our total debt matures as follows:
| | | | | |
| (In millions) | | As of December 31, 2009 |
| |
| 2010 | | $ | 20.1 | |
| 2011 | | | 11.6 | |
| 2012 | | | 3.1 | |
| 2013 | | | 453.1 | |
| 2014 | | | 3.1 | |
| 2015 and thereafter | | | 562.3 | |
| | | | | |
| Total | | $ | 1,053.3 | |
| | | | | |
The fair value of our debt is disclosed in Note 6,Fair Value Measurementsto our Consolidated Financial Statements.
Preferred Stock
Preferred stock was comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2009 | | | As of December 31, 2008 | | | As of December 31, 2007 | |
| (In thousands) | | Authorized | | | Issued | | | Outstanding | | | Authorized | | | Issued | | | Outstanding | | | Authorized | | | Issued | | | Outstanding | |
| |
| Series A Preferred Stock | | | 1,750 | | | | 8 | | | | 8 | | | | 1,750 | | | | 8 | | | | 8 | | | | 1,750 | | | | 8 | | | | 8 | |
| Series X Junior Participating Preferred Stock | | | 1,000 | | | | — | | | | — | | | | 1,000 | | | | — | | | | — | | | | 1,000 | | | | — | | | | — | |
| Undesignated | | | 5,250 | | | | — | | | | — | | | | 5,250 | | | | — | | | | — | | | | 5,250 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 8,000 | | | | 8 | | | | 8 | | | | 8,000 | | | | 8 | | | | 8 | | | | 8,000 | | | | 8 | | | | 8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
We have 8,000,000 shares of Preferred Stock authorized, of which 1,750,000 shares have been designated as Series A Preferred Stock and 1,000,000 shares have been designated as Series X Junior Participating Preferred Stock. The balance 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 stock certificate. 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. As of December 31, 2009, 2008 and 2007, there were 8,221 shares of Series A Preferred Stock issued and outstanding. These shares carry a liquidation preference of $67 and are convertible into 60 shares of common stock per share of Preferred Stock. No other shares of Preferred Stock are issued and outstanding as of December 31, 2009, 2008 and 2007.
Stockholder Rights Plan
In January 2009, our Board of Directors voted to terminate our stockholders rights plan effective as of January 30, 2009. The plan was scheduled to expire on July 26, 2011 and was originally adopted by the Board of Directors in 1997. Under the rights plan, each share of our common stock had one “right” attached to it that entitled the holder to purchase our Series X Junior Participating Preferred Stock under the circumstances specified in the rights plan. As a result of our Board of Director’s action, no rights are outstanding or exercisable.
Stock Repurchase Programs
In October 2009, our Board of Directors authorized the repurchase of up to $1.0 billion of our common stock with repurchased shares being retired. This repurchase program does not have an expiration date. As of December 31, 2009, approximately 8.8 million shares at a cost of $422.4 million were repurchased under this
F-31
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
authorization, all of which were retired. From January 1, 2010 through February 5, 2010, we repurchased approximately an additional 5.4 million shares under this program at a total cost of approximately $289.4 million, all of which were also retired. Approximately $288.2 million remains available for the repurchase of our common stock under the 2009 program.
In October 2006, our Board of Directors authorized the repurchase of up to 20.0 million shares of our common stock. As of December 31, 2009, all shares under this program have been repurchased as approximately 7.2 million shares of our common stock were repurchased in 2009 for approximately $328.8 million. In 2008, approximately 12.8 million shares of our common stock were repurchased under this program for approximately $738.9 million.
Reclassifications
The adoption of a newly issued accounting standard for noncontrolling interests on January 1, 2009, changed the accounting and reporting for our minority interests by recharacterizing them as noncontrolling interests and classifying them as a separate component of total shareholders’ equity in our accompanying consolidated balance sheets and consolidated statements of shareholders’ equity. Additionally, net income attributable to noncontrolling interest is now shown separately from net income in the consolidated statements of income. As a result, prior year amounts related to noncontrolling interest have been reclassified to conform to the current year presentation. This reclassification had no effect on our previously reported financial position or results of operations.
In the year ended December 31, 2008, we reclassified amounts within our consolidated statement of shareholders’ equity, resulting in an approximately $78.6 million correction in Additional Paid-in Capital and Retained Earnings (Accumulated Deficit) balances in connection with the re-issuance of treasury stock at a loss.
In the year ended December 31, 2007 we reclassified amounts within our consolidated statements of equity, resulting in an approximately $48.0 million correction in the treasury stock and common stock balances.
Basic and diluted earnings per share are calculated as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net income attributable to Biogen Idec Inc. | | $ | 970.1 | | | $ | 783.2 | | | $ | 638.2 | |
| Adjustment for net income allocable to preferred shares | | | (1.7 | ) | | | (1.3 | ) | | | (1.0 | ) |
| | | | | | | | | | | | | |
| Net income used in calculating basic and diluted earnings per share | | $ | 968.4 | | | $ | 781.9 | | | $ | 637.2 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | | | 287.4 | | | | 292.3 | | | | 315.8 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Stock options and employee stock purchase plan | | | 0.6 | | | | 1.3 | | | | 2.6 | |
| Restricted stock awards | | | — | | | | 0.1 | | | | 0.5 | |
| Time-vested restricted stock units | | | 1.4 | | | | 1.3 | | | | 1.1 | |
| Performance-vested restricted stock units | | | 0.1 | | | | — | | | | — | |
| Convertible promissory notes due 2019 | | | — | | | | — | | | | 0.2 | |
| Convertible promissory notes due 2032 | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Dilutive potential common shares | | | 2.1 | | | | 2.7 | | | | 4.4 | |
| | | | | | | | | | | | | |
| Shares used in calculating diluted earnings per share | | | 289.5 | | | | 295.0 | | | | 320.2 | |
| | | | | | | | | | | | | |
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following isamounts were not included in the calculation of net income per basic and diluted share because their effects were anti-dilutive:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net income allocable to preferred stock | | $ | 1.7 | | | $ | 1.3 | | | $ | 1.0 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Stock options | | | 8.5 | | | | 6.9 | | | | 8.2 | |
| Time-vested restricted stock units | | | 2.1 | | | | 1.5 | | | | 0.1 | |
| Performance-vested restricted stock units | | | 0.2 | | | | — | | | | — | |
| Convertible preferred stock | | | 0.5 | | | | 0.5 | | | | 0.5 | |
| | | | | | | | | | | | | |
| Total | | | 11.3 | | | | 8.9 | | | | 8.8 | |
| | | | | | | | | | | | | |
Earnings per share for the year ended December 31, 2009 reflects, on a summary descriptionweighted average basis, the repurchase of 16.0 million shares of our principal indebtednesscommon stock under our 2009 and 2006 share repurchase programs.
As a result of our 2007 tender offer, earnings per share for the year ended December 31, 2007 reflects, on a weighted average basis, the repurchase of 56.4 million shares as of June 27, 2007, the date the obligation was incurred, in accordance with accounting standards for earning per share.
Share-based Compensation Expense
The following table summarizes share-based compensation expense included within our consolidated statements of income:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Research and development | | $ | 60.8 | | | $ | 59.9 | | | $ | 51.7 | |
| Selling, general and administrative | | | 106.4 | | | | 93.8 | | | | 76.1 | |
| | | | | | | | | | | | | |
| Subtotal | | $ | 167.2 | | | $ | 153.7 | | | $ | 127.8 | |
| Capitalized share-based compensation costs | | | (6.3 | ) | | | (7.5 | ) | | | (4.7 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in total costs and expenses | | $ | 160.9 | | | $ | 146.2 | | | $ | 123.1 | |
| Income tax effect | | | (49.4 | ) | | | (45.4 | ) | | | (37.5 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in net income attributable to Biogen Idec Inc. | | $ | 111.5 | | | $ | 100.8 | | | $ | 85.6 | |
| | | | | | | | | | | | | |
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our share-based compensation programs include stock options, time-vested restricted stock units, performance-vested restricted stock units, restricted stock and shares issued under our ESPP. The following table summarizes share-based compensation expense associated with each of these programs:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Stock options | | $ | 21.6 | | | $ | 20.0 | | | $ | 30.7 | |
| Time-vested restricted stock units | | | 133.7 | | | | 125.6 | | | | 75.2 | |
| Performance-vested restricted stock units | | | 4.6 | | | | 1.1 | | | | 5.0 | |
| Restricted stock awards | | | — | | | | 0.5 | | | | 11.7 | |
| Employee stock purchase plan | | | 7.3 | | | | 6.5 | | | | 5.2 | |
| | | | | | | | | | | | | |
| Subtotal | | $ | 167.2 | | | $ | 153.7 | | | $ | 127.8 | |
| Capitalized share-based compensation costs | | | (6.3 | ) | | | (7.5 | ) | | | (4.7 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in total costs and expenses | | $ | 160.9 | | | $ | 146.2 | | | $ | 123.1 | |
| | | | | | | | | | | | | |
Windfall tax benefits from vesting of stock awards, exercises of stock options and ESPP participation were $3.4 million, $28.0 million, and $69.7 million in 2009, 2008, and 2007, respectively. These amounts have been calculated under the alternative transition method in accordance with U.S. GAAP.
As of December 31, 2009, unrecognized compensation cost related to unvested share-based compensation was approximately $178.1 million, net of estimated forfeitures. We expect to recognize the cost of these unvested awards over a weighted-average period of 1.4 years.
Share-based Compensation Plans
We have three share-based compensation plans pursuant to which awards are currently being made: (1) the Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan (2006 Directors Plan); (2) the Biogen Idec Inc. 2008 Omnibus Equity Plan (2008 Omnibus Plan); and (3) the Biogen Idec Inc. 1995 Employee Stock Purchase Plan (ESPP). We have six share-based compensation plans pursuant to which outstanding awards have been made, 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, Inc. 1987 Scientific Board Stock Option Plan; (v) the Biogen Idec Inc. 2003 Omnibus Equity Plan (2003 Omnibus Plan); and (vi) 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 options, shares of restricted stock awards, 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 850,000 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.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 options, shares of restricted stock awards, 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 the 2005 Omnibus Plan on the date that our stockholders approved the 2008 Omnibus Plan, plus shares that are subject to awards under the 2005 Omnibus 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.
Stock Options
All stock option grants to employees are for a ten-year term and generally vest one-fourth per year over four years on the anniversary of the date of grant, provided the employee remains continuously employed with us. Stock option grants to directors are for ten-year terms and generally vest as follows: (1) grants made on the date of a director’s initial election to our Board of Directors vest one-third per year over three years on the anniversary of the date of grant, and (2) grants made 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. 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 option grants awarded in 2009, 2008, and 2007 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, | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Expected option life (in years) | | | 4.7 | | | | 5.1 | | | | 4.9 | |
| Expected stock price volatility | | | 39.3 | % | | | 34.4 | % | | | 33.6 | % |
| Risk-free interest rate | | | 1.9 | % | | | 2.4 | % | | | 4.4 | % |
| Expected dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Per share grant-date fair value | | $ | 18.00 | | | $ | 20.85 | | | $ | 18.78 | |
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.
F-35
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of stock option activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Exercise
| |
| (In thousands, except weighted average exercise price) | | Shares | | | Price | |
| |
| Outstanding at December 31, 2006 | | | 25,106 | | | $ | 47.96 | |
| | | | | | | | | |
| Granted | | | 1,470 | | | $ | 51.23 | |
| Exercised | | | (10,524 | ) | | $ | 44.84 | |
| Cancelled | | | (1,152 | ) | | $ | 53.97 | |
| | | | | | | | | |
| Outstanding at December 31, 2007 | | | 14,900 | | | $ | 50.03 | |
| | | | | | | | | |
| Granted | | | 1,475 | | | $ | 60.23 | |
| Exercised | | | (3,769 | ) | | $ | 41.99 | |
| Cancelled | | | (506 | ) | | $ | 55.70 | |
| | | | | | | | | |
| Outstanding at December 31, 2008 | | | 12,100 | | | $ | 53.53 | |
| | | | | | | | | |
| Granted | | | 1,031 | | | $ | 49.96 | |
| Exercised | | | (637 | ) | | $ | 40.16 | |
| Cancelled | | | (1,664 | ) | | $ | 60.74 | |
| | | | | | | | | |
| Outstanding at December 31, 2009 | | | 10,830 | | | $ | 52.88 | |
| | | | | | | | | |
Of the options outstanding, 8.3 million were exercisable as of December 31, 2008.2009. The exercisable options had a weighted-average exercise price of $52.80. The aggregate intrinsic value of options exercisable as of December 31, 2009 was $45.2 million. The weighted average remaining contractual term for options exercisable as of December 31, 2009 was 3.8 years.
A total of 10.3 million vested and expected to vest options were outstanding as of December 31, 2009. These vested and expected to vest options had a weighted average exercise price of $52.87 and an aggregated intrinsic value of $51.0 million. The weighted average remaining contractual term of vested and expected to vest options as of December 31, 2009 was 4.6 years.
The total intrinsic values of options exercised in 2009, 2008, and 2007, were $6.7 million, $85.1 million, and $226.7 million, respectively. The aggregate intrinsic values of options outstanding as of December 31, 2009 was $52.8 million. The weighted average remaining contractual term for options outstanding as of December 31, 2009 was 4.8 years.
A summary of the amount of tax benefit realized for stock options and cash received from the exercise of stock options is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Tax benefit realized for stock options | | $ | 1.5 | | | $ | 28.0 | | | $ | 72.4 | |
| Cash received from the exercise of stock options | | $ | 25.2 | | | $ | 158.3 | | | $ | 471.0 | |
F-36
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Senior Notes
On March 4, 2008, we issued $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 at 99.886% and
F-29
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
99.184% of par, respectively. The discount will beis 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 interest rate on the notes if the credit rating on the notes declines below investment grade. Offering costs of approximately $8.0 million have been recorded as debt issuance costs on our consolidated balance sheet and will beare amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. Additionally,
Upon the issuance of the debt we entered into interest rate swapsswap contracts where we received a fixed rate and paid a variable rate, as further described in Note 4,8,Derivative Instrumentsto our Consolidated Financial Instruments thatStatements. These contracts have been subsequently terminated. Upon termination of thethese swaps, the carrying amount of the 6.875% Senior Notes due in 2018 was increased by $62.8 million as it was accounted for as a fair value hedge.million. This will be recognized as a reduction of interest expense andincrease is amortized using the effective interest rate method over the remaining life of the Senior Notes.Notes and is being recognized as a reduction of interest expense.
We used the proceeds of this borrowing, along with cash and the proceeds from the liquidation of marketable securities, to repay the full $1,500.0 million outstanding under the term loan facility we had entered into in July 2007 in connection with the funding of our June 2007 common stock tender offer.
This term loan facility expired upon repayment.
Revolving credit facilityCredit Facility
In June 2007, we entered intoWe have a five-year $400.0$360.0 million Senior Unsecured Revolving Credit Facility,senior unsecured revolving credit facility, which we may usebe used for future working capital and general corporate purposes. The bankruptcy of Lehman Brothers Holdings Inc. has eliminated their $40.0 million commitment, thereby reducing the availability of the credit facility to $360.0 million. This credit facility bears interest at a rate of LIBOR plus 45 basis points. The terms of this revolving credit facility include various covenants, including financial covenants that require us to not exceed a maximum leverage ratio and under certain circumstances, an interest coverage ratio.terminates in June 2012. As of December 31, 2009 and 2008, we were in compliance with these covenants and there were no borrowings under this credit facility.facility and we were in compliance with applicable covenants.
Biogen-DompeBiogen-Dompé
As of December 31, 2009 and 2008, Biogen-DompeBiogen-Dompé SRL, a consolidated joint venture, has a loan balance of 12.0 million Euros ($17.2 million) and 12.0 million Euros ($16.7 million). This balance represents, respectively. These balances represent a line of credit from us and Dompé Farmaceutici SpA of 2424.0 million Euros, half of which has been eliminated as it is an intercompany loan for purposes of presenting our consolidated financial position.position as it is an intercompany loan. Borrowings under this line of credit are to be made equally between the partners, andwith any repayments are to be paid in a similar manner. The loan was originally due June 1, 2009; however, a new loan was subsequently executed with a maturity date of December 1, 2011. The interest rate ofon the line of credit under the new agreements is determined at a rate of 3three month Euro LIBOR plus 25150 basis points and was 5.535% at2.2% as of December 31, 2008.2009. The interest rate is reset quarterly and payable quarterly in arrears. Any borrowings on the line of credit are due, in full, June 1, 2009.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Notes Payable to Fumedica
As of December 31, 2009 and 2008, the notes payable to Fumedica have a present value of 31.2 million Swiss Francs ($30.0 million) and 41.2 million Swiss Francs ($38.6 million)., respectively. The notes, which were entered into in connection with the settlement of various agreements associated with Fumedica, are non-interest bearing, have been discounted for financial statement presentation purposes and are being accreted at a rate of 5.75% and are payable in a series of payments over the period from 2008 tothrough June 2018. See Note 2, Acquisitions and Dispositions.
F-30
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Debt Maturity
As of December 31, 2008, ourOur total debt matures as follows (in millions):follows:
| | | | | | | | | |
| 2009 | | $ | 27.9 | | |
| (In millions) | | | As of December 31, 2009 |
| | |
| 2010 | | $ | 11.2 | | | $ | 20.1 | |
| 2011 | | $ | 3.0 | | | | 11.6 | |
| 2012 | | $ | 3.0 | | | | 3.1 | |
| 2013 | | $ | 453.0 | | | | 453.1 | |
| 2014 and thereafter | | $ | 565.0 | | |
| 2014 | | | | 3.1 | |
| 2015 and thereafter | | | | 562.3 | |
| | | | | |
| Total | | | $ | 1,053.3 | |
| | | | | |
The fair value of theour debt is disclosed in Note 3 “Fair6,Fair Value Measurements”.Measurementsto our Consolidated Financial Statements.
| |
9.10. | Intangible Assets and GoodwillShareholders’ Equity |
Intangible assets and goodwill, net of accumulated amortization, impairment charges and adjustments, are as follows (in millions):Preferred Stock
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | December 31, 2008 | | | December 31, 2007 | |
| | | | | | | | | Accumulated
| | | | | | | | | Accumulated
| | | | |
| | | Estimated Life | | | Cost | | | Amortization | | | Net | | | Cost | | | Amortization | | | Net | |
| |
| Out-licensed patents | | | 12 years | | | $ | 578.0 | | | $ | (250.3 | ) | | $ | 327.7 | | | $ | 578.0 | | | $ | (199.1 | ) | | $ | 378.9 | |
| Core/developed technology | | | 15-20 years | | | | 3,005.3 | | | | (1,241.0 | ) | | | 1,764.3 | | | | 3,003.0 | | | | (965.2 | ) | | | 2,037.8 | |
| Trademarks & tradenames | | | Indefinite | | | | 64.0 | | | | — | | | | 64.0 | | | | 64.0 | | | | — | | | | 64.0 | |
| In-licensed patents | | | 14 years | | | | 3.0 | | | | (0.9 | ) | | | 2.1 | | | | 3.0 | | | | (0.7 | ) | | | 2.3 | |
| Assembled workforce | | | 4 years | | | | 2.1 | | | | (1.2 | ) | | | 0.9 | | | | 2.1 | | | | (0.7 | ) | | | 1.4 | |
| Distribution rights | | | 2 years | | | | 12.7 | | | | (10.6 | ) | | | 2.1 | | | | 11.8 | | | | (3.8 | ) | | | 8.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | | | | | $ | 3,665.1 | | | $ | (1,504.0 | ) | | $ | 2,161.1 | | | $ | 3,661.9 | | | $ | (1,169.5 | ) | | $ | 2,492.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | | Indefinite | | | $ | 1,138.6 | | | $ | — | | | $ | 1,138.6 | | | $ | 1,137.4 | | | $ | — | | | $ | 1,137.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock was comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2009 | | | As of December 31, 2008 | | | As of December 31, 2007 | |
| (In thousands) | | Authorized | | | Issued | | | Outstanding | | | Authorized | | | Issued | | | Outstanding | | | Authorized | | | Issued | | | Outstanding | |
| |
| Series A Preferred Stock | | | 1,750 | | | | 8 | | | | 8 | | | | 1,750 | | | | 8 | | | | 8 | | | | 1,750 | | | | 8 | | | | 8 | |
| Series X Junior Participating Preferred Stock | | | 1,000 | | | | — | | | | — | | | | 1,000 | | | | — | | | | — | | | | 1,000 | | | | — | | | | — | |
| Undesignated | | | 5,250 | | | | — | | | | — | | | | 5,250 | | | | — | | | | — | | | | 5,250 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 8,000 | | | | 8 | | | | 8 | | | | 8,000 | | | | 8 | | | | 8 | | | | 8,000 | | | | 8 | | | | 8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
We have 8,000,000 shares of Preferred Stock authorized, of which 1,750,000 shares have been designated as Series A Preferred Stock and 1,000,000 shares have been designated as Series X Junior Participating Preferred Stock. The balance 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 stock certificate. 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. As of December 31, 2009, 2008 and 2007, there were 8,221 shares of Series A Preferred Stock issued and outstanding. These shares carry a liquidation preference of $67 and are convertible into 60 shares of common stock per share of Preferred Stock. No other shares of Preferred Stock are issued and outstanding as of December 31, 2009, 2008 and 2007.
Intangibles, other than GoodwillStockholder Rights Plan
Intangibles, other than Goodwill,In January 2009, our Board of Directors voted to terminate our stockholders rights plan effective as of January 30, 2009. The plan was scheduled to expire on July 26, 2011 and was originally adopted by the Board of Directors in 1997. Under the rights plan, each share of our common stock had one “right” attached to it that entitled the holder to purchase our Series X Junior Participating Preferred Stock under the circumstances specified in the rights plan. As a result of our Board of Director’s action, no rights are outstanding or exercisable.
Stock Repurchase Programs
In October 2009, our Board of Directors authorized the repurchase of up to $1.0 billion of our common stock with repurchased shares being retired. This repurchase program does not have an expiration date. As of December 31, 2009, approximately 8.8 million shares at a cost of $422.4 million were unchangedrepurchased under this
F-31
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
authorization, all of which were retired. From January 1, 2010 through February 5, 2010, we repurchased approximately an additional 5.4 million shares under this program at a total cost of approximately $289.4 million, all of which were also retired. Approximately $288.2 million remains available for the repurchase of our common stock under the 2009 program.
In October 2006, our Board of Directors authorized the repurchase of up to 20.0 million shares of our common stock. As of December 31, 2009, all shares under this program have been repurchased as approximately 7.2 million shares of our common stock were repurchased in 2009 for approximately $328.8 million. In 2008, approximately 12.8 million shares of our common stock were repurchased under this program for approximately $738.9 million.
Reclassifications
The adoption of a newly issued accounting standard for noncontrolling interests on January 1, 2009, changed the accounting and reporting for our minority interests by recharacterizing them as noncontrolling interests and classifying them as a separate component of total shareholders’ equity in our accompanying consolidated balance sheets and consolidated statements of shareholders’ equity. Additionally, net income attributable to noncontrolling interest is now shown separately from net income in the consolidated statements of income. As a result, prior year amounts related to noncontrolling interest have been reclassified to conform to the current year presentation. This reclassification had no effect on our previously reported financial position or results of operations.
In the year ended December 31, 2008, as compared towe reclassified amounts within our consolidated statement of shareholders’ equity, resulting in an approximately $78.6 million correction in Additional Paid-in Capital and Retained Earnings (Accumulated Deficit) balances in connection with the re-issuance of treasury stock at a loss.
In the year ended December 31, 2007 exclusivewe reclassified amounts within our consolidated statements of equity, resulting in an approximately $48.0 million correction in the treasury stock and common stock balances.
Basic and diluted earnings per share are calculated as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net income attributable to Biogen Idec Inc. | | $ | 970.1 | | | $ | 783.2 | | | $ | 638.2 | |
| Adjustment for net income allocable to preferred shares | | | (1.7 | ) | | | (1.3 | ) | | | (1.0 | ) |
| | | | | | | | | | | | | |
| Net income used in calculating basic and diluted earnings per share | | $ | 968.4 | | | $ | 781.9 | | | $ | 637.2 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | | | 287.4 | | | | 292.3 | | | | 315.8 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Stock options and employee stock purchase plan | | | 0.6 | | | | 1.3 | | | | 2.6 | |
| Restricted stock awards | | | — | | | | 0.1 | | | | 0.5 | |
| Time-vested restricted stock units | | | 1.4 | | | | 1.3 | | | | 1.1 | |
| Performance-vested restricted stock units | | | 0.1 | | | | — | | | | — | |
| Convertible promissory notes due 2019 | | | — | | | | — | | | | 0.2 | |
| Convertible promissory notes due 2032 | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Dilutive potential common shares | | | 2.1 | | | | 2.7 | | | | 4.4 | |
| | | | | | | | | | | | | |
| Shares used in calculating diluted earnings per share | | | 289.5 | | | | 295.0 | | | | 320.2 | |
| | | | | | | | | | | | | |
F-32
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following amounts were not included in the calculation of net income per basic and diluted share because their effects were anti-dilutive:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net income allocable to preferred stock | | $ | 1.7 | | | $ | 1.3 | | | $ | 1.0 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Stock options | | | 8.5 | | | | 6.9 | | | | 8.2 | |
| Time-vested restricted stock units | | | 2.1 | | | | 1.5 | | | | 0.1 | |
| Performance-vested restricted stock units | | | 0.2 | | | | — | | | | — | |
| Convertible preferred stock | | | 0.5 | | | | 0.5 | | | | 0.5 | |
| | | | | | | | | | | | | |
| Total | | | 11.3 | | | | 8.9 | | | | 8.8 | |
| | | | | | | | | | | | | |
Earnings per share for the year ended December 31, 2009 reflects, on a weighted average basis, the repurchase of 16.0 million shares of our common stock under our 2009 and 2006 share repurchase programs.
As a result of our 2007 tender offer, earnings per share for the year ended December 31, 2007 reflects, on a weighted average basis, the repurchase of 56.4 million shares as of June 27, 2007, the date the obligation was incurred, in accordance with accounting standards for earning per share.
Share-based Compensation Expense
The following table summarizes share-based compensation expense included within our consolidated statements of income:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Research and development | | $ | 60.8 | | | $ | 59.9 | | | $ | 51.7 | |
| Selling, general and administrative | | | 106.4 | | | | 93.8 | | | | 76.1 | |
| | | | | | | | | | | | | |
| Subtotal | | $ | 167.2 | | | $ | 153.7 | | | $ | 127.8 | |
| Capitalized share-based compensation costs | | | (6.3 | ) | | | (7.5 | ) | | | (4.7 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in total costs and expenses | | $ | 160.9 | | | $ | 146.2 | | | $ | 123.1 | |
| Income tax effect | | | (49.4 | ) | | | (45.4 | ) | | | (37.5 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in net income attributable to Biogen Idec Inc. | | $ | 111.5 | | | $ | 100.8 | | | $ | 85.6 | |
| | | | | | | | | | | | | |
F-33
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our share-based compensation programs include stock options, time-vested restricted stock units, performance-vested restricted stock units, restricted stock and shares issued under our ESPP. The following table summarizes share-based compensation expense associated with each of these programs:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Stock options | | $ | 21.6 | | | $ | 20.0 | | | $ | 30.7 | |
| Time-vested restricted stock units | | | 133.7 | | | | 125.6 | | | | 75.2 | |
| Performance-vested restricted stock units | | | 4.6 | | | | 1.1 | | | | 5.0 | |
| Restricted stock awards | | | — | | | | 0.5 | | | | 11.7 | |
| Employee stock purchase plan | | | 7.3 | | | | 6.5 | | | | 5.2 | |
| | | | | | | | | | | | | |
| Subtotal | | $ | 167.2 | | | $ | 153.7 | | | $ | 127.8 | |
| Capitalized share-based compensation costs | | | (6.3 | ) | | | (7.5 | ) | | | (4.7 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in total costs and expenses | | $ | 160.9 | | | $ | 146.2 | | | $ | 123.1 | |
| | | | | | | | | | | | | |
Windfall tax benefits from vesting of stock awards, exercises of stock options and ESPP participation were $3.4 million, $28.0 million, and $69.7 million in 2009, 2008, and 2007, respectively. These amounts have been calculated under the alternative transition method in accordance with U.S. GAAP.
As of December 31, 2009, unrecognized compensation cost related to unvested share-based compensation was approximately $178.1 million, net of estimated forfeitures. We expect to recognize the cost of these unvested awards over a weighted-average period of 1.4 years.
Share-based Compensation Plans
We have three share-based compensation plans pursuant to which awards are currently being made: (1) the Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan (2006 Directors Plan); (2) the Biogen Idec Inc. 2008 Omnibus Equity Plan (2008 Omnibus Plan); and (3) the Biogen Idec Inc. 1995 Employee Stock Purchase Plan (ESPP). We have six share-based compensation plans pursuant to which outstanding awards have been made, 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, Inc. 1987 Scientific Board Stock Option Plan; (v) the Biogen Idec Inc. 2003 Omnibus Equity Plan (2003 Omnibus Plan); and (vi) 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 options, shares of restricted stock awards, 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 impactplan. We have reserved a total of foreign850,000 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.
F-34
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 options, shares of restricted stock awards, 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 the 2005 Omnibus Plan on the date that our stockholders approved the 2008 Omnibus Plan, plus shares that are subject to awards under the 2005 Omnibus 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.
Stock Options
All stock option grants to employees are for a ten-year term and generally vest one-fourth per year over four years on the anniversary of the date of grant, provided the employee remains continuously employed with us. Stock option grants to directors are for ten-year terms and generally vest as follows: (1) grants made on the date of a director’s initial election to our Board of Directors vest one-third per year over three years on the anniversary of the date of grant, and (2) grants made 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. 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 option grants awarded in 2009, 2008, and 2007 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, | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Expected option life (in years) | | | 4.7 | | | | 5.1 | | | | 4.9 | |
| Expected stock price volatility | | | 39.3 | % | | | 34.4 | % | | | 33.6 | % |
| Risk-free interest rate | | | 1.9 | % | | | 2.4 | % | | | 4.4 | % |
| Expected dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Per share grant-date fair value | | $ | 18.00 | | | $ | 20.85 | | | $ | 18.78 | |
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.
