2016 ANNUAL REP OR T
BIOGEN FORWARD
CORPORATE INFORMATION
Board of Directors
Stelios Papadopoulos, Ph.D.
Chairman, Biogen
Chairman, Exelixis, Inc. and
Regulus Therapeutics, Inc.
Michel Vounatsos
Chief Executive Officer, Biogen
Alexander J. Denner, Ph.D.
Founding Partner, Sarissa Capital
Shareholder Information
Corporate Headquarters
Biogen Inc.
225 Binney Street
Cambridge, MA 02142
Phone: (617) 679-2000
SEC Form 10-K
A copy of Biogen’s Annual
Report on Form 10-K filed with
the Securities and Exchange
Commission is available at sec.gov
and upon request to:
Investor Relations Department
Biogen Inc.
225 Binney Street
Cambridge, MA 02142
Phone: (781) 464-2442
Common Stock Price
Caroline D. Dorsa
Retired Executive Vice President
and Chief Financial Officer,
Public Service Enterprise Group,
Incorporated
Richard C. Mulligan, Ph.D.
Portfolio Manager, Icahn Capital
LP and Mallinckrodt Professor
of Genetics, Emeritus, Harvard
Medical School
Nancy L. Leaming
Retired Chief Executive Officer and
President, Tufts Health Plan
Robert W. Pangia
Partner, Ivy Capital Partners, LLC
Brian S. Posner
President, Point Rider Group LLC
and Private Investor
Eric K. Rowinsky, M.D.
President and Executive Chairman,
RGenix, Inc.
The Honorable Lynn Schenk
Attorney, Former Chief of Staff
to the Governor of California
and Former U.S. Congresswoman
Stephen A. Sherwin, M.D.
Clinical Professor of Medicine,
University of California, San
Francisco, and advisor to life
sciences companies
Transfer Agent
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Market Information
Our common stock trades on
the NASDAQ Global Select Market
under the symbol “BIIB.”
The table below shows the
high and low sales price for our
common stock as reported by the
NASDAQ Global Select Market for
each quarter in the years ended
December 31, 2016 and 2015.
News Releases
As a service to our shareholders
and prospective investors, copies
of Biogen news releases issued
in the last 12 months are now
available almost immediately 24
hours a day, seven days a week,
on the Web at businesswire.com.
Biogen’s news releases are usually
posted within one hour of being
issued and are available at no cost
at biogen.com.
HIGH
LOW
HIGH
LOW
Q1
$301.02
$242.07
Q1
$480.18
$334.40
2016
Q2
$292.69
$223.02
2015
Q2
$432.88
$368.88
Q3
$333.65
$240.07
Q3
$412.24
$265.00
Q4
$329.83
$268.00
Q4
$311.65
$254.00
About the Cover
Kernen and Braeden, siblings who both have spinal muscular atrophy (SMA). In 2016, Biogen launched the
fi rst and only treatment for SMA in the US and today is working to bring the therapy to patients worldwide.
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FINANCIAL
HIGHLIGHTS
Revenues
($ in millions)
GAAP Diluted EPS
Non-GAAP Diluted EPS*
Free Cash Flow*
($ in millions)
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
$5,516
$6,932
$9,703
$10,764
$11,449
+6%
$5.76
$7.81
$12.37
$15.34
$16.93
$6.53
$8.96
$13.83
$17.01
$20.22
+10%
+19%
$1,625
$2,084
$2,279
$2,223
$2,706
+22%
* Non-GAAP diluted Earnings Per Share (EPS) and free cash flow are non-GAAP financial measures. A reconciliation of GAAP
to non-GAAP diluted EPS and free cash flow amounts is set forth on pages 15 and 16 of this annual report.
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DEAR FELLOW
SHAREHOLDERS:
I am honored and humbled to write to you as the new CEO of Biogen, a company that for nearly four
decades has maintained an unwavering commitment to transforming the lives of patients and pursuing
some of the most diffi cult challenges in medicine. It is a remarkable time to lead this company as we
move into the next phase of our evolution and expand our focus on developing breakthrough treatments
with a priority in neurology and neurodegeneration.
“
Today we are working to
reinforce the core of our
business, optimizing the
value of our portfolio and
increasing our overall
commitment to long-term
Biogen’s heritage is rooted in an ability to translate innovative science into real
patient benefi ts. This has been central to our mission and vital to our growth. Under
my predecessor, George Scangos, Biogen had the most productive years in its
history, both in its growth and the introduction of new medicines. I am fortunate to
have inherited a company with a strong and healthy commercial business and a rich
foundation in science; one that is well-positioned to pursue a promising pipeline with
value creation for our
shareholders.
“
truly novel programs.
Today we are working to reinforce the core of our business, optimizing the value of
our portfolio and increasing our overall commitment to long-term value creation for
our shareholders. As a company we need to be increasingly nimble and agile, working
to meet the needs of our worldwide customer base and dedicated to compliance
and integrity. We need to be an organization that attracts the very best people and
develops the remarkable talent that is the foundation and future of our company.
In 2016 we delivered strong performance, with $11.4 billion in full year total
revenues, a six percent increase over 2015. During this period, full year GAAP diluted
earnings per share (EPS) grew 10 percent as compared with 2015. Throughout 2016,
we launched four new therapies, continued to be the leader in multiple sclerosis (MS),
and saw strong uptake in our emerging biosimilars business.
But it was the approval of SPINRAZATM for the treatment of spinal muscular atrophy
(SMA) that demonstrated the kind of breakthrough medicine we aspire to develop
as we pursue truly transformative therapies in critical areas of unmet need. Through
novel science, innovative trial design, and collaborative relationships with patient
advocates and industry partners, we brought forth the fi rst and only approved therapy
2 2 0 1 6 A N N U A L R E P O R T
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MICHEL VOUNATSOS
Chief Executive Officer
Landon & Ruby
Spinal muscular atrophy patients
“ We all have challenges and if I knew what
other people’s challenges were, I’d probably
keep my own.
“
Dany, mother of Landon and Ruby
4 2 0 1 6 A N N U A L R E P O R T
to treat this rare motor neuron disease. And we
did so with remarkable efficiency, moving from
initial dosing in patients to US approval in only
five years.
The successful launch of SPINRAZA in the US
and markets around the world is a key priority
for us in 2017 as we work with the utmost
urgency to deliver this therapy to the patients
and families who so desperately need it.
As we continue to advance our neurology
research, we will be assertive, deliberate,
and disciplined in setting a path forward
for the company. We demonstrated that
mindset with the successful spin off of our
hemophilia business. By putting that portion
of the company in the hands of a dedicated
management team, we believe the new
company – Bioverativ – can deliver greater
advancements for patients and returns for
its shareholders. Earlier this year we also
made the important decision to enter into
a settlement and license agreement with
Forward Pharma that we believe clarifies
and strengthens the intellectual property for
TECFIDERA®, the leading oral therapy for MS.
The agreement brings greater certainty to
our business and allows us to focus on
our priorities.
We are working to improve commercial
execution, enhance our geographic footprint,
and continue to bolster our MS franchise. As
CEO, I will work with our senior management to
evaluate all aspects of our business to ensure
that we are acting in the best interests of our
shareholders.
We will focus on building our pipeline and
are actively pursuing a mix of pre-clinical
MS PATIENTS
Treated with our Medicines
38%
MS PATIENTS GLOBALLY
42%
MS PATIENTS IN OUR
DIRECT MARKETS
and early-stage compounds. There is little
As competition intensifi es, we anticipate that
question that today we are a company at the
price will be a key focus in the MS market.
forefront of research and development in
We are committed to working with payers to
neuroscience – and we remain committed
explore innovative value-based approaches
to this critical area where there is so much
to contracting, while generating real-world
unmet need, as we look to turn our leading
data on the value our products provide.
science into novel therapies. Developing and
expanding our neurology portfolio is core
I believe our most exciting commercial
to our mission. This is an area where we
opportunity in 2017 is the launch of
believe we have both the world-class team
SPINRAZA for SMA. There is signifi cant
and the development experience to lead.
demand for SPINRAZA and we anticipate
Commercial Performance
and Opportunities
a gradual uptake throughout the year as
treatment centers manage the complexities
in administration and insurers develop
coverage policies. Our goal is that no patient
Today, Biogen remains the global leader in
will forgo treatment because of fi nancial
all three segments of the MS market: oral,
limitations or insurance status. Navigating
high-effi cacy, and interferons. In 2016,
these dynamics will be our central focus over
we continued to increase the number of
the next 12 months. We are also working
patients treated with a Biogen product even
to make SPINRAZA available to a broad
in the face of growing competition. At the
global patient population, with regulatory
end of 2016, 38 percent of all MS patients
applications pending in the EU, Japan,
globally and 42 percent of all MS patients in
Australia, and Canada.
our direct markets were treated with one of
our medicines.
We are also very pleased with the launch
of our biosimilars portfolio in Europe.
TECFIDERA was a major driver of our revenue
We believe that this business – which is
growth in 2016, with total patient growth of
already profi table and includes the anti-
nine percent globally. In addition, TYSABRI®
TNFs BENEPALI® (an etanercept biosimilar
further strengthened its position in the
referencing Enbrel®) and FLIXABI® (an
market. We believe this is due to an improved
infl iximab biosimilar referencing Remicade®)
safety perception in the US and a shift away
– can be a key contributor to our business
from platform therapies to high-effi cacy and
in the future. In some European markets, we
oral products. Moving forward, we expect
are already the overall etanercept segment
our ongoing rollout of ZINBRYTA® in global
leader, a testament to the quality of the
markets to further strengthen our position
product and the value it brings to patients.
in the high-effi cacy segment. We are also
looking at new approaches to commercial
As we go forward, we will closely evaluate
growth and strengthening our MS leadership,
opportunities to optimize our biosimilars
including an increased emphasis on life-cycle
joint venture with Samsung Bioepis, which
management opportunities.
has a broad pipeline including biosimilars
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B I O G E N 5
“
2016 was a positive
year for the company but
also put a spotlight on
areas that demand more
referencing top-selling therapies such as
of this neurodegenerative disease and fi nd
Lantus®, Herceptin®, and Avastin®. Our
Herce
treatments will be a tremendous public
biosimilar referencing Humira® has been
health breakthrough, and we intend to be
fi led with European regulators and in 2017
among the fi rst companies to do so.
attention. I believe we can
we will evaluate additional opportunities,
become a more efficient
company, making greater
use of technology and
digital insights to build
our portfolio and work to
create more innovative
and personalized
customer engagements.
“
including our option to acquire a 49.9
Based on the recent outcomes of our own
percent equity stake in the joint venture. We
research – as well as certain fi ndings from
have seen strong demand for these high-
others – we continue to believe that beta
quality biosimilar offerings and the potential
amyloid represents a valid and important
for further growth and we will continue our
therape
therapeutic target. Early data suggest that
work to increase access to these therapeutic
treatment with aducanumab, our most
options for patients, payers, and providers
advanced Alzheimer’s candidate, may have
throughout Europe.
a clinically meaningful effect on cognitive
decline. We have committed signifi cant
2016 was a positive year for the company
resources to two large-scale Phase 3 trials
but also put a spotlight on areas that
to confi rm these benefi ts and the enrollment
demand more attention. I believe we can
demand
in these studies is a top priority. Our partner
become a more effi cient company, making
Eisai has also commenced a Phase 3 trial for
greater use of technology and digital insights
elenbecestat, a BACE inhibitor, which targets
to build our portfolio and work to create
amyloid through a different mechanism than
more innovative and personalized customer
aducanumab.
engagements. To continue to expand our MS
franchise, I believe we need to evolve our
We believe that the underpinnings
customer-centered engagement strategy,
of Alzheimer’s pathophysiology may
operating in new channels and leveraging
be multifaceted, perhaps requiring a
deeper analytics. Biogen’s advantage is its
combination or sequence of therapies, and
leading therapeutic portfolio and its science
we continue to investigate other therapeutic
focus and we must build on those strengths
approaches. These include an anti-tau
with a growth and winning mindset.
antibody developed using the same reverse-
Our Pipeline and Focus
on Transforming Neurology
translational medicine program that was used
to create aducanumab, and an antisense
oligonucleotide being developed with Ionis
Pharmaceuticals, also targeting tau.
SPINRAZA is an example of the kind of
transformative advance we look to pursue
We also remain fully committed to new
in neurology. And we believe we are at
therapeutic approaches for transforming the
the forefront of a similar transformation
treatment of MS and unlocking a pathway to
in the treatment of Alzheimer’s disease.
neuro-repair through remyelination. Although
Alzheimer’s disease is unquestionably
we reported in 2016 that a Phase 2 study of
one of today’s leading epidemiologic
our remyelination candidate opicinumab did
priorities; to better understand the puzzle
not meet its primary endpoints, a post-hoc
6 2 0 1 6 A N N U A L R E P O R T
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JULIE
Multiple sclerosis patient
“As I learned to manage my health care and
my condition, I learned that it’s not only being
transparent about what’s going on in my life
and my physical responses, but your emotional
responses when you’re living with MS are just as
important. “
8 2 0 1 6 A N N U A L R E P O R T
analysis of that trial demonstrated a benefit in
a study subgroup. We believe there is a path
forward and are planning to initiate a Phase 2b
study based on this analysis in 2017.
Beyond our novel pipeline compounds, we
are exploring the potential of natalizumab
(TYSABRI) to address cognitive and functional
deficits caused by acute ischemic stroke,
one of the leading causes of death and
neurological disability worldwide.
We also have several exciting early-stage
assets to treat other neurological diseases
with enormous unmet medical need. In
Parkinson’s disease and amyotrophic lateral
sclerosis (ALS) – two debilitating diseases for
which few if any effective treatments exist –
we hope to demonstrate clinical effect in
Phase 1 trials that are currently underway,
with an eye toward advancing those
development programs in the coming years.
Finally, as we look to advance our ability to
transform outcomes for chronic diseases, we
have forged a multi-year alliance with one of
the leading institutions in the field of gene
therapy – the University of Pennsylvania –
to create a therapeutic platform for a broad
range of diseases. Working with pioneers
in the field, we will explore next-generation
delivery in various tissues such as the retina,
skeletal muscle, and central nervous system
to determine the potential for extending gene
therapy into a broader spectrum of complex
diseases, including neurological conditions
with SMA as a priority.
The strength of our current pipeline is one
of the reasons why I chose to join Biogen. It
has the vast potential to help underserved
patients while driving future shareholder value.
But good is never good enough. In the coming
year, we will seek opportunities to augment
the pipeline through strategic acquisitions and
research collaborations as we work to become
the partner of choice in the study and creation
of new therapies for previously untreatable
neurologic conditions.
Honoring our Commitments
to Patients and Society
As we continue to evolve as an organization,
we remain fully committed to excellence in all
areas of our performance, including corporate
citizenship. Thanks to the dedication of our
employees and the strength of our programs
in such areas as diversity, inclusion, and
environmental sustainability, Biogen continues
to garner the respect and admiration of its peers
and the communities in which it operates.
Recognizing a societal obligation to inspire and
train the next generation of innovators, Biogen’s
pioneering Community Labs continue to lead
the way in STEM education. During 2016,
nearly 5,000 young students trained in our
laboratories in Cambridge, Massachusetts and
Research Triangle Park, North Carolina, gaining
invaluable hands-on experience and exposure
to the breadth of career opportunities in the
life sciences. Since Biogen’s first Community
Lab opened its doors in 2002, more than
40,000 students have learned through scientific
experimentation in our facilities and it has
become a model for the industry.
The Biogen Foundation continues its important
work to train the next generation of scientists
and educators by partnering with organizations
that provide key learning opportunities for
underprivileged students, develop teacher
KAI
Multiple sclerosis patient
“ I realize that my slow walk might be the best
and everything will happen in its own time. “
sprint of my life. I just have to keep my own pace
B I O G E N 9
Leading the Way
in STEM Education
training programs, and help increase the
within view. As members of the vibrant
number of under-represented minorities
r of und
biopharmaceuticals industry, we are working
in the health profession and biomedical
constantly to defi ne the value of our therapies
40,000+
STUDENTS TRAINED IN
OUR LABORATORIES
sciences.
to patients, payers, and health care systems.
And as global citizens, we are facing potential
Our patient assistance programs and
changes that may impact the ways in which
services also remain a critical resource for
we do business.
our patients. We continued this commitment
with the launch of a substantial Expanded
Today, we are in a position to attract, partner
Access Program for SPINRAZA in markets
with, and acquire assets and opportunities
around the world and the rollout of a
that complement our core business as we
comprehensive patient program in the US
prioritize our work in neuroscience. This
called SMA 360oTM. AboveMS®, our support
is where public health is mandating that
program for MS patients, served thousands
the industry lead and we intend to answer
last year and Biogen continues to offer
that call. An evolving payer landscape
co-pay assistance – and in some instances
and possible changes to the regulatory
free drugs – to ensure that all those who
environment are likely to impact our industry,
need our medicines can get them.
but we will approach these variables with the
same precision, diligence, and determination
As a carbon neutral company, we continue
that we apply to our pursuit of new medicines.
to work proactively to improve the quality of
our environment and measure the impact
In the year ahead, we will look to take
of our footprint. We are proud to remain a
calculated risks as we add to our pipeline
leader in key measures including the Dow
and expand our global footprint. We will
Jones Sustainability Index. By thoughtfully
evolve our commercial model and bolster our
deploying our resources – whether through
business development capabilities to execute
our capital, our medicines, or human talent –
on new opportunities. As we approach
we will succeed not only as a company but as
Biogen’s 40th anniversary, I am energized by
a valued and valuable contributor to society
the opportunity to translate our mission into
as a whole.
Looking Ahead
Biogen is at the center of a dynamic and
growing industry. As scientists and drug
developers, we are on the precipice of
unlocking the mysteries of many diseases
of the brain, which means life-changing
medicines for millions of people are
a compelling vision of growth and innovation
and to work with our employees around the
world to defi ne the next 40 years for our
company, our patients, and society.
Michel Vounatsos
Chief Executive Officer
1 0 2 0 1 6 A N N U A L R E P O R T
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PHASE 1
PHASE 2 PHASE 3 FILED
PRODUCT PIPELINE
Targeting Areas of High Unmet Medical Need
Aducanumab (Aß mAb)*
ALZHEIMER’S
DISEASE
E2609 (BACE inhibitor)*
BAN2401 (Aß mAb)*
TRIGEMINAL
NEURALGIA
BIIB074‡ (Nav1.7 inhibitor)
LUMBOSACRAL
RADICULOPATHY
BIIB074‡ (Nav1.7 inhibitor)
ERYTHROMELALGIA
BIIB074‡ (Nav1.7 inhibitor)
MULTIPLE
SCLEROSIS
ACUTE
ISCHEMIC
STROKE
Opicinumab (anti-LINGO-1)
BIIB061 (Oral remyelination)
Natalizumab (4-integrin inhibitor)
1 2 2 0 1 6 A N N U A L R E P O R T
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PHASE 1
PHASE 2 PHASE 3 FILED
X-LINKED
RETINOSCHISIS
(PHASE 1/2)
IDIOPATHIC
PULMONARY
FIBROSIS
LUPUS
XLRS Gene Therapy*
BG00011 (STX-100)
Dapirolizumab pegol (anti-CD40L)*
BIIB059 (anti-BDCA2)
PARKINSON’S
DISEASE
BIIB054 (anti-a-synuclein)
SOD1-ALS#
BIIB067 (IONIS-SOD-1Rx)*
AUTOIMMUNE
BIIB068 (BTK inhibitor)
MULTIPLE
IMMUNOLOGY
INDICATIONS
IN EUROPE
Biosimilar adalimumab*
NOTE: OCREVUS® (ocrelizumab) has been approved in the US and filed in the EU by Roche for primary progressive and relapsing forms of
MS. Roche also reported positive Phase 3 data for GAZYVA ® (obinutuzumab) in front-line indolent Non-Hodgkin’s Lymphoma. Biogen has
a financial interest in both OCREVUS and GAZYVA.
* Collaboration programs
‡ Formerly referred to as Raxatrigine
# Amyotrophic Lateral Sclerosis
B I O G E N 1 3
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EXECUTIVE COMMITTEE
(Left to Right)
Paul McKenzie, Ph.D.
Executive Vice President,
Pharmaceutical Operations & Technology
Alfred W. Sandrock, Jr., M.D., Ph.D.
Executive Vice President and Chief Medical Officer
Susan H. Alexander
Executive Vice President, Chief Legal,
Corporate Services and Secretary
Michel Vounatsos
Chief Executive Officer
Kenneth DiPietro
Executive Vice President,
Human Resources
Michael Ehlers, M.D., Ph.D.
Executive Vice President,
Research & Development
Paul J. Clancy
Executive Vice President,
Finance and Chief Financial Officer
FINANCIALS
GAAP to Non-GAAP Reconciliation
DILUTED EPS AND NET INCOME ATTRIBUTABLE TO BIOGEN INC.
(Unaudited, $ in millions, except per share amounts)
FY 2012
2013
2014 2015
2016
GAAP Diluted EPS
$5.76
$7.81
$12.37
$15.34 $16.93
Adjustments to net income attributable to Biogen Inc. (see below)
0.77
1.15
1.46
1.67
3.29
Non-GAAP diluted EPS
$6.53
$8.96
$13.83
$17.01
$20.22
GAAP Net Income Attributable to Bio gen Inc.
$1,380
$1,862
$2,935
$3,547
$3,703
TECFIDERA litigation settlement and license charges A
-
-
-
-
455
Amortization of acquired intangible assets
194
331
473
365
374
(Gain) loss on fair value remeasurement of contingent consideration
27
(1)
(39)
31
(Gain) loss on deconsolidation of variable interest entities
Hemophilia business separation costs
Restructuring, business transformation and other cost-saving initiatives:
Restructuring chargesB
Cambridge manufacturing facility rationalization costs C
Weston exit costs D
Donation to Biogen Foundation
-
-
2
-
-
-
-
-
-
-
27
-
Stock option expense and other
17
10
-
-
-
-
-
35
12
-
-
93
-
-
-
-
15
(4)
18
33
55
-
-
-
Income tax effect related to reconciling items
(53)
(93)
(135)
(104)
(225)
Non-GAAP Net Income Attributable to Biogen Inc.
$1,567
$2,136
$3,281
$3,932
$4,423
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B I O G E N 1 5
FINANCIALS
(Continued from previous page)
FREE CASH FLOW RECONCILIATION
(unaudited, $ in millions)
FY 2012
2013
2014 2015
2016
Net cash flows provided by operating activities
$1,880
$2,345
$2,942
$3,716
$4,522
Purchases of property, plant and equipment (Capital Expenditures)
255
246
288
643
616
Contingent consideration related to Fumapharm AG acquisition
-
15
375
850
1,200
Free Cash Flow
$1,625
$2,084
$2,279
$2,223
$2,706
A Under our settlement and license agreement with Forward Pharma A/S (Forward Pharma), we paid Forward Pharma $1.25 billion in cash.
The $455 million pre-tax charge recognized during the twelve months ended December 31, 2016 represents the portion of the $1.25
billion cash payment that is attributable to our sales of TECFIDERA during the period April 2014 through December 31, 2016.
B Restructuring charges for the twelve months ended December 31, 2016 and 2015 include $8 million and $93 million, respectively, of
costs incurred in connection with our 2015 corporate restructuring. Restructuring charges for the twelve months ended December 31,
2016 also includes charges of $18 million incurred in connection with additional cost-savings measures primarily intended to realign
our organizational structure in anticipation of the changes in roles and workforce resulting from our decision to spin off our hemophilia
business, and to achieve further targeted cost reductions and $7 million related to employee separation costs as a result of our decision
to vacate and cease manufacturing in Cambridge, MA and vacate our warehouse in Somerville, MA.
C Cambridge manufacturing facility rationalization costs reflect additional depreciation, the write-down of excess inventory and other direct
costs associated with our decision to vacate and cease manufacturing in Cambridge, MA and vacate our warehouse in Somerville, MA.
Additional depreciation expense, which totaled $46 million for the twelve months ended December 31, 2016, is included in cost of sales,
excluding amortization of acquired intangible assets in our condensed consolidated statements of income. Also reflected in this amount
for the twelve months ended December 31, 2016 are charges of $7 million for the write-down of excess inventory, which are included in
cost of sales, excluding amortization of acquired intangible assets in our condensed consolidated statements of income.
D This change represents the remaining lease obligation for the vacated portion of our Weston facility, net of sublease income upon reloca-
tion of our headquarters to Cambridge, MA.
NOTES: Our “Non-GAAP net income attributable to Biogen Inc.” and “Non-GAAP earnings per share - Diluted” fi nancial measures exclude the
following items from “GAAP net income attributable to Biogen Inc.” and “GAAP earnings per share - Diluted”: (1) purchase accounting and
merger-related adjustments, (2) hemophilia business separation costs, (3) restructuring, business transformation and other cost-saving ini-
tiatives, (4) stock option expense, (5) other select items, and (6) their related tax effects. Free cash fl ow is defi ned as net cash fl ows provided
by operating activities less purchases of property, plant and equipment and contingent consideration related to acquisition of Fumapharm
AG as disclosed within our Form 10-K. We believe that the disclosure of these Non-GAAP fi nancial measures provides additional insight into
the ongoing economics of our business and refl ects how we manage our business internally, set operational goals and forms the basis of our
management incentive programs. These Non-GAAP fi nancial measures are not in accordance with generally accepted accounting principles
in the United States and should not be viewed in isolation or as a substitute for reported, or GAAP, net income attributable to Biogen Inc. and
diluted earnings per share. Numbers may not foot due to rounding. Additional reconciliations of our Non-GAAP fi nancial measures can be
found in the Investors section of www.biogen.com.
1 6 2 0 1 6 A N N U A L R E P O R T
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SAFE HARBOR: This annual report contains forward-looking statements, including statements regarding our goals, prospects and business
strategies, potential of recently launched products, our pipeline and the development of new treatments and biosimilars, anticipated regulatory
filings and actions, anticipated data readouts, and research and development and business development activities. These forward-looking
statements may be accompanied by such words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,”
“plan,” “potential,” “project,” “target,” “will” and other words and terms of similar meaning. You should not place undue reliance on these
statements. These statements involve risks and uncertainties that could cause actual results to differ materially from those reflected in
such statements, including: our dependence on sales from our principal products; failure to compete effectively due to significant product
competition in the markets for our products; difficulties in obtaining and maintaining adequate coverage, pricing and reimbursement for
our products; risks associated with current and potential future health care reforms; the occurrence of adverse safety events, restrictions
on use with our products or product liability claims; failure to protect and enforce our data, intellectual property and other proprietary rights
and the risks and uncertainties relating to intellectual property claims and challenges; uncertainty of long-term success in developing,
licensing or acquiring other product candidates or additional indications for existing products; risks associated with clinical trials, including
our ability to adequately manage clinical activities, unexpected concerns that may arise from additional data or analysis obtained during
clinical trials, regulatory authorities may require additional information or further studies or may fail to approve or may delay approval of
our drug candidates; the risk that positive results in a clinical trial may not be replicated in subsequent or confirmatory trials or success in
early-stage clinical trials may not be predictive of results in later-stage or large-scale clinical trials or trials in other potential indications;
problems with our manufacturing processes; our dependence on collaborators and other third parties for the development and commer-
cialization of products and other aspects of our business, which are outside of our control; failure to manage our growth and execute our
growth initiatives; failure to achieve the anticipated benefits and savings from our corporate restructuring efforts; risks relating to technolo-
gy failures or breaches; failure to comply with legal and regulatory requirements; risks related to indebtedness; the risks of doing business
internationally, including currency exchange rate fluctuations; charges and other costs relating to our properties; fluctuations in our effective
tax rate; risks relating to investment in and expansion of manufacturing capacity for future clinical and commercial requirements; the mar-
ket, interest and credit risks associated with our portfolio of marketable securities; risks relating to our ability to repurchase stock, including
at favorable prices; risks relating to access to capital and credit markets; environmental risks; risks relating to the sale and distribution by
third parties of counterfeit versions of our products; risks relating to the use of social media for our business; change in control provisions
in certain of our collaboration agreements; and the other risks and uncertainties that are described in the Risk Factors section of our most
recent annual or quarterly report and in other reports we have filed with the SEC. These statements are based on our current beliefs and
expectations and speak only as of April 1, 2017. We do not undertake any obligation to publicly update any forward-looking statements.
NOTE REGARDING TRADEMARKS: BENEPALI®, BIOGEN®, FLIXABI®, TECFIDERA®, TYSABRI®, and ZINBRYTA® are registered trademarks of
Biogen. SPINRAZATM is a trademark of Biogen. All other trademarks are the intellectual property of their respective owners.
B I O G E N 1 7
1 8 2 0 1 6 A N N U A L R E P O R T
B I O G E N 1 6
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-19311
BIOGEN INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
33-0112644
(I.R.S. Employer Identification No.)
225 Binney Street, Cambridge, Massachusetts 02142
(617) 679-2000
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.0005 par value
Name of Each Exchange on Which Registered
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files): Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes
No
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant (without admitting
that any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at
which the common stock was last sold as of the last business day of the registrant’s most recently completed second
fiscal quarter was $52,843,669,823.
As of January 27, 2017, the registrant had 215,951,945 shares of common stock, $0.0005 par value, outstanding.
Portions of the definitive proxy statement for our 2017 Annual Meeting of Stockholders are incorporated by reference
into Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
BIOGEN INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2016
TABLE OF CONTENTS
Item 1.
Business
Item 1A.
Item 1B. Unresolved Staff Comments
Risk Factors
Properties
p
Legal Proceedings
g
g
y
Mine Safety Disclosures
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
g
Purchases of Equity Securities
q
Selected Financial Data
y,
q
y
Management’s Discussion and Analysis of Financial Condition and Results of
g
Operations
Q
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Q
p
y
Item 8.
Item 9.
Item 9A.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
g
Disclosure
Controls and Procedures
pp
g
g
y
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
p
,
Item 11.
Item 12.
Item 13.
p
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
p
Certain Relationships and Related Transactions, and Director Independence
p
p
g
y
,
Item 14.
g
Principal Accounting Fees and Services
p
Item 15.
Exhibits and Financial Statement Schedules
PART IV
g
Signatures
Consolidated Financial Statements
Exhibit Index
Page
1
29
41
42
43
43
44
46
48
79
81
81
82
82
83
83
83
83
83
84
85
F- 1
A- 1
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are being made pursuant to the provisions of the Private
Securities Litigation Reform Act of 1995 (the Act) with the intention of obtaining the benefits of the “Safe Harbor”
provisions of the Act. These forward-looking statements may be accompanied by such words as “anticipate,”
“believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “target,” “will” and
other words and terms of similar meaning. Reference is made in particular to forward-looking statements regarding:
•
the anticipated amount, timing and accounting of revenues, contingent payments, milestone, royalty and other
payments under licensing, collaboration or acquisition agreements, tax positions and contingencies,
collectability of receivables, pre-approval inventory, cost of sales, research and development costs,
compensation and other selling, general and administrative expenses, amortization of intangible assets, foreign
currency exchange risk, estimated fair value of assets and liabilities, and impairment assessments;
• expectations, plans and prospects relating to sales, pricing, growth and launch of our marketed and pipeline
products;
•
•
•
the potential impact of increased product competition in the markets in which we compete;
the spin off of our hemophilia business, including its anticipated benefits, costs and tax treatment;
the anticipated amount and timing of payments under the Settlement and License Agreement with Forward
Pharma A/S (Forward Pharma) and the timing, outcome and impact of administrative, regulatory, legal and other
proceedings related to our patents and other proprietary intellectual property rights under our agreement with
Forward Pharma;
• patent terms, patent term extensions, patent office actions and expected availability and period of regulatory
exclusivity;
•
•
the costs and timing of potential clinical trials, filing and approvals, and the potential therapeutic scope of the
development and commercialization of our and our collaborators’ pipeline products;
the drivers for growing our business, including our plans and intent to commit resources relating to business
development opportunities and research and development programs;
• potential costs and expenses incurred in connection with corporate restructurings and to execute business
transformation and optimization initiatives;
• our manufacturing capacity, use of third-party contract manufacturing organizations and plans and timing
relating to the expansion of our manufacturing capabilities, including anticipated investments and activities in
new manufacturing facilities;
•
•
•
•
•
the expected financial impact of ceasing manufacturing activities and vacating our biologics manufacturing
facility in Cambridge, MA and warehouse space in Somerville, MA;
the potential impact on our results of operations and liquidity of the United Kingdom's (U.K.'s) intent to
voluntarily depart from the European Union (E.U.);
the impact of the continued uncertainty of the credit and economic conditions in certain countries in Europe
and our collection of accounts receivable in such countries;
the potential impact of healthcare reform in the United States (U.S.) and measures being taken worldwide
designed to reduce healthcare costs to constrain the overall level of government expenditures, including the
impact of pricing actions and reduced reimbursement for our products;
the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to patents
and other proprietary and intellectual property rights, tax audits, assessments and settlements, pricing matters,
sales and promotional practices, product liability and other matters;
•
lease commitments, purchase obligations and the timing and satisfaction of other contractual obligations;
• our ability to finance our operations and business initiatives and obtain funding for such activities; and
•
the impact of new laws and accounting standards.
These forward-looking statements involve risks and uncertainties, including those that are described in the
“Risk Factors” section of this report and elsewhere in this report, that could cause actual results to differ materially
from those reflected in such statements. You should not place undue reliance on these statements. Forward-looking
statements speak only as of the date of this report. Except as required by law, we do not undertake any obligation to
publicly update any forward-looking statements, whether as a result of new information, future developments or
otherwise.
NOTE REGARDING COMPANY AND PRODUCT REFERENCES
References in this report to:
• “Biogen,” the “company,” “we,” “us” and “our” refer to Biogen Inc. and its consolidated subsidiaries;
• “RITUXAN” refers to both RITUXAN (the trade name for rituximab in the U.S., Canada and Japan) and MabThera
(the trade name for rituximab outside the U.S., Canada and Japan);
• "ELOCTATE" refers to both ELOCTATE (the trade name for Antihemophilic Factor (Recombinant), Fc Fusion
Protein in the U.S., Canada and Japan) and ELOCTA (the trade name for Antihemophilic Factor (Recombinant),
Fc Fusion Protein in the E.U.); and
• “ANGIOMAX” refers to both ANGIOMAX (the trade name for bivalirudin in the U.S., Canada and Latin America)
and ANGIOX (the trade name for bivalirudin in Europe).
NOTE REGARDING TRADEMARKS
AVONEX®, BENEPALI®, FLIXABI®, PLEGRIDY®, RITUXAN®, TECFIDERA®, TYSABRI® and ZINBRYTA® are
registered trademarks of Biogen. FUMADERMTM and SPINRAZATM are trademarks of Biogen. ALPROLIX®, ELOCTATE®,
ENBREL®, FAMPYRATM, GAZYVA®, HUMIRA®, OCREVUS®, REMICADE® and other trademarks referenced in this
report are the property of their respective owners.
Item 1.
Business
Overview
PART I
Biogen is a global biopharmaceutical company focused on discovering, developing, manufacturing and
delivering therapies to people living with serious neurological, rare and autoimmune diseases.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, ZINBRYTA and FAMPYRA for multiple
sclerosis (MS), FUMADERM for the treatment of severe plaque psoriasis and SPINRAZA for the treatment of spinal
muscular atrophy (SMA). We also have certain business and financial rights with respect to RITUXAN for the
treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions, GAZYVA indicated
for the treatment of CLL and follicular lymphoma and other potential anti-CD20 therapies under a collaboration
agreement with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group (Roche Group).
We support our drug discovery and development efforts through the commitment of significant resources to
discovery, research and development programs and business development opportunities, particularly within areas of
our scientific, manufacturing and technical capabilities. For nearly two decades we have led in the research and
development of new therapies to treat MS, resulting in our leading portfolio of MS treatments. Now our research is
focused on additional improvements in the treatment of MS, such as the development of next generation therapies
for MS, with a goal to reverse or possibly repair damage caused by the disease. We are also applying our scientific
expertise to solve some of the most challenging and complex diseases, including Alzheimer's disease, Parkinson's
disease and amyotrophic lateral sclerosis (ALS), and are employing innovative technologies to discover potential
treatments for rare and genetic disorders, including new ways of treating diseases through gene therapy.
Our innovative drug development and commercialization activities are complemented by our biosimilar therapies
that expand access to medicines and reduce the cost burden for healthcare systems. We are leveraging our
manufacturing capabilities and know-how to develop, manufacture and market biosimilars through Samsung Bioepis,
our joint venture with Samsung BioLogics Co. Ltd. (Samsung Biologics). Under this agreement, we are currently
manufacturing and commercializing two anti-tumor necrosis factor (TNF) biosimilars in certain European Union (E.U.)
countries.
1
Key Developments
During 2016 we had a number of key developments affecting our business.
Corporate Matters
Hemophilia Spin-Off
Management Changes
In May 2016 we announced our intention to spin
During 2016 we appointed several new
off our hemophilia business, Bioverativ Inc.
(Bioverativ), as an independent, publicly traded
company. Bioverativ will focus on the discovery,
development and commercialization of therapies for
treatment of hemophilia and other blood disorders,
including ELOCTATE for the treatment of hemophilia A
and ALPROLIX for the treatment of hemophilia B.
Bioverativ will also assume all of our rights and
obligations under our collaboration agreement with
Swedish Orphan Biovitrum AB (Sobi) and our
collaboration and license agreement with Sangamo
Biosciences Inc. (Sangamo).
On February 1, 2017, we completed the
distribution of all the then outstanding shares of
common stock of Bioverativ to Biogen stockholders,
who received one share of Bioverativ common stock
for every two shares of Biogen common stock. As a
result of the distribution, Bioverativ is now an
independent public company whose shares of
common stock are trading under the symbol "BIVV"
on the Nasdaq Global Select Market.
The financial results of Bioverativ are included in
our consolidated results of operations and financial
position in our audited consolidated financial
statements for the periods presented in this Form 10-
K. The financial results of Bioverativ will be excluded
from our consolidated results of operations and
financial position commencing February 1, 2017. For
additional information regarding the separation of
Bioverativ, please read Note 26, Subsequent Events to
our consolidated financial statements included in this
report.
executives, each of whom has significant experience
in the biopharmaceutical industry and is a leader in
his or her functional area. These include Michel
Vounatsos, Chief Executive Officer, Michael D. Ehlers,
Executive Vice President, Research and Development
and Paul McKenzie, Executive Vice President,
Pharmaceutical Operations and Technology. For
additional information related to these and our other
Executive Officers, please read "Our Executive
Officers" included in this report.
Cost Saving Initiatives
In 2016 we initiated cost saving measures
intended to realign our organizational structure in
anticipation of the changes in roles and workforce
resulting from our decision to spin off our hemophilia
business, as well as to achieve further targeted cost
reductions.
In December 2016 after an evaluation of our
manufacturing capacity and needs, we ceased
manufacturing at our Cambridge, MA manufacturing
facility and subleased our rights to this facility to
Brammer Bio MA, LLC (Brammer). In addition to the
sublease, Brammer purchased certain leasehold
improvements and other assets at this facility and
agreed to provide certain manufacturing and other
transition and support services to us.
TECFIDERA Settlement and License Agreement
In January 2017 we agreed to enter into a
settlement and license agreement with Forward
Pharma A/S (Forward Pharma). The settlement and
license agreement provides us an irrevocable license
to all intellectual property owned by Forward Pharma
and results in the termination of the German
Infringement Litigation. Under the terms of the
settlement and license agreement with Forward
Pharma, we agreed to pay Forward Pharma $1.25
billion in cash. During the fourth quarter of 2016 we
recognized a pre-tax charge of $454.8 million related
to this matter. For more information on the settlement
and license agreement please read Note 21,
Commitments and Contingencies to our consolidated
financial statements included in this report.
2
Product/Pipeline Developments
TYSABRI (natalizumab)
Multiple Sclerosis
In June 2016 the European Commission (EC) approved a variation to the marketing authorization of TYSABRI,
which extended its indication to include relapsing-remitting MS patients with highly active disease activity
despite a full and adequate course of treatment with at least one disease modifying therapy. TYSABRI was
previously indicated only for patients who had failed to respond to beta-interferon or glatiramer acetate in the
E.U.
ZINBRYTA (daclizumab)
ZINBRYTA was approved for the treatment of relapsing forms of MS in the U.S. in May 2016 and the E.U. in
July 2016.
Opicinumab (Anti-LINGO-1)
In June 2016 we reported top-line results from SYNERGY, our Phase 2 trial evaluating opicinumab in people
with relapsing forms of MS. Opicinumab did not meet the primary endpoint or its secondary efficacy endpoint.
However, based on these results, there was a subset of patients within the study that we believe have
potential to benefit from treatment, and we are therefore planning another Phase 2 clinical trial related to
opicinumab.
Aducanumab (BIIB037)
Neurodegeneration
In June 2016 we announced that aducanumab, our investigational treatment for early Alzheimer’s disease,
was accepted into the European Medicines Agency's (EMA's) Priority Medicines (PRIME) program. PRIME aims
to bring treatments to patients more quickly by enhancing the EMA's support for the development of
investigational medicines for diseases without available treatments or in need of better treatment options.
In September 2016 aducanumab was granted "Fast Track" designation by the U.S. Food and Drug
Administration (FDA). The FDA’s Fast Track program supports the development of new treatments for serious
conditions with an unmet medical need such as Alzheimer’s disease.
In September 2016 we announced that efficacy and safety data from an additional interim analysis from our
Phase 1b study of aducanumab in early Alzheimer's disease were consistent with results previously reported
from the Phase 1b study.
In December 2016 we presented new data from the Phase 1b study of aducanumab, which included interim
results from the titration cohort of the placebo-controlled period of the Phase 1b study as well as data from
the first year of the long-term extension. The results supported the ongoing Phase 3 studies of aducanumab
for early Alzheimer’s disease.
SPINRAZA (nusinersen)
Rare Diseases
In August 2016 we and Ionis Pharmaceuticals, Inc. (Ionis) announced that SPINRAZA met the primary
endpoint for the interim analysis of ENDEAR, the Phase 3 trial evaluating SPINRAZA in infantile-onset
(consistent with Type 1) SMA. Based on these results, we exercised our option under our collaboration
agreement with Ionis to assume development and commercialization of SPINRAZA, and paid Ionis a $75.0
million license fee in connection with our option exercise.
In September 2016 we completed the rolling submission of a New Drug Application (NDA) to the FDA for the
approval of SPINRAZA, and in October 2016 we filed a marketing authorization application (MAA) with the
EMA, which had already granted Accelerated Assessment status to SPINRAZA. These applications have been
accepted for review by the applicable regulatory authorities.
In October 2016 we dosed our first patient in our infantile-onset SMA Expanded Access Program to provide
patient access to SPINRAZA.
In November 2016 we and Ionis announced that SPINRAZA met the primary endpoint for the interim analysis
of CHERISH, the Phase 3 trial evaluating SPINRAZA in later-onset (consistent with Type 2) SMA. The analysis
found that children receiving SPINRAZA experienced a highly statistically significant improvement in motor
function compared to those who did not receive treatment. SPINRAZA demonstrated a favorable safety profile
in the study.
In December 2016 SPINRAZA was approved by the FDA for the treatment of SMA in pediatric and adult
patients in the U.S. The FDA also issued us a rare pediatric disease priority review voucher with the approval
of SPINRAZA, which confers priority review to a subsequent drug application that would not otherwise qualify
for priority review.
3
Biosimilars (Samsung Bioepis - Biogen's Joint Venture with Samsung Biologics)
BENEPALI
In January 2016 the EC approved Samsung Bioepis' MAA for BENEPALI, an etanercept biosimilar referencing
ENBREL, for marketing in the E.U. Under our agreement with Samsung Bioepis, we are manufacturing and
commercializing BENEPALI in specified E.U. countries.
FLIXABI
In May 2016 the EC approved Samsung Bioepis' MAA for FLIXABI, an infliximab biosimilar candidate
referencing REMICADE, for marketing in the E.U. Under our agreement with Samsung Bioepis, we are
manufacturing and commercializing FLIXABI in specified E.U. countries.
Adalimumab (SB5)
In July 2016 the EMA accepted Samsung Bioepis' MAA for SB5, an adalimumab biosimilar candidate
referencing HUMIRA.
GAZYVA (obinutuzumab)
Genentech Relationships
In February 2016 the Roche Group announced that the FDA approved GAZYVA plus bendamustine
chemotherapy followed by GAZYVA alone as a new treatment for people with follicular lymphoma who did not
respond to a RITUXAN-containing regiment, or whose follicular lymphoma returned after such treatment.
In May 2016 the Roche Group announced positive results from the Phase 3 GALLIUM study, which
investigated the efficacy and safety of GAZYVA in combination with chemotherapy followed by maintenance
with GAZYVA alone, compared to RITUXAN in combination with chemotherapy followed by maintenance with
RITUXAN alone in previously untreated patients with follicular lymphoma. Results from pre-planned interim
analysis showed that GAZYVA-based treatment significantly reduced the risk of disease worsening or death
compared to RITUXAN-based treatment.
In July 2016 the Roche Group announced that the Phase 3 GOYA study evaluating GAZYVA plus CHOP
chemotherapy in people with previously untreated diffuse large B-cell lymphoma did not meet its primary
endpoint of significantly reducing the risk of disease worsening or death compared to RITUXAN plus CHOP
chemotherapy. Adverse events with GAZYVA and RITUXAN were consistent with those seen in previous clinical
trials when each was combined with various chemotherapies.
OCREVUS (ocrelizumab)
In June 2016 the Roche Group announced that the EMA validated its MAA of OCREVUS for the treatment of
relapsing multiple sclerosis (RMS) and primary progressive multiple sclerosis (PPMS) in the E.U. The FDA has
also accepted for review the Roche Group's Biologics License Application (BLA) for OCREVUS for the
treatment of RMS and PPMS.
RITUXAN (rituximab)
In November 2016 Genentech announced the FDA accepted its BLA for a subcutaneous formulation of
RITUXAN.
During 2016 we discontinued development of amiselimod (MT-1303) under our agreement with Mitsubishi
Tanabe Pharma Corporation, and IONIS-DMPKRx under one of our collaboration agreements with Ionis.
Additionally, we terminated our collaboration agreements with Rodin Therapeutics, Inc. and Ataxion Inc.
Discontinued Programs
4
Marketed Products
The following graphs show our revenues by product and revenues from anti-CD20 therapeutic programs and
geography as a percentage of revenue for the years ended December 31, 2016, 2015 and 2014.
i
f
d PLEGRIDY
(1) Interferon includes AVONEX and PLEGRIDY
(1) I t
(2) Other includes ZINBRYTA, FAMPYRA, ELOCTATE, ALPROLIX,
FUMADERM, SPINRAZA, BENEPALI and FLIXABI
AVONEX
l d
Product sales for TECFIDERA, AVONEX and TYSABRI and anti-CD20 therapeutic programs for RITUXAN each
accounted for more than 10% of our total revenue for the years ended December 31, 2016, 2015 and 2014. For
additional financial information about our product and other revenues and geographic areas in which we operate,
please read Note 24, Segment Information to our consolidated financial statements, Item 6. Selected Financial Data
and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in this
report. A discussion of the risks attendant to our operations is set forth in the “Risk Factors” section of this report.
5
Multiple Sclerosis
We develop, manufacture and market a number of products designed to treat patients with MS. MS is a
progressive neurological disease in which the body loses the ability to transmit messages along nerve cells, leading
to a loss of muscle control, paralysis and, in some cases, death. Patients with active relapsing MS experience an
uneven pattern of disease progression characterized by periods of stability that are interrupted by flare-ups of the
disease after which the patient returns to a new baseline of functioning.
Our MS products and major markets include:
Product
Indication
Collaborator
Major Markets
Relapsing forms of MS in the U.S.
Relapsing-remitting MS (RRMS) in
the E.U.
None
Relapsing forms of MS
None
Relapsing forms of MS in the U.S.
RRMS in the E.U.
Relapsing forms of MS
Crohn's disease in the U.S.
None
None
Relapsing forms of MS
AbbVie Inc. (AbbVie)
U.S.
France
Germany
Italy
Spain
United Kingdom
U.S.
France
Germany
Italy
Spain
United Kingdom
U.S.
France
Germany
Italy
Spain
United Kingdom
U.S.
France
Germany
Italy
Spain
United Kingdom
U.S.
Germany
Walking ability for patients with MS
Acorda Therapeutics, Inc.