F-35
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of stock option activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Exercise
| |
| (In thousands, except weighted average exercise price) | | Shares | | | Price | |
| |
| Outstanding at December 31, 2006 | | | 25,106 | | | $ | 47.96 | |
| | | | | | | | | |
| Granted | | | 1,470 | | | $ | 51.23 | |
| Exercised | | | (10,524 | ) | | $ | 44.84 | |
| Cancelled | | | (1,152 | ) | | $ | 53.97 | |
| | | | | | | | | |
| Outstanding at December 31, 2007 | | | 14,900 | | | $ | 50.03 | |
| | | | | | | | | |
| Granted | | | 1,475 | | | $ | 60.23 | |
| Exercised | | | (3,769 | ) | | $ | 41.99 | |
| Cancelled | | | (506 | ) | | $ | 55.70 | |
| | | | | | | | | |
| Outstanding at December 31, 2008 | | | 12,100 | | | $ | 53.53 | |
| | | | | | | | | |
| Granted | | | 1,031 | | | $ | 49.96 | |
| Exercised | | | (637 | ) | | $ | 40.16 | |
| Cancelled | | | (1,664 | ) | | $ | 60.74 | |
| | | | | | | | | |
| Outstanding at December 31, 2009 | | | 10,830 | | | $ | 52.88 | |
| | | | | | | | | |
Of the options outstanding, 8.3 million were exercisable as of December 31, 2009. The exercisable options had a weighted-average exercise price of $52.80. The aggregate intrinsic value of options exercisable as of December 31, 2009 was $45.2 million. The weighted average remaining contractual term for options exercisable as of December 31, 2009 was 3.8 years.
A total of 10.3 million vested and expected amortization.to vest options were outstanding as of December 31, 2009. These vested and expected to vest options had a weighted average exercise price of $52.87 and an aggregated intrinsic value of $51.0 million. The weighted average remaining contractual term of vested and expected to vest options as of December 31, 2009 was 4.6 years.
The total intrinsic values of options exercised in 2009, 2008, and 2007, were $6.7 million, $85.1 million, and $226.7 million, respectively. The aggregate intrinsic values of options outstanding as of December 31, 2009 was $52.8 million. The weighted average remaining contractual term for options outstanding as of December 31, 2009 was 4.8 years.
A summary of the amount of tax benefit realized for stock options and cash received from the exercise of stock options is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Tax benefit realized for stock options | | $ | 1.5 | | | $ | 28.0 | | | $ | 72.4 | |
| Cash received from the exercise of stock options | | $ | 25.2 | | | $ | 158.3 | | | $ | 471.0 | |
F-36
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Time-Vested Restricted Stock Units
Time-vested restricted stock units (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.
A summary of RSU activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| (In thousands, except weighted average grant date fair value) | | Shares | | | Fair Value | |
| |
| Unvested at December 31, 2006 | | | 2,508 | | | $ | 44.48 | |
| | | | | | | | | |
| Granted | | | 3,387 | | | $ | 51.19 | |
| Vested | | | (845 | ) | | $ | 44.58 | |
| Forfeited | | | (458 | ) | | $ | 47.38 | |
| | | | | | | | | |
| Unvested at December 31, 2007 | | | 4,592 | | | $ | 49.12 | |
| | | | | | | | | |
| Granted | | | 3,129 | | | $ | 58.42 | |
| Vested | | | (1,645 | ) | | $ | 47.93 | |
| Forfeited | | | (499 | ) | | $ | 53.95 | |
| | | | | | | | | |
| Unvested at December 31, 2008 | | | 5,577 | | | $ | 54.26 | |
| | | | | | | | | |
| Granted | | | 2,674 | | | $ | 48.93 | |
| Vested | | | (2,421 | ) | | $ | 52.08 | |
| Forfeited | | | (445 | ) | | $ | 53.02 | |
| | | | | | | | | |
| Unvested at December 31, 2009 | | | 5,385 | | | $ | 52.72 | |
| | | | | | | | | |
F-37
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Performance-Vested Restricted Stock Units
A summary of performance-vested restricted stock units (PVRSUs) activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| (In thousands, except weighted average grant date fair value) | | Shares | | | Fair Value | |
| |
| Unvested at December 31, 2006 | | | 411 | | | $ | 41.62 | |
| | | | | | | | | |
| Granted | | | 120 | | | $ | 51.55 | |
| Vested | | | (357 | ) | | $ | 41.76 | |
| Forfeited | | | (54 | ) | | $ | 40.67 | |
| | | | | | | | | |
| Unvested at December 31, 2007 | | | 120 | | | $ | 51.55 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (27 | ) | | $ | 49.33 | |
| Forfeited | | | (3 | ) | | $ | 49.33 | |
| | | | | | | | | |
| Unvested at December 31, 2008 | | | 90 | | | $ | 52.29 | |
| | | | | | | | | |
| Granted | | | 325 | | | $ | 49.42 | |
| Vested | | | (30 | ) | | $ | 52.29 | |
| Forfeited | | | (97 | ) | | $ | 51.30 | |
| | | | | | | | | |
| Unvested at December 31, 2009 | | | 288 | | | $ | 49.39 | |
| | | | | | | | | |
2009 Grant Activity
We apply a graded vesting expense methodology when accounting for the PVRSUs issued in 2009. In 2009, approximately 325,000 PVRSUs were granted with a weighted average grant date fair value of $49.42 per share.
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.
2007 Grant Activity
In 2007, assembled workforce increased by $0.7 million asour Board of Directors awarded a resulttotal of 120,000 PVRSUs to Dr. Cecil Pickett, our former President, Research and Development. Vesting of these PVRSUs was subject to certain performance criteria established at the beginning of each of four performance periods, beginning January 1 on each of 2007, 2008, 2009 and 2010, and Dr. Pickett’s continued employment through the end of the acquisitionrespective performance periods. In February 2008, a total of Syntonix.27,000 shares were issued based upon the attainment of performance criteria set for 2007. An additional
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
30,000 shares were issued in February 2009 based on the attainment of performance criteria set for 2008. No additional shares were issued to Dr. Pickett in 2009, 2008 and 2007. Dr. Pickett retired from the position of President, Research and Development effective October 5, 2009. Accordingly, no additional PVRSUs awarded to Dr. Pickett will vest or be issued. Expense previously recognized in relation to unvested awards was reversed in 2009.
Prior Period Grant Activity
In the first quarter of 2006, core/developed technology increased by $26.4our Board of Directors awarded 100,000 PVRSUs to our CEO, under the 2005 Omnibus Plan, subject to certain 2006 financial performance criteria. In February 2007, our Board of Directors determined that the performance criteria had been attained and that 100,000 PVRSUs would convert into shares of our common stock. A total of 58,250 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes.
In the third quarter of 2005, we granted 1.2 million PVRSUs, to be settled in shares of our common stock, to a group of approximately 200 senior employees excluding our CEO. On September 14, 2006, 758,262 shares vested for which 510,859 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes. On March 14, 2007, 258,387 shares vested based on the level of performance versus the pre-established goals, for which a total of 172,054 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes. No other shares vested in relation to this 2005 grant.
Restricted Stock Awards
In 2005, we awarded restricted common stock to our employees under the 2005 Omnibus Plan and the 2003 Omnibus Plan. The restricted stock awards (RSAs) granted under the 2003 Omnibus Plan vested in full on the third anniversary of the date of grant for employees that remained continuously employed with us through the vesting dates. The RSAs granted under the 2005 Omnibus Plan vested at a rate of approximately one-third per year over three years on the anniversary of the date of grant for employees that remained continuously employed with us through the vesting dates.
The fair value of all time-vested RSAs 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. All awards of restricted stock were fully vested as of December 31, 2008.
A summary of RSA activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| (In thousands, except weighted average grant date fair value) | | Shares | | | Fair Value | |
| |
| Unvested at December 31, 2006 | | | 1,247 | | | $ | 53.64 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (713 | ) | | $ | 44.10 | |
| Forfeited | | | (79 | ) | | $ | 59.64 | |
| | | | | | | | | |
| Unvested at December 31, 2007 | | | 455 | | | $ | 67.54 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (454 | ) | | $ | 67.54 | |
| | | | | | | | | |
| Forfeited | | | (1 | ) | | $ | 67.57 | |
| | | | | | | | | |
| Unvested at December 31, 2008 | | | — | | | $ | — | |
| | | | | | | | | |
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ESPP
The purchase price of common stock under the ESPP is equal to 85% of the lower of (1) the market value per share of the common stock on the participant’s entry date into an offering period or (2) the 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 the employee stock purchase plan are 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 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.
The table below provides a summary of shares issued under our ESPP for 2009, 2008 and 2007, respectively:
| | | | | | | | | | | | | |
| | | For The Years Ended December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Shares issued under ESPP | | | 0.6 | | | | 0.5 | | | | 0.5 | |
| Cash received under ESPP | | $ | 22.6 | | | $ | 21.3 | | | $ | 18.2 | |
| |
| 13. | Accumulated Other Comprehensive Income (Loss) |
Accumulated other comprehensive income (loss) consisted of the following:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Translation adjustments | | $ | 35.6 | | | $ | 17.0 | |
| Unrealized gains on securites available for sale | | | 11.3 | | | | 10.5 | |
| Unrealized gains (losses) on foreign currency forward contracts | | | 1.5 | | | | (40.2 | ) |
| Unfunded status of pension and postretirement benefit plans | | | 2.1 | | | | 1.6 | |
| | | | | | | | | |
| Accumulated other comprehensive income (loss) | | $ | 50.5 | | | $ | (11.1 | ) |
| | | | | | | | | |
Unrealized holding gains on securities available for sale is shown net of tax of $(6.6) million and $(6.2) million as a result of the acquisitionDecember 31, 2009 and 2008, respectively. Unrealized gains (losses) on foreign currency forward contracts is shown net of Fumapharm. The assembled workforce intangible asset increased $1.4tax of $0.3 million, and $3.9 million as a result of the acquisitionDecember 31, 2009 and 2008, respectively. The unfunded status of Conformapension and we obtained $11.1 millionretirement benefit plans is shown net of distribution rightstax as of December 31, 2009 and 2008. Tax amounts in connection with the buy out of an agreement with Fumedica.both years were immaterial. See Note 2, Acquisitions and Dispositions,15,Employee Benefit Plansto our Consolidated Financial Statements for further discussion of these transactions.unfunded status of pension and retirement benefit plans.
Amortization expense was $332.7 million, $257.5Amounts comprising noncontrolling interests, as reported in our consolidated statements of equity as of December 31, 2009 and 2008 included accumulated translation adjustments of $2.4 million and $267.0$1.2 million, for 2008, 2007,respectively.
Comprehensive income (loss) and 2006, respectively.its components are presented in the consolidated statements of shareholders’ equity.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Amortization on intangible assets is expected to be in the range of approximately $235 million to $352 million for each of the next five years.
Goodwill
Goodwill was unchanged at December 31, 2008 as compared to December 31, 2007 exclusive of the impact of foreign exchange. Goodwill decreased $17.4 million in 2007 as compared to the balance at December 31, 2006, primarily as a result of certain tax adjustments. Approximately $9.1 million of the adjustments relate to the adoption of FIN 48. (See Note 15, Income Taxes, for discussion on income tax).
| |
10.14. | Property, Plant and EquipmentOther Consolidated Financial Statement Detail |
Property, plant and equipment consists of the following (in millions):Other Income (Expense), Net
| | | | | | | | | |
| | | December 31, | |
| | | 2008 | | | 2007 | |
| |
| Land | | $ | 108.8 | | | $ | 104.8 | |
| Buildings | | | 676.1 | | | | 610.1 | |
| Leasehold improvements | | | 80.1 | | | | 75.6 | |
| Furniture and fixtures | | | 48.1 | | | | 46.1 | |
| Machinery and equipment | | | 798.5 | | | | 692.9 | |
| Construction in progress | | | 420.2 | | | | 388.2 | |
| | | | | | | | | |
| Total cost | | | 2,131.8 | | | | 1,917.7 | |
| Less accumulated depreciation | | | (537.0 | ) | | | (420.3 | ) |
| | | | | | | | | |
| | | $ | 1,594.8 | | | $ | 1,497.4 | |
| | | | | | | | | |
Components of other income (expense), net, are summarized as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Interest income | | $ | 48.5 | | | $ | 72.1 | | | $ | 103.6 | |
| Interest expense | | | (35.8 | ) | | | (52.0 | ) | | | (40.5 | ) |
| Impairment on investments | | | (10.6 | ) | | | (60.3 | ) | | | (24.4 | ) |
| Gain (loss) on sales of investments, net | | | 22.8 | | | | (1.1 | ) | | | 16.7 | |
| Foreign exchange gains (losses), net | | | 11.4 | | | | (9.8 | ) | | | 3.0 | |
| Gain on the sale of property | | | — | | | | — | | | | 7.1 | |
| Other, net | | | 1.0 | | | | (6.6 | ) | | | 6.9 | |
| | | | | | | | | | | | | |
| Other income (expense), net | | $ | 37.3 | | | $ | (57.7 | ) | | $ | 72.4 | |
| | | | | | | | | | | | | |
Depreciation expense was $129.1 million, $122.6 million, and $108.4 million for 2008, 2007, and 2006, respectively.Interest Expense
During 2008 and 2007,In 2009, we incurred interest costs of $69.7 million. This amount was reduced by $28.5 million because we capitalized to construction in progress approximately $23.2 million and $10.1 million, respectively, of interest costs primarily related to the developmentconstruction of our large-scale biologiclarge scale manufacturing facility in Hillerød, Denmark. In addition, in 2009, approximately $5.4 million was recorded as a reduction due to the amortization of the deferred gain associated with the termination of an interest rate swap in December 2008.
In 2008, we incurred interest costs of $66.3 million. This amount was reduced by $23.2 million of capitalized interest on the manufacturing facility in Hillerød, Denmark. In addition, we incurred approximately $8.9 million of expenses related to hedge ineffectiveness on interest rate swaps executed in March 2008.
In 2007, we incurred interest costs of $50.6 million, which were reduced by $10.1 million of capitalized interest on the manufacturing facility in Hillerød, Denmark.
At December 31, 2008, $388.4 millionImpairment on Investments
In April 2009, we implemented newly issued accounting standards which provided guidance for recognition and presentation ofother-than-temporary impairments. The adoption of the constructionguidance did not have a material impact on our financial position or results of operations; however, this standard amended theother-than-temporary impairment model for marketable debt securities. The impairment model for equity securities was not affected. Refer to Note 7,Financial Instruments to our Consolidated Financial Statements for additional information on the adoption of this guidance.
In 2009, we recognized impairment losses of $7.0 million on our strategic investments and non-marketable securities. In addition, during 2008 and 2007, we recognized $18.6 million and $18.4 million, respectively, in progress balance wascharges for the impairment of strategic investments and non-marketable securities that were determined to beother-than-temporary.
In 2009, we recognized $3.6 million in charges for theother-than-temporary impairment on marketable debt securities. For 2008 and 2007, we recognized $41.7 million and $7.5 million, respectively, in charges for theother-than-temporary impairment of marketable debt securities primarily related to construction of Hillerød, Denmark. The first phase is completemortgage and involved the partial construction of a bulk manufacturing component, a labeling and packaging component and installation of major equipment. The label and packaging component and lab facility was placed into service in the first quarter of 2007. The second phase of the project involves the completion of the large-scale manufacturing component and construction of a warehouse, and is expected to be ready for commercial production in 2010.
See Note 25, Facility Impairments and Loss (Gain) on Disposition, of details of impairment charges taken.asset-backed securities.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reclassification
The adoption of a new issued accounting standard for noncontrolling interests on January 1, 2009, changed the accounting and reporting for our minority interests by recharacterizing them as noncontrolling interest. Prior year amounts related to noncontrolling interest, historically reflected as a component of other income (expense), net, have been reclassified to conform to current year presentation. Amounts previously reported as minority interest are now shown separately from net income in the accompanying consolidated statements of income and total $6.9 million, $6.9 million, and $(58.4) million for the years ended December 31, 2009, 2008 and 2007, respectively. This reclassification had no effect on our previously reported financial position or results of operations. Refer to Note 10,Shareholders’ Equityto our Consolidated Financial Statements for additional information on the adoption of this guidance.
Other Current Assets
Other current assets consist of the following (in millions):following:
| | | | | | | | | | | | | | | | | |
| | | December 31, | | | As of December 31, | |
| | | 2008 | | 2007 | | |
| (In millions) | | | 2009 | | 2008 | |
| |
| Deferred tax assets | | $ | 70.8 | | | $ | 96.4 | | | $ | 88.8 | | | $ | 70.8 | |
| Receivable from collaborations | | | 1.7 | | | | 12.0 | | | | 5.3 | | | | 1.7 | |
| Prepaid expenses | | | 46.4 | | | | 33.6 | | | | 52.6 | | | | 46.4 | |
| Interest receivable | | | 11.8 | | | | 12.8 | | | | 10.6 | | | | 11.8 | |
| Other | | | 8.7 | | | | 28.6 | | | | 20.6 | | | | 8.7 | |
| | | | | | | | | | | |
| Other current assets | | | $ | 177.9 | | | $ | 139.4 | |
| | | $ | 139.4 | | | $ | 183.4 | | | | | | |
| | | | | | | |
| |
12. | Accrued expenses and other |
Property, Plant and Equipment, net
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, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Land | | $ | 111.2 | | | $ | 108.8 | |
| Buildings | | | 669.7 | | | | 676.1 | |
| Leasehold improvements | | | 73.1 | | | | 80.1 | |
| Furniture and fixtures | | | 50.7 | | | | 48.1 | |
| Machinery and equipment | | | 868.2 | | | | 798.5 | |
| Construction in progress | | | 506.7 | | | | 420.2 | |
| | | | | | | | | |
| Total cost | | $ | 2,279.6 | | | $ | 2,131.8 | |
| | | | | | | | | |
| Less: accumulated depreciation | | | (642.5 | ) | | | (537.0 | ) |
| | | | | | | | | |
| Property, plant and equipment, net | | $ | 1,637.1 | | | $ | 1,594.8 | |
| | | | | | | | | |
In 2009, 2008, and 2007, we capitalized to construction in progress approximately $28.4 million, $23.2 million and $10.1 million, respectively, of interest costs primarily related to the development of our large-scale biologic manufacturing facility in Hillerød, Denmark.
As of December 31, 2009 and 2008, the construction in progress balance related to the construction of our large-scale biologic manufacturing facility in Hillerød, Denmark totaled $441.2 million and $388.4 million, respectively.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Depreciation expense is summarized as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Depreciation expense | | $ | 137.9 | | | $ | 129.1 | | | $ | 122.6 | |
Accrued Expenses and Other
Accrued expenses and other consists of the following (in millions):following:
| | | | | | | | | | | | | | | | | |
| | | December 31, | | | As of December 31, | |
| | | 2008 | | 2007 | | |
| (In millions) | | | 2009 | | 2008 | |
| |
| Employee compensation and benefits | | $ | 156.0 | | | $ | 86.0 | | | $ | 123.7 | | | $ | 156.0 | |
| Royalties and licensing fees | | | 40.6 | | | | 57.6 | | | | 41.8 | | | | 40.6 | |
| Collaboration expenses | | | 29.6 | | | | 5.9 | | | | 35.7 | | | | 29.6 | |
| Clinical development expenses | | | 41.5 | | | | 19.4 | | | | 43.2 | | | | 41.5 | |
| Revenue-related rebates | | | 37.7 | | | | 34.1 | | | | 52.0 | | | | 37.7 | |
| CIP Accrual | | | 18.6 | | | | 32.6 | | |
| Construction in progress accrual | | | | 12.8 | | | | 18.6 | |
| Other | | | 210.9 | | | | 132.3 | | | | 191.6 | | | | 210.9 | |
| | | | | | | | | | | |
| Accrued expenses and other | | | $ | 500.8 | | | $ | 534.9 | |
| | | $ | 534.9 | | | $ | 367.9 | | | | | | |
| | | | | | | |
Gain on Sale of Property, Plant and Equipment, net
In 2008, as part of the lease agreement described in Note 18,Commitments and Contingenciesto our Consolidated Financial Statements, we sold the development rights on a parcel of land in Cambridge, MA for $11.4 million in a non-monetary transaction and we recorded a pre-tax gain of approximately $9.2 million on the sale.
| |
13.15. | Employee Benefit Plans |
401(k) Employee Savings Plan
We maintain a 401(k) Savings Plan or 401(k) Plan, which is available to substantially all U.S. regular employees in the U.S. over the age of 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 current matching contributions will vest immediately. Previously, the matching contributions vested over four years of service by the employee. 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. Employer contributions for 2008, 2007, and 2006 totaled $20.6 million, $17.8 million, and $12.0 million, respectively.The expense related to our 401(k) Savings Plan primarily consists of our matching contributions.
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Expense related to our 401(k) Savings Plan | | $ | 27.9 | | | $ | 22.8 | | | $ | 20.2 | |
Deferred CompensationStockholder Rights Plan
We maintain a non-qualified deferred compensationIn January 2009, our Board of Directors voted to terminate our stockholders rights plan knowneffective as the Supplemental Savings Plan, or SSP, that allows a select group of U.S. management employeesJanuary 30, 2009. The plan was scheduled to defer a portion of their compensation. The SSP also provides certain credits to highly compensated U.S. employees, which are paidexpire on July 26, 2011 and was originally adopted by the company. These creditsBoard of Directors in 1997. Under the rights plan, each share of our common stock had one “right” attached to it that entitled the holder to purchase our Series X Junior Participating Preferred Stock under the circumstances specified in the rights plan. As a result of our Board of Director’s action, no rights are knownoutstanding or exercisable.
Stock Repurchase Programs
In October 2009, our Board of Directors authorized the repurchase of up to $1.0 billion of our common stock with repurchased shares being retired. This repurchase program does not have an expiration date. As of December 31, 2009, approximately 8.8 million shares at a cost of $422.4 million were repurchased under this
F-31
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
authorization, all of which were retired. From January 1, 2010 through February 5, 2010, we repurchased approximately an additional 5.4 million shares under this program at a total cost of approximately $289.4 million, all of which were also retired. Approximately $288.2 million remains available for the repurchase of our common stock under the 2009 program.
In October 2006, our Board of Directors authorized the repurchase of up to 20.0 million shares of our common stock. As of December 31, 2009, all shares under this program have been repurchased as Restoration Match. approximately 7.2 million shares of our common stock were repurchased in 2009 for approximately $328.8 million. In 2008, approximately 12.8 million shares of our common stock were repurchased under this program for approximately $738.9 million.
Reclassifications
The deferred compensationadoption of a newly issued accounting standard for noncontrolling interests on January 1, 2009, changed the accounting and reporting for our minority interests by recharacterizing them as noncontrolling interests and classifying them as a separate component of total shareholders’ equity in our accompanying consolidated balance sheets and consolidated statements of shareholders’ equity. Additionally, net income attributable to noncontrolling interest is now shown separately from net income in the consolidated statements of income. As a result, prior year amounts related to noncontrolling interest have been reclassified to conform to the current year presentation. This reclassification had no effect on our previously reported financial position or results of operations.
In the year ended December 31, 2008, we reclassified amounts within our consolidated statement of shareholders’ equity, resulting in an approximately $78.6 million correction in Additional Paid-in Capital and Retained Earnings (Accumulated Deficit) balances in connection with the re-issuance of treasury stock at a loss.
In the year ended December 31, 2007 we reclassified amounts within our consolidated statements of equity, resulting in an approximately $48.0 million correction in the treasury stock and common stock balances.
Basic and diluted earnings per share are accrued when earned. Such deferred compensation is distributablecalculated as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net income attributable to Biogen Idec Inc. | | $ | 970.1 | | | $ | 783.2 | | | $ | 638.2 | |
| Adjustment for net income allocable to preferred shares | | | (1.7 | ) | | | (1.3 | ) | | | (1.0 | ) |
| | | | | | | | | | | | | |
| Net income used in calculating basic and diluted earnings per share | | $ | 968.4 | | | $ | 781.9 | | | $ | 637.2 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | | | 287.4 | | | | 292.3 | | | | 315.8 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Stock options and employee stock purchase plan | | | 0.6 | | | | 1.3 | | | | 2.6 | |
| Restricted stock awards | | | — | | | | 0.1 | | | | 0.5 | |
| Time-vested restricted stock units | | | 1.4 | | | | 1.3 | | | | 1.1 | |
| Performance-vested restricted stock units | | | 0.1 | | | | — | | | | — | |
| Convertible promissory notes due 2019 | | | — | | | | — | | | | 0.2 | |
| Convertible promissory notes due 2032 | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Dilutive potential common shares | | | 2.1 | | | | 2.7 | | | | 4.4 | |
| | | | | | | | | | | | | |
| Shares used in calculating diluted earnings per share | | | 289.5 | | | | 295.0 | | | | 320.2 | |
| | | | | | | | | | | | | |
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following amounts were not included in cashthe calculation of net income per basic and diluted share because their effects were anti-dilutive:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net income allocable to preferred stock | | $ | 1.7 | | | $ | 1.3 | | | $ | 1.0 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Stock options | | | 8.5 | | | | 6.9 | | | | 8.2 | |
| Time-vested restricted stock units | | | 2.1 | | | | 1.5 | | | | 0.1 | |
| Performance-vested restricted stock units | | | 0.2 | | | | — | | | | — | |
| Convertible preferred stock | | | 0.5 | | | | 0.5 | | | | 0.5 | |
| | | | | | | | | | | | | |
| Total | | | 11.3 | | | | 8.9 | | | | 8.8 | |
| | | | | | | | | | | | | |
Earnings per share for the year ended December 31, 2009 reflects, on a weighted average basis, the repurchase of 16.0 million shares of our common stock under our 2009 and 2006 share repurchase programs.
As a result of our 2007 tender offer, earnings per share for the year ended December 31, 2007 reflects, on a weighted average basis, the repurchase of 56.4 million shares as of June 27, 2007, the date the obligation was incurred, in accordance with the rulesaccounting standards for earning per share.
Share-based Compensation Expense
The following table summarizes share-based compensation expense included within our consolidated statements of the SSP. Deferredincome:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Research and development | | $ | 60.8 | | | $ | 59.9 | | | $ | 51.7 | |
| Selling, general and administrative | | | 106.4 | | | | 93.8 | | | | 76.1 | |
| | | | | | | | | | | | | |
| Subtotal | | $ | 167.2 | | | $ | 153.7 | | | $ | 127.8 | |
| Capitalized share-based compensation costs | | | (6.3 | ) | | | (7.5 | ) | | | (4.7 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in total costs and expenses | | $ | 160.9 | | | $ | 146.2 | | | $ | 123.1 | |
| Income tax effect | | | (49.4 | ) | | | (45.4 | ) | | | (37.5 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in net income attributable to Biogen Idec Inc. | | $ | 111.5 | | | $ | 100.8 | | | $ | 85.6 | |
| | | | | | | | | | | | | |
F-33
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our share-based compensation amountsprograms include stock options, time-vested restricted stock units, performance-vested restricted stock units, restricted stock and shares issued under such plan at December 31,our ESPP. The following table summarizes share-based compensation expense associated with each of these programs:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Stock options | | $ | 21.6 | | | $ | 20.0 | | | $ | 30.7 | |
| Time-vested restricted stock units | | | 133.7 | | | | 125.6 | | | | 75.2 | |
| Performance-vested restricted stock units | | | 4.6 | | | | 1.1 | | | | 5.0 | |
| Restricted stock awards | | | — | | | | 0.5 | | | | 11.7 | |
| Employee stock purchase plan | | | 7.3 | | | | 6.5 | | | | 5.2 | |
| | | | | | | | | | | | | |
| Subtotal | | $ | 167.2 | | | $ | 153.7 | | | $ | 127.8 | |
| Capitalized share-based compensation costs | | | (6.3 | ) | | | (7.5 | ) | | | (4.7 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in total costs and expenses | | $ | 160.9 | | | $ | 146.2 | | | $ | 123.1 | |
| | | | | | | | | | | | | |
Windfall tax benefits from vesting of stock awards, exercises of stock options and ESPP participation were $3.4 million, $28.0 million, and $69.7 million in 2009, 2008, and 2007, totaledrespectively. These amounts have been calculated under the alternative transition method in accordance with U.S. GAAP.
As of December 31, 2009, unrecognized compensation cost related to unvested share-based compensation was approximately $48.5$178.1 million, net of estimated forfeitures. We expect to recognize the cost of these unvested awards over a weighted-average period of 1.4 years.
Share-based Compensation Plans
We have three share-based compensation plans pursuant to which awards are currently being made: (1) the Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan (2006 Directors Plan); (2) the Biogen Idec Inc. 2008 Omnibus Equity Plan (2008 Omnibus Plan); and (3) the Biogen Idec Inc. 1995 Employee Stock Purchase Plan (ESPP). We have six share-based compensation plans pursuant to which outstanding awards have been made, 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, Inc. 1987 Scientific Board Stock Option Plan; (v) the Biogen Idec Inc. 2003 Omnibus Equity Plan (2003 Omnibus Plan); and (vi) 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 options, shares of restricted stock awards, 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 850,000 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.
F-34
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 options, shares of restricted stock awards, 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 the 2005 Omnibus Plan on the date that our stockholders approved the 2008 Omnibus Plan, plus shares that are subject to awards under the 2005 Omnibus 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.
Stock Options
All stock option grants to employees are for a ten-year term and generally vest one-fourth per year over four years on the anniversary of the date of grant, provided the employee remains continuously employed with us. Stock option grants to directors are for ten-year terms and generally vest as follows: (1) grants made on the date of a director’s initial election to our Board of Directors vest one-third per year over three years on the anniversary of the date of grant, and (2) grants made 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. 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 option grants awarded in 2009, 2008, and 2007 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, | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Expected option life (in years) | | | 4.7 | | | | 5.1 | | | | 4.9 | |
| Expected stock price volatility | | | 39.3 | % | | | 34.4 | % | | | 33.6 | % |
| Risk-free interest rate | | | 1.9 | % | | | 2.4 | % | | | 4.4 | % |
| Expected dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Per share grant-date fair value | | $ | 18.00 | | | $ | 20.85 | | | $ | 18.78 | |
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.
F-35
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of stock option activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Exercise
| |
| (In thousands, except weighted average exercise price) | | Shares | | | Price | |
| |
| Outstanding at December 31, 2006 | | | 25,106 | | | $ | 47.96 | |
| | | | | | | | | |
| Granted | | | 1,470 | | | $ | 51.23 | |
| Exercised | | | (10,524 | ) | | $ | 44.84 | |
| Cancelled | | | (1,152 | ) | | $ | 53.97 | |
| | | | | | | | | |
| Outstanding at December 31, 2007 | | | 14,900 | | | $ | 50.03 | |
| | | | | | | | | |
| Granted | | | 1,475 | | | $ | 60.23 | |
| Exercised | | | (3,769 | ) | | $ | 41.99 | |
| Cancelled | | | (506 | ) | | $ | 55.70 | |
| | | | | | | | | |
| Outstanding at December 31, 2008 | | | 12,100 | | | $ | 53.53 | |
| | | | | | | | | |
| Granted | | | 1,031 | | | $ | 49.96 | |
| Exercised | | | (637 | ) | | $ | 40.16 | |
| Cancelled | | | (1,664 | ) | | $ | 60.74 | |
| | | | | | | | | |
| Outstanding at December 31, 2009 | | | 10,830 | | | $ | 52.88 | |
| | | | | | | | | |
Of the options outstanding, 8.3 million were exercisable as of December 31, 2009. The exercisable options had a weighted-average exercise price of $52.80. The aggregate intrinsic value of options exercisable as of December 31, 2009 was $45.2 million. The weighted average remaining contractual term for options exercisable as of December 31, 2009 was 3.8 years.
A total of 10.3 million vested and expected to vest options were outstanding as of December 31, 2009. These vested and expected to vest options had a weighted average exercise price of $52.87 and an aggregated intrinsic value of $51.0 million. The weighted average remaining contractual term of vested and expected to vest options as of December 31, 2009 was 4.6 years.
The total intrinsic values of options exercised in 2009, 2008, and 2007, were $6.7 million, $85.1 million, and $50.3$226.7 million, respectively. The aggregate intrinsic values of options outstanding as of December 31, 2009 was $52.8 million. The weighted average remaining contractual term for options outstanding as of December 31, 2009 was 4.8 years.
A summary of the amount of tax benefit realized for stock options and cash received from the exercise of stock options is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Tax benefit realized for stock options | | $ | 1.5 | | | $ | 28.0 | | | $ | 72.4 | |
| Cash received from the exercise of stock options | | $ | 25.2 | | | $ | 158.3 | | | $ | 471.0 | |
F-36
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Time-Vested Restricted Stock Units
Time-vested restricted stock units (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.
A summary of RSU activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| (In thousands, except weighted average grant date fair value) | | Shares | | | Fair Value | |
| |
| Unvested at December 31, 2006 | | | 2,508 | | | $ | 44.48 | |
| | | | | | | | | |
| Granted | | | 3,387 | | | $ | 51.19 | |
| Vested | | | (845 | ) | | $ | 44.58 | |
| Forfeited | | | (458 | ) | | $ | 47.38 | |
| | | | | | | | | |
| Unvested at December 31, 2007 | | | 4,592 | | | $ | 49.12 | |
| | | | | | | | | |
| Granted | | | 3,129 | | | $ | 58.42 | |
| Vested | | | (1,645 | ) | | $ | 47.93 | |
| Forfeited | | | (499 | ) | | $ | 53.95 | |
| | | | | | | | | |
| Unvested at December 31, 2008 | | | 5,577 | | | $ | 54.26 | |
| | | | | | | | | |
| Granted | | | 2,674 | | | $ | 48.93 | |
| Vested | | | (2,421 | ) | | $ | 52.08 | |
| Forfeited | | | (445 | ) | | $ | 53.02 | |
| | | | | | | | | |
| Unvested at December 31, 2009 | | | 5,385 | | | $ | 52.72 | |
| | | | | | | | | |
F-37
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Performance-Vested Restricted Stock Units
A summary of performance-vested restricted stock units (PVRSUs) activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| (In thousands, except weighted average grant date fair value) | | Shares | | | Fair Value | |
| |
| Unvested at December 31, 2006 | | | 411 | | | $ | 41.62 | |
| | | | | | | | | |
| Granted | | | 120 | | | $ | 51.55 | |
| Vested | | | (357 | ) | | $ | 41.76 | |
| Forfeited | | | (54 | ) | | $ | 40.67 | |
| | | | | | | | | |
| Unvested at December 31, 2007 | | | 120 | | | $ | 51.55 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (27 | ) | | $ | 49.33 | |
| Forfeited | | | (3 | ) | | $ | 49.33 | |
| | | | | | | | | |
| Unvested at December 31, 2008 | | | 90 | | | $ | 52.29 | |
| | | | | | | | | |
| Granted | | | 325 | | | $ | 49.42 | |
| Vested | | | (30 | ) | | $ | 52.29 | |
| Forfeited | | | (97 | ) | | $ | 51.30 | |
| | | | | | | | | |
| Unvested at December 31, 2009 | | | 288 | | | $ | 49.39 | |
| | | | | | | | | |
2009 Grant Activity
We apply a graded vesting expense methodology when accounting for the PVRSUs issued in 2009. In 2009, approximately 325,000 PVRSUs were granted with a weighted average grant date fair value of $49.42 per share.
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.
2007 Grant Activity
In 2007, our Board of Directors awarded a total of 120,000 PVRSUs to Dr. Cecil Pickett, our former President, Research and Development. Vesting of these PVRSUs was subject to certain performance criteria established at the beginning of each of four performance periods, beginning January 1 on each of 2007, 2008, 2009 and 2010, and Dr. Pickett’s continued employment through the end of the respective performance periods. In February 2008, a total of 27,000 shares were issued based upon the attainment of performance criteria set for 2007. An additional
F-38
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
30,000 shares were issued in February 2009 based on the attainment of performance criteria set for 2008. No additional shares were issued to Dr. Pickett in 2009, 2008 and 2007. Dr. Pickett retired from the position of President, Research and Development effective October 5, 2009. Accordingly, no additional PVRSUs awarded to Dr. Pickett will vest or be issued. Expense previously recognized in relation to unvested awards was reversed in 2009.
Prior Period Grant Activity
In the first quarter of 2006, our Board of Directors awarded 100,000 PVRSUs to our CEO, under the 2005 Omnibus Plan, subject to certain 2006 financial performance criteria. In February 2007, our Board of Directors determined that the performance criteria had been attained and that 100,000 PVRSUs would convert into shares of our common stock. A total of 58,250 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes.
In the third quarter of 2005, we granted 1.2 million PVRSUs, to be settled in shares of our common stock, to a group of approximately 200 senior employees excluding our CEO. On September 14, 2006, 758,262 shares vested for which 510,859 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes. On March 14, 2007, 258,387 shares vested based on the level of performance versus the pre-established goals, for which a total of 172,054 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes. No other shares vested in relation to this 2005 grant.
Restricted Stock Awards
In 2005, we awarded restricted common stock to our employees under the 2005 Omnibus Plan and the 2003 Omnibus Plan. The restricted stock awards (RSAs) granted under the 2003 Omnibus Plan vested in full on the third anniversary of the date of grant for employees that remained continuously employed with us through the vesting dates. The RSAs granted under the 2005 Omnibus Plan vested at a rate of approximately one-third per year over three years on the anniversary of the date of grant for employees that remained continuously employed with us through the vesting dates.
The fair value of all time-vested RSAs 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. All awards of restricted stock were fully vested as of December 31, 2008.
A summary of RSA activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| (In thousands, except weighted average grant date fair value) | | Shares | | | Fair Value | |
| |
| Unvested at December 31, 2006 | | | 1,247 | | | $ | 53.64 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (713 | ) | | $ | 44.10 | |
| Forfeited | | | (79 | ) | | $ | 59.64 | |
| | | | | | | | | |
| Unvested at December 31, 2007 | | | 455 | | | $ | 67.54 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (454 | ) | | $ | 67.54 | |
| | | | | | | | | |
| Forfeited | | | (1 | ) | | $ | 67.57 | |
| | | | | | | | | |
| Unvested at December 31, 2008 | | | — | | | $ | — | |
| | | | | | | | | |
F-39
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ESPP
The purchase price of common stock under the ESPP is equal to 85% of the lower of (1) the market value per share of the common stock on the participant’s entry date into an offering period or (2) the 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 the employee stock purchase plan are 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 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.
The table below provides a summary of shares issued under our ESPP for 2009, 2008 and 2007, respectively:
| | | | | | | | | | | | | |
| | | For The Years Ended December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Shares issued under ESPP | | | 0.6 | | | | 0.5 | | | | 0.5 | |
| Cash received under ESPP | | $ | 22.6 | | | $ | 21.3 | | | $ | 18.2 | |
| |
| 13. | Accumulated Other Comprehensive Income (Loss) |
Accumulated other comprehensive income (loss) consisted of the following:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Translation adjustments | | $ | 35.6 | | | $ | 17.0 | |
| Unrealized gains on securites available for sale | | | 11.3 | | | | 10.5 | |
| Unrealized gains (losses) on foreign currency forward contracts | | | 1.5 | | | | (40.2 | ) |
| Unfunded status of pension and postretirement benefit plans | | | 2.1 | | | | 1.6 | |
| | | | | | | | | |
| Accumulated other comprehensive income (loss) | | $ | 50.5 | | | $ | (11.1 | ) |
| | | | | | | | | |
Unrealized holding gains on securities available for sale is shown net of tax of $(6.6) million and $(6.2) million as of December 31, 2009 and 2008, respectively. Unrealized gains (losses) on foreign currency forward contracts is shown net of tax of $0.3 million, and $3.9 million as of December 31, 2009 and 2008, respectively. The unfunded status of pension and retirement benefit plans is shown net of tax as of December 31, 2009 and 2008. Tax amounts in both years were immaterial. See Note 15,Employee Benefit Plansto our Consolidated Financial Statements for discussion of unfunded status of pension and retirement benefit plans.
Amounts comprising noncontrolling interests, as reported in our consolidated statements of equity as of December 31, 2009 and 2008 included accumulated translation adjustments of $2.4 million and $1.2 million, respectively.
Comprehensive income (loss) and its components are presented in the consolidated statements of shareholders’ equity.
F-40
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
| 14. | Other Consolidated Financial Statement Detail |
Other Income (Expense), Net
Components of other income (expense), net, are summarized as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Interest income | | $ | 48.5 | | | $ | 72.1 | | | $ | 103.6 | |
| Interest expense | | | (35.8 | ) | | | (52.0 | ) | | | (40.5 | ) |
| Impairment on investments | | | (10.6 | ) | | | (60.3 | ) | | | (24.4 | ) |
| Gain (loss) on sales of investments, net | | | 22.8 | | | | (1.1 | ) | | | 16.7 | |
| Foreign exchange gains (losses), net | | | 11.4 | | | | (9.8 | ) | | | 3.0 | |
| Gain on the sale of property | | | — | | | | — | | | | 7.1 | |
| Other, net | | | 1.0 | | | | (6.6 | ) | | | 6.9 | |
| | | | | | | | | | | | | |
| Other income (expense), net | | $ | 37.3 | | | $ | (57.7 | ) | | $ | 72.4 | |
| | | | | | | | | | | | | |
Interest Expense
In 2009, we incurred interest costs of $69.7 million. This amount was reduced by $28.5 million because we capitalized interest related to the construction of our large scale manufacturing facility in Hillerød, Denmark. In addition, in 2009, approximately $5.4 million was recorded as a reduction due to the amortization of the deferred gain associated with the termination of an interest rate swap in December 2008.
In 2008, we incurred interest costs of $66.3 million. This amount was reduced by $23.2 million of capitalized interest on the manufacturing facility in Hillerød, Denmark. In addition, we incurred approximately $8.9 million of expenses related to hedge ineffectiveness on interest rate swaps executed in March 2008.
In 2007, we incurred interest costs of $50.6 million, which were reduced by $10.1 million of capitalized interest on the manufacturing facility in Hillerød, Denmark.
Impairment on Investments
In April 2009, we implemented newly issued accounting standards which provided guidance for recognition and presentation ofother-than-temporary impairments. The adoption of the guidance did not have a material impact on our financial position or results of operations; however, this standard amended theother-than-temporary impairment model for marketable debt securities. The impairment model for equity securities was not affected. Refer to Note 7,Financial Instruments to our Consolidated Financial Statements for additional information on the adoption of this guidance.
In 2009, we recognized impairment losses of $7.0 million on our strategic investments and non-marketable securities. In addition, during 2008 and 2007, we recognized $18.6 million and $18.4 million, respectively, in charges for the impairment of strategic investments and non-marketable securities that were determined to beother-than-temporary.
In 2009, we recognized $3.6 million in charges for theother-than-temporary impairment on marketable debt securities. For 2008 and 2007, we recognized $41.7 million and $7.5 million, respectively, in charges for theother-than-temporary impairment of marketable debt securities primarily related to mortgage and asset-backed securities.
F-41
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reclassification
The adoption of a new issued accounting standard for noncontrolling interests on January 1, 2009, changed the accounting and reporting for our minority interests by recharacterizing them as noncontrolling interest. Prior year amounts related to noncontrolling interest, historically reflected as a component of other income (expense), net, have been reclassified to conform to current year presentation. Amounts previously reported as minority interest are included in other long-term liabilitiesnow shown separately from net income in the accompanying consolidated statements of income and total $6.9 million, $6.9 million, and $(58.4) million for the years ended December 31, 2009, 2008 and 2007, respectively. This reclassification had no effect on our previously reported financial position or results of operations. Refer to Note 10,Shareholders’ Equityto our Consolidated Financial Statements for additional information on the adoption of this guidance.
Other Current Assets
Other current assets consist of the following:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Deferred tax assets | | $ | 88.8 | | | $ | 70.8 | |
| Receivable from collaborations | | | 5.3 | | | | 1.7 | |
| Prepaid expenses | | | 52.6 | | | | 46.4 | |
| Interest receivable | | | 10.6 | | | | 11.8 | |
| Other | | | 20.6 | | | | 8.7 | |
| | | | | | | | | |
| Other current assets | | $ | 177.9 | | | $ | 139.4 | |
| | | | | | | | | |
Property, Plant and Equipment, net
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, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Land | | $ | 111.2 | | | $ | 108.8 | |
| Buildings | | | 669.7 | | | | 676.1 | |
| Leasehold improvements | | | 73.1 | | | | 80.1 | |
| Furniture and fixtures | | | 50.7 | | | | 48.1 | |
| Machinery and equipment | | | 868.2 | | | | 798.5 | |
| Construction in progress | | | 506.7 | | | | 420.2 | |
| | | | | | | | | |
| Total cost | | $ | 2,279.6 | | | $ | 2,131.8 | |
| | | | | | | | | |
| Less: accumulated depreciation | | | (642.5 | ) | | | (537.0 | ) |
| | | | | | | | | |
| Property, plant and equipment, net | | $ | 1,637.1 | | | $ | 1,594.8 | |
| | | | | | | | | |
In 2009, 2008, and 2007, we capitalized to construction in progress approximately $28.4 million, $23.2 million and $10.1 million, respectively, of interest costs primarily related to the development of our large-scale biologic manufacturing facility in Hillerød, Denmark.
As of December 31, 2009 and 2008, the construction in progress balance sheets.related to the construction of our large-scale biologic manufacturing facility in Hillerød, Denmark totaled $441.2 million and $388.4 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Depreciation expense is summarized as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Depreciation expense | | $ | 137.9 | | | $ | 129.1 | | | $ | 122.6 | |
Accrued Expenses and Other
Accrued expenses and other consists of the following:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Employee compensation and benefits | | $ | 123.7 | | | $ | 156.0 | |
| Royalties and licensing fees | | | 41.8 | | | | 40.6 | |
| Collaboration expenses | | | 35.7 | | | | 29.6 | |
| Clinical development expenses | | | 43.2 | | | | 41.5 | |
| Revenue-related rebates | | | 52.0 | | | | 37.7 | |
| Construction in progress accrual | | | 12.8 | | | | 18.6 | |
| Other | | | 191.6 | | | | 210.9 | |
| | | | | | | | | |
| Accrued expenses and other | | $ | 500.8 | | | $ | 534.9 | |
| | | | | | | | | |
Gain on Sale of Property, Plant and Equipment, net
In 2008, as part of the lease agreement described in Note 18,Commitments and Contingenciesto our Consolidated Financial Statements, we sold the development rights on a parcel of land in Cambridge, MA for $11.4 million in a non-monetary transaction and we recorded a pre-tax gain of approximately $9.2 million on the sale.
| |
| 15. | Employee Benefit Plans |
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. 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 current matching contributions will vest immediately. Previously, the matching contributions vested over four years of service by the employee. Participant contributions vest immediately. The SSP401(k) Savings Plan 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, the Restoration Match and transition contributions vested over four and seven yearsThe expense related to our 401(k) Savings Plan primarily consists of service, respectively, by the employee. Participant contributions vest immediately. Distributions to participants can be either in one lump sum payment or annual installments as elected by the participants.our matching contributions.
Retiree Medical Plan
In 2003, we began to provide medical plan benefits to retirees under the age of 65. The plan terms were modified in 2007 and, accordingly, we recognized no (benefit) cost and no liability remained at December 31, 2008. Net periodic (benefit) cost for 2007, 2006, was $(6.7) million, and $1.4 million, respectively. In 2007, we recognized a benefit, which was primarily related to a modification of the plan in 2007. In 2006, the majority of the expense was related to service cost.
Pension Plan
We currently maintain two retiree benefit plans: a Supplemental Employee Retirement Plan and a defined benefit plan for certain employees in Germany.
The obligations under the plans totaled $5.4 million and $5.0 million at December 31, 2008 and 2007, respectively.
Net periodic pension cost for 2008, 2007, and 2006 was $1.1 million, $1.3 million, and $1.2 million, respectively. The majority of the net period pension costs related to service cost.
14. Other Income (Expense), Net
Total other income (expense), net, consists of the following (in millions):
| | | | | | | | | | | | | |
| | | December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Interest income | | $ | 72.1 | | | $ | 103.6 | | | $ | 101.2 | |
| Interest expense | | | (52.0 | ) | | | (40.5 | ) | | | (0.9 | ) |
| Impairments of investments | | | (60.3 | ) | | | (24.4 | ) | | | (34.4 | ) |
| Gain (Loss) on sales of investments, net | | | (1.1 | ) | | | 16.7 | | | | (2.8 | ) |
| Minority interest | | | (6.9 | ) | | | 58.4 | | | | (6.8 | ) |
| Foreign exchange gains (losses), net | | | (9.8 | ) | | | 3.0 | | | | 4.9 | |
| Settlement of litigation and claims | | | — | | | | 0.1 | | | | (4.6 | ) |
| Gain on sale of property | | | — | | | | 7.1 | | | | — | |
| Other, net | | | (6.7 | ) | | | 6.8 | | | | (4.5 | ) |
| | | | | | | | | | | | | |
| Total other income (expense), net | | $ | (64.7 | ) | | $ | 130.8 | | | $ | 52.1 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Expense related to our 401(k) Savings Plan | | $ | 27.9 | | | $ | 22.8 | | | $ | 20.2 | |
Interest Income
For 2008 compared to 2007, interest income decreased $31.5 million, or 30.4%, primarily due to a reduction in cash and cash equivalents due to the funding of our tender offer in July 2007, a net payment of $525.5 million for our term loan facility and other debt, and lower investment yields. For 2007 compared to 2006, interest income increased $2.4 million, or 2.4%, primarily due to higher yields offset by a reduction in cash and cash equivalents due to the funding of our tender offer in July 2007.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest Expense
For 2008 compared to 2007, interest expense increased $11.5 million, or 28%, primarily due to an increased debt balance in 2008 as compared to 2007 due to the issuance of debt in July 2007 as well as $8.9 million due to the impact of hedge ineffectiveness as discussed in Note 4, Financial Investments. For 2007 compared to 2006, interest expense increased $39.6 million, primarily due to the increased debt levels relating to our tender offer funded in July 2007 (see Note 21, Tender Offer). As discussed in Note 4, Financial Investments, in 2008 we terminated certain interest rate swaps. Upon termination of the swaps, the carrying amount of the 6.875% Senior Notes due in 2018 increased $62.8 million, which will be recognized as a reduction of interest expense and amortized using the effective interest rate method over the remaining life of the Senior Notes.
Impairment on Investments
In 2008, the impairment on investments was due to an other than temporary decline in the fair value of marketable securities of $41.7 million related primarily to non agency mortgage and asset backed securities and corporate securities classified as available for sale as well as other than temporary declines in the fair values of our strategic investments of $18.6 million. In 2007 and 2006, the impairment of investments is primarily due to the other than temporary decline in value in our strategic investments portfolio.
Minority Interest
For 2008 compared to 2007, minority interest decreased $65.3 million, primarily due to the recording in 2007 of $64.3 million in minority interest pursuant to the initial consolidation of Cardiokine Biopharma LLC or Cardiokine in August 2007 and Neurimmune in November 2007. For 2007 compared to 2006, minority interest increased $65.2 million, also primarily due to the initial consolidation of Cardiokine and Neurimmune in 2007. The minority interest related to Cardiokine and Neurimmune recorded in 2007 offset an equal charge to IPR&D, which resulted in no net impact to our results of operations for these IPR&D and minority interest charges. Excluding the impact of these consolidations, minority interest expense was $6.9 million, $5.9 million and $6.8 million for the years ended December 31, 2008, 2007 and 2006, respectively.
Gain on Sale of Property
In 2007, we sold approximately 28 acres of land in Oceanside, California for $16.5 million. We recorded a pre-tax gain of approximately $7.1 million on the sale in other income (expense) as this land was not utilized in our operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income tax expense
Income before income tax provision and the income tax expense consist of the following (in millions):
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Income before income tax provision (benefit): | | | | | | | | | | | | |
| Domestic | | $ | 838.3 | | | $ | 693.9 | | | $ | 525.2 | |
| Foreign | | | 310.6 | | | | 216.7 | | | | (33.0 | ) |
| | | | | | | | | | | | | |
| | | $ | 1,148.9 | | | $ | 910.6 | | | $ | 492.2 | |
| | | | | | | | | | | | | |
| Income tax expense (benefit): | | | | | | | | | | | | |
| Current | | | | | | | | | | | | |
| Federal | | $ | 431.2 | | | $ | 305.9 | | | $ | 355.0 | |
| State | | | 24.3 | | | | 25.8 | | | | 15.8 | |
| Foreign | | | 49.8 | | | | 22.3 | | | | 13.9 | |
| | | | | | | | | | | | | |
| | | $ | 505.3 | | | $ | 354.0 | | | $ | 384.7 | |
| | | | | | | | | | | | | |
| Deferred | | | | | | | | | | | | |
| Federal | | $ | (119.2 | ) | | $ | (76.7 | ) | | $ | (105.3 | ) |
| State | | | (20.0 | ) | | | (4.4 | ) | | | (0.7 | ) |
| Foreign | | | (0.3 | ) | | | (0.5 | ) | | | (0.3 | ) |
| | | | | | | | | | | | | |
| | | $ | (139.5 | ) | | $ | (81.6 | ) | | $ | (106.3 | ) |
| | | | | | | | | | | | | |
| Total income tax expense | | $ | 365.8 | | | $ | 272.4 | | | $ | 278.4 | |
| | | | | | | | | | | | | |
Deferred tax assets and liabilities
Significant components of our deferred tax assets and liabilities are as follows:
| | | | | | | | | |
| | | December 31, | |
| | | 2008 | | | 2007 | |
| |
| Tax credits | | $ | 11.0 | | | $ | 5.5 | |
| Inventory and other reserves | | | 90.4 | | | | 32.2 | |
| Capitalized costs | | | 36.6 | | | | 84.9 | |
| Intangibles, net | | | 89.6 | | | | 77.2 | |
| Net operating loss | | | 33.1 | | | | 29.6 | |
| Share-based compensation | | | 59.9 | | | | 70.5 | |
| Other | | | 57.9 | | | | 40.5 | |
| | | | | | | | | |
| Deferred tax assets | | $ | 378.5 | | | $ | 340.4 | |
| | | | | | | | | |
| Fair value adjustment | | $ | (552.7 | ) | | $ | (632.7 | ) |
| Interest expense on notes payable | | | — | | | | (0.3 | ) |
| Unrealized gain on investments and cumulative translation adjustment | | | (2.3 | ) | | | (2.7 | ) |
| Depreciation, amortization and other | | | (108.7 | ) | | | (129.8 | ) |
| | | | | | | | | |
| Deferred tax liabilities | | $ | (663.7 | ) | | $ | (765.5 | ) |
| | | | | | | | | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Tax Rate
A reconciliation between the U.S. federal statutory tax rate and our effective tax rate is as follows:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
| State taxes | | | 1.6 | | | | 3.0 | | | | 3.0 | |
| Taxes on foreign earnings | | | (5.8 | ) | | | (7.6 | ) | | | (16.3 | ) |
| Credits and net operating loss utilization | | | (2.9 | ) | | | (3.1 | ) | | | (0.6 | ) |
| Fair value adjustment | | | 3.7 | | | | 3.5 | | | | 6.2 | |
| IPR&D | | | 0.8 | | | | 0.7 | | | | 27.9 | |
| Non-deductible items | | | (0.8 | ) | | | (0.6 | ) | | | 0.8 | |
| Other | | | 0.2 | | | | (1.0 | ) | | | 0.6 | |
| | | | | | | | | | | | | |
| Effective tax rate | | | 31.8 | % | | | 29.9 | % | | | 56.6 | % |
| | | | | | | | | | | | | |
At December 31, 2008, we had net operating losses and general business credit carryforwards for federal income tax purposes of approximately $64.7 million and $3.2 million, respectively, which begin to expire in 2020. Additionally, for state income tax purposes, we had net operating loss carryforwards of approximately $197.1 million, which begin to expire in 2009. For state income tax purposes, we also had research and investment credit carryforwards of approximately $12.0 million, of which approximately $9.7 million begin to expire in 2009, with the remainder having no prescribed expiration date.
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 our entire deferred tax assets. 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, 2008, undistributed foreign earnings ofnon-U.S. subsidiaries included in consolidated retained earnings aggregated approximately $2,071.3 million. We intend to reinvest these earnings indefinitely in operations outside the U.S. It is not practicable to estimate the amount of additional tax that might be payable if such earnings were remitted to the U.S.
IRS Settlement
During 2007, the IRS completed its examination of Biogen Idec Inc.’s consolidated federal income tax returns for the fiscal years 2003 and 2004 and issued an assessment. We subsequently paid amounts related to issues agreed to with the IRS and are appealing several issues. As a result of this examination activity, we reassessed our liability for income tax contingencies to reflect the IRS findings and recorded a $14.7 million reduction in our liabilities for income tax contingencies during the second quarter of 2007.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During 2005, the Internal Revenue Service, or IRS, completed its examination of legacy Biogen, Inc.’s, now Biogen Idec MA, Inc.’s, consolidated federal income tax returns for the fiscal years 2001 and 2002 and issued an assessment. We subsequently paid the majority of the amounts assessed and are appealing one issue.
Contingency
On September 12, 2006, we received a Notice of Assessment from the Massachusetts Department of Revenue for $38.9 million, which includes penalties and interest, with respect to the 2001, 2002, and 2003 tax years. We believe that we have meritorious defenses to the proposed adjustment and will vigorously oppose the assessment. We believe that the assessment does not impact the level of liabilities for our income tax contingencies. However, there is a possibility that we may not prevail in all of our assertions. If this is resolved unfavorably in the future, this could have a material impact on our future effective tax rate and our results of operations in the period in which an event would occur.
Adoption of FASB Interpretation No. 48
Effective January 1, 2007, we adopted the provisions of FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of each tax position taken or expected to be taken in a tax return. As a result of the adoption of FIN 48, we recognized a reduction in the liability for unrecognized tax benefits of $14.2 million, which was recorded as a $1.8 million reduction to the January 1, 2007 balance of our accumulated deficit, a $9.1 million reduction in goodwill and a $3.3 million increase in our deferred tax liability.
A reconciliation of the beginning and ending amount of our unrecognized tax benefits is as follows (in millions):
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| |
| Balance at January 1 | | $ | 221.1 | | | $ | 196.8 | |
| Additions based on tax positions related to the current period | | | 21.8 | | | | 29.7 | |
| Additions for tax positions of prior periods | | | 20.4 | | | | 83.5 | |
| Reductions for tax positions of prior periods | | | (13.7 | ) | | | (70.2 | ) |
| Settlements | | | — | | | | (18.7 | ) |
| | | | | | | | | |
| Balance at December 31 | | $ | 249.6 | | | $ | 221.1 | |
| | | | | | | | | |
Included in the balance of unrecognized tax benefits at December 31, 2008, December 31, 2007, and January 1, 2007, are $155.1 million, $110.5 million, and $98.2 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 any future periods. We do not anticipate any significant changes in our positions in the next twelve months other than expected settlements which have been classified as current liabilities within the accompanying balance sheet.
We recognize potential interest and penalties accrued related to unrecognized tax benefits in income tax expense. During 2008 and 2007, we recognized approximately $16.1 million and $14.5 million in interest expense, respectively. Additionally, during 2007, we reduced our interest accrual by $3.3 million due to the completion of an IRS examination as described above. We have accrued approximately $47.7 million and $31.6 million for the payment of interest at December 31, 2008 and December 31, 2007, respectively.
We file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, ornon-U.S. income tax examinations by tax authorities for years before 2001.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
16. | Research Collaborations |
In connection with our research and development efforts, we have entered into various collaboration arrangements which provide us with rights to develop, produce and market products using certain know-how, technology and patent rights maintained by the parties. Terms of the various license agreements may require us to make milestone payments upon the achievement of certain product development objectives and pay royalties on future sales, if any, of commercial products resulting from the collaboration.
Neurimmune
In November 2007, we entered into a collaboration agreement with Neurimmune SubOne AG, or Neurimmune, for the worldwide development and commercialization of human antibodies for the treatment of Alzheimer’s disease, or AD. The collaboration agreement is effective for 12 years from the first commercial sale of product using such compound. Neurimmune will conduct research to identify potential therapeutic antibodies and we will be responsible for the development and commercialization of all products. Under the terms of the agreement, we paid a $2.0 million upfront payment and may pay up to $367.5 million in milestone payments, as well as a royalty on net sales of any resulting commercial products. In 2008, we paid $10.5 million in milestone payments. We also will reimburse Neurimmune for certain research and development costs incurred. We have determined that we are the primary beneficiary under FIN 46(R), because we are required to absorb the variability (increases or decreases) in development cost under the collaboration agreement. As a result, we have consolidated the results of Neurimmune and recorded an IPR&D charge of $34.3 million. The amount allocated to IPR&D relates to the development of theBeta-Amyloid antibody. At the effective date of the agreement, this compound had not reached technological feasibility and had no alternative future use. We have allocated the $34.3 million to the minority interest, as charge represents the fair value of theBeta-Amyloid antibody retained by the minority interest holders. As a result, we have recorded a credit in minority interest, which is recorded in other income (expense). The assets and liabilities of Neurimmune are not significant as it is a research and development organization. Through December 31, 2008, we have spent an additional $6.5 million to develop theBeta-Amyloid antibody. We expect to incur approximately an additional $291.7 million to develop theBeta-Amyloid antibody for all indications under development. The estimated revenues from theBeta-Amyloid antibody are expected to be recognized beginning in 2018. A discount rate of 15% was used to value this project, which we believe to be commensurate with the stage of development of theBeta-Amyloid antibody and the uncertainties in the economic estimates described above.