(Acorda)
France
Germany
Spain
Spinal Muscular Atrophy
SMA is characterized by loss of motor neurons in the spinal cord and lower brain stem, resulting in severe and
progressive muscular atrophy and weakness. Ultimately, individuals with the most severe type of SMA can become
paralyzed and have difficulty performing the basic functions of life, like breathing and swallowing. Due to a loss of, or
defect in the SMN1 gene, people with SMA do not produce enough survival motor neuron (SMN) protein, which is
critical for the maintenance of motor neurons. The severity of SMA correlates with the amount of SMN protein.
People with Type 1 SMA, the most severe life-threatening form, produce very little SMN protein and do not achieve
the ability to sit without support or live beyond two years without respiratory support. People with Type 2 and Type 3
produce greater amounts of SMN protein and have less severe, but still life-altering, forms of SMA.
In December 2016 the FDA approved SPINRAZA for the treatment of SMA in pediatric and adult patients. We
are currently in the early stages of commercial launch in the U.S.
6
Our products for SMA and major markets include:
Product
Indication
Collaborator
Major Markets
Spinal muscular atrophy
Ionis
U.S.
Other
Product
Biosimilars
Indication
Collaborator
Major Markets
Moderate to severe plaque
psoriasis
None
Germany
Biosimilars are a group of biologic medicines that are similar to currently available biologic therapies known as
originators. Under our agreement with Samsung Bioepis, we manufacture and commercialize two anti-TNF biosimilars
in certain countries in the E.U.: BENEPALI, an etanercept biosimilar referencing ENBREL and FLIXABI, an infliximab
biosimilar referencing REMICADE:
Product
Indication
Moderate to severe rheumatoid arthritis
Progressive psoriatic arthritis
Axial spondyloarthritis
Moderate to severe plaque psoriasis
Rheumatoid arthritis
Moderate to severe Crohn's disease
Severe ulcerative colitis
Severe ankylosing spondylitis
Psoriatic arthritis
Moderate to severe plaque psoriasis
Major Markets
Denmark
Germany
Netherlands
Norway
United Kingdom
Germany
Netherlands
United Kingdom
Genentech Relationships
We have a collaboration agreement with Genentech that entitles us to certain business and financial rights
with respect to RITUXAN, GAZYVA and other anti-CD20 product candidates. Current products include:
Product
Indication
Non-Hodgkin's lymphoma
CLL
Rheumatoid arthritis
Two forms of ANCA-associated vasculitis
Major Markets
U.S.
Canada
In combination with chlorambucil for previously untreated CLL
Follicular lymphoma
U.S.
For information about our anti-CD20 therapeutic programs and related agreements with Genentech, please
read Note 1, Summary of Significant Accounting Policies and Note 19, Collaborative and Other Relationships to our
consolidated financial statements included in this report.
7
Patient Support and Access
Marketing and Distribution
We interact with patients, advocacy
Sales Force and Marketing
organizations and healthcare societies in order to gain
insights into unmet needs. The insights gained from
these engagements help us support patients with
services, programs and applications that are designed
to help patients lead better lives. Among other things,
we provide customer service and other related
programs for our products, such as disease and
product specific websites, insurance research
services, financial assistance programs, and the
facilitation of the procurement of our marketed
products.
We are dedicated to helping patients obtain
access to our therapies. Our patient representatives
have access to a comprehensive suite of financial
assistance tools. With those tools, we help patients
understand their insurance coverage and, if needed,
help patients compare and select new insurance
options and programs. In the U.S., we have
established programs that provide co-pay assistance
or free marketed product for qualified uninsured or
underinsured patients, based on specific eligibility
criteria. We also provide charitable contributions to
independent charitable organizations that assist
patients with out-of-pocket expenses associated with
their therapy.
We promote our products worldwide, including in
the U.S., most of the major countries of the E.U. and
Japan, primarily through our own sales forces and
marketing groups. In some countries, particularly in
areas where we continue to expand into new
geographic areas, we partner with third parties. We
co-promote ZINBRYTA with AbbVie in the U.S., E.U.
and Canadian territories.
We focus our sales and marketing efforts on
specialist physicians in private practice or at major
medical centers. We use customary pharmaceutical
company practices to market our products and to
educate physicians, such as sales representatives
calling on individual physicians, advertisements,
professional symposia, direct mail, public relations
and other methods.
Distribution Arrangements
We distribute our products in the U.S. principally
through wholesale distributors of pharmaceutical
products, mail order specialty distributors or shipping
service providers. In other countries, the distribution
of our products varies from country to country,
including through wholesale distributors of
pharmaceutical products and third-party distribution
partners who are responsible for most marketing and
distribution activities.
AbbVie distributes ZINBRYTA in the U.S., and we
distribute ZINBRYTA in ex-U.S. markets.
RITUXAN and GAZYVA are marketed and
distributed by the Roche Group and its sublicensees.
Our product sales to two wholesale distributors,
AmerisourceBergen and McKesson, each accounted
for more than 10% of our total revenues for the years
ended December 31, 2016, 2015 and 2014, and on
a combined basis, accounted for approximately 60%
of our gross product revenues for such years,
respectively. For additional information, please read
Note 1, Summary of Significant Accounting Policies to
our consolidated financial statements included in this
report.
8
Patents and Other Proprietary Rights
Patents are important to obtaining and
protecting exclusive rights in our products and product
candidates. We regularly seek patent protection in the
U.S. and in selected countries outside the U.S. for
inventions originating from our research and
development efforts. In addition, we license rights to
various patents and patent applications.
U.S. patents, as well as most foreign patents,
are generally effective for 20 years from the date the
earliest application was filed; however, U.S. patents
that issue on applications filed before June 8,
1995 may be effective until 17 years from the issue
date, if that is later than the 20 year date. In some
cases, the patent term may be extended to recapture
a portion of the term lost during regulatory review of
the claimed therapeutic or, in the case of the U.S.,
because of U.S. Patent and Trademark Office (USPTO)
delays in prosecuting the application. Specifically, in
the U.S., under the Drug Price Competition and Patent
Term Restoration Act of 1984, commonly known as
the Hatch-Waxman Act, a patent that covers an FDA-
approved drug may be eligible for patent term
extension (for up to five years, but not beyond a total
of 14 years from the date of product approval) as
compensation for patent term lost during the FDA
regulatory review process. The duration and extension
of the term of foreign patents varies, in accordance
with local law. For example, supplementary protection
certificates (SPCs) on some of our products have
been granted in a number of European countries,
compensating in part for delays in obtaining
marketing approval.
Regulatory exclusivity, which may consist of
regulatory data protection and market protection, also
can provide meaningful protection for our products.
Regulatory data protection provides to the holder of a
drug or biologic marketing authorization, for a set
period of time, the exclusive use of the proprietary
pre-clinical and clinical data that it created at
significant cost and submitted to the applicable
regulatory authority to obtain approval of its product.
After the applicable set period of time, third parties
are then permitted to rely upon our data to file for
approval of their abbreviated applications for, and to
market (subject to any applicable market protection),
their generic drugs and biosimilars referencing our
data. Market protection provides to the holder of a
drug or biologic marketing authorization the exclusive
right to commercialize its product for a set period of
time, thereby preventing the commercialization of
another product containing the same active
ingredient(s) during that period. Although the World
Trade Organization's agreement on trade-related
aspects of intellectual property rights (TRIPS) requires
signatory countries to provide regulatory exclusivity to
innovative pharmaceutical products, implementation
and enforcement varies widely from country to
country.
We also rely upon other forms of unpatented
confidential information to remain competitive. We
protect such information principally through
confidentiality agreements with our employees,
consultants, outside scientific collaborators,
scientists whose research we sponsor and other
advisers. In the case of our employees, these
agreements also provide, in compliance with relevant
law, that inventions and other intellectual property
conceived by such employees during their employment
shall be our exclusive property.
Our trademarks are important to us and are
generally covered by trademark applications or
registrations in the USPTO and the patent or
trademark offices of other countries. We also use
trademarks licensed from third parties, such as the
trademark FAMPYRA which we license from Acorda.
Trademark protection varies in accordance with local
law, and continues in some countries as long as the
trademark is used and in other countries as long as
the trademark is registered. Trademark registrations
generally are for fixed but renewable terms.
Our Patent Portfolio
The following table describes our patents in the
U.S. and Europe that we currently consider of primary
importance to our marketed products, including the
territory, patent number, general subject matter and
expected expiration dates. Except as otherwise noted,
the expected expiration dates include any granted
patent term extensions and issued SPCs. In some
instances, there are later-expiring patents relating to
our products directed to, among other things,
particular forms or compositions, methods of
manufacturing, or use of the drug in the treatment of
particular diseases or conditions. We also continue to
pursue additional patents and patent term extensions
in the U.S. and other territories covering various
aspects of our products that may, if issued, extend
exclusivity beyond the expiration of the patents listed
in the table.
9
Product
TECFIDERA
AVONEX and
PLEGRIDY
PLEGRIDY
TYSABRI
FAMPYRA
ZINBRYTA
SPINRAZA
Territory
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
Europe
Europe
U.S.
U.S.
U.S.
U.S.
Europe
Europe
U.S.
U.S.
U.S.
U.S.
Europe
Europe
Europe
Europe
U.S.
U.S.
U.S.
Europe
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
Europe
Europe
Footnotes follow on next page.
Patent No.
7,619,001
7,803,840
8,399,514
8,524,773
6,509,376
8,759,393
7,320,999
1131065
2137537
7,588,755
7,446,173
8,524,660
8,017,733
1656952
1476181
5,840,299
6,602,503
7,807,167
9,493,567
0804237
1485127
1732548
23775536
8,454,965
7,258,859
9,340,619
1539200
6,166,197
6,210,892
7,101,993
7,838,657
8,110,560
8,361,977
8,980,853
1910395
2548560
General Subject Matter
Methods of treatment
Methods of treatment
Methods of treatment
Methods of treatment
Formulations of dialkyl fumarates for use in the
treatment of autoimmune diseases
Formulations
Methods of treatment
Formulations of dialkyl fumarates and their use for
treating autoimmune diseases
Methods of use
Use of recombinant beta interferon for
immunomodulation
Polymer conjugates of interferon beta-1a
Methods of treatment
Polymer conjugates of interferon beta-1a
Polymer conjugates of interferon-beta-1a and uses
thereof
Polymer conjugates of interferon-beta-1a and uses
thereof
Humanized immunoglobulins; nucleic acids;
pharmaceutical compositions; methods of use
Humanized recombinant antibodies; nucleic acids and
host cells; processes for production; therapeutic
compositions; methods of use
Methods of treatment
Methods of treatment
Humanized immunoglobulins; nucleic acids;
pharmaceutical compositions; medical uses
Methods of use
Sustained-release aminopyridine compositions for
increasing walking speed in patients with MS
Sustained-release aminopyridine compositions for
treating MS
Methods of treatment
Methods of treatment
Daclizumab HYP compositions
Anti-IL-2-receptor antibody for use in a method of
treating a subject with MS
Oligomeric Compounds Having Pyrimidine Nucleotide(s)
Alteration of Cellular Behavior By Antisense Modulation
of MRNA Processing
Oligonucleotides Containing 2’-O-Modified Purines
SMA Treatment Via Targeting of SMN2 Splice Site
Inhibitory Sequences
SMA Treatment Via Targeting of SMN2 Splice Site
Inhibitory Sequences
Compositions And Methods For Modulation of SMN2
Splicing
Compositions And Methods For Modulation of SMN2
Splicing
Compositions And Methods For Modulation of SMN2
Splicing
Compositions And Methods For Modulation of SMN2
Splicing
10
Patent
Expiration(1)
2018
2018
2028
2018
2019
2019
2020
2019(2)
2028(3)
2026
2022
2023
2025
2019
2023
2017
2020
2023
2027
2020(4)
2023
2025(5)
2025(6)
2024
2024
2032
2023
2017
2018
2023
2027
2025
2030
2030
2026
2026
(1) In addition to patent protection, certain of our products are entitled to regulatory exclusivity in the U.S. and the E.U. expected
until the dates set forth below:
Territory
TYSABRI
PLEGRIDY
Product
TECFIDERA U.S.
E.U.
U.S.
E.U.
U.S.
E.U.
E.U.
U.S.
E.U.
U.S.
FAMPYRA
ZINBRYTA
SPINRAZA
Expected Expiration
2018
2024
2026
2024
2016
2016
2021
2028
*
2023
*ZINBRYTA was not designated a new active substance at the time of its approval in the E.U. and is not automatically entitled to regulatory
exclusivity. Regulatory exclusivity may, however, be available for independent development of known active substances. We intend to assert
the protection of its data on this basis.
(2) This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries
to 2024.
(3) This patent was revoked in a European opposition. This decision is being appealed. The patent is subject to granted
SPCs in certain European countries, which extended the patent term in those countries to 2029.
(4) Reflects SPCs granted in most European countries.
(5) This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries
to 2026.
(6) This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries
to 2026.
The existence of patents does not guarantee our right to practice the patented technology or commercialize the
patented product. Patents relating to pharmaceutical, biopharmaceutical and biotechnology products, compounds
and processes, such as those that cover our existing compounds, products and processes and those that we will
likely file in the future, do not always provide complete or adequate protection. Litigation, interferences, oppositions,
inter partes reviews or other proceedings are, have been and may in the future be necessary in some instances to
determine the validity and scope of certain of our patents, regulatory exclusivities or other proprietary rights, and in
other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties
to be pertinent to the manufacture, use or sale of our products. We may also face challenges to our patents,
regulatory exclusivities and other proprietary rights covering our products by manufacturers of generics and
biosimilars. A discussion of certain risks and uncertainties that may affect our patent position, regulatory
exclusivities and other proprietary rights is set forth in the “Risk Factors” section of this report, and a discussion of
legal proceedings related to certain patents described above is set forth in Note 20, Litigation to our consolidated
financial statements included in this report.
”
11
Additional information about the competition that
our marketed products face is set forth below.
Multiple Sclerosis
TECFIDERA, AVONEX, PLEGRIDY, TYSABRI and
ZINBRYTA each compete with one or more of the
following products:
Competing Product
AUBAGIO (teriflunomide)
BETASERON/BETAFERON
(interferon-beta-1b)
COPAXONE
(glatiramer acetate)
EXTAVIA
(interferon-beta-1b)
GLATOPA (glatiramer
acetate)
GILENYA (fingolimod)
LEMTRADA
(alemtuzumab)
REBIF
(interferon-beta-1)
Competitor
Sanofi
Bayer Group
Teva Pharmaceuticals
Industries Ltd.
Novartis AG
Sandoz, a division of
Novartis AG
Novartis AG
Sanofi
Merck KGaA (and co-
promoted with Pfizer Inc.
in the U.S.)
FAMPYRA is indicated as a treatment to improve
walking in adult patients with MS who have walking
disability and is the first treatment that addresses
this unmet medical need with demonstrated efficacy
in people with all types of MS. FAMPYRA is currently
the only therapy approved to improve walking in
patients with MS.
Competition in the MS market is intense. Along
with us, a number of companies are working to
develop additional treatments for MS that may in the
future compete with our MS products. One such
product candidate is OCREVUS, a potential treatment
for RMS and PPMS being developed by Genentech.
While we have a financial interest in OCREVUS, future
sales of our MS products may be adversely affected
by the commercialization of OCREVUS, as well as by
other MS products we or our competitors are
developing. Future sales may also be negatively
impacted by the introduction of generics, prodrugs of
existing therapeutics or biosimilars of existing
products.
Competition
Competition in the biopharmaceutical industry is
intense and comes from many sources, including
specialized biotechnology firms and large
pharmaceutical companies. Many of our competitors
are working to develop products similar to those we
are developing or already market and have
considerable experience in undertaking clinical trials
and in obtaining regulatory approval to market
pharmaceutical products. Certain of these companies
have substantially greater financial, marketing and
research and development resources than we do.
We believe that competition and leadership in
the industry is based on managerial and technological
excellence and innovation as well as establishing
patent and other proprietary positions through
research and development. The achievement of a
leadership position also depends largely upon our
ability to maximize the approval, acceptance and use
of products resulting from research and the
availability of adequate financial resources to fund
facilities, equipment, personnel, clinical testing,
manufacturing and marketing. Another key aspect of
remaining competitive within the industry is recruiting
and retaining leading scientists and technicians. We
believe that we have been successful in attracting and
retaining skilled and experienced scientific personnel.
Competition among products approved for sale
may be based, among other things, on patent
position, product efficacy, safety, convenience/delivery
devices, reliability, availability and price. In addition,
early entry of a new pharmaceutical product into the
market may have important advantages in gaining
product acceptance and market share. Accordingly,
the relative speed with which we can develop
products, complete the testing and approval process
and supply commercial quantities of products will
have a significant impact on our competitive position.
The introduction of new products or
technologies, including the development of new
processes or technologies by competitors or new
information about existing products or technologies,
may result in increased competition for our marketed
products or pricing pressure on our marketed
products. It is also possible that the development of
new or improved treatment options or standards of
care or cures for the diseases our products treat
could reduce or eliminate the use of our products or
may limit the utility and application of ongoing clinical
trials for our product candidates. We may also face
increased competitive pressures as a result of
generics and the emergence of biosimilars in the U.S.
and E.U. If a generic or biosimilar version of one of
our products were approved, it could reduce our sales
of that product.
12
Spinal Muscular Atrophy
Genentech Relationships in Other Indications
SPINRAZA is the only approved treatment for
SMA. We are aware of other products in development
that, if successfully developed and approved, may
compete with SPINRAZA in the SMA market.
Psoriasis
FUMADERM competes with several different
types of therapies in the psoriasis market within
Germany, including oral systemics such as
methotrexate and cyclosporine.
Biosimilars
BENEPALI and FLIXABI, the two biosimilars we
currently manufacture and commercialize in the E.U.
for Samsung Bioepis, compete with their applicable
reference products, ENBREL and REMICADE,
respectively, as well as other biosimilars of those
reference products.
RITUXAN and GAZYVA in Oncology
RITUXAN and GAZYVA compete with a number of
therapies in the oncology market, including TREANDA
(bendamustine HCL), ARZERRA (ofatumumab),
IMBRUVICA (ibrutinib) and ZYDELIG (idelalisib).
We also expect that over time GAZYVA will
increasingly compete with RITUXAN in the oncology
market. In addition, we are aware of other anti-CD20
molecules, including biosimilars, in development that,
if successfully developed and approved, may compete
with RITUXAN and GAZYVA in the oncology market.
RITUXAN in Rheumatoid Arthritis
RITUXAN competes with several different types
of therapies in the rheumatoid arthritis market,
including, among others, traditional disease-modifying
anti-rheumatic drugs such as steroids, methotrexate
and cyclosporine, TNF inhibitors, ORENCIA
(abatacept), ACTEMRA (tocilizumab) and XELJANZ
(tofacitinib).
We are also aware of other products, including
biosimilars, in development that, if successfully
developed and approved, may compete with RITUXAN
in the rheumatoid arthritis market.
13
Research and Development Programs
A commitment to research is fundamental to our
mission. Our research efforts are focused on better
understanding the underlying biology of diseases so
we can discover and deliver treatments that have the
potential to make a real difference in the lives of
patients with high unmet medical needs. By applying
our expertise in biologics and our growing capabilities
in small molecule, antisense, gene therapy, gene
editing and other technologies, we target specific
medical needs where we believe new or better
treatments are needed.
We intend to continue committing significant
resources to research and development opportunities.
As part of our ongoing research and development
efforts, we have devoted significant resources to
conducting clinical studies to advance the
development of new pharmaceutical products and
technologies and to explore the utility of our existing
products in treating disorders beyond those currently
approved in their labels.
The table below highlights our current research
and development programs that are in clinical trials
and the current phase of such programs. Drug
development involves a high degree of risk and
investment, and the status, timing and scope of our
development programs are subject to change.
Important factors that could adversely affect our drug
development efforts are discussed in the “Risk
Factors” section of this report.
Product Candidate
Collaborator
PHASE 1
PHASE 2
PHASE 3
FILED
OCREVUS
Genentech (Roche Group)
Primary Progressive & Relapsing Multiple Sclerosis
Biosimilar adalimumab
Samsung Bioepis
Multiple Immunology Indications in Europe
GAZYVA
Genentech (Roche Group)
Front-Line Indolent Non Hodgkin’s Lymphoma
Aducanumab
Neurimmune SubOne AG
Alzheimer's Disease
E2609
BIIB074
BIIB074
BIIB074
BAN2401
Eisai Co., Ltd. (Eisai)
Alzheimer's Disease
None
None
None
Eisai
Trigeminal Neuralgia
Lumbosacral Radiculopathy
Erythromelalgia
Alzheimer's Disease
Opicinumab (anti-LINGO-1) None
Multiple Sclerosis
TYSABRI
rAAV-XLRS
BG00011 (STX-100)
None
AGTC
None
Dapirolizumab pegol
UCB Pharma
BIIB059 (Anti-BDCA02)
None
BIIB061
BIIB054
None
None
BIIB067 (IONIS-SOD1Rx)
Ionis
BIIB068 (BTK Inhibitor)
None
* Parkinson's Disease
** Amyotrophic Lateral Sclerosis
*** Autoimmune
Acute Ischemic Stroke
X-linked Juvenile Retinoschisis
Idiopathic Pulmonary Fibrosis
Lupus
Lupus
MS
PD*
ALS**
A***
For information about certain of our agreements with collaborators and other third parties, please read the
subsection entitled “Business Relationships” below and Note 19, Collaborative and Other Relationships to our
consolidated financial statements included in this report.
14
Late Stage Product Candidates
Additional information about our late stage product candidates, which includes programs in Phase 3
development or in registration stage, is set forth below.
Aducanumab (BIIB037)
Neurodegeneration
In September 2015 we enrolled our first patient in our two global Phase 3 studies, ENGAGE and EMERGE.
ENGAGE and EMERGE will assess the efficacy and safety of aducanumab, our investigational treatment for
early Alzheimer's disease, in approximately 2,700 people with early Alzheimer's disease. The studies are
identical in design and eligibility criteria. Each study will be conducted in more than 20 countries in North
America, Europe and Asia. In October 2015 we announced that we received FDA agreement on a special
protocol assessment on the Phase 3 study protocols.
In June 2016 we announced that aducanumab was accepted into the European Medicines Agency's (EMA's)
Priority Medicines (PRIME) program. PRIME aims to bring treatments to patients more quickly by enhancing
the EMA's support for the development of investigational medicines for diseases without available treatments
or in need of better treatment options.
In September 2016 aducanumab was granted Fast Track designation by the FDA. The FDA’s Fast Track
program supports the development of new treatments for serious conditions with an unmet medical need
such as Alzheimer’s disease. We also announced that in a recently completed interim analysis from our
Phase 1b study of aducanumab in early Alzheimer's disease efficacy and safety data were consistent with
results previously reported.
In December 2016 we presented new data from the Phase 1b study of aducanumab, which included interim
results from the titration cohort of the placebo-controlled period of the Phase 1b study as well as data from
the first year of the long-term extension. The results supported the ongoing Phase 3 studies of aducanumab
for early Alzheimer’s disease.
E2609
In October 2016 Eisai announced enrollment has commenced in MISSION AD, a Phase 3 clinical program of
the beta secretase cleaving enzyme (BACE) inhibitor E2609 in patients with early Alzheimer's disease in the
U.S.
Biosimilars (Samsung Bioepis - Biogen's Joint Venture with Samsung Biologics)
Adalimumab (SB5)
In July 2016 the EMA accepted Samsung Bioepis' MAA for SB5, an adalimumab biosimilar candidate
referencing HUMIRA. If approved by the EC, we will manufacture and commercialize SB5 in specified E.U.
countries.
GAZYVA (obinutuzumab)
Genentech Relationships
The Roche Group is managing GALLIUM, a Phase 3 study examining the efficacy and safety of GAZYVA plus
chemotherapy followed by GAZYVA alone for up to two years, as compared head-to-head against RITUXAN plus
chemotherapy followed by RITUXAN alone for up to two years. At a pre-planned interim analysis in May 2016,
an independent data monitoring committee determined that the study met its primary endpoint early. The
results showed GAZYVA-based treatment significantly reduced the risk of disease worsening or death
(progression-free survival) compared to RITUXAN-based treatment.
OCREVUS (ocrelizumab)
In June 2015 the Roche Group announced positive results from two Phase 3 studies evaluating OCREVUS
compared with interferon beta-1a in people with relapsing forms of MS. Treatment with OCREVUS compared
with interferon beta-1a significantly reduced the annualized relapse rate over a two-year period; significantly
reduced the progression of clinical disability; and led to a significant reduction in the number of lesions in the
brain as measured by MRI.
In September 2015 the Roche Group announced positive results from a Phase 3 study evaluating OCREVUS
in people with PPMS. Treatment with OCREVUS significantly reduced the progression of clinical disability
compared with placebo, as measured by the Expanded Disability Status Scale.
In June 2016 the Roche Group announced that the EMA validated its MAA of OCREVUS for the treatment of
RMS and PPMS in the E.U. The FDA has also accepted for review its BLA for OCREVUS for the treatment of
RMS and PPMS, and has granted the application priority review designation. Under our agreement with
Genentech, if OCREVUS is approved, we will receive tiered royalty payments on sales of OCREVUS in the U.S.
15
Business Relationships
Eisai Co., Ltd.
We have a collaboration with Eisai to jointly
develop and commercialize E2609 and BAN2401, two
Eisai product candidates for the treatment of
Alzheimer’s disease. Eisai serves as the global
operational and regulatory lead for E2609 and
BAN2401 and all costs, including research,
development, sales and marketing expenses, are
shared equally between us and Eisai. Following
marketing approval in major markets, we will co-
promote E2609 and BAN2401 with Eisai and share
profits equally. In smaller markets, Eisai will distribute
these products and pay us a royalty.
The agreement also provides Eisai with options
to jointly develop and commercialize two of our
candidates for Alzheimer’s disease, aducanumab and
an anti-tau monoclonal antibody, upon the exchange
or provision of clinical data. Upon exercise of the
applicable option, we will execute a separate
collaboration agreement with Eisai on terms and
conditions that mirror the financial arrangements we
have with Eisai with respect to E2609 and BAN2401.
Genentech (Roche Group)
We have a collaboration agreement with
Genentech which entitles us to certain financial and
other rights with respect to RITUXAN, GAZYVA and
other anti-CD20 product candidates. Additionally,
under our agreement with Genentech, if OCREVUS is
approved, we will receive tiered royalty payments on
sales of OCREVUS in the U.S.
Ionis Pharmaceuticals, Inc.
We have an exclusive, worldwide option and
collaboration agreement with Ionis relating to the
development and commercialization of up to three
gene targets, and an exclusive worldwide option and
collaboration agreement with Ionis under which both
companies are developing and commercializing
SPINRAZA for the treatment of SMA.
We also have a six-year research collaboration
agreement with Ionis, under which both companies
perform discovery level research and will develop and
commercialize antisense and other therapeutics for
the treatment of neurological disorders.
As part of our business strategy, we establish
business relationships, including joint ventures and
collaborative arrangements with other companies,
universities and medical research institutions, to
assist in the clinical development and/or
commercialization of certain of our products and
product candidates and to provide support for our
research programs. We also evaluate opportunities for
acquiring products or rights to products and
technologies that are complementary to our business
from other companies, universities and medical
research institutions.
Below is a brief description of certain business
relationships and collaborations that expand our
pipeline and provide us with certain rights to existing
and potential new products and technologies. For
more information regarding certain of these
relationships, including their ongoing financial and
accounting impact on our business, please read Note
19, Collaborative and Other Relationships to our
consolidated financial statements included in this
report.
AbbVie, Inc.
We have a collaboration agreement with AbbVie
aimed at advancing the development and
commercialization of ZINBRYTA in MS. Under the
agreement, we and AbbVie conduct ZINBRYTA co-
promotion activities in the U.S., E.U. and Canadian
territories, and we are responsible for manufacturing
and research and development activities.
Acorda Therapeutics, Inc.
We collaborate with Acorda to develop and
commercialize products containing fampridine, such
as FAMPYRA, in markets outside the U.S. We also
have responsibility for regulatory activities and the
future clinical development of related products in
those markets.
Applied Genetic Technologies Corporation
We have a collaboration agreement with Applied
Genetic Technologies Corporation (AGTC) to develop
gene-based therapies for multiple ophthalmic
diseases. The collaboration focuses on the
development of a clinical-stage candidate for X-linked
Retinoschisis (XLRS) and a preclinical candidate for
the treatment of X-linked Retinitis Pigmentosa (XLRP),
for which we were granted worldwide
commercialization rights. The agreement also
provides us with options to early stage discovery
programs in two ophthalmic diseases and one non-
ophthalmic condition.
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Samsung Bioepis
Regulatory
We and Samsung Biologics established a joint
venture, Samsung Bioepis, to develop, manufacture
and market biosimilar pharmaceuticals. We also have
an agreement with Samsung Bioepis to
commercialize, over a 10-year term, three anti-TNF
biosimilar product candidates in specified E.U.
countries and, in the case of BENEPALI, Japan. Under
this agreement, we are manufacturing and
commercializing BENEPALI, an etanercept biosimilar
referencing ENBREL and FLIXABI, an infliximab
biosimilar referencing REMICADE.
In addition to our joint venture and
commercialization agreement with Samsung Bioepis,
we license certain of our proprietary technology to
Samsung Bioepis in connection with Samsung
Bioepis' development, manufacture and
commercialization of its biosimilar products. We also
provide technical development and technology
transfer services to Samsung Bioepis, and
manufacture clinical and commercial quantities of
bulk drug substance of Samsung Bioepis' biosimilar
products.
University of Pennsylvania
We have a collaboration and alliance with the
University of Pennsylvania to advance gene therapy
and gene editing technologies. The collaboration will
primarily focus on the development of therapeutic
approaches that target the eye, skeletal muscle and
the central nervous system. The alliance is also
expected to focus on the research and validation of
next-generation gene transfer technology using adeno-
associated virus gene delivery vectors and exploring
the expanded use of genome editing technology as a
potential therapeutic platform.
Our current and contemplated activities and the
products, technologies and processes that result from
such activities are subject to substantial government
regulation.
Regulation of Pharmaceuticals
Product Approval and Post-Approval Regulation in
the U.S.
APPROVAL PROCESS
Before new pharmaceutical products may be
sold in the U.S., preclinical studies and clinical trials
of the products must be conducted and the results
submitted to the FDA for approval. With limited
exceptions, the FDA requires companies to register
both pre-approval and post-approval clinical trials and
disclose clinical trial results in public databases.
Failure to register a trial or disclose study results
within the required time periods could result in
penalties, including civil monetary penalties. Clinical
trial programs must establish efficacy, determine an
appropriate dose and dosing regimen, and define the
conditions for safe use. This is a high-risk process
that requires stepwise clinical studies in which the
candidate product must successfully meet
predetermined endpoints. The results of the
preclinical and clinical testing of a product are then
submitted to the FDA in the form of a BLA or a NDA.
In response to a BLA or NDA, the FDA may grant
marketing approval, request additional information or
deny the application if it determines the application
does not provide an adequate basis for approval.
Product development and receipt of regulatory
approval takes a number of years, involves the
expenditure of substantial resources and depends on
a number of factors, including the severity of the
disease in question, the availability of alternative
treatments, potential safety signals observed in
preclinical or clinical tests, and the risks and benefits
of the product as demonstrated in clinical trials. The
FDA has substantial discretion in the product approval
process, and it is impossible to predict with any
certainty whether and when the FDA will grant
marketing approval. The agency may require the
sponsor of a BLA or NDA to conduct additional clinical
studies or to provide other scientific or technical
information about the product, and these additional
requirements may lead to unanticipated delay or
expense. Furthermore, even if a product is approved,
the approval may be subject to limitations based on
the FDA's interpretation of the existing pre-clinical or
clinical data.
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The FDA has developed four distinct approaches
• Breakthrough Therapy: The FDA may grant
intended to make therapeutically important drugs
available as rapidly as possible, especially when the
drugs are the first available treatment or have
advantages over existing treatments: accelerated
approval, fast track, breakthrough therapy and priority
review.
• Accelerated Approval: The FDA may grant
“accelerated approval” status to products that
treat serious or life-threatening illnesses and
that provide meaningful therapeutic benefits to
patients over existing treatments. Under this
pathway, the FDA may approve a product based
on surrogate endpoints, or clinical endpoints
other than survival or irreversible morbidity.
When approval is based on surrogate endpoints
or clinical endpoints other than survival or
morbidity, the sponsor will be required to conduct
additional post-approval clinical studies to verify
and describe clinical benefit. Under the agency's
accelerated approval regulations, if the FDA
concludes that a drug that has been shown to be
effective can be safely used only if distribution or
use is restricted, it may require certain post-
marketing restrictions as necessary to assure
safe use. In addition, for products approved
under accelerated approval, sponsors may be
required to submit all copies of their promotional
materials, including advertisements, to the FDA
at least thirty days prior to initial dissemination.
The FDA may withdraw approval under
accelerated approval after a hearing if, for
instance, post-marketing studies fail to verify any
clinical benefit, it becomes clear that restrictions
on the distribution of the product are inadequate
to ensure its safe use, or if a sponsor fails to
comply with the conditions of the accelerated
approval.
• Fast Track Status: The FDA may grant "fast track"
status to products that treat a serious condition
and have data demonstrating the potential to
address an unmet medical need or a drug that
has been designated as a qualified infectious
disease product.
“breakthrough therapy” status to drugs designed
to treat, alone or in combination with another
drug or drugs, a serious or life-threatening
disease or condition and for which preliminary
clinical evidence suggests a substantial
improvement over existing therapies. Such drugs
need not address an unmet need, but are
nevertheless eligible for expedited review if they
offer the potential for an improvement.
Breakthrough therapy status entitles the sponsor
to earlier and more frequent meetings with the
FDA regarding the development of nonclinical
and clinical data and permits the FDA to offer
product development or regulatory advice for the
purpose of shortening the time to product
approval. Breakthrough therapy status does not
guarantee that a product will be developed or
reviewed more quickly and does not ensure FDA
approval.
• Priority Review: Priority Review only applies to
applications (original or efficacy supplement) for
a drug that treats a serious condition and, if
approved, would provide a significant
improvement in safety or effectiveness. Priority
Review may also be granted for any supplement
that proposes a labeling change due to studies
completed in response to a written request from
FDA for pediatric studies, for an application for a
drug that has been designated as a qualified
infectious disease product, or any application or
supplement for a drug submitted with a priority
review voucher.
POST-MARKETING STUDIES
Regardless of the approval pathway employed,
the FDA may require a sponsor to conduct additional
post-marketing studies as a condition of approval to
provide data on safety and effectiveness. If a sponsor
fails to conduct the required studies, the agency may
withdraw its approval. In addition, if the FDA
concludes that a drug that has been shown to be
effective can be safely used only if distribution or use
is restricted, it can mandate post-marketing
restrictions as necessary to assure safe use. In such
a case, the sponsor may be required to establish
rigorous systems to assure use of the product under
safe conditions. These systems are usually referred
to as Risk Evaluation and Mitigation Strategies
(REMS). The FDA can impose financial penalties for
failing to comply with certain post-marketing
commitments, including REMS. In addition, any
changes to an approved REMS must be reviewed and
approved by the FDA prior to implementation.
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ADVERSE EVENT REPORTING
Regulation of Combination Products
We monitor information on side effects and
adverse events reported during clinical studies and
after marketing approval and report such information
and events to regulatory agencies. Non-compliance
with the FDA's safety reporting requirements may
result in civil or criminal penalties. Side effects or
adverse events that are reported during clinical trials
can delay, impede, or prevent marketing approval.
Based on new safety information that emerges after
approval, the FDA can mandate product labeling
changes, impose a new REMS or the addition of
elements to an existing REMS, require new post-
marketing studies (including additional clinical trials),
or suspend or withdraw approval of the product. These
requirements may affect our ability to maintain
marketing approval of our products or require us to
make significant expenditures to obtain or maintain
such approvals.
APPROVAL OF CHANGES TO AN APPROVED
PRODUCT
If we seek to make certain types of changes to
an approved product, such as adding a new indication,
making certain manufacturing changes, or changing
manufacturers or suppliers of certain ingredients or
components, the FDA will need to review and approve
such changes in advance. In the case of a new
indication, we are required to demonstrate with
additional clinical data that the product is safe and
effective for a use other than that initially approved.
FDA regulatory review may result in denial or
modification of the planned changes, or requirements
to conduct additional tests or evaluations that can
substantially delay or increase the cost of the planned
changes.
REGULATION OF PRODUCT ADVERTISING AND
PROMOTION
The FDA regulates all advertising and promotion
activities and communications for products under its
jurisdiction both before and after approval. A company
can make only those claims relating to safety and
efficacy that are approved by the FDA. However,
physicians may prescribe legally available drugs for
uses that are not described in the drug's labeling.
Such off-label uses are common across medical
specialties, and often reflect a physician's belief that
the off-label use is the best treatment for patients.
The FDA does not regulate the behavior of physicians
in their choice of treatments, but FDA regulations do
impose stringent restrictions on manufacturers'
communications regarding off-label uses. Failure to
comply with applicable FDA requirements may subject
a company to adverse publicity, enforcement action by
the FDA, corrective advertising, and the full range of
civil and criminal penalties available to the
government.
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Combination products are defined by the FDA to
include products comprising two or more regulated
components (e.g., a biologic and a device). Biologics
and devices each have their own regulatory
requirements, and combination products may have
additional requirements. Some of our marketed
products meet this definition and are regulated under
this framework and similar regulations outside the
U.S., and we expect that some of our pipeline product
candidates may be evaluated for regulatory approval
under this framework as well.
Product Approval and Post-Approval Regulation
Outside the U.S.
We market our products in numerous
jurisdictions outside the U.S. Most of these
jurisdictions have product approval and post-approval
regulatory processes that are similar in principle to
those in the U.S. In Europe, for example, where a
substantial part of our ex-U.S. efforts are focused,
there are several tracks for marketing approval,
depending on the type of product for which approval is
sought. Under the centralized procedure, a company
submits a single application to the EMA. The
marketing application is similar to the NDA or BLA in
the U.S. and is evaluated by the Committee for
Medicinal Products for Human Use (CHMP), the expert
scientific committee of the EMA. If the CHMP
determines that the marketing application fulfills the
requirements for quality, safety, and efficacy, it will
submit a favorable opinion to the EC. The CHMP
opinion is not binding, but is typically adopted by the
EC. A marketing application approved by the EC is
valid in all member states. The centralized procedure
is required for all biological products, orphan
medicinal products, and new treatments for
neurodegenerative disorders, and it is available for
certain other products, including those which
constitute a significant therapeutic, scientific or
technical innovation.
In addition to the centralized procedure, Europe
also has:
• a nationalized procedure, which requires a
separate application to and approval
determination by each country;
• a decentralized procedure, whereby applicants
submit identical applications to several countries
and receive simultaneous approval; and
• a mutual recognition procedure, where applicants
submit an application to one country for review
and other countries may accept or reject the
initial decision.
Regardless of the approval process employed,
Approval of Biosimilars
The Patient Protection and Affordable Care Act
(PPACA) amended the Public Health Service Act
(PHSA) to authorize the FDA to approve biological
products, referred to as biosimilars or follow-on
biologics, that are shown to be highly similar to
previously approved biological products based upon
potentially abbreviated data packages. The biosimilar
must show it has no clinically meaningful differences
in terms of safety and effectiveness from the
reference product, and only minor differences in
clinically inactive components are allowable in
biosimilars products. The approval pathway for
biosimilars does, however, grant a biologics
manufacturer a 12-year period of exclusivity from the
date of approval of its biological product before
biosimilar competition can be introduced. There is
uncertainty, however, as the approval framework for
biosimilars originally was enacted as part of the
PPACA. In 2017, there are likely to be federal
legislative and administrative efforts to repeal,
substantially modify or invalidate some or all of the
provisions of the PPACA. If the PPACA is repealed,
substantially modified or invalidated, it is unclear
what, if any, impact such action would have on
biosimilar regulation.
Biosimilars legislation has also been in place in
the E.U. since 2003. In December 2012 guidelines
issued by the EMA for approving biosimilars of
marketed monoclonal antibody products became
effective. In the E.U., biosimilars have been approved
under a specialized pathway of centralized
procedures. The pathway allows sponsors of a
biosimilar to seek and obtain regulatory approval
based in part on the clinical trial data of an innovator
product to which the biosimilar has been
demonstrated to be “similar”. In many cases, this
allows biosimilars to be brought to market without
conducting the full complement of clinical trials
typically required for novel biologic drugs.
various parties share responsibilities for the
monitoring, detection, and evaluation of adverse
events post-approval, including national authorities,
the EMA, the EC, and the marketing authorization
holder. In some regions, it is possible to receive an
“accelerated” review whereby the national regulatory
authority will commit to truncated review timelines for
products that meet specific medical needs.
Good Manufacturing Practices
Regulatory agencies regulate and inspect
equipment, facilities and processes used in the
manufacturing and testing of pharmaceutical and
biologic products prior to approving a product. If, after
receiving clearance from regulatory agencies, a
company makes a material change in manufacturing
equipment, location or process, additional regulatory
review and approval may be required. We also must
adhere to current Good Manufacturing Practices
(cGMP) and product-specific regulations enforced by
regulatory agencies following product approval. The
FDA, the EMA and other regulatory agencies also
conduct periodic visits to re-inspect equipment,
facilities and processes following the initial approval
of a product. If, as a result of these inspections, it is
determined that our equipment, facilities or processes
do not comply with applicable regulations and
conditions of product approval, regulatory agencies
may seek civil, criminal or administrative sanctions or
remedies against us, including significant financial
penalties and the suspension of our manufacturing
operations.
Good Clinical Practices
The FDA, the EMA and other regulatory agencies
promulgate regulations and standards for designing,
conducting, monitoring, auditing and reporting the
results of clinical trials to ensure that the data and
results are accurate and that the rights and welfare of
trial participants are adequately protected (commonly
referred to as current Good Clinical Practices (cGCP)).
Regulatory agencies enforce cGCP through periodic
inspections of trial sponsors, principal investigators
and trial sites, contract research organizations
(CROs), and institutional review boards. If our studies
fail to comply with applicable cGCP the clinical data
generated in our clinical trials may be deemed
unreliable and relevant regulatory agencies may
require us to perform additional clinical trials before
approving our marketing applications. Noncompliance
can also result in civil or criminal sanctions. We rely
on third parties, including CROs, to carry out many of
our clinical trial-related activities. Failure of such third
parties to comply with cGCP can likewise result in
rejection of our clinical trial data or other sanctions.
PP
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Orphan Drug Act
Within the U.S.
Under the U.S. Orphan Drug Act, the FDA may
grant orphan drug designation to drugs or biologics
intended to treat a “rare disease or condition,” which
generally is a disease or condition that affects fewer
than 200,000 individuals in the U.S. If a product
which has an orphan drug designation subsequently
receives the first FDA approval for the indication for
which it has such designation, the product is entitled
to orphan exclusivity, i.e., the FDA may not approve
any other applications to market the same drug for
the same indication for a period of seven years
following marketing approval, except in certain very
limited circumstances, such as if the later product is
shown to be clinically superior to the orphan product.
Legislation similar to the U.S. Orphan Drug Act has
been enacted in other countries to encourage the
research, development and marketing of medicines to
treat, prevent or diagnose rare diseases. In the E.U.,
medicinal products intended for diagnosis, prevention
or treatment of life-threatening or very serious
diseases affecting less than five in 10,000 people
receive 10-year market exclusivity, protocol assistance
and access to the centralized procedure for marketing
authorization. SPINRAZA has been granted orphan
drug designation in the U.S., E.U. and Japan.
Regulation Pertaining to Pricing and
Reimbursement
In both domestic and foreign markets, sales of
our products depend, in part, on the availability and
amount of reimbursement by third-party payors,
including governments, private health plans and other
organizations. Substantial uncertainty exists regarding
the pricing reimbursement of our products, and drug
prices continue to receive significant scrutiny.
Governments may regulate coverage, reimbursement
and pricing of our products to control cost or affect
utilization of our products. Challenges to our pricing
strategies, by either government or private
stakeholders, could harm our business. The U.S. and
foreign governments have enacted and regularly
consider additional reform measures that affect
health care coverage and costs. Private health plans
may also seek to manage cost and utilization by
implementing coverage and reimbursement
limitations. Other payors, including managed care
organizations, health insurers, pharmacy benefit
managers, government health administration
authorities and private health insurers, seek price
discounts or rebates in connection with the placement
of our products on their formularies and, in some
cases, the imposition of restrictions on access or
coverage of particular drugs or pricing determined
based on perceived value.
• Medicaid: Medicaid is a joint federal and state
program that is administered by the states for
low income and disabled beneficiaries. Under
the Medicaid Drug Rebate Program, we are
required to pay a rebate for each unit of product
reimbursed by the state Medicaid programs. The
amount of the rebate is established by law and
is adjusted upward if average manufacture price
(AMP) increases more than inflation (measured
by the Consumer Price Index - Urban). The rebate
amount is calculated each quarter based on our
report of current AMP and best price for each of
our products to the Centers for Medicare &
Medicaid Services (CMS). The requirements for
calculating AMP and best price are complex. We
are required to report any revisions to AMP or
best price previously reported within a certain
period, which revisions could affect our rebate
liability for prior quarters. In addition, if we fail to
provide information timely or we are found to
have knowingly submitted false information to
the government, the statute governing the
Medicaid Drug Rebate Program provides for civil
monetary penalties.
• Medicare: Medicare is a federal program that is
administered by the federal government that
covers individuals age 65 and over as well as
those with certain disabilities. Medicare Part B
generally covers drugs that must be
administered by physicians or other health care
practitioners; are provided in connection with
certain durable medical equipment; or are
certain oral anti-cancer drugs and certain oral
immunosuppressive drugs. In addition, clotting
factors for hemophilia are typically paid under
Medicare Part B. Medicare Part B pays for such
drugs under a payment methodology based on
the average sales price (ASP) of the drugs.
Manufacturers, including us, are required to
provide ASP information to the CMS on a
quarterly basis. The manufacturer-submitted
information is used to calculate Medicare
payment rates. If a manufacturer is found to
have made a misrepresentation in the reporting
of ASP, the governing statute provides for civil
monetary penalties.
PP
• Medicare Part D provides coverage to enrolled
Medicare patients for self-administered drugs
(i.e., drugs that are not administered by a
physician). Medicare Part D is administered by
private prescription drug plans approved by the
U.S. government and each drug plan establishes
its own Medicare Part D formulary for
prescription drug coverage and pricing, which the
drug plan may modify from time-to-time. The
prescription drug plans negotiate pricing with
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manufacturers and pharmacies, and may
condition formulary placement on the availability
of manufacturer discounts. In addition,
manufacturers, including us, are required to
provide to CMS a 50% discount on brand name
prescription drugs utilized by Medicare Part D
beneficiaries when those beneficiaries reach the
coverage gap in their drug benefits.
• Federal Agency Discounted Pricing: Our products
are subject to discounted pricing when
purchased by federal agencies via the Federal
Supply Schedule (FSS). FSS participation is
required for our products to be covered and
reimbursed by the Veterans Administration (VA),
Department of Defense, Coast Guard and Public
Health Service (PHS). Coverage under Medicaid,
Medicare and the PHS pharmaceutical pricing
program is also conditioned upon FSS
participation. FSS pricing is intended not to
exceed the price that we charge our most-favored
non-federal customer for a product. In addition,
prices for drugs purchased by the VA,
Department of Defense (including drugs
purchased by military personnel and dependents
through the TriCare retail pharmacy program),
Coast Guard and PHS are subject to a cap on
pricing equal to 76% of the non-federal average
manufacturer price (non-FAMP). An additional
discount applies if non-FAMP increases more
than inflation (measured by the Consumer Price
Index - Urban). In addition, if we fail to provide
information timely or we are found to have
knowingly submitted false information to the
government, the governing statute provides for
civil monetary penalties.
• 340B Discounted Pricing: To maintain coverage
of our products under the Medicaid Drug Rebate
Program and Medicare Part B, we are required to
extend significant discounts to certain covered
entities that purchase products under Section
340B of the PHS pharmaceutical pricing
program. Purchasers eligible for discounts
include hospitals that serve a disproportionate
share of financially needy patients, community
health clinics, hemophilia treatment centers and
other entities that receive certain types of grants
under the PHSA. For all of our products, we must
agree to charge a price that will not exceed the
amount determined under statute (the “ceiling
price”) when we sell outpatient drugs to these
covered entities. In addition, we may, but are not
required to, offer these covered entities a price
lower than the 340B ceiling price. The 340B
discount formula is based on AMP and is
generally similar to the level of rebates
calculated under the Medicaid Drug Rebate
Program.
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Outside the U.S.
Outside the U.S., the E.U. represents a major
market. Within the E.U., our products are paid for by a
variety of payors, with governments being the primary
source of payment. Governments may determine or
influence reimbursement of products. Governments
may also set prices or otherwise regulate pricing.
Negotiating prices with governmental authorities can
delay commercialization of our products. Governments
may use a variety of cost-containment measures to
control the cost of products, including price cuts,
mandatory rebates, value-based pricing, and reference
pricing (i.e., referencing prices in other countries and
using those reference prices to set a price).
Budgetary pressures in many E.U. countries are
continuing to cause governments to consider or
implement various cost-containment measures, such
as price freezes, increased price cuts and rebates,
and expanded generic substitution and patient cost-
sharing.
Regulation Pertaining to Sales and Marketing
We are subject to various federal and state laws
pertaining to health care “fraud and abuse,” including
anti-kickback laws and false claims laws. Anti-
kickback laws generally prohibit a prescription drug
manufacturer from soliciting, offering, receiving, or
paying any remuneration to generate business,
including the purchase or prescription of a particular
drug. Although the specific provisions of these laws
vary, their scope is generally broad and there may be
no regulations, guidance or court decisions that clarify
how the laws apply to particular industry practices.
There is therefore a possibility that our practices
might be challenged under the anti-kickback or similar
laws. False claims laws prohibit anyone from
knowingly and willingly presenting, or causing to be
presented for payment to third-party payors (including
Medicare and Medicaid) claims for reimbursed drugs
or services that are false or fraudulent, claims for
items or services not provided as claimed, or claims
for medically unnecessary items or services. Our
activities relating to the sale and marketing of our
products may be subject to scrutiny under these laws.
Violations of fraud and abuse laws may be punishable
by criminal or civil sanctions, including fines and civil
monetary penalties, and exclusion from federal health
care programs (including Medicare and Medicaid). In
the U.S., federal and state authorities are paying
increased attention to enforcement of these laws
within the pharmaceutical industry and private
individuals have been active in alleging violations of
the laws and bringing suits on behalf of the
government under the federal civil False Claims Act. If
we were subject to allegations concerning, or were
convicted of violating, these laws, our business could
be harmed.
Laws and regulations have been enacted by the
federal government and various states to regulate the
sales and marketing practices of pharmaceutical
manufacturers. The laws and regulations generally
limit financial interactions between manufacturers and
health care providers or require disclosure to the
government and public of such interactions. The laws
include federal “sunshine” provisions. The sunshine
provisions apply to pharmaceutical manufacturers
with products reimbursed under certain government
programs and require those manufacturers to
disclose annually to the federal government (for re-
disclosure to the public) certain payments made to
physicians and certain other healthcare practitioners
or to teaching hospitals. State laws may also require
disclosure of pharmaceutical pricing information and
marketing expenditures. Many of these laws and
regulations contain ambiguous requirements. Given
the lack of clarity in laws and their implementation,
our reporting actions could be subject to the penalty
provisions of the pertinent federal and state laws and
regulations. Outside the U.S., other countries have
implemented requirements for disclosure of financial
interactions with healthcare providers and additional
countries may consider or implement such laws.
Other Regulations
Foreign Anti-Corruption
We are subject to various federal and foreign
laws that govern our international business practices
with respect to payments to government officials.
Those laws include the U.S. Foreign Corrupt Practices
Act (FCPA), which prohibits U.S. companies and their
representatives from paying, offering to pay,
promising, or authorizing the payment of anything of
value to any foreign government official, government
staff member, political party, or political candidate for
the purpose of obtaining or retaining business or to
otherwise obtain favorable treatment or influence a
person working in an official capacity. In many
countries, the health care professionals we regularly
interact with may meet the FCPA's definition of a
foreign government official. The FCPA also requires
public companies to make and keep books and
records that accurately and fairly reflect their
transactions and to devise and maintain an adequate
system of internal accounting controls.
The laws to which we are subject also include
the U.K. Bribery Act 2010 (Bribery Act) which
proscribes giving and receiving bribes in the public
and private sectors, bribing a foreign public official,
and failing to have adequate procedures to prevent
employees and other agents from giving bribes. U.S.
companies that conduct business in the United
Kingdom generally will be subject to the Bribery Act.
Penalties under the Bribery Act include potentially
unlimited fines for companies and criminal sanctions
for corporate officers under certain circumstances.
NIH Guidelines
We seek to conduct research at our U.S.
facilities in compliance with the current U.S. National
Institutes of Health Guidelines for Research Involving
Recombinant DNA Molecules (NIH Guidelines). By
local ordinance, we are required to, among other
things, comply with the NIH Guidelines in relation to
PP
our facilities in RTP, North Carolina and are required to
operate pursuant to certain permits.
Other Laws
Our present and future business has been and
will continue to be subject to various other laws and
regulations. Various laws, regulations and
recommendations relating to data privacy and
protection, safe working conditions, laboratory
practices, the experimental use of animals, and the
purchase, storage, movement, import, export and use
and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and
infectious disease agents, used in connection with
our research work are or may be applicable to our
activities. Certain agreements entered into by us
involving exclusive license rights may be subject to
national or international antitrust regulatory control,
the effect of which cannot be predicted. The extent of
government regulation, which might result from future
legislation or administrative action, cannot accurately
be predicted.
Environmental Matters
We strive to comply in all material respects with
applicable laws and regulations concerning the
environment. While it is impossible to predict
accurately the future costs associated with
environmental compliance and potential remediation
activities, compliance with environmental laws is not
expected to require significant capital expenditures
and has not had, and is not expected to have, a
material adverse effect on our operations or
competitive position.
23
Genentech is responsible for all worldwide
manufacturing activities for bulk RITUXAN and GAZYVA
and has sourced the manufacture of certain bulk
RITUXAN and GAZYVA requirements to a third party,
Acorda Therapeutics supplies FAMPYRA to us
pursuant to its supply agreement with Alkermes, Inc.
and Ionis supplies the active pharmaceutical
ingredient (API) for SPINRAZA.
Third-Party Suppliers and Manufacturers
We principally use third parties to manufacture
the API, except as noted above for SPINRAZA, and, to
a lesser extent, the final product for our small
molecule products and product candidates, including
TECFIDERA and FUMADERM and the final drug product
for our large molecule products and product
candidates, including SPINRAZA.
We source all of our fill-finish and the majority of
final product assembly and storage operations for our
products, along with a substantial part of our
packaging operations, to a concentrated group of
third-party contract manufacturing organizations. We
have internal label and packaging capability for clinical
and commercial products at our Hillerød facility. Raw
materials, delivery devices, such as syringes and
auto-injectors, and other supplies required for the
production of our products and product candidates
are procured from various third-party suppliers and
manufacturers in quantities adequate to meet our
needs. Continuity of supply of such raw materials,
devices and supplies is assured using a strategy of
dual sourcing where possible or by a risk-based
inventory strategy. Our third-party service providers,
suppliers and manufacturers may be subject to
routine cGMP inspections by the FDA or comparable
agencies in other jurisdictions and undergo
assessment and certification by our quality
management group.
Manufacturing
We are committed to ensuring an uninterrupted
supply of medicines to patients around the world. To
that end, we continually review our manufacturing
capacity, capabilities, processes and facilities. We
believe that our manufacturing facilities, together with
the third-party contract manufacturing organizations
we outsource to, currently provide sufficient capacity
for our products and the contract manufacturing
services we provide to Samsung Bioepis, our joint
venture that develops, manufactures and markets
biosimilars, and other strategic contract
manufacturing partners. In light of the development of
our pipeline, we are expanding our production capacity
by building a large-scale biologics manufacturing
facility in Solothurn, Switzerland, which is expected to
be operational by the end of the decade.
Manufacturing Facilities
Our drug substance manufacturing facilities
include:
Facility
RTP, North Carolina
Hillerød, Denmark
Drug Substance Manufactured
ALPROLIX
AVONEX
ELOCTATE
PLEGRIDY
TYSABRI
ZINBRYTA
Other*
TYSABRI
Biosimilars
* Other includes products manufactured for contract
manufacturing partners
In addition to our drug substance manufacturing
facilities, we have a drug product manufacturing
facility and supporting infrastructure in RTP North
Carolina. This parenteral facility adds capabilities and
capacity for filling biologics into vials.
PP
PP
We also lease from Eisai an oral solid dose
products manufacturing facility in RTP North Carolina,
where we manufacture TECFIDERA and other oral solid
dose products, including products for Eisai. This
facility supplements our outsourced small molecule
manufacturing capabilities. Under our lease
arrangement, Eisai may provide us with packaging
services for oral solid dose products. In August 2015
we agreed to purchase this facility following the
expiration of our current three-year lease in the third
quarter of 2018 and Eisai's completion of certain
activities.
For a period of time following the spin-off of
Bioverativ, we agreed to manufacture and supply,
exclusively for Bioverativ, drug substance, drug
product and finished goods with respect to ELOCTATE
and ALPROLIX and pipeline product candidates.
24
Our Employees
As of December 31, 2016, we had approximately 7,400 employees worldwide.
Our Executive Officers (as of February 2, 2017)
Officer
Michel Vounatsos
Susan H. Alexander
Paul J. Clancy
Gregory F. Covino
Michael D. Ehlers
Paul McKenzie
Kenneth DiPietro
Adriana (Andi) Karaboutis
Current Position
Chief Executive Officer
Executive Vice President, Chief Legal Officer and Corporate
Secretary
Executive Vice President, Finance and Chief Financial Officer
Vice President, Finance and Chief Accounting Officer
Executive Vice President, Research and Development
Executive Vice President, Pharmaceutical Operations and
Technology
Executive Vice President, Human Resources
Executive Vice President, Technology, Business Solutions and
Corporate Affairs
Year
Joined
Biogen
2016
2006
2001
2012
2016
2016
2012
2014
Age
55
60
55
51
48
51
58
54
Alfred W. Sandrock, Jr., M.D., Ph.D. Chief Medical Officer and Executive Vice President of Neurology
Discovery and Development
59
1998
Michel Vounatsos
Experience
Mr. Vounatsos has served as our Chief Executive Officer since January 2017. Prior to that, from April 2016 to
December 2016, Mr. Vounatsos served as our Executive Vice President and Chief Commercial Officer. Prior to
joining Biogen, Mr. Vounatsos spent 20 years at Merck where he most recently served as President, Primary Care,
Customer Business Line. In this role, he led Merck’s global primary care business unit, a role which encompassed
Merck’s cardiology-metabolic, general medicine, women’s health and biosimilars groups and developed and
instituted a strategic framework for enhancing the company’s relationships with key constituents, including the
most significant providers, payers and retailers and the world’s largest governments. Mr. Vounatsos previously held
leadership positions across Europe and in China for Merck. Prior to that, Mr. Vounatsos held management
positions at Ciba-Geigy.
Education
Universite Victor Segalen, Bordeaux II, France, C.S.C.T. Certificate in Medicine
HEC School of Management - Paris, M.B.A.
Susan H. Alexander
Experience
Ms. Alexander has served as our Executive Vice President, Chief Legal Officer and Corporate Secretary since
December 2011. Prior to that, from 2006 to December 2011, Ms. Alexander served as our Executive Vice
President, General Counsel and Corporate Secretary. From 2003 to January 2006, Ms. Alexander served as the
Senior Vice President, General Counsel and Corporate Secretary of PAREXEL International Corporation, a
biopharmaceutical services company. From 2001 to 2003, Ms. Alexander served as General Counsel of IONA
Technologies, a software company. From 1995 to 2001, Ms. Alexander served as Counsel at Cabot Corporation, a
specialty chemicals and performance materials company. Prior to that, Ms. Alexander was a partner at the law
firms of Hinckley, Allen & Snyder and Fine & Ambrogne.
Public Company Boards
Board of Directors of Invacare Corporation, a medical and healthcare product company
Education
Wellesley College, B.A
Boston University School of Law, J.D.
25
Paul J. Clancy
Experience
Mr. Clancy has served as our Executive Vice President, Finance and Chief Financial Officer since August 2007. Mr.
Clancy joined Biogen, Inc. in 2001 and has held several senior executive positions with us, including Vice President
of Business Planning, Portfolio Management and U.S. Marketing, and Senior Vice President of Finance with
responsibilities for leading the Treasury, Tax, Investor Relations and Business Planning groups. Prior to that, he
spent 13 years at PepsiCo, a food and beverage company, serving in a range of financial and general management
positions.
Public Company Boards
Board of Directors of Agios Pharmaceuticals, Inc., a biopharmaceutical company
Board of Directors of Incyte Corporation, a biopharmaceutical company
Education
Babson College, B.S. in Finance
Columbia University, M.B.A.
Gregory F. Covino
Experience
Mr. Covino has served as our Vice President, Finance and Chief Accounting Officer since April 2012. Prior to that,
Mr. Covino served at Boston Scientific Corporation, a medical device company, as Vice President, Corporate
Analysis and Control since March 2010, having responsibility for the company's internal audit function, and as Vice
President, Finance, International from February 2008 to March 2010, having responsibility for the financial
activities of the company's international division. Prior to that, Mr. Covino held several finance positions at Hubbell
Incorporated, an electrical products company, including Vice President, Chief Accounting Officer and Controller from
2002 to January 2008, Interim Chief Financial Officer from 2004 to 2005, and Director, Corporate Accounting from
1999 to 2002.
Education
Bryant University, B.S. in Business Administration
Michael D. Ehlers
Experience
Dr. Ehlers has served as our Executive Vice President, Head of R&D since May 2016. Prior to joining Biogen, Dr.
Ehlers served in leadership positions at Pfizer, Inc., including Senior Vice President & Head BioTherapeutics R&D
and Chief Scientific Officer, Neuroscience & Pain. Prior to that, Dr. Ehlers was the George Barth Geller Professor of
Neurobiology and an Investigator of the Howard Hughes Medical Institute at Duke University Medical Center. He is
the recipient of numerous awards including the Eppendorf & Science Prize in Neurobiology, the John J. Abel Award
in Pharmacology, the Society for Neuroscience Young Investigator Award, a National Institute of Mental Health
MERIT Award, the National Alliance for Schizophrenia and Depression Distinguished Investigator Award, and the
Massachusetts Medical Society Honored Business Leader Award. In 2013, Dr. Ehlers became the 11th recipient of
the Thudichum Medal of the Biochemical Society of the United Kingdom. Past recipients include two Nobel
laureates. Dr. Ehlers has authored over 100 scientific papers, has served on the Editorial Boards of Annual
Reviews in Medicine, Annual Reviews in Pharmacology and Toxicology, the Journal of Neuroscience, the Journal of
Biological Chemistry, the Journal of Molecular and Cellular Neuroscience, and has sat on advisory committees of
the National Institutes of Health.
Outside Affiliations
PhRMA Foundation Basic Pharmacology Advisory Committee
Janelia Research Institute Advisory Committee
McKnight Endowment Fund for Neuroscience Board
World Economic Forum Global Agenda Council on Brain Research
Education
California Institute of Technology, B.S. Chemistry
The John Hopkins University School of Medicine, M.D.
The John Hopkins University School of Medicine, Ph.D. Neuroscience
26
Paul McKenzie
Experience
Dr. McKenzie has served as our Executive Vice President, Pharmaceutical Operations and Technology since July
2016. Prior to that, from February 2016 to June 2016, he served as our Senior Vice President for Global Biologics
Manufacturing & Technical Operations. Prior to joining Biogen, since 2008, Dr. McKenzie held a number of positions
of increasing responsibility at Johnson & Johnson (J&J), including Vice President of R&D for J&J’s Ethicon business
where he led the manufacturing and technical operations team responsible for internal and external manufacturing
of Janssen’s pharmaceutical portfolio. He also ran global Development for Janssen R&D, helping to manage
pipeline activities from discovery through clinical development and commercialization. Prior to J&J, Dr. McKenzie
also held various R&D and manufacturing positions at Bristol-Myers Squibb and Merck & Co.
Education
University of Pennsylvania, B.S. Chemical Engineering
Carnegie Mellon University, Ph.D. Chemical Engineering
Kenneth DiPietro
Experience
Mr. DiPietro has served as our Executive Vice President, Human Resources since January 2012. Mr. DiPietro joined
Biogen from Lenovo Group, a technology company, where he served as Senior Vice President, Human Resources
from 2005 to June 2011. From 2003 to 2005, he served as Corporate Vice President, Human Resources at
Microsoft Corporation, a technology company. From 1999 to 2002, Mr. DiPietro worked as Vice President, Human
Resources at Dell Inc., a technology company. Prior to that, he spent 17 years at PepsiCo, a food and beverage
company, serving in a range of human resource and general management positions.
Public Company Boards
Board of Directors of InVivo Therapeutics Corporation, a medical device company
Education
Cornell University, B.S. in Industrial and Labor Relations
Adriana (Andi) Karaboutis
Experience
Ms. Karaboutis has served as our Executive Vice President, Technology, Business Solutions and Corporate Affairs
since December 2015 and prior to that served as our Executive Vice President, Technology and Business Solutions
since joining Biogen in September 2014. Prior to that, Ms. Karaboutis was Vice President and Global Chief
Information Officer of Dell, Inc., where she was responsible for leading a global IT organization focused on powering
Dell as an end-to-end technology solutions provider. Prior to joining Dell in 2010, Ms. Karaboutis spent over 20
years at General Motors and Ford Motor Company in various international leadership positions including computer-
integrated manufacturing, supply chain operations, and information technology.
Public Company Boards
Board of Directors of Advance Auto Parts, an automotive aftermarket parts provider
Education
Wayne State University, B.S. in Computer Science
Alfred W. Sandrock, Jr., M.D., Ph.D.
Experience
Dr. Sandrock has served as our Chief Medical Officer and Executive Vice President of Neurology Discovery and
Development since November 2015. Prior to that, Dr. Sandrock served as our Chief Medical Officer and Group
Senior Vice President from May 2013 to October 2015, and as our Chief Medical Officer and Senior Vice President
of Development Sciences from February 2012 to April 2013. Prior to that, Dr. Sandrock held several senior
executive positions since joining us in 1998, including Senior Vice President of Neurology Research and
Development and Vice President of Clinical Development, Neurology.
Public Company Boards
Board of Directors of Neurocrine Biosciences, Inc., a life sciences company
Education
Stanford University, B.A. in Human Biology
Harvard Medical School, M.D.
Harvard University, Ph.D. in Neurobiology
Massachusetts General Hospital, internship in Medicine, residency and chief residency in Neurology, and
clinical fellowship in Neuromuscular Disease and Clinical Neurophysiology (electromyography)
27
Available Information
Our principal executive offices are located at 225 Binney Street, Cambridge, MA 02142 and our telephone
number is (617) 679-2000. Our website address is www.biogen.com. We make available free of charge through the
Investors section of our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is
electronically filed with or furnished to the Securities and Exchange Commission (SEC). We include our website
address in this report only as an inactive textual reference and do not intend it to be an active link to our website.
The contents of our website are not incorporated into this report.
28
Item 1A.
Risk Factors
We are substantially dependent on revenues from our principal products.
Our current revenues depend upon continued sales of our principal products, and, unless we develop or acquire
rights to new products and technologies, we may be substantially dependent on sales from our principal products for
many years. Further, following the completion of the spin-off of our hemophilia business, our revenues will be further
reliant and concentrated on sales of our MS products in an increasingly competitive market, and revenue from sales
of our product for spinal muscular atrophy. Any of the following negative developments relating to any of our principal
products may adversely affect our revenues and results of operations or could cause a decline in our stock price:
• safety or efficacy issues;
•
the introduction or greater acceptance of competing products;
• constraints and additional pressures on product pricing or price increases, including those resulting from
governmental or regulatory requirements, increased competition, or changes in, or implementation of,
reimbursement policies and practices of payors and other third parties; or
• adverse legal, administrative, regulatory or legislative developments.
SPINRAZA was recently approved by the FDA, and is in the early stages of commercial launch. In addition to
risks associated with new product launches and the other factors described in these “Risk Factors”, our ability to
successfully commercialize SPINRAZA may be adversely affected due to:
• our limited marketing experience within the spinal muscular atrophy market, which may impact our ability to
develop relationships with the associated medical and scientific community;
•
the lack of readiness of healthcare providers to treat patients with spinal muscular atrophy;
•
the effectiveness of our commercial strategy for marketing SPINRAZA; and
• our ability to maintain a positive reputation among patients, healthcare providers and others in the spinal
muscular atrophy community, which may be impacted by pricing and reimbursement decisions relating to
SPINRAZA.
If we fail to compete effectively, our business and market position would suffer.
The biopharmaceutical industry and the markets in which we operate are intensely competitive. We compete in
the marketing and sale of our products, the development of new products and processes, the acquisition of rights to
new products with commercial potential and the hiring and retention of personnel. We compete with biotechnology
and pharmaceutical companies that have a greater number of products on the market and in the product pipeline,
greater financial and other resources and other technological or competitive advantages. One or more of our
competitors may benefit from significantly greater sales and marketing capabilities, may develop products that are
accepted more widely than ours or may receive patent protection that dominates, blocks or adversely affects our
product development or business.
Our products are also susceptible to competition from generics and biosimilars in many markets. Generic
versions of drugs and biosimilars are likely to be sold at substantially lower prices than branded
products. Accordingly, the introduction of generic or biosimilar versions of our marketed products likely would
significantly reduce both the price that we receive for such marketed products and the volume of products that we
sell, which may have an adverse impact on our results of operations.
In the MS market, we face intense competition as the number of products and competitors continues to
expand. Due to our significant reliance on sales of our MS products, our business may be harmed if we are unable
to successfully compete in the MS market. More specifically, our ability to compete, maintain and grow our share in
the MS market may be adversely affected due to a number of factors, including:
•
•
the introduction of more efficacious, safer, less expensive or more convenient alternatives to our MS products,
including our own products and products of our collaborators;
the introduction of lower-cost biosimilars, follow-on products or generic versions of branded MS products sold
by our competitors, and the possibility of future competition from generic versions or prodrugs of existing
therapeutics or from off-label use by physicians of therapies indicated for other conditions to treat MS patients;
29
• patient dynamics, including the size of the patient population and our ability to attract new patients to our
therapies;
• damage to physician and patient confidence in any of our MS products or to our sales and reputation as a
result of label changes or adverse experiences or events that may occur with patients treated with our MS
products;
•
inability to obtain appropriate pricing and reimbursement for our MS products compared to our competitors in
key international markets; or
• our ability to obtain and maintain patent, data or market exclusivity for our MS products.
Sales of our products depend, to a significant extent, on adequate coverage, pricing and reimbursement from third-
party payors, which are subject to increasing and intense pressure from political, social, competitive and other sources.
Our inability to maintain adequate coverage, or a reduction in pricing or reimbursement, could have an adverse effect
on our business, revenues and results of operations and could cause a decline in our stock price.
Sales of our products are dependent, in large part, on the availability and extent of coverage, pricing and
reimbursement from government health administration authorities, private health insurers and other organizations.
When a new pharmaceutical product is approved, the availability of government and private reimbursement for that
product may be uncertain, as is the pricing and amount for which that product will be reimbursed.
Pricing and reimbursement for our products may be adversely affected by a number of factors, including:
• changes in, and implementation of, federal, state or foreign government regulations or private third-party
payors' reimbursement policies;
• pressure by employers on private health insurance plans to reduce costs; and
• consolidation and increasing assertiveness of payors, including managed care organizations, health insurers,
pharmacy benefit managers, government health administration authorities, private health insurers and other
organizations, seeking price discounts or rebates in connection with the placement of our products on their
formularies and, in some cases, the imposition of restrictions on access or coverage of particular drugs or
pricing determined based on perceived value.
Our ability to set the price for our products can vary significantly from country to country and as a result so can
the price of our products. Certain countries set prices by reference to the prices in other countries where our
products are marketed. Thus, our inability to secure adequate prices in a particular country may not only limit the
revenue from our products within that country, but may also adversely affect our ability to obtain acceptable prices in
other markets. This may create the opportunity for third-party cross-border trade or influence our decision to sell or
not to sell a product, thus adversely affecting our geographic expansion plans and revenues.
Our failure to maintain adequate coverage, pricing, or reimbursement for our products would have an adverse
effect on our business, revenues and results of operations, could curtail or eliminate our ability to adequately fund
research and development programs for the discovery and commercialization of new products and could cause a
decline in our stock price.
Drug prices are under significant scrutiny in the markets in which our products are prescribed. We expect drug
pricing and other health care costs to continue to be subject to intense political and societal pressures on a global
basis. As a result, our business and reputation may be harmed, our stock price may be adversely impacted and
experience periods of volatility, and our results of operations may be adversely impacted.
30
Our results of operations may be adversely affected by current and potential future healthcare reforms.
In the U.S., federal and state legislatures, health agencies and third-party payors continue to focus on
containing the cost of health care. Legislative and regulatory proposals and enactments to reform health care
insurance programs could significantly influence the manner in which our products are prescribed and purchased. For
example, provisions of the PPACA have resulted in changes in the way health care is paid for by both governmental
and private insurers, including increased rebates owed by manufacturers under the Medicaid Drug Rebate Program,
annual fees and taxes on manufacturers of certain branded prescription drugs, the requirement that manufacturers
participate in a discount program for certain outpatient drugs under Medicare Part D and the expansion of the
number of hospitals eligible for discounts under Section 340B of the Public Health Service Act. These changes have
had and are expected to continue to have a significant impact on our business. In 2017, we may face uncertainties
as a result of likely federal and administrative efforts to repeal, substantially modify or invalidate some or all of the
provisions of the PPACA. There is no assurance that the PPACA, as currently enacted or as amended in the future,
will not adversely affect our business and financial results, and we cannot predict how future federal or state
legislative or administrative changes relating to healthcare reform will affect our business.
There is also significant economic pressure on state budgets that may result in states increasingly seeking to
achieve budget savings through mechanisms that limit coverage or payment for our drugs. In recent years, some
states have considered legislation and ballot initiatives that would control the prices of drugs, including laws to allow
importation of pharmaceutical products from lower cost jurisdictions outside the U.S. and laws intended to impose
price controls on state drug purchases. State Medicaid programs are increasingly requesting manufacturers to pay
supplemental rebates and requiring prior authorization by the state program for use of any drug for which
supplemental rebates are not being paid. Government efforts to reduce Medicaid expenses may lead to increased
use of managed care organizations by Medicaid programs. This may result in managed care organizations influencing
prescription decisions for a larger segment of the population and a corresponding constraint on prices and
reimbursement for our products.
In the E.U. and some other international markets, the government provides health care at low cost to
consumers and regulates pharmaceutical prices, patient eligibility or reimbursement levels to control costs for the
government-sponsored health care system. Many countries have announced or implemented measures to reduce
health care costs to constrain their overall level of government expenditures. These measures vary by country and
may include, among other things, patient access restrictions, suspensions on price increases, prospective and
possibly retroactive price reductions and other recoupments and increased mandatory discounts or rebates,
recoveries of past price increases and greater importation of drugs from lower-cost countries to higher-cost
countries. These measures have negatively impacted our revenues, and may continue to adversely affect our
revenues and results of operations in the future.
Adverse safety events or restrictions on use and safety warnings for our products can negatively affect our business,
product sales and stock price.
Adverse safety events involving our marketed products may have a negative impact on our business. Discovery
of safety issues with our products could create product liability and could cause additional regulatory scrutiny and
requirements for additional labeling or safety monitoring, withdrawal of products from the market and the imposition
of fines or criminal penalties. Adverse safety events may also damage physician and patient confidence in our
products and our reputation. Any of these could result in liabilities, loss of revenue, material write-offs of inventory,
material impairments of intangible assets, goodwill and fixed assets, material restructuring charges and other
adverse impacts on our results of operations.
Regulatory authorities are making greater amounts of stand-alone safety information directly available to the
public through periodic safety update reports, patient registries and other reporting requirements. The reporting of
adverse safety events involving our products or products similar to ours and public rumors about such events may
increase claims against us and may also cause our product sales or stock price to decline or experience periods of
volatility.
Restrictions on use or significant safety warnings that may be required to be included in the label of our
products, such as the risk of developing progressive multifocal leukoencephalopathy (PML), a serious brain infection,
in the label for certain of our products, may significantly reduce expected revenues for those products and require
significant expense and management time.
31
If we are unable to obtain and maintain adequate protection for our data, intellectual property and other proprietary
rights, our business may be harmed.
Our success depends in part on our ability to obtain and defend patent and other intellectual property rights
that are important to the commercialization of our products and product candidates. The degree of patent protection
that will be afforded to our products and processes in the U.S. and in other important markets remains uncertain
and is dependent upon the scope of protection decided upon by the patent offices, courts, administrative bodies and
lawmakers in these countries. We can provide no assurance that we will successfully obtain or preserve patent
protection for the technologies incorporated into our products and processes, or that the protection obtained will be
of sufficient breadth and degree to protect our commercial interests in all countries where we conduct business. If
we cannot prevent others from exploiting our inventions, we will not derive the benefit from them that we currently
expect. Furthermore, we can provide no assurance that our products will not infringe patents or other intellectual
property rights held by third parties.
We also rely on regulatory exclusivity for protection of our products. Implementation and enforcement of
regulatory exclusivity, which may consist of regulatory data protection and market protection, varies widely from
country to country. Failure to qualify for regulatory exclusivity, or failure to obtain or maintain the extent or duration of
such protections that we expect in each of the markets for our products due to challenges, changes or
interpretations in the law or otherwise, could affect our revenue for our products or our decision on whether to
market our products in a particular country or countries or could otherwise have an adverse impact on our results of
operations.
Litigation, interferences, oppositions, inter partes reviews or other proceedings are, have been and may in the
future be necessary in some instances to determine the validity and scope of certain of our proprietary rights, and in
other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties
to be pertinent to the manufacture, use or sale of our products. We may also face challenges to our patent and
regulatory protections covering our products by third parties, including manufacturers of generics and biosimilars
that may choose to launch or attempt to launch their products before the expiration of our patent or regulatory
exclusivity. Litigation, interference, oppositions, inter partes reviews, administrative challenges or other similar types
of proceedings are unpredictable and may be protracted, expensive and distracting to management. The outcome of
such proceedings could adversely affect the validity and scope of our patent or other proprietary rights, hinder our
ability to manufacture and market our products, require us to seek a license for the infringed product or technology
or result in the assessment of significant monetary damages against us that may exceed amounts, if any, accrued in
our financial statements. An adverse determination in a judicial or administrative proceeding or a failure to obtain
necessary licenses could prevent us from manufacturing or selling our products. Furthermore, payments under any
licenses that we are able to obtain would reduce our profits derived from the covered products and services.
Our long-term success depends upon the successful development of new products and additional indications for
existing products.
Our long-term viability and growth will depend upon successful development of additional indications for our
existing products as well as successful development of new products and technologies from our research and
development activities, our biosimilars joint venture with Samsung Biologics or licenses or acquisitions from third
parties.
Product development is very expensive and involves a high degree of risk. Only a small number of research and
development programs result in the commercialization of a product. Clinical trials may indicate that our product
candidates lack efficacy, have harmful side effects, result in unexpected adverse events or raise other concerns that
may significantly reduce the likelihood of regulatory approval. This may result in terminated programs, significant
restrictions on use and safety warnings in an approved label, adverse placement within the treatment paradigm, or
significant reduction in the commercial potential of the product candidate.
Clinical trials and the development of biopharmaceutical products is a lengthy and complex process. If we fail to
adequately manage our clinical activities, our clinical trials or potential regulatory approvals may be delayed or denied.
Conducting clinical trials is a complex, time-consuming and expensive process. Our ability to complete clinical
trials in a timely fashion depends in large part on a number of key factors. These factors include protocol design,
regulatory and institutional review board approval, patient enrollment rates and compliance with extensive current
Good Clinical Practices. If we or our third-party clinical trial providers or third-party contract research organizations
(CROs) do not successfully carry out these clinical activities, our clinical trials or the potential regulatory approval of
a product candidate may be delayed or be unsuccessful.
32
We have opened clinical sites and are enrolling patients in a number of countries where our experience is more
limited. In most cases, we use the services of third parties to carry out our clinical trial related activities and rely on
such parties to accurately report their results. Our reliance on third parties for these activities may impact our ability
to control the timing, conduct, expense and quality of our clinical trials. One CRO has responsibility for a substantial
portion of our clinical trial related activities and reporting. If this CRO does not adequately perform, many of our trials
may be affected. We may need to replace our CROs. Although we believe there are a number of other CROs we could
engage to continue these activities, the replacement of an existing CRO may result in the delay of the affected trials
or otherwise adversely affect our efforts to obtain regulatory approvals and commercialize our product candidates.
Successful preclinical work or early stage clinical trials do not ensure success in later stage trials, regulatory
approval or commercial viability of a product.
Positive results in a trial may not be replicated in subsequent or confirmatory trials. Additionally, success in
preclinical work or early stage clinical trials does not ensure that later stage or larger scale clinical trials will be
successful or that regulatory approval will be obtained. In addition, even if later stage clinical trials are successful,
regulatory authorities may delay or decline approval of our product candidates. Regulatory authorities may disagree
with our view of the data, require additional studies or disagree with our trial design or endpoints. Regulatory
authorities may also fail to approve the facilities or the processes used to manufacture a product candidate, our
dosing or delivery methods or companion devices. Regulatory authorities may grant marketing approval that is more
restricted than anticipated. These restrictions may include limiting indications to narrow patient populations and the
imposition of safety monitoring, educational requirements and risk evaluation and mitigation strategies. The
occurrence of any of these events could result in significant costs and expenses, have an adverse effect on our
business, financial condition and results of operations and cause our stock price to decline or experience periods of
volatility.
Even if we are able to successfully develop new products or indications, sales of new products or products with
additional indications may not meet investor expectations. We may also make a strategic decision to discontinue
development of a product or indication if, for example, we believe commercialization will be difficult relative to the
standard of care or other opportunities in our pipeline.
Management and key personnel changes may disrupt our operations, and we may have difficulty retaining key
personnel or attracting and retaining qualified replacements on a timely basis for management and other key
personnel who may leave the Company.
We have experienced changes in management and other key personnel in critical functions across our
organization, including our chief executive officer, and heads of research and development and pharmaceutical
operations and technology. Changes in management and other key personnel have the potential to disrupt our
business, and any such disruption could adversely affect our operations, programs, growth, financial condition and
results of operations. Further, new members of management may have different perspectives on programs and
opportunities for our business, which may cause us to focus on new business opportunities or reduce or change
emphasis on our existing business programs.
Our success is dependent upon our ability to attract and retain qualified management and key personnel in a
highly competitive environment. Qualified individuals are in high demand, and we may incur significant costs to
attract them, particularly at the executive level. We may face difficulty in attracting and retaining key talent for a
number of reasons, such as management changes, the underperformance or discontinuation of one or more late
stage programs or recruitment by competitors. We cannot assure that we will be able to hire or retain the personnel
necessary for our operations or that the loss of any such personnel will not have a material impact on our financial
condition and results of operations.
Manufacturing issues could substantially increase our costs, limit supply of our products and reduce our revenues.
The process of manufacturing our products is complex, highly regulated and subject to numerous risks,
including:
• Risk of Product Loss. The manufacturing process for our products is extremely susceptible to product loss due
to contamination, oxidation, equipment failure or improper installation or operation of equipment, or vendor or
operator error. Even minor deviations from normal manufacturing processes could result in reduced production
yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in
our products or manufacturing facilities, we may need to close our manufacturing facilities for an extended
period of time to investigate and remediate the contaminant.
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• Risks of Reliance on Third Parties and Single Source Providers. We rely on third-party suppliers and
manufacturers for many aspects of our manufacturing process for our products and product candidates. In
some cases, due to the unique manner in which our products are manufactured, we rely on single source
providers of several raw materials and manufacturing supplies. These third parties are independent entities
subject to their own unique operational and financial risks that are outside of our control. These third parties
may not perform their obligations in a timely and cost-effective manner or in compliance with applicable
regulations, and they may be unable or unwilling to increase production capacity commensurate with demand
for our existing or future products. Finding alternative providers could take a significant amount of time and
involve significant expense due to the specialized nature of the services and the need to obtain regulatory
approval of any significant changes to our suppliers or manufacturing methods. We cannot be certain that we
could reach agreement with alternative providers or that the FDA or other regulatory authorities would approve
our use of such alternatives.
• Global Bulk Supply Risks. We rely on our principal manufacturing facilities for the production of drug substance
for our large molecule products and product candidates. Our global bulk supply of these products and product
candidates depends on the uninterrupted and efficient operation of these facilities, which could be adversely
affected by equipment failures, labor shortages, natural disasters, power failures and numerous other factors.
• Risks Relating to Compliance with cGMP. We and our third-party providers are generally required to maintain
compliance with cGMP and other stringent requirements and are subject to inspections by the FDA and
comparable agencies in other jurisdictions to confirm such compliance. Any delay, interruption or other issues
that arise in the manufacture, fill-finish, packaging or storage of our products as a result of a failure of our
facilities or the facilities or operations of third parties to pass any regulatory agency inspection could
significantly impair our ability to develop and commercialize our products. Significant noncompliance could also
result in the imposition of monetary penalties or other civil or criminal sanctions and damage our reputation.
Any adverse developments affecting our manufacturing operations or the operations of our third-party suppliers
and manufacturers may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls or
other interruptions in the commercial supply of our products. We may also have to take inventory write-offs and incur
other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or
seek more costly manufacturing alternatives. Such developments could increase our manufacturing costs, cause us
to lose revenue or market share as patients and physicians turn to competing therapeutics, diminish our profitability
or damage our reputation.
We depend on relationships with collaborators and other third-parties for revenue, and the development, regulatory
approval, commercialization and marketing of certain products, which are outside of our full control.
We rely on a number of significant collaborative relationships for revenue, and the development, regulatory
approval, commercialization and marketing of certain of our products and product candidates. We also outsource to
third parties certain aspects of our regulatory affairs and clinical development relating to our products and product
candidates. Reliance on collaborative and other third-party relationships subjects us to a number of risks, including:
• we may be unable to control the resources our collaborators or third parties devote to our programs or
products;
• disputes may arise under the agreement, including with respect to the achievement and payment of milestones
or ownership of rights to technology developed with our collaborators or other third parties, and the underlying
contract with our collaborators or other third parties may fail to provide significant protection or may fail to be
effectively enforced if the collaborators or third parties fail to perform;
•
•
the interests of our collaborators or third parties may not always be aligned with our interests, such parties may
not pursue regulatory approvals or market a product in the same manner or to the same extent that we would,
which could adversely affect our revenues;
third-party relationships and collaborations often require the parties to cooperate, and failure to do so
effectively could adversely affect product sales, or the clinical development or regulatory approvals of products
under joint control or could result in termination of the research, development or commercialization of product
candidates or result in litigation or arbitration; and
34
• any failure on the part of our collaborators or other third parties to comply with applicable laws and regulatory
requirements in the marketing, sale and maintenance of the marketing authorization of our products or to fulfill
any responsibilities our collaborators or other third parties may have to protect and enforce any intellectual
property rights underlying our products could have an adverse effect on our revenues as well as involve us in
possible legal proceedings.
Given these risks, there is considerable uncertainty regarding the success of our current and future
collaborative efforts. If these efforts fail, our product development or commercialization of new products could be
delayed or revenues from products could decline.
Our business may be adversely affected if we do not successfully execute our growth initiatives.
We anticipate growth through internal development projects, commercial initiatives and external opportunities,
which may include the acquisition, partnering and in-licensing of products, technologies and companies or the entry
into strategic alliances and collaborations. While we believe we have a number of promising programs in our pipeline,
failure of internal development projects to advance or difficulties in executing on our commercial initiatives could
impact our current and future growth, resulting in additional reliance on external development opportunities for
growth. The availability of high quality, cost-effective development opportunities is limited and competitive, and we
are not certain that we will be able to identify candidates that we and our shareholders consider suitable or
complete transactions on terms that are acceptable to us and our shareholders. We may fail to complete
transactions for other reasons, including if we are unable to obtain desired financing on favorable terms, if at all.
Even if we are able to successfully identify and complete acquisitions and other strategic alliances and
collaborations, we may face unanticipated costs or liabilities in connection with the transaction or we may not be
able to integrate them or take full advantage of them or otherwise realize the benefits that we expect.
Supporting our growth initiatives and the further development of our existing products and potential new
products in our pipeline will require significant capital expenditures and management resources, including
investments in research and development, sales and marketing, manufacturing capabilities and other areas of our
business. If we do not successfully manage our growth initiatives, then our business and financial results may be
adversely affected and we may incur asset impairment or restructuring charges.
We may incur operational difficulties or be exposed to claims and liabilities as a result of the separation and
distribution of Bioverativ.
On February 1, 2017, we distributed all of the then outstanding shares of Bioverativ common stock to Biogen
stockholders in connection with the separation of our hemophilia business. In connection with the distribution, we
entered into a separation and distribution agreement and various other agreements (including a transition services
agreement, a tax matters agreement, a manufacturing and supply agreement, an employee matters agreement, an
intellectual property matters agreement and certain other commercial agreements). These agreements govern the
separation and distribution and the relationship between the two companies going forward, including with respect to
potential tax-related losses associated with the separation and distribution. They also provide for the performance of
services by each company for the benefit of the other for a period of time (including under the manufacturing and
supply agreement pursuant to which we will manufacture and supply certain products and materials to Bioverativ).
There could be significant liability if the separation and distribution is determined to be a taxable transaction.
Bioverativ has agreed to indemnify us for certain potential liabilities that may arise, but we cannot guarantee that
Bioverativ will be able to satisfy its indemnification obligations.
The separation and distribution agreement provides for indemnification obligations designed to make Bioverativ
financially responsible for many liabilities that may exist relating to its business activities, whether incurred prior to
or after the distribution, including any pending or future litigation. It is possible that a court would disregard the
allocation agreed to between us and Bioverativ and require us to assume responsibility for obligations allocated to
Bioverativ. Third parties could also seek to hold us responsible for any of these liabilities or obligations, and the
indemnity rights we have under the separation and distribution agreement may not be sufficient to fully cover all of
these liabilities and obligations. Even if we are successful in obtaining indemnification, we may have to bear costs
temporarily. In addition, our indemnity obligations to Bioverativ may be significant. These risks could negatively affect
our business, financial condition or results of operations.
35
The separation of Bioverativ continues to involve a number of risks, including, among other things, the
indemnification risks described above and the potential that management’s and our employees’ attention will be
significantly diverted by the provision of transitional services. Certain of the agreements described above provide for
the performance of services by each company for the benefit of the other for a period of time. If Bioverativ is unable
to satisfy its obligations under these agreements, including its indemnification obligations, we could incur losses.
These arrangements could also lead to disputes over rights to certain shared property and over the allocation of
costs and revenues for products and operations. Our inability to effectively manage the separation activities and
related events could adversely affect our business, financial condition or results of operations.
We may not achieve some or all of the expected benefits of the separation and distribution, and such events may
adversely affect our business.
We may not be able to achieve the full strategic and financial benefits expected to result from the separation
and distribution, or such benefits may be delayed or not occur at all. If we fail to achieve some or all of the expected
benefits of the separation, or if such benefits are delayed, our business, financial condition, results of operations
and the value of our stock could be adversely impacted.
A breakdown or breach of our technology systems could subject us to liability or interrupt the operation of our
business.
We are increasingly dependent upon technology systems and data. Our computer systems continue to increase
in multitude and complexity due to the growth in our business, making them potentially vulnerable to breakdown,
malicious intrusion and random attack. Likewise, data privacy or security breaches by individuals authorized to
access our technology systems or others may pose a risk that sensitive data, including intellectual property, trade
secrets or personal information belonging to us, our patients, customers or other business partners, may be
exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and
intensity, and are becoming increasingly difficult to detect. They are often carried out by motivated, well-resourced,
skilled and persistent actors including nation states, organized crime groups and "hacktivists." Cyber-attacks could
include the deployment of harmful malware and key loggers, a denial-of-service attack, a malicious website, the use
of social engineering and other means to affect the confidentiality, integrity and availability of our technology systems
and data. Our key business partners face similar risks and any security breach of their systems could adversely
affect our security posture. While we continue to build and improve our systems and infrastructure and believe we
have taken appropriate security measures to reduce these risks to our data and information technology systems,
there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely
affect our business and operations and/or result in the loss of critical or sensitive information, which could result in
financial, legal, business or reputational harm to us. In addition, our liability insurance may not be sufficient in type
or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.
If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could
face increased costs, penalties and a loss of business.
Our activities, and the activities of our collaborators, distributors and other third-party providers, are subject to
extensive government regulation and oversight both in the U.S. and in foreign jurisdictions. The FDA and comparable
agencies in other jurisdictions directly regulate many of our most critical business activities, including the conduct of
preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event
reporting and product risk management. Our interactions in the U.S. or abroad with physicians and other health care
providers that prescribe or purchase our products are also subject to government regulation designed to prevent
fraud and abuse in the sale and use of the products and place greater restrictions on the marketing practices of
health care companies. Health care companies such as ours are facing heightened scrutiny of their relationships
with health care providers from anti-corruption enforcement officials. In addition, health care companies such as
ours have been the target of lawsuits and investigations alleging violations of government regulation, including
claims asserting submission of incorrect pricing information, impermissible off-label promotion of pharmaceutical
products, payments intended to influence the referral of health care business, submission of false claims for
government reimbursement, antitrust violations or violations related to environmental matters. There is also
enhanced scrutiny of company-sponsored patient assistance programs, including insurance premium and co-pay
assistance programs and donations to third party charities that provide such assistance. If we, or our vendors or
donation recipients, are deemed to fail to comply with relevant laws, regulations or government guidance in the
operation of these programs, we could be subject to significant fines or penalties. Risks relating to compliance with
laws and regulations may be heightened as we continue to expand our global operations and enter new therapeutic
areas with different patient populations, which may have different product distribution methods, marketing programs
or patient assistance programs from those we currently utilize or support.
36
Regulations governing the health care industry are subject to change, with possibly retroactive effect, including:
• new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions,
related to health care availability, pricing or marketing practices, compliance with wage and hour laws and other
employment practices, method of delivery, payment for health care products and services, compliance with
health information and data privacy and security laws and regulations, tracking and reporting payments and
other transfers of value made to physicians and teaching hospitals, extensive anti-bribery and anti-corruption
prohibitions, product serialization and labeling requirements and used product take-back requirements;
• changes in the FDA and foreign regulatory approval processes that may delay or prevent the approval of new
products and result in lost market opportunity;
•
requirements that provide for increased transparency of clinical trial results and quality data, such as the EMA’s
clinical transparency policy, which could impact our ability to protect trade secrets and competitively-sensitive
information contained in approval applications or could be misinterpreted leading to reputational damage,
misperception or legal action which could harm our business; and
• changes in FDA and foreign regulations that may require additional safety monitoring, labeling changes,
restrictions on product distribution or use, or other measures after the introduction of our products to market,
which could increase our costs of doing business, adversely affect the future permitted uses of approved
products, or otherwise adversely affect the market for our products.
Violations of governmental regulation may be punishable by criminal and civil sanctions against us, including
fines and civil monetary penalties and exclusion from participation in government programs, including Medicare and
Medicaid, as well as against executives overseeing our business. In addition to penalties for violation of laws and
regulations, we could be required to repay amounts we received from government payors, or pay additional rebates
and interest if we are found to have miscalculated the pricing information we have submitted to the government. We
cannot ensure that our compliance controls, policies and procedures will in every instance protect us from acts
committed by our employees, collaborators, partners or third-party providers that would violate the laws or
regulations of the jurisdictions in which we operate. Whether or not we have complied with the law, an investigation
into alleged unlawful conduct could increase our expenses, damage our reputation, divert management time and
attention and adversely affect our business.
Our effective tax rate may fluctuate and we may incur obligations in tax jurisdictions in excess of accrued amounts.
As a global biopharmaceutical company, we are subject to taxation in numerous countries, states and other
jurisdictions. As a result, our effective tax rate is derived from a combination of applicable tax rates in the various
places that we operate. In preparing our financial statements, we estimate the amount of tax that will become
payable in each of such places. Our effective tax rate, however, may be different than experienced in the past due to
numerous factors, including changes in the mix of our profitability from country to country, the results of
examinations and audits of our tax filings, adjustments to the value of our uncertain tax positions, changes in
accounting for income taxes and changes in tax laws. Any of these factors could cause us to experience an effective
tax rate significantly different from previous periods or our current expectations.
In addition, our inability to secure or sustain acceptable arrangements with tax authorities and future changes
in the tax laws, among other things, may result in tax obligations in excess of amounts accrued in our financial
statements.