Cardiokine
In August 2007, our collaboration agreement with Cardiokine became effective. The agreement is for the joint development of lixivaptan, an oral compound for the potential treatment of hyponatremia in patients with congestive heart failure. The collaboration agreement is effective for 10 years from the first commercial sale of a product using such compound. We will be responsible for the global commercialization of lixivaptan and Cardiokine has an option for limited co-promotion in the U.S.
Under the terms of the agreement, we paid a $50.0 million upfront payment and will pay up to $170.0 million in milestone payments for successful development and global commercialization of lixivaptan, as well as royalties on commercial sales. The $50.0 million is reflected as research and development expense in the accompanying consolidated statement of income. We have determined that we are the primary beneficiary under FIN 46(R), because we are required to absorb the variability (increases or decreases) in development costs under the collaboration agreement. As a result, we have consolidated the results of Cardiokine and recorded an IPR&D charge of approximately $30.0 million. The amount allocated to IPR&D relates to the development of lixivaptan. At the effective date of the agreement, this compound had not reached technological feasibility and had no alternative future use. We have allocated the approximately $30.0 million to the minority interest, as the charge represents the fair value of the lixivaptan compound retained by the minority interest holders. As a result, we recorded a credit in
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
minority interest, which is recorded in other income (expense). The assets and liabilities of Cardiokine are not significant as it is a research and development organization. Through December 31, 2008, we have spent an additional $61.0 million to develop lixivaptan since the agreement became effective. We expect to incur approximately an additional $367.0 million to develop lixivaptan for all indications under development. The estimated revenues from lixivaptan are expected to be recognized beginning in 2012. A discount rate of 11% was used to value this project, which we believe to be commensurate with the stage of development of lixivaptan and the uncertainties in the economic estimates described above.
mondo
On September 14, 2006, we entered into an exclusive collaboration and license agreement with mondoBIOTECH, AG, a private Swiss biotechnology company In June 2007, we entered into a collaboration with a subsidiary of MondoBiotech AG, mondoGen, or mondo, to develop, manufacture and commercialize Aviptadil, a clinical compound for the treatment of pulmonary arterial hypertension, or PAH. In accordance with the agreement, we will be responsible for the global manufacturing, clinical development, regulatory approval and commercialization of Aviptadil. We finalized the development plan for Aviptadil and had mondo initiate additional clinical work in 2007.
Under the terms of the agreement, we paid mondo a $7.5 million upfront payment and will pay up to $30.0 million in milestones payments for successful development and commercialization of Aviptadil in PAH in the U.S. and Europe, as well as royalty payments on commercial sales. The $7.5 million upfront amount was recorded as research and development expense in 2006. We have determined that we are the primary beneficiary under FIN 46(R), because we are required to absorb the variability (increases or decreases) in development costs under the collaboration agreement. As a result, we have consolidated the results of mondo. The assets and liabilities of mondo are not significant as it is a research and development organization. Through December 31, 2008, we have spent an additional $29.9 million on the development of Aviptadil and could incur an additional $134.1 million to develop Aviptadil. We have determined that we are the primary beneficiary under FIN 46(R) and as a result, we consolidate the results of mondo.
Additionally, we have indicated our intention to make a minority equity investment of $5.0 million in mondo in the event that it undertakes an initial public offering.
Alnylam
In September 2006, we entered into a collaboration agreement with Alnylam Pharmaceuticals, Inc., or Alnylam, related to discovery and development of RNAi therapeutics for the potential treatment of PML.
Under the terms of the collaboration, we and Alnylam will initially conduct investigative research into the potential of using RNAi technology to develop up to three therapeutics to treat PML. Of the therapeutics presented, we will select one development candidate and one back up candidate and will be responsible for the development and commercialization of the selected candidate. We would also have the option to develop and commercialize the backup candidate at our discretion. We will fund all research and development activities.
We paid Alnylam an upfront payment of $5.0 million and agreed to additional payments of up to $51.3 million in milestone payments, plus royalties in the event of successful development and utilization of any product resulting from the collaboration. The $5.0 million upfront payment was recorded as research and development expense in 2006.
UCB
In September 2006, we entered into a global collaboration with UCB, S.A., or UCB, to jointly develop and commercialize CDP323 for the treatment of relapsing-remitting MS and other potential indications. CDP323 is an orally active small molecule alpha-4 integrin inhibitor in Phase 2 clinical trials.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Under terms of the agreement, we paid UCB an upfront payment of $30.0 million and agreed to make development milestone payments to UCB for the first indication of up to $93.0 million, with total milestone payments of up to $71.3 million payable for any additional indications. We will also pay UCB up to $75.0 million in commercialization milestones and will contribute significantly to clinical costs for Phase 2 and Phase 3 studies. All commercialization costs and profits will be shared equally. The $30.0 million upfront payment was recorded as research and development expense in 2006.
Facet Biotech (Formerly PDL BioPharma, Inc.)
In August 2005, we entered in a collaborative agreement with PDL BioPharma, Inc., or PDL, for the joint development, manufacture and commercialization of three Phase 2 antibody products. In 2008, PDL spun off the research and development component of its business into a newly created public entity called Facet Biotech. Our collaboration agreement now resides with Facet Biotech (Facet). Under this agreement, we and Facet will share in the development and commercialization of Daclizumab in MS and indications other than transplant and respiratory diseases, and the development and commercialization of M200, or volociximab, and HuZAF, or fontolizumab, in all indications. Fontolizumab was discontinued during 2006. Both companies will share equally the costs of all development activities and all operating profits from each collaboration product within the U.S. and Europe. We paid Facet a non-refundable upfront licensing fee of $40.0 million for these product candidates, which we concluded had no alternative future uses and was therefore included in research and development expenses in 2005. We also accrued $10.0 million in research and development expense in 2005 for future payments that were determined to be unavoidable. The terms of the collaborative agreement require us to make certain development and commercialization milestone payments upon the achievement of certain program objectives totaling up to $660.0 million over the life of the agreement, of which $560.0 million relates to development, and $100.0 million relates to the commercialization of collaboration products.
In addition to the collaborative agreement, we purchased approximately $100.0 million of common stock, or 3.5% of its common stock, from Facet. We recorded an impairment charge of $18.3 million during 2006 to reflect an other than temporary impairment in the value of the stock we own. In 2007, we sold our entire investment in Facet for $99.5 million, resulting in a gain of $17.2 million.
Sunesis
In December 2002, we entered into a collaboration agreement with Sunesis Pharmaceuticals, Inc., or Sunesis, related to the discovery and development of oral therapeutics for the treatment of inflammatory and autoimmune diseases. In August 2004, we entered into a collaborative agreement with Sunesis to discover and develop small molecule cancer therapeutics targeting primarily kinases. Under the agreement, we acquired exclusive licenses to develop and commercialize certain compounds resulting from the collaboration. Upon signing the agreement, we paid Sunesis a non-refundable upfront license fee of $7.0 million, which was recorded in research and development expenses in 2004. During 2005, we recorded $1.0 million to research and development expense for milestones achieved through the collaboration with Sunesis, of which $0.5 million was paid to Sunesis in 2005. We have committed to paying Sunesis additional amounts upon the completion of certain future research milestones and first and second indication development milestones. If all the milestones were to be achieved based on our plan of research, we would be required to pay up to an additional $302.0 million to Sunesis, excluding royalties.
Under the terms of the agreements, we purchased approximately 4.2 million shares of preferred stock of Sunesis for $20.0 million and, in September 2005, we purchased $5.0 million of common stock of Sunesis as part of their initial public offering, or IPO. At the time of the IPO, our preferred stock was converted into shares of Sunesis common stock and, based on the IPO valuation, we wrote-down the value of our investment in Sunesis by $4.6 million as we had determined that the impairment was other than temporary. Following the IPO, we owned approximately 2.9 million shares, or 9.9% of the common stock. We recorded impairment charges of $4.9 million, $7.4 million and $7.2 million during 2008, 2007, and 2006, respectively, to reflect an other than temporary
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
impairments in the value of the stock we own. We now hold a total of 2.9 million shares of Sunesis, representing 8% of total shares outstanding. Our investment in Sunesis is included in investments and other assets and has a fair value of $0.9 million at December 31, 2008.
Vernalis
In June 2004, we entered into a collaborative research and development agreement with Vernalis plc, or Vernalis, aimed at advancing research into Vernalis’ adenosine A2A receptor antagonist program, which targets Parkinson’s disease and other central nervous system disorders. Under the agreement, we received exclusive worldwide rights to develop and commercialize Vernalis’ lead compound, BIIB014, formerly V2006. We paid Vernalis an initial license fee of $10.0 million in July 2004, which was recorded in research and development expenses in 2004. Terms of the collaborative agreement may require us to make milestone payments upon the achievement of certain program objectives and pay royalties on future sales, if any, of commercial products resulting from the collaboration. In June 2004, we made an investment of $5.5 million through subscription for approximately 6.2 million new Vernalis common shares, representing 4.19% of Vernalis’ post-financing issued share capital, and committed to purchase an additional $4.0 million in the event of future Vernalis financing. In March 2005, we purchased approximately 1.4 million additional shares under a qualified offering for $1.8 million, which fully satisfies our investment obligation to Vernalis. We paid development milestones of $3.0 million in 2006. If all the milestones were to be achieved, we would be required to pay up to an additional $85.0 million, excluding royalties, over the remaining life of the agreement. We account for our investment in Vernalis using the cost method of accounting, subject to periodic review of impairment. In 2008 and 2007, we recorded an impairment charge of $0.5 million and $6.3 million, respectively, representing an other than temporary impairment in the stock we own. We now hold a total of approximately 7.6 million shares of Vernalis, representing 2% of total shares outstanding. Our investment in Vernalis is included in investments and other assets and has a fair value of $0.3 million at December 31, 2008.
MPM
In May 2006, we became a limited partner in MPM Bioventures IV- Strategic Fund, LP, a limited partnership that invests in entities that are engaged in the research, development, manufacture, marketingand/or sale of novel biological products or technologies. Due to our percentage of ownership, we account for our investment in this fund under the equity method of accounting. We have committed to contribute up to $10.0 million to the LP and made an initial contribution of $1.1 million to the LP. Through December 31, 2008, we have contributed $3.7 million into the LP, which is included in investments and other assets in our consolidated balance sheets.
In February 2006, we became a limited partner in MPM Bioventures IV-QP, LP, a limited partnership that invests in entities that are engaged in the research, development, manufacture, marketingand/or sale of novel biological products or technologies. Due to our percentage of ownership, we account for our investment in this fund under the cost method of accounting. We have committed to contribute up to $10.0 million to the LP and made an initial contribution of $1.0 million to the LP. Through December 31, 2008, we have contributed $5.2 million into the LP, which is included in investments and other assets in our consolidated balance sheets.
In May 2004, we entered into a limited partnership agreement as a limited partner with MPM Bioventures III GP, LP, to create MPM Bioventures Strategic Fund, LP, or the Strategic Fund. The purpose of the Strategic Fund is to make, manage, and supervise investments in biotechnology companies with novel products or technologies that fit strategically with Biogen Idec. Due to our percentage of ownership, we account for our investment in this fund under the equity method of accounting. The Strategic Fund takes only minority positions in the equity of its investments, and does not seek to engage inday-to-day management of the entities. In February 2006, we adjusted our commitment to the Strategic Fund to approximately $32.0 million over a three-year period. Through December 31, 2008, we contributed $25.4 million to the Strategic Fund.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In April 2004, we became a limited partner in MPM Bioventures III-QP, LP, a limited partnership that invests in entities that are engaged in the research, development, manufacture, marketingand/or sale of novel biological products or technologies. Due to our percentage of ownership, we account for our investment in this fund under the cost method of accounting. We have committed to contribute $4.0 million to the LP. Through December 31, 2008, we have contributed $3.9 million into the LP, which is included in investments and other assets in our consolidated balance sheets.
Vetter
In August 2003, Biogen, Inc. entered into a collaboration agreement with Vetter Pharma-Fertigung GmbH & Co. KG, or Vetter, for the fill-finish of our products, including liquid AVONEX and TYSABRI. As of December 31, 2007, we have made milestone payments to Vetter of 35.0 million euros in return for its reserving certain manufacturing capacity for us at its fill-finish facility. Under the terms of the agreement, these payments will reduce payments due on our future purchases of inventory from Vetter over a seven-year period, which commenced in 2007. During 2008 and 2007, we consumed approximately $6.5 million and $5.6 million, respectively, of this asset. Accordingly, as of December 31, 2008, we have recorded $8.4 million and $21.9 million of these payments in other current assets and in investments and other assets, respectively, in our consolidated balance sheets. The related portion of the asset will be reclassified to inventory when purchases from Vetter are made.
Schering
In June 1999, we entered into a collaboration and license agreement with Schering AG, aimed at the development and commercialization of ZEVALIN. Under the terms of the agreement, we may receive milestone and research and development support payments totaling up to $47.5 million, subject to the attainment of product development objectives. Schering AG received exclusive marketing and distribution rights to ZEVALIN outside the U.S., and we will continue to receive royalties on product sales by Schering AG. Under the terms of a separate supply agreement, we are obligated to meet Schering AG’s clinical and commercial requirements for ZEVALIN. Schering AG may terminate these agreements for any reason. Under the above agreement, amounts earned by us and recognized as revenue for contract research and development approximate the research and development expenses incurred under the related agreement. Although in December 2007, we sold our rights to market, sell, manufacture and develop ZEVALIN in the U.S., we still participate in this agreement and we are reimbursed by CTI for our costs incurred in fulfilling our obligation.
Targeted
We had previous agreements that have expired with Targeted Genetics Corporation, or Targeted, for gene therapy and research. We have no ongoing commitments with respect to Targeted. In connection with the expired agreements, however, we acquired shares of Targeted. In 2005, we recognized $9.2 million for impairments of our Targeted investment that was determined to beother-than-temporary. In 2006, we received one million shares of Targeted and $0.5 million in cash in exchange for forgiveness of $5.7 million of debt owed by Targeted to us. We recorded a gain of $3.4 million upon receipt of the shares and the cash payment. As a result of the transactions, as of December 31, 2006, we owned 19.9% of the outstanding shares of Targeted. We account for our investment in Targeted using the cost method. During 2008, we recorded an impairment charge of $2.9 million related to Targeted and at December 31, 2008, we held 2.2 million shares, representing 11% of the outstanding shares, with a fair market value of $0.5 million. This amount is included in investments and other assets on our consolidated balance sheet.
| |
17. | Unconsolidated Joint Business Arrangement |
We have a collaboration with Genentech Inc., or Genentech, that was created and operates by agreement rather than through a joint venture or other legal entity. Our rights under the terms of our amended and restated
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
collaboration agreement with Genentech include co-exclusive rights to develop, commercialize and market RITUXAN in the United States and Canada with Genentech. Genentech has the exclusive right to develop, commercialize and market RITUXAN in the rest of the world. We have assigned our rights to develop, commercialize and market RITUXAN in Canada to F. Hoffman-La Roche Ltd., or Roche. Genentech shares a portion of the pretax U.S. co-promotion profits with us and Roche shares a portion of the pretax Canadian co-promotion profits of RITUXAN with us.
In the U.S., we contribute resources to selling and the continued development of RITUXAN. Genentech is responsible for worldwide manufacturing of RITUXAN. Genentech also is responsible for the primary support functions for the commercialization of RITUXAN in the U.S. including selling and marketing, customer service, order entry, distribution, shipping and billing. Genentech also incurs the majority of continuing development costs for RITUXAN. Under the arrangement, we have a limited sales force as well as limited development activity.
Under the terms of separate sublicense agreements between Genentech and Roche, Roche is responsible for commercialization of RITUXAN outside the U.S., except in Japan where RITUXAN isco-promoted by Zenyaku and Chugai. There is no direct contractual arrangement between us, Roche, Zenyaku or Chugai.
Revenues from unconsolidated joint business consists of (1) our share of pretax co-promotion profits in the U.S. and Canada and (2) royalty revenue from sales of RITUXAN outside the U.S. and Canada by Roche, Zenyaku and Chugai. 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.
Under the amended and restated collaboration agreement, our current pretax co-promotion profit-sharing formula, which resets annually, is as follows:
| | | | |
Co-promotion Operating Profits
| | Biogen Idec’s Share of Co-promotion Profits | |
|
First $50 million | | | 30 | % |
Greater than $50 million | | | 40 | % |
In 2008, 2007 and 2006, the 40% threshold was met during the first quarter. For each calendar year or portion thereof following the approval date of the first New Anti-CD20 Product, the pretax co-promotion profit-sharing formula for RITUXAN and New Anti-CD20 Products sold by us and Genentech will change to the following:
| | | | | | |
| | First New Anti-CD20 Product U.S.
| | Biogen Idec’s Share
| |
Co-promotion Operating Profits
| | Gross Product Sales
| | of Co-promotion Profits | |
|
First $50 million(1) | | N/A | | | 30 | % |
Greater than $50 million | | Until such sales exceed $150 million | | | 38 | % |
| | in any calendaryear(2) | | | | |
| | Or | | | | |
| | After such sales exceed $150 million | | | 35 | % |
| | in any calendar year and until such sales exceed $350 million in any calendaryear(3) | | | | |
| | Or | | | | |
| | After such sales exceed $350 million | | | 30 | % |
| | in any calendaryear(4) | | | | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | |
(1) | | not applicable in the calendar year the first New Anti-CD20 Product is approved if $50 million in co-promotion operating profits has already been achieved in such calendar year through sales of RITUXAN. |
|
(2) | | if we are recording our share of RITUXAN co-promotion profits at 40%, upon the approval date of the first New Anti-CD20 Product, our share of co-promotion profits for RITUXAN and the New Anti-CD20 Product will be immediately reduced to 38% following the approval date of the first New Anti-CD20 Product until the $150 million in first New Anti-CD20 Product sales level is achieved. |
|
(3) | | if $150 million in first New Anti-CD20 Product sales is achieved in the same calendar year the first New Anti-CD20 Product receives approval, then the 35% co-promotion profit-sharing rate will not be effective until January 1 of the following calendar year. Once the $150 million in first New Anti-CD20 Product sales level is achieved then our share ofco-promotion profits for the balance of the year and all subsequent years’ (after the first $50 million in co-promotion operating profits in such years) will be 35% until the $350 million in first New Anti-CD20 Product sales level is achieved. |
|
(4) | | if $350 million in new product sales is achieved in the same calendar year that $150 million in new product sales is achieved, then the 30% co-promotion profit-sharing rate will not be effective until January 1 of the following calendar year (or January 1 of the second following calendar year if the first New Anti-CD20 Product receives approval and, in the same calendar year, the $150 million and $350 million in first New Anti-CD20 Product sales levels are achieved). Once the $350 million in first New Anti-CD20 Product sales level is achieved then our share of co-promotion profits for the balance of the year and all subsequent years will be 30%. |
Currently, we record our share of expenses incurred for the development of New Anti-CD20 Products in research and development expense until such time as a New Anti-CD20 Product is approved, at which time we will record our share of pretax co-promotion profits related to the New Anti-CD20 Product in revenues from unconsolidated joint business. We record our royalty and co-promotion profits revenue on sales of RITUXAN outside the U.S. on a cash basis. Under the amended and restated collaboration agreement, we will receive lower royalty revenue from Genentech on sales by Roche and Zenyaku of New Anti-CD20 Products, as compared to royalty revenue received on sales of RITUXAN. The royalty period with respect to all products is 11 years from the first commercial sale of such product on acountry-by-country basis.
The amended and restated collaboration agreement provides that, upon the occurrence of a Biogen Idecchange-in-control as described in the agreement, within 90 days of thatchange-in-control, Genentech may present an offer to us to purchase our rights to RITUXAN. We must then accept Genentech’s offer or purchase Genentech’s rights to RITUXAN for an amount proportioned (using the profit sharing ratio between us) to Genentech’s offer. If Genentech presents such an offer in such a situation, then Genentech will be deemed concurrently to have exercised a right, in exchange for a royalty on net sales in the U.S. of any New Anti-CD20 Products or Third Party Anti-CD20 Products developed under the agreement, to purchase our interest in each such product. As discussed in Note 19, Litigation, Genentech asserted for the first time in 2006 that the November 2003 transaction in which Idec acquired Biogen and became Biogen Idec was a change of control under the Collaboration Agreement. We strongly disagree that the Merger was a change of control, but if it was, our position is that Genentech’s rights under thechange-in-control provision in the Collaboration Agreement have long since expired.
Concurrent with the original collaboration agreement, we also entered into an expression technology license agreement with Genentech (for a proprietary gene expression technology developed by us) and a preferred stock purchase agreement providing for certain equity investments in us by Genentech (see Note 20, Shareholders’ Equity).
Under the terms of separate agreements with Genentech, commercialization of RITUXAN outside the U.S. is the responsibility of Roche, except in Japan where RITUXAN isco-promoted by Zenyaku and Chugai. We receive royalties from Genentech on sales by Roche, Zenyaku and Chugai of RITUXAN outside the U.S., and Canada. Revenue on sales of RITUXAN in Canada are received directly from Roche. Under our amended and restated collaborative agreement with Genentech, we will receive lower royalty revenue from Genentech on sales by Roche
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and Zenyaku of New Anti-CD20 Products and only for the first 11 years from the date of first commercial sale of such New Anti-CD20 Products.
Total revenues from unconsolidated joint business consist of the following (in millions):
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Co-promotion profits in the U.S. | | $ | 733.5 | | | $ | 616.8 | | | $ | 555.8 | |
| Reimbursement of selling and development expenses in the U.S. | | | 59.7 | | | | 58.5 | | | | 61.1 | |
| Revenue on sales of RITUXAN outside the U.S. | | | 335.0 | | | | 250.8 | | | | 194.0 | |
| | | | | | | | | | | | | |
| | | $ | 1,128.2 | | | $ | 926.1 | | | $ | 810.9 | |
| | | | | | | | | | | | | |
Revenue on sales of RITUXAN outside the U.S. consists of our share ofco-promotion profits in Canada and royalty revenue on sales of RITUXAN outside the U.S. and Canada. The royalty period with respect to all products is 11 years from the first commercial sale of such product on a country by country basis. RITUXAN was launched in 1998 in most European countries and in 2001 in Japan. Therefore, we expect a significant decrease in royalty revenues on sales of RITUXAN outside the US beginning in the latter half of 2009. Specifically, the royalty period with respect to sales in France, Spain, Germany and the United Kingdom will expire in 2009. As a result, royalty revenue is expected to be in the range of $250.0 million to $290.0 million in 2009. The royalty period with respect to sales in Italy will expire in 2010. The royalty period with respect to sales in other countries will expire through 2012.
In 2008, under the terms of our collaboration agreement, we paid Genentech $31.5 million to participate in a license agreement with Roche for the development of a Third Party Anti-CD20 Product. This was recorded as research and development cost in our consolidated statement of operations as the product had no alternative future use. In addition, in 2008 we received $12.4 million from Genentech pursuant to Roche choosing to participate in a study of RITUXAN in primary-progressive multiple sclerosis. This was recorded as revenue from unconsolidated joint business in our consolidated statement of operations.
| |
18. | Commitments and Contingencies |
Leases
In November 2008, we entered into an agreement with a real estate developer for the construction and leasing of a 356,000 square foot office building in Weston, MA. The construction of the building is to commence in 2009, and the completion of the building is slated for 2010. The lease term is from 2010 through 2025, and we have options to extend the term of the lease through 2035. We will account for this lease as an operating lease.
We rent laboratory and office space and certain equipment under noncancellable operating leases. The rental expense under these leases, which terminate at various dates through 2015, amounted to $36.0 million in 2008, $33.1 million in 2007, and $26.2 million in 2006. The lease agreements contain various clauses for renewal at our option and, in certain cases, escalation clauses typically linked to rates of inflation.
At December 31, 2008, minimum rental commitments under noncancellable leases for each of the next five years and total thereafter were as follows (in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2009 | | | 2010 | | | 2011 | | | 2012 | | | 2013 | | | Thereafter | | | Total | |
| |
| Minimum lease payments | | $ | 36.4 | | | $ | 36.2 | | | $ | 33.2 | | | $ | 26.9 | | | $ | 27.1 | | | $ | 246.6 | | | $ | 406.4 | |
| Income from subleases | | | 5.0 | | | | 2.2 | | | | — | | | | — | | | | — | | | | — | | | | 7.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net minimum lease payments | | $ | 31.4 | | | $ | 34.0 | | | $ | 33.2 | | | $ | 26.9 | | | $ | 27.1 | | | $ | 246.6 | | | $ | 399.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Construction Commitments
As of December 31, 2008, we have completed the first phase of construction of our large-scale biologic manufacturing facility in Hillerød, Denmark, which included partial completion of a bulk manufacturing component, a labeling and packaging component, and installation of major equipment. We are proceeding with the second phase of the project, including the completion of the large scale bulk manufacturing component and construction of a warehouse. As of December 31, 2008, we had contractual commitments of approximately $14.5 million for the second phase. This second phase of the project is expected to be ready for commercial production in 2010.
Along with several other major pharmaceutical and biotechnology companies, Biogen, Inc. (now Biogen Idec MA, Inc., one of our wholly-owned subsidiaries) or, in some cases, Biogen Idec Inc., was named as a defendant in lawsuits filed by the City of New York and numerous Counties of the State of New York. All of the cases — except for cases filed by the County of Erie, County of Oswego and County of Schenectady (the “Three County Actions”) — are the subject of a Consolidated Complaint (“Consolidated Complaint”), first filed on June 15, 2005 in the U.S. District Court for the District of Massachusetts in Multi-District Litigation No. 1456 (“the MDL proceedings”). The complaints allege that the defendants (i) fraudulently reported the Average Wholesale Price for certain drugs for which Medicaid provides reimbursement (“Covered Drugs”); (ii) marketed and promoted the sale of Covered Drugs to providers based on the providers’ ability to collect inflated payments from the government and Medicaid beneficiaries that exceeded payments possible for competing drugs; (iii) provided financing incentives to providers to over-prescribe Covered Drugs or to prescribe Covered Drugs in place of competing drugs; and (iv) overcharged Medicaid for illegally inflated Covered Drugs reimbursements. Among other things, the complaints allege violations of New York state law and advance common law claims for unfair trade practices, fraud, and unjust enrichment. In addition, the amended Consolidated Complaint alleges that the defendants failed to accurately report the “best price” on the Covered Drugs to the Secretary of Health and Human Services pursuant to rebate agreements, and excluded from their reporting certain discounts and other rebates that would have reduced the “best price.” With respect to the MDL proceedings, some of the plaintiffs’ claims were dismissed, and the parties, including Biogen Idec, began a mediation of the outstanding claims on July 1, 2008. We have not formed an opinion that an unfavorable outcome is either “probable” or “remote” in any of these cases, and do not express an opinion at this time as to their likely outcome or as to the magnitude or range of any potential loss. We believe that we have good and valid defenses to each of these complaints and are vigorously defending against them.
Along with several other major pharmaceutical and biotechnology companies, we were also named as a defendant in a lawsuit filed by the Attorney General of Arizona in the Superior Court of the State of Arizona and transferred to the MDL proceedings. The complaint, as amended on March 13, 2007, is brought on behalf of Arizona consumers and other payors for drugs, and alleges that the defendants violated the state consumer fraud statute by fraudulently reporting the Average Wholesale Price for certain drugs covered by various private and public insurance mechanisms and by marketing these drugs to providers based on the providers’ ability to collect inflated payments from third-party payors. Biogen Idec and other defendants have filed a motion to dismiss the complaint, which is pending. On December 26, 2007, Biogen Idec and other defendants agreed to a mediation, which is now underway. We have not formed an opinion that an unfavorable outcome is either “probable” or “remote,” and do not express an opinion at this time as to the likely outcome of the matter or as to the magnitude or range of any potential loss. We believe that we have good and valid defenses to the complaint and intend vigorously to defend the case.
On June 17, 2006, Biogen Idec filed a Demand for Arbitration against Genentech, Inc. with the American Arbitration Association (“AAA”), which Demand was amended on December 5, 2006 and on January 29, 2008. In the Demand, Biogen Idec alleged that Genentech breached the parties’ Amended and Restated Collaboration Agreement dated June 19, 2003 (the “Collaboration Agreement”), by failing to honor Biogen Idec’s contractual
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
right to participate in strategic decisions affecting the parties’ joint development and commercialization of certain pharmaceutical products, including humanized anti-CD20 antibodies. Genentech filed an Answering Statement in response to Biogen Idec’s Demand in which Genentech denied that it had breached the Collaboration Agreement and alleged that Biogen Idec had breached the Collaboration Agreement. In its Answering Statement, filed in 2006, Genentech also asserted for the first time that the November 2003 transaction in which Idec Pharmaceuticals acquired Biogen and became Biogen Idec was a change of control under the Collaboration Agreement, a position with which we disagree strongly. It is our position that the Biogen Idec merger did not constitute a change of control under the Collaboration Agreement and that, even if it did, Genentech’s rights under the change of control provision, which must be asserted within ninety (90) days of the change of control event, have long since expired. We intend to vigorously assert that position if Genentech persists in making this claim. The hearing has concluded and we anticipate a decision in mid-2009. We have not formed an opinion that an unfavorable outcome is either “probable” or “remote,” and do not express an opinion at this time as to the likely outcome of the matter or as to the magnitude or range of any potential loss. We believe that we have good and valid defenses to Genentech’s allegations in the arbitration and intend vigorously to defend against these allegations.
On September 12, 2006, the Massachusetts Department of Revenue (“DOR”) issued a notice of assessment against Biogen Idec MA, Inc. for $38.9 million of corporate excise tax for 2002, which includes associated interest and penalties. On December 6, 2006, we filed an abatement application with the DOR, seeking abatements for2001-2003. The abatement application was denied on July 24, 2007. On July 25, 2007, we filed a petition with the Massachusetts Appellate Tax Board, seeking abatements of corporate excise tax for2001-2003 and adjustments in certain credits and credit carryforwards for2001-2003. Issues before the Board include the computation of Biogen Idec MA’s sales factor for2001-2003, computation of Biogen Idec MA’s research credits for those same years, and the availability of deductions for certain expenses and partnership flow-through items. We intend to contest this matter vigorously. We believe that the assessment does not impact the level of liabilities for income tax contingencies.
On October 4, 2004, Genentech, Inc. received a subpoena from the U.S. Department of Justice requesting documents related to the promotion of RITUXAN. We market RITUXAN in the U.S. in collaboration with Genentech. Genentech has disclosed that it is cooperating with the associated investigation, and that it has been advised the investigation is both civil and criminal in nature. We are cooperating with the U.S. Department of Justice in its investigation of Genentech. The potential outcome of this matter and its impact on us cannot be determined at this time.
On August 10, 2004, Classen Immunotherapies, Inc. filed suit against us, GlaxoSmithKline, Chiron Corporation, Merck & Co., Inc., and Kaiser-Permanente, Inc. in the U.S. District Court for the District of Maryland contending that we induced infringement of U.S. Patent Nos, 6,420,139, 6,638,739, 5,728,383, and 5,723,283, all of which are directed to various methods of immunization or determination of immunization schedules. All counts asserted against us by Classen were dismissed by the District Court, and the judgment in our favor was affirmed by the U.S. Court of Appeals for the Federal Circuit on December 19, 2008. The plaintiff has filed a petition for rehearing en banc, which is pending. We have not formed an opinion that an unfavorable outcome is either “probable” or “remote,” and do not express an opinion at this time as to the likely outcome of the matter or as to the magnitude or range of any potential loss. We believe that we have good and valid defenses to the plaintiff’s allegations and intend to continue to vigorously defend against these allegations.
In January 2008, the European Commission (“EC”) began an industry-wide antitrust inquiry into competitive conditions within the pharmaceutical sector. As part of the inquiry, the EC requested information from approximately 100 companies, including Biogen Idec. The EC published a preliminary report in November 2008 and has announced that it expects to publish a final report in the spring of 2009. The potential outcome of this matter and its impact on us cannot be determined at this time.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On October 27, 2008, Sanofi-Aventis Deutschland GmbH (“Sanofi”) filed suit against Genentech and Biogen Idec in federal court in Texas (E.D. Tex.) claiming that Rituxan and certain other Genentech products infringe U.S. Patents 5,849,522 (the “ ‘522 patent”) and 6,218,140 (the ‘‘‘140 patent”). Sanofi seeks preliminary and permanent injunctions, compensatory and exemplary damages, and other relief. On October 27, 2008, Genentech and Biogen Idec filed a complaint against Sanofi, Sanofi-Aventis U.S. LLC, and Sanofi-Aventis U.S. Inc. in federal court in California (N.D. Cal.) seeking a declaratory judgment that Rituxan and other Genentech products do not infringe the ‘522 patent or the ‘140 patent, and a declaratory judgment that those patents are invalid. In addition, on October 24, 2008, Hoechst GmbH filed with the ICC International Court of Arbitration (Paris) a request for arbitration against Genentech, relating to a terminated agreement between Hoechst’s predecessor and Genentech that pertained to the above-referenced patents and related patents outside the U.S. Hoechst is seeking payment of royalties on sales of Genentech products, damages for breach of contract, and other relief. We have not formed an opinion that an unfavorable outcome is either “probable” or “remote,” and do not express an opinion at this time as to the likely outcome of the matters or 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 against us.
In addition, we are 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 conditions.
Preferred Stock
Preferred stock was comprised of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2008 | | | December 31, 2007 | |
| | | Authorized | | | Issued | | | Outstanding | | | Authorized | | | Issued | | | Outstanding | |
| |
| Series A Preferred Stock | | | 1,750 | | | | 8 | | | | 8 | | | | 1,750 | | | | 8 | | | | 8 | |
| Series X Junior Participating Preferred Stock | | | 1,000 | | | | — | | | | — | | | | 1,000 | | | | — | | | | — | |
| Undesignated | | | 5,250 | | | | — | | | | — | | | | 5,250 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 8,000 | | | | 8 | | | | 8 | | | | 8,000 | | | | 8 | | | | 8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
We have 8,000,000 shares of Preferred Stock authorized, of which 1,750,000 shares have been designated as Series A Preferred Stock and 1,000,000 shares have been designated as Series X Junior Participating Preferred Stock. The balance 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 stock certificate. 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. As of December 31, 2008 and 2007, there were 8,221 shares of Series A Preferred Stock issued and outstanding. These shares carry a liquidation preference of $67 and are convertible into 60 shares of common stock per share of Preferred Stock. No other shares of Preferred Stock are issued and outstanding as of December 31, 2008 and 2007.
Stockholder Rights Plan
In January 2009, our Board of Directors voted to terminate our stockholders rights plan effective as of January 30, 2009. The plan was scheduled to expire on July 26, 2011 and was originally adopted by the Board of Directors in 1997. Under the rights plan, each share of our common stock had one “right” attached to it that entitled
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the holder to purchase our Series X Junior Participating Preferred Stock under the circumstances specified in the rights plan. As a result of our Board of Director’s action, no rights are outstanding or exercisable.
Stock Repurchase Programs
In October 2004,2009, our Board of Directors authorized the repurchase of up to $1.0 billion of our common stock with repurchased shares being retired. This repurchase program does not have an expiration date. As of December 31, 2009, approximately 8.8 million shares at a cost of $422.4 million were repurchased under this
F-31
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
authorization, all of which were retired. From January 1, 2010 through February 5, 2010, we repurchased approximately an additional 5.4 million shares under this program at a total cost of approximately $289.4 million, all of which were also retired. Approximately $288.2 million remains available for the repurchase of our common stock under the 2009 program.
In October 2006, our Board of Directors authorized the repurchase of up to 20.0 million shares of our common stock. TheAs of December 31, 2009, all shares under this program have been repurchased stock will provide us with treasury shares for general corporate purposes, such as common stock to be issued under our employee equity and stock purchase plans. This repurchase program expired October 4, 2006. During 2006, we repurchased 7.5 million shares at a cost of $320.3 million. During 2005, we repurchased 7.5 million shares at a cost of $324.3 million.
In October 2006, our Board of Directors authorized the repurchase of up to an additional 20.0approximately 7.2 million shares of our common stock. Thestock were repurchased stock will provide us with treasury sharesin 2009 for general corporate purposes, such as common stock to be issued under our employee equity and stock purchase plans. This repurchase program does not have an expiration date. We repurchasedapproximately $328.8 million. In 2008, approximately 12.8 million shares of our common stock for $738.9 million under the share repurchase program as of December 31, 2008. Subsequent to December 31, 2008, wewere repurchased an additional 1.2 million shares for a cost of $57.6 million and have approximately 6.0 million shares remaining available for repurchase under this program.program for approximately $738.9 million.
ReclassificationReclassifications
The adoption of a newly issued accounting standard for noncontrolling interests on January 1, 2009, changed the accounting and reporting for our minority interests by recharacterizing them as noncontrolling interests and classifying them as a separate component of total shareholders’ equity in our accompanying consolidated balance sheets and consolidated statements of shareholders’ equity. Additionally, net income attributable to noncontrolling interest is now shown separately from net income in the consolidated statements of income. As a result, prior year amounts related to noncontrolling interest have been reclassified to conform to the current year presentation. This reclassification had no effect on our previously reported financial position or results of operations.
In the year ended December 31, 2008, we reclassified amounts within theour consolidated statement of shareholder’sshareholders’ equity, resulting in an approximately $78.6 million correction in Additional Paid-in Capital and Retained Earnings (Accumulated Deficit) balances in connection with the re-issuance of treasury stock at a loss.
In the year ended December 31, 2007 we reclassified amounts within theour consolidated statements of stockholders equity, resulting in an approximately $48.0 million correction in the treasury stock and common stock balances.
| |
21.11. | Tender OfferEarnings per Share |
On June 27, 2007, pursuant toBasic and diluted earnings per share are calculated as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net income attributable to Biogen Idec Inc. | | $ | 970.1 | | | $ | 783.2 | | | $ | 638.2 | |
| Adjustment for net income allocable to preferred shares | | | (1.7 | ) | | | (1.3 | ) | | | (1.0 | ) |
| | | | | | | | | | | | | |
| Net income used in calculating basic and diluted earnings per share | | $ | 968.4 | | | $ | 781.9 | | | $ | 637.2 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | | | 287.4 | | | | 292.3 | | | | 315.8 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Stock options and employee stock purchase plan | | | 0.6 | | | | 1.3 | | | | 2.6 | |
| Restricted stock awards | | | — | | | | 0.1 | | | | 0.5 | |
| Time-vested restricted stock units | | | 1.4 | | | | 1.3 | | | | 1.1 | |
| Performance-vested restricted stock units | | | 0.1 | | | | — | | | | — | |
| Convertible promissory notes due 2019 | | | — | | | | — | | | | 0.2 | |
| Convertible promissory notes due 2032 | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Dilutive potential common shares | | | 2.1 | | | | 2.7 | | | | 4.4 | |
| | | | | | | | | | | | | |
| Shares used in calculating diluted earnings per share | | | 289.5 | | | | 295.0 | | | | 320.2 | |
| | | | | | | | | | | | | |
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following amounts were not included in the termscalculation of net income per basic and diluted share because their effects were anti-dilutive:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Numerator: | | | | | | | | | | | | |
| Net income allocable to preferred stock | | $ | 1.7 | | | $ | 1.3 | | | $ | 1.0 | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Stock options | | | 8.5 | | | | 6.9 | | | | 8.2 | |
| Time-vested restricted stock units | | | 2.1 | | | | 1.5 | | | | 0.1 | |
| Performance-vested restricted stock units | | | 0.2 | | | | — | | | | — | |
| Convertible preferred stock | | | 0.5 | | | | 0.5 | | | | 0.5 | |
| | | | | | | | | | | | | |
| Total | | | 11.3 | | | | 8.9 | | | | 8.8 | |
| | | | | | | | | | | | | |
Earnings per share for the year ended December 31, 2009 reflects, on a tender offer, we accepted for payment 56,424,155weighted average basis, the repurchase of 16.0 million shares of our common stock under our 2009 and 2006 share repurchase programs.
As a result of our 2007 tender offer, earnings per share for the year ended December 31, 2007 reflects, on a weighted average basis, the repurchase of 56.4 million shares as of June 27, 2007, the date the obligation was incurred, in accordance with accounting standards for earning per share.
Share-based Compensation Expense
The following table summarizes share-based compensation expense included within our consolidated statements of income:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Research and development | | $ | 60.8 | | | $ | 59.9 | | | $ | 51.7 | |
| Selling, general and administrative | | | 106.4 | | | | 93.8 | | | | 76.1 | |
| | | | | | | | | | | | | |
| Subtotal | | $ | 167.2 | | | $ | 153.7 | | | $ | 127.8 | |
| Capitalized share-based compensation costs | | | (6.3 | ) | | | (7.5 | ) | | | (4.7 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in total costs and expenses | | $ | 160.9 | | | $ | 146.2 | | | $ | 123.1 | |
| Income tax effect | | | (49.4 | ) | | | (45.4 | ) | | | (37.5 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in net income attributable to Biogen Idec Inc. | | $ | 111.5 | | | $ | 100.8 | | | $ | 85.6 | |
| | | | | | | | | | | | | |
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our share-based compensation programs include stock options, time-vested restricted stock units, performance-vested restricted stock units, restricted stock and shares issued under our ESPP. The following table summarizes share-based compensation expense associated with each of these programs:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Stock options | | $ | 21.6 | | | $ | 20.0 | | | $ | 30.7 | |
| Time-vested restricted stock units | | | 133.7 | | | | 125.6 | | | | 75.2 | |
| Performance-vested restricted stock units | | | 4.6 | | | | 1.1 | | | | 5.0 | |
| Restricted stock awards | | | — | | | | 0.5 | | | | 11.7 | |
| Employee stock purchase plan | | | 7.3 | | | | 6.5 | | | | 5.2 | |
| | | | | | | | | | | | | |
| Subtotal | | $ | 167.2 | | | $ | 153.7 | | | $ | 127.8 | |
| Capitalized share-based compensation costs | | | (6.3 | ) | | | (7.5 | ) | | | (4.7 | ) |
| | | | | | | | | | | | | |
| Share-based compensation expense included in total costs and expenses | | $ | 160.9 | | | $ | 146.2 | | | $ | 123.1 | |
| | | | | | | | | | | | | |
Windfall tax benefits from vesting of stock awards, exercises of stock options and ESPP participation were $3.4 million, $28.0 million, and $69.7 million in 2009, 2008, and 2007, respectively. These amounts have been calculated under the alternative transition method in accordance with U.S. GAAP.
As of December 31, 2009, unrecognized compensation cost related to unvested share-based compensation was approximately $178.1 million, net of estimated forfeitures. We expect to recognize the cost of these unvested awards over a weighted-average period of 1.4 years.
Share-based Compensation Plans
We have three share-based compensation plans pursuant to which awards are currently being made: (1) the Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan (2006 Directors Plan); (2) the Biogen Idec Inc. 2008 Omnibus Equity Plan (2008 Omnibus Plan); and (3) the Biogen Idec Inc. 1995 Employee Stock Purchase Plan (ESPP). We have six share-based compensation plans pursuant to which outstanding awards have been made, 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, Inc. 1987 Scientific Board Stock Option Plan; (v) the Biogen Idec Inc. 2003 Omnibus Equity Plan (2003 Omnibus Plan); and (vi) 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 options, shares of restricted stock awards, 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 850,000 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.
F-34
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 options, shares of restricted stock awards, 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 the 2005 Omnibus Plan on the date that our stockholders approved the 2008 Omnibus Plan, plus shares that are subject to awards under the 2005 Omnibus 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.
Stock Options
All stock option grants to employees are for a ten-year term and generally vest one-fourth per year over four years on the anniversary of the date of grant, provided the employee remains continuously employed with us. Stock option grants to directors are for ten-year terms and generally vest as follows: (1) grants made on the date of a director’s initial election to our Board of Directors vest one-third per year over three years on the anniversary of the date of grant, and (2) grants made 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. Options granted under all plans are exercisable at a price of $53.00 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 option grants awarded in 2009, 2008, and 2007 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, | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Expected option life (in years) | | | 4.7 | | | | 5.1 | | | | 4.9 | |
| Expected stock price volatility | | | 39.3 | % | | | 34.4 | % | | | 33.6 | % |
| Risk-free interest rate | | | 1.9 | % | | | 2.4 | % | | | 4.4 | % |
| Expected dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Per share grant-date fair value | | $ | 18.00 | | | $ | 20.85 | | | $ | 18.78 | |
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.
F-35
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of stock option activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Exercise
| |
| (In thousands, except weighted average exercise price) | | Shares | | | Price | |
| |
| Outstanding at December 31, 2006 | | | 25,106 | | | $ | 47.96 | |
| | | | | | | | | |
| Granted | | | 1,470 | | | $ | 51.23 | |
| Exercised | | | (10,524 | ) | | $ | 44.84 | |
| Cancelled | | | (1,152 | ) | | $ | 53.97 | |
| | | | | | | | | |
| Outstanding at December 31, 2007 | | | 14,900 | | | $ | 50.03 | |
| | | | | | | | | |
| Granted | | | 1,475 | | | $ | 60.23 | |
| Exercised | | | (3,769 | ) | | $ | 41.99 | |
| Cancelled | | | (506 | ) | | $ | 55.70 | |
| | | | | | | | | |
| Outstanding at December 31, 2008 | | | 12,100 | | | $ | 53.53 | |
| | | | | | | | | |
| Granted | | | 1,031 | | | $ | 49.96 | |
| Exercised | | | (637 | ) | | $ | 40.16 | |
| Cancelled | | | (1,664 | ) | | $ | 60.74 | |
| | | | | | | | | |
| Outstanding at December 31, 2009 | | | 10,830 | | | $ | 52.88 | |
| | | | | | | | | |
Of the options outstanding, 8.3 million were exercisable as of December 31, 2009. The exercisable options had a weighted-average exercise price of $52.80. The aggregate intrinsic value of options exercisable as of December 31, 2009 was $45.2 million. The weighted average remaining contractual term for options exercisable as of December 31, 2009 was 3.8 years.
A total of 10.3 million vested and expected to vest options were outstanding as of December 31, 2009. These vested and expected to vest options had a weighted average exercise price of $52.87 and an aggregated intrinsic value of $51.0 million. The weighted average remaining contractual term of vested and expected to vest options as of December 31, 2009 was 4.6 years.
The total intrinsic values of options exercised in 2009, 2008, and 2007, were $6.7 million, $85.1 million, and $226.7 million, respectively. The aggregate intrinsic values of options outstanding as of December 31, 2009 was $52.8 million. The weighted average remaining contractual term for options outstanding as of December 31, 2009 was 4.8 years.
A summary of the amount of tax benefit realized for stock options and cash received from the exercise of stock options is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Tax benefit realized for stock options | | $ | 1.5 | | | $ | 28.0 | | | $ | 72.4 | |
| Cash received from the exercise of stock options | | $ | 25.2 | | | $ | 158.3 | | | $ | 471.0 | |
F-36
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Time-Vested Restricted Stock Units
Time-vested restricted stock units (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.
A summary of RSU activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| (In thousands, except weighted average grant date fair value) | | Shares | | | Fair Value | |
| |
| Unvested at December 31, 2006 | | | 2,508 | | | $ | 44.48 | |
| | | | | | | | | |
| Granted | | | 3,387 | | | $ | 51.19 | |
| Vested | | | (845 | ) | | $ | 44.58 | |
| Forfeited | | | (458 | ) | | $ | 47.38 | |
| | | | | | | | | |
| Unvested at December 31, 2007 | | | 4,592 | | | $ | 49.12 | |
| | | | | | | | | |
| Granted | | | 3,129 | | | $ | 58.42 | |
| Vested | | | (1,645 | ) | | $ | 47.93 | |
| Forfeited | | | (499 | ) | | $ | 53.95 | |
| | | | | | | | | |
| Unvested at December 31, 2008 | | | 5,577 | | | $ | 54.26 | |
| | | | | | | | | |
| Granted | | | 2,674 | | | $ | 48.93 | |
| Vested | | | (2,421 | ) | | $ | 52.08 | |
| Forfeited | | | (445 | ) | | $ | 53.02 | |
| | | | | | | | | |
| Unvested at December 31, 2009 | | | 5,385 | | | $ | 52.72 | |
| | | | | | | | | |
F-37
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Performance-Vested Restricted Stock Units
A summary of performance-vested restricted stock units (PVRSUs) activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| (In thousands, except weighted average grant date fair value) | | Shares | | | Fair Value | |
| |
| Unvested at December 31, 2006 | | | 411 | | | $ | 41.62 | |
| | | | | | | | | |
| Granted | | | 120 | | | $ | 51.55 | |
| Vested | | | (357 | ) | | $ | 41.76 | |
| Forfeited | | | (54 | ) | | $ | 40.67 | |
| | | | | | | | | |
| Unvested at December 31, 2007 | | | 120 | | | $ | 51.55 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (27 | ) | | $ | 49.33 | |
| Forfeited | | | (3 | ) | | $ | 49.33 | |
| | | | | | | | | |
| Unvested at December 31, 2008 | | | 90 | | | $ | 52.29 | |
| | | | | | | | | |
| Granted | | | 325 | | | $ | 49.42 | |
| Vested | | | (30 | ) | | $ | 52.29 | |
| Forfeited | | | (97 | ) | | $ | 51.30 | |
| | | | | | | | | |
| Unvested at December 31, 2009 | | | 288 | | | $ | 49.39 | |
| | | | | | | | | |
2009 Grant Activity
We apply a graded vesting expense methodology when accounting for the PVRSUs issued in 2009. In 2009, approximately 325,000 PVRSUs were granted with a weighted average grant date fair value of $49.42 per share.
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.
2007 Grant Activity
In 2007, our Board of Directors awarded a total of 120,000 PVRSUs to Dr. Cecil Pickett, our former President, Research and Development. Vesting of these PVRSUs was subject to certain performance criteria established at the beginning of each of four performance periods, beginning January 1 on each of 2007, 2008, 2009 and 2010, and Dr. Pickett’s continued employment through the end of the respective performance periods. In February 2008, a total of 27,000 shares were issued based upon the attainment of performance criteria set for 2007. An additional
F-38
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
30,000 shares were issued in February 2009 based on the attainment of performance criteria set for 2008. No additional shares were issued to Dr. Pickett in 2009, 2008 and 2007. Dr. Pickett retired from the position of President, Research and Development effective October 5, 2009. Accordingly, no additional PVRSUs awarded to Dr. Pickett will vest or be issued. Expense previously recognized in relation to unvested awards was reversed in 2009.
Prior Period Grant Activity
In the first quarter of 2006, our Board of Directors awarded 100,000 PVRSUs to our CEO, under the 2005 Omnibus Plan, subject to certain 2006 financial performance criteria. In February 2007, our Board of Directors determined that the performance criteria had been attained and that 100,000 PVRSUs would convert into shares of our common stock. A total of 58,250 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes.
In the third quarter of 2005, we granted 1.2 million PVRSUs, to be settled in shares of our common stock, to a group of approximately 200 senior employees excluding our CEO. On September 14, 2006, 758,262 shares vested for which 510,859 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes. On March 14, 2007, 258,387 shares vested based on the level of performance versus the pre-established goals, for which a total of 172,054 shares were issued, reflecting the fact that certain shares were withheld for income tax purposes. No other shares vested in relation to this 2005 grant.
Restricted Stock Awards
In 2005, we awarded restricted common stock to our employees under the 2005 Omnibus Plan and the 2003 Omnibus Plan. The restricted stock awards (RSAs) granted under the 2003 Omnibus Plan vested in full on the third anniversary of the date of grant for employees that remained continuously employed with us through the vesting dates. The RSAs granted under the 2005 Omnibus Plan vested at a rate of approximately one-third per year over three years on the anniversary of the date of grant for employees that remained continuously employed with us through the vesting dates.
The fair value of all time-vested RSAs 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. All awards of restricted stock were fully vested as of December 31, 2008.
A summary of RSA activity is presented in the following table:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| (In thousands, except weighted average grant date fair value) | | Shares | | | Fair Value | |
| |
| Unvested at December 31, 2006 | | | 1,247 | | | $ | 53.64 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (713 | ) | | $ | 44.10 | |
| Forfeited | | | (79 | ) | | $ | 59.64 | |
| | | | | | | | | |
| Unvested at December 31, 2007 | | | 455 | | | $ | 67.54 | |
| | | | | | | | | |
| Granted | | | — | | | $ | — | |
| Vested | | | (454 | ) | | $ | 67.54 | |
| | | | | | | | | |
| Forfeited | | | (1 | ) | | $ | 67.57 | |
| | | | | | | | | |
| Unvested at December 31, 2008 | | | — | | | $ | — | |
| | | | | | | | | |
F-39
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ESPP
The purchase price of $2,990.5 million. Ascommon stock under the obligationESPP is equal to 85% of $2,990.5 million was incurredthe lower of (1) the market value per share of the common stock on June 27, 2007 and fundedthe participant’s entry date into an offering period or (2) the market value per share of the common stock on July 2, 2007, pursuant to Statementthe purchase date. However, for each participant whose entry date is other than the start date of Financial Accounting Standards No. 150,Accounting for Certain Financial Instruments with Characteristicsthe offering period, the amount shall in no event be less than the market value per share of both Liabilities and Equity, or SFAS 150, we recorded the presentcommon stock as of the beginning of the related offering period. The fair value of the obligation of $2,988.2 million on June 27, 2007, anddiscounted purchases made under the $2.3 million difference betweenemployee stock purchase plan are calculated using the presentBlack-Scholes model. The fair value of the obligation and funded amount waslook-back provision plus the 15% discount is recognized as interest expense.compensation expense over the purchase period. We fundedapply a graded vesting approach since our ESPP provides for multiple purchase periods and is, in substance, a series of linked awards.
The table below provides a summary of shares issued under our ESPP for 2009, 2008 and 2007, respectively:
| | | | | | | | | | | | | |
| | | For The Years Ended December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Shares issued under ESPP | | | 0.6 | | | | 0.5 | | | | 0.5 | |
| Cash received under ESPP | | $ | 22.6 | | | $ | 21.3 | | | $ | 18.2 | |
| |
| 13. | Accumulated Other Comprehensive Income (Loss) |
Accumulated other comprehensive income (loss) consisted of the tender offer through existing cash and cash equivalentsfollowing:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Translation adjustments | | $ | 35.6 | | | $ | 17.0 | |
| Unrealized gains on securites available for sale | | | 11.3 | | | | 10.5 | |
| Unrealized gains (losses) on foreign currency forward contracts | | | 1.5 | | | | (40.2 | ) |
| Unfunded status of pension and postretirement benefit plans | | | 2.1 | | | | 1.6 | |
| | | | | | | | | |
| Accumulated other comprehensive income (loss) | | $ | 50.5 | | | $ | (11.1 | ) |
| | | | | | | | | |
Unrealized holding gains on securities available for sale is shown net of $1,490.5tax of $(6.6) million and $1,500.0$(6.2) million borrowed underas of December 31, 2009 and 2008, respectively. Unrealized gains (losses) on foreign currency forward contracts is shown net of tax of $0.3 million, and $3.9 million as of December 31, 2009 and 2008, respectively. The unfunded status of pension and retirement benefit plans is shown net of tax as of December 31, 2009 and 2008. Tax amounts in both years were immaterial. See Note 15,Employee Benefit Plansto our short-term loan facilityConsolidated Financial Statements for discussion of unfunded status of pension and retirement benefit plans.
Amounts comprising noncontrolling interests, as describedreported in Note 8, Indebtedness. We retired allour consolidated statements of these sharesequity as of December 31, 2009 and 2008 included accumulated translation adjustments of $2.4 million and $1.2 million, respectively.
Comprehensive income (loss) and its components are presented in July 2007. In connection with this retirement, in accordance with our policy, we recorded an approximately $2,991 million reduction in treasury stock and additionalpaid-in-capital.the consolidated statements of shareholders’ equity.
F-59F-40
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
22.14. | Other Consolidated Financial Statement Detail |
Other Income (Expense), Net
Components of other income (expense), net, are summarized as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Interest income | | $ | 48.5 | | | $ | 72.1 | | | $ | 103.6 | |
| Interest expense | | | (35.8 | ) | | | (52.0 | ) | | | (40.5 | ) |
| Impairment on investments | | | (10.6 | ) | | | (60.3 | ) | | | (24.4 | ) |
| Gain (loss) on sales of investments, net | | | 22.8 | | | | (1.1 | ) | | | 16.7 | |
| Foreign exchange gains (losses), net | | | 11.4 | | | | (9.8 | ) | | | 3.0 | |
| Gain on the sale of property | | | — | | | | — | | | | 7.1 | |
| Other, net | | | 1.0 | | | | (6.6 | ) | | | 6.9 | |
| | | | | | | | | | | | | |
| Other income (expense), net | | $ | 37.3 | | | $ | (57.7 | ) | | $ | 72.4 | |
| | | | | | | | | | | | | |
Interest Expense
In 2009, we incurred interest costs of $69.7 million. This amount was reduced by $28.5 million because we capitalized interest related to the construction of our large scale manufacturing facility in Hillerød, Denmark. In addition, in 2009, approximately $5.4 million was recorded as a reduction due to the amortization of the deferred gain associated with the termination of an interest rate swap in December 2008.
In 2008, we incurred interest costs of $66.3 million. This amount was reduced by $23.2 million of capitalized interest on the manufacturing facility in Hillerød, Denmark. In addition, we incurred approximately $8.9 million of expenses related to hedge ineffectiveness on interest rate swaps executed in March 2008.
In 2007, we incurred interest costs of $50.6 million, which were reduced by $10.1 million of capitalized interest on the manufacturing facility in Hillerød, Denmark.
Impairment on Investments
In April 2009, we implemented newly issued accounting standards which provided guidance for recognition and presentation ofother-than-temporary impairments. The adoption of the guidance did not have a material impact on our financial position or results of operations; however, this standard amended theother-than-temporary impairment model for marketable debt securities. The impairment model for equity securities was not affected. Refer to Note 7,Financial Instruments to our Consolidated Financial Statements for additional information on the adoption of this guidance.
In 2009, we recognized impairment losses of $7.0 million on our strategic investments and non-marketable securities. In addition, during 2008 and 2007, we recognized $18.6 million and $18.4 million, respectively, in charges for the impairment of strategic investments and non-marketable securities that were determined to beother-than-temporary.
In 2009, we recognized $3.6 million in charges for theother-than-temporary impairment on marketable debt securities. For 2008 and 2007, we recognized $41.7 million and $7.5 million, respectively, in charges for theother-than-temporary impairment of marketable debt securities primarily related to mortgage and asset-backed securities.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reclassification
The adoption of a new issued accounting standard for noncontrolling interests on January 1, 2009, changed the accounting and reporting for our minority interests by recharacterizing them as noncontrolling interest. Prior year amounts related to noncontrolling interest, historically reflected as a component of other income (expense), net, have been reclassified to conform to current year presentation. Amounts previously reported as minority interest are now shown separately from net income in the accompanying consolidated statements of income and total $6.9 million, $6.9 million, and $(58.4) million for the years ended December 31, 2009, 2008 and 2007, respectively. This reclassification had no effect on our previously reported financial position or results of operations. Refer to Note 10,Shareholders’ Equityto our Consolidated Financial Statements for additional information on the adoption of this guidance.
Other Current Assets
Other current assets consist of the following:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Deferred tax assets | | $ | 88.8 | | | $ | 70.8 | |
| Receivable from collaborations | | | 5.3 | | | | 1.7 | |
| Prepaid expenses | | | 52.6 | | | | 46.4 | |
| Interest receivable | | | 10.6 | | | | 11.8 | |
| Other | | | 20.6 | | | | 8.7 | |
| | | | | | | | | |
| Other current assets | | $ | 177.9 | | | $ | 139.4 | |
| | | | | | | | | |
Property, Plant and Equipment, net
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, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Land | | $ | 111.2 | | | $ | 108.8 | |
| Buildings | | | 669.7 | | | | 676.1 | |
| Leasehold improvements | | | 73.1 | | | | 80.1 | |
| Furniture and fixtures | | | 50.7 | | | | 48.1 | |
| Machinery and equipment | | | 868.2 | | | | 798.5 | |
| Construction in progress | | | 506.7 | | | | 420.2 | |
| | | | | | | | | |
| Total cost | | $ | 2,279.6 | | | $ | 2,131.8 | |
| | | | | | | | | |
| Less: accumulated depreciation | | | (642.5 | ) | | | (537.0 | ) |
| | | | | | | | | |
| Property, plant and equipment, net | | $ | 1,637.1 | | | $ | 1,594.8 | |
| | | | | | | | | |
In 2009, 2008, and 2007, we capitalized to construction in progress approximately $28.4 million, $23.2 million and $10.1 million, respectively, of interest costs primarily related to the development of our large-scale biologic manufacturing facility in Hillerød, Denmark.