In the U.S., there are several proposals under consideration to reform tax law, including proposals that may
reduce or eliminate the deferral of U.S. income tax on our unrepatriated earnings, penalize certain transfer pricing
structures, and reduce or eliminate certain foreign or domestic tax credits or deductions. Our future reported
financial results may be adversely affected by tax law changes which restrict or eliminate certain foreign tax credits
or our ability to deduct expenses attributable to foreign earnings, or otherwise affect the treatment of our
unrepatriated earnings.
In addition to U.S. tax reform proposals, the adoption of some or all of the recommendations set forth in the
Organization for Economic Co-operation and Development’s project on “Base Erosion and Profit Shifting” (BEPS) by
tax authorities in the countries in which we operate, could negatively impact our effective tax rate. These
recommendations focus on payments from affiliates in high tax jurisdictions to affiliates in lower tax jurisdictions and
the activities that give rise to a taxable presence in a particular country.
37
Our indebtedness could adversely affect our business and limit our ability to plan for or respond to changes in our
business.
Our indebtedness, together with our significant contingent liabilities, including milestone and royalty payment
obligations, could have important consequences to our business; for example, such obligations could:
•
increase our vulnerability to general adverse economic and industry conditions;
•
limit our ability to access capital markets and incur additional debt in the future;
•
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness,
thereby reducing the availability of our cash flow for other purposes, including business development efforts,
research and development and mergers and acquisitions; and
•
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate,
thereby placing us at a competitive disadvantage compared to our competitors that have less debt.
Our sales and operations are subject to the risks of doing business internationally.
We are increasing our presence in international markets, particularly emerging markets, subjecting us to many
risks that could adversely affect our business and revenues, such as:
•
the inability to obtain necessary foreign regulatory or pricing approvals of products in a timely manner;
• collectability of accounts receivable;
•
fluctuations in foreign currency exchange rates, in particular the recent strength of the U.S. dollar versus
foreign currencies that has adversely impacted our revenues and net income;
• difficulties in staffing and managing international operations;
•
the imposition of governmental controls;
•
less favorable intellectual property or other applicable laws;
•
•
increasingly complex standards for complying with foreign laws and regulations that may differ substantially
from country to country and may conflict with corresponding U.S. laws and regulations;
the far-reaching anti-bribery and anti-corruption legislation in the U.K., including the U.K. Bribery Act 2010, and
elsewhere and escalation of investigations and prosecutions pursuant to such laws;
• compliance with complex import and export control laws;
•
restrictions on direct investments by foreign entities and trade restrictions;
• greater political or economic instability; and
• changes in tax laws and tariffs.
In addition, our international operations are subject to regulation under U.S. law. For example, the Foreign
Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing or
making payments to foreign officials for the purpose of obtaining or retaining business abroad. In many countries,
the health care professionals we regularly interact with may meet the definition of a foreign government official for
purposes of the Foreign Corrupt Practices Act. Failure to comply with domestic or foreign laws could result in various
adverse consequences, including: possible delay in approval or refusal to approve a product; recalls, seizures or
withdrawal of an approved product from the market; disruption in the supply or availability of our products or
suspension of export or import privileges; the imposition of civil or criminal sanctions; the prosecution of executives
overseeing our international operations; and damage to our reputation. Any significant impairment of our ability to
sell products outside of the U.S. could adversely impact our business and financial results.
38
Our operating results are subject to significant fluctuations.
Our quarterly revenues, expenses and net income (loss) have fluctuated in the past and are likely to fluctuate
significantly in the future due to the risks described in these “Risk Factors” as well as the timing of charges and
expenses that we may take. We have recorded, or may be required to record, charges that include:
”
•
the cost of restructurings;
•
•
impairments with respect to investments, fixed assets and long-lived assets, including in-process R&D and
other intangible assets;
inventory write-downs for failed quality specifications, charges for excess or obsolete inventory and charges for
inventory write downs relating to product suspensions, expirations or recalls;
• changes in the fair value of contingent consideration;
• bad debt expenses and increased bad debt reserves;
• outcomes of litigation and other legal or administrative proceedings, regulatory matters and tax matters;
• milestone payments under license and collaboration agreements; and
• payments in connection with acquisitions and other business development activities.
Our revenues are also subject to foreign exchange rate fluctuations due to the global nature of our operations.
Although we have foreign currency forward contracts to hedge specific forecasted transactions denominated in
foreign currencies, our efforts to mitigate the impact of fluctuating currency exchange rates may not be successful.
As a result, currency fluctuations among our reporting currency, the U.S. dollar, and the currencies in which we do
business will affect our operating results, often in unpredictable ways. Our net income may also fluctuate due to the
impact of charges we may be required to take with respect to foreign currency hedge transactions. In particular, we
may incur higher than expected charges from hedge ineffectiveness or from the termination of a hedge relationship.
Our operating results during any one period do not necessarily suggest the anticipated results of future periods.
We are pursuing opportunities to expand our manufacturing capacity for future clinical and commercial
requirements for product candidates, which will result in the incurrence of significant investment with no assurance
that such investment will be recouped.
While we believe we currently have sufficient large scale manufacturing capacity to meet our near-term
manufacturing requirements, it is probable that we would need additional large scale manufacturing capacity to
support future clinical and commercial manufacturing requirements for product candidates in our pipeline, if such
candidates are successful and approved. We are building a large scale biologics manufacturing facility in Solothurn,
Switzerland and acquired an additional manufacturing facility in Research Triangle Park, North Carolina. Due to the
long lead times necessary for the expansion of manufacturing capacity, we expect to incur significant investment to
build or expand our facilities or obtain third-party contract manufacturers with no assurance that such investment will
be recouped. If we are unable to adequately and timely manufacture and supply our products and product
candidates or if we do not fully utilize our manufacturing facilities, our business may be harmed.
Our investment in Samsung Bioepis, and our success in commercializing biosimilars developed by Samsung Bioepis,
are subject to risks and uncertainties inherent in the development, manufacture and commercialization of biosimilars.
Our investment in Samsung Bioepis, and our success in commercializing biosimilars developed by Samsung
Bioepis, are subject to a number of risks, including:
• Reliance on Third Parties. We are dependent on the efforts of Samsung Bioepis and other third parties over
whom we have limited or no control in the development and manufacturing of biosimilars products. If Samsung
Bioepis or such other third parties fail to perform successfully, we may not realize the anticipated benefits of
our investment in Samsung Bioepis;
• Regulatory Compliance. Biosimilar products may face regulatory hurdles or delays due to the evolving and
uncertain regulatory and commercial pathway of biosimilars products in certain jurisdictions;
39
•
•
Intellectual Property and Regulatory Challenges. Biosimilar products may face extensive patent clearances,
patent infringement litigation, injunctions or regulatory challenges, which could prevent the commercial launch
of a product or delay it for many years;
Failure to Gain Market and Patient Acceptance. Market success of biosimilar products will be adversely affected
if patients, physicians and payers do not accept biosimilar products as safe and efficacious products offering a
more competitive price or other benefit over existing therapies;
• Ability to Provide Adequate Supply. Manufacturing biosimilars is complex. If we encounter any manufacturing or
supply chain difficulties, we may be unable to meet higher than anticipated demand; and
• Competitive Challenges. Biosimilar products face significant competition, including from innovator products and
from biosimilar products offered by other companies. In some jurisdictions, local tendering processes may
restrict biosimilar products from being marketed and sold in those jurisdictions. The number of competitors in a
jurisdiction, the timing of approval and the ability to market biosimilar products successfully in a timely and
cost-effective matter are additional factors that may impact our success and/or the success of Samsung
Bioepis in this business area.
Our investments in properties may not be fully realized.
We own or lease real estate primarily consisting of buildings that contain research laboratories, office space
and manufacturing operations. For strategic or other operational reasons, we may decide to further consolidate or
co-locate certain aspects of our business operations or dispose of one or more of our properties, some of which
may be located in markets that are experiencing high vacancy rates and decreasing property values. If we determine
that the fair value of any of our owned properties is lower than their book value we may not realize the full
investment in these properties and incur significant impairment charges or additional depreciation when the
expected useful lives of certain assets have been shortened due to the anticipated closing of facilities. If we decide
to fully or partially vacate a leased property, such as ceasing manufacturing at our facility in Cambridge,
Massachusetts, we may incur significant cost, including facility closing costs, employee separation and retention
expenses, lease termination fees, rent expense in excess of sublease income and impairment of leasehold
improvements and accelerated depreciation of assets. Any of these events may have an adverse impact on our
results of operations.
Our portfolio of marketable securities is subject to market, interest and credit risk that may reduce its value.
We maintain a portfolio of marketable securities for investment of our cash. Changes in the value of our
portfolio of marketable securities could adversely affect our earnings. In particular, the value of our investments may
decline due to increases in interest rates, downgrades of the bonds and other securities included in our portfolio,
instability in the global financial markets that reduces the liquidity of securities included in our portfolio, declines in
the value of collateral underlying the securities included in our portfolio and other factors. Each of these events may
cause us to record charges to reduce the carrying value of our investment portfolio or sell investments for less than
our acquisition cost. Although we attempt to mitigate these risks through diversification of our investments and
continuous monitoring of our portfolio's overall risk profile, the value of our investments may nevertheless decline.
There can be no assurance that we will continue to repurchase stock or that we will repurchase stock at favorable
prices.
From time to time our Board of Directors authorizes stock repurchase programs, including most recently a $5.0
billion stock repurchase program in July 2016. The amount and timing of stock repurchases are subject to capital
availability and our determination that stock repurchases are in the best interest of our stockholders and are in
compliance with all respective laws and our agreements applicable to the repurchase of stock. Our ability to
repurchase stock will depend upon, among other factors, our cash balances and potential future capital
requirements for strategic transactions, results of operations, financial condition and other factors beyond our
control that we may deem relevant. A reduction in, or the completion or expiration of, our stock repurchase programs
could have a negative effect on our stock price. We can provide no assurance that we will repurchase stock at
favorable prices, if at all.
40
We may not be able to access the capital and credit markets on terms that are favorable to us.
We may seek access to the capital markets to supplement our existing funds and cash generated from
operations for working capital, capital expenditure and debt service requirements and other business initiatives. The
capital and credit markets have experienced extreme volatility and disruption which leads to uncertainty and liquidity
issues for both borrowers and investors. In the event of adverse capital and credit market conditions, we may be
unable to obtain capital market financing on favorable terms. Changes in credit ratings issued by nationally
recognized credit rating agencies could also adversely affect our cost of financing and the market price of our
securities.
Our business involves environmental risks, which include the cost of compliance and the risk of contamination or
injury.
Our business and the business of several of our strategic partners involve the controlled use of hazardous
materials, chemicals, biologics and radioactive compounds. Although we believe that our safety procedures for
handling and disposing of such materials comply with state, federal and foreign standards, there will always be the
risk of accidental contamination or injury. If we were to become liable for an accident, or if we were to suffer an
extended facility shutdown, we could incur significant costs, damages and penalties that could harm our business.
Manufacturing of our products and product candidates also requires permits from government agencies for water
supply and wastewater discharge. If we do not obtain appropriate permits, including permits for sufficient quantities
of water and wastewater, we could incur significant costs and limits on our manufacturing volumes that could harm
our business.
The illegal distribution and sale by third parties of counterfeit versions of our products or stolen products could have
a negative impact on our reputation and business.
Third parties might illegally distribute and sell counterfeit or unfit versions of our products, which do not meet
our rigorous manufacturing, distribution and testing standards. A patient who receives a counterfeit or unfit drug may
be at risk for a number of dangerous health consequences. Our reputation and business could suffer harm as a
result of counterfeit or unfit drugs sold under our brand name. Stolen inventory that is not properly stored or sold
through unauthorized channels could adversely impact patient safety, our reputation and our business. In addition,
inventory that is stolen from warehouses, plants or while in-transit, and that is subsequently improperly stored and
sold through unauthorized channels, could adversely impact patient safety, our reputation and our business.
The increasing use of social media platforms presents new risks and challenges.
Social media is increasingly being used to communicate about our products and the diseases our therapies are
designed to treat. Social media practices in the biopharmaceutical industry continue to evolve and regulations
relating to such use are not always clear. This evolution creates uncertainty and risk of noncompliance with
regulations applicable to our business. For example, patients may use social media channels to comment on the
effectiveness of a product or to report an alleged adverse event. When such disclosures occur, there is a risk that
we fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend
the company or the public's legitimate interests in the face of the political and market pressures generated by social
media due to restrictions on what we may say about our products. There is also a risk of inappropriate disclosure of
sensitive information or negative or inaccurate posts or comments about us on any social networking website. If any
of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face
overly restrictive regulatory actions or incur other harm to our business.
Some of our collaboration agreements contain change in control provisions that may discourage a third party from
attempting to acquire us.
Some of our collaboration agreements include change in control provisions that could reduce the potential
acquisition price an acquirer is willing to pay or discourage a takeover attempt that could be viewed as beneficial to
shareholders. Upon a change in control, some of these provisions could trigger reduced milestone, profit or royalty
payments to us or give our collaboration partner rights to terminate our collaboration agreement, acquire operational
control or force the purchase or sale of the programs that are the subject of the collaboration.
Item 1B.
Unresolved Staff Comments
None.
41
Item 2.
Properties
Below is a summary of our owned and leased properties as of December 31, 2016.
Massachusetts
In Cambridge, Massachusetts, we own approximately 508,000 square feet of real estate space, consisting of a
building that houses a research laboratory and a cogeneration plant totaling approximately 263,000 square feet and
a building that contains research, development and quality laboratories which total approximately 245,000 square
feet.
In addition, we lease a total of approximately 1,250,000 square feet in Massachusetts, which is summarized as
follows:
• 893,000 square feet in Cambridge, Massachusetts, which is comprised of a 67,000 square foot biologics
manufacturing facility, which is subleased by Brammer, and 826,000 square feet for our corporate
headquarters, laboratory and additional office space; and
• 357,000 square feet of office space in Weston, Massachusetts, of which 175,000 square feet has been
subleased through the remaining term of our lease agreement.
Our Massachusetts lease agreements expire at various dates through the year 2028.
North Carolina
In RTP, North Carolina, we own approximately 834,000 square feet of real estate space, which is summarized
PP
as follows:
• 357,000 square feet of laboratory and office space;
• 175,000 square feet related to a large-scale biologics manufacturing facility;
• 105,000 square feet related to a biologics manufacturing facility;
• 84,000 square feet of warehouse space and utilities;
• 70,000 square feet related to a parenteral fill-finish facility; and
• 43,000 square feet related to a large-scale purification facility.
In addition, we lease 188,000 square feet of a facility in RTP North Carolina from Eisai to manufacture our and
PP
Eisai's oral solid dose products and 40,000 square feet of warehouse space in Durham, North Carolina.
Denmark
We own a large-scale biologics manufacturing facility totaling approximately 228,000 square feet located in
Hillerød, Denmark.
We also own approximately 306,000 square feet of additional space, which is summarized as follows:
• 139,000 square feet of warehouse, utilities and support space;
• 70,000 square feet related to a label and packaging facility;
• 50,000 square feet related to a laboratory facility; and
• 47,000 square feet of administrative space.
Switzerland
In December 2015 we acquired land in Solothurn, Switzerland where we are building a biologics manufacturing
facility in the Commune of Luterbach over the next several years.
Other International
We lease office space in Zug, Switzerland, our international headquarters, the U.K., Germany, France, Denmark
and numerous other countries. Our international lease agreements expire at various dates through the year 2028.
42
Item 3.
Legal Proceedings
For a discussion of legal matters as of December 31, 2016, please read Note 20, Litigation to our consolidated
financial statements included in this report, which is incorporated into this item by reference.
Item 4.
Mine Safety Disclosures
Not applicable.
43
Item 5.
Purchases of Equity Securities
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
PART II
Market and Stockholder Information
Our common stock trades on The NASDAQ Global Select Market under the symbol “BIIB.” The following table
shows the high and low sales price for our common stock as reported by The NASDAQ Global Select Market for each
quarter in the years ended December 31, 2016 and 2015:
First Quarter ....................................................... $
Second Quarter .................................................. $
Third Quarter ...................................................... $
Fourth Quarter .................................................... $
Common Stock Price
2016
High
301.02 $
292.69 $
333.65 $
329.83 $
Low
242.07 $
223.02 $
240.07 $
268.00 $
2015
High
Low
480.18 $
432.88 $
412.24 $
311.65 $
334.40
368.88
265.00
254.00
As of January 27, 2017, there were approximately 700 stockholders of record of our common stock.
Dividends
We have not paid cash dividends since our inception. While we historically have not paid cash dividends and do
not have a current intention to pay cash dividends, we continually review our capital allocation strategies, including,
among other things, payment of cash dividends, stock repurchases or acquisitions.
Issuer Purchases of Equity Securities
In July 2016 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock
(2016 Share Repurchase Program). This authorization does not have an expiration date. Repurchased shares will be
retired.
The following table summarizes our common stock repurchase activity under our 2016 Share Repurchase
Program during the fourth quarter of 2016:
Period
October 2016 ..........
November 2016 .......
December 2016 .......
Total......................
Total Number of
Shares Purchased
(#)
1,254,818
939,046
—
2,193,864
Average Price
Paid per Share
($)
298.71
294.24
—
296.80
Total Number of
Shares Purchased
as Part of Publicly
Announced Programs
(#)
1,254,818 $
939,046 $
— $
Maximum
Approximate Dollar Value
of Shares That May Yet Be
Purchased Under
Our Programs ($ in
millions)
4,276.3
4,000.0
4,000.0
As of December 31, 2016, we repurchased and retired approximately 3.3 million shares of common stock at a
cost of $1.0 billion under the 2016 Share Repurchase Program.
In February 2011 our Board of Directors authorized a program to repurchase up to 20.0 million shares of our
common stock (2011 Share Repurchase Program), which has been used principally to offset common stock
issuances under our share-based compensation plans. The 2011 Share Repurchase Program does not have an
expiration date. We did not repurchase any shares of common stock under our 2011 Share Repurchase Program
during the year ended December 31, 2016, and have approximately 1.3 million shares remaining available for
repurchase under this authorization.
44
Stock Performance Graph
The graph below compares the five-year cumulative total stockholder return on our common stock, the S&P
500 Index, the Nasdaq Pharmaceutical Index and the Nasdaq Biotechnology Index assuming the investment of
$100.00 on December 31, 2011 with dividends being reinvested. The stock price performance in the graph below is
not necessarily indicative of future price performance.
2011
2012
2013
2014
2015
2016
Biogen Inc.
NASDAQ Pharmaceutical
S&P 500 Index
NASDAQ Biotechnology
100.00
100.00
100.00
100.00
133.00
114.32
116.00
132.74
254.04
155.11
153.57
220.37
308.45
188.95
174.60
296.19
278.37
199.22
177.01
331.05
257.68
197.05
198.18
260.37
45
Item 6.
Selected Financial Data
BIOGEN INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Our results of operations are summarized as follows:
(In millions, except per share amounts)
Results of Operations
Product revenues, net (a)......................... $
Revenues from anti-CD20 therapeutic
programs................................................
Other revenues .......................................
Total revenues..................................
Total cost and expenses..........................
Gain on sale of rights ..............................
Income from operations...........................
Other income (expense), net ....................
Income before income tax expense and
equity in loss of investee, net of tax .........
Income tax expense ................................
Equity in loss of investee, net of tax .........
Net income.............................................
Net income (loss) attributable to
noncontrolling interests, net of tax ...........
Net income attributable to Biogen Inc. ...... $
Diluted Earnings Per Share
Diluted earnings per share attributable to
Biogen Inc. ............................................. $
Weighted-average shares used in
calculating diluted earnings per share
attributable to Biogen Inc. .......................
For the Years Ended December 31,
2016
(d) (e)
2015
(d)
2014
(f)
2013
(g)
2012
(h)
9,817.9 $
9,188.5 $
8,203.4 $
5,542.3 $
4,166.1
1,314.5
316.4
11,448.8
6,298.4
—
5,150.4
(217.4)
4,933.0
1,237.3
—
3,695.7
1,339.2
236.1
10,763.8
5,872.8
—
4,891.0
(123.7)
4,767.3
1,161.6
12.5
3,593.2
1,195.4
304.5
9,703.3
5,747.7
16.8
3,972.4
(25.8)
3,946.6
989.9
15.1
2,941.6
1,126.0
263.9
6,932.2
4,441.6
24.9
2,515.5
(34.9)
2,480.6
601.0
17.2
1,862.3
(7.1)
3,702.8 $
46.2
3,547.0 $
6.8
2,934.8 $
—
1,862.3 $
1,137.9
212.5
5,516.5
3,707.4
46.8
1,855.9
(0.7)
1,855.1
470.6
4.5
1,380.0
—
1,380.0
16.93 $
15.34 $
12.37 $
7.81 $
5.76
218.8
231.2
237.2
238.3
239.7
Our financial condition is summarized as follows:
2016
2015
2014
2013
2012
As of December 31,
(In millions)
Financial Condition
Cash, cash equivalents and marketable
securities ............................................... $
3,742.4
Total assets............................................ $ 22,876.8 $ 19,504.8 $ 14,314.7 $ 11,863.3 $ 10,130.1
Notes payable and other financing
arrangements, less current portion (b)...... $
6,512.7 $
Total Biogen Inc. shareholders’ equity (c) .. $ 12,140.1 $
580.3 $
6,521.5 $
9,372.8 $ 10,809.0 $
592.4 $
8,620.2 $
687.4
6,961.5
1,848.5 $
7,724.5 $
3,316.0 $
6,188.9 $
In addition to the following notes, the financial data included within the tables above should be read in
conjunction with our consolidated financial statements and related notes and the “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” sections of this report and our previously filed Form 10-Ks.
(a) Product revenues, net reflect the impact of the following product launches:
• Commercial sales of SPINRAZA began in the fourth quarter of 2016.
46
• Under the terms of our collaboration agreement with AbbVie, we began to recognize revenues on sales of
ZINBRYTA to third parties in the E.U. in the third quarter of 2016.
• Under the terms of our commercial agreement with Samsung Bioepis, we began to recognize revenues on
sales of BENEPALI and FLIXABI to third parties in the E.U. in the first quarter of 2016 and third quarter of
2016, respectively.
• Commercial sales of ALPROLIX commenced in the second quarter of 2014 and commercial sales of
ELOCTATE and PLEGRIDY commenced in the third quarter of 2014.
• TECFIDERA began in April 2013.
(b) Notes payable and other financing arrangements reflects the issuance of our senior unsecured notes for an
aggregate principal amount of $6.0 billion in September 2015, and the 2013 repayment of our 6.0% notes that
were issued in 2008 for an aggregate principal amount of $450.0 million.
(c) Total Biogen Inc.'s shareholders' equity reflects the repurchase of approximately 32.8 million shares of our
common stock at a cost of approximately $8.3 billion between 2012 and 2016:
• During 2016 we repurchased and retired approximately 3.3 million shares of our common stock at a cost
of $1.0 billion under our 2016 Share Repurchase Program.
• During 2015 we repurchased and retired approximately 16.8 million shares of our common stock at a
cost of $5.0 billion under our 2015 Share Repurchase Program.
• During 2014, 2013 and 2012 we repurchased approximately 2.9 million, 2.0 million and 7.8 million
shares, respectively of our common stock at a cost of approximately $2.3 billion under our 2011 Share
Repurchase Program of which approximately 3.7 million of these shares were retired.
(d) Total cost and expenses for the years ended December 31, 2016 and 2015, include restructuring charges of
$33.1 million and $93.4 million, respectively. In addition, total cost and expenses for the year ended December
31, 2016, also include charges to cost of sales totaling $52.4 million of expenses incurred as a result of our
determination to vacate and cease manufacturing in our small-scale biologics facility in Cambridge, MA as well
as vacate our warehouse in Somerville, MA. Total cost and expenses for year ended December 31, 2016, also
include $18.1 million of costs incurred directly related to our separation of our hemophilia business into an
independent, publicly traded company.
(e) Total cost and expenses for the year ended December 31, 2016, includes a pre-tax charge of $454.8 million
related to the January 2017 settlement and license agreement with Forward Pharma A/S (Forward Pharma).
(f)
In June 2014 AIFA approved a resolution affirming that there is no reimbursement limit from and after February
2013. As a result, we recognized $53.5 million of TYSABRI revenues in the second quarter of 2014 related to
the periods beginning February 2013 that were previously deferred.
(g) Our share of revenues from anti-CD20 therapeutic programs reflects charges of $49.7 million in 2013 for
damages and interest awarded to Hoechst in Genentech's arbitration with Hoechst for RITUXAN.
(h) Commencing in the second quarter of 2013 product and total revenues include 100% of net revenues related
to sales of TYSABRI as a result of our acquisition of all remaining rights to TYSABRI from Elan Pharma
International, Ltd (Elan), an affiliate of Elan Corporation, plc. Upon the closing, our collaboration agreement was
terminated, and we no longer record collaboration profit sharing expense. We recognized collaboration profit
sharing expense of $85.4 million and $317.9 million during the years ended December 31, 2013 and 2012,
respectively.
47
Management’s Discussion and
Item 7.
Analysis of Financial Condition and Results
of Operations
The following discussion should be read in
conjunction with our consolidated financial
statements and related notes beginning on page F-1
of this report. Certain totals may not sum due to
rounding.
Executive Summary
Introduction
Biogen is a global biopharmaceutical company
focused on discovering, developing, manufacturing
and delivering therapies to people living with serious
neurological, rare and autoimmune diseases.
Our marketed products include TECFIDERA,
AVONEX, PLEGRIDY, TYSABRI, ZINBRYTA and FAMPYRA
for multiple sclerosis (MS), FUMADERM for the
treatment of severe plaque psoriasis and SPINRAZA
for the treatment of spinal muscular atrophy (SMA).
We also have certain business and financial rights
with respect to RITUXAN for the treatment of non-
Hodgkin's lymphoma, chronic lymphocytic leukemia
(CLL) and other conditions, GAZYVA indicated for the
treatment of CLL and follicular lymphoma, and other
potential anti-CD20 therapies under a collaboration
agreement with Genentech, Inc. (Genentech), a wholly-
owned member of the Roche Group.
In May 2016 we announced our intention to spin
off our hemophilia business, Bioverativ Inc.
(Bioverativ), as an independent, publicly traded
company. Bioverativ will focus on the discovery,
development and commercialization of therapies for
the treatment of hemophilia and other blood
disorders, including ELOCTATE for the treatment of
hemophilia A and ALPROLIX for the treatment of
hemophilia B. Bioverativ will also assume all of our
rights and obligations under our collaboration
agreement with Swedish Orphan Biovitrum AB (Sobi)
and our collaboration and license agreement with
Sangamo Biosciences Inc. (Sangamo).
On February 1, 2017, we completed the
distribution of all the then outstanding shares of
common stock of Bioverativ to Biogen stockholders,
who received one share of Bioverativ common stock
for every two shares of Biogen common stock. As a
result of the distribution, Bioverativ is now an
independent public company whose shares of
common stock are trading under the symbol "BIVV"
on the Nasdaq Global Select Market.
The financial results of Bioverativ are included in
our consolidated results of operations and financial
position in our audited consolidated financial
statements for the periods presented in this Form 10-
K. The financial results of Bioverativ will be excluded
from our consolidated results of operations and
financial position commencing February 1, 2017. For
additional information regarding the separation of
Bioverativ, please read Note 26, Subsequent Events to
our consolidated financial statements included in this
report.
Our current revenues depend upon continued
sales of our principal products and, unless we
develop, acquire rights to, and commercialize new
products and technologies, we may be substantially
dependent on sales from our principal products for
many years. Further, following the completion of the
spin-off of our hemophilia business, our revenues will
be further reliant and concentrated on sales of our
MS products in an increasingly competitive market.
In the longer term, our revenue growth will be
dependent upon the successful clinical development,
regulatory approval and launch of new commercial
products as well as additional indications for our
existing products, our ability to obtain and maintain
patents and other rights related to our marketed
products, assets originating from our research and
development efforts and successful execution of
external business development opportunities.
We support our drug discovery and development
efforts through the commitment of significant
resources to discovery, research and development
programs and business development opportunities,
particularly within areas of our scientific,
manufacturing and technical capabilities. For nearly
two decades we have led in the research and
development of new therapies to treat MS, resulting in
our leading portfolio of MS treatments. Now our
research is focused on additional improvements in
the treatment of MS, such as, the development of
next generation therapies for MS with a goal to
reverse or possibly repair damage caused by the
disease. We are also applying our scientific expertise
to solve some of the most challenging and complex
diseases, including Alzheimer's disease, Parkinson's
disease and amyotrophic lateral sclerosis (ALS), and
are employing innovative technologies to discover
potential treatments for rare and genetic disorders,
including new ways of treating diseases through gene
therapy.
Our innovative drug development and
commercialization activities are complemented by our
biosimilar therapies that expand access to medicines
and reduce the cost burden for healthcare systems.
We are leveraging our manufacturing capabilities and
know-how by developing, manufacturing and marketing
48
were also negatively impacted by a $167.8
million decrease in hedge gains recognized
under our foreign currency hedging program in
comparative periods.
• Revenues from anti-CD20 therapeutic programs
totaled $1,314.5 million for 2016, representing
a decrease of 1.8% over the same period in
2015.
• Other revenues totaled $316.4 million for 2016,
representing an increase of 34.0% from the
same period in 2015. This increase was
primarily driven by an increase in other corporate
revenues, which includes amounts earned with
respect to our contract manufacturing activities.
• Total cost and expenses totaled $6,298.4
million for 2016, representing an increase of
7.2%, compared to the same period in 2015.
This increase was driven by a $454.8 million
litigation settlement and license charge and a
19.2% increase in cost of sales, which includes
a charge of $45.5 million for accelerated
depreciation as a result of the determination to
cease manufacturing in Cambridge, MA and
vacate our biologics manufacturing facility in
Cambridge, MA and warehouse space in
Somerville, MA. These increases were partially
offset by a 7.8% decrease in selling, general and
administrative expenses and a decrease in
restructuring charges.
We generated $4,522.4 million of net cash
flows from operations for 2016, which were primarily
driven by earnings. Cash, cash equivalents and
marketable securities totaled approximately $7,724.5
million as of December 31, 2016.
During the year ended December 31, 2016, we
repurchased and retired approximately 3.3 million
shares of common stock at a cost of $1.0 billion
under our share repurchase programs.
Collaborative and Other Relationships
In May 2016 we entered into a collaboration and
alliance with the University of Pennsylvania (UPenn) to
advance gene therapy and gene editing technologies.
For additional information related to this transaction,
please read Note 19, Collaborative and Other
Relationships to our consolidated financial statements
included in this report.
biosimilars through Samsung Bioepis, our joint
venture with Samsung BioLogics Co. Ltd. (Samsung
Biologics). Under our commercial agreement with
Samsung Bioepis, we market and sell BENEPALI, an
etanercept biosimilar referencing ENBREL, and
FLIXABI, an infliximab biosimilar referencing
REMICADE, in the European Union (E.U.).
Financial Highlights
Diluted earnings per share attributable to Biogen
Inc. were $16.93 for 2016, representing an increase
of 10.4% over the same period in 2015.
As described below under “Results of
Operations,” our income from operations for the year
ended December 31, 2016, reflects the following:
• Total revenues were $11,448.8 million for 2016,
representing an increase of 6.4% over the same
period in 2015.
• Product revenues, net totaled $9,817.9 million
for 2016, representing an increase of 6.8% over
the same period in 2015. This increase was
driven by a 9.1% increase in worldwide
TECFIDERA revenues, a 52.8% increase in
worldwide hemophilia revenues, a 4.1% increase
in worldwide TYSABRI revenues and revenues
from BENEPALI. These increases are partially
offset by a 5.8% decrease in worldwide
Interferon revenues. Product revenues, net for
2016, compared to the same period in 2015,
49
Restructuring and Cost Saving Initiatives
Business Environment
During the third quarter of 2016 we initiated cost
saving measures primarily intended to realign our
organizational structure due to the changes in roles
and workforce resulting from our decision to spin off
our hemophilia business, and to achieve further
targeted cost reductions.
Additionally, in connection with the transaction to
sublease our rights to the manufacturing facility in
Cambridge, MA to Brammer Bio MA, LLC (Brammer),
certain employees were separated from Biogen.
For additional information related to our
restructuring and cost saving initiatives, please read
Note 3, Restructuring, Business Transformation and
Other Cost Saving Initiatives to our consolidated
financial statements included in this report.
The biopharmaceutical industry and the markets
in which we operate are intensely competitive. Many
of our competitors are working to develop or have
commercialized products similar to those we market
or are developing. In addition, the commercialization
of certain of our own approved MS products, products
of our collaborators and pipeline product candidates
may negatively impact future sales of our existing MS
products. Our products may also face increased
competitive pressures from the introduction of generic
versions, prodrugs of existing therapeutics or
biosimilars of existing products and other
technologies, such as gene therapies and bispecific
antibodies.
In addition, sales of our products are dependent,
in large part, on the availability and extent of
coverage, pricing and reimbursement from
government health administration authorities, private
health insurers and other organizations. Drug prices
are under significant scrutiny in the markets in which
our products are prescribed. Drug pricing and other
health care costs continue to be subject to intense
political and societal pressures.
For additional information related to our
competition and pricing risks that could negatively
impact our product sales, please read the “Risk
Factors” section of this report.
Results of Operations
Revenues
Revenues are summarized as follows:
(In millions, except percentages)
Product Revenues:
For the Years Ended
December 31,
2016
2015
2014
% Change
2016
compared to
2015
2015
compared to
2014
United States ..................................... $
Rest of world......................................
Total product revenues....................
7,050.4 $
2,767.5
9,817.9
6,545.8 $
2,642.7
9,188.5
Revenues from anti-CD20 therapeutic
programs .............................................
Other revenues.....................................
1,314.5
316.4
1,339.2
236.1
Total revenues................................ $ 11,448.8 $ 10,763.8 $
5,566.7
2,636.7
8,203.4
1,195.4
304.5
9,703.3
7.7 %
4.7 %
6.8 %
(1.8)%
34.0 %
6.4 %
17.6 %
0.2 %
12.0 %
12.0 %
(22.5)%
10.9 %
50
Product Revenues
Product revenues are summarized as follows:
(In millions, except percentages)
Multiple Sclerosis:
TECFIDERA ........................................ $
Interferon* ........................................
TYSABRI............................................
FAMPYRA...........................................
ZINBRYTA..........................................
Hemophilia: .........................................
ELOCTATE..........................................
ALPROLIX ..........................................
Other product revenues:
513.2
333.7
FUMADERM .......................................
SPINRAZA..........................................
BENEPALI ..........................................
FLIXABI .............................................
Total product revenues ..................... $
45.9
4.6
100.6
0.1
9,817.9 $
* Interferon includes AVONEX and PLEGRIDY.
** Percentage not meaningful.
Multiple Sclerosis (MS)
TECFIDERA
For 2016 compared to 2015, the increase in
U.S. TECFIDERA revenues was primarily due to price
increases, partially offset by higher discounts and
allowances and a decrease in unit sales volume of
1%.
For 2015 compared to 2014, the increase in
U.S. TECFIDERA revenues was primarily due to
increases in unit sales volume of 13% as TECFIDERA
penetrated the U.S. market, and increases in gross
51
For the Years Ended
December 31,
2016
2015
2014
% Change
2016
compared to
2015
2015
compared to
2014
3,968.1 $
2,795.2
1,963.8
84.9
7.8
3,638.4 $
2,968.7
1,886.1
89.7
—
2,909.2
3,057.6
1,959.5
80.2
—
9.1 %
(5.8)%
4.1 %
(5.4)%
**
25.1 %
(2.9)%
(3.7)%
11.8 %
**
319.7
234.5
51.4
—
—
—
9,188.5 $
58.4
76.0
60.5 %
42.3 %
447.4 %
208.6 %
62.5
—
—
—
8,203.4
(10.7)%
**
**
**
6.8 %
(17.8)%
**
**
**
12.0 %
price partially offset by higher discounts and
allowances.
For 2016 compared to 2015, the increase in rest
of world TECFIDERA revenues was primarily due to
increases in unit sales volume of 32% in existing
markets and new markets where we continue to
launch the product and expand our presence around
the world. These increases were partially offset by
pricing reductions in certain European countries. Rest
of world TECFIDERA revenues for 2016, compared to
2015, were also negatively impacted by a $50.2
million decrease in hedge gains recognized under our
foreign currency hedging program in the comparative
period.
For 2015 compared to 2014, the increase in rest
of world TECFIDERA revenues was primarily due to
increases in unit sales volume in existing markets
and in new markets as we continue to launch the
product and expand our presence around the world.
These increases were partially offset by pricing
reductions in Germany as described below. Rest of
world TECFIDERA revenues for 2015, compared to
2014, were also negatively impacted by foreign
currency exchange losses totaling $74.1 million.
These foreign currency exchange losses were partially
offset by comparative net gains recognized under our
foreign currency hedging program totaling $47.5
million.
Under German legislation related to the pricing
For 2015 compared to 2014, the increase in
U.S. Interferon revenues was primarily due to gross
price increases for AVONEX and an increase in
PLEGRIDY unit sales volume as sales of PLEGRIDY
began in the U.S. in fourth quarter of 2014. These
increases were partially offset by a decrease in
AVONEX unit sales volume of 17%, which was
attributable in part to patients transitioning to other
oral MS therapies, including TECFIDERA.
For 2016, 2015 and 2014 rest of world AVONEX
revenues totaled $638.2 million, $840.0 million and
$1,056.4 million, respectively.
For 2016, 2015 and 2014, rest of world
PLEGRIDY revenues totaled $176.7 million, $111.4
million and $16.7 million, respectively.
For 2016 compared to 2015, the decrease in
rest of world Interferon revenues was primarily due to
pricing reductions in certain European countries and
an overall decrease in AVONEX unit sales volume of
10% due primarily to patients transitioning to other
oral MS therapies, including TECFIDERA. Rest of world
Interferon revenues for 2016, compared to 2015,
were also negatively impacted by a $66.1 million
decrease in hedge gains recognized under our
hedging program in the comparative period.
For 2015 compared to 2014, the decrease in
rest of world Interferon revenues was due to a
decrease in AVONEX unit sales volume of 11%
primarily in Europe attributable to patients
transitioning to other oral MS therapies, including
TECFIDERA. These increases were partially offset by
an increase in PLEGRIDY unit sales volume as sales
of PLEGRIDY began in the E.U. in the third quarter of
2014. Rest of world Interferon revenues for 2015,
compared to 2014, were also negatively impacted by
foreign currency exchange losses of $153.1 million.
These foreign currency exchange losses were partially
offset by comparative net gains recognized under our
foreign currency hedging program of $58.4 million.
We expect that overall Interferon revenues will
continue to decline as a result of competition from
our other products as well as other MS therapies.
of new drug products introduced in the German
market, pricing is unregulated for the first 12 months
after launch. We launched TECFIDERA in Germany in
February 2014 and our unregulated pricing ended in
the first quarter of 2015, at which time we began
recognizing revenue at the fixed price established
through our negotiations with the German regulatory
authorities. The negotiated annual price is fixed for
three years.
We anticipate relatively stable demand for
TECFIDERA in 2017 on a global basis, with patient
growth in our international markets offsetting modest
patient declines in the U.S. primarily resulting from
increasing competition from additional treatments and
product candidates for MS, including OCREVUS.
Interferon
AVONEX and PLEGRIDY
For 2016, 2015 and 2014, U.S. AVONEX
revenues totaled $1,675.3 million, $1,790.2 million
and $1,956.7 million, respectively.
For 2016, 2015 and 2014, U.S. PLEGRIDY
revenues totaled $305.0 million, $227.1 million and
$27.8 million, respectively.
For 2016 compared to 2015, the decrease in
U.S. Interferon revenues was primarily due to an
overall decrease in Interferon unit sales volume of
10%, which was attributable to a decrease in AVONEX
unit sales volume primarily due to patients
transitioning to other oral MS therapies, as well as
higher discounts and allowances. These decreases
were partially offset by price increases.
52
TYSABRI
For 2016 compared to 2015, the increase in
U.S. TYSABRI revenues was primarily due to an
increase in unit sales volume of 4% and increases in
price, partially offset by higher discounts and
allowances.
For 2015 compared to 2014, the increase in
U.S. TYSABRI revenues was primarily due to an
increase in unit sales volume of 4% and increases in
gross price, partially offset by higher discounts and
allowances.
For 2016 compared to 2015, the slight
decrease in rest of world TYSABRI revenues was
primarily due to the impact of a $46.1 million
decrease in hedge gains recognized under our
hedging program in the comparative period. This
decrease was partially offset by an increase in unit
sales volume of 8%, primarily in Europe.
For 2015 compared to 2014, the decrease in
rest of world TYSABRI revenues was due to pricing
reductions in some European countries and the prior
year recognition of $53.5 million of revenue previously
deferred in Italy relating to the pricing agreement with
the Italian National Medicines Agency (Agenzia
Italiana del Farmaco or AIFA) as discussed below.
Rest of world TYSABRI revenues for 2015,
compared to 2014, were negatively impacted by
foreign currency exchange losses of $136.3 million.
These foreign currency exchange losses were partially
offset by comparative net gains recognized under our
foreign currency hedging program of $45.9 million.
In the fourth quarter of 2011 Biogen Italia SRL,
our Italian subsidiary, received a notice from AIFA that
sales of TYSABRI after mid-February 2009 exceeded a
reimbursement limit established pursuant to a Price
Determination Resolution (Price Resolution) granted
by AIFA in December 2006. In January 2017, we
negotiated an agreement in principle with AIFA's Price
and Reimbursement Committee to settle all of AIFA's
existing claims relating to sales of TYSABRI in excess
of the reimbursement limit for the periods from
February 2009 through January 2013 for an
aggregate repayment of EUR37.4 million. The
agreement is subject to ratification by AIFA. If this
most recent settlement agreement is accepted, we
could recognize approximately EUR42 million in
revenue upon resolution of this matter. For
information regarding our agreement with AIFA relating
to sales of TYSABRI in Italy, please read Note 17,
Other Consolidated Financial Statement Detail to our
consolidated financial statements included in this
report.
We anticipate relatively stable demand for
TYSABRI in 2017 on a global basis, with patient
growth in our international markets offsetting modest
patient declines in the U.S. primarily resulting from
increasing competition from additional treatments and
product candidates for MS, including ZINBRYTA and
OCREVUS.
ZINBRYTA
Under the terms of our collaboration agreement
with AbbVie, we began to recognize revenues on sales
of ZINBRYTA to third parties in the E.U. in the third
quarter of 2016.
For additional information on our relationship
with AbbVie, please read Note 19, Collaborative and
Other Relationships to our consolidated financial
statements included in this report.
53
Hemophilia
ELOCTATE
ALPROLIX
For 2016 compared to 2015, the increase in
U.S. ELOCTATE revenues was primarily due to an
increase in unit sales volume of 45%.
For 2015 compared to 2014, the increase in
U.S. ELOCTATE revenues was primarily due to
increases in unit sales volume. Sales of ELOCTATE in
the U.S. began in the third quarter of 2014.
For 2016 compared to 2015, the increase in rest
of world ELOCTATE revenues was primarily due to an
increase in unit sales volume, primarily in Japan.
For 2015 compared to 2014, the increase in rest
of world ELOCTATE revenues was primarily due to
increases in unit sales volume. Sales of ELOCTATE in
Japan began in the first quarter of 2015.
For 2016 compared to 2015, the increase in
U.S. ALPROLIX revenues was primarily due to an
increase in unit sales volume of 28%.
For 2015 compared to 2014, the increase in
U.S. ALPROLIX revenues was primarily due to
increases in unit sales volume. Sales of ALPROLIX in
the U.S. began in the second quarter of 2014.
For 2016 compared to 2015, the increase in rest
of world ALPROLIX revenues was primarily due to an
increase in unit sales volume, primarily in Japan.
For 2015 compared to 2014, the increase in rest
of world ALPROLIX revenues was primarily due to
increases in unit sales volume. Sales of ALPROLIX in
Japan began in the fourth quarter of 2014.
On February 1, 2017, we completed the
distribution of the then outstanding shares of
common stock of Bioverativ to Biogen stockholders.
As a result of the distribution, Bioverativ will assume
discovery, development and commercialization of
ELOCTATE and ALPROLIX in the U.S.
For additional information on the transaction to
separate from and spin off our hemophilia business
as a separate independent public company, please
read Note 26, Subsequent Events to our consolidated
financial statements included in this report.
54
Biosimilars
Biogen’s Share of Pre-tax Profits in the U.S. for
RITUXAN and GAZYVA
The following table provides a summary of
amounts comprising our share of pre-tax profits on
RITUXAN and GAZYVA in the U.S.:
For the Years Ended
December 31,
2014
2016
2015
(In millions)
Product
revenues, net ..... $3,941.8 $3,847.9 $3,556.6
Cost and
expenses ...........
Pre-tax profits in
the U.S. ............. $3,197.3 $3,174.2 $2,785.5
Biogen's share of
pre-tax profits ..... $1,249.5 $1,269.8 $1,117.1
673.7
744.5
771.1
Under the terms of our commercial agreement
with Samsung Bioepis, we began to recognize
revenues on sales of BENEPALI and FLIXABI to third
parties in the E.U. in the first quarter of 2016 and
third quarter of 2016, respectively.
For additional information on our relationship
with Samsung Bioepis, please read Note 19,
Collaborative and Other Relationships to our
consolidated financial statements included in this
report.
Revenues from Anti-CD20 Therapeutic
Programs
Genentech (Roche Group)
Our share of RITUXAN and GAZYVA operating
profits are summarized as follows:
Our share of RITUXAN pre-tax profits in the U.S.
decreased to 39% from 40% as GAZYVA was approved
by the FDA in follicular lymphoma in February 2016.
For 2016 compared to 2015, the increase in
U.S. product revenues was primarily due to an
increase in GAZYVA unit sales volume of 41%, an
increase in RITUXAN unit sales of 1% and selling price
increases, partially offset by higher RITUXAN
discounts and allowances.
For 2015 compared to 2014, the increase in
U.S. product revenues was primarily due to a 4%
increase in RITUXAN unit sales volume and selling
price increases, partially offset by higher discounts
and allowances.
Collaboration costs and expenses for 2016
compared to 2015 increased primarily due to an
increase in RITUXAN product cost of sales.
Collaboration costs and expenses for 2015
compared to 2014 decreased primarily due to the
2014 recognition of $53.9 million of additional
Branded Pharmaceutical Drug (BPD) fee expense as
well as lower RITUXAN cost of sales, partially offset by
higher GAZYVA sales and marketing expenses. During
2014 the Internal Revenue Service issued final
regulations related to the BPD fee, which had the
effect of changing the recognition of the fee for
accounting purposes, from the period in which the fee
was paid, to the period when the sale occurs. As a
result of these final regulations, we recognized an
incremental BPD fee in 2014 for the periods 2013
through the end of the third quarter of 2014. The final
regulations did not change the timing of payments.
55
For additional information related to our
collaboration with Genentech, including information
regarding the pre-tax profit sharing formula and its
impact on future revenues from anti-CD20 therapeutic
programs, please read Note 19, Collaborative and
Other Relationships to our consolidated financial
statements included in this report.
Revenue on Sales in the Rest of World for RITUXAN
Revenue on sales in the rest of world for
RITUXAN primarily consists of our share of pre-tax co-
promotion profits on RITUXAN in Canada.
For 2016 compared to 2015, and 2015
compared to 2014, revenue on sales in the rest of
world for RITUXAN decreased as a result of lower pre-
tax co-promotion profits on RITUXAN in Canada.
Other Revenues
Other revenues are summarized as follows:
(In millions, except percentages)
Revenues from collaborative and other
relationships .......................................... $
Other royalty and corporate revenues .......
Total other revenues ............................... $
Ended December 31,
2016
2015
2014
% Change
2016
compared to
2015
2015
compared to
2014
39.3 $
277.1
316.4 $
69.1 $
167.0
236.1 $
58.5
246.0
304.5
(43.1)%
65.9 %
34.0 %
18.1 %
(32.1)%
(22.5)%
For additional information on our collaborative
and other relationships, please read Note 19,
Collaborative and Other Relationships to our
consolidated financial statements included in this
report.
Other Royalty and Corporate Revenues
Revenues from Collaborative and Other
Relationships
Revenues from collaborative and other
relationships include revenues earned under our
manufacturing services agreement with Sobi on
shipments of ELOCTA and ALPROLIX to Sobi, royalties
from Sobi on sales of ELOCTA and ALPROLIX in their
territory, which includes substantially all of Europe,
Russia and certain markets in Northern Africa and the
Middle East (the Sobi Territory), our 50% share of the
co-promotion profits or losses of ZINBRYTA in the U.S.
with AbbVie and revenues from our technical
development and manufacturing services agreements
with Samsung Bioepis.