As of December 31, 2009 and 2008, the construction in progress balance related to the construction of our large-scale biologic manufacturing facility in Hillerød, Denmark totaled $441.2 million and $388.4 million, respectively.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Depreciation expense is summarized as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Depreciation expense | | $ | 137.9 | | | $ | 129.1 | | | $ | 122.6 | |
Accrued Expenses and Other
Accrued expenses and other consists of the following:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Employee compensation and benefits | | $ | 123.7 | | | $ | 156.0 | |
| Royalties and licensing fees | | | 41.8 | | | | 40.6 | |
| Collaboration expenses | | | 35.7 | | | | 29.6 | |
| Clinical development expenses | | | 43.2 | | | | 41.5 | |
| Revenue-related rebates | | | 52.0 | | | | 37.7 | |
| Construction in progress accrual | | | 12.8 | | | | 18.6 | |
| Other | | | 191.6 | | | | 210.9 | |
| | | | | | | | | |
| Accrued expenses and other | | $ | 500.8 | | | $ | 534.9 | |
| | | | | | | | | |
Gain on Sale of Property, Plant and Equipment, net
In 2008, as part of the lease agreement described in Note 18,Commitments and Contingenciesto our Consolidated Financial Statements, we sold the development rights on a parcel of land in Cambridge, MA for $11.4 million in a non-monetary transaction and we recorded a pre-tax gain of approximately $9.2 million on the sale.
| |
| 15. | Employee Benefit Plans |
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. 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 current matching contributions will vest immediately. Previously, the matching contributions vested over four years of service by the employee. 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.
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Expense related to our 401(k) Savings Plan | | $ | 27.9 | | | $ | 22.8 | | | $ | 20.2 | |
Deferred Compensation Plan
We maintain a non-qualified deferred compensation plan, known as the Supplemental Savings Plan (SSP), that 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
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
under such plan as of December 31, 2009 and 2008 totaled approximately $63.6 million and $48.5 million, respectively, and are included in other long-term liabilities in the accompanying 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, the Restoration Match and transition contributions vested over four and seven years of service, respectively, by the employee. Participant contributions vest immediately. Distributions to participants can be either in one lump sum payment or annual installments as elected by the participants.
Pension Plan
We currently maintain retiree benefit plans which include, a defined benefit plan for employees in our German affiliate and other insignificant defined benefit plans in certain other countries in which we have an operating presence.
The obligations under the German plan totaled $5.7 million and $4.8 million as of December 31, 2009 and 2008, respectively.
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Net periodic pension cost related to the German plan | | $ | 1.1 | | | $ | 1.0 | | | $ | 1.3 | |
Income Tax Expense
Income before income tax provision and the income tax expense consist of the following:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Income before income taxes (benefit): | | | | | | | | | | | | |
| Domestic | | $ | 1,073.8 | | | $ | 829.2 | | | $ | 664.9 | |
| Foreign | | | 258.9 | | | | 326.7 | | | | 187.3 | |
| | | | | | | | | | | | | |
| Total | | $ | 1,332.7 | | | $ | 1,155.9 | | | $ | 852.2 | |
| | | | | | | | | | | | | |
| Income tax expense (benefit): | | | | | | | | | | | | |
| Current | | | | | | | | | | | | |
| Federal | | $ | 439.9 | | | $ | 431.2 | | | $ | 305.9 | |
| State | | | 3.1 | | | | 24.3 | | | | 25.8 | |
| Foreign | | | 50.0 | | | | 49.8 | | | | 22.3 | |
| | | | | | | | | | | | | |
| Total | | $ | 493.0 | | | $ | 505.3 | | | $ | 354.0 | |
| | | | | | | | | | | | | |
| Deferred | | | | | | | | | | | | |
| Federal | | $ | (94.8 | ) | | $ | (119.2 | ) | | $ | (76.7 | ) |
| State | | | (39.0 | ) | | | (20.0 | ) | | | (4.4 | ) |
| Foreign | | | (3.6 | ) | | | (0.3 | ) | | | (0.5 | ) |
| | | | | | | | | | | | | |
| Total | | $ | (137.4 | ) | | $ | (139.5 | ) | | $ | (81.6 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total income tax expense | | $ | 355.6 | | | $ | 365.8 | | | $ | 272.4 | |
| | | | | | | | | | | | | |
F-44
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred Tax Assets and Liabilities
Significant components of our deferred tax assets and liabilities are summarized as follows:
| | | | | | | | | |
| | | As of December 31, | |
| (In millions) | | 2009 | | | 2008 | |
| |
| Tax credits | | $ | 35.2 | | | $ | 11.0 | |
| Inventory, deferred revenue and other reserves | | | 166.4 | | | | 90.4 | |
| Capitalized costs | | | 8.7 | | | | 36.6 | |
| Intangibles, net | | | 83.2 | | | | 89.6 | |
| Net operating loss | | | 30.5 | | | | 33.1 | |
| Share-based compensation | | | 60.8 | | | | 59.9 | |
| Other | | | 60.6 | | | | 57.9 | |
| | | | | | | | | |
| Deferred tax assets | | $ | 445.4 | | | $ | 378.5 | |
| | | | | | | | | |
| Purchased intangible assets | | $ | (475.4 | ) | | $ | (552.7 | ) |
| Unrealized gain on investments and cumulative translation adjustment | | | (6.3 | ) | | | (2.3 | ) |
| Depreciation, amortization and other | | | (115.6 | ) | | | (108.7 | ) |
| | | | | | | | | |
| Deferred tax liabilities | | $ | (597.3 | ) | | $ | (663.7 | ) |
| | | | | | | | | |
Tax Rate
Reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In percentages) | | 2009 | | | 2008 | | | 2007 | |
| |
| Statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
| State taxes | | | (0.1 | ) | | | 1.6 | | | | 3.2 | |
| Taxes on foreign earnings | | | (5.0 | ) | | | (5.8 | ) | | | (8.1 | ) |
| Credits and net operating loss utilization | | | (3.8 | ) | | | (2.9 | ) | | | (3.3 | ) |
| Purchased intangible assets | | | 2.0 | | | | 3.7 | | | | 3.7 | |
| IPR&D | | | — | | | | 0.8 | | | | 0.8 | |
| Permanent items | | | (1.3 | ) | | | (0.9 | ) | | | (0.6 | ) |
| Other | | | (0.1 | ) | | | 0.1 | | | | 1.3 | |
| | | | | | | | | | | | | |
| Effective tax rate | | | 26.7 | % | | | 31.6 | % | | | 32.0 | % |
| | | | | | | | | | | | | |
As of December 31, 2009, we had net operating losses and general business credit carry forwards for federal income tax purposes of approximately $59.3 million and $3.2 million, respectively, which begin to expire in 2020. Additionally, for state income tax purposes, we had net operating loss carry forwards of approximately $195.8 million, which begin to expire in 2010. For state income tax purposes, we also had research and investment credit carry forwards of approximately $49.2 million, of which approximately $46.9 million begin to expire in 2010, with the remainder having no prescribed expiration date.
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
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 our entire deferred tax assets. 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, 2009, undistributed foreign earnings ofnon-U.S. subsidiaries included in consolidated retained earnings aggregated approximately $2.2 billion. We intend to reinvest these earnings indefinitely in operations outside the U.S. It is not practicable to estimate the amount of additional tax that might be payable if such earnings were remitted to the U.S.
Accounting for Uncertainty in Income Taxes
Effective January 1, 2007, we adopted a new accounting standard concerning the accounting for income tax contingencies. This standard clarified the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. As a result of the adoption, we recognized a reduction in the liability for unrecognized tax benefits of $14.2 million, which was recorded as a $1.8 million reduction to the January 1, 2007 balance of our accumulated deficit, a $9.1 million reduction in goodwill and a $3.3 million increase in our deferred tax liability.
A reconciliation of the beginning and ending amount of our unrecognized tax benefits is summarized as follows:
| | | | | | | | | | | | | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Balance at January 1 | | $ | 249.6 | | | $ | 221.1 | | | $ | 196.8 | |
| Additions based on tax positions related to the current period | | | 14.4 | | | | 21.8 | | | | 29.7 | |
| Additions for tax positions of prior periods | | | 77.4 | | | | 20.4 | | | | 83.5 | |
| Reductions for tax positions of prior periods | | | (88.7 | ) | | | (13.7 | ) | | | (70.2 | ) |
| Settlements | | | (105.6 | ) | | | — | | | | (18.7 | ) |
| | | | | | | | | | | | | |
| Balance at December 31 | | $ | 147.1 | | | $ | 249.6 | | | $ | 221.1 | |
| | | | | | | | | | | | | |
We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal tax examination for years before 2007 or state, local, ornon-U.S. income tax examinations by tax authorities for years before 2001.
Included in the balance of unrecognized tax benefits as of December 31, 2009, 2008, and 2007 are $42.8 million, $155.1 million, and $110.5 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 do not anticipate any significant changes in our positions in the next twelve months other than expected settlements which have been classified as current liabilities within the accompanying balance sheet.
We recognize potential interest and penalties accrued related to unrecognized tax benefits in income tax expense. During 2009 we recognized a net interest benefit of approximately $3.1 million. During 2008 and 2007, we recognized approximately $16.1 million and $14.5 million in interest expense, respectively. We have accrued approximately $33.1 million and $47.7 million for the payment of interest as of December 31, 2009 and 2008, respectively.
Contingency
In September 2006, the Massachusetts Department of Revenue (DOR) issued a Notice of Assessment against Biogen Idec MA, Inc. for $38.9 million of corporate excise tax for 2002, which includes associated interest and penalties. The assessment asserts that the portion of sales attributable to Massachusetts, the computation of our
F-46
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
research and development credits, and the availability of certain deductions were not appropriate, resulting in unpaid taxes for those years. In December 2006, we filed an abatement application with the DOR seeking abatements for2001-2003, which was denied. In July 2007, we filed a petition with the Massachusetts Appellate Tax Board seeking abatements of corporate excise tax for2001-2003 and adjustments in certain credits and credit carryforwards for2001-2003. We anticipate that the trial will take place in 2010. In the fourth quarter of 2009, the DOR completed its audit fieldwork of our 2004, 2005 and 2006 tax filings. We believe that the DOR may make an assessment for taxes, interest and penalties claiming that our computation and deductions for these periods were also inappropriate. We believe that positions taken in our tax filings are valid and we have meritorious defenses to the assessment. We will vigorously oppose the assessment through the appeals and litigation process.
Our tax filings for 2007 and 2008 have not yet been audited by the DOR but have been prepared in a manner consistent with prior filings which may result in an assessment for those years. Due to tax law changes effective January 1, 2009, the computations and deductions at issue in previous tax filings will not be part of our tax filings starting in 2009.
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 future effective tax rate and our results of operations.
Settlements
During 2007, the IRS completed its examination of our consolidated federal income tax returns for our fiscal years 2003 and 2004. We subsequently paid amounts related to issues agreed to with the IRS, appealed several other issues and adjusted our income tax contingencies based on the result of the examination.
During 2009, the IRS completed its examination of our consolidated income tax returns for our fiscal years 2005 and 2006. We then reached an agreement to pay an amount to settle all matters related to the 2005 and 2006 years and resolve those matters under appeal related to 2003 and 2004. There are no remaining U.S. federal income tax contingencies for the periods prior to tax year 2007.
During 2009, the California Franchise Tax Board completed its examination of our worldwide income tax returns for fiscal years 2003 through 2007 and issued assessments for each period. We agreed to these assessments and will make payments to settle all matters related to these audits. There are no remaining California income tax contingencies related to the periods prior to tax year 2008.
We have also reached agreement with Arizona concerning our outstanding matters in that state and completed an audit of our transfer pricing in Denmark.
As a result of these 2009 domestic settlements, and completion of the related audits, we have made payments totaling approximately $118.0 million during 2009 and will make payments of approximately $105.0 million in the first half of 2010, which have been accrued as of December 31, 2009. We have also reduced our net unrecognized tax benefits by approximately $123.5 million, of which approximately $28.0 million was recorded as a benefit in our consolidated statement of income in 2009.
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.
Effective January 1, 2009, we adopted a newly issued accounting standard for the accounting and disclosure of an entity’s collaborative arrangements. This newly issued standard prescribes that certain transactions between
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
collaborators be recorded in the income statement on either a gross or net basis, depending on the characteristics of the collaboration relationship, and provides for enhanced disclosure of collaborative relationships. In accordance with this guidance, we must also evaluate our collaborative agreements for proper income statement classification based on the nature of the underlying activity. Amounts due from our collaborative partners related to development activities are generally reflected as a reduction of research and development expense because the performance of contract development services is not central to our operations. For collaborations with commercialized products, if we are the principal (as defined in reporting revenue as a principal versus net as an agent as required by theRevenue RecognitionTopic of the Codification) we record revenue and the corresponding operating costs in their respective line items within our consolidated statements of income. If we are not the principal, we record operating costs as a reduction of revenue. The guidance describes the principal as the party who is responsible for delivering the product or service to the customer, has latitude to determine price, and has the risks and rewards of providing product or service to the customer, including inventory and credit risk. The adoption of this newly issued accounting standard did not impact our financial position or results of operations; however it resulted in enhanced disclosures for our collaboration activities.
Roche Group — Genentech
We collaborate with the Roche Group, through its wholly-owned member Genentech, Inc., on the development and commercialization of RITUXAN. We also have rights to collaborate with Genentech on the development and commercialization of (1) anti-CD20 products that Genentech acquires or develops, which we refer to as New Anti-CD20 Products, and (2) anti-CD20 products that Genentech licenses from a third party, which we refer to as Third Party Anti-CD20 Products. Currently, there is only one New Anti-CD20 Product, ocrelizumab, and only one Third Party Anti-CD20 Product, GA101. Our collaboration rights for New Anti-CD20 Products are limited to the U.S. and our collaboration rights for Third Party Anti-CD20 Products are dependent upon Genentech’s underlying license rights. A joint development committee (JDC) composed of three members from each company must unanimously approve a development plan for each specific indication of certain pharmaceutical products, and Genentech has responsibility for implementing JDC approved development plans in accordance with the provisions of our collaboration agreement. In the event that 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 to RITUXAN on the same terms as its offer. If Genentech presents such an offer, then they will be deemed concurrently to have exercised a right, in exchange for a royalty on net sales in the U.S. of any anti-CD20 product acquired or developed by Genentech or any anti-CD20 product that Genentech licenses from a third party that is developed under the agreement, to purchase our interest in each such product. Our collaboration with Genentech was created through a contractual arrangement and not through a joint venture or other legal entity.
While Genentech is responsible for the worldwide manufacturing of RITUXAN, 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 and New Anti-CD20 Products in the U.S. Although we contribute to the marketing and continued development of RITUXAN, we have a limited sales force dedicated to RITUXAN and limited development activity. Genentech is primarily responsible for the commercialization of RITUXAN in the U.S. Its responsibilities include selling and marketing, customer service, order entry, distribution, shipping and billing, and other administrative support. Genentech also incurs the majority of continuing development costs for RITUXAN.
Canada
We and Genentech have assigned our rights to develop, commercialize and market RITUXAN, in Canada to Roche.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 Roche, development and commercialization of RITUXAN outside the U.S. and Canada is the responsibility of Roche and its sublicensees. We do not have any direct contractual arrangements with Roche or it sublicensees.
Revenues from unconsolidated joint business consists of (1) our share of pretax 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 pretax 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 royalty and co-promotion profits revenue on sales of RITUXAN in the rest of world on a cash basis.
Revenues from unconsolidated joint business consist of the following:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Biogen Idec’s share of co-promotion profits in the U.S. | | $ | 773.6 | | | $ | 733.5 | | | $ | 616.8 | |
| Reimbursement of selling and development expenses in the U.S. | | | 65.6 | | | | 59.7 | | | | 58.5 | |
| Revenue on sales of RITUXAN in the rest of world | | | 255.7 | | | | 335.0 | | | | 250.8 | |
| | | | | | | | | | | | | |
| Total unconsolidated joint business revenues | | $ | 1,094.9 | | | $ | 1,128.2 | | | $ | 926.1 | |
| | | | | | | | | | | | | |
Under the collaboration agreement, our current pretax co-promotion profit-sharing formula, which resets annually, provides for a 30% share of co-promotion profits on the first $50.0 million of co-promotion operating profit with our share increasing to 40% if co-promotion operating profits exceed $50.0 million. In 2009, 2008, and 2007, the 40% threshold was met during the first quarter.
Our agreement with Genentech provides that the successful development and commercialization of the first New Anti-CD20 Product will decrease our percentage of co-promotion profits of the collaboration. Specifically, for each calendar year or portion thereof following the approval date of the first New Anti-CD20 Product, the pretax co-promotion profit-sharing formula for RITUXAN and New Anti-CD20 Products sold by us and Genentech will change as follows:
| | | | | | |
| | First New Anti-CD20 Product
| | Biogen Idec’s Share
|
Co-promotion Operating Profits | | U.S. Gross Product Sales | | of Co-promotion Profits |
|
| First $50 million(1) | | Not Applicable | | | 30 | % |
| Greater than $50 million | | Until such sales exceed $150 million in any calendar year(2) | | | 38 | % |
| | Or | | | | |
| | After such sales exceed $150 million in any calendar year until such sales exceed $350 million in any calendar year(3) | | | 35 | % |
| | Or | | | | |
| | After such sales exceed $350 million in any calendar year(4) | | | 30 | % |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | |
| (1) | | Not applicable in the calendar year the first New Anti-CD20 Product is approved if $50 million in co-promotion operating profits has already been achieved in such calendar year through sales of RITUXAN. |
|
| (2) | | If we are recording our share of RITUXAN co-promotion profits at 40%, upon the approval date of the first New Anti-CD20 Product, our share of co-promotion profits for RITUXAN and the New Anti-CD20 Product will be immediately reduced to 38% following the approval date of the first New Anti-CD20 Product until the $150 million in first New Anti-CD20 Product sales level is achieved. |
|
| (3) | | If $150 million in first New Anti-CD20 Product sales is achieved in the same calendar year the first New Anti-CD20 Product receives approval, then the 35% co-promotion profit-sharing rate will not be effective until January 1 of the following calendar year. Once the $150 million in first New Anti-CD20 Product sales level is achieved then our share of co-promotion profits for the balance of the year and all subsequent years (after the first $50 million in co-promotion operating profits in such years) will be 35% until the $350 million in first New Anti-CD20 Product sales level is achieved. |
|
| (4) | | If $350 million in first New Anti-CD20 Product sales is achieved in the same calendar year that $150 million in new product sales is achieved, then the 30% co-promotion profit-sharing rate will not be effective until January 1 of the following calendar year (or January 1 of the second following calendar year if the first New Anti-CD20 Product receives approval and, in the same calendar year, the $150 million and $350 million in first New Anti-CD20 Product sales levels are achieved). Once the $350 million in first New Anti-CD20 Product sales level is achieved then our share of co-promotion profits for the balance of the year and all subsequent years will be 30%. |
We will participate in Third Party Anti-CD20 Products on similar financial terms as for ocrelizumab.
Currently, we record our share of the expenses incurred by the collaboration for the development of New Anti-CD20 Products and Third Party Anti-CD20 Products in research and development expense in our consolidated statements of income. We incurred $62.5 million, $43.6 million, and $26.1 million in development expense related to New Anti-CD20 Products and Third Party Anti-CD20 Products for the years ended December 31, 2009, 2008, and 2007, respectively. Reimbursement to Genentech for our share of these costs occurs through the net amount of co-promotion profits in the U.S. remitted to us. After a New Anti-CD20 Product or Third Party 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 pretax co-promotion profits in revenues from unconsolidated joint business.
Elan
We collaborate with Elan on the development, manufacture and commercialization of TYSABRI. Under the terms of our collaboration agreement, we manufacture TYSABRI and collaborate with Elan on the product’s marketing, commercial distribution and ongoing development activities. The agreement is 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. As of December 31, 2009, 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. We have recorded these amounts as deferred revenue upon receipt and are recognizing the entire $125.0 million as product revenue in our consolidated statements of income over the term of the collaboration agreement based on a units of revenue method whereby the revenue recognized is 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. Our collaboration agreement provides Elan or us with the option to buy the rights to TYSABRI in the event that the other company undergoes a change of control (as defined in the collaboration agreement).
In the U.S., we sell TYSABRI to Elan who sells the product to third party distributors. Our sales price to Elan in the U.S. is set prior to the beginning of each quarterly period to effect an approximate equal sharing of the gross margin between Elan and us. We recognize revenue for sales in the U.S. of TYSABRI upon Elan’s shipment of the
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
product to the third party distributors, at which time all revenue recognition criteria have been met. As of December 31, 2009 and 2008, we had deferred revenue of $23.6 million and $6.2 million, respectively, for shipments to Elan that remained in Elan’s ending inventory pending shipment of the product to the third party distributors. We incur manufacturing and distribution costs, research and development expenses, commercial expenses, and general and administrative expenses. We record these expenses to their respective line items within our consolidated statements of income when they are incurred. Research and development and sales and marketing expenses are shared equally with Elan and the reimbursement of these expenses is recorded as reductions of the respective expense categories. During the years ended December 31, 2009, 2008 and 2007, we recorded $25.3 million, $23.6 million, and $21.5 million, respectively, as reductions of research and development expense for reimbursements from Elan. In addition, for the years ended December 31, 2009, 2008 and 2007, we recorded $62.5 million, $33.7 million, and $37.9 million, respectively, as reductions of selling, general and administrative expense for reimbursements from Elan.
In the rest of world, we are responsible for distributing TYSABRI to customers and are primarily responsible for all operating activities. Generally, we recognize revenue for sales of TYSABRI in the rest of world at the time of product delivery to our customers. Payments are made to Elan for their share of the rest of world net operating profits to effect an equal sharing of collaboration operating profit. These payments also include the reimbursement for our portion of third-party royalties that Elan pays on behalf of the collaboration relating to rest of world sales. These amounts are reflected in the collaboration profit sharing line in our consolidated statements of income. For the years ended December 31, 2009, 2008 and 2007, $215.9 million, $136.0 million, and $14.1 million, respectively, was reflected in the collaboration profit sharing line for our collaboration with Elan. As rest of world sales of TYSABRI increase, our collaboration profit sharing expense is expected to increase.
Acorda
On June 30, 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. The transaction represents a sublicensing of an existing license agreement between Acorda and Elan. The parties have also entered into a related supply agreement. The $110.0 million upfront payment made on July 1, 2009 to Acorda was recorded as research and development expense during the second quarter 2009 as the product candidate had not received regulatory approval. Fampridine was approved in the U.S. on January 22, 2010 under the trade name AMPYRA (dalfampridine). AMPYRA is indicated to improve walking in patients with MS. This was demonstrated by an increase in walking speed. Acorda is developing and marketing AMPYRA in the U.S.
Under the terms of the agreement, we will commercialize fampridine and any aminopyridine products developed in our territory and will also have responsibility for regulatory activities and future clinical development of fampridine in those markets. We may incur additional milestone payments of up to $400.0 million based upon the successful achievement of regulatory and commercial sales milestones. We will also make tiered royalty payments to Acorda on sales outside of the U.S. The consideration that we pay for products will reflect all amounts due from Acorda to Elan for sales in markets outside the U.S., including royalties owed. We can also carry out future joint development activities under a cost-sharing arrangement.
Elan will continue to manufacture commercial supply of fampridine based upon its existing supply agreement with Acorda. Under the existing agreements with Elan, Acorda will pay Elan 7% of the upfront and milestone payments that Acorda receives from us.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of activity related to this collaboration is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended
| |
| | | December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Upfront and milestones payments made to Acorda | | $ | 110.0 | | | $ | — | | | $ | — | |
| Total expense incurred by Biogen Idec Inc. excluding upfront and milestone payments | | $ | 4.7 | | | $ | — | | | $ | — | |
| Total expense reflected within our consolidated statements of income | | $ | 114.7 | | | $ | — | | | $ | — | |
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:
| | | | | |
| | | As of
|
| | | December 31,
|
| (In millions) | | 2009 |
| |
| Total upfront and milestone payments made to Acorda | | $ | 110.0 | |
| Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments | | $ | 4.7 | |
| Estimate of additional amounts to be incurred by us in development of fampridine | | $ | 45.0 | |
Neurimmune
We have a collaboration agreement with Neurimmune SubOne AG (Neurimmune), a subsidiary of Neurimmune Therapeutics AG, for the development and commercialization of antibodies for the treatment of Alzheimer’s disease. Neurimmune will conduct research to identify potential therapeutic antibodies and we will be responsible for the development, manufacturing and commercialization of all products. We may pay Neurimmune up to $360.0 million in remaining milestone payments, as well as royalties on sales of any resulting commercial products. Milestone payments are reflected within our consolidated statements of income when achieved. The royalty term for sales in each country will be no less than 12 years from the first commercial sale of product using such compound in such country.
We have determined that we are the primary beneficiary of Neurimmune in accordance with the guidance provided by theConsolidationTopic of the Codification because we control the activities of the collaboration and are required to fund 100% of the research and development costs incurred in support of the collaboration agreement. As such, we consolidate the results of Neurimmune and recorded an IPR&D charge of $34.3 million in 2007 upon signing of the collaboration agreement. The amount allocated to IPR&D relates to the development of theBeta-Amyloid antibody compound which, as of the effective date of the agreement, had not reached technological feasibility and had no alternative future use. We allocated the IPR&D charge to noncontrolling interest, as the IPR&D charge represents the fair value of the underlying technology retained by the parent.
The assets and liabilities of Neurimmune are not significant as it is a research and development organization. Amounts that we reimburse Neurimmune for research and development expenses incurred in support of the collaboration are reflected in research and development expense in our statements of income.
A summary of activity related to this collaboration is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Upfront and milestone payments made to Neurimumune | | $ | 7.5 | | | $ | 10.5 | | | $ | 2.0 | |
| Total expense incurred by Biogen Idec Inc. excluding upfront and milestone payments | | $ | 9.0 | | | $ | 5.9 | | | $ | 0.6 | |
| Total expense reflected within our consolidated statements of income | | $ | 16.5 | | | $ | 16.4 | | | $ | 2.6 | |
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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:
| | | | | |
| | | As of
|
| | | December 31,
|
| (In millions) | | 2009 |
| |
| Total upfront and milestone payments made to Neurimumune | | $ | 20.0 | |
| Total development expense incurred by Biogen Idec Inc. excluding upfront and milestone payments | | $ | 15.5 | |
| Estimate of additional amounts to be incurred by us in development of the lead compound | | $ | 530.0 | |
Cardiokine
We collaborate with Cardiokine Biopharma LLC (Cardiokine), a subsidiary of Cardiokine Inc., on the joint development of lixivaptan, an oral compound for the potential treatment of hyponatremia in patients with congestive heart failure. The royalty term under our collaboration agreement for sales in each country will be no less than 10 years from the first commercial sale of a lixivaptan product in such country. If successful, we will be responsible for certain development activities, manufacturing and global commercialization of lixivaptan, and Cardiokine has an option for limitedco-promotion in the U.S. Based upon our current development plans, we may pay up to $125.0 million in remaining development milestone payments as well as royalties on commercial sales under the terms of our collaboration agreement.
We have determined that we are the primary beneficiary of Cardiokine in accordance with the guidance provided by theConsolidationTopic of the Codification because we control the activities of the collaboration and are required to fund 90% of the development costs under the collaboration agreement. As such, we consolidate the results of Cardiokine and recorded an IPR&D charge of $30.0 million in 2007 upon signing the collaboration agreement. The amount allocated to IPR&D relates to the development of the lixivaptan compound which, as of the effective date of the agreement, had not reached technological feasibility and had no alternative future use. We allocated the IPR&D charge to noncontrolling interest, as the IPR&D charge represents the fair value of the underlying technology retained by the parent. The assets and liabilities of Cardiokine are not significant as it is a research and development organization.
A summary of activity related to this collaboration is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| (In millions) | | 2009 | | | 2008 | | | 2007 | |
| |
| Upfront and milestone payments made to Cardiokine | | $ | 20.0 | | | $ | — | | | $ | 50.0 | |
| Total expense incurred by collaboration | | $ | 66.5 | | | $ | 50.5 | | | $ | 17.2 | |
| Biogen Idec Inc.’s share of expense reflected within our consolidated statements of income | | $ | 79.8 | | | $ | 45.5 | | | $ | 65.5 | |
| Collaboration expense allocated to noncontrolling interests, net of tax | | $ | 6.7 | | | $ | 5.0 | | | $ | 1.7 | |
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:
| | | | | |
| | | As of
|
| | | December 31,
|
| (In millions) | | 2009 |
| |
| Total upfront and milestone payments made to Cardiokine | | $ | 70.0 | |
| Total development expense incurred by Biogen Idec Inc. excluding upfront and milestone payments | | $ | 122.8 | |
| Estimate of additional amounts to be incurred by us in development of lixivaptan (all indications) | | $ | 430.0 | |
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Biovitrum
We have a collaboration agreement with Biovitrum to jointly develop and commercialize long-acting recombinant Factor VIII and Factor IX for the treatment of hemophilia. Under the agreement, development costs are shared equally. We have commercial rights to North America and Biovitrum has commercial rights to Europe. Each party shares in the other’s net sales based on a royalty percentage of up to 33.3%. All other territories are to be managed by a third party with us and Biovitrum sharing equally in all royalties, license fees and other revenues arising from arrangements with third party licenses and distributors.
Amounts incurred by us in the development of long-acting recombinant Factor VIII and Factor IX are reflected as research and development expense in our consolidated statements of income, reduced by amounts due from Biovitrum. A summary of collective activity related to these programs is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended
|
| | | December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Total expense incurred by collaboration | | $ | 44.9 | | | $ | 37.7 | | | $ | 26.7 | |
| Total expense reflected within our consolidated statements of income | | $ | 22.5 | | | $ | 18.8 | | | $ | 13.3 | |
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:
| | | | | |
| | | As of
|
| | | December 31,
|
| (In millions) | | 2009 |
| |
| Total upfront and milestone payments received from Biovitrum | | $ | 5.0 | |
| Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments | | $ | 54.6 | |
| Estimate of additional amounts to be incurred by us in development of Factors XIII and IX | | $ | 135.0 | |
Under the agreement, Biovitrum may pay us an additional $18.0 million in milestone payments.
MondoBiotech
In December 2009, pursuant to our agreement with mondoBIOTECH AG and certain of its subsidiaries (Mondobiotech), we notified Mondobiotech that we would terminate our interest in continuing to fund, develop and commercialize Aviptadil, the collaboration’s only product, and have retained the right to receive a percentage of future milestones and royalties received by Mondobiotech from third parties related to the Aviptadil program. In accordance with the terms of the agreement, we made a final payment of $1.25 million in December 2009, bringing total 2009 payments to Mondobiotech to $13.3 million.
We had previously determined that we were the primary beneficiary of Mondobiotech because we were required to fund 100% of the development costs under the terms agreed. As such, we consolidated the results of Mondobiotech. Upon terminating our development interest, we ceased to consolidate the results of Mondobiotech because we no longer were responsible for funding development costs. Therefore, our consolidated financial statements as of December 31, 2009 no longer include the assets and liabilities of Mondobiotech. The assets and liabilities of Mondobiotech previously consolidated within our financial statements were not significant as Mondobiotech is a research and development organization. Expenses incurred by the collaboration were previously reflected in research and development expense in our consolidated statements of income.