For 2016 compared to 2015, the decrease in
revenues from collaborative and other relationships is
primarily due to a net overall loss in the collaboration
with AbbVie of $21.9 million within the U.S. territory
and lower revenues earned under our manufacturing
services agreement with Samsung Bioepis, partially
offset by an increase in ELOCTA shipments made
under our manufacturing services agreement with
Sobi.
For 2015 compared to 2014, the increase in
revenues from collaborative and other relationships
was primarily due to the start of product shipments to
Sobi in relation to our collaboration agreement, as
well as increased revenues earned under our
manufacturing services agreement with Samsung
Bioepis.
56
Royalty Revenues
We receive royalties from net sales on products
related to patents that we have out-licensed. Prior to
2015, our most significant source of royalty revenue
had been derived from net worldwide sales of
ANGIOMAX, which was out-licensed to The Medicines
Company. On December 15, 2014 we ceased
recognizing royalty revenues from U.S. sales of
ANGIOMAX, contemporaneous with the U.S. patent's
expiration.
For 2016 compared to 2015, royalty revenues
were relatively consistent.
For 2015 compared to 2014, royalty revenues
decreased primarily due to the expiration of U.S.
patent rights that gave rise to royalty payments
related to ANGIOMAX.
Other Corporate Revenues
Our corporate partner revenues include amounts
earned under contract manufacturing agreements.
For 2016 compared to 2015, as well as 2015
compared to 2014, to the increase in other corporate
revenues was primarily due to higher contract
manufacturing revenues related to drug substance
manufacturing provided to a strategic partner.
Reserves for Discounts and Allowances
Revenues from product sales are recorded net
of reserves established for applicable discounts and
allowances, including those associated with the
implementation of pricing actions in certain
international markets where we operate.
These reserves are based on estimates of the
amounts earned or to be claimed on the related sales
and 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). Our estimates take into
consideration our historical experience, current
contractual and statutory requirements, specific
known market events and trends, industry data and
forecasted customer buying and payment patterns.
Actual amounts may ultimately differ from our
estimates. If actual results vary, we adjust these
estimates, which will have an effect on earnings in the
period of adjustment.
Reserves for discounts, contractual adjustments
and returns that reduced gross product revenues are
summarized as follows:
For the years ended December 31, 2016, 2015
and 2014, reserves for discounts and allowances as
a percentage of gross product revenues were 21.3%,
19.3% and 16.6%, respectively.
Discounts
Discounts include trade term discounts and
wholesaler incentives.
For 2016 compared to 2015, the increase in
discounts was primarily driven by increases in gross
selling price, contractual discount rates and volume
related to our hemophilia products.
For 2015 compared to 2014, the increase in
discounts was primarily driven by our recent product
additions, gross price increases and increases in
contractual rates
Contractual Adjustments
Contractual adjustments relate to Medicaid and
managed care rebates, co-payment assistance
(copay), Veterans Administration (VA), Public Health
Service (PHS) discounts, specialty pharmacy program
fees and other government rebates or applicable
allowances.
For 2016 compared to 2015, the increase in
contractual adjustments was primarily due to higher
Medicaid and other governmental rebates and
allowances in the U.S. and managed care rebates,
due in part to an increase in gross selling prices.
57
For 2015 compared to 2014, the increase in
contractual adjustments was primarily due to our
recent product additions, higher Medicaid and other
governmental rebates and allowances in the U.S. and
managed care rebates as a result of an increase in
contracted business and gross prices.
Returns
Product return reserves are established for
returns made by wholesalers. In accordance with
contractual terms, wholesalers are permitted to return
product for reasons such as damaged or expired
product. The majority of wholesaler returns are due to
Cost and Expenses
A summary of total cost and expenses is as follows:
product expiration. Provisions for product returns are
recorded in the period the related revenue is
recognized, resulting in a reduction to product sales.
For 2016 compared to 2015, and 2015
compared to 2014, return reserves decreased
primarily due to a reduction in return rates based on
recent experiences of returned products.
For additional information related to our
reserves, please read Note 4, Reserves for Discounts
and Allowances to our consolidated financial
statements included in this report.
(In millions, except percentages)
Cost of sales, excluding amortization of
acquired intangible assets ...................... $
Research and development.....................
Selling, general and administrative ..........
Amortization of acquired intangible
assets...................................................
Restructuring charges.............................
(Gain) loss on fair value remeasurement
of contingent consideration.....................
Collaboration profit sharing .....................
TECFIDERA litigation settlement and
license charges......................................
Total cost and expenses................... $
For the Years Ended
December 31,
2016
2015
2014
% Change
2016
compared to
2015
2015
compared to
2014
1,478.7 $
1,973.3
1,947.9
1,240.4 $
2,012.8
2,113.1
1,171.0
1,893.4
2,232.3
385.6
33.1
14.8
10.2
454.8
6,298.4 $
382.6
93.4
30.5
—
—
5,872.8 $
489.8
—
(38.9)
—
—
5,747.7
19.2 %
(2.0)%
(7.8)%
0.8 %
(64.6)%
(51.5)%
**
**
7.2 %
5.9 %
6.3 %
(5.3)%
(21.9)%
**
(178.4)%
**
**
2.2 %
** Percentage not meaningful.
58
Cost of Sales, Excluding Amortization of Acquired
Royalty Cost of Sales
For 2016 compared to 2015, the increase in
royalty cost of sales was primarily driven by the
increase in royalty rates payable to Sobi, increased
sales of our hemophilia products and higher royalties
on sales of AVONEX and PLEGRIDY in the U.S.,
partially offset by a decrease in TYSABRI royalties due
to the expiration of certain third party royalties.
On June 28, 2016, the U.S. Patent and
Trademark Office issued to the Japanese Foundation
for Cancer Research (JFCR) a patent related to
recombinant interferon-beta protein. This patent, U.S.
Patent No. 9,376,478, expires in June 2033. This
patent was issued following an interference
proceeding between JFCR and us. This patent is
relevant to AVONEX and PLEGRIDY, and we will pay
royalties in the mid-single digits in relation to this
patent during the life of the patent.
For 2015 compared to 2014, the increase in
royalty cost of sales was primarily driven by the
increase in royalties due to Sobi on increased sales
of our hemophilia products and an increase in the
contractual rate of TYSABRI contingent payments due
to Perrigo Company plc (Perrigo), which is based on
the expected level of annual worldwide net sales of
TYSABRI, partially offset by a decrease in TYSABRI
revenues and the expiration of certain third-party
royalties related to TYSABRI.
For additional information on our relationship
with Sobi, please read Note 19, Collaborative and
Other Relationships to our consolidated financial
statements included in this report.
Intangible Assets (Cost of Sales)
Product Cost of Sales
For 2016 compared to 2015, the increase in
product cost of sales was primarily driven by
increased contract manufacturing shipments and
higher unit sales volume related to our biosimilars
and hemophilia products, partially offset by favorable
production costs and mix of products.
Product cost of sales for 2016 also reflects the
recognition of $45.5 million of accelerated
depreciation as a result of the determination to cease
manufacturing in Cambridge, MA and vacate our
biologics manufacturing facility in Cambridge, MA and
warehouse space in Somerville, MA.
For 2015 compared to 2014, the increase in
product cost of sales was primarily driven by
increased contract manufacturing production and
higher unit sales volume of our marketed products,
including newly launched products.
Inventory amounts written down as a result of
excess, obsolescence, unmarketability or other
reasons totaled $48.2 million, $41.9 million and
$50.6 million for the years ended December 31,
2016, 2015 and 2014, respectively.
59
Research and Development
60
Research and development expense incurred in
The increase in spending associated with our
late stage programs for 2016 compared to 2015 was
primarily driven by costs incurred to advance our
aducanumab program for Alzheimer's disease, the
increased costs incurred to advance our SPINRAZA
program for the treatment of SMA and the
advancement of E2609 to a late stage program in the
fourth quarter of 2016, partially offset by the approval
of ZINBRYTA in the third quarter of 2016.
For 2015 compared to 2014, the increase in
research and development expense was primarily
related to increases in costs incurred in connection
with our late and early stage programs and research
and discovery, partially offset by a decrease in
milestone and upfront expenses and the positive
impact of foreign currency translation of $34.0
million.
The increase in spending associated with our
late stage programs for 2015 compared to 2014 was
primarily driven by costs incurred to advance our
aducanumab program for Alzheimer's disease and the
SPINRAZA program for the treatment of SMA, partially
offset by a decrease in costs related to ZINBRYTA and
the approvals of PLEGRIDY and ELOCTATE in 2014.
The increase in spending associated with our
early stage programs for 2015 compared to 2014
was primarily due to costs incurred in connection with
our aducanumab program for Alzheimer's disease,
which advanced to a late stage program during the
third quarter of 2015, the BAN2401 program for
Alzheimer’s disease related to our collaboration with
Eisai and our BIIB074 program for TGN. These
increases were partially offset by a decrease in costs
incurred in connection with the SPINRAZA program for
the treatment of SMA as the program advanced to a
late stage program during the first quarter of 2015.
We intend to continue committing significant
resources to targeted research and development
opportunities where there is a significant unmet need
and where the drug candidate has the potential to be
highly differentiated. Specifically, we intend to
continue to invest in our MS pipeline, our
aducanumab program, the BAN2401 and E2609
programs and our BIIB074 program.
support of our marketed products includes costs
associated with product lifecycle management
activities including, if applicable, costs associated
with the development of new indications for existing
products. Late stage programs are programs in Phase
3 development or in registration stage. Early stage
programs are programs in Phase 1 or Phase 2
development. Research and discovery represents
costs incurred to support our discovery research and
translational science efforts. Other research and
development costs consist of indirect costs incurred
in support of overall research and development
activities and non-specific programs, including
activities that benefit multiple programs, such as
management costs as well as depreciation and other
facility-based expenses. Costs are reflected in the
development stage based upon the program status
when incurred. Therefore, the same program could be
reflected in different development stages in the same
year. For several of our programs, the research and
development activities are part of our collaborative
and other relationships. Our costs reflect our share of
the total costs incurred.
For 2016 compared to 2015, the decrease in
research and development expense was primarily
related to decreases in costs incurred in connection
with our early stage programs, marketed products and
other research and development costs. These
decreases were partially offset by increased costs
incurred in connection with our late stage programs
and research and discovery.
The decrease in spending associated with our
early stage programs for 2016 compared to 2015
was primarily due to the advancement of our
aducanumab program for Alzheimer's disease to a
late stage program in the third quarter of 2015,
decreased costs incurred in connection with
opicinumab in MS and the discontinuance of
development of anti-TWEAK in lupus nephritis. These
decreases were partially offset by increased costs of
BIIB074 (formerly known as Raxatrigine) in trigeminal
neuralgia (TGN) and increased costs associated with
our discontinuance of development of amiselimod in
the third quarter of 2016.
The decrease in spending associated with our
marketed products for 2016 compared to 2015 was
primarily due to the discontinuance of development of
TYSABRI and TECFIDERA in secondary primary
multiple sclerosis (SPMS) in the third and fourth
quarters of 2015, respectively, and decreased costs
incurred in connection with our hemophilia products.
These decreases were partially offset by the
approvals of ZINBRYTA and SPINRAZA in the third and
fourth quarters of 2016, respectively.
61
Milestone and Upfront Expenses included in
Selling, General and Administrative
Research and Development Expense
Research and development expense for 2016
includes a $75.0 million license fee paid to Ionis as
we exercised our option to develop and commercialize
SPINRAZA from Ionis, a $50.0 million milestone
payment due to Eisai related to the initiation of a
Phase 3 trial for E2609 and a $20.0 million upfront
milestone paid to the UPenn upon entering into a
collaboration and alliance. For additional information
about these transactions, please read Note 19,
Collaborative and Other Relationships to our
consolidated financial statements included in this
report.
Research and development expense for 2015
includes $60.0 million recorded upon entering into
our collaboration with Mitsubishi Tanabe Pharma
Corporation (MTPC), $48.1 million recorded upon
entering into our collaboration with Applied Genetic
Technologies Corporation (AGTC), $30.0 million
recorded as milestones in relation to our collaboration
agreements with Ionis and $16.0 million paid to
AbbVie related to milestones for the development of
ZINBRYTA as a result of filing with the FDA and EMA
during the year. For additional information about these
transactions, please read Note 19, Collaborative and
Other Relationships to our consolidated financial
statements included in this report.
Research and development expense for 2014
includes $139.3 million recorded in connection with
our collaboration agreement with Eisai Co., Ltd.
(Eisai), $25.0 million recorded as milestones in
relation to our collaboration agreements with Ionis
and an aggregate of $60.0 million related to upfront
payments made to Sangamo and Google Inc. and for
other strategic business arrangements.
These payments are classified as research and
development expense as the programs they relate to
had not achieved regulatory approval as of the
payment date.
For 2016 compared to 2015, the decrease in
selling, general and administrative expenses reflects
cost savings in connection with our corporate
restructuring, which are described below under the
heading "Restructuring Charges," partially offset by
an increase in costs associated with developing
commercial capabilities for ZINBRYTA and SPINRAZA.
For 2015 compared to 2014, the decrease in
selling, general and administrative expenses was
driven by a decrease in corporate giving, incentive
compensation and the positive impact of foreign
currency translation of $87.6 million, partially offset
by an increase of $38.9 million of BPD fee expense.
Amortization of Acquired Intangible Assets
Our amortization expense is based on the
economic consumption of intangible assets. Our most
significant intangible assets are related to our
AVONEX and TYSABRI products. Annually, during our
long-range planning cycle, we perform an analysis of
anticipated lifetime revenues of AVONEX and
TYSABRI.
62
Our most recent long range planning cycle was
completed in the third quarter of 2016. Based upon
this analysis, the estimated future amortization of
acquired intangible assets is expected to be as
follows:
(In millions)
2017 ........................................... $
2018 ...........................................
2019 ...........................................
2020 ...........................................
2021 ...........................................
As of December 31,
2016
334.8
312.7
295.2
259.7
242.8
We monitor events and expectations regarding
product performance. If new information indicates that
the assumptions underlying our most recent analysis
are substantially different than those utilized in our
current estimates, our analysis would be updated and
may result in a significant change in the anticipated
lifetime revenues of the relevant process. The
occurrence of an adverse event could substantially
increase the amount of amortization expense
associated with our acquired intangible assets as
compared to previous periods or our current
expectations, which may result in a significant
negative impact on our future results of operations.
For 2016 compared to 2015, the amortization of
acquired intangible assets was relatively consistent
as our most recent analysis completed during the
third quarter of 2016 resulted in no significant net
change in our expected rate of amortization for
acquired intangible assets.
For 2015 compared to 2014, the decrease in
amortization of acquired intangible assets was
primarily driven by a decrease in AVONEX revenues
during the comparative periods and the impact of
higher expected lifetime revenues of AVONEX due to a
slower than previously expected adoption of
PLEGRIDY. Amortization of acquired intangible assets
during 2014 included total impairment charges of
$50.9 million related to one of our out-licensed
patents and one of our in-process research and
development (IPR&D) intangible assets.
For additional information related to the
amortization of acquired intangible assets, please
read Note 6, Intangible Assets and Goodwill to our
consolidated financial statements included in this
report.
Impairment of Intangible Assets
We record charges associated with impairments
of intangible assets in amortization of intangible
assets.
During 2016 we terminated our collaboration
agreements with Rodin Therapeutics, Inc. and Ataxion
Inc., resulting in impairment losses of $8.7 million
and $3.5 million, respectively, related to the IPR&D
assets recorded upon entering into the collaboration
agreements.
Impairment charges related to our intangible
assets during 2015 were insignificant.
During 2014 we recorded a charge of $34.7
million related to the impairment of one of our out-
licensed patents to reflect a change in its estimated
fair value, due to a change in the underlying
competitive market for that product.
During 2014 we updated the probabilities of
success related to the early stage programs acquired
through our recent acquisitions. This change in
probability of success, combined with a delay in one
of the projects, resulted in an impairment loss of
$16.2 million.
For additional information, please read Note 6,
Intangible Assets and Goodwill to our consolidated
financial statements included in this report.
IPR&D
Overall, the value of our acquired IPR&D assets
is dependent upon a number of variables, including
estimates of future revenues and the effects of
competition, the level of anticipated development
costs and the probability and timing of successfully
advancing a particular research program from a
clinical trial phase to the next. We are continually
reevaluating our estimates concerning these variables
and evaluating industry data regarding the productivity
of clinical research and the development
process. Changes in our estimates of items may
result in a significant change to our valuation of these
assets.
The field of developing treatments for forms of
neuropathic pain, such as TGN, and idiopathic
pulmonary fibrosis (IPF) are highly competitive and
can be affected by changes to expected market
candidates and changes in timing and the clinical
development of our product candidates. There can be
no assurance that we will be able to successfully
develop BIIB074 for the treatment of TGN or STX-100
for the treatment of IPF, or other indications or that a
successfully developed therapy will be able to secure
sufficient pricing in a competitive market. Changes to
clinical development plans or life cycle management
strategies are evaluated regularly. We review amounts
63
capitalized as acquired IPR&D for impairment at least
annually, as of October 31, and whenever events or
changes in circumstances indicate that the carrying
value of the assets might not be recoverable. Our
most recent impairment assessment as of October
31, 2016 resulted in no impairments.
Restructuring, Business Transformation and Other
Cost Saving Initiatives
2015 Cost Saving Initiatives
2015 Restructuring Charges
On October 21, 2015, we announced a
corporate restructuring, which included the
termination of certain pipeline programs and an 11%
reduction in workforce. As a result of these initiatives,
we reduced our annual run rate of operating expenses
by $250 million and reinvested these savings to
support the advancement of our high potential
pipeline candidates and key commercial activities.
Under this restructuring, cash payments were
estimated to total $120 million, of which $15.9
million were related to previously accrued 2015
incentive compensation, resulting in net restructuring
charges totaling approximately $102.0 million. These
amounts were substantially incurred and paid by the
end of 2016.
For the years ended December 31, 2016 and
2015, we recognized total net restructuring charges of
$8.0 million and $93.4 million, respectively.
The following table summarizes the charges and
spending related to our 2015 restructuring program
during 2016:
Workforce
Reduction
Pipeline
Programs
Total
Restructuring reserve
as of December 31,
2015 ......................... $ 33.7 $
Expense .....................
Payment.....................
Adjustments to
previous estimates,
net.............................
Restructuring reserve
as of December 31,
2016 ......................... $
4.9
(31.2)
2.2 $
(5.2)
3.6 $ 37.3
10.3
5.4
(40.2)
(9.0)
2.9
(2.3)
2.9 $
5.1
2016 Organizational Changes and Cost Saving
Initiatives
2016 Restructuring Charges
During the third quarter of 2016 we initiated
additional cost saving measures primarily intended to
realign our organizational structure due to the
changes in roles and workforce resulting from our
decision to spin off our hemophilia business, and to
achieve further targeted cost reductions. For 2016 we
recognized charges totaling $17.7 million related to
this effort, which are in addition to, and separate
from, the 2015 corporate restructuring described
above. These amounts, which were substantially
incurred and paid by the end of 2016, are primarily
related to severance and are reflected in restructuring
charges in our consolidated statements of income.
Cambridge, MA Manufacturing Facility
In June 2016 following an evaluation of our
current and future manufacturing capabilities and
capacity needs, we determined that we intend to
vacate and cease manufacturing in our 67,000
square foot small-scale biologics manufacturing
facility in Cambridge, MA and also vacate our 46,000
square foot warehouse space in Somerville, MA.
In December 2016 we subleased our rights to
the manufacturing facility in Cambridge, MA to
Brammer. Brammer also purchased from us certain
manufacturing equipment, leasehold improvements
and other assets in exchange for shares of Brammer
common LLC interests and assumed manufacturing
operations effective January 1, 2017. In December
2016 we also closed and vacated our warehouse
space in Somerville, MA.
64
The loss on fair value remeasurement of
contingent consideration for 2015 was primarily due
to changes in the expected timing and probabilities of
success related to the achievement of certain
developmental milestones and in the discount rate.
The gain on fair value remeasurement of
contingent consideration for 2014 was primarily due
to an adjustment to the value of our contingent
consideration liabilities as we updated the
probabilities of success related to the early stage
programs acquired through our recent acquisitions.
For additional information, please read Note 7, Fair
Value Measurements to our consolidated financial
statements included in this report.
Collaboration Profit (Loss) Sharing
Our departure from these facilities shortened the
expected useful lives of certain leasehold
improvements and other assets at these facilities. As
a result, we recorded additional depreciation expense
to reflect the assets' new shorter useful lives. For the
year ended December 31, 2016, we recognized
approximately $45.5 million of this additional
depreciation, which was recorded as cost of sales in
our consolidated statement of income.
Under the terms of the agreement, Brammer will
also provide manufacturing and other transition and
support services to us.
In the fourth quarter of 2016 we recognized
charges totaling $7.4 million for severance costs
related to certain employees separated from Biogen
in connection with this transaction. These amounts
will be substantially incurred and paid by the end of
the first quarter of 2017 and are reflected in
restructuring charges in our consolidated statements
of income.
(Gain) Loss on Fair Value Remeasurement of
Contingent Consideration
Collaboration profit (loss) sharing includes our
50% share of the profit or loss related to our
biosimilars commercial agreement with Samsung
Bioepis and our 50% share of the co-promotion profits
or losses in the E.U. and Canada related to our
collaboration agreement with AbbVie on the
commercialization of ZINBRYTA.
The consideration for certain of our business
We began to recognize revenues on sales of
combinations includes future payments that are
contingent upon the occurrence of a particular factor
or factors. We record an obligation for such contingent
consideration payments at fair value on the
acquisition date. We then revalue our contingent
consideration obligations each reporting period.
Changes in the fair value of our contingent
consideration obligations, other than changes due to
payments, are recognized as a (gain) loss on fair
value remeasurement of contingent consideration in
our consolidated statements of income.
The loss on fair value remeasurement of
contingent consideration for 2016 was primarily due
to changes in the probability of achieving certain
developmental milestones and changes in the
discount rate.
65
biosimilars in the first quarter of 2016. For 2016 we
recognized net expense of $15.1 million related to
our biosimilars commercial agreement with Samsung.
We began to recognize revenues on sales of
ZINBRYTA in the E.U. in the third quarter of 2016. For
2016 we also recognized income of $4.9 million to
reflect AbbVie's 50% share of net collaboration losses
in the E.U. and Canada.
For additional information related to these
arrangements, please read Note 19, Collaborative and
Other Relationships to our consolidated financial
statements included in this report.
TECFIDERA Litigation Settlement and License
For 2016 compared to 2015, the change in other
income (expense), net was primarily due to an
increase in interest expense as a result of the
issuance of our senior unsecured notes in the third
quarter of 2015. This increase was partially offset by
an increase in interest income on higher yields and
cash, cash equivalents and marketable securities
balances as well as a decrease in foreign exchange
losses recognized during the year ended December
31, 2016, compared to the prior year comparative
period.
For 2015 compared to 2014, the change in other
income (expense), net was primarily due to an
increase in interest expense as a result of the
issuance of our senior unsecured notes in the third
quarter of 2015, higher foreign exchange losses and
a decrease in net gains recognized on the sale of our
strategic investments and marketable securities.
For additional information related to our senior
unsecured notes, please read Note 11, Indebtedness,
to our consolidated financial statements included in
this report.
Income Tax Provision
Charges
In January 2017 we agreed to enter into a
settlement and license agreement with Forward
Pharma A/S (Forward Pharma) that will provide us an
irrevocable license to all intellectual property owned
by Forward Pharma and results in the termination of
the German Infringement Litigation. Under the terms
of the settlement and license agreement with Forward
Pharma, we have agreed to pay Forward Pharma
$1.25 billion in cash. During the fourth quarter of
2016 we recognized a pre-tax charge of $454.8
million related to this matter. This amount represents
the fair value of estimated royalties on our sales of
TECFIDERA during the period April 2014 through
December 31, 2016. For additional information
related to the agreement, please read Note 21,
Commitments and Contingencies to our consolidated
financial statements included in this report.
Other Income (Expense), Net
Our effective tax rate fluctuates from year to
year due to the global nature of our operations. The
factors that most significantly impact our effective tax
rate include variability in the allocation of our taxable
earnings among multiple jurisdictions, changes in tax
laws, the amount and characterization of our research
and development expenses, the levels of certain
deductions and credits, acquisitions and licensing
transactions.
66
For additional information related to this
transaction, please read Note 19, Collaborative and
Other Relationships to our consolidated financial
statements included in this report.
Noncontrolling Interest
For 2016 compared to 2015, the change in net
income (loss) attributable to noncontrolling interests,
net of tax, was primarily related to a $60.0 million
milestone payment made to Neurimmune SubOne AG
(Neurimmune) in 2015.
For 2015 compared to 2014, the change in net
income (loss) attributable to noncontrolling interests,
net of tax, was primarily related to a $60.0 million
milestone payment made to Neurimmune, partially
offset by increases in research expenses attributable
to noncontrolling interests.
For additional information about Neurimmune,
please read Note 18, Investments in Variable Interest
Entities to our consolidated financial statements
included in this report.
Our effective tax rate for 2016 compared to
2015 increased primarily due to a net state tax
benefit in 2015 of $27.0 million resulting from the
remeasurement of one of our uncertain tax positions
and a higher relative percentage of our earnings being
attributed to the U.S., a higher tax jurisdiction.
Our effective tax rate for 2015 compared to
2014 benefited from lower anticipated taxes on
foreign earnings and reflects a $27.0 million benefit
from the 2015 remeasurement of one of our
uncertain tax positions.
Accounting for Uncertainty in Income Taxes
For more information on our uncertain tax
positions and income tax rate reconciliation for 2016,
2015 and 2014, please read Note 16, Income Taxes
to our consolidated financial statements included in
this report.
Equity in Loss of Investee, Net of Tax
In February 2012 we entered into an agreement
with Samsung Biologics, establishing an entity,
Samsung Bioepis, to develop, manufacture and
market biosimilar pharmaceuticals. We account for
this investment under the equity method of
accounting. We recognize our share of the results of
operations related to our investment in Samsung
Bioepis one quarter in arrears.
During 2015 our share of losses exceeded the
carrying value of our investment. We therefore
suspended recognizing additional losses and will
continue to do so unless we commit to providing
additional funding.
For 2015 compared to 2014, the decrease in
our equity in loss of investee, net of tax, was due to
the suspension of equity method investment losses
due to our share of losses exceeding the carrying
value of our investment in 2015 and a decrease in
our ownership interest.
67
Financial Condition, Liquidity and Capital Resources
Our financial condition is summarized as follows:
(In millions, except percentages)
Financial assets:
As of December 31,
2016
2015
% Change
2016
compared to
2015
Cash and cash equivalents ....................................................... $
Marketable securities — current ...............................................
Marketable securities — non-current .........................................
Total cash, cash equivalents and marketable securities .......... $
2,326.5 $
2,568.6
2,829.4
7,724.5 $
1,308.0
2,120.5
2,760.4
6,188.9
Borrowings:
Current portion of notes payable and other financing
arrangements .......................................................................... $
Notes payable and other financing arrangements........................
Total borrowings................................................................... $
4.7 $
6,512.7
6,517.4 $
4.8
6,521.5
6,526.3
Working Capital:
Current assets ......................................................................... $
Current liabilities ......................................................................
Total working capital............................................................. $
8,732.2 $
(3,419.9)
5,312.3 $
6,700.3
(2,577.7)
4,122.6
77.9 %
21.1 %
2.5 %
24.8 %
(2.1)%
(0.1)%
(0.1)%
30.3 %
32.7 %
28.9 %
For the year ended December 31, 2016, certain
For the year ended December 31, 2015, certain
significant cash flows were as follows:
significant cash flows were as follows:
• $4.5 billion in net cash flows provided by
• $3.7 billion in net cash flows provided by
operating activities;
operating activities;
• $1.0 billion used for share repurchases;
• $5.9 billion in proceeds from the issuance of our
• $1.6 billion in total net payments for income
taxes;
• $1.2 billion in contingent payments made to
former shareholders of Fumapharm AG and
holders of their rights; and
• $616.1 million used for purchases of property,
plant and equipment.
• $102.0 million used for upfront and milestone
payments to Samsung Bioepis, AbbVie and
UPenn; and
• $75.0 million license fee payment made to Ionis.
senior unsecured notes;
• $5.0 billion used for share repurchases;
• $1.7 billion in total net payments for income
taxes;
• $850.0 million in contingent payments made to
former shareholders of Fumapharm AG and
holders of their rights;
• $643.0 million used for purchases of property,
plant and equipment, including $104.8 million
related to the acquisition of Eisai's drug product
manufacturing facility in Research Triangle Park
(RTP), North Carolina and $62.5 million related
to the acquisition of land in Solothurn,
Switzerland;
• $198.8 million net cash paid for the acquisition
of Convergence; and
•
$244.0 million used for upfront and milestone
payments to AGTC, MTPC and Neurimmune.
68
In May 2015 our Board of Directors authorized a
program to repurchase up to $5.0 billion of our
common stock (2015 Share Repurchase Program),
which was completed as of December 31, 2015. As
of December 31, 2015, we repurchased and retired
approximately 16.8 million shares of common stock
at a cost of $5.0 billion under our 2015 Share
Repurchase Program.
In February 2011 our Board of Directors
authorized a program to repurchase up to 20.0 million
of our common stock (2011 Share Repurchase
Program), which has been used principally to offset
common stock issuances under our share-based
compensation plans. The 2011 Share Repurchase
Program does not have an expiration date. We did not
repurchase any shares of common stock under our
2011 Share Repurchase Program during the years
ended December 31, 2016 and 2015. During the year
ended December 31, 2014, we purchased
approximately 2.9 million shares of common stock at
a cost of $886.8 million under our 2011 Share
Repurchase Program. We have approximately 1.3
million shares remaining available for repurchase
under the 2011 Share Repurchase Program.
Cash, Cash Equivalents and Marketable Securities
Until required for another use in our business,
we typically invest our cash reserves in bank deposits,
certificates of deposit, commercial paper, corporate
notes, U.S. and foreign government instruments and
other interest bearing marketable debt instruments in
accordance with our investment policy. It is our policy
to mitigate credit risk in our cash reserves and
marketable securities by maintaining a well-diversified
portfolio that limits the amount of exposure as to
institution, maturity and investment type.
The net increase in cash, cash equivalents and
marketable securities at December 31, 2016, from
December 31, 2015, is primarily due to net cash
flows provided by operating activities, partially offset
by purchases of our common stock, payments for
income taxes, contingent payments made to former
shareholders of Fumapharm AG and holders of their
rights, the net purchases of property, plant and
equipment and upfront and milestone payments
related to our collaboration agreements.
Overview
We have historically financed our operating and
capital expenditures primarily through cash flows
earned through our operations. We expect to continue
funding our current and planned operating
requirements principally through our cash flows from
operations, as well as our existing cash resources.
We believe that our existing funds, when combined
with cash generated from operations and our access
to additional financing resources, if needed, are
sufficient to satisfy our operating, working capital,
strategic alliance, milestone payment, capital
expenditure and debt service requirements for the
foreseeable future. In addition, we may choose to
opportunistically return cash to shareholders and
pursue other business initiatives, including acquisition
and licensing activities. We may, from time to time,
also seek additional funding through a combination of
new collaborative agreements, strategic alliances and
additional equity and debt financings or from other
sources should we identify a significant new
opportunity.
The undistributed cumulative foreign earnings of
certain of our foreign subsidiaries, exclusive of
earnings that would result in little or no net income
tax expense under current U.S. tax law or which has
already been subject to tax under U.S. tax law, are
invested indefinitely outside the U.S.
Of the total cash, cash equivalents and
marketable securities at December 31, 2016,
approximately $5.5 billion was generated in foreign
jurisdictions and is primarily intended for use in our
foreign operations or in connection with business
development transactions outside of the U.S. In
managing our day-to-day liquidity in the U.S., we do
not rely on the unrepatriated earnings as a source of
funds and we have not provided for U.S. federal or
state income taxes on these undistributed foreign
earnings.
For additional information related to certain risks
that could negatively impact our financial position or
future results of operations, please read the “Risk
Factors” and “Quantitative and Qualitative Disclosures
About Market Risk” sections of this report.
Share Repurchase Programs
In July 2016 our Board of Directors authorized a
program to repurchase up to $5.0 billion of our
common stock (2016 Share Repurchase Program).
This authorization does not have an expiration date.
Repurchased shares will be retired. During the year
ended December 31, 2016, we repurchased and
retired 3.3 million shares of common stock at a cost
of $1.0 billion under our 2016 Share Repurchase
Program.
69
Borrowings
The following is a summary of our principal
indebtedness:
• $550.0 million aggregate principal amount of
6.875% Senior Notes due March 1, 2018;
• $1.5 billion aggregate principal amount of 2.90%
Senior Notes due September 15, 2020;
• $1.0 billion aggregate principal amount of
3.625% Senior Notes due September 15, 2022;
• $1.75 billion aggregate principal amount of
4.05% Senior Notes due September 15, 2025;
and
• $1.75 billion aggregate principal amount of
5.20% Senior Notes due September 15, 2045.
These senior unsecured notes were issued at a
discount and are amortized as additional interest
expense over the period from issuance through
maturity.
During the third quarter of 2015, we entered into
a $1.0 billion, five-year senior unsecured revolving
credit facility under which we are permitted to draw
funds for working capital and general corporate
purposes. The terms of the revolving credit facility
include a financial covenant that requires us not to
exceed a maximum consolidated leverage ratio. As of
December 31, 2016, we had no outstanding
borrowings and were in compliance with all covenants
under this facility.
Cash Flows
The following table summarizes our cash flow activity:
In connection with our 2006 distribution
agreement with Fumedica AG (Fumedica), we issued
notes totaling 61.4 million Swiss Francs that were
payable to Fumedica in varying amounts from June
2008 through June 2018. Our remaining note payable
to Fumedica had a carrying value of 6.2 million Swiss
Francs ($6.0 million) and 8.9 million Swiss Francs
($9.0 million) as of December 31, 2016 and 2015,
respectively.
For a summary of the fair values of our
outstanding borrowings as of December 31, 2016 and
2015, please read Note 7, Fair Value Measurements
to our consolidated financial statements included in
this report.
Working Capital
We define working capital as current assets less
current liabilities. The increase in working capital at
December 31, 2016, from December 31, 2015,
reflects an increase in total current assets of
$2,031.9 million, partially offset by an increase in
current liabilities of $842.2 million. The increase in
total current assets was primarily driven by an
increase in cash, cash equivalents and marketable
securities due to net cash flows provided by operating
activities. The increase in total current liabilities
primarily resulted from litigation settlement and
license charges and an increase in accrued
collaboration expenses.
(In millions, except percentages)
Net cash flows provided by operating
activities................................................ $
Net cash flows used in by investing
activities................................................ $
Net cash flows provided by (used in)
financing activities ................................. $
For the Years Ended
December 31,
2016
2015
2014
% Change
2016
compared to
2015
2015
compared to
2014
4,522.4 $
3,716.1 $
2,942.1
21.7 %
26.3 %
(2,484.8) $
(4,553.6) $
(1,543.0)
(45.4)%
195.1 %
(987.8) $
986.4 $
(755.9)
(200.1)%
(230.5)%
Operating Activities
Operating cash flow is derived by adjusting our
Cash flows from operating activities represent
the cash receipts and disbursements related to all of
our activities other than investing and financing
activities. We expect cash provided from operating
activities will continue to be our primary source of
funds to finance operating needs and capital
expenditures for the foreseeable future.
net income for:
• Non-cash operating items such as depreciation
and amortization, impairment charges and share-
based compensation charges;
• Changes in operating assets and liabilities which
reflect timing differences between the receipt
and payment of cash associated with
transactions and when they are recognized in
results of operations; and
70
• Changes associated with the fair value of
contingent payments associated with our
acquisitions of businesses and payments related
to collaborations.
For 2016 compared to 2015, the increase in
cash provided by operating activities was primarily
driven by higher net income, non-cash charges for
depreciation and amortization, a comparative increase
in accrued expenses and other liabilities, partially
offset by a comparative increase in accounts
receivable.
For 2015 compared to 2014, the increase in
cash provided by operating activities was primarily
driven by higher net income and accounts receivable
collections, partially offset by income tax payments.
Investing Activities
For 2016 compared to 2015, the decrease in
net cash flows used in investing activities was
primarily due to a decrease in net purchases of
marketable securities and cash paid for the
acquisition of Convergence in February 2015, partially
offset by an increase in the contingent consideration
related to the Fumapharm AG acquisition.
For 2015 compared to 2014, the increase in net
cash flows used in investing activities was primarily
due to an increase in net purchases of marketable
securities, an increase in the total amount of
contingent consideration paid to the former
shareholders of Fumapharm AG, an increase in
purchases of property, plant and equipment and cash
paid for the acquisition of Convergence.
Financing Activities
For 2016 compared to 2015, the decrease in
net cash flows provided by financing activities was
primarily due to the issuance of our senior unsecured
notes issued in the third quarter of 2015, partially
offset by a decrease in the purchases of common
stock.
For 2015 compared to 2014, the change in net
cash flows provided by financing activities was
primarily due to the issuance of our 2015 Senior
Notes, partially offset by an increase in the amount of
common stock we repurchased.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2016, excluding amounts
related to uncertain tax positions, funding commitments, contingent development, regulatory and commercial
milestone payments, TYSABRI contingent payments and contingent consideration related to our business
combinations, as described below.
(In millions)
Capital leases (1) .................................. $
Non-cancellable operating leases (2), (3) .
Long-term debt obligations (4) ................
Purchase and other obligations (5) ..........
Defined benefit obligation.......................
Payments Due by Period
Total
Less than
1 Year
1 to 3
Years
3 to 5
Years
After
5 Years
18.7 $
2.0 $
16.7 $
— $
549.5
10,281.1
1,740.1
74.5
66.4
282.5
1,598.2
—
108.2
1,055.1
88.5
—
98.4
1,939.7
43.9
—
—
276.5
7,003.8
9.5
74.5
7,364.3
Total contractual obligations ................. $ 12,663.9 $
1,949.1 $
1,268.5 $
2,082.0 $
PP
(1) During 2015 we amended our existing lease
related to Eisai's oral solid dose products
manufacturing facility in RTP North Carolina,
where we manufacture our and Eisai's oral solid
dose products. Amounts reflected within the
table above include the future contractual
commitments. For additional information, please
read Note 10, Property, Plant and Equipment tot
our consolidated financial statements included
in this report.
(2) We lease properties and equipment for use in
our operations. Amounts reflected within the
table above detail future minimum rental
commitments under non-cancelable operating
leases as of December 31 for each of the
periods presented. In addition to the minimum
rental commitments, these leases may require
us to pay additional amounts for taxes,
insurance, maintenance and other operating
expenses.
71
(3) Obligations are presented net of sublease
income expected to be received for the vacated
manufacturing facility in Cambridge, MA, the
vacated portion of our Weston, Massachusetts
facility and other facilities throughout the world.
For additional information related to the
sublease of the vacated manufacturing facility in
Cambridge, MA, please read Note 3,
Restructuring, Business Transformation and Other
Cost Savings Initiatives to our consolidated
financial statements included in this report.
(4) Long-term debt obligations are primarily related
to our Senior Notes, including principal and
interest payments.
(5) Purchase and other obligations primarily includes
our obligations to purchase direct materials, our
obligation of $1.25 billion under the litigation
settlement and license agreement with Forward
Pharma, $176.3 million in contractual
commitments for the construction of a biologics
manufacturing facility in Solothurn, Switzerland
and $13.6 million related to the fair value of net
liabilities on derivative contracts. For additional
information on the litigation settlement and
license agreement with Forward Pharma please
read Note 21, Commitments and Contingencies
to our consolidated financial statements
included in this report.
TYSABRI Contingent Payments
In 2013 we acquired from Elan full ownership of
all remaining rights to TYSABRI that we did not already
own or control. Under the terms of the acquisition
agreement, we are obligated to make contingent
payments to Elan of 18% on annual worldwide net
sales up to $2.0 billion and 25% on annual worldwide
net sales that exceed $2.0 billion. Royalty payments
to Elan and other third parties are recognized as cost
of sales in our consolidated statements of income.
Elan was acquired by Perrigo in December 2013.
Following that acquisition, we began making these
royalty payments to Perrigo.
Contingent Consideration related to Business
Combinations
In connection with our acquisitions of
Convergence, Stromedix, Inc. (Stromedix) and Biogen
International Neuroscience GmbH (BIN), we agreed to
make additional payments based upon the
achievement of certain milestone events.
As the acquisitions of Convergence, Stromedix
and BIN occurred after January 1, 2009, we record
contingent consideration liabilities at their fair value
on the acquisition date and revalue these obligations
each reporting period. We may pay up to
approximately $1.2 billion in remaining milestones
72
related to these acquisitions. For additional
information related to our acquisition of Convergence
please read Note 2, Acquisitions, to our consolidated
financial statements included in this report.
Fumapharm AG
In 2006 we acquired Fumapharm AG. As part of
this acquisition we acquired FUMADERM and
TECFIDERA (together, Fumapharm Products). We are
required to make contingent payments to former
shareholders of Fumapharm AG or holders of their
rights based on the attainment of certain cumulative
sales levels of Fumapharm Products and the level of
total net sales of Fumapharm Products in the prior
twelve month period, as defined in the acquisition
agreement.
During 2016 we paid $1.2 billion in contingent
payments as we reached the $7.0 billion, $8.0 billion,
$9.0 billion and $10.0 billion cumulative sales levels
related to the Fumapharm Products in the fourth
quarter of 2015 and the first, second and third
quarters of 2016, respectively, and accrued $300.0
million upon reaching $11.0 billion in total cumulative
sales of Fumapharm Products in the fourth quarter of
2016.
We will owe an additional $300.0 million
contingent payment for every additional $1.0 billion in
cumulative sales level of Fumapharm Products
reached if the prior 12 months sales of the
Fumapharm Products exceed $3.0 billion, until such
time as the cumulative sales level reaches $20.0
billion, at which time no further contingent payments
shall be due. If the prior 12 months sales of
Fumapharm Products are less than $3.0 billion,
contingent payments remain payable on a decreasing
tiered basis. These payments will be accounted for as
an increase to goodwill as incurred, in accordance
with the accounting standard applicable to business
combinations when we acquired Fumapharm. Any
portion of the payment which is tax deductible will be
recorded as a reduction to goodwill. Payments are due
within 60 days following the end of the quarter in
which the applicable cumulative sales level has been
reached.
Contingent Development, Regulatory and
Commercial Milestone Payments
Based on our development plans as of
December 31, 2016, we could make potential future
milestone payments to third parties of up to
approximately $3.1 billion, including approximately
$0.5 billion in development milestones, approximately
$0.8 billion in regulatory milestones and
approximately $1.8 billion in commercial milestones
as part of our various collaborations, including
licensing and development programs. Payments under
these agreements generally become due and payable
Critical Accounting Estimates
The preparation of our consolidated financial
statements, which have been prepared in accordance
with accounting principles generally accepted in the
U.S. (U.S. GAAP), requires us to make estimates,
judgments and assumptions that may affect the
reported amounts of assets, liabilities, equity,
revenues and expenses and related disclosure of
contingent assets and liabilities. On an on-going basis
we evaluate our estimates, judgments and
methodologies. We base our estimates on historical
experience and on various other assumptions that we
believe are reasonable, the results of which form the
basis for making judgments about the carrying values
of assets, liabilities and equity and the amount of
revenue and expenses. Actual results may differ from
these estimates under different assumptions or
conditions.
Revenue Recognition and Related Allowances
We recognize revenue when all of the following
criteria are met: persuasive evidence of an
arrangement exists; delivery has occurred or services
have been rendered; our price to the customer is fixed
or determinable; and collectability is reasonably
assured. For additional information related to the new
accounting standard for revenues from contracts with
customers please read Note 1, Summary of
Significant Accounting Policies: New Accounting
Pronouncements to our consolidated financial
statements included in this report.
Product Revenues
Revenues from product sales are recognized
when title and risk of loss have passed to the
customer, which is typically upon delivery. Product
revenues are recorded net of applicable reserves for
discounts and allowances. The timing of distributor
orders and shipments can cause variability in
earnings.
upon achievement of certain development, regulatory
or commercial milestones. Because the achievement
of these milestones had not occurred as of
December 31, 2016, such contingencies have not
been recorded in our financial statements. Amounts
related to contingent milestone payments are not
considered contractual obligations as they are
contingent on the successful achievement of certain
development, regulatory approval and commercial
milestones.
We anticipate that we may pay approximately
$157.0 million of milestone payments in 2017,
provided various development, regulatory or
commercial milestones are achieved.
Other Funding Commitments
As of December 31, 2016, we have several on-
going clinical studies in various clinical trial stages.
Our most significant clinical trial expenditures are to
contract research organizations (CROs). The contracts
with CROs are generally cancellable, with notice, at
our option. We have recorded accrued expenses of
approximately $21.0 million on our consolidated
balance sheet for expenditures incurred by CROs as
of December 31, 2016. We have approximately
$500.0 million in cancellable future commitments
based on existing CRO contracts as of December 31,
2016.
Tax Related Obligations
We exclude liabilities pertaining to uncertain tax
positions from our summary of contractual obligations
as we cannot make a reliable estimate of the period
of cash settlement with the respective taxing
authorities. As of December 31, 2016, we have
approximately $47.8 million of net liabilities
associated with uncertain tax positions.
Other Off-Balance Sheet Arrangements
We do not have any relationships with entities
often referred to as structured finance or special
purpose entities that were established for the
purpose of facilitating off-balance sheet
arrangements. As such, we are not exposed to any
financing, liquidity, market or credit risk that could
arise if we had engaged in such relationships. We
consolidate variable interest entities if we are the
primary beneficiary.
Legal Matters
For a discussion of legal matters as of
December 31, 2016, please read Note 20, Litigation
to our consolidated financial statements included in
this report.
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Reserves for Discounts and Allowances
Revenues from product sales are recorded net
of reserves established for applicable discounts and
allowances, including those associated with the
implementation of pricing actions in certain of the
international markets in which we operate. These
reserves are based on estimates of the amounts
earned or to be claimed on the related sales and 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). Our estimates take into consideration our
historical experience, current contractual and
statutory requirements, specific known market events
and trends, industry data and forecasted customer
buying and payment patterns. Actual amounts may
ultimately differ from our estimates. If actual results
vary, we adjust these estimates, which could have an
effect on earnings in the period of adjustment.
In addition to the discounts and rebates
described above and classified as a reduction of
revenue, we also maintain certain customer service
contracts with distributors and other customers in the
distribution channel that provide us with inventory
management, data and distribution services, which
are generally reflected as a reduction of revenue. To
the extent we can demonstrate a separable benefit
and fair value for these services, we classify these
payments within selling, general and administrative
expenses.
Revenues from Anti-CD20 Therapeutic Programs
Revenues from anti-CD20 therapeutic programs
consist of:
(i) our share of pre-tax profits and losses in the
U.S. for RITUXAN and GAZYVA;
(ii) reimbursement of our selling and
development expenses in the U.S. for
RITUXAN; and
(iii) revenues on sales in the rest of world for
RITUXAN, which consist of our share of pre-
tax co-promotion profits on RITUXAN in
Canada and royalty revenue on RITUXAN
sales outside the U.S. and Canada by the
Roche Group and its sublicensees.
Pre-tax co-promotion profits on RITUXAN and
GAZYVA are calculated and paid to us by Genentech in
the U.S. Pre-tax co-promotion profits on RITUXAN are
calculated and paid to us by the Roche Group in
Canada. Pre-tax co-promotion profits consist of U.S.
and Canadian net sales to third-party customers less
applicable costs to manufacture, third-party royalty
expenses, distribution, selling and marketing
expenses, and joint development expenses incurred
by Genentech, the Roche Group and us. We record our
share of the pre-tax co-promotion profits on RITUXAN
in Canada and royalty revenues on RITUXAN sales
outside the U.S. on a cash basis as we do not have
the ability to estimate these profits or royalty revenue
in the period incurred. Our share of the pre-tax profits
on RITUXAN and GAZYVA in the U.S. includes
estimates made by Genentech and those estimates
are subject to change. Actual results may differ from
our estimates.
Concentrations of Credit Risk
The majority of our accounts receivable arise
from product sales in the U.S. and Europe and are
primarily due from wholesale distributors, public
hospitals and other government entities. We monitor
the financial performance and creditworthiness of our
customers so that we can properly assess and
respond to changes in their credit profile. We continue
to monitor these conditions, including the volatility
associated with international economies and the
relevant financial markets, and assess their possible
impact on our business. Credit and economic
conditions in the E.U. continue to remain uncertain,
which has, from time to time, led to longer collection
periods for our accounts receivable and greater
collection risk in certain countries.
Where our collections continue to be subject to
significant payment delays due to government funding
and reimbursement practices and a portion of these
receivables are routinely being collected beyond our
contractual payment terms and over periods in excess
of one year, we have discounted our receivables and
reduced related revenues based on the period of time
that we estimate those amounts will be paid, to the
extent such period exceeds one year, using the
country’s market-based borrowing rate for such
period. The related receivables are classified at the
time of sale as non-current assets.
To date, we have not experienced any significant
losses with respect to the collection of our accounts
receivable. If economic conditions worsen and/or the
financial condition of our customers were to further
deteriorate, our risk of collectability may increase,
which may result in additional allowances and/or
significant bad debts.
74
For additional information related to our
concentration of credit risk associated with our
accounts receivable balances, please read the
subsection entitled “Credit Risk” in the “Quantitative
and Qualitative Disclosures About Market Risk” section
of this report.
”
Collaborative and Other Relationships
Our development and commercialization
arrangements with Sobi and AbbVie represent
collaborative arrangements as each party is an active
participant and exposed to significant risks and
rewards of the arrangements. Where we are the
principal on sales transactions with third parties, we
recognize revenue, cost of sales and sales and
marketing expenses on a gross basis in their
respective lines in our consolidated statements of
income. Where we are not the principal on sales
transactions with third parties, we record our share of
the revenues, cost of sales and sales and marketing
expenses on a net basis in collaborative and other
relationships in our consolidated statements of
income.
For additional information related to our
collaborations with Sobi and AbbVie, please read Note
19, Collaborative and Other Relationships to these
consolidated financial statements.
Capitalization of Inventory Costs
We capitalize inventory costs associated with
our products prior to regulatory approval, when, based
on management’s judgment, future commercialization
is considered probable and the future economic
benefit is expected to be realized. We consider
numerous attributes in evaluating whether the costs
to manufacture a particular product should be
capitalized as an asset. We assess the regulatory
approval process and where the particular product
stands in relation to that approval process, including
any known safety or efficacy concerns, potential
labeling restrictions and other impediments to
approval. We evaluate our anticipated research and
development initiatives and constraints relating to the
product and the indication in which it will be used. We
consider our manufacturing environment including our
supply chain in determining logistical constraints that
could hamper approval or commercialization. We
consider the shelf life of the product in relation to the
expected timeline for approval and we consider patent
related or contract issues that may prevent or delay
commercialization. We also base our judgment on the
viability of commercialization, trends in the
marketplace and market acceptance criteria. Finally,
we consider the reimbursement strategies that may
prevail with respect to the product and assess the
economic benefit that we are likely to realize. We
expense previously capitalized costs related to pre-
approval inventory upon a change in such judgment,
75
due to, among other potential factors, a denial or
significant delay of approval by necessary regulatory
bodies. All changes in judgment in relation to pre-
approval inventory have historically been insignificant.
Acquired Intangible Assets, including In-process
Research and Development (IPR&D)
Effective January 1, 2009, when we purchase a
business, the acquired IPR&D is measured at fair
value, capitalized as an intangible asset and tested
for impairment at least annually, as of October 31,
until commercialization, after which time the IPR&D is
amortized over its estimated useful life. If we acquire
an asset or group of assets that do not meet the
definition of a business under applicable accounting
standards, the acquired IPR&D is expensed on its
acquisition date. Future costs to develop these
assets are recorded to research and development
expense as they are incurred.
We have acquired, and expect to continue to
acquire, intangible assets through the acquisition of
biotechnology companies or through the consolidation
of variable interest entities. These intangible assets
primarily consist of technology associated with human
therapeutic products and IPR&D product candidates.
When significant identifiable intangible assets are
acquired, we generally engage an independent third-
party valuation firm to assist in determining the fair
values of these assets as of the acquisition date.
Management will determine the fair value of less
significant identifiable intangible assets acquired.
Discounted cash flow models are typically used in
these valuations, and these models require the use of
significant estimates and assumptions including but
not limited to:
• estimating the timing of and expected costs to
complete the in-process projects;
• projecting regulatory approvals;
• estimating future cash flows from product sales
resulting from completed products and in
process projects; and
• developing appropriate discount rates and
probability rates by project.
We believe the fair values assigned to the
intangible assets acquired are based upon
reasonable estimates and assumptions given
available facts and circumstances as of the
acquisition dates.
would significantly affect the anticipated lifetime
revenues of TYSABRI or AVONEX.
For additional information on the impairment
charges related to our long-lived assets during 2016
and 2014, please read Note 6, Intangible Assets and
Goodwill to our consolidated financial statements
included in this report. Impairment charges related to
our long-lived assets during 2015 were insignificant.
Goodwill
Goodwill relates largely to amounts that arose in
connection with the merger of Biogen, Inc. and IDEC
Pharmaceuticals Corporation in 2003 and amounts
that are being paid in connection with the acquisition
of Fumapharm AG. Our goodwill balances represent
the difference between the purchase price and the fair
value of the identifiable tangible and intangible net
assets when accounted for using the purchase
method of accounting.
We assess our goodwill balance within our
single reporting unit annually, as of October 31, and
whenever events or changes in circumstances
indicate the carrying value of goodwill may not be
recoverable to determine whether any impairment in
this asset may exist and, if so, the extent of such
impairment. We compare the fair value of our
reporting unit to its carrying value. If the carrying
value of the net assets assigned to the reporting unit
exceeds the fair value of our reporting unit, then we
would need to determine the implied fair value of our
reporting unit’s goodwill. If the carrying value of our
reporting unit’s goodwill exceeds its implied fair value,
then we would record an impairment loss equal to the
difference.
We completed our required annual impairment
test in the fourth quarters of 2016, 2015 and 2014,
respectively, and determined in each of those periods
that the carrying value of goodwill was not impaired.
In each year, the fair value of our reporting unit, which
includes goodwill, was significantly in excess of the
carrying value of our reporting unit.
If these projects are not successfully developed,
the sales and profitability of the company may be
adversely affected in future periods. Additionally, the
value of the acquired intangible assets may become
impaired. We believe that the foregoing assumptions
used in the IPR&D analysis were reasonable at the
time of the respective acquisition. No assurance can
be given that the underlying assumptions used to
estimate expected project sales, development costs
or profitability, or the events associated with such
projects, will transpire as estimated.
Certain IPR&D programs have a fair value that is
not significantly in excess of carrying value, including
our program for the treatment of TGN. Such programs
could become impaired if assumptions used in
determining the fair value change.
Impairment and Amortization of Long-lived Assets
and Accounting for Goodwill
Long-lived Assets Other than Goodwill
Long-lived assets to be held and used include
property, plant and equipment as well as intangible
assets, including IPR&D and trademarks. Property,
plant and equipment are reviewed for impairment
whenever events or changes in circumstances
indicate that the carrying amount of the assets may
not be recoverable. We review our intangible assets
with indefinite lives for impairment annually, as of
October 31, and whenever events or changes in
circumstances indicate that the carrying value of an
asset may not be recoverable.
When performing our impairment assessment,
we calculate the fair value using the same
methodology as described above under "Acquired
Intangible Assets, including In-process Research and
Development (IPR&D)". If the carrying value of our
intangible assets with indefinite lives exceeds its fair
value, then the intangible asset is written-down to its
fair value.
Our most significant intangible assets are our
acquired and in-licensed rights and patents and
developed technology. Acquired and in-licensed rights
and patents primarily relates to our acquisition of all
remaining rights to TYSABRI from Elan. Developed
technology primarily relates to our AVONEX product,
which was recorded in connection with the merger of
Biogen, Inc. and IDEC Pharmaceuticals Corporation in
2003. We amortize the intangible assets related to
TYSABRI and AVONEX using the economic
consumption method based on revenue generated
from the products underlying the related intangible
assets. An analysis of the anticipated lifetime
revenues of TYSABRI and AVONEX is performed
annually during our long range planning cycle, which is
generally updated in the third quarter of each year,
and whenever events or changes in circumstances
76
Investments, including Fair Value Measures and
Impairments
We invest in various types of securities,
including short-term and long-term marketable
securities, principally corporate notes, government
securities including government sponsored enterprise
mortgage-backed securities and credit card and auto
loan asset-backed securities, in which our excess
cash balances are invested.
In accordance with the accounting standard for
fair value measurements, we have classified our
financial assets as Level 1, 2 or 3 within the fair value
hierarchy. Fair values determined by Level 1 inputs
utilize quoted prices (unadjusted) in active markets for
identical assets that we have the ability to access.
Fair values determined by Level 2 inputs utilize data
points that are observable such as quoted prices,
interest rates, yield curves and foreign currency spot
rates. Fair values determined by Level 3 inputs utilize
unobservable data points for the asset.
As noted in Note 7, Fair Value Measurements to
our consolidated financial statements, a majority of
our financial assets have been classified as Level 2.
These assets have been initially valued at the
transaction price and subsequently valued utilizing
third-party pricing services. The pricing services use
many observable market inputs to determine value,
including reportable trades, benchmark yields, credit
spreads, broker/dealer quotes, bids, offers, current
spot rates and other industry and economic events.
We validate the prices provided by our third-party
pricing services by understanding the models used,
obtaining market values from other pricing sources
and analyzing pricing data in certain instances.
Impairment
We conduct periodic reviews to identify and
evaluate each investment that has an unrealized loss,
in accordance with the meaning of other-than-
temporary impairment and its application to certain
investments. An unrealized loss exists when the
current fair value of an individual security is less than
its amortized cost basis. Unrealized losses on
available-for-sale debt securities that are determined
to be temporary, and not related to credit loss, are
recorded, net of tax, in accumulated other
comprehensive income.
For available-for-sale debt securities with
unrealized losses, management performs an analysis
to assess whether we intend to sell or whether we
would more likely than not be required to sell the
security before the expected recovery of the
amortized cost basis. Where we intend to sell a
security, or may be required to do so, the security’s
decline in fair value is deemed to be other-than-
temporary and the full amount of the unrealized loss
is reflected within earnings as an impairment loss.
Regardless of our intent to sell a security, we
perform additional analysis on all securities with
unrealized losses to evaluate losses associated with
the creditworthiness of the security. Credit losses are
identified where we do not expect to receive cash
flows sufficient to recover the amortized cost basis of
a security and are reflected within earnings as an
impairment loss.
Share-Based Compensation
We make certain assumptions in order to value
and record expense associated with awards made
under our share-based compensation arrangements.
Changes in these assumptions may lead to variability
with respect to the amount of expense we recognize
in connection with share-based payments.
Determining the appropriate valuation model and
related assumptions requires judgment, and includes
estimating the expected market price of our stock on
vesting date and stock price volatility as well as the
term of the expected awards. Determining the
appropriate amount to expense based on the
anticipated achievement of performance targets
requires judgment, including forecasting the
achievement of future financial targets. The estimate
of expense is revised periodically based on the
probability of achieving the required performance
targets and adjustments are made throughout the
term as appropriate. The cumulative impact of any
revision is reflected in the period of change.
We also estimate forfeitures over the requisite
service period when recognizing share-based
compensation expense based on historical rates and
forward-looking factors. These estimates are adjusted
to the extent that actual forfeitures differ, or are
expected to materially differ, from our estimates.
77
Contingent Consideration
Income Taxes
For acquisitions completed before January 1,
2009, we record contingent consideration resulting
from a business combination when the contingency is
resolved. For acquisitions completed after January 1,
2009, we record contingent consideration resulting
from a business combination at its fair value on the
acquisition date. Each reporting period thereafter, we
revalue these obligations and record increases or
decreases in their fair value as an adjustment to
contingent consideration expense in our consolidated
statements of income. Changes in the fair value of
the contingent consideration obligations can result
from changes to one or multiple inputs including
adjustments to the discount rates and achievement
and timing of any cumulative sales-based and
development milestones, or changes in the probability
of certain clinical events and changes in the assumed
probability associated with regulatory approval. These
fair value measurements represent Level 3
measurements as they are based on significant
inputs not observable in the market.
Significant judgment is employed in determining
the appropriateness of these assumptions as of the
acquisition date and for each subsequent period.
Accordingly, changes in assumptions described above,
could have a material impact on the amount of
contingent consideration expense we record in any
given period.
Restructuring Charges
We have made estimates and judgments
regarding the amount and timing of our restructuring
expense and liability, including current and future
period termination benefits, pipeline program
termination costs and other exit costs to be incurred
when related actions take place. Severance and other
related costs are reflected in our consolidated
statements of income as a component of total
restructuring charges incurred. Actual results may
differ from these estimates.
We prepare and file income tax returns based on
our interpretation of each jurisdiction’s tax laws and
regulations. In preparing our consolidated financial
statements, we estimate our income tax liability in
each of the jurisdictions in which we operate by
estimating our actual current tax expense together
with assessing temporary differences resulting from
differing treatment of items for tax and financial
reporting purposes. These differences result in
deferred tax assets and liabilities, which are included
in our consolidated balance sheets. Significant
management judgment is required in assessing the
realizability of our deferred tax assets. In performing
this assessment, we consider whether it is more likely
than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation
of future taxable income during the periods in which
those temporary differences become deductible. In
making this determination, under the applicable
financial accounting standards, we are allowed to
consider the scheduled reversal of deferred tax
liabilities, projected future taxable income and the
effects of tax planning strategies. Our estimates of
future taxable income include, among other items, our
estimates of future income tax deductions related to
the exercise of stock options. In the event that actual
results differ from our estimates, we adjust our
estimates in future periods and we may need to
establish a valuation allowance, which could
materially impact our financial position and results of
operations.
All tax effects associated with intercompany
transfers of assets within our consolidated group,
both current and deferred, are recorded as a prepaid
tax or deferred charge and recognized through our
consolidated statements of income when the asset
transferred is sold to a third-party or otherwise
recovered through amortization of the asset's
remaining economic life. If the asset transferred
becomes impaired, for example through the
obsolescence of inventory or the discontinuation of a
research program, we will expense any remaining
deferred charge or prepaid tax. As of December 31,
2016, total deferred charges and prepaid taxes were
$989.8 million. For additional information related to
the new accounting standard on tax effects
associated with intercompany transfers of assets
within our consolidated group please read Note 1,
Summary of Significant Accounting Policies: New
Accounting Pronouncements to our consolidated
financial statements included in this report.
78
If we decide to repatriate funds in the future to
execute our growth initiatives or to fund any other
liquidity needs, the resulting tax consequences would
negatively impact our results of operations through a
higher effective tax rate and dilution of our
earnings. The residual U.S. tax liability, if cumulative
amounts were repatriated, would be between $1.8
billion to $2.3 billion as of December 31, 2016.
New Accounting Standards
For a discussion of new accounting standards
please read Note 1, Summary of Significant
Accounting Principles to our consolidated financial
statements included in this report.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk
Market Risk
We are subject to certain risks which may affect
our results of operations, cash flows and fair values
of assets and liabilities, including volatility in foreign
currency exchange rates, interest rate movements,
pricing pressures worldwide and weak economic
conditions in the foreign markets in which we operate.
We manage the impact of foreign currency exchange
rates and interest rates through various financial
instruments, including derivative instruments such as
foreign currency forward contracts, interest rate lock
contracts and interest rate swap contracts. We do not
enter into financial instruments for trading or
speculative purposes. The counter-parties to these
contracts are major financial institutions and there is
no significant concentration of exposure with any one
counter-party.
Foreign Currency Exchange Risk
Our results of operations are subject to foreign
currency exchange rate fluctuations due to the global
nature of our operations. We have operations or
maintain distribution relationships in the U.S., Europe,
Canada, Asia, Central and South America. In addition,
we recognize our share of pre-tax co-promotion profits
on RITUXAN in Canada. As a result, our financial
position, results of operations and cash flows can be
affected by market fluctuations in foreign exchange
rates, primarily with respect to the Euro, British pound
sterling, Canadian dollar, Swiss franc, Danish krone
and Japanese yen.
We account for uncertain tax positions using a
“more-likely-than-not” threshold for recognizing and
resolving uncertain tax positions. We evaluate
uncertain tax positions on a quarterly basis and
consider various factors that include, but are not
limited to, changes in tax law, the measurement of tax
positions taken or expected to be taken in tax returns,
the effective settlement of matters subject to audit,
information obtained during in process audit activities
and changes in facts or circumstances related to a
tax position. We adjust the level of the liability to
reflect any subsequent changes in the relevant facts
surrounding the uncertain positions. Our liabilities for
uncertain tax positions can be relieved only if the
contingency becomes legally extinguished, through
either payment to the taxing authority or the expiration
of the statute of limitations, the recognition of the
benefits associated with the position meet the “more-
likely-than-not” threshold or the liability becomes
effectively settled through the examination process.
We consider matters to be effectively settled once the
taxing authority has completed all of its required or
expected examination procedures, including all
appeals and administrative reviews, we have no plans
to appeal or litigate any aspect of the tax position,
and we believe that it is highly unlikely that the taxing
authority would examine or re-examine the related tax
position. We also accrue for potential interest and
penalties related to unrecognized tax benefits in
income tax expense.
We earn a significant amount of our operating
income outside the U.S. As a result, a portion of our
cash, cash equivalents and marketable securities are
held by foreign subsidiaries. We currently do not
intend or foresee a need to repatriate these funds.
We expect existing domestic cash, cash equivalents,
marketable securities and cash flows from operations
to continue to be sufficient to fund our domestic
operating activities and cash commitments for
investing and financing activities for the foreseeable
future.
As of December 31, 2016, our non-U.S.
subsidiaries’ undistributed foreign earnings included
in consolidated retained earnings and other basis
differences aggregated to approximately $7.6
billion. All undistributed foreign earnings of non-
U.S. subsidiaries, exclusive of earnings that would
result in little or no net income tax expense or which
were previously taxed under current U.S. tax law, are
reinvested indefinitely in operations outside the
U.S. This determination is made on a jurisdiction-by-
jurisdiction basis and takes into the account the
liquidity requirements in both the U.S. and within our
foreign subsidiaries.
79
While the financial results of our global activities
Balance Sheet Risk Management Hedging Program
We also use forward contracts to mitigate the
foreign currency exposure related to certain balance
sheet items. The primary objective of our balance
sheet risk management program is to mitigate the
exposure of foreign currency denominated net
monetary assets of foreign affiliates. In these
instances, we principally utilize currency forward
contracts. We have not elected hedge accounting for
the balance sheet related items. The cash flows from
these contracts are reported as operating activities in
our consolidated statement of cash flows.
The following quantitative information includes
the impact of currency movements on forward
contracts used in our revenue, operating expense and
balance sheet hedging programs. As of December 31,
2016 and 2015, a hypothetical adverse 10%
movement in foreign currency rates compared to the
U.S. dollar across all maturities would result in a
hypothetical decrease in the fair value of forward
contracts of approximately $172.0 million and
$185.0 million, respectively. The estimated fair value
change was determined by measuring the impact of
the hypothetical exchange rate movement on
outstanding forward contracts. Our use of this
methodology to quantify the market risk of such
instruments is subject to assumptions and the actual
impact could be significantly different. The
quantitative information about market risk is limited
because it does not take into account all foreign
currency operating transactions.
Interest Rate Risk
Our investment portfolio includes cash
equivalents and short-term investments. The fair
value of our marketable securities is subject to
change as a result of potential changes in market
interest rates. The potential change in fair value for
interest rate sensitive instruments has been
assessed on a hypothetical 100 basis point adverse
movement across all maturities. As of December 31,
2016 and 2015, we estimate that such hypothetical
100 basis point adverse movement would result in a
hypothetical loss in fair value of approximately $50.0
million and $43.0 million, respectively, to our interest
rate sensitive instruments. The fair values of our
investments were determined using third-party pricing
services or other market observable data.
are reported in U.S. dollars, the functional currency
for most of our foreign subsidiaries is their respective
local currency. Fluctuations in the foreign currency
exchange rates of the countries in which we do
business will affect our operating results, often in
ways that are difficult to predict. In particular, as the
U.S. dollar strengthens versus other currencies, the
value of non-U.S. revenue will decline when reported
in U.S. dollars. The impact to net income as a result
of a strengthening U.S. dollar will be partially
mitigated by the value of non-U.S. expense which will
also decline when reported in U.S. dollars. As the
U.S. dollar weakens versus other currencies, the
value of non-U.S. revenue and expenses will increase
when reported in U.S. dollars.
We have established revenue and operating
expense hedging and balance sheet risk management
programs to protect against volatility of future foreign
currency cash flows and changes in fair value caused
by volatility in foreign exchange rates.
In June 2016 the U.K. voted in a referendum to
voluntarily depart from the E.U., known as Brexit. The
macroeconomic impact on our results of operations
from this vote remains unknown. To date, the foreign
exchange impact has been negligible since we hedged
the balance sheet foreign currency exchange risk.
Revenue and Operating Expense Hedging Program
Our foreign currency hedging program is
designed to mitigate, over time, a portion of the
impact resulting from volatility in exchange rate
changes on revenues and operating expenses. We
use foreign currency forward contracts to manage
foreign currency risk, with the majority of our forward
contracts used to hedge certain forecasted revenue
and operating expense transactions denominated in
foreign currencies in the next 18 months. We do not
engage in currency speculation. For a more detailed
disclosure of our revenue and operating expense
hedging program, please read Note 9, Derivative
Instruments to our consolidated financial statements
included in this report.
Our ability to mitigate the impact of exchange
rate changes on revenues and net income diminishes
as significant exchange rate fluctuations are
sustained over extended periods of time. In particular,
devaluation or significant deterioration of foreign
currency exchange rates are difficult to mitigate and
likely to negatively impact earnings. The cash flows
from these contracts are reported as operating
activities in our consolidated statements of cash
flows.
80
To achieve a desired mix of fixed and floating
Credit Risk
interest rate debt, we entered into interest rate swap
contracts during 2015 for certain of our fixed-rate
debt. These derivative contracts effectively converted
a fixed-rate interest coupon to a floating-rate LIBOR-
based coupon over the life of the respective note. As
of December 31, 2016 and 2015, a 100 basis-point
adverse movement (increase in LIBOR) would increase
annual interest expense by approximately $6.8 million
in each case.
Pricing Pressure
Governments in some international markets in
which we operate have implemented measures aimed
at reducing healthcare costs to constrain the overall
level of government expenditures. These implemented
measures vary by country and include, among other
things, mandatory rebates and discounts, prospective
and possible retroactive price reductions and
suspensions on price increases of pharmaceuticals.
In addition, certain countries set prices by
reference to the prices in other countries where our
products are marketed. Thus, our inability to secure
favorable prices in a particular country may impair our
ability to obtain acceptable prices in existing and
potential new markets, which may limit market growth.
The continued implementation of pricing actions
throughout Europe may also lead to higher levels of
parallel trade.
In the U.S., federal and state legislatures, health
agencies and third-party payors continue to focus on
containing the cost of health care. Legislative and
regulatory proposals, enactments to reform health
care insurance programs and increasing pressure
from social sources could significantly influence the
manner in which our products are prescribed and
purchased. It is possible that additional federal health
care reform measures will be adopted in the future,
which could result in increased pricing pressure and
reduced reimbursement for our products and
otherwise have an adverse impact on our financial
position or results of operations.
There is also significant economic pressure on
state budgets that may result in states increasingly
seeking to achieve budget savings through
mechanisms that limit coverage or payment for our
drugs. Managed care organizations are also
continuing to seek price discounts and, in some
cases, to impose restrictions on the coverage of
particular drugs.
We are subject to credit risk from our accounts
receivable related to our product sales. The majority
of our accounts receivable arise from product sales in
the U.S. and Europe with concentrations of credit risk
limited due to the wide variety of customers and
markets using our products, as well as their
dispersion across many different geographic areas.
Our accounts receivable are primarily due from
wholesale distributors, public hospitals, specialty
pharmacies and other government entities. We
monitor the financial performance and
creditworthiness of our customers so that we can
properly assess and respond to changes in their
credit profile. We operate in certain countries where
weakness in economic conditions can result in
extended collection periods. We continue to monitor
these conditions, including the volatility associated
with international economies and the relevant
financial markets, and assess their possible impact
on our business. To date, we have not experienced
any significant losses with respect to the collection of
our accounts receivable.
Credit and economic conditions in the E.U.
continue to remain uncertain, which has, from time to
time, led to long collection periods for our accounts
receivable and greater collection risk in certain
countries.
We believe that our allowance for doubtful
accounts was adequate as of December 31, 2016
and 2015. However, if significant changes occur in the
availability of government funding or the
reimbursement practices of these or other
governments, we may not be able to collect on
amounts due to us from customers in such countries
and our results of operations could be adversely
affected.
Item 8.
Supplementary Data
Financial Statements and
The information required by this Item 8 is
contained on pages F-1 through F-75 of this report
and is incorporated herein by reference.
Changes in and Disagreements
Item 9.
with Accountants on Accounting and
Financial Disclosure
None.
81
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 in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934,
as amended), as of December 31, 2016. Based upon
that evaluation, our principal executive officer and
principal financial officer concluded that, as of the end
of the period covered by this report, our disclosure
controls and procedures are effective in ensuring that
(a) the information required to be disclosed by us in
the reports that we file or submit under the Securities
Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the
SEC’s rules and forms, and (b) such information is
accumulated and communicated to our management,
including our principal executive officer and principal
financial officer, as appropriate to allow timely
decisions regarding required disclosure. In designing
and evaluating our disclosure controls and
procedures, our management recognized that any
controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance
of achieving the desired control objectives, and our
management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
U.S. GAAP. Our internal control over financial reporting
includes those policies and procedures that:
PP
• pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect
our transactions and dispositions of our assets;
• provide reasonable assurance that transactions
are recorded as necessary to permit preparation
of financial statements in accordance with
U.S. GAAP, and that our receipts and
expenditures are being made only in accordance
with authorizations of our management and
directors; and
PP
• provide reasonable assurance regarding
prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that
could have a material effect on our financial
statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the
risk that controls may become inadequate because of
changes in conditions, or that the degree of
compliance with the policies or procedures may
deteriorate.
Our management assessed the effectiveness of
our internal control over financial reporting as of
December 31, 2016. In making this assessment,
management used the criteria set forth by the
Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in its 2013 Internal
Control — Integrated Framework.
Changes in Internal Control over Financial Reporting
Based on our assessment, our management has
concluded that, as of December 31, 2016, 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, 2016 has
been audited by PricewaterhouseCoopers LLP an
independent registered public accounting firm, as
stated in their attestation report, which is included
herein.
PP
Item 9B. Other Information
None.
There were no changes in our internal control
over financial reporting during the quarter ended
December 31, 2016 that have materially affected, or
are reasonably likely to materially affect, our internal
control over financial reporting.
Management’s Annual Report on Internal Control
over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over our
financial reporting. Internal control over financial
reporting is defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act as a process
designed by, or under the supervision of, a company’s
principal executive and principal financial officers and
effected by a company’s board of directors,
management and other personnel to provide
reasonable assurance regarding the reliability of
financial reporting and the preparation of financial
statements for external purposes in accordance with
82
PART III
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 entitled “Certain Relationships and
Related Person Transactions” and “Corporate
Governance at Biogen” contained in the proxy
statement for our 2017 annual meeting of
stockholders.
Item 14. Principal Accounting Fees and
Services
The response to this item is incorporated by
reference from the discussion responsive thereto in
the section entitled “Proposal 2 — Ratification of the
Selection of our Independent Registered Public
Accounting Firm” contained in the proxy statement for
our 2017 annual meeting of stockholders.
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 this report. The text of our code
of business conduct, which includes the code of
ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer
or controller, and persons performing similar
functions, is posted on our website, www.biogen.com,
under the “Corporate Governance” subsection of the
“About Us” section of the site. We intend to make all
required disclosures regarding any amendments to, or
waivers from, provisions of our code of business
conduct at the same location of our website.
The response to the remainder of this item is
incorporated by reference from the discussion
responsive thereto in the sections entitled
“Proposal 1 - Election of Directors,” “Corporate
Governance at Biogen,” “Stock Ownership - Section 16
(a) Beneficial Ownership Reporting Compliance” and
“Miscellaneous - Stockholder Proposals” contained in
the proxy statement for our 2017 annual meeting of
stockholders.
Item 11. Executive Compensation
The response to this item is incorporated by
reference from the discussion responsive thereto in
the sections entitled “Executive Compensation
Matters” and “Corporate Governance at Biogen”
contained in the proxy statement for our 2017 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
“Equity
the sections entitled “Stock Ownership” and
Compensation Plan Information” contained in the proxy
statement for our 2017 annual meeting of
stockholders.
”
”
83
PART IV
Item 15.
Exhibits and Financial Statement Schedules
a.
(1) Consolidated Financial Statements:
The following financial statements are filed as part of this report:
Financial Statements
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Certain totals may not sum due to rounding.
(2) Financial Statement Schedules
Page Number
F-2
F-3
F-4
F-5
F-6
F-9
F-75
Schedules are omitted because they are not applicable, or are not required, or because the information is
included in the consolidated financial statements and notes thereto.
(3) Exhibits
The exhibits listed on the Exhibit Index beginning on page A-1, which is incorporated herein by reference, are
filed or furnished as part of this report or are incorporated into this report by reference.
84
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
BIOGEN INC.
By:
/S/ MICHEL VOUNATSOS
Michel Vounatsos
Chief Executive Officer
Date: February 2, 2017
85
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
y
Capacity
p
Date
/S/ MICHEL VOUNATSOS
Michel Vounatsos
/S/ PAUL J. CLANCY
Paul J. Clancy
/S/ GREGORY F. COVINO
Gregory F. Covino
/S/ STELIOS PAPADOPOULOS
Stelios Papadopoulos
/S/ ALEXANDER J. DENNER
Alexander J. Denner
/S/ CAROLINE D. DORSA
Caroline D. Dorsa
/S/ NANCY L. LEAMING
Nancy L. Leaming
/S/ RICHARD C. MULLIGAN
Richard C. Mulligan
/S/ ROBERT W. PANGIA
Robert W. Pangia
/S/ BRIAN S. POSNER
Brian S. Posner
/S/ ERIC K. ROWINSKY
Eric K. Rowinsky
/S/ LYNN SCHENK
Lynn Schenk
/S/ STEPHEN A. SHERWIN
Stephen A. Sherwin
Director and Chief Executive Officer
(principal executive officer)
February 2, 2017
Executive Vice President, Finance and
Chief Financial Officer (principal
financial officer)
February 2, 2017
Vice President, Finance, Chief
Accounting Officer (principal
accounting officer)
February 2, 2017
Director and Chairman of the Board of
Directors
February 2, 2017
Director
February 2, 2017
Director
February 2, 2017
Director
February 2, 2017
Director
February 2, 2017
Director
February 2, 2017
Director
February 2, 2017
Director
February 2, 2017
Director
February 2, 2017
Director
February 2, 2017
86
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Page Number
F-2
F-3
F-4
F-5
F-6
F-9
F-75
F- 1
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
For the Years Ended December 31,
2015
2014
2016
Revenues:
Product, net ........................................................................ $
Revenues from anti-CD20 therapeutic programs ....................
Other..................................................................................
Total revenues ................................................................
9,817.9 $
1,314.5
316.4
11,448.8
9,188.5 $
1,339.2
236.1
10,763.8
Cost and expenses:
Cost of sales, excluding amortization of acquired intangible
assets................................................................................
Research and development..................................................
Selling, general and administrative .......................................
Amortization of acquired intangible assets ............................
Restructuring charges..........................................................
Loss (gain) on fair value remeasurement of contingent
consideration ......................................................................
Collaboration profit (loss) sharing .........................................
TECFIDERA litigation settlement and license charges .............
Total cost and expenses ..................................................
Gain on sale of rights ............................................................
Income from operations .........................................................
Other income (expense), net ..................................................
Income before income tax expense and equity in loss of
investee, net of tax................................................................
Income tax expense ..............................................................
Equity in loss of investee, net of tax .......................................
Net income ...........................................................................
Net (loss) income attributable to noncontrolling interests, net
of tax ...................................................................................
Net income attributable to Biogen Inc. .................................... $
Net income per share:
1,478.7
1,973.3
1,947.9
385.6
33.1
14.8
10.2
454.8
6,298.4
—
5,150.4
(217.4)
4,933.0
1,237.3
—
3,695.7
1,240.4
2,012.8
2,113.1
382.6
93.4
30.5
—
—
5,872.8
—
4,891.0
(123.7)
4,767.3
1,161.6
12.5
3,593.2
(7.1)
3,702.8 $
46.2
3,547.0 $
Basic earnings per share attributable to Biogen Inc. .............. $
Diluted earnings per share attributable to Biogen Inc. ............ $
16.96 $
16.93 $
15.38 $
15.34 $
Weighted-average shares used in calculating:
Basic earnings per share attributable to Biogen Inc. ..............
Diluted earnings per share attributable to Biogen Inc. ............
218.4
218.8
230.7
231.2
8,203.4
1,195.4
304.5
9,703.3
1,171.0
1,893.4
2,232.3
489.8
—
(38.9)
—
—
5,747.7
16.8
3,972.4
(25.8)
3,946.6
989.9
15.1
2,941.6
6.8
2,934.8
12.42
12.37
236.4
237.2
See accompanying notes to these consolidated financial statements.
F- 2
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
Net income attributable to Biogen Inc. .................................... $
Other comprehensive income:
Unrealized gains (losses) on securities available for sale:
Unrealized gains (losses) recognized during the period, net
of tax ...............................................................................
Less: reclassification adjustment for (gains) losses included
in net income, net of tax ....................................................
Unrealized gains (losses) on securities available for sale,
net of tax........................................................................
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) recognized during the period, net
of tax ...............................................................................
Less: reclassification adjustment for (gains) losses included
in net income, net of tax ....................................................
Unrealized gains (losses) on cash flow hedges, net of tax ..
Unrealized gains (losses) on pension benefit obligation..........
Currency translation adjustment ...........................................
Total other comprehensive income (loss), net of tax.................
Comprehensive income attributable to Biogen Inc....................
Comprehensive income (loss) attributable to noncontrolling
interests, net of tax ...............................................................
Comprehensive income ......................................................... $
2016
2015
2014
3,702.8 $
3,547.0 $
2,934.8
(10.6)
0.6
(10.0)
(1.7)
1.3
(0.4)
0.4
(6.4)
(6.0)
51.6
110.8
101.7
(4.0)
47.6
5.1
(138.6)
(95.9)
3,606.9
(172.3)
(61.5)
(6.2)
(96.4)
(164.5)
3,382.5
(6.3)
95.4
(12.0)
(109.2)
(31.8)
2,903.0
(7.1)
3,599.8 $
46.2
3,428.7 $
6.8
2,909.8
See accompanying notes to these consolidated financial statements.
F- 3
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
As of December 31,
2016
2015
ASSETS
Current assets:
Cash and cash equivalents ........................................................................ $
Marketable securities ................................................................................
Accounts receivable, net ............................................................................
Due from anti-CD20 therapeutic programs, net ............................................
Inventory ..................................................................................................
Other current assets .................................................................................
Total current assets...............................................................................
Marketable securities ..................................................................................
Property, plant and equipment, net ...............................................................
Intangible assets, net..................................................................................
Goodwill .....................................................................................................
Investments and other assets ......................................................................
2,326.5 $
2,568.6
1,441.6
300.6
1,001.6
1,093.3
8,732.2
2,829.4
2,501.8
3,808.3
3,669.3
1,335.8
Total assets.......................................................................................... $
22,876.8 $
LIABILITIES AND EQUITY
Current liabilities:
Current portion of notes payable and other financing arrangements .............. $
Taxes payable ...........................................................................................
Accounts payable ......................................................................................
Accrued expenses and other ......................................................................
Total current liabilities ...........................................................................
Notes payable and other financing arrangements...........................................
Deferred tax liability.....................................................................................
Other long-term liabilities .............................................................................
Total liabilities.......................................................................................
Commitments and contingencies
Equity:
Biogen Inc. shareholders’ equity
Preferred stock, par value $0.001 per share ...............................................
Common stock, par value $0.0005 per share..............................................
Additional paid-in capital ............................................................................
Accumulated other comprehensive loss ......................................................
Retained earnings .....................................................................................
Treasury stock, at cost; 22.6 million shares, respectively.............................
Total Biogen Inc. shareholders’ equity.....................................................
Noncontrolling interests ...............................................................................
Total equity...........................................................................................
Total liabilities and equity....................................................................... $
4.7 $
231.9
279.8
2,903.5
3,419.9
6,512.7
93.1
722.5
10,748.2
—
0.1
—
(319.9)
15,071.6
(2,611.7)
12,140.1
(11.5)
12,128.6
22,876.8 $
1,308.0
2,120.5
1,227.0
314.5
893.4
836.9
6,700.3
2,760.4
2,187.6
4,085.1
2,663.8
1,107.6
19,504.8
4.8
208.7
267.4
2,096.8
2,577.7
6,521.5
124.9
905.8
10,129.9
—
0.1
—
(224.0)
12,208.4
(2,611.7)
9,372.8
2.1
9,374.9
19,504.8
See accompanying notes to these consolidated financial statements.
F- 4
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Cash flows from operating activities:
Net income ...................................................................................... $
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation and amortization .......................................................
Share-based compensation ...........................................................
Deferred income taxes ..................................................................
Other ...........................................................................................
Changes in operating assets and liabilities, net:
Accounts receivable ..................................................................
Due from anti-CD20 therapeutic programs ..................................
Inventory..................................................................................
Other assets ............................................................................
Accrued expenses and other current liabilities ............................
Income tax assets and liabilities................................................
Other liabilities .........................................................................
Net cash flows provided by operating activities .........................
Cash flows from investing activities:
Proceeds from sales and maturities of marketable securities...............
Purchases of marketable securities ...................................................
Contingent consideration related to Fumapharm AG acquisition............
Acquisitions of businesses, net of cash acquired ................................
Purchases of property, plant and equipment .......................................
Acquisitions of intangible assets .......................................................
Other ...............................................................................................
Net cash flows used in investing activities................................
Cash flows from financing activities:
For the Years Ended December 31,
2016
2015
2014
3,695.7 $
3,593.2 $
2,941.6
682.7
154.8
(175.0)
91.2
(241.4)
13.9
(165.6)
59.1
570.1
(232.6)
69.5
4,522.4
7,378.9
(7,913.2)
(1,200.0)
—
(616.1)
(111.6)
(22.8)
(2,484.8)
600.4
161.4
(145.6)
82.2
29.0
(31.1)
(174.4)
(127.0)
74.2
(429.4)
83.2
3,716.1
4,063.0
(6,864.9)
(850.0)
(198.8)
(643.0)
(15.4)
(44.5)
(4,553.6)
688.1
155.3
(308.2)
(50.3)
(512.4)
(30.7)
(185.9)
(108.7)
244.3
40.3
68.7
2,942.1
2,718.9
(3,583.1)
(375.0)
—
(287.8)
(28.2)
12.2
(1,543.0)
Purchases of treasury stock ..............................................................
(1,000.0)
(5,000.0)
(886.8)
Proceeds from issuance of stock for share-based compensation
arrangements...................................................................................
Proceeds from borrowings .................................................................
Repayments of borrowings ................................................................
Excess tax benefit from share-based compensation ............................
Contingent consideration payments ...................................................
Other ...............................................................................................
Net cash flows provided by (used in) financing activities ............
Net increase in cash and cash equivalents ...........................................
Effect of exchange rate changes on cash and cash equivalents..............
Cash and cash equivalents, beginning of the year .................................
Cash and cash equivalents, end of the year.......................................... $
43.7
—
(2.7)
12.6
(38.6)
(2.8)
(987.8)
1,049.8
(31.3)
54.2
5,930.5
(2.1)
78.2
(13.1)
(61.3)
986.4
148.9
(45.8)
1,308.0
1,204.9
54.9
—
(2.7)
96.4
(20.5)
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1,308.0 $
1,204.9
See accompanying notes to these consolidated financial statements.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant Accounting Policies
Business Overview
Biogen is a global biopharmaceutical company focused on discovering, developing, manufacturing and delivering
therapies to people living with serious neurological, rare and autoimmune diseases.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, ZINBRYTA and FAMPYRA for multiple
sclerosis (MS), FUMADERM for the treatment of severe plaque psoriasis and SPINRAZA for the treatment of spinal
muscular atrophy (SMA). We also have certain business and financial rights with respect to RITUXAN for the
treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions, GAZYVA indicated
for the treatment of CLL and follicular lymphoma, and other potential anti-CD20 therapies under a collaboration
agreement with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group (Roche Group).
We support our drug discovery and development efforts through the commitment of significant resources to
discovery, research and development programs and business development opportunities, particularly within areas of
our scientific, manufacturing and technical capabilities. Our research is currently focused on additional improvements
in the treatment of MS, solving some of the most challenging and complex diseases, including Alzheimer's disease,
Parkinson's disease and amyotrophic lateral sclerosis (ALS), and employing innovative technologies to discover
potential treatments for rare and genetic disorders, including new ways of treating diseases through gene therapy.
Our innovative drug development and commercialization activities are complemented by our biosimilar therapies
that expand access to medicines and reduce the cost burden for healthcare systems. We are leveraging our
manufacturing capabilities and know-how to develop, manufacture and market biosimilars through Samsung Bioepis,
our joint venture with Samsung BioLogics Co. Ltd. (Samsung Biologics). Under this agreement, we are currently
manufacturing and commercializing BENEPALI, an etanercept biosimilar referencing ENBREL, and FLIXABI, an
infliximab biosimilar referencing REMICADE, in the European Union (E.U.).
Hemophilia Spin-Off
In May 2016 we announced our intention to spin off our hemophilia business, Bioverativ Inc. (Bioverativ), as an
independent, publicly traded company. Bioverativ, will focus on the discovery, development and commercialization of
therapies for treatment of hemophilia and other blood disorders, including ELOCTATE for the treatment of hemophilia
A and ALPROLIX for the treatment of hemophilia B. Bioverativ will also assume all of our rights and obligations under
our collaboration agreement with Swedish Orphan Biovitrum AB (Sobi) and our collaboration and license agreement
with Sangamo Biosciences Inc. (Sangamo).
On February 1, 2017, we completed the distribution of all the then outstanding shares of common stock of
Bioverativ to Biogen stockholders, who received one share of Bioverativ common stock for every two shares of
Biogen common stock. As a result of the distribution, Bioverativ is now an independent public company whose
shares of common stock are trading under the symbol "BIVV" on the Nasdaq Global Select Market.
The financial results of Bioverativ are reflected in our consolidated results of operations and financial position
included in these audited consolidated financial statements for the periods presented in this Form 10-K. The
financial results of Bioverativ will be excluded from our consolidated results of operations and financial position
commencing February 1, 2017. For additional information regarding the separation of Bioverativ, please read Note
26, Subsequent Events to these consolidated financial statements.
Consolidation
Our consolidated financial statements reflect our financial statements, those of our wholly-owned subsidiaries
and those of certain variable interest entities where we are the primary beneficiary. For consolidated entities where
we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to
noncontrolling interests in our consolidated statements of income equal to the percentage of the economic or
ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and
transactions are eliminated in consolidation.
In determining whether we are the primary beneficiary of an entity, we apply a qualitative approach that
determines whether we have both (1) the power to direct the economically significant activities of the entity and (2)
F- 9
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant
to that entity. These considerations impact the way we account for our existing collaborative relationships and other
arrangements. We continuously assess whether we are the primary beneficiary of a variable interest entity as
changes to existing relationships or future transactions may result in us consolidating or deconsolidating one or
more of our collaborators or partners.
Use of Estimates
The preparation of our consolidated financial statements requires us to make estimates, judgments and
assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related
disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates, judgments and
methodologies. We base our estimates on historical experience and on various other assumptions that we believe to
be reasonable, the results of which form the basis for making judgments about the carrying values of assets,
liabilities and equity and the amount of revenues and expenses. Actual results may differ from these estimates
under different assumptions or conditions.
Revenue Recognition
We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; our price to the customer is fixed or determinable; and
collectability is reasonably assured.
Product Revenues
Revenues from product sales are recognized when title and risk of loss have passed to the customer, which is
typically upon delivery.
Reserves for Discounts and Allowances
Revenues from product sales are recorded net of reserves established for applicable discounts and
allowances, including those associated with the implementation of pricing actions in certain of the international
markets in which we operate. These reserves are based on estimates of the amounts earned or to be claimed on
the related sales and 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). Our estimates take into consideration our
historical experience, current contractual and statutory requirements, specific known market events and trends,
industry data and forecasted customer buying and payment patterns. Actual amounts may ultimately differ from our
estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of
adjustment.
Product revenue reserves are categorized as follows: discounts, contractual adjustments and returns.
Discounts include trade term discounts and wholesaler incentives. Trade term discounts and wholesaler
incentives primarily relate to estimated obligations for credits to be granted to wholesalers for remitting payment on
their purchases within established incentive periods and credits to be granted to wholesalers for compliance with
various contractually-defined inventory management practices, respectively. We determine these reserves based on
our historical experience, including the timing of customer payments.
Contractual adjustments primarily relate to Medicaid and managed care rebates, co-payment (copay)
assistance, Veterans Administration (VA) and Public Health Service (PHS) discounts, specialty pharmacy program
fees and other governmental rebates or applicable allowances.
• Medicaid rebates relate to our estimated obligations to states under established reimbursement arrangements.
Rebate accruals are recorded in the same period the related revenue is recognized, resulting in a reduction of
product revenue and the establishment of a liability which is included in other current liabilities. Our liability for
Medicaid rebates consists of estimates for claims that a state will make for the current quarter, claims for prior
quarters that have been estimated for which an invoice has not been received, invoices received for claims from
the prior quarters that have not been paid, and an estimate of potential claims that will be made for inventory
that exists in the distribution channel at period end.
• Governmental rebates or chargebacks, including VA and PHS discounts, represent our estimated obligations
resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than
the list prices we charge to wholesalers which provide those products. The wholesaler charges us for the
F- 10
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
difference between what the wholesaler pays for the products and the ultimate selling price to the qualified
healthcare providers. Rebate and chargeback reserves are established in the same period as the related
revenue is recognized, resulting in a reduction in product revenue and accounts receivable. Chargeback
amounts are generally determined at the time of resale to the qualified healthcare provider from the wholesaler,
and we generally issue credits for such amounts within a few weeks of the wholesaler notifying us about the
resale. Our reserves for VA, PHS and chargebacks consist of amounts that we expect to issue for inventory that
exists at the wholesalers that we expect will be sold to qualified healthcare providers and chargebacks that
wholesalers have claimed for which we have not issued a credit.
• Managed care rebates represent our estimated obligations to third parties, primarily pharmacy benefit
managers. Rebate accruals are recorded in the same period the related revenue is recognized, resulting in a
reduction of product revenue and the establishment of a liability which is included in accrued expenses and
other current liabilities. These rebates result from performance-based goals, formulary position and price
increase limit allowances (price protection). The calculation of the accrual for these rebates is based on an
estimate of the customer’s buying patterns and the resulting applicable contractual rebate rate(s) to be earned
over a contractual period.
• Copay assistance represents financial assistance to qualified patients, assisting them with prescription drug co-
payments required by insurance. The calculation of the accrual for copay is based on an estimate of claims and
the cost per claim that we expect to receive associated with inventory that exists in the distribution channel at
period end.
• Other governmental rebates or applicable allowances primarily relate to mandatory rebates and discounts in
international markets where government-sponsored healthcare systems are the primary payors for healthcare.
Product returns are established for returns expected to be made by wholesalers and are recorded in the period
the related revenue is recognized, resulting in a reduction to product sales. In accordance with contractual terms,
wholesalers are permitted to return product for reasons such as damaged or expired product. The majority of
wholesaler returns are due to product expiration. Expired product return reserves are estimated through a
comparison of historical return data to their related sales on a production lot basis. Historical rates of return are
determined for each product and are adjusted for known or expected changes in the marketplace specific to each
product.
In addition to the discounts, rebates and product returns described above and classified as a reduction of
revenue, we also maintain certain customer service contracts with distributors and other customers in the
distribution channel that provide us with inventory management, data and distribution services, which are generally
reflected as a reduction of revenue. To the extent we can demonstrate a separable benefit and fair value for these
services, we classify these payments in selling, general and administrative expenses.
Revenues from Anti-CD20 Therapeutic Programs
Revenues from anti-CD20 therapeutic programs consist of:
(i) our share of pre-tax profits and losses in the U.S. for RITUXAN and GAZYVA;
(ii) reimbursement of our selling and development expenses in the U.S. for RITUXAN; and
(iii) revenues on sales in the rest of world for RITUXAN, which consist of our share of pre-tax co-promotion
profits on RITUXAN in Canada and royalty revenue on RITUXAN sales outside the U.S. and Canada by the
Roche Group and its sublicensees.