F-54
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of activity related to this collaboration is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended
|
| | | December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Total expense incurred by collaboration | | $ | 12.1 | | | $ | 14.4 | | | $ | 13.7 | |
| Total expense reflected within our consolidated statements of income | | $ | 12.1 | | | $ | 14.4 | | | $ | 13.7 | |
A summary of activity related to this collaboration since inception is as follows:
| | | | | |
| | | As of
|
| | | December 31,
|
| (In millions) | | 2009 |
| |
| Total upfront and milestone payments made to Mondobiotech | | $ | 7.5 | |
| Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments | | $ | 42.0 | |
UCB
In June 2009, UCB, S.A., (UCB) and we announced the discontinuation of the Phase 2 clinical trial for this collaboration’s only product candidate due to the absence of clinically relevant efficacy. Since the inception of our collaboration agreement with UCB, we have incurred a total of $101.0 million in research and development expenses for the development and commercialization of an oral alpha4 integrin antagonist for the treatment of relapsing remitting MS.
A summary of activity related to this collaboration is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended
|
| | | December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Total expense incurred by collaboration | | $ | 31.8 | | | $ | 33.6 | | | $ | 34.2 | |
| Biogen Idec Inc., share of expense reflected within our consolidated statements of income | | $ | 21.0 | | | $ | 21.9 | | | $ | 24.2 | |
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:
| | | | | |
| | | As of
| |
| | | December 31,
| |
| (In millions) | | 2009 | |
| |
| Total upfront and milestone payments made to UCB | | $ | 30.0 | |
| Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments | | $ | 71.0 | |
| Estimate of additional amounts to be incurred by us in development of the compound in this indication | | $ | 2.0 | |
Facet Biotech
We have a collaboration agreement with Facet Biotech Corporation (Facet) aimed at advancing the development and commercialization of daclizumab in MS and volociximab in solid tumors. Daclizumab is a humanized monoclonal antibody that binds to the IL-2 receptor on activated T cells. Volociximab is an anti-angiogenic chimeric antibody directed against alpha5 beta1 integrin. Under the agreement, development and commercialization costs and profits are shared equally. We may incur up to an additional $210.0 million of payments upon achievement of development and commercial milestones.
In January 2010, we agreed with our collaborator, Facet, to assume the manufacture of declizumab and began the process of transferring from Facet the manufacturing technology necessary for us to manufacture declizumab.
F-55
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of activity related to this collaboration is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended
|
| | | December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Total expense incurred by collaboration | | $ | 40.8 | | | $ | 65.7 | | | $ | 41.3 | |
| Biogen Idec Inc. share of expense reflected within our consolidated statements of income | | $ | 20.4 | | | $ | 32.8 | | | $ | 20.7 | |
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:
| | | | | |
| | | As of
|
| | | December 31,
|
| (In millions) | | 2009 |
| |
| Total upfront and milestone payments made to Facet | | $ | 50.0 | |
| Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments | | $ | 122.5 | |
| Estimate of additional amounts to be incurred by us in development of current indications of daclizumab and volociximab | | $ | 475.0 | |
Vernalis
We have a collaboration agreement with Vernalis plc (Vernalis) aimed at advancing the development and commercialization of an adenosine A2a receptor antagonist for treatment of Parkinson’s disease. Under the agreement, we received exclusive worldwide rights to develop and commercialize the compound. We are responsible for funding all development costs and may incur up to an additional $85.0 million of milestone payments upon achievement of certain objectives, as well as royalties on commercial sales.
A summary of activity related to this collaboration is as follows:
| | | | | | | | | | | | | |
| | | For the Years Ended
|
| | | December 31, |
| (In millions) | | 2009 | | 2008 | | 2007 |
| |
| Total expense incurred by collaboration and reflected within our consolidated statements of income | | $ | 14.8 | | | $ | 16.9 | | | $ | 9.6 | |
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:
| | | | | |
| | | As of
|
| | | December 31,
|
| (In millions) | | 2009 |
| |
| Total upfront and milestone payments made to Vernalis | | $ | 13.0 | |
| Total development expense incurred by Biogen Idec Inc. excluding upfront and milestone payments | | $ | 69.7 | |
| Estimate of additional amounts to be incurred by Biogen Idec Inc. in development of the compound in this indication | | $ | 225.0 | |
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2008, we held a total of approximately 7.6 million shares of Vernalis. During 2009, due to a reverse stock split, we received one new share for every twenty shares previously owned. As a result, as of December 31, 2009, we held a total of approximately 0.4 million shares of Vernalis. As of December 31, 2009 and 2008, our investment in Vernalis had a fair value of approximately $0.5 million and $0.3 million, respectively.
Our investment in Vernalis, which is included within investments and other assets, is subject to periodic review of impairment. In 2008 and 2007, we recorded an impairment charge of $0.5 million and $6.3 million, respectively, representing another-than-temporary impairment in the stock we own. No impairment was recognized related to this investment during 2009.
| |
| 18. | Commitments and Contingencies |
Leases
We rent laboratory and office space and certain equipment under noncancellable 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, which terminate at various dates through 2025, amounted to $36.4 million in 2009, $36.0 million in 2008, and $33.1 million in 2007.
As of December 31, 2009, minimum rental commitments under noncancellable leases for each of the next five years and total thereafter were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2010 | | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | Thereafter | | | Total | |
| |
| Minimum lease payments(1) | | $ | 33.0 | | | $ | 33.1 | | | $ | 29.9 | | | $ | 29.8 | | | $ | 28.7 | | | $ | 227.3 | | | $ | 381.8 | |
| Income from subleases | | | (0.7 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (0.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net minimum lease payments | | $ | 32.3 | | | $ | 33.1 | | | $ | 29.9 | | | $ | 29.8 | | | $ | 28.7 | | | $ | 227.3 | | | $ | 381.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | | Includes fifteen-year lease on a 356,000 square foot office building in Weston, Massachusetts, which will serve as the future location of our general and administrative offices with a planned occupancy around mid-year 2010. The initial lease term is from 2010 through 2025 under which the total minimum lease payments are $258.6 million. |
Other Funding Commitments
As of December 31, 2009, we have funding commitments of up to approximately $24.8 million in biotechnology oriented venture capital funds.
As of December 31, 2009, we have accrued expenses totaling approximately $31.7 million on our consolidated balance sheet related to clinical research organizations for expenditures incurred in relation to ongoing clinical trials.
Contingent Milestone Payments
Based on our development plans as of December 31, 2009, we have committed to make potential future milestone payments to third parties of up to approximately $1,500.0 million 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 developmental, regulatory or commercial milestones. Because the achievement of these milestones had not occurred as of December 31, 2009, such contingencies have not been recorded in our financial statements.
Along with several other major pharmaceutical and biotechnology companies, Biogen, Inc. (now Biogen Idec MA, Inc., one of our wholly-owned subsidiaries) or, in some cases, Biogen Idec Inc., was named as a defendant in lawsuits filed by the City of New York and numerous Counties of the State of New York. All of the cases — except for
F-57
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
cases filed by the County of Erie, County of Oswego and County of Schenectady (Three County Actions) — are the subject of a Consolidated Complaint, first filed on September 15, 2005 in the U.S. District Court for the District of Massachusetts in Multi-District Litigation No. 1456 (MDL proceedings). The complaints allege that the defendants (i) fraudulently reported (or caused others to report incorrectly) the Average Wholesale Price for certain drugs for which Medicaid provides reimbursement (Covered Drugs); (ii) marketed and promoted the sale of Covered Drugs to providers based on the providers’ ability to collect inflated payments from the government and Medicaid beneficiaries that exceeded payments possible for competing drugs; (iii) provided financing incentives to providers to over-prescribe Covered Drugs or to prescribe Covered Drugs in place of competing drugs; and (iv) overcharged Medicaid for illegally inflated Covered Drugs reimbursements. Among other things, the complaints allege violations of New York state law and advance common law claims for unfair trade practices, fraud, and unjust enrichment. In addition, the amended Consolidated Complaint alleges that the defendants failed to accurately report the “best price” on the Covered Drugs to the Secretary of Health and Human Services pursuant to rebate agreements, and excluded from their reporting certain discounts and other rebates that would have reduced the “best price.” With respect to the MDL proceedings, some of the plaintiffs’ claims were dismissed, and the parties, including Biogen Idec, began a mediation of the outstanding claims on July 1, 2008. We have not formed an opinion that an unfavorable outcome is either “probable” or “remote” in any of these cases, and do not express an opinion at this time as to their likely outcome or as to the magnitude or range of any potential loss. We believe that we have good and valid defenses to each of these complaints and are vigorously defending against them.
In 2006, the Massachusetts Department of Revenue (DOR) issued a notice of assessment against Biogen Idec MA, Inc. for $38.9 million of corporate excise tax with respect to the 2002 tax year, which includes associated interest and penalties. On December 6, 2006, we filed an abatement application with the DOR, seeking abatements for 2001, 2002 and 2003 tax years. The abatement application was denied on July 24, 2007. On July 25, 2007, we filed a petition with the Massachusetts Appellate Tax Board, seeking, among other items, abatements of corporate excise tax for 2001, 2002 and 2003 tax years and adjustments in certain credits and credit carry forwards for 2001, 2002 and 2003 tax years. Issues before the Board include the computation of Biogen Idec MA’s sales factor for 2001, 2002 and 2003 tax years, computation of Biogen Idec MA’s research credits for those same years, and the availability of deductions for certain expenses and partnership flow-through items. We anticipate that the trial will take place in 2010. We intend to contest this matter vigorously.
On October 4, 2004, Genentech, Inc. received a subpoena from the U.S. Department of Justice requesting documents related to the promotion of RITUXAN. We market RITUXAN in the United States in collaboration with Genentech. We cooperated in the government’s investigation. It is our understanding that the government has not taken any action against Genentech as a result of the investigation. We therefore do not expect to report further on this matter.
On October 27, 2008, Sanofi-Aventis Deutschland GmbH (Sanofi) filed suit against Genentech and Biogen Idec in federal court in Texas (E.D. Tex.) (Texas Action) claiming that RITUXAN and certain other Genentech products infringe U.S. Patents 5,849,522 (‘522 patent) and 6,218,140 (‘140 patent). Sanofi seeks preliminary and permanent injunctions, compensatory and exemplary damages, and other relief. On October 27, 2008, Genentech and Biogen Idec filed a complaint against Sanofi, Sanofi-Aventis U.S. LLC, and Sanofi-Aventis U.S., Inc. in federal court in California (N.D. Cal.) (California Action) seeking a declaratory judgment that RITUXAN and other Genentech products do not infringe the ‘522 patent or the ‘140 patent, and a declaratory judgment that those patents are invalid. (Sanofi-Aventis U.S. LLC and Sanofi-Aventis U.S., Inc. were later dismissed voluntarily.) On May 22, 2009, the United States Court of Appeals for the Federal Circuit granted Genentech’s and our petition for a writ of mandamus transferring the Texas Action to the federal court in California, and denied Sanofi’s petition for rehearing on August 10, 2009. The Texas Action has been consolidated with the California Action and we refer to the two actions together as the Consolidated Actions. We have not formed an opinion that an unfavorable outcome in the Consolidated Actions is either “probable” or “remote,” and do not express an opinion at this time as to the likely outcome of the matters or 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 against us.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On October 24, 2008, Hoechst GmbH filed with the ICC International Court of Arbitration (Paris) a request for arbitration against Genentech, relating to a terminated license agreement between Hoechst’s predecessor and Genentech that pertained to the above-referenced patents and related patents outside the U.S. The license was entered as of January 1, 1991 and was terminated by Genentech on October 27, 2008. We understand that Hoechst seeks payment of royalties on sales of Genentech products, including RITUXAN, damages for breach of contract, and other relief. Although we are not a party to the arbitration, any damages awarded to Hoescht based on sales of RITUXAN may be a cost allocable to our collaboration with Genentech. Under the collaboration agreement, we may be responsible for a portion of any such damages. We have not formed an opinion that an unfavorable outcome in the arbitration is either “probable” or “remote,” and do not express an opinion at this time as to the likely outcome of the matter or as to the magnitude or range of any potential loss.
In addition, we are 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 conditions.
We operate in one business segment, which is the business of development, manufacturing and commercialization of novel therapeutics for human healthcare and, therefore, our chief operating decision-maker manages the operations of our Company 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 (in millions):follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | For the Years Ended December 31, | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | | | | Rest of
| | | | | | Rest of
| | | | | | Rest of
| | | | | United
| | Rest of
| | | | United
| | Rest of
| | | | United
| | Rest of
| | | |
| | | US | | World | | Total | | US | | World | | Total | | US | | World | | Total | | |
| (In millions) | | | States | | World | | Total | | States | | World | | Total | | States | | World | | Total | |
| |
| AVONEX | | $ | 1,276.5 | | | $ | 926.1 | | | $ | 2,202.6 | | | $ | 1,085.0 | | | $ | 782.8 | | | $ | 1,867.8 | | | $ | 1,022.2 | | | $ | 684.5 | | | $ | 1,706.7 | | | $ | 1,406.2 | | | $ | 916.7 | | | $ | 2,322.9 | | | $ | 1,276.5 | | | $ | 926.1 | | | $ | 2,202.6 | | | $ | 1,085.0 | | | $ | 782.8 | | | $ | 1,867.8 | |
| AMEVIVE | | | — | | | | 0.3 | | | | 0.3 | | | | 0.3 | | | | 0.4 | | | | 0.7 | | | | 5.0 | | | | 6.5 | | | | 11.5 | | |
| ZEVALIN | | | — | | | | 4.8 | | | | 4.8 | | | | 13.9 | | | | 3.0 | | | | 16.9 | | | | 16.4 | | | | 1.4 | | | | 17.8 | | |
| FUMADERM | | | — | | | | 43.4 | | | | 43.4 | | | | — | | | | 21.5 | | | | 21.5 | | | | — | | | | 9.5 | | | | 9.5 | | |
| TYSABRI | | | 196.4 | | | | 392.2 | | | | 588.6 | | | | 104.4 | | | | 125.5 | | | | 229.9 | | | | 25.9 | | | | 9.9 | | | | 35.8 | | | | 231.8 | | | | 544.2 | | | | 776.0 | | | | 196.4 | | | | 392.2 | | | | 588.6 | | | | 104.4 | | | | 125.5 | | | | 229.9 | |
| Other | | | | — | | | | 54.0 | | | | 54.0 | | | | — | | | | 48.5 | | | | 48.5 | | | | 14.2 | | | | 24.9 | | | | 39.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total product revenues | | $ | 1,472.9 | | | $ | 1,366.8 | | | $ | 2,839.7 | | | $ | 1,203.6 | | | $ | 933.2 | | | $ | 2,136.8 | | | $ | 1,069.5 | | | $ | 711.8 | | | $ | 1,781.3 | | | $ | 1,638.0 | | | $ | 1,514.9 | | | $ | 3,152.9 | | | $ | 1,472.9 | | | $ | 1,366.8 | | | $ | 2,839.7 | | | $ | 1,203.6 | | | $ | 933.2 | | | $ | 2,136.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Our geographic information is summarized as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2008 | | US | | Europe | | Germany | | Asia | | Other | | Total | | |
December 31, 2009 | | | U.S. | | Europe | | Germany | | Asia | | Other | | Total | |
| |
| Product revenues from external customers | | $ | 1,472.9 | | | $ | 822.6 | | | $ | 354.5 | | | $ | 36.5 | | | $ | 153.2 | | | $ | 2,839.7 | | | $ | 1,638.0 | | | $ | 913.7 | | | $ | 374.8 | | | $ | 47.9 | | | $ | 178.5 | | | $ | 3,152.9 | |
| Revenues from unconsolidated joint business | | $ | 793.2 | | | $ | 272.3 | | | $ | — | | | $ | 21.7 | | | $ | 41.0 | | | $ | 1,128.2 | | | $ | 839.2 | | | $ | 190.2 | | | $ | — | | | $ | 24.1 | | | $ | 41.4 | | | $ | 1,094.9 | |
| Other revenues from external customers | | $ | 96.5 | | | $ | 32.8 | | | $ | 0.3 | | | $ | — | | | $ | — | | | $ | 129.6 | | | $ | 102.8 | | | $ | 26.2 | | | $ | 0.5 | | | $ | — | | | $ | — | | | $ | 129.5 | |
| Long-lived assets | | $ | 1,111.2 | | | $ | 658.8 | | | $ | 2.5 | | | $ | 4.2 | | | $ | 1.2 | | | $ | 1,777.9 | | | $ | 1,092.7 | | | $ | 705.6 | | | $ | 1.4 | | | $ | 3.6 | | | $ | 2.1 | | | $ | 1,805.4 | |
In 2008, we recorded revenue from two wholesale distributors accounting for a total of 16.2% and 13.1% of product revenue, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2007 | | US | | Europe | | Germany | | Asia | | Other | | Total | | |
December 31, 2008 | | | U.S. | | Europe | | Germany | | Asia | | Other | | Total | |
| |
| Product revenues from external customers | | $ | 1,203.6 | | | $ | 565.9 | | | $ | 231.1 | | | $ | 4.2 | | | $ | 132.0 | | | $ | 2,136.8 | | | $ | 1,472.9 | | | $ | 822.6 | | | $ | 354.5 | | | $ | 36.5 | | | $ | 153.2 | | | $ | 2,839.7 | |
| Revenues from unconsolidated joint business | | $ | 675.3 | | | $ | 200.2 | | | $ | — | | | $ | 18.1 | | | $ | 32.5 | | | $ | 926.1 | | | $ | 793.2 | | | $ | 272.3 | | | $ | — | | | $ | 21.7 | | | $ | 41.0 | | | $ | 1,128.2 | |
| Other revenues from external customers | | $ | 78.1 | | | $ | 27.0 | | | $ | 0.4 | | | $ | 3.2 | | | $ | — | | | $ | 108.7 | | | $ | 96.5 | | | $ | 32.8 | | | $ | 0.3 | | | $ | — | | | $ | — | | | $ | 129.6 | |
| Long-lived assets | | $ | 1,145.7 | | | $ | 494.9 | | | $ | 2.6 | | | $ | 3.5 | | | $ | 2.0 | | | $ | 1,648.7 | | | $ | 1,111.2 | | | $ | 658.8 | | | $ | 2.5 | | | $ | 4.2 | | | $ | 1.2 | | | $ | 1,777.9 | |
In 2007, we recorded revenue from two wholesale distributors accounting for a total of 19.4% and 15.2% of total product revenue, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2006 | | US | | | Europe | | | Germany | | | Asia | | | Other | | | Total | |
| |
| Product revenues from external customers | | $ | 1,069.5 | | | $ | 455.2 | | | $ | 135.8 | | | $ | 0.4 | | | $ | 120.4 | | | $ | 1,781.3 | |
| Revenues from unconsolidated joint business | | $ | 616.8 | | | $ | 150.2 | | | $ | — | | | $ | 16.7 | | | $ | 27.2 | | | $ | 810.9 | |
| Other revenues from external customers | | $ | 61.4 | | | $ | 18.8 | | | $ | 0.1 | | | $ | 10.5 | | | $ | — | | | $ | 90.8 | |
In 2006, we recorded revenue from one specialty distributor and three wholesale distributors accounting for a total of 15%, 18%, 14%, and 12% of total product revenue, respectively.
Approximately 28%, 29%, and 30% of our total revenues in 2008, 2007, and 2006, respectively, are derived from our joint business arrangement with Genentech (see Note 17, Unconsolidated Joint Business Arrangement). Included in long lived assets in Europe at December 31, 2008 and 2007 is approximately $611.5 million and $480.5 million, respectively, related to our operations in Denmark.
In 2008, we discovered that amounts previously disclosed in our 2007 financial statements forlong-lived assets in the US, Europe, Asia and Other of $1,021.3 million, $1,516.6 million, $3.1 million, and $89.7 million, respectively, inappropriately includedlong-term marketable securities, as well as misclassifications in geographic categories, principally between the US and Europe.
F-60F-59
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2007 | | U.S. | | | Europe | | | Germany | | | Asia | | | Other | | | Total | |
| |
| Product revenues from external customers | | $ | 1,203.6 | | | $ | 565.9 | | | $ | 231.1 | | | $ | 4.2 | | | $ | 132.0 | | | $ | 2,136.8 | |
| Revenues from unconsolidated joint business | | $ | 675.3 | | | $ | 200.2 | | | $ | — | | | $ | 18.1 | | | $ | 32.5 | | | $ | 926.1 | |
| Other revenues from external customers | | $ | 78.1 | | | $ | 27.0 | | | $ | 0.4 | | | $ | 3.2 | | | $ | — | | | $ | 108.7 | |
| Long-lived assets | | $ | 1,145.7 | | | $ | 494.9 | | | $ | 2.6 | | | $ | 3.5 | | | $ | 2.0 | | | $ | 1,648.7 | |
| |
23. | Severance and Other Restructuring Costs |
DuringRevenues from Unconsolidated Joint Business
Approximately 25%, 28%, and 29% of our total revenues in 2009, 2008, we incurred $5.0and 2007, respectively, are derived from our joint business arrangement with Genentech (see Note 17,Collaborationsto our Consolidated Financial Statements).
Significant Customers
We recorded revenue from two wholesale distributors accounting for 17.7% and 12.3% of gross product revenues in 2009, 16.2% and 13.1% of gross product revenues in 2008 and 19.4% and 15.2% of gross product revenues in 2007.
Other
Included in long-lived assets in Europe as of December 31, 2009, 2008 and 2007 is approximately $665.8 million, in restructuring costs, primarily$611.5 million and $480.5 million, respectively, related to the reorganization of our legal structure and the consolidation of certain organizational functions, which are includedoperations in research and development and selling, general and administrative expense. During 2007, we incurred $1.8 million in restructuring costs, primarily related to the Syntonix acquisition and the ZEVALIN divestiture, which are included in selling, general and administrative expense. During 2006, we incurred restructuring costs associated with acquisitions and planned dispositions. Specifically, we incurred $1.2 million in severance costs associated with the acquisition of Conforma, and $1.7 million related in headcount reductions related to the planned disposition of our ZEVALIN product line. At December 31, 2008, there are no material remaining restructuring accruals on our consolidated balance sheets.Denmark.
AtAs of December 31, 2009 and 2008, we did not have nosignificant liabilities recorded for guarantees, as defined by No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34,or FIN 45, as the value of our guarantees are not material.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, 2008.
In connection with the relocation from leased facilities to our research campus in San Diego, California, we entered into a lease assignment, in January 2005, with Tanox West, Inc., or Tanox, for a manufacturing facility in San Diego for which we had outstanding lease obligations through September 2008. This lease has expired2009 and as of December 31, 2008, we have no obligations under this lease.
| |
25. | Facility Impairments and Loss (Gain) on Dispositions |
In 2008, as part of the lease agreement described in Note 18, Commitments and Contingencies, we sold the development rights on a parcel of land in Cambridge, MA for $11.4 million in a non monetary transaction and we recorded a pre-tax gain of approximately $9.2 million on the sale. In December 2006, we completed the sale of a research building at our Cambridge, Massachusetts facility. Proceeds from the sale were approximately $39.5 million. We recorded a pre-tax gain of $15.6 million on the sale. We continue to occupy a minor portion of the building under a leasing arrangement. In April 2006, we sold the worldwide rights and other assets of AMEVIVE for $59.8 million, including $43.7 million of inventory on hand, to Astellas Pharma US, Inc. As of December 31, 2005, our AMEVIVE assets held for sale included $8.0 million, net, related to intangible assets, and $5.4 million of property, plant and equipment, net, and were reported separately in current assets on the consolidated balance sheet. The pre-tax gain on this sale of approximately $2.8 million was deferred and is being recognized over the period of a related long-term supply contract. In February 2006, we sold our clinical manufacturing facility in Oceanside, California, known as NICO. The assets associated with the facility were included in assets held for sale on our consolidated balance sheet as of December 31, 2005. Total consideration was $29.0 million. In 2005, we recorded impairment charges totaling $28.0 million to reduce the carrying value of NICO to its net realizable value. No additional loss resulted from completion of the sale.respectively.
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
26. | Quarterly Financial Data (Unaudited) |
| | | | | | | | | | | | | | | | | | | | | |
| | | First
| | | Second
| | | Third
| | | Fourth
| | | | |
| | | Quarter(e) | | | Quarter | | | Quarter | | | Quarter | | | Total Year | |
| | | (In millions, except per share amounts) | |
| |
2008 | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | $ | 942.2 | | | $ | 993.4 | | | $ | 1,093.0 | | | $ | 1,068.9 | | | $ | 4,097.5 | |
| Product revenue | | | 665.1 | | | | 684.5 | | | | 758.3 | | | | 731.8 | | | | 2,839.7 | |
| Unconsolidated joint business revenue | | | 247.2 | | | | 278.8 | | | | 299.0 | | | | 303.2 | | | | 1,128.2 | |
| Other revenue | | | 29.9 | | | | 30.1 | | | | 35.7 | | | | 33.9 | | | | 129.6 | |
| Total expenses and taxes | | | 779.5 | | | | 781.4 | | | | 861.5 | | | | 827.7 | | | | 3,249.7 | |
| Other income, net | | | 0.4 | | | | (5.5 | ) | | | (24.7 | ) | | | (34.9 | ) | | | (64.7 | ) |
| Net income | | | 163.1 | | | | 206.6 | | | | 206.8 | | | | 206.7 | | | | 783.2 | |
| Basic earnings per share | | | 0.55 | | | | 0.71 | | | | 0.71 | | | | 0.71 | | | | 2.67 | |
| Diluted earnings per share | | | 0.54 | | | | 0.70 | | | | 0.70 | | | | 0.70 | | | | 2.65 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | First
| | | Second
| | | Third
| | | Fourth
| | | | |
| | | Quarter(a) | | | Quarter | | | Quarter (b),(c) | | | Quarter(d) | | | Total Year | |
| | | (In millions, except per share amounts) | |
| |
2007 | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | $ | 715.9 | | | $ | 773.2 | | | $ | 789.2 | | | $ | 893.3 | | | $ | 3,171.6 | |
| Product revenue | | | 484.4 | | | | 518.6 | | | | 529.6 | | | | 604.2 | | | | 2,136.8 | |
| Unconsolidated joint business revenue | | | 207.2 | | | | 230.6 | | | | 234.6 | | | | 253.7 | | | | 926.1 | |
| Other revenue | | | 24.3 | | | | 24.0 | | | | 25.0 | | | | 35.4 | | | | 108.7 | |
| Total expenses and taxes | | | 606.1 | | | | 618.6 | | | | 714.7 | | | | 724.8 | | | | 2,664.2 | |
| Other income, net | | | 21.7 | | | | 31.5 | | | | 44.9 | | | | 32.7 | | | | 130.8 | |
| Net income | | | 131.5 | | | | 186.1 | | | | 119.4 | | | | 201.2 | | | | 638.2 | |
| Basic earnings per share | | | 0.39 | | | | 0.55 | | | | 0.41 | | | | 0.68 | | | | 2.02 | |
| Diluted earnings per share | | | 0.38 | | | | 0.54 | | | | 0.41 | | | | 0.67 | | | | 1.99 | |
| | |
(a) | | The first quarter of 2007 includes a charge of $18.4 million for in-process research and development related to the acquisition of Syntonix. |
|
(b) | | The third quarter of 2007 includes a charge of approximately $30 million for in-process research and development related to our collaboration with Cardiokine Biopharma LLC. This amount was offset by minority interest income of approximately $30 million, representing the value of the underlying technology retained by the parent company of Cardiokine Biopharma LLC. |
|
(c) | | In July 2007, we purchased 56,424,155 shares of our common stock pursuant to a tender offer. We funded the transaction in July 2007 through existing cash and cash equivalents of $1,490.5 million and by obtaining a short term loan for $1,500.0 million. |
|
(d) | | The fourth quarter of 2007 includes a charge of $34.3 million for in-process research and development related to our collaboration with Neurimmune. This amount was offset by minority interest income of $34.3 million, representing the value of the underlying technology retained by the parent company of Neurimmune. |
|
(e) | | The first quarter of 2008 includes a charge of $25.0 million for in process research and development related to a milestone payment made to the former stockholders of Conforma pursuant to our acquisition of Conforma in 2006. |
F-62F-60
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
27.22. | Quarterly Financial Data (Unaudited) |
| | | | | | | | | | | | | | | | | | | | | |
| | | First
| | | Second
| | | Third
| | | Fourth
| | | Total
| |
| (In millions, except per share amounts) | | Quarter(b) | | | Quarter(c) | | | Quarter | | | Quarter(d)(e) | | | Year | |
| |
2009 | | | | | | | | | | | | | | | | | | | | |
| Product revenues | | $ | 733.4 | | | $ | 791.0 | | | $ | 801.7 | | | $ | 826.8 | | | $ | 3,152.9 | |
| Unconsolidated joint business revenues | | $ | 278.8 | | | $ | 275.6 | | | $ | 283.9 | | | $ | 256.6 | | | $ | 1,094.9 | |
| Other revenues | | $ | 24.3 | | | $ | 26.7 | | | $ | 34.9 | | | $ | 43.6 | | | $ | 129.5 | |
| Total revenues | | $ | 1,036.5 | | | $ | 1,093.3 | | | $ | 1,120.5 | | | $ | 1,127.0 | | | $ | 4,377.3 | |
| Total costs and expenses and income tax expense | | $ | 796.8 | | | $ | 963.1 | | | $ | 850.3 | | | $ | 827.3 | | | $ | 3,437.5 | |
| Other income (expense), net | | $ | 6.8 | | | $ | 14.7 | | | $ | 9.4 | | | $ | 6.4 | | | $ | 37.3 | |
| Net income attributable to Biogen Idec Inc. | | $ | 244.0 | | | $ | 142.8 | | | $ | 277.7 | | | $ | 305.6 | | | $ | 970.1 | |
| Basic earnings per share attributable to Biogen Idec Inc. | | $ | 0.85 | | | $ | 0.49 | | | $ | 0.96 | | | $ | 1.07 | | | $ | 3.37 | |
| Diluted earnings per share attributable to Biogen Idec Inc. | | $ | 0.84 | | | $ | 0.49 | | | $ | 0.95 | | | $ | 1.06 | | | $ | 3.35 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | First
| | | Second
| | | Third
| | | Fourth
| | | Total
| |
| (In millions, except per share amounts) | | Quarter(a) | | | Quarter | | | Quarter | | | Quarter | | | Year | |
| |
2008 | | | | | | | | | | | | | | | | | | | | |
| Product revenues | | $ | 665.1 | | | $ | 684.5 | | | $ | 758.3 | | | $ | 731.8 | | | $ | 2,839.7 | |
| Unconsolidated joint business revenues | | $ | 247.2 | | | $ | 278.8 | | | $ | 299.0 | | | $ | 303.2 | | | $ | 1,128.2 | |
| Other revenues | | $ | 29.9 | | | $ | 30.1 | | | $ | 35.7 | | | $ | 33.9 | | | $ | 129.6 | |
| Total revenues | | $ | 942.2 | | | $ | 993.4 | | | $ | 1,093.0 | | | $ | 1,068.9 | | | $ | 4,097.5 | |
| Total costs and expenses and income tax expense | | $ | 779.5 | | | $ | 781.4 | | | $ | 861.5 | | | $ | 827.3 | | | $ | 3,249.7 | |
| Other income (expense), net | | $ | 3.1 | | | $ | (4.0 | ) | | $ | (23.7 | ) | | $ | (33.1 | ) | | $ | (57.7 | ) |
| Net income attributable to Biogen Idec Inc. | | $ | 163.1 | | | $ | 206.6 | | | $ | 206.8 | | | $ | 206.7 | | | $ | 783.2 | |
| Basic earnings per share attributable to Biogen Idec Inc. | | $ | 0.55 | | | $ | 0.71 | | | $ | 0.71 | | | $ | 0.71 | | | $ | 2.67 | |
| Diluted earnings per share attributable to Biogen Idec Inc. | | $ | 0.54 | | | $ | 0.70 | | | $ | 0.70 | | | $ | 0.70 | | | $ | 2.65 | |
| | |
| (a) | | Total costs and expenses and income tax expense for the first quarter of 2008 includes $25.0 million ofin-process research and development expense related to a milestone payment made to the former shareholders of Conforma Therapeutics Inc. pursuant to the terms of our acquisition of Conforma Therapeutics Inc. in 2006. |
|
| (b) | | Changes in tax law in certain state jurisdictions in which we operate during the first quarter of 2009 resulted in a $30.2 million reduction to our first quarter 2009 income tax expense. |
|
| (c) | | Total costs and expenses and income tax expense for the second quarter of 2009 includes the $110.0 million upfront payment made 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. |
|
| (d) | | During the fourth quarter of 2009, we repurchased 8.8 million shares of our common stock at a cost of approximately $422.4 million under our $1.0 billion share repurchase program authorized in October 2009. In addition, we also purchased an additional 6.0 million shares of our common stock at a cost of approximately $271.1 million during the fourth quarter of 2009 under our 2006 share repurchase program. |
|
| (e) | | Resolution of federal, state and foreign tax audits, including the effective settlement of several uncertain tax positions during the fourth quarter of 2009 resulted in a $34.0 million reduction to our fourth quarter 2009 income tax expense. |
F-61
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
| 23. | New Accounting Pronouncements |
Effective January 1, 2008, we implemented Statement of Financial Accounting Standard No. 157, Fair Value Measurement,From time to time, new accounting pronouncements are issued by the FASB or SFAS 157, for our financial assets and liabilitiesother standard setting bodies that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilitiesadopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are re-measured and reported at fair value at least annually. In accordance with the provisions of FSPFAS 157-2, Effective Date of FASB Statement No. 157, we deferred the implementation of SFAS 157 as it relates to our non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until January 1, 2009. We are evaluating the impact this standard will have on our financial statements.