Pre-tax co-promotion profits on RITUXAN and GAZYVA are calculated and paid to us by Genentech in the U.S.
Pre-tax co-promotion profits on RITUXAN are calculated and paid to us by the Roche Group in Canada. Pre-tax co-
promotion profits consist of U.S. and Canadian net sales to third-party customers less applicable costs to
manufacture, third-party royalty expenses, distribution, selling and marketing expenses, and joint development
expenses incurred by Genentech, the Roche Group and us. We record our share of the pre-tax co-promotion profits on
RITUXAN in Canada and royalty revenues on RITUXAN sales outside the U.S. on a cash basis as we do not have the
ability to estimate these profits or royalty revenue in the period incurred. Our share of the pre-tax profits on RITUXAN
and GAZYVA in the U.S. includes estimates made by Genentech and those estimates are subject to change. Actual
results may differ from our estimates. For additional information related to our collaboration with Genentech, please
read Note 19, Collaborative and Other Relationships to these consolidated financial statements.
F- 11
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Royalty Revenues
We receive royalty revenues on sales by our licensees of other products covered under patents that we own. We
do not have future performance obligations under these license arrangements. We record these revenues based on
estimates of the sales that occurred during the relevant period as a component of other revenues. The relevant
period estimates of sales are based on interim data provided by licensees and analysis of historical royalties that
have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. Differences between
actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the
following quarter. Historically, adjustments have not been material when compared to actual amounts paid by
licensees. If we are unable to reasonably estimate royalty revenue or do not have access to the information, then we
record royalty revenues on a cash basis.
Multiple-Element Revenue Arrangements
We may enter into transactions that involve the sale of products and related services under multiple element
arrangements. In accounting for these transactions, we assess the elements of the contract and whether each
element has standalone value and allocate revenue to the various elements based on their estimated selling price
as a component of total revenues. The selling price of a revenue generating element can be based on current selling
prices offered by us or another party for current products or management’s best estimate of a selling price. Revenue
allocated to an individual element is recognized when all other revenue recognition criteria are met for that element.
Collaborative and Other Relationships
Our development and commercialization arrangements with Sobi and AbbVie Inc. (AbbVie) represent
collaborative arrangements as each party is an active participant and exposed to significant risks and rewards of the
arrangements. Where we are the principal on sales transactions with third parties, we recognize revenue, cost of
sales and operating expenses on a gross basis in their respective lines in our consolidated statements of income.
Where we are not the principal on sales transactions with third parties, we record our share of the revenues, cost of
sales and operating expenses on a net basis in collaborative and other relationships included in other revenue in our
consolidated statements of income.
For additional information related to our collaborations with Sobi and AbbVie, please read Note 19, Collaborative
and Other Relationships, to these consolidated financial statements.
Fair Value Measurements
We have certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2
or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.
• Level 1 — Fair values are determined utilizing quoted prices (unadjusted) in active markets for identical assets
or liabilities that we have the ability to access;
• Level 2 — Fair values are determined by utilizing quoted prices for identical or similar assets and liabilities in
active markets or other market observable inputs such as interest rates, yield curves and foreign currency spot
rates; and
• Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and
unobservable.
The majority of our financial assets have been classified as Level 2. Our financial assets (which include our
cash equivalents, derivative contracts, marketable debt securities and plan assets for deferred compensation) have
been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing
third-party pricing services or other market observable data. The pricing services utilize industry standard valuation
models, including both income and market-based approaches and observable market inputs to determine value.
These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes,
bids, offers, current spot rates and other industry and economic events.
We validate the prices provided by our third-party pricing services by reviewing their pricing methods and
matrices, obtaining market values from other pricing sources and analyzing pricing data in certain instances. After
completing our validation procedures, we did not adjust or override any fair value measurements provided by our
pricing services as of December 31, 2016 and 2015, respectively.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Assets and Liabilities
The carrying amounts reflected in the consolidated balance sheets for current accounts receivable, due from
anti-CD20 therapeutic programs, other current assets, accounts payable and accrued expenses and other,
approximate fair value due to their short-term maturities.
Cash and Cash Equivalents
We consider only those investments which are highly liquid, readily convertible to cash and that mature within
three months from date of purchase to be cash equivalents. As of December 31, 2016 and 2015, cash equivalents
were comprised of money market funds and commercial paper, overnight reverse repurchase agreements and other
debt securities with maturities less than 90 days from the date of purchase.
Accounts Receivable
The majority of our accounts receivable arise from product sales and primarily represent amounts due from our
wholesale distributors, public hospitals and other government entities. We monitor the financial performance and
creditworthiness of our customers so that we can properly assess and respond to changes in their credit profile. We
provide reserves against trade receivables for estimated losses that may result from a customer’s inability to pay.
Amounts determined to be uncollectible are charged or written-off against the reserve. To date, our historical
reserves and write-offs of accounts receivable have not been significant.
In countries where we have experienced a pattern of payments extending beyond our contractual payment term
and we expect to collect receivables greater than one year from the time of sale, we have discounted our receivables
and reduced related revenues over the period of time that we estimate those amounts will be paid using the
country’s market-based borrowing rate for such period. The related receivables are classified at the time of sale as
non-current assets. We accrete interest income on these receivables, which is recognized as a component of other
income (expense), net in our consolidated statements of income.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk include cash and cash
equivalents, investments, derivatives and accounts receivable. We attempt to minimize the risks related to cash and
cash equivalents and investments by investing in a broad and diverse range of financial instruments as previously
defined by us. We have established guidelines related to credit ratings and maturities intended to safeguard principal
balances and maintain liquidity. Our investment portfolio is maintained in accordance with our investment policy,
which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single
issuer. We minimize credit risk resulting from derivative instruments by choosing only highly rated financial
institutions as counterparties.
Concentrations of credit risk with respect to receivables, which are typically unsecured, are somewhat mitigated
due to the wide variety of customers and markets using our products, as well as their dispersion across many
different geographic areas. The majority of our accounts receivable arise from product sales in the U.S. and Europe
and have standard payment terms which generally require payment within 30 to 90 days. We monitor the financial
performance and creditworthiness of our customers so that we can properly assess and respond to changes in their
credit profile. We continue to monitor these conditions and assess their possible impact on our business.
As of December 31, 2016 and 2015, two wholesale distributors individually accounted for approximately 37.2%
and 19.2%, and 35.4% and 23.1%, of accounts receivable, net, 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 (loss) in equity, net of related tax effects, unless the security has
experienced a credit loss, we have determined that we have the intent to sell the security or we have determined that
it is more likely than not that we will have to sell the security before its expected recovery. Realized gains and losses
are reported in other income (expense), net, on a specific identification basis.
F- 13
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Marketable Equity Securities
Our marketable equity securities represent investments in publicly traded equity securities and are included in
investments and other assets in our consolidated balance sheet. When assessing whether a decline in the fair value
of a marketable equity security is other-than-temporary, we consider the fair market value of the security, the duration
of the security’s decline and prospects for the underlying business, including favorable or adverse clinical trial
results, new product initiatives and new collaborative agreements with the companies in which we have invested.
Non-Marketable Equity Securities
We also invest in equity securities of companies whose securities are not publicly traded and where fair value
is not readily available. These investments are recorded using either the cost method or the equity method of
accounting, depending on our ownership percentage and other factors that suggest we have significant influence. We
monitor these investments to evaluate whether any decline in their value has occurred that would be other-than-
temporary, based on the implied value of recent company financings, public market prices of comparable companies
and general market conditions and are included in investments and other assets in our consolidated balance sheet.
Evaluating Investments for Other-than-Temporary Impairments
We conduct periodic reviews to identify and evaluate each investment that has an unrealized loss, in
accordance with the meaning of other-than-temporary impairment and its application to certain investments. An
unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis.
Unrealized losses on available-for-sale securities that are determined to be temporary, and not related to credit loss,
are recorded, net of tax, in accumulated other comprehensive income.
For available-for-sale debt securities with unrealized losses, management performs an analysis to assess
whether we intend to sell or whether we would more likely than not be required to sell the security before the
expected recovery of the amortized cost basis. Where we intend to sell a security, or may be required to do so, the
security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is
reflected in 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 value is other-than-temporary, we consider the fair
market value of the security, the duration of the security’s decline, and the financial condition of the issuer. We then
consider our intent and ability to hold the equity security for a period of time sufficient to recover our carrying value.
Where we have determined that we lack the intent and ability to hold an equity security to its expected recovery, the
security’s decline in fair value is deemed to be other-than-temporary and is reflected in earnings as an impairment
loss.
Equity Method of Accounting
In circumstances where we have the ability to exercise significant influence over the operating and financial
policies of a company in which we have an investment, we utilize the equity method of accounting for recording
investment activity. In assessing whether we exercise significant influence, we consider the nature and magnitude of
our investment, the voting and protective rights we hold, any participation in the governance of the other company,
and other relevant factors such as the presence of a collaboration or other business relationship. Under the equity
method of accounting, we record in our results of operations our share of income or loss of the other company. If our
share of losses exceeds the carrying value of our investment, we will suspend recognizing additional losses and will
continue to do so unless we commit to providing additional funding.
Inventory
Inventories are stated at the lower of cost or market with cost based on the first-in, first-out (FIFO) method. We
classify our inventory costs as long-term when we expect to utilize the inventory beyond our normal operating cycle
and include these costs in investments and other assets in our consolidated balance sheets. Inventory that can be
used in either the production of clinical or commercial products is expensed as research and development costs
when identified for use in a clinical manufacturing campaign.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Capitalization of Inventory Costs
We capitalize inventory costs associated with our products prior to regulatory approval, when, based on
management’s judgment, future commercialization is considered probable and the future economic benefit is
expected to be realized. We consider numerous attributes in evaluating whether the costs to manufacture a
particular product should be capitalized as an asset. We assess the regulatory approval process and where the
particular product stands in relation to that approval process, including any known safety or efficacy concerns,
potential labeling restrictions and other impediments to approval. We evaluate our anticipated research and
development initiatives and constraints relating to the product and the indication in which it will be used. We
consider our manufacturing environment including our supply chain in determining logistical constraints that could
hamper approval or commercialization. We consider the shelf life of the product in relation to the expected timeline
for approval and we consider patent related or contract issues that may prevent or delay commercialization. We also
base our judgment on the viability of commercialization, trends in the marketplace and market acceptance criteria.
Finally, we consider the reimbursement strategies that may prevail with respect to the product and assess the
economic benefit that we are likely to realize. We expense previously capitalized costs related to pre-approval
inventory upon a change in such judgment, due to, among other potential factors, a denial or significant delay of
approval by necessary regulatory bodies.
Obsolescence and Unmarketable Inventory
We periodically review our inventories for excess or obsolescence and write-down obsolete or otherwise
unmarketable inventory to its estimated net realizable value. If the actual net realizable value is less than that
estimated by us, or if it is determined that inventory utilization will further diminish based on estimates of demand,
additional inventory write-downs may be required. Additionally, our products are subject to strict quality control and
monitoring which we perform throughout the manufacturing process. In the event that certain batches or units of
product no longer meet quality specifications, we will record a charge to cost of sales to write-down any
unmarketable inventory to its estimated net realizable value. In all cases, product inventory is carried at the lower of
cost or its estimated net realizable value. Amounts written-down due to unmarketable inventory are charged to cost
of sales.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, subject to review for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be recoverable. The cost of normal,
recurring, or periodic repairs and maintenance activities related to property, plant and equipment are expensed as
incurred. The cost for planned major maintenance activities, including the related acquisition or construction of
assets, is capitalized if the repair will result in future economic benefits.
Interest costs incurred during the construction of major capital projects are capitalized until the underlying
asset is ready for its intended use, at which point the interest costs are amortized as depreciation expense over the
life of the underlying asset. We also capitalize certain direct and incremental costs associated with the validation
effort required for licensing by regulatory agencies of new manufacturing equipment for the production of a
commercially approved drug. These costs primarily include direct labor and material and are incurred in preparing the
equipment for its intended use. The validation costs are either amortized over the life of the related equipment or
expensed as cost of sales when the product produced in the validation process is sold.
In addition, we capitalize certain internal use computer software development costs. If the software is an
integral part of production assets, these costs are included in machinery and equipment and are amortized on a
straight-line basis over the estimated useful lives of the related software, which generally range from three to five
years.
F- 15
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 Categoryg y
Land
Buildings
Leasehold Improvements
Furniture and Fixtures
Machinery and Equipment
Computer Software and Hardware
Useful Lives
Not depreciated
15 to 40 years
Lesser of the useful life or the term of the respective lease
5 to 7 years
5 to 20 years
3 to 5 years
When we dispose of property, plant and equipment, we remove the associated cost and accumulated
depreciation from the related accounts on our consolidated balance sheet and include any resulting gain or loss in
our consolidated statement of income.
Intangible Assets
Our intangible assets consist of acquired and in-licensed rights and patents, developed technology, out-licensed
patents, in-process research and development acquired after January 1, 2009, trademarks and trade names. Our
intangible assets are recorded at fair value at the time of their acquisition and are stated in our consolidated
balance sheets net of accumulated amortization and impairments, if applicable.
Intangible assets related to acquired and in-licensed rights and patents, developed technology and out-licensed
patents are amortized over their estimated useful lives using the economic consumption method if anticipated future
revenues can be reasonably estimated. The straight-line method is used when revenues cannot be reasonably
estimated. Amortization is recorded as amortization of acquired intangible assets in our consolidated statements of
income.
Acquired and in-licensed rights and patents primarily relate to our acquisition of all remaining rights to TYSABRI
from Elan Pharma International, Ltd (Elan), an affiliate of Elan Corporation, plc. Developed technology primarily
relates to our AVONEX product, which was recorded in connection with the merger of Biogen, Inc. and IDEC
Pharmaceuticals Corporation in 2003. We amortize the intangible assets related to TYSABRI and AVONEX using the
economic consumption method based on revenue generated from the products underlying the related intangible
assets. An analysis of the anticipated lifetime revenues of TYSABRI and AVONEX is performed annually during our
long range planning cycle, which is generally updated in the third quarter of each year, and whenever events or
changes in circumstances would significantly affect the anticipated lifetime revenues of TYSABRI or AVONEX.
Intangible assets related to trademarks, trade names and in-process research and development prior to
commercialization are not amortized because they have indefinite lives; however, they are subject to review for
impairment. We review our intangible assets with indefinite lives for impairment annually, as of October 31, and
whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
Acquired In-process Research and Development (IPR&D)
Acquired IPR&D represents the fair value assigned to research and development assets that have not reached
technological feasibility. The value assigned to acquired IPR&D is determined by estimating the costs to develop the
acquired technology into commercially viable products, estimating the resulting revenue from the projects and
discounting the net cash flows to present value. The revenue and costs projections used to value acquired IPR&D
are, as applicable, reduced based on the probability of success of developing a new drug. Additionally, the
projections consider the relevant market sizes and growth factors, expected trends in technology and the nature and
expected timing of new product introductions by us and our competitors. The rates utilized to discount the net cash
flows to their present value are commensurate with the stage of development of the projects and uncertainties in the
economic estimates used in the projections. Upon the acquisition of IPR&D, we complete an assessment of whether
our acquisition constitutes the purchase of a single asset or a group of assets. We consider multiple factors in this
assessment, including the nature of the technology acquired, the presence or absence of separate cash flows, the
development process and stage of completion, quantitative significance and our rationale for entering into the
transaction.
F- 16
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
If we acquire a business as defined under applicable accounting standards, then the acquired IPR&D is
capitalized as an intangible asset. If we acquire an asset or group of assets that do not meet the definition of a
business, then the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are
recorded to research and development expense as they are incurred.
When performing our impairment assessment, we calculate the fair value using the same methodology as
described above. If the carrying value of our acquired IPR&D exceeds its fair value, then the intangible asset is
written-down to its fair value. Certain IPR&D programs have a fair value that is not significantly in excess of carrying
value, including our program for the treatment of trigeminal neuralgia (TGN). Such programs could become impaired if
assumptions used in determining the fair value change.
Goodwill
Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible
and intangible net assets when accounted for using the purchase method of accounting. Goodwill is not amortized,
but reviewed for impairment. Goodwill is reviewed annually, as of October 31, and whenever events or changes in
circumstances indicate that the carrying value of the goodwill might not be recoverable.
We compare the fair value of our reporting unit to its carrying value. If the carrying value of the net assets
assigned to the reporting unit exceeds the fair value of our reporting unit, then we would need to determine the
implied fair value of our reporting unit’s goodwill. If the carrying value of our reporting unit’s goodwill exceeds its
implied fair value, then we would record an impairment loss equal to the difference. As described in Note 24,
Segment Information to these consolidated financial statements, we operate in one operating segment which we
consider our only reporting unit.
Impairment of Long-Lived Assets
Long-lived assets to be held and used, including property, plant and equipment and definite-lived intangible
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of the assets or asset group may not be recoverable.
Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the
use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to
recover the carrying amount of the assets, the assets are written-down to their fair values. Long-lived assets to be
disposed of are carried at fair value less costs to sell.
Contingent Consideration
The consideration for our acquisitions often includes future payments that are contingent upon the occurrence
of a particular event. For acquisitions completed before January 1, 2009, we record contingent consideration
resulting from a business combination when the contingency is resolved. For acquisitions that qualify as business
combinations completed after January 1, 2009, we record an obligation for such contingent payments at fair value on
the acquisition date. We estimate the fair value of contingent consideration obligations through valuation models
that incorporate probability-adjusted assumptions related to the achievement of the milestones and thus likelihood
of making related payments. We revalue these contingent consideration obligations each reporting period. Changes
in the fair value of our contingent consideration obligations are recognized in our consolidated statements of income.
Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple
inputs, including adjustments to the discount rates, changes in the amount or timing of expected expenditures
associated with product development, changes in the amount or timing of cash flows and reserves associated with
products upon commercialization, changes in the assumed achievement or timing of any cumulative sales-based and
development milestones, changes in the probability of certain clinical events and changes in the assumed probability
associated with regulatory approval.
F- 17
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Discount rates in our valuation models represent a measure of the credit risk associated with settling the
liability. The period over which we discount our contingent obligations is based on the current development stage of
the product candidates, our specific development plan for that product candidate adjusted for the probability of
completing the development step, and when the contingent payments would be triggered. In estimating the
probability of success, we utilize data regarding similar milestone events from several sources, including industry
studies and our own experience. These fair value measurements are based on significant inputs not observable in
the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the
acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact
on the amount of contingent consideration expense we record in any given period.
Derivative Instruments and Hedging Activities
We recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance
sheets. Changes in the fair value of derivatives are recorded each period in current earnings or accumulated other
comprehensive income (loss), depending on whether a derivative is designated as part of a hedge transaction and, if
so, the type of hedge transaction. We classify the cash flows from these instruments in the same category as the
cash flows from the hedged items. We do not hold or issue derivative instruments for trading or speculative
purposes.
We assess, both at inception and on an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting the changes in cash flows or fair values of the hedged items. We also
assess hedge ineffectiveness on a quarterly basis and record the gain or loss related to the ineffective portion to
current earnings. If we determine that a forecasted transaction is no longer probable of occurring, we discontinue
hedge accounting for the affected portion of the hedge instrument, and any related unrealized gain or loss on the
contract is recognized in current earnings.
Translation of Foreign Currencies
The functional currency for most of our foreign subsidiaries is their local currency. For our non-U.S. subsidiaries
that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates
of exchange at the balance sheet date. Income and expense items are translated at the average foreign exchange
rates for the period. Adjustments resulting from the translation of the financial statements of our foreign operations
into U.S. dollars are excluded from the determination of net income and are recorded in accumulated other
comprehensive income, a separate component of equity. For subsidiaries where the functional currency of the assets
and liabilities differ from the local currency, non-monetary assets and liabilities are translated at the rate of exchange
in effect on the date assets were acquired while monetary assets and liabilities are translated at current rates of
exchange as of the balance sheet date. Income and expense items are translated at the average foreign currency
rates for the period. Translation adjustments of these subsidiaries are included in other income (expense), net, in our
consolidated statements of income.
Royalty Cost of Sales
We make royalty payments to a number of third parties under license or purchase agreements associated with
our acquisition of intellectual property. These royalty payments are typically calculated as a percentage (royalty rate)
of the sales of our products in a particular year. That royalty rate may remain constant, increase or decrease within
each year based on the total amount of sales during the annual period. Each quarterly period, we estimate our total
royalty obligation for the full year and recognize the proportional amount as cost of sales based on actual quarterly
sales as a percentage of full year estimated sales. For example, if the level of net sales in any calendar year
increases the royalty rate within the year, we will record our cost of sales at an even rate over the year, based on the
estimated blended royalty rate.
Accounting for Share-Based Compensation
Our share-based compensation programs grant awards that have included stock options, restricted stock units
which vest based on stock performance known as market stock units (MSUs), performance-vested restricted stock
units which settle in cash (CSPUs), time-vested restricted stock units (RSUs), performance-vested restricted stock
units which can be settled in cash or shares of our common stock (PUs) at the sole discretion of the Compensation
and Management Development Committee of the Board of Directors and shares issued under our employee stock
purchase plan (ESPP). We charge the estimated fair value of awards against income over the requisite service period,
which is generally the vesting period. Where awards are made with non-substantive vesting periods (for instance,
F- 18
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
where a portion of the award vests upon retirement eligibility), we estimate and recognize expense based on the
period from the grant date to the date on which the employee is retirement eligible.
The fair values of our stock option grants are estimated as of the date of grant using a Black-Scholes option
valuation model. The estimated fair values of the stock options are then expensed over the options’ vesting periods.
The fair values of our MSUs are estimated using a lattice model with a Monte Carlo simulation. We apply an
accelerated attribution method to recognize share-based compensation expense over the applicable service period,
net of estimated forfeitures, when accounting for our MSUs. The probability of actual shares expected to be earned
is considered in the grant date valuation, therefore the expense is not adjusted to reflect the actual units earned.
The fair values of our RSUs are based on the market value of our stock on the date of grant. Compensation
expense for RSUs is recognized straight-line over the applicable service period.
We apply an accelerated attribution method to recognize share-based compensation expense when accounting
for our CSPUs and PUs and the fair value of the liability is remeasured at the end of each reporting period through
expected settlement. Compensation expense associated with CSPUs and PUs are based upon the stock price and
the number of units expected to be earned after assessing the probability that certain performance criteria will be
met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures.
Cumulative adjustments are recorded each quarter to reflect changes in the stock price and estimated outcome of
the performance-related conditions until the date results are determined and settled.
The purchase price of common stock under our ESPP is equal to 85% of the lesser of (i) the fair market value
per share of the common stock on the first business day of an offering period and (ii) the fair market value per share
of the common stock on the purchase date. The fair value of the discounted purchases made under our ESPP is
calculated using the Black-Scholes model. The fair value of the look-back provision plus the 15% discount is
recognized as compensation expense over the 90 day purchase period.
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, which include compensation and benefits,
facilities and overhead expenses, clinical trial expenses and fees paid to contract research organizations (CROs),
clinical supply and manufacturing expenses, write-offs of inventory that was previously capitalized in anticipation of
product launch and determined to no longer be realizable, and other outside expenses. Research and development
expenses are expensed as incurred. Payments we make for research and development services prior to the services
being rendered are recorded as prepaid assets on our consolidated balance sheets and are expensed as the
services are provided. We also accrue the costs of ongoing clinical trials associated with programs that have been
terminated or discontinued for which there is no future economic benefit at the time the decision is made to
terminate or discontinue the program.
From time to time, we enter into development agreements in which we share expenses with a collaborative
partner. We record payments received from our collaborative partners for their share of the development costs as a
reduction of research and development expense, except as discussed in Note 19, Collaborative and Other
Relationships to these consolidated financial statements. Because an initial indication has been approved for both
RITUXAN and GAZYVA, expenses incurred by Genentech in the ongoing development of RITUXAN and GAZYVA are not
recorded as research and development expense, but rather reduce our share of profits recorded as a component of
revenues from anti-CD20 therapeutic programs.
For collaborations with commercialized products, if we are the principal, we record revenue and the
corresponding operating costs in their respective line items in our consolidated statements of income. If we are not
the principal, we record operating costs as a reduction of revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses are primarily comprised of compensation and benefits associated
with sales and marketing, finance, human resources, legal, information technology and other administrative
personnel, outside marketing, advertising and legal expenses and other general and administrative costs.
Advertising costs are expensed as incurred. For the years ended December 31, 2016, 2015 and 2014,
advertising costs totaled $106.3 million, $108.6 million and $92.9 million, respectively.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income Taxes
The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for
under the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax
consequences of temporary differences between the financial statement carrying amounts and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the year in which the temporary differences are expected to be recovered or settled. We evaluate the realizability
of our deferred tax assets and establish a valuation allowance when it is more likely than not that all or a portion of
deferred tax assets will not be realized.
All tax effects associated with intercompany transfers of assets in our consolidated group, both current and
deferred, are recorded as a prepaid tax or deferred charge and recognized through the consolidated statement of
income when the asset transferred is sold to a third party or otherwise recovered through amortization of the asset's
remaining economic life. If the asset transferred becomes impaired, for example through the discontinuation of a
research program, we will expense any remaining deferred charge or prepaid tax.
We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving
uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis and consider various factors
including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in
tax returns, the effective settlement of matters subject to audit, information obtained during in process audit
activities and changes in facts or circumstances related to a tax position. We also accrue for potential interest and
penalties related to unrecognized tax benefits in income tax expense.
Contingencies
We are currently involved in various claims and legal proceedings. Loss contingency provisions are recorded if
the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the
amount can be reasonably estimated or a range of loss can be determined. These accruals represent management’s
best estimate of probable loss. Disclosure also is provided when it is reasonably possible that a loss will be incurred
or when it is reasonably possible that the amount of a loss will exceed the recorded provision. On a quarterly basis,
we review the status of each significant matter and assess its potential financial exposure. Significant judgment is
required in both the determination of probability and the determination as to whether an exposure is reasonably
estimable. Because of uncertainties related to these matters, accruals are based only on the best information
available at the time. As additional information becomes available, we reassess the potential liability related to
pending claims and litigation and may change our estimates. These changes in the estimates of the potential
liabilities could have a material impact on our consolidated results of operations and financial position.
Earnings per Share
Basic earnings per share is computed by dividing undistributed net income attributable to Biogen Inc. by the
weighted-average number of common shares outstanding during the period.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board
(FASB) or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed,
we do not believe that the impact of recently issued standards that are not yet effective will have a material impact
on our financial position or results of operations upon adoption.
In May 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with
Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-
specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to
customers in an amount that reflects the consideration that the company expects to receive for those goods or
services. The FASB has subsequently issued the following amendments to ASU 2014-09 which have the same
effective date and transition date of January 1, 2018:
•
In August 2015 the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to
January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original
effective date.
F- 20
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
•
•
•
•
In March 2016 the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent
considerations.
In April 2016 the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing, which clarifies certain aspects of identifying performance
obligations and licensing implementation guidance.
In May 2016 the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-
Scope Improvements and Practical Expedients related to disclosures of remaining performance obligations, as
well as other amendments to guidance on collectability, non-cash consideration and the presentation of sales
and other similar taxes collected from customers.
In December 2016 the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606,
Revenue from Contracts with Customers, which amends certain narrow aspects of the guidance issued in ASU
2014-09 including guidance related to the disclosure of remaining performance obligations and prior-period
performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs,
refund liabilities, advertising costs and the clarification of certain examples.
We are currently evaluating the method of adoption and the potential impact that Topic 606 may have on our
financial position and results of operations.
In April 2015 the FASB issued ASU No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software
(Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. Under this standard, if a
cloud computing arrangement includes a software license, the software license element of the arrangement should
be accounted for consistent with the acquisition of other software licenses. If a cloud computing arrangement does
not include a software license, the arrangement should be accounted for as a service contract. We adopted this
standard as of January 1, 2016, which did not have an impact on our financial position or results of operations.
In July 2015 the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of
Inventory. The new standard applies only to inventory for which cost is determined by methods other than last-in,
first-out and the retail inventory method, which includes inventory that is measured using first-in, first-out or average
cost. Inventory within the scope of this standard is required to be measured at the lower of cost and net realizable
value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal and transportation. We adopted this standard as of January 1, 2016, which
did not have an impact on our financial position or results of operations.
In September 2015 the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the
Accounting for Measurement-Period Adjustments. The new standard requires that an acquirer recognize adjustments
to provisional amounts that are identified during the measurement period in the reporting period in which the
adjustment amounts are determined and sets forth new disclosure requirements related to the adjustments. We
adopted this standard as of January 1, 2016, which did not have an impact on our financial position or results of
operations.
In January 2016 the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities. This new standard amends certain
aspects of accounting and disclosure requirements of financial instruments, including the requirement that equity
investments with readily determinable fair values be measured at fair value with changes in fair value recognized in
our results of operations. This new standard does not apply to investments accounted for under the equity method of
accounting or those that result in consolidation of the investee. Equity investments that do not have readily
determinable fair values may be measured at fair value or at cost minus impairment adjusted for changes in
observable prices. A financial liability that is measured at fair value in accordance with the fair value option is
required to be presented separately in other comprehensive income for the portion of the total change in the fair
value resulting from change in the instrument-specific credit risk. In addition, a valuation allowance should be
evaluated on deferred tax assets related to available-for-sale debt securities in combination with other deferred tax
assets. This new standard will be effective for us on January 1, 2018. The adoption of this standard is not expected
to have a material impact on our financial position or results of operations.
F- 21
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In February 2016 the FASB issued ASU No. 2016-02, Leases (Topic 842). This new standard requires that all
lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and
quantitative information about its leasing arrangements. This new standard will be effective for us on January 1,
2019. The adoption of this standard is not expected to have a material impact on our net financial position, but will
impact the amount of our assets and liabilities. We are currently evaluating the potential impact that this standard
may have on our results of operations.
In March 2016 the FASB issued ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and
Call Options in Debt Instruments. This new standard simplifies the embedded derivative analysis for debt
instruments containing contingent call or put options by removing the requirement to assess whether a contingent
event is related to interest rates or credit risks. This new standard will be effective for us on January 1, 2017. The
adoption of this standard is not expected to have an impact on our financial position or results of operations.
In March 2016 the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323):
Simplifying the Transition to the Equity Method of Accounting. This new standard eliminates the requirement that
when an investment qualifies for use of the equity method as a result of an increase in the level of ownership
interest or degree of influence, an adjustment must be made to the investment, results of operations and retained
earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods
that the investment has been held. This new standard will be effective for us on January 1, 2017. The adoption of
this standard is not expected to have a material impact on our financial position or results of operations.
In March 2016 the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting. This new standard requires recognition of the income
tax effects of vested or settled awards in the income statement and involves several other aspects of the accounting
for share-based payment transactions, including the income tax consequences, classification of awards as either
equity or liabilities and classification on the statement of cash flows. This new standard will be effective for us on
January 1, 2017. The adoption of this standard is not expected to have a material impact on our financial position,
results of operations or statements of cash flows upon adoption.
In June 2016 the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments. This new standard changes the impairment model for most
financial assets and certain other instruments. Under the new standard, entities holding financial assets and net
investment in leases that are not accounted for at fair value through net income to be presented at the net amount
expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the
amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected
on the financial asset. This new standard will be effective for us on January 1, 2020. The adoption of this standard
is not expected to have a material impact on our financial position or results of operations.
In August 2016 the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments. This new standard clarifies certain aspects of the statement of cash
flows, including the classification of debt prepayment or debt extinguishment costs or other debt instruments with
coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent
consideration payments made after a business combination, proceeds from the settlement of insurance claims,
proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method
investees and beneficial interests in securitization transactions. This new standard also clarifies that an entity
should determine each separately identifiable source of use within the cash receipts and payments on the basis of
the nature of the underlying cash flows. In situations in which cash receipts and payments have aspects of more
than one class of cash flows and cannot be separated by source or use, the appropriate classification should
depend on the activity that is likely to be the predominant source or use of cash flows for the item. This new
standard will be effective for us on January 1, 2018. The adoption of this standard is not expected to have a
material impact on our statements of cash flows upon adoption.
In October 2016 the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets
Other Than Inventory. This new standard eliminates the exception for an intra-entity transfer of an asset other than
inventory. Under the new standard, entities should recognize the income tax consequences on an intra-entity transfer
of an asset other than inventory when the transfer occurs. This new standard will be effective for us on January 1,
2018 and will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to
retained earnings as of the beginning of the period of adoption. We are currently evaluating the potential impact this
standard may have on our financial position and results of operations.
F- 22
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In January 2017 the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the
Definition of a Business. This new standard clarifies the definition of a business and provides a screen to determine
when an integrated set of assets and activities is not a business. The screen requires that when substantially all of
the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group
of similar identifiable assets, the set is not a business. This new standard will be effective for us on January 1,
2018. However, we have adopted this standard as of January 1, 2017, with prospective application to any business
development transaction.
2. Acquisitions
Convergence Pharmaceuticals
On February 12, 2015, we completed our acquisition of all of the outstanding stock of Convergence
Pharmaceuticals (Convergence), a clinical-stage biopharmaceutical company with a focus on developing product
candidates for neuropathic pain. Convergence’s lead candidate was a Phase 2 clinical candidate BIIB074
(CNV1014802), which had demonstrated clinical activity in proof-of-concept studies for TGN. Additionally, BIIB074
had potential applicability in several other neuropathic pain states, including lumbosacral radiculopathy and
erythromelalgia.
The purchase price consisted of a $200.1 million cash payment at closing, plus contingent consideration in the
form of development and approval milestones up to a maximum of $450.0 million, of which $350.0 million was
associated with the development and approval of BIIB074 for the treatment of TGN. The acquisition was funded from
our existing cash on hand and was accounted for as the acquisition of a business. In addition to obtaining the rights
to BIIB074 and additional product candidates in preclinical development, we retained the services of key employees
of Convergence.
In connection with our acquisition of Convergence, we recorded a liability of $274.5 million representing the fair
value of the contingent consideration. This amount was estimated through a valuation model that incorporated
industry-based probability adjusted assumptions relating to the achievement of these milestones and thus the
likelihood of making the contingent payments. This fair value measurement was based upon significant inputs not
observable in the market and therefore represented a Level 3 measurement.
The purchase price, as adjusted, consisted of the following:
(In millions)
Cash portion of consideration ...................................................................................................... $
Contingent consideration .............................................................................................................
Total purchase price.................................................................................................................. $
200.1
274.5
474.6
During the second quarter of 2015 we adjusted our preliminary estimate of the fair value of the assets acquired
and contingent consideration as of the date of acquisition as a result of finalizing the purchase price accounting.
This resulted in an increase in the value of our estimated contingent consideration and goodwill by $36.0 million,
respectively. Our revised purchase price allocation is reflected in the chart below. Our purchase price allocation is
complete.
Subsequent changes in the fair value of the contingent consideration obligation will be recognized as
adjustments to contingent consideration and reflected in our consolidated statements of income. In the fourth
quarter of 2016 a $50.0 million milestone related to BIIB074 in an additional neuropathic pain indication was
earned and paid, resulting in a reduction to the contingent consideration. For additional information related to the fair
value of this obligation, please read Note 7, Fair Value Measurements to these consolidated financial statements.
F- 23
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the estimated fair values of the separately identifiable assets acquired and
liabilities assumed as of February 12, 2015, as adjusted:
(In millions)
In-process research and development........................................................................................... $
Other intangible assets ...............................................................................................................
Goodwill .....................................................................................................................................
Deferred tax liability ....................................................................................................................
Other, net...................................................................................................................................
Total purchase price.................................................................................................................. $
424.6
7.6
128.3
(84.9)
(1.0)
474.6
Our estimate of the fair value of the IPR&D programs acquired was determined through a probability adjusted
discounted cash flow analysis utilizing a discount rate of 11%. This valuation was primarily driven by the value
associated with the lead candidate, BIIB074, which is in development for the treatment of TGN and was expected to
be completed no earlier than 2020, at a remaining cost of approximately $145.0 million. The fair value associated
with BIIB074 for the treatment of TGN was $200.0 million. We recorded additional IPR&D assets related to the use
of BIIB074 in two additional neuropathic pain indications, with a total estimated value of $220.0 million. The
remaining cost of development for these two indications was approximately $415.0 million, with an expected
completion date of no earlier than 2021. These fair value measurements were based on significant inputs not
observable in the market and thus represented Level 3 fair value measurements.
We attributed the goodwill recognized to the Convergence workforce's expertise in chronic pain research and
clinical development and to establishing a deferred tax liability for the acquired IPR&D intangible assets which had
no tax basis. The goodwill was not tax deductible.
Pro forma results of operations would not be materially different as a result of the acquisition of Convergence
and therefore are not presented. Subsequent to the acquisition date, our results of operations include the results of
operations of Convergence.
3. Restructuring, Business Transformation and Other Cost Saving Initiatives
2015 Cost Saving Initiatives
2015 Restructuring Charges
On October 21, 2015, we announced a corporate restructuring, which included the termination of certain
pipeline programs and an 11% reduction in workforce. Under this restructuring, cash payments were estimated to
total approximately $120.0 million, of which $15.9 million were related to previously accrued 2015 incentive
compensation, resulting in net restructuring charges totaling approximately $102.0 million. These amounts were
substantially paid by the end of 2016.
For the year ended December 31, 2016, we recognized total net restructuring charges of $8.0 million. We
previously recognized $93.4 million of restructuring charges in our consolidated statements of income during the
fourth quarter of 2015. Our restructuring reserve is included in accrued expenses and other in our consolidated
balance sheets.
The following table summarizes the charges and spending related to our 2015 restructuring program during
2016:
(In millions)
Restructuring reserve as of December 31, 2015 .................. $
Expense ............................................................................
Payments ..........................................................................
Adjustments to previous estimates, net ...............................
Restructuring reserve as of December 31, 2016 .................. $
Workforce
Reduction
Pipeline
Programs
Total
33.7 $
4.9
(31.2)
(5.2)
2.2 $
3.6 $
5.4
(9.0)
2.9
2.9 $
37.3
10.3
(40.2)
(2.3)
5.1
F- 24
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2016 Organizational Changes and Cost Saving Initiatives
2016 Restructuring Charges
During the third quarter of 2016 we initiated cost saving measures primarily intended to realign our
organizational structure due to the changes in roles and workforce resulting from our decision to spin off our
hemophilia business, and to achieve further targeted cost reductions. For the year ended December 31, 2016, we
recognized charges totaling $17.7 million related to this effort, which are in addition to, and separate from, the 2015
corporate restructuring described above. These amounts, which were substantially incurred and paid by the end of
2016, are primarily related to severance and are reflected in restructuring charges in our consolidated statements of
income.
Cambridge, MA Manufacturing Facility
In June 2016 following an evaluation of our current and future manufacturing capabilities and capacity needs,
we determined that we intend to vacate and cease manufacturing in our 67,000 square foot small-scale biologics
manufacturing facility in Cambridge, MA and also vacate our 46,000 square foot warehouse space in Somerville, MA.
In December 2016 we subleased our rights to the manufacturing facility in Cambridge, MA to Brammer Bio
MA, LLC (Brammer). Brammer also purchased from us certain manufacturing equipment, leasehold improvements
and other assets in exchange for shares of Brammer common LLC interests and assumed manufacturing operations
effective January 1, 2017. In December 2016 we also closed and vacated our warehouse space in Somerville, MA.
Our departure from these facilities shortened the expected useful lives of certain leasehold improvements and
other assets at these facilities. As a result, we recorded additional depreciation expense to reflect the assets' new
shorter useful lives. For the year ended December 31, 2016, we recognized approximately $45.5 million of this
additional depreciation, which was recorded as cost of sales in our consolidated statements of income.
Under the terms of the agreement, Brammer will also provide manufacturing and other transition and support
services to us.
In the fourth quarter of 2016 we recognized charges totaling $7.4 million for severance costs related to certain
employees separated from Biogen in connection with this transaction. These amounts will be substantially incurred
and paid by the end of first quarter of 2017 and are reflected in restructuring charges in our consolidated
statements of income.
4. Reserves for Discounts and Allowances
An analysis of the change in reserves for discounts and allowances is summarized as follows:
(In millions)
2016
Beginning balance ........................................... $
Current provisions relating to sales in current
year..............................................................
Adjustments relating to prior years..................
Payments/returns relating to sales in current
year..............................................................
Payments/returns relating to sales in prior
years ............................................................
Ending balance................................................ $
Discounts
Contractual
Adjustments
Returns
Total
56.1 $
548.7 $
57.9 $
662.7
592.6
(1.4)
2,044.5
1.5
30.9
(16.8)
2,668.0
(16.7)
(522.5)
(1,576.0)
(1.0)
(2,099.5)
(53.2)
71.6 $
(536.0)
482.7 $
(19.8)
51.2 $
(609.0)
605.5
F- 25
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2015
Beginning balance............................................ $
Current provisions relating to sales in current
year ..............................................................
Adjustments relating to prior years ..................
Payments/returns relating to sales in current
year ..............................................................
Payments/returns relating to sales in prior
years ............................................................
Ending balance ................................................ $
2014
Beginning balance ........................................... $
Current provisions relating to sales in current
year..............................................................
Adjustments relating to prior years..................
Payments/returns relating to sales in current
year..............................................................
Payments/returns relating to sales in prior
years ............................................................
Ending balance................................................ $
Contractual
Adjustments
Returns
Total
47.6 $
387.1 $
49.1 $
483.8
459.7
(1.3)
1,732.1
(16.3)
37.6
(14.7)
2,229.4
(32.3)
(405.9)
(1,258.1)
(2.6)
(1,666.6)
(44.0)
56.1 $
(296.1)
548.7 $
(11.5)
57.9 $
(351.6)
662.7
Contractual
Adjustments
Returns
Total
47.0 $
345.5 $
33.7 $
426.2
347.3
(1.0)
1,265.4
(28.5)
39.1
13.5
1,651.8
(16.0)
(299.7)
(933.4)
(4.1)
(1,237.2)
(46.0)
47.6 $
(261.9)
387.1 $
(33.1)
49.1 $
(341.0)
483.8
The total revenue-related reserves above, included in our consolidated balance sheets, are summarized as
follows:
(In millions)
Reduction of accounts receivable ................................................................. $
Component of accrued expenses and other...................................................
Total revenue-related reserves.................................................................... $
As of December 31,
2016
2015
166.9 $
438.6
605.5 $
144.6
518.1
662.7
5. Inventory
The components of inventory are summarized as follows:
(In millions)
Raw materials ............................................................................................. $
Work in process ..........................................................................................
Finished goods ...........................................................................................
Total inventory........................................................................................... $
Balance Sheet Classification:
Inventory .................................................................................................... $
Investments and other assets ......................................................................
Total inventory........................................................................................... $
As of December 31,
2016
2015
170.4 $
698.7
170.3
1,039.4 $
1,001.6 $
37.8
1,039.4 $
213.0
577.6
143.0
933.6
893.4
40.2
933.6
Long-term inventory, which primarily consists of work in process, is included in investments and other assets in
our consolidated balance sheets.
F- 26
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2015, our inventory included $24.7 million associated with our ZINBRYTA program, $24.2
million associated with our FLIXABI program and $18.4 million associated with our BENEPALI program, which had
been capitalized in advance of regulatory approval. The European Commission (EC) approved the marketing
authorization applications for BENEPALI and FLIXABI, two anti-tumor necrosis factor (TNF) biosimilars, for marketing in
the E.U. in January 2016 and May 2016, respectively. In addition, ZINBRYTA was approved for the treatment of
relapsing forms of MS in the U.S. in May 2016 and in the E.U. in July 2016. For information on our pre-approval
inventory policy, please read Note 1, Summary of Significant Accounting Policies to these consolidated financial
statements
Inventory amounts written down as a result of excess, obsolescence, unmarketability or other reasons are
charged to cost of sales, and totaled $48.2 million, $41.9 million and $50.6 million for the years ended
December 31, 2016, 2015 and 2014, respectively.
6.
Intangible Assets and Goodwill
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments, are summarized as
follows:
(In millions)
Out-licensed patents ..
Developed technology.
In-process research
and development .......
Trademarks and trade
names.......................
Acquired and in-
licensed rights and
patents .....................
Total intangible
assets.................
Estimated Life
Cost
Accumulated
Amortization
Net
Cost
Accumulated
Amortization
As of December 31, 2016
As of December 31, 2015
13-23 years $ 543.3 $ (523.6) $
15-23 years
3,005.3
Indefinite until
commercialization
(2,634.3)
648.0
—
19.7 $ 543.3 $ (506.0) $
371.0
3,005.3
(2,552.9)
648.0
730.5
Indefinite
64.0
—
64.0
64.0
Net
37.3
452.4
730.5
64.0
—
—
6-18 years
3,481.7
(776.1)
2,705.6
3,303.2
(502.3)
2,800.9
$7,742.3 $ (3,934.0) $3,808.3 $7,646.3 $ (3,561.2) $4,085.1
Amortization of acquired intangible assets totaled $385.6 million, $382.6 million and $489.8 million for the
years ended December 31, 2016, 2015 and 2014, respectively. Amortization of acquired intangible assets during
2016 included impairment charges of $12.2 million related to two of our IPR&D intangible assets. Amortization of
acquired intangible assets during 2014 included impairment charges of $34.7 million related to one of our out-
licensed patents and $16.2 million related to one of our IPR&D intangible assets.
Out-licensed Patents
Out-licensed patents to third-parties primarily relate to patents acquired in connection with the merger of
Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. During 2014 we recorded a charge of $34.7 million
related to the impairment of one of our out-licensed patents to reflect a change in its estimated fair value due to a
change in the underlying competitive market for that product. The charge was included in amortization of acquired
intangible assets in our consolidated statements of income. The fair value of the intangible asset was based on a
discounted cash flow calculated using Level 3 fair value measurements and inputs including estimated revenues.
There were no impairment charges related to our out-licensed patents during 2016 or 2015.
Developed Technology
Developed technology primarily relates to our AVONEX product, which was recorded in connection with the
merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. The net book value of this asset as of
December 31, 2016, was $363.3 million.
F- 27
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
IPR&D
IPR&D represents the fair value assigned to research and development assets that we acquire and have not
reached technological feasibility at the date of acquisition. Upon commercialization, we will determine the estimated
useful life. In connection with our acquisition of Convergence in February 2015, we acquired IPR&D programs with an
estimated fair value of $424.6 million. This amount has and will be adjusted for foreign exchange rate fluctuations.
For a more detailed description of this transaction, please read Note 2, Acquisitions to these consolidated financial
statements.
An analysis of anticipated lifetime revenues and anticipated development costs is performed annually during
our long- range planning cycle, which was updated in the third quarter of 2016. This analysis is based upon certain
assumptions that we evaluate on a periodic basis, including anticipated future product sales, the expected impact of
changes in the amount of development costs and the probabilities of our programs succeeding, the introduction of
new products by our competitors and changes in our commercial and pipeline product candidates.
During the fourth quarter of 2016 we terminated our collaboration agreements with Rodin Therapeutics, Inc.
and Ataxion Inc., resulting in impairment losses of $8.7 million and $3.5 million, respectively, reflecting the full value
of the assets recorded upon entering into the collaboration agreements. These impairment losses are included in
amortization of acquired intangible assets in our consolidated statements of income.
During the third quarter of 2014 we updated the probabilities of success related to the early stage programs
acquired through our recent acquisitions. The change in probability of success, combined with a delay in one of the
projects, resulted in an impairment loss of $16.2 million in one of our IPR&D assets during 2014. This impairment is
included in amortization of acquired intangible assets in our consolidated statements of income.
Acquired and In-licensed Rights and Patents
Acquired and in-licensed rights and patents primarily relate to our acquisition of all remaining rights to TYSABRI
from Elan Corporation plc (Elan). The net book value of this asset as of December 31, 2016, was $2,493.2 million.
The net change in acquired and in-licensed rights and patents during the year ended December 31, 2016,
reflects:
• $60.0 million milestone payment due to Ionis Pharmaceuticals, Inc. (Ionis) for the approval of SPINRAZA in the
U.S. in December 2016;
$50.0 million in total milestone payments due to Samsung Bioepis, which became payable upon the approval of
BENEPALI and FLIXABI in the E.U. in January 2016 and May 2016, respectively;
• $32.0 million in total milestone payments due to AbbVie, Inc. (AbbVie), which became payable upon the
approval of ZINBRYTA in the U.S. in May 2016 and the E.U. in July 2016; and
• $26.5 million upon the approval of ALPROLIX in the E.U. in May 2016 which is comprised of a $20.0 million
contingent payment due to the former owners of Syntonix Pharmaceuticals, Inc. (Syntonix) and $6.5 million
related to the establishment of a corresponding deferred tax liability.