On December 12, 2007,EITF 07-01,Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property, orEITF 07-01, was issued. EITF-07-01 prescribes the accounting for collaborations. It requires certain transactions between collaborators to be recorded in the income statement on either a gross or net basis within expenses when certain characteristics exist in the collaboration relationship.EITF 07-01 isnot yet effective for all of our collaborations existing after January 1, 2009. The adoption of this standard will not have a material impact on our financial statementsposition or results of operations upon adoption.
Recently Issued Accounting Standards
In October 2009, the FASB issued Accounting Standards Update (ASU)No. 2009-13,Multiple-Deliverable Revenue Arrangements(ASUNo. 2009-13). ASUNo. 2009-13, which amends existing revenue recognition accounting pronouncements and provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. Previous accounting principles required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique features. If the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This new approach is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, which for Biogen Idec means no later than January 1, 2011. Early adoption is permitted; however, adoption of this guidance as of a date other than January 1, 2011, will require us to apply this guidance retrospectively effective as of January 1, 2010 and will require disclosure of the effect of this guidance as applied to all previously reported interim periods in the fiscal year of adoption. While we do not expect the adoption of this standard to have a material impact on our financial position and results of operations, this standard may impact us in the event we complete future transactions or modify existing collaborative relationships.
In June 2009, the FASB issued the following two new accounting standards, which were integrated into the Codification in December 2009:
| | |
| • | ASUNo. 2009-16,Accounting for Transfers of Financial Assets(ASUNo. 2009-16); and |
|
| • | ASUNo. 2009-17,Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities(ASUNo. 2009-17). |
ASUNo. 2009-16 prescribes the information that a reporting entity must provide in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. Specifically, among other aspects, this standard amends previously issued accounting guidance, modifies the financial-components approach and removes the concept of a qualifying special purpose entity when accounting for transfers and servicing of financial assets and extinguishments of liabilities, and removes the exception from applying the general accounting principles for the consolidation of variable interest entities that are qualifying special-purpose entities. This new accounting standard is effective for transfers of financial assets occurring on or after January 1, 2010. The adoption of this standard will not have an impact on our financial position or results of operations.
OnASUNo. 2009-17 amends previously issued accounting guidance for the consolidation of variable interest entities to require an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. This amended consolidation guidance for variable interest entities also replaces the existing quantitative approach for identifying which enterprise should consolidate a variable interest entity, which was based on which enterprise is exposed to a majority of the risks and rewards, with a qualitative approach, based on which enterprise has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to
F-62
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
receive benefits from the entity that could potentially be significant to the variable interest entity. This new standard may affect how we account for the consolidation of common structures, such as joint ventures, equity method investments, collaboration and other agreements and purchase arrangements. Under this revised guidance, more entities may meet the definition of a variable interest entity, and the determination about whether an enterprise should consolidate a variable interest entity is required to be evaluated continuously. This standard is effective for us for interim and annual periods beginning after January 1, 2010. We have completed our evaluation of the impact of adopting this standard and determined that the adoption will not have an impact on our financial position or results of operations. However, changes to existing relationships or future transactions may result in us consolidating or deconsolidating our partner(s) to collaborations and other arrangements. Refer to Note 17,Collaborationsto our Consolidated Financial Statements for information about our relationships with significant variable interest entities.
Recently Adopted Accounting Standards
In September 2009, the FASB issued ASUNo. 2009-12,Fair Value Measurements and Disclosure (ASUNo. 2009-12). This standard provides additional guidance on using the net asset value per share, provided by an investee, when estimating the fair value of an alternate investment that does not have a readily determinable fair value and enhances the disclosures concerning these investments. Examples of alternate investments, within the scope of this standard, include investments in hedge funds and private equity, real estate, and venture capital partnerships. This standard is effective for interim and annual periods ending after December 4, 2007, Statement15, 2009. As of December 31, 2009, our only investments falling within the scope of this guidance are our venture capital investments. For these investments we use the net asset value to assess fair value. Refer to Note 6,Fair Value Measurementsto our Consolidated Financial Standard No. 141(R),Business Combinations,Statements for additional disclosure related to our venture capital investments. The adoption of this standard did not have an impact on our financial position or SFAS 141(R), was issued.results of operations; however, this standard may impact us in future periods.
In April 2009, the FASB issued a new accounting standard providing guidance for the accounting of assets acquired and liabilities assumed in a business combination that arise from contingencies. This Standard will requireguidance amends and clarifies previous accounting standards to address application issues regarding the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. Due to the fact that this guidance is applicable to acquisitions completed after January 1, 2009 and we did not have any business combinations during 2009, the adoption of this standard did not impact our financial position or results of operations.
Effective January 1, 2009, we adopted a newly issued accounting standard for business combinations. This standard requires an acquiring company to measure all assets acquired and liabilities assumed, including contingent considerations and all contractual contingencies, at fair value as of the acquisition date. In addition, an acquiring company is required to capitalize IPR&D and either amortize it over the life of the product, or write it off if the project is abandoned or impaired. The StandardDue to the fact that this guidance is effective for transactions occurring on orapplicable to acquisitions completed after January 1, 2009. We2009 and we did not have not determined the effect thatany business combinations during 2009, the adoption of SFAS 141(R) will have onthis standard did not impact our consolidated financial statements, but the effect will generally be limited to future acquisitionsposition or results of operations. The standard also amended accounting for uncertainty in 2009, except for certain tax treatment of previous acquisitions. SFAS 141(R) amended FASB Statement No. 109, Accounting for Income Taxes (SFAS 109), and FIN 48.income taxes. Previously, SFAS 109 and FIN 48, respectively,accounting standards generally required post-acquisitionspost-acquisition adjustments related to business combination related deferred tax asset valuation allowances and liabilities related tofor uncertain tax positions to be recorded as an increase or decrease to goodwill. SFAS 141(R)This new standard does not permit this accounting and, generally, will requirerequires any such changes to be recorded in current period income tax expense. Thus, after SFAS 141(R) is adopted, all changes to valuation allowances and liabilities related tofor uncertain tax positions established in acquisition accounting, (whetherwhether the business combination was accounted for under SFAS 141 or SFAS 141(R)) mustthis guidance, will be recognized in current period income tax expense.
On December 4, 2007, Statement of Financial Standard No. 160,Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51, or SFAS 160, was issued. This Standard changes the accounting for and reporting of noncontrolling or minority interests (now called noncontrolling interest) in consolidated financial statements. This Standard is effective January 1, 2009. When implemented, prior periods will be recast for the changes required by SFAS 160. The adoption of this standard will not have a material impact on our financial statements and results of operations.
On March 19, 2008, Statement of Financial Accounting Standard No. 161, Disclosures About Derivative Instruments and Hedging Activities, or SFAS 161, was issued. This Standard enhances the disclosure requirements for derivative instruments and hedging activities. This Standard is effective January 1, 2009. Since SFAS No. 161 requires only additional disclosures concerning derivatives and hedging activities, adoption of SFAS No. 161 will not affect our financial condition, results of operations or cash flows.
On May 5, 2008, Statement of Financial Accounting Standard No. 162, The Hierarchy of Generally Accepted Accounting Principles, or SFAS 162, was issued. This Standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the U.S. The adoption of this standard will not have a material impact on our financial statements or results of operations.
F-63
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, shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Biogen Idec Inc. and its subsidiaries atas of December 31, 20082009 and 2007,2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20082009 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, 2008,2009 based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’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 Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’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 15 to the consolidated financial statements, the Company changed the manner in which it accounts for income tax contingencies in 2007.
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 6, 20099, 2010
F-64
EXHIBIT INDEX
| | | | | |
Exhibit No. | | Descriptionˆ |
| |
| | 3 | .1 | | Amended and Restated Certificate of Incorporation. Filed as Exhibit 3.1 to our Annual Report onForm 10-K for the year ended December 31, 2003. |
| | 3 | .2 | | Certificate of Amendment to the Amended and Restated Certificate of Incorporation dated May 21, 2001. Filed as Exhibit 3.2 to our Annual Report onForm 10-K for the year ended December 31, 2003. |
| | 3 | .3 | | Certificate Increasing the Number of Authorized Shares of Series X Junior Participating Preferred Stock dated July 26, 2001. Filed as Exhibit 3.3 to our Annual Report onForm 10-K for the year ended December 31, 2003. |
| | 3 | .4 | | Certificate of Amendment to the Amended and Restated Certificate of Incorporation dated November 12, 2003. Filed as Exhibit 3.4 to our Annual Report onForm 10-K for the year ended December 31, 2003. |
| | 3 | .5 | | Second Amended and Restated Bylaws. Filed as Exhibit 3.1 to our Quarterly Report onForm 10-Q for the quarter ended September 30, 2008. |
| | 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 | | Amended and Restated Rights Agreement between Biogen Idec and Mellon Investor Services LLC dated as of July 26, 2001. Filed as Exhibit 4.1 to an amendment to our Registration Statement onForm 8-A filed on July 27, 2001. |
| | 4 | .3 | | Amendment No. 1 to Amended and Restated Rights Agreement between Biogen Idec and Mellon Investor Services LLC dated as of June 20, 2003. Filed as Exhibit 4.1 to our Current Report onForm 8-K filed on June 23, 2003. |
| | 4 | .4+ | | Amendment No. 2 to Amended and Restated Rights Agreement between Biogen Idec and Mellon Investor Services LLC dated as of January 22, 2009. |
| | 10 | .1 | | Credit Agreement among Biogen Idec, 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. Filed as Exhibit 99.2 to our Current Report onForm 8-K filed on July 2, 2007. |
| | 10 | .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 onForm S-3(File No. 333-149379). |
| | 10 | .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 onForm 8-K filed on March 4, 2008. |
| | 10 | .4† | | Expression Technology Agreement between Biogen Idec and Genentech. Inc. dated March 16, 1995. Filed as an exhibit to Biogen Idec’s Quarterly Report onForm 10-Q for the quarter ended March 31, 1995. |
| | 10 | .5 | | Letter Agreement between Biogen Idec and Genentech, Inc. dated May 21, 1996. Filed as Exhibit 10.1 to our Current Report onForm 8-K filed on June 6, 1996. |
| | 10 | .6† | | Amended and Restated Collaboration Agreement between Biogen Idec and Genentech, Inc. dated June 19, 2003. Filed as Exhibit 99.1 to our Current Report onForm 8-K filed on July 31, 2003. |
| | 10 | .7† | | Purchase and Sale Agreement and Joint Escrow Instructions between Biogen Idec and Genentech, Inc. dated as of June 16, 2005. Filed as Exhibit 10.1 to our Quarterly Report onForm 10-Q for the quarter ended June 30, 2005. |
| | 10 | .8† | | ANTEGREN (now TYSABRI) Development and Marketing Collaboration Agreement between Biogen Idec and Elan Pharma International Limited dated August 15, 2000. Filed as Exhibit 10.48 to Biogen, Inc.’s Annual Report onForm 10-K for the year ended December 31, 2002(File No. 0-12042) and incorporated herein by reference. |
| | 10 | .9† | | License Agreement between Biogen Idec and Coulter Immunology (now Corixa Corporation) dated May 16, 1991. Filed as an exhibit to our Registration Statement onForm S-1 (FileNo. 33-40756). |
A-1
| | | | | |
Exhibit No. | | Descriptionˆ |
| |
| | 10 | .10† | | Collaboration & License Agreement between Biogen Idec and Schering Aktiengesellschaft dated June 9, 1999. Filed as Exhibit 10.10 to our Quarterly Report onForm 10-Q for the quarter ended June 30, 1999. |
| | 10 | .11 | | Cambridge Center Lease between Mortimer Zuckerman, Edward H. Linde and David Barrett, as Trustees of Fourteen Cambridge Center Trust, and B. Leasing, Inc. dated October 4, 1982. Filed as an exhibit to Biogen, Inc.’s Registration Statement onForm S-1 (FileNo. 2-81689) and incorporated herein by reference. |
| | 10 | .12 | | First Amendment to Lease dated January 19, 1989, amending Cambridge Center Lease dated October 4, 1982. Filed as an exhibit to Biogen, Inc.’s Annual Report onForm 10-K for the year ended December 31, 1992 (FileNo. 0-12042) and incorporated herein by reference. |
| | 10 | .13 | | Second Amendment to Cambridge Center Lease dated March 8, 1990. Filed as an exhibit to Biogen, Inc.’s Annual Report onForm 10-K for the year ended December 31, 1992 (FileNo. 0-12042) and incorporated herein by reference. |
| | 10 | .14 | | Third Amendment to Cambridge Center Lease dated September 25, 1991. Filed as an exhibit to Biogen, Inc.’s Annual Report onForm 10-K for the year ended December 31, 1992 (FileNo. 0-12042) and incorporated herein by reference. |
| | 10 | .15 | | Fourth Amendment to Cambridge Center Lease dated October 6, 1993. Filed as an exhibit to Biogen, Inc.’s Annual Report onForm 10-K for the year ended December 31, 1997 (FileNo. 0-12042) and incorporated herein by reference. |
| | 10 | .16 | | Fifth Amendment to Cambridge Center Lease dated October 9, 1997. Filed as an exhibit to Biogen, Inc.’s Annual Report onForm 10-K for the year ended December 31, 1997 (FileNo. 0-12042) and incorporated herein by reference. |
| | 10 | .17 | | Lease agreement between Biogen Idec BV and TUG Vastgoed B.V. dated as of September 24, 2004. Filed as Exhibit 10.1 to our Current Report onForm 8-K filed on September 29, 2004. |
| | 10 | .18* | | Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Appendix A to our Definitive Proxy Statement on Schedule 14A filed on May 8, 2008. |
| | 10 | .19*+ | | Amendment to Biogen Idec Inc. 2008 Omnibus Equity Plan dated October 13, 2008. |
| | 10 | .20* | | 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 onForm 8-K filed on August 1, 2008. |
| | 10 | .21* | | 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 onForm 8-K filed on August 1, 2008. |
| | 10 | .22* | | Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan. Filed as Appendix A to our Definitive Proxy Statement on Schedule 14A filed on April 14, 2006. |
| | 10 | .23* | | Amendment to the Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan dated October 11, 2006. Filed as Exhibit 10.45 to our Annual Report onForm 10-K for the year ended December 31, 2007. |
| | 10 | .24* | | Amendment to Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan dated April 18, 2008. Filed as Exhibit 10.8 to our Quarterly Report onForm 10-Q for the quarter ended June 30, 2008. |
| | 10 | .25*+ | | Amendment to Biogen Idec Inc. 2006Non-Employee Directors Equity Plan dated October 13, 2008. |
| | 10 | .26* | | Biogen Idec Inc. 2005 Omnibus Equity Plan. Filed as Appendix A to our Definitive Proxy Statement on Schedule 14A filed on April 15, 2005. |
| | 10 | .27* | | 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 onForm 10-Q for the quarter ended March 31, 2007. |
| | 10 | .28* | | 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 onForm 10-Q for the quarter ended March 31, 2007. |
| | 10 | .29* | | Amendment to the Biogen Idec Inc. 2005 Omnibus Equity Plan dated April 18, 2008. Filed as Exhibit 10.7 to our Quarterly Report onForm 10-Q for the quarter ended June 30, 2008. |
| | 10 | .30*+ | | Amendment to Biogen Idec Inc. 2005 Omnibus Equity Plan dated October 13, 2008. |
| | 10 | .31* | | Biogen Idec Inc. 2003 Omnibus Equity Plan. Filed as Exhibit 10.73 to our Current Report onForm 8-K filed on November 12, 2003. |
A-2
| | | | |
Exhibit No. | | Descriptionˆ |
| |
| 3.1 | 10 | .32*Amended and Restated Certificate of Incorporation. Filed as Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 2003. |
| 3.2 | | Certificate of Amendment to the Amended and Restated Certificate of Incorporation dated May 21, 2001. Filed as Exhibit 3.2 to our Annual Report on Form 10-K for the year ended December 31, 2003. |
| 3.3 | | Certificate Increasing the Number of Authorized Shares of Series X Junior Participating Preferred Stock dated July 26, 2001. Filed as Exhibit 3.3 to our Annual Report on Form 10-K for the year ended December 31, 2003. |
| 3.4 | | Certificate of Amendment to the Amended and Restated Certificate of Incorporation dated November 12, 2003. Filed as Exhibit 3.4 to our Annual Report on Form 10-K for the year ended December 31, 2003. |
| 3.5 | | Second Amended and Restated Bylaws, as amended. Filed as Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009. |
| 4.1 | | Reference is made to Exhibits 3.1 through 3.4 for a description of the rights, preferences and privileges of our Series A Preferred Stock and Series X Junior Participating Preferred Stock |
| 4.2 | | Amended and Restated Rights Agreement between Biogen Idec and Mellon Investor Services LLC dated as of July 26, 2001. Filed as Exhibit 4.1 to an amendment to our Registration Statement onForm 8-A filed on July 27, 2001. |
| 4.3 | | Amendment No. 1 to Amended and Restated Rights Agreement between Biogen Idec and Mellon Investor Services LLC dated as of June 20, 2003. Filed as Exhibit 4.1 to our Current Report onForm 8-K filed on June 23, 2003. |
| 4.4 | | Amendment No. 2 to Amended and Restated Rights Agreement between Biogen Idec and Mellon Investor Services LLC dated as of January 22, 2009. Filed as Exhibit 4.4 to our Annual Report onForm 10-K for the year ended December 31, 2008. |
| 4.5 | | 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). |
| 4.6 | | 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. |
| 10.1 | | Credit Agreement among Biogen Idec, 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. Filed as Exhibit 99.2 to our Current Report on Form 8-K filed on July 2, 2007. |
| 10.2 | | Amendment No. 1 to Credit Agreement among Biogen Idec, Bank of America, N.A. as administrative agent, and the other lenders party thereto dated as of March 5, 2009. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009. |
| 10.3† | | 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. |
| 10.4 | | 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† | | Amended and Restated Collaboration Agreement between Biogen Idec and Genentech, Inc. dated June 19, 2003. Filed as Exhibit 99.1 to our Current Report on Form 8-K filed on July 31, 2003. |
| 10.6† | | Purchase and Sale Agreement and Joint Escrow Instructions between Biogen Idec and Genentech, Inc. dated as of June 16, 2005. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. |
| 10.7† | | ANTEGREN (now TYSABRI) Development and Marketing Collaboration Agreement between Biogen Idec and Elan Pharma International Limited dated August 15, 2000. Filed as Exhibit 10.48 to Biogen, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 0-12042) and incorporated herein by reference. |
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| | |
Exhibit No. | | Descriptionˆ |
|
| 10.8* | | Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as Appendix A to our Definitive Proxy Statement on Schedule 14A filed on May 8, 2008. |
| 10.9* | | Amendment to Biogen Idec Inc. 2008 Omnibus Equity Plan dated October 13, 2008. Filed as Exhibit 10.19 to our Annual Report on Form 10-K for the year ended December 31, 2008. |
| 10.10* | | 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* | | 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* | | Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan. Filed as Appendix A to our Definitive Proxy Statement on Schedule 14A filed on April 14, 2006. |
| 10.13* | | Amendment to the Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan dated October 11, 2006. Filed as Exhibit 10.45 to our Annual Report on Form 10-K for the year ended December 31, 2007. |
| 10.14* | | Amendment to Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan dated April 18, 2008. Filed as Exhibit 10.8 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. |
| 10.15* | | Amendment to Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan dated October 13, 2008. Filed as Exhibit 10.25 to our Annual Report on Form 10-K for the year ended December 31, 2008. |
| 10.16* | | Biogen Idec Inc. 2005 Omnibus Equity Plan. Filed as Appendix A to our Definitive Proxy Statement on Schedule 14A filed on April 15, 2005. |
| 10.17* | | 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* | | 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* | | 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* | | 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* | | Biogen Idec Inc. 2003 Omnibus Equity Plan. Filed as Exhibit 10.73 to our Current Report on Form 8-K filed on November 12, 2003. |
| 1022* | | Amendment to Biogen Idec Inc. 2003 Omnibus Equity Plan. Filed as Exhibit 10.1 to our Quarterly Report onForm 10-Q for the quarter ended March 31, 2005. |
| 10 | .33*10.23* | | Amendment to Biogen Idec Inc. 2003 Omnibus Equity Plan dated April 18, 2008. Filed as Exhibit 10.6 to our Quarterly Report onForm 10-Q for the quarter ended June 30, 2008. |
| 10 | .34*+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 | .35*10.25* | | Biogen Idec Inc. 1995 Employee Stock Purchase Plan as amended and restated effective April 6, 2005. Filed as Appendix B to our Definitive Proxy Statement on Schedule 14A filed on April 15, 2005. |
| 10 | .36*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 | .37*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 onForm 10-Q for the quarter ended June 30, 2008. |
| 10 | .38*10.28* | | 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 | .39*10.29* | | Amendment to the IDEC Pharmaceuticals Corporation 1988 Stock Option Plan dated April 16, 2004. Filed as Exhibit 10.1 to our Quarterly Report onForm 10-Q for the quarter ended June 30, 2004. |
| 10 | .40*10.30* | | Amendment to IDEC Pharmaceuticals Corporation 1988 Stock Option Plan dated April 18, 2008. Filed as Exhibit 10.4 to our Quarterly Report onForm 10-Q for the quarter ended June 30, 2008. |
A-2
| | 10 | .41* |
Exhibit No. | | Descriptionˆ |
|
| 10.31* | | Biogen, Inc. 1987 Scientific Board Stock Option Plan (as amended and restated through February 7, 2003). Filed as Exhibit 10.22 to Biogen, Inc.’s Annual Report onForm 10-K for the year ended December 31, 2002 (FileNo. 0-12042) and incorporated herein by reference. |
| 10 | .42*10.32* | | Amendment to Biogen, Inc. 1987 Scientific Board Stock Option Plan dated April 18, 2008. Filed as Exhibit 10.3 to our Quarterly Report onForm 10-Q for the quarter ended June 30, 2008. |
| 10 | .43*10.33* | | 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 onForm 10-K for the year ended December 31, 2007. |
| 10 | .44*10.34* | | Amendment to Biogen, Inc. 1985 Non-Qualified Stock Option Plan dated April 18, 2008. Filed as Exhibit 10.2 to our Quarterly Report onForm 10-Q for the quarter ended June 30, 2008. |
| 10 | .45*+10.35* | | Amendment to Biogen, Inc. 1985Non-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 | .46*10.36* | | 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 | .47*10.37* | | Biogen Idec Inc. 2003 Performance-Based Management Incentive Plan. Filed as Exhibit 10.74 to our Current Report onForm 8-K filed on November 12, 2003. |
| 10 | .48*10.38* | | Voluntary Executive Supplemental Savings Plan, as amended and restated effective January 1, 2004. Filed as Exhibit 10.13 to our Annual Report onForm 10-K for the year ended December 31, 2003. |
| 10 | .49*10.39* | | Supplemental Savings Plan, as amended and restated effective January 1, 2008. Filed as Exhibit 10.55 to our Annual Report onForm 10-K for the year ended December 31, 2007. |
| 10 | .50*10.40* | | Voluntary Board of Directors Savings Plan, as amended and restated effective January 1, 2008. Filed as Exhibit 10.56 to our Annual Report onForm 10-K for the year ended December 31, 2007. |
| 10 | .51*+10.41* | | 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 | .52*+10.42* | | Biogen Idec Inc. Executive Severance Policy —-- International Executive Vice President, as amended effective October 13, 2008. Filed as Exhibit 10.52 to our Annual Report on Form 10-K for the year ended December 31, 2008. |
| 10 | .53*+10.43* | | 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 | .54*+10.44* | | 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 | .55*10.45* | | Annual Retainer Summary for Board of Directors. Filed as Exhibit 10.110.3 to our Quarterly Report onForm 10-Q for the quarter ended SeptemberJune 30, 2008. |
A-3
| | | | 2009. |
Exhibit No.
| | Descriptionˆ
|
|
| 10 | .56*10.46* | | Form of indemnification agreement for directors. Filed as Exhibit 10.1 to our Current Report onForm 8-K filed on October 17, 2008. |
| 10 | .57*10.47* | | Employment Agreement between Biogen Idec and James C Mullen dated as of June 20, 2003. Filed as Exhibit 10.2 to our Registration Statement onForm S-4 (FileNo. 333-107098). |
| 10 | .58*10.48* | | First Amendment to Employment Agreement between Biogen Idec and James C. Mullen dated February 7, 2006. Filed as Exhibit 10.1 to our Current Report onForm 8-K filed on February 10, 2006. |
| 10 | .59*+10.49* | | Second Amendment to Employment Agreement between Biogen Idec and James C. Mullen dated as of December 4, 2008. Filed as Exhibit 10.59 to our Annual Report on Form 10-K for the year ended December 31, 2008. |
| 10.50*+ | 10 | .60*Transition Agreement between Biogen Idec and James C. Mullen dated as of January 4, 2010. |
| 10.51* | | Letter regarding employment arrangement of Paul J. Clancy dated August 17, 2007. Filed as Exhibit 10.49 to our Annual Report onForm 10-K for the year ended December 31, 2007. |
| 10 | .61*10.52*+ | | Employment Agreement between Biogen Idec Management Services GmbH and Hans Peter Hasler dated October 15, 2008. |
| 10 | .62* | | Letter regarding employment arrangement of Cecil B. PickettRobert Hamm dated June 21, 2006. Filed as April 1, 2009. |
A-3
| | |
Exhibit 10.1 to our Quarterly Report onForm 10-Q for the quarter ended September 30, 2006.No. | | Descriptionˆ |
| | 10 | .63*+ | | First Amendment to Employment Agreement between Biogen Idec and Cecil B. Pickett dated October 28, 2008. |
| 10 | .64* | | Letter agreement regarding employment arrangement of Robert Hamm dated October 15, 2007. Filed as Exhibit 10.50 to our Annual Report onForm 10-K for the year ended December 31, 2007. |
| 10 | .65*10.53* | | Letter regarding employment arrangement of Craig E. Schneier dated October 8, 2001. Filed as Exhibit 10.53 to our Annual Report onForm 10-K for the year ended December 31, 2005. |
| 10 | .66*+10.54* | | First Amendment to Employment Agreement between Biogen Idec and Craig E. Schneier dated October 8, 2008. Filed as Exhibit 10.66 to our Annual Report on Form 10-K for the year ended December 31, 2008. |
| 10.55* | 21 | Employment Agreement between Biogen Idec Management Services GmbH and Hans Peter Hasler dated October 15, 2008. Filed as Exhibit 10.61 to our Annual Report onForm 10-K for the year ended December 31, 2008. |
| 10.56* | | Consulting Agreement between Eidetica Biopharma GmBH and Hans Peter Hasler dated April 30, 2009. Filed as Exhibit 10.1 to our Quarterly Report onForm 10-Q for the quarter ended June 30, 2009. |
| 10.57* | | Director Agreement between Biogen Idec International B.V. and Hans Peter Hasler dated April 30, 2009. Filed as Exhibit 10.2 to our Quarterly Report onForm 10-Q for the quarter ended June 30, 2009. |
| 10.58*+ | | SubsidiariesLetter regarding employment arrangement of Susan Alexander dated December 13, 2005. |
| 21+ | 23 | .1+Subsidiaries. |
| 23+ | | Consent of PricewaterhouseCoopers LLP, — an Independent Registered Public Accounting FirmFirm. |
| 31 | .1+31.1+ | | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002. |
| 31 | .2+31.2+ | | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002. |
| 32 | .1+32.1++ | | Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002. |
| 101++ | | The following materials from Biogen Idec Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statement of Shareholders’ Equity and (v) Notes to Consolidated Financial Statements, tagged as blocks of text. |
| | |
| ˆ | | Reference to “our” filings mean filings made by 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. |
| |
| * | | Management contract or compensatory plan or arrangement. |
| |
| † | | Confidential Treatment has been granted with respect to portions of this agreement. |
| |
| + | | Filed herewith. |
| |
| ++ | | Furnished herewith. |
A-4