For additional information on our relationships with Samsung Bioepis, AbbVie and Ionis, please read Note 19,
Collaborative and Other Relationships to these consolidated financial statements.
Estimated Future Amortization of Intangible Assets
Our amortization expense is based on the economic consumption of intangible assets. Our most significant
intangible assets are related to our AVONEX and TYSABRI products. Annually, during our long-range planning cycle, we
perform an analysis of anticipated lifetime revenues of AVONEX and TYSABRI. This analysis is also updated
whenever events or changes in circumstances would significantly affect the anticipated lifetime revenues of either
product.
F- 28
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our most recent long range planning cycle was completed in the third quarter of 2016. Based upon this
analysis, the estimated future amortization of acquired intangible assets is expected to be as follows:
(In millions)
As of December 31, 2016
2017 ............................................................................................................................... $
2018 ...............................................................................................................................
2019 ...............................................................................................................................
2020 ...............................................................................................................................
2021 ...............................................................................................................................
334.8
312.7
295.2
259.7
242.8
Goodwill
The following table provides a roll forward of the changes in our goodwill balance:
(In millions)
Goodwill, beginning of year ........................................................................ $
Increase to goodwill ................................................................................
Other .....................................................................................................
Goodwill, end of year................................................................................. $
2016
2015
2,663.8 $
1,026.9
(21.4)
3,669.3 $
1,760.2
908.1
(4.5)
2,663.8
The increase in goodwill during 2016 was related to $1.2 billion in contingent milestones achieved (exclusive of
$173.1 million in tax benefits) and payable to the former shareholders of Fumapharm AG or holders of their rights.
Other includes changes related to foreign exchange rate fluctuations. The increase in goodwill during 2015 was
related to $900.0 million in contingent milestones achieved (exclusive of $120.2 million in tax benefits) and payable
to the former shareholders of Fumapharm AG or holders of their rights and $128.3 million related to our acquisition
of Convergence.
For additional information related to future contingent payments to the former shareholders of Fumapharm AG
or holders of their rights, please read Note 21, Commitments and Contingencies to these consolidated financial
statements. For additional information related to our acquisition of Convergence, please read Note 2, Acquisitions to
these consolidated financial statements.
As of December 31, 2016, we had no accumulated impairment losses related to goodwill.
F- 29
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. Fair Value Measurements
The tables below present information about our assets and liabilities that are regularly measured and carried at
fair value and indicate the level within the fair value hierarchy of the valuation techniques we utilized to determine
such fair value:
As of
December 31,
2016
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
2,039.6 $
— $
2,039.6 $
(In millions)
Assets:
Cash equivalents ............................................. $
Marketable debt securities:
Corporate debt securities..............................
Government securities..................................
Mortgage and other asset backed securities ..
Marketable equity securities .............................
Derivative contracts..........................................
Plan assets for deferred compensation..............
Total........................................................ $
Liabilities:
2,663.8
2,172.5
561.7
24.9
61.0
34.5
7,558.0 $
Derivative contracts.......................................... $
Contingent consideration obligations .................
Total........................................................ $
13.6 $
467.6
481.2 $
13.6 $
—
13.6 $
—
467.6
467.6
As of
December 31,
2015
Quoted
Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
909.5 $
— $
909.5 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,663.8
2,172.5
561.7
—
61.0
34.5
7,533.1 $
1,510.9
2,875.9
494.1
—
27.2
40.1
5,857.7 $
—
—
—
24.9
—
—
24.9 $
— $
—
— $
—
—
—
37.5
—
—
37.5 $
— $
—
— $
(In millions)
Assets:
Cash equivalents ............................................. $
Marketable debt securities:
Corporate debt securities..............................
Government securities..................................
Mortgage and other asset backed securities ..
Marketable equity securities .............................
Derivative contracts..........................................
Plan assets for deferred compensation..............
Total........................................................ $
Liabilities:
1,510.9
2,875.9
494.1
37.5
27.2
40.1
5,895.2 $
Derivative contracts.......................................... $
Contingent consideration obligations .................
Total........................................................ $
14.7 $
506.0
520.7 $
14.7 $
—
14.7 $
—
506.0
506.0
The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities were
determined through third-party pricing services. For a description of our validation procedures related to prices
provided by third-party pricing services, refer to Note 1, Summary of Significant Accounting Policies: Fair Value
Measurements, to these consolidated financial statements.
F- 30
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Debt Instruments
The fair values of our debt instruments, which are Level 2 liabilities, are summarized as follows:
(In millions)
Notes payable to Fumedica........................................................................ $
6.875% Senior Notes due March 1, 2018...................................................
2.900% Senior Notes due September 15, 2020..........................................
3.625% Senior Notes due September 15, 2022..........................................
4.050% Senior Notes due September 15, 2025..........................................
5.200% Senior Notes due September 15, 2045..........................................
Total ...................................................................................................... $
As of December 31,
2016
2015
6.1 $
583.7
1,521.5
1,026.6
1,796.0
1,874.5
6,808.4 $
9.4
602.6
1,497.5
1,014.2
1,764.6
1,757.6
6,645.9
The fair value of our notes payable to Fumedica was estimated using market observable inputs, including
current interest and foreign currency exchange rates. The fair values of each of our series of Senior Notes were
determined through market, observable, and corroborated sources. For additional information related to our debt
instruments, please read Note 11, Indebtedness to these consolidated financial statements.
Contingent Consideration Obligations
The following table provides a roll forward of the fair values of our contingent consideration obligations which
includes Level 3 measurements:
(In millions)
Fair value, beginning of year....................................................................... $
Additions................................................................................................
Changes in fair value...............................................................................
Payments and other ................................................................................
Fair value, end of year ............................................................................... $
As of December 31,
2016
2015
506.0 $
—
14.8
(53.2)
467.6 $
215.5
274.5
30.5
(14.5)
506.0
As of December 31, 2016 and 2015, approximately $246.8 million and $301.3 million, respectively, of the fair
value of our total contingent consideration obligations was reflected as a component of other long-term liabilities in
our consolidated balance sheets with the remaining balance reflected as a component of accrued expenses and
other. Payments and other for 2016 includes $7.9 million of a Convergence milestone converted to a short-term
obligation under the terms of the acquisition agreement.
There were no changes in valuation techniques or transfers between fair value measurement levels during the
years ended December 31, 2016 and 2015. The fair values of the intangible assets and contingent consideration
liabilities were based on a probability-adjusted discounted cash flow calculation using Level 3 fair value
measurements and inputs including estimated revenues and probabilities of success. For additional information
related to the valuation techniques and inputs utilized in valuation of our financial assets and liabilities, please read
Note 1, Summary of Significant Accounting Policies to these consolidated financial statements.
Convergence
In connection with our acquisition of Convergence in February 2015 we recorded a contingent consideration
obligation of $274.5 million. This valuation was based on probability weighted net cash outflow projections of
$450.0 million, discounted using a rate of 2.0%, which was the estimated cost of debt financing for market
participants. This liability reflected the revised estimate from the date of acquisition for our initial clinical
development plans, resulting probabilities of success and the timing of certain milestone payments. For a more
detailed description of this transaction, please read Note 2, Acquisitions to these consolidated financial statements.
As of December 31, 2016 and 2015, the fair value of this contingent consideration obligation was $258.9
million and $297.5 million, respectively. Our most recent valuation was determined based upon probability weighted
net cash flow projections of $400.0 million, discounted using a rate of 2.7%, which is a measure of the credit risk
associated with settling the liability.
F- 31
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For 2016 compared to 2015, the net decrease in the fair value of this obligation was primarily due to
achievement of a $50.0 million milestone related to a second indication, partially offset by changes in the discount
rate and an increase in the probability of success related to the achievement of certain developmental milestones.
Approximately $148.4 million is reflected as a component of accrued expenses and other in our consolidated
balance sheets as we expect to make the payment within one year.
Stromedix Inc.
In connection with our acquisition of Stromedix Inc. (Stromedix) in March 2012 we recorded a contingent
consideration obligation of $122.2 million. As of December 31, 2016 and 2015, the fair value of this contingent
consideration obligation was $133.2 million and $131.5 million, respectively. Our most recent valuation was
determined based upon probability weighted net cash outflow projections of $419.0 million, discounted using a rate
of 2.2%, which is a measure of the credit risk associated with settling the liability.
For 2016 compared to 2015, the net increase in the fair value of this obligation was primarily due to changes
in the discount rate, partially offset by changes in the expected timing related to the achievement of certain
remaining developmental milestones. Approximately $56.9 million is reflected as a component of accrued expenses
and other in our consolidated balance sheets as we expect to make the payment within one year.
Biogen Idec International Neuroscience GmbH
In connection with our acquisition of Biogen Idec International Neuroscience GmbH (BIN), formerly Panima
Pharmaceuticals AG (Panima), in December 2010 we recorded a contingent consideration obligation of $81.2 million.
As of December 31, 2016 and 2015, the fair value of this contingent consideration obligation was $75.5 million and
$77.0 million, respectively. Our most recent valuation was determined based upon probability weighted net cash
outflow projections of $361.7 million, discounted using a rate of 2.7%, which is a measure of the credit risk
associated with settling the liability.
For 2016 compared to 2015, the net decrease in the fair value of this obligation was primarily due to payment
of $3.3 million in developmental milestones, partially offset by changes in the discount rate. Approximately $15.5
million is reflected as a component of accrued expenses and other in our consolidated balance sheets as we expect
to make the payment within one year.
Acquired IPR&D
In connection with our acquisition of Convergence, we also allocated $424.6 million of the total purchase price
to acquired IPR&D, which was capitalized as an intangible asset. The amount allocated to acquired IPR&D was based
on significant inputs not observable in the market and thus represented a Level 3 fair value measurement. This
estimate was also adjusted from our preliminary estimate as of the date of acquisition to reflect revised estimates
to our initial clinical development plans, resulting probabilities of success and the timing of certain milestone
payments. These assets will be tested for impairment annually until commercialization, after which time the IPR&D
will be amortized over its estimated useful life. For a more detailed description of this transaction, please read Note
2, Acquisitions to these consolidated financial statements.
8. Financial Instruments
The following table summarizes our financial assets with maturities of less than 90 days from the date of
purchase included in cash and cash equivalents on the accompanying consolidated balance sheet:
(In millions)
Commercial paper ...................................................................................... $
Overnight reverse repurchase agreements ....................................................
Money market funds ...................................................................................
Short-term debt securities ...........................................................................
Total........................................................................................................ $
As of December 31,
2016
2015
31.0 $
—
741.7
1,266.9
2,039.6 $
21.9
134.7
673.8
79.1
909.5
F- 32
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The carrying values of our commercial paper, including accrued interest, overnight reverse repurchase
agreements, money market funds and our short-term debt securities approximate fair value due to their short term
maturities. Our overnight reverse repurchase agreements were collateralized with agency-guaranteed mortgage-
backed securities and represented approximately 0.7% of total assets as of December 31, 2015.
The following tables summarize our marketable debt and equity securities, classified as available for sale:
As of December 31, 2016 (In millions)
Corporate debt securities
Fair
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Current ...................................................... $
Non-current ................................................
1,408.6 $
1,255.2
Government securities
Current ......................................................
Non-current ................................................
1,156.0
1,016.5
Mortgage and other asset backed securities
Current ......................................................
Non-current ................................................
Total marketable debt securities ................ $
Marketable equity securities, non-current........ $
4.0
557.7
5,398.0 $
24.9 $
0.2 $
1.2
0.2
0.5
—
0.8
2.9 $
0.7 $
(0.6) $
(4.7)
1,409.0
1,258.7
(0.3)
(3.4)
—
(2.2)
(11.2) $
(9.3) $
1,156.1
1,019.4
4.0
559.1
5,406.3
33.5
As of December 31, 2015 (In millions)
Corporate debt securities
Fair
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Current ........................................................ $
Non-current..................................................
394.3 $
1,116.6
Government securities
Current ........................................................
Non-current..................................................
1,723.4
1,152.5
Mortgage and other asset backed securities
Current ........................................................
Non-current..................................................
Total marketable debt securities................ $
Marketable equity securities, non-current ......... $
2.8
491.3
4,880.9 $
37.5 $
Summary of Contractual Maturities: Available-for-Sale Securities
— $
0.1
0.1
—
—
0.1
0.3 $
9.2 $
(0.5) $
(4.1)
394.8
1,120.6
(1.1)
(3.1)
—
(1.8)
(10.6) $
— $
1,724.4
1,155.6
2.8
493.0
4,891.2
28.3
The estimated fair value and amortized cost of our marketable debt securities available-for-sale by contractual
maturity are summarized as follows:
(In millions)
Due in one year or less................................... $
Due after one year through five years...............
Due after five years ........................................
Total available-for-sale securities................... $
As of December 31, 2016
As of December 31, 2015
Estimated
Fair Value
2,568.6 $
2,552.6
276.8
5,398.0 $
Amortized
Cost
2,569.1 $
2,559.7
277.5
5,406.3 $
Estimated
Fair Value
2,120.5 $
2,575.9
184.5
4,880.9 $
Amortized
Cost
2,122.0
2,583.9
185.3
4,891.2
The average maturity of our marketable debt securities available-for-sale as of December 31, 2016 and 2015
was 12 months and 16 months, respectively.
F- 33
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Proceeds from Marketable Debt Securities
The proceeds from maturities and sales of marketable debt securities and resulting realized gains and losses
are summarized as follows:
(In millions)
Proceeds from maturities and sales..................................... $
Realized gains ................................................................... $
Realized losses.................................................................. $
For the Years Ended December 31,
2016
2015
2014
7,378.9 $
3.3 $
4.3 $
4,063.0 $
1.5 $
3.5 $
2,718.9
0.7
0.5
Realized losses for the year ended December 31, 2016, primarily relate to sales of corporate bonds, agency
mortgage-backed securities and other asset-backed securities. Realized losses for the year ended December 31,
2015, primarily relate to sales of corporate bonds, agency mortgage-backed securities and other asset-backed
securities. Realized losses for the year ended December 31, 2014, primarily relate to sales of agency mortgage-
backed securities and government securities.
Strategic Investments
As of December 31, 2016 and 2015, our strategic investment portfolio was comprised of investments totaling
$99.9 million and $96.0 million, respectively, which are included in investments and other assets in our
consolidated balance sheets. Our strategic investment portfolio includes investments in equity securities of certain
biotechnology companies and investments in venture capital funds where the underlying investments are in equity
securities of biotechnology companies.
9.
Derivative Instruments
Foreign Currency Forward Contracts - Hedging Instruments
Due to the global nature of our operations, portions of our revenues and operating expenses are recorded in
currencies other than the U.S. dollar. The value of revenues and operating expenses measured in U.S. dollars is
therefore subject to changes in foreign currency exchange rates. In order to mitigate these changes we use foreign
currency forward contracts to lock in exchange rates associated with a portion of our forecasted international
revenues and operating expenses.
Foreign currency forward contracts in effect as of December 31, 2016 and 2015, had durations of 1 to 18
months, respectively. These contracts have been designated as cash flow hedges and accordingly, to the extent
effective, any unrealized gains or losses on these foreign currency forward contracts are reported in accumulated
other comprehensive income (loss) (referred to as AOCI in the tables below). Realized gains and losses for the
effective portion of such contracts are recognized in revenue when the sale of product in the currency being hedged
is recognized and, beginning in the fourth quarter of 2015, in operating expenses when the expense in the currency
being hedged is recorded. To the extent ineffective, hedge transaction gains and losses are reported in other income
(expense), net.
The notional value of foreign currency forward contracts that were entered into to hedge forecasted revenues
and operating expenses is summarized as follows:
Foreign Currency: (In millions)
Euro .......................................................................................................... $
Swiss francs ..............................................................................................
Canadian dollar ..........................................................................................
Total foreign currency forward contracts...................................................... $
Notional Amount
As of December 31,
2016
2015
871.7 $
—
—
871.7 $
945.5
80.8
76.7
1,103.0
F- 34
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The portion of the fair value of these foreign currency forward contracts that was included in accumulated other
comprehensive income (loss) in total equity reflected net gains of $49.8 million, $1.8 million and $72.1 million for
the years ended December 31, 2016, 2015 and 2014, respectively. We expect all contracts to be settled over the
next 18 months and any amounts in accumulated other comprehensive income (loss) to be reported as an
adjustment to revenue or operating expense. We consider the impact of our and our counterparties’ credit risk on
the fair value of the contracts as well as the ability of each party to execute its contractual obligations. As of
December 31, 2016 and 2015, credit risk did not change the fair value of our foreign currency forward contracts.
The following table summarizes the effect of foreign currency forward contracts designated as hedging
instruments on our consolidated statements of income:
For the Years Ended December 31,
Net Gains/(Losses)
Reclassified from AOCI into Net Income
(Effective Portion)
Location
2016
2015
2014
Revenue ...... $
5.3 $
173.2 $
6.8
Operating
expenses..... $
(1.5) $
— $
—
Interest Rate Contracts - Hedging Instruments
Net Gains/(Losses)
Recognized into Net Income
(Ineffective Portion)
2016
2015
2014
2.9 $
4.9 $
(1.5)
0.1 $
— $
—
Location
Other
income
(expense) .... $
Other
income
(expense) .... $
We have entered into interest rate lock contracts or interest rate swap contracts on certain borrowing
transactions to manage our exposure to interest rate changes and to reduce our overall cost of borrowing.
Interest Rate Lock Contracts
During 2015 we entered into treasury rate locks, with an aggregated notional amount of $1.1 billion, which
were designated as cash flow hedges to hedge against changes in the 10-year and 30-year U.S. treasury interest
rates that could have impacted our anticipated debt offering. In connection with the issuance of our 4.05% and
5.20% Senior Notes, as described in Note 11, Indebtedness, we settled the treasury rate locks and realized an $8.5
million gain. As the hedging relationship was effective, the gain was recorded in AOCI and will be recognized in other
income (expense), net over the life of the 4.05% and 5.20% Senior Notes.
Interest Rate Swap Contracts
In connection with the issuance of our 2.90% Senior Notes, as described in Note 11, Indebtedness, we entered
into interest rate swaps with an aggregate notional amount of $675.0 million, which expire on September 15, 2020.
The interest rate swap contracts are designated as hedges of the fair value changes in the 2.90% Senior Notes
attributable to changes in interest rates. Since the specific terms and notional amount of the swaps match the debt
being hedged, it is assumed to be a highly effective hedge and all changes in the fair value of the swaps are
recorded as a component of the 2.90% Senior Notes with no net impact recorded in income. Any net interest
payments made or received on the interest rate swap contracts are recognized as a component of interest expense
in our consolidated statements of income.
Foreign Currency Forward Contracts - Other Derivatives
We also enter into other foreign currency forward contracts, usually with durations of one month or less, to
mitigate the foreign currency risk related to certain balance sheet positions. We have not elected hedge accounting
for these transactions.
The aggregate notional amount of these outstanding foreign currency contracts was $902.1 million and $721.0
million as of December 31, 2016 and 2015, respectively. Net losses of $29.2 million, $23.8 million and $15.5
million related to these contracts were recognized as a component of other income (expense), net, for the years
ended December 31, 2016, 2015 and 2014, respectively.
Summary of Derivatives
While certain of our derivatives are subject to netting arrangements with our counterparties, we do not offset
derivative assets and liabilities in our consolidated balance sheets.
F- 35
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the fair value and presentation in our consolidated balance sheets of our
outstanding derivatives including those designated as hedging instruments:
(In millions)
Hedging Instruments:
Balance Sheet Location
Fair Value
As of December 31, 2016
Asset derivatives ....................................... Other current assets .................................... $
Investments and other assets ...................... $
Liability derivatives .................................... Other long-term liabilities ............................. $
Other Derivatives:
Asset derivatives ....................................... Other current assets .................................... $
Liability derivatives .................................... Accrued expenses and other ........................ $
50.4
6.6
4.6
4.0
9.0
(In millions)
Hedging Instruments:
Balance Sheet Location
Fair Value
As of December 31, 2015
Asset derivatives ....................................... Other current assets .................................... $
Investments and other assets ...................... $
Liability derivatives .................................... Accrued expenses and other ........................ $
Other long-term liabilities ............................. $
Other Derivatives:
Asset derivatives ....................................... Other current assets .................................... $
Liability derivatives .................................... Accrued expenses and other ........................ $
16.6
0.3
10.2
2.5
10.3
2.0
10. Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost, net of accumulated depreciation. Components of
property, plant and equipment, net are summarized as follows:
(In millions)
Land........................................................................................................ $
Buildings..................................................................................................
Leasehold improvements ..........................................................................
Machinery and equipment .........................................................................
Computer software and hardware...............................................................
Furniture and fixtures ................................................................................
Construction in progress ...........................................................................
Total cost...............................................................................................
Less: accumulated depreciation ................................................................
Total property, plant and equipment, net................................................... $
As of December 31,
2016
2015
137.8 $
1,107.8
123.7
1,105.8
746.8
60.6
658.6
3,941.1
(1,439.3)
2,501.8 $
74.7
1,035.6
166.6
1,079.6
647.1
72.9
441.2
3,517.7
(1,330.1)
2,187.6
Depreciation expense totaled $309.3 million, $217.9 million and $198.4 million for 2016, 2015 and 2014,
respectively.
For 2016, 2015 and 2014, we capitalized interest costs related to construction in progress totaling
approximately $12.9 million, $10.4 million and $6.4 million, respectively.
Solothurn, Switzerland Facility
During the first quarter of 2016 we closed on the purchase of land in Solothurn, Switzerland for 64.4 million
Swiss Francs (approximately $62.5 million). We are building a biologics manufacturing facility on this land in the
Commune of Luterbach over the next several years. As of December 31, 2016 and 2015, we had approximately
$481.5 million and $99.0 million, respectively, capitalized as construction in progress related to the construction of
this facility.
F- 36
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Research Triangle Park Facility Purchase
On August 24, 2015, we purchased from Eisai, Inc. (Eisai) its drug product manufacturing facility and
supporting infrastructure in Research Triangle Park (RTP), North Carolina for $104.8 million. The purchase price
consisted of $58.6 million for buildings, $25.9 million for machinery and equipment and $20.3 million for land.
On August 24, 2015, we also amended our existing 10-year lease related to Eisai's oral solid dose products
PP
manufacturing facility in RTP North Carolina where we manufacture our and Eisai's oral solid dose products. As
amended, the lease provides for a three-year term and our agreement to purchase the facility upon expiration of the
lease term and Eisai's completion of certain activities. Accordingly, we recorded the assets along with a
corresponding financing obligation on our consolidated balance sheet for $20.3 million, the net present value of the
future minimum lease payments. The assets were recorded as a component of buildings and machinery and
equipment. We expect to complete the purchase of the oral solid products manufacturing facility at the end of the
lease term in the third quarter of 2018.
11.
Indebtedness
Our indebtedness is summarized as follows:
(In millions)
Current portion:
As of December 31,
2016
2015
Notes payable to Fumedica...................................................................... $
Financing arrangement for the purchase of the RTP facility .........................
Current portion of notes payable and other financing arrangements ........ $
Non-current portion:
6.875% Senior Notes due March 1, 2018............................................... $
2.900% Senior Notes due September 15, 2020......................................
3.625% Senior Notes due September 15, 2022......................................
4.050% Senior Notes due September 15, 2025......................................
5.200% Senior Notes due September 15, 2045......................................
Notes payable to Fumedica......................................................................
Financing arrangement for the purchase of the RTP facility .........................
Non-current portion of notes payable and other financing arrangements .. $
3.0 $
1.7
4.7 $
558.5 $
1,485.3
993.2
1,734.8
1,721.5
3.0
16.4
6,512.7 $
3.1
1.7
4.8
565.3
1,485.5
992.2
1,733.4
1,721.1
5.9
18.1
6,521.5
The following is a summary of our principal indebtedness as of December 31, 2016:
• $550.0 million aggregate principal amount of 6.875% Senior Notes due March 1, 2018, valued at 99.184% of
par;
• $1.5 billion aggregate principal amount of 2.90% Senior Notes due September 15, 2020, valued at 99.792% of
par;
• $1.0 billion aggregate principal amount of 3.625% Senior Notes due September 15, 2022, valued at 99.920%
of par;
• $1.75 billion aggregate principal amount of 4.05% Senior Notes due September 15, 2025, valued at 99.764%
of par; and
• $1.75 billion aggregate principal amount of 5.20% Senior Notes due September 15, 2045, valued at 99.294%
of par.
The costs associated with these offerings of approximately $52.0 million have been recorded as a reduction to
the carrying amount of the debt on our consolidated balance sheet. These costs along with the discounts will be
amortized as additional interest expense using the effective interest rate method over the period from issuance
through maturity.
F- 37
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
These notes are senior unsecured obligations. 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 6.875% Senior Notes due in
2018 contain a change of control provision that may require us to purchase the notes under certain circumstances.
There is also an interest rate adjustment feature that requires us to pay interest at an increased rate on the notes if
the credit rating on the notes declines below investment grade. The remaining Senior Notes contain a change of
control provision that may require us to purchase the notes at a price equal to 101% of the principal amount plus
accrued and unpaid interest to the date of purchase under certain circumstances.
In connection with the 2.90% Senior Notes offering due in 2020, we entered into interest rate swap contracts.
The carrying value of the 2.90% Senior Notes includes approximately $4.6 million related to changes in the fair
value of these contracts. For additional information, please read Note 9, Derivative Instruments, to these
consolidated financial statements.
In connection with the 6.875% Senior Notes due in 2018, we entered into interest rate swap contracts where
we received a fixed rate and paid a variable rate. These contracts were terminated in December 2008. Upon
termination of these swaps, the carrying amount of the 6.875% Senior Notes due in 2018 was increased by $62.8
million and is being amortized using the effective interest rate method over the remaining life of the Senior Notes
and is being recognized as a reduction of interest expense. As of December 31, 2016, $9.9 million remains to be
amortized.
Notes Payable to Fumedica
In connection with our 2006 distribution agreement with Fumedica, we issued notes totaling 61.4 million Swiss
Francs which were payable to Fumedica in varying amounts from June 2008 through June 2018. Our remaining note
payable to Fumedica had a carrying value of 6.2 million Swiss Francs ($6.0 million) and 8.9 million Swiss Francs
($9.0 million) as of December 31, 2016 and 2015, respectively.
Credit Facility
In August 2015 we entered into a $1.0 billion, five-year senior unsecured revolving credit facility under which
we are permitted to draw funds for working capital and general corporate purposes. The terms of the revolving credit
facility include a financial covenant that requires us not to exceed a maximum consolidated leverage ratio. As of
December 31, 2016, we had no outstanding borrowings and were in compliance with all covenants under this facility.
Financing Arrangement
During 2015 we recorded a financing obligation in relation to the amendment of our lease agreement of Eisai's
oral solid dose products manufacturing facility in RTP North Carolina where we manufacture our and Eisai's oral solid
dose products. As of December 31, 2016 and 2015, the financing obligation totaled approximately $18.1 million
and $19.8 million, respectively. For additional information, please read Note 10, Property, Plant and Equipment to
these consolidated financial statements.
PP
t
Debt Maturity
The total gross payments, excluding our financing arrangement, due under our debt arrangements are as
follows:
(In millions)
2017 ............................................................................................................................ $
2018 ............................................................................................................................
2019 ............................................................................................................................
2020 ............................................................................................................................
2021 ............................................................................................................................
2022 and thereafter.......................................................................................................
Total ....................................................................................................................... $
As of December 31, 2016
3.1
553.1
—
1,500.0
—
4,500.0
6,556.2
The fair value of our debt is disclosed in Note 7, Fair Value Measurements to these consolidated financial
statements.
F- 38
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12.
Equity
Preferred Stock
We have 8.0 million shares of Preferred Stock authorized, of which 1.75 million shares are authorized as
Series A, 1.0 million shares are authorized as Series X junior participating and 5.25 million shares are
undesignated. Shares may be issued without a vote or action of stockholders from time to time in classes or series
with the designations, powers, preferences, and the relative, participating, optional or other special rights of the
shares of each such class or series and any qualifications, limitations or restrictions thereon as set forth in the
instruments governing such shares. Any such Preferred Stock may rank prior to common stock as to dividend rights,
liquidation preference or both, and may have full or limited voting rights and may be convertible into shares of
common stock. No shares of Preferred Stock were issued and outstanding during 2016, 2015 and 2014.
Common Stock
The following table describes the number of shares authorized, issued and outstanding of our common stock
as of December 31, 2016 and 2015:
(In millions)
Common stock ......................
Authorized
Issued
1,000.0
238.5
Outstanding
215.9
Authorized
Issued
Outstanding
1,000.0
241.2
218.6
Share Repurchases
In July 2016 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock
(2016 Share Repurchase Program). This authorization does not have an expiration date. Repurchased shares will be
retired. As of December 31, 2016, we repurchased and retired 3.3 million shares of common stock at a cost of $1.0
billion under our 2016 Share Repurchase Program.
In May 2015 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock
(2015 Share Repurchase Program), which was completed as of December 31, 2015. As of December 31, 2015, we
repurchased and retired approximately 16.8 million shares of common stock at a cost of $5.0 billion under our
2015 Share Repurchase Program.
In February 2011 our Board of Directors authorized a program to repurchase up to 20.0 million shares of our
common stock (2011 Share Repurchase Program), which has been used principally to offset common stock
issuances under our share-based compensation plans. The 2011 Share Repurchase Program does not have an
expiration date. We did not repurchase any shares of common stock under our 2011 Share Repurchase Program
during the years ended December 31, 2016 and 2015. During 2014 we purchased approximately 2.9 million shares
of common stock at a cost of $886.8 million under our 2011 Share Repurchase Program. We have approximately
1.3 million shares remaining available for repurchase under this authorization.
13.
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss), net of tax by
component:
(In millions)
Unrealized Gains
(Losses) on
Securities
Available for Sale
Unrealized Gains
(Losses) on Cash
Flow Hedges
Unfunded Status
of Postretirement
Benefit Plans
Translation
Adjustments
Total
Balance, December 31, 2015 .. $
(0.8) $
10.2 $
(37.8) $
(195.6) $
(224.0)
Other comprehensive
income (loss) before
reclassifications..................
Amounts reclassified from
accumulated other
comprehensive income
(loss) .................................
Net current period other
comprehensive income (loss) .
Balance, December 31, 2016 .. $
(10.6)
51.6
5.1
(138.6)
(92.5)
0.6
(4.0)
—
—
(3.4)
(10.0)
(10.8) $
47.6
57.8 $
5.1
(32.7) $
(138.6)
(334.2) $
(95.9)
(319.9)
F- 39
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unrealized Gains
(Losses) on
Securities
Available for Sale
Unrealized Gains
(Losses) on Cash
Flow Hedges
Unfunded Status
of Postretirement
Benefit Plans
Translation
Adjustments
Total
(0.4) $
71.7 $
(31.6) $
(99.2) $
(59.5)
(1.7)
110.8
(6.2)
(96.4)
6.5
(In millions)
Balance, December 31, 2014 .. $
Other comprehensive
income (loss) before
reclassifications..................
Amounts reclassified from
accumulated other
comprehensive income
(loss) .................................
Net current period other
comprehensive income (loss) .
Balance, December 31, 2015 .. $
(0.4)
(0.8) $
(61.5)
(96.4)
10.2 $
(37.8) $
(195.6) $
(164.5)
(224.0)
1.3
(172.3)
—
(171.0)
—
(6.2)
(In millions)
Unrealized Gains
(Losses) on
Securities
Available for Sale
Unrealized Gains
(Losses) on Cash
Flow Hedges
Unfunded Status
of Postretirement
Benefit Plans
Translation
Adjustments
Total
Balance, December 31, 2013 .. $
5.6 $
(23.7) $
(19.6) $
10.0 $
(27.7)
Other comprehensive
income (loss) before
reclassifications..................
Amounts reclassified from
accumulated other
comprehensive income
(loss) .................................
Net current period other
comprehensive income (loss) .
Balance, December 31, 2014 .. $
0.4
101.7
(12.0)
(109.2)
(19.1)
(6.4)
(6.3)
—
—
(6.0)
(0.4) $
95.4
71.7 $
(12.0)
(31.6) $
(109.2)
(99.2) $
(12.7)
(31.8)
(59.5)
The following table summarizes the amounts reclassified from accumulated other comprehensive income:
(In millions)
Income Statement Location
2016
2015
2014
Gains (losses) on securities
available for sale..................... Other income (expense) ...... $
Income tax benefit
(expense)...........................
(0.9) $
(2.0) $
0.3
0.7
Amounts Reclassified from
Accumulated Other Comprehensive Income
For the Years Ended December 31,
Gains (losses) on cash flow
hedges ................................... Revenues...........................
Operating expenses ............
Other income (expense) ......
Income tax benefit
(expense)...........................
5.3
(1.5)
0.2
—
173.2
—
(0.1)
(0.8)
9.9
(3.5)
6.8
—
—
(0.5)
Total reclassifications, net of
tax .........................................
$
3.4 $
171.0 $
12.7
F- 40
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
14.
Earnings per Share
Basic and diluted earnings per share are calculated as follows:
(In millions)
Numerator:
For the Years Ended December 31,
2016
2015
2014
Net income attributable to Biogen Inc................................. $
3,702.8 $
3,547.0 $
2,934.8
Denominator:
Weighted average number of common shares outstanding...
Effect of dilutive securities:
Stock options and employee stock purchase plan ...............
Time-vested restricted stock units......................................
Market stock units............................................................
Dilutive potential common shares ........................................
Shares used in calculating diluted earnings per share .....
218.4
0.1
0.2
0.1
0.4
218.8
230.7
0.1
0.3
0.1
0.5
231.2
236.4
0.1
0.5
0.2
0.8
237.2
Amounts excluded from the calculation of net income per diluted share because their effects were anti-dilutive
were insignificant.
Earnings per share for the years ended December 31, 2016, 2015 and 2014, reflects, on a weighted average
basis, the repurchase of 0.7 million shares, 4.6 million shares and 1.0 million shares, respectively, of our common
stock under our share repurchase authorizations.
15. Share-based Payments
Share-based Compensation Expense
The following table summarizes share-based compensation expense included in our consolidated statements of
income:
(In millions)
Research and development ................................................... $
Selling, general and administrative.........................................
Restructuring charges ...........................................................
Subtotal .............................................................................
Capitalized share-based compensation costs ..........................
Share-based compensation expense included in total cost
and expenses .....................................................................
Income tax effect ..................................................................
Share-based compensation expense included in net income
attributable to Biogen Inc. ................................................... $
For the Years Ended December 31,
2015
2014
2016
84.5 $
88.6 $
121.7
(1.8)
204.4
(14.6)
189.8
(54.0)
127.3
(8.6)
207.3
(11.0)
196.3
(55.8)
102.1
150.3
—
252.4
(10.0)
242.4
(72.2)
135.8 $
140.5 $
170.2
F- 41
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes share-based compensation expense associated with each of our share-based
compensation programs:
(In millions)
Market stock units ................................................................ $
Time-vested restricted stock units ..........................................
Cash settled performance units .............................................
Performance units.................................................................
Employee stock purchase plan...............................................
Subtotal .............................................................................
Capitalized share-based compensation costs ..........................
Share-based compensation expense included in total cost
and expenses ..................................................................... $
For the Years Ended December 31,
2016
2015
2014
38.4 $
38.1 $
120.0
16.3
18.6
11.1
204.4
(14.6)
119.0
22.4
13.9
13.9
207.3
(11.0)
37.4
115.4
65.5
21.9
12.2
252.4
(10.0)
189.8 $
196.3 $
242.4
Windfall tax benefits from vesting of stock awards, exercises of stock options and ESPP participation were
$12.6 million, $78.2 million and $96.4 million in 2016, 2015 and 2014, respectively. These amounts have been
calculated under the alternative transition method.
As of December 31, 2016, unrecognized compensation cost related to unvested share-based compensation
was approximately $189.8 million, net of estimated forfeitures. We expect to recognize the cost of these unvested
awards over a weighted-average period of 1.9 years.
Share-Based Compensation Plans
We have three share-based compensation plans pursuant to which awards are currently being made: (i) the
Biogen Inc. 2006 Non-Employee Directors Equity Plan (2006 Directors Plan); (ii) the Biogen Inc. 2008 Amended and
Restated Omnibus Equity Plan (2008 Omnibus Plan); and (iii) the Biogen Inc. 2015 Employee Stock Purchase Plan
(ESPP).
Directors Plan
In May 2006 our stockholders approved the 2006 Directors Plan for share-based awards to our directors.
Awards granted from the 2006 Directors Plan may include stock options, shares of restricted stock, restricted stock
units, stock appreciation rights and other awards in such amounts and with such terms and conditions as may be
determined by a committee of our Board of Directors, subject to the provisions of the plan. We have reserved a total
of 1.6 million shares of common stock for issuance under the 2006 Directors Plan. The 2006 Directors Plan
provides that awards other than stock options and stock appreciation rights will be counted against the total number
of shares reserved under the plan in a 1.5-to-1 ratio. In June 2015 our stockholders approved an amendment to
extend the term of the 2006 Directors Plan until June 2025.
Omnibus Plans
In June 2008 our stockholders approved the 2008 Omnibus Plan for share-based awards to our employees.
Awards granted from the 2008 Omnibus Plan may include stock options, shares of restricted stock, restricted stock
units, performance shares, shares of phantom stock, stock appreciation rights and other awards in such amounts
and with such terms and conditions as may be determined by a committee of our Board of Directors, subject to the
provisions of the plan. Shares of common stock available for issuance under the 2008 Omnibus Plan consist of 15.0
million shares reserved for this purpose, plus shares of common stock that remained available for issuance under
our 2005 Omnibus Equity Plan on the date that our stockholders approved the 2008 Omnibus Plan, plus shares that
were subject to awards under the 2005 Omnibus Equity Plan that 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.
We have not made any awards pursuant to the 2005 Omnibus Equity Plan since our stockholders approved the
2008 Omnibus Plan, and do not intend to make any awards pursuant to the 2005 Omnibus Equity Plan in the future,
except that unused shares under the 2005 Omnibus Equity Plan have been carried over for use under the 2008
Omnibus Plan.
F- 42
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock Options
We currently do not grant stock options to our employees or directors. Outstanding stock options previously
granted to our employees and directors generally have a ten-year term and vest over a period of between one and
four years, provided the individual continues to serve at Biogen through the vesting dates. Options granted under all
plans are exercisable at a price per share not less than the fair market value of the underlying common stock on the
date of grant. The estimated fair value of options, including the effect of estimated forfeitures, is recognized over the
options’ vesting periods. The fair value of the stock options granted in 2010 was estimated as of the date of grant
using a Black-Scholes option valuation model. There were no grants of stock options made in 2016, 2015 and
2014. As of December 31, 2016, all outstanding options were exercisable.
The expected life of options granted is derived using assumed exercise rates based on historical exercise
patterns and represents the period of time that options granted are expected to be outstanding. Expected stock
price volatility is based upon implied volatility for our exchange-traded options and other factors, including historical
volatility. After assessing all available information on either historical volatility, implied volatility, or both, we have
concluded that a combination of both historical and implied volatility provides the best estimate of expected volatility.
The risk-free interest rate used is determined by the market yield curve based upon risk-free interest rates
established by the Federal Reserve, or non-coupon bonds that have maturities equal to the expected term. The
dividend yield of zero is based upon the fact that we have not historically granted cash dividends, and do not expect
to issue dividends in the foreseeable future. Stock options granted prior to January 1, 2006 were valued based on
the grant date fair value of those awards, using the Black-Scholes option pricing model, as previously calculated for
pro-forma disclosures.
The following table summarizes our stock option activity:
Outstanding at December 31, 2015 ............................................................
Granted ...................................................................................................
Exercised.................................................................................................
Cancelled ................................................................................................
Outstanding at December 31, 2016 ............................................................
Shares
107,000 $
— $
(41,000) $
— $
66,000 $
Weighted
Average
Exercise
Price
53.94
—
53.75
—
54.06
The total intrinsic values of options exercised in 2016, 2015 and 2014 totaled $10.4 million, $38.0 million
and $42.7 million, respectively. The aggregate intrinsic values of options outstanding as of December 31, 2016
totaled $15.0 million. The weighted average remaining contractual term for options outstanding as of December 31,
2016 was 2.0 years.
The following table summarizes the amount of tax benefit realized for stock options and cash received from the
exercise of stock options:
(In millions)
Tax benefit realized for stock options..................................... $
Cash received from the exercise of stock options ................... $
For the Years Ended December 31,
2016
2015
2014
4.0 $
2.2 $
11.9 $
6.3 $
13.0
8.5
Market Stock Units (MSUs)
MSUs awarded to employees prior to 2014 vested in four equal annual increments beginning on the first
anniversary of the grant date. Participants may ultimately earn between 0% and 150% of the target number of units
granted based on actual stock performance.
MSUs awarded to employees in 2014, 2015 and 2016 vest in three equal annual increments beginning on the
first anniversary of the grant date, and participants may ultimately earn between 0% and 200% of the target number
of units granted based on actual stock performance.
F- 43
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The vesting of these awards is subject to the respective employee’s continued employment. The number of
MSUs granted represents the target number of units that are eligible to be earned based on the attainment of
certain market-based criteria involving our stock price. The number of MSUs earned is calculated at each annual
anniversary from the date of grant over the respective vesting periods, resulting in multiple performance periods.
Accordingly, additional MSUs may be issued or currently outstanding MSUs may be cancelled upon final
determination of the number of awards earned. Compensation expense, including the effect of forfeitures, is
recognized over the applicable service period.
The following table summarizes our MSU activity:
Unvested at December 31, 2015 ................................................................
Granted (a) ..............................................................................................
Vested.....................................................................................................
Forfeited..................................................................................................
Unvested at December 31, 2016 ................................................................
Shares
269,000 $
168,000 $
(155,000) $
(52,000) $
230,000 $
Weighted
Average
Grant Date
Fair Value
339.89
328.03
244.68
371.62
355.60
(a) MSUs granted in 2016 include approximately 15,000 and 20,000 MSUs issued in 2016 based upon the attainment of
performance criteria set for 2013 and 2012, respectively, in relation to awards granted in those years. The remainder of
MSUs granted during 2016 include awards granted in conjunction with our annual awards made in February 2016 and MSUs
granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned
at the time of grant.
We value grants of MSUs using a lattice model with a Monte Carlo simulation. This valuation methodology
utilizes several key assumptions, including the 60 calendar day average closing stock price on grant date for MSUs
awarded prior to 2014, the 30 calendar day average closing stock price on the date of grant for MSUs awarded in
2014, 2015 and 2016, expected volatility of our stock price, risk-free rates of return and expected dividend yield.
The assumptions used in our valuation are summarized as follows:
Expected dividend yield .......................................
Range of expected stock price volatility ................
Range of risk-free interest rates...........................
30 calendar day average stock price on grant date $260.67 - $304.86 $277.35 - $426.27 $280.88 - $335.65
Weighted-average per share grant date fair value ..
$395.22
$493.43
$328.03
For the Years Ended December 31,
2015
—%
31.0% - 33.2%
0.2% - 1.0%
2014
—%
31.7% - 35.1%
0.1% - 0.7%
2016
—%
38.2% - 40.7%
0.6% - 0.9%
The total fair values of MSUs vested in 2016, 2015 and 2014 totaled $39.3 million, $109.0 million and
$117.4 million, respectively.
Cash Settled Performance Units (CSPUs)
CSPUs awarded to employees vest in three equal annual increments beginning on the first anniversary of the
grant date. The vesting of these awards is subject to the respective employee’s continued employment with such
awards settled in cash. The number of CSPUs granted represents the target number of units that are eligible to be
earned based on the attainment of certain performance measures established at the beginning of the performance
period, which ends on December 31 of each year. Participants may ultimately earn between 0% and 200% of the
target number of units granted based on the degree of actual performance metric achievement. Accordingly,
additional CSPUs may be issued or currently outstanding CSPUs may be cancelled upon final determination of the
number of units earned. CSPUs awarded prior to 2014 are settled in cash based on the 60 calendar day average
closing stock price through each vesting date once the actual vested and earned number of units is known. CSPUs
awarded in 2014, 2015 and 2016 will be settled in cash based on the 30 calendar day average closing stock price
through each vesting date, once the actual vested and earned number of units is known. Since no shares are issued,
these awards do not dilute equity. Compensation expense, including the effect of forfeitures, is recognized over the
applicable service period.
F- 44
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes our CSPU activity:
Unvested at December 31, 2015..........................................................................................
Granted (a)........................................................................................................................
Vested..............................................................................................................................
Forfeited ...........................................................................................................................
Unvested at December 31, 2016..........................................................................................
Shares
192,000
86,000
(117,000)
(39,000)
122,000
(a) CSPUs granted in 2016 include awards granted in conjunction with our annual awards made in February 2016 and CSPUs
granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned
at the time of grant.
The total cash paid in settlement of CSPUs vested in 2016, 2015 and 2014 totaled $31.9 million, $79.8
million and $92.8 million, respectively.
Performance-vested Restricted Stock Units (PUs)
In 2014 we revised our long term incentive program to include a new type of award granted to certain
employees in the form of restricted stock units that may be settled in cash or shares of our common stock at the
sole discretion of the Compensation and Management Development Committee of our Board of Directors. These
awards are structured and accounted for the same way as the cash settled performance units, and vest in three
equal annual increments beginning on the first anniversary of the grant date. The number of PUs granted represents
the target number of units that are eligible to be earned based on the attainment of certain performance measures
established at the beginning of the performance period, which ends on December 31 of each year. Participants may
ultimately earn between 0% and 200% of the target number of units granted based on the degree of actual
performance metric achievement. Accordingly, additional PUs may be issued or currently outstanding PUs may be
cancelled upon final determination of the number of units earned. PUs settling in cash are based on the 30 calendar
day average closing stock price through each vesting date once the actual vested and earned number of units is
known. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.
The following table summarizes our PU activity:
Unvested at December 31, 2015..........................................................................................
Granted (a)........................................................................................................................
Vested..............................................................................................................................
Forfeited ...........................................................................................................................
Unvested at December 31, 2016..........................................................................................
Shares
103,000
55,000
(31,000)
(17,000)
110,000
(a) PUs granted in 2016 include awards granted in conjunction with our annual awards made in February 2016 and PUs granted
in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the
time of grant.
During 2015 32,000 PU were converted to share settlements, of which approximately 11,000 shares were
vested and issued. All other PUs that vested in 2015 were settled in cash totaling $12.4 million.
All PUs that vested in 2016 were settled in cash totaling $8.1 million.
Time-Vested Restricted Stock Units (RSUs)
RSUs awarded to employees generally vest no sooner than one-third per year over three years on the
anniversary of the date of grant, or upon the third anniversary of the date of the grant, provided the employee
remains continuously employed with us, except as otherwise provided in the plan. Shares of our common stock will
be delivered to the employee upon vesting, subject to payment of applicable withholding taxes. RSUs awarded to
directors for service on our Board of Directors vest on the first anniversary of the date of grant, provided in each
case that the director continues to serve on our Board of Directors through the vesting date. Shares of our common
stock will be delivered to the director upon vesting and are not subject to any withholding taxes. The fair value of all
RSUs is based on the market value of our stock on the date of grant. Compensation expense, including the effect of
forfeitures, is recognized over the applicable service period.
F- 45
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes our RSU activity:
Unvested at December 31, 2015................................................................
Granted (a)..............................................................................................
Vested....................................................................................................
Forfeited .................................................................................................
Unvested at December 31, 2016................................................................
Shares
810,000 $
649,000 $
(406,000) $
(165,000) $
888,000 $
Weighted
Average
Grant Date
Fair Value
323.87
268.52
285.13
310.30
303.49
(a) RSUs granted in 2016 primarily represent RSUs granted in conjunction with our annual awards made in February 2016 and
awards made in conjunction with the hiring of new employees. RSUs granted in 2016 also include approximately 11,000
RSUs granted to our Board of Directors.
RSUs granted in 2015 and 2014 had weighted average grant date fair values of $388.88 and $321.72,
respectively.
The total fair values of RSUs vested in 2016, 2015 and 2014 totaled $104.6 million, $239.7 million and
$281.1 million, respectively.
Employee Stock Purchase Plan (ESPP)
In June 2015 our stockholders approved the Biogen Inc. 2015 ESPP (2015 ESPP). The 2015 ESPP which
became effective on July 1, 2015, replaced the Biogen Idec Inc. 1995 ESPP (1995 ESPP), which expired on June 30,
2015. The maximum aggregate number of shares of our common stock that may be purchased under the 2015
ESPP is 6.2 million.
PP
The following table summarizes our ESPP activity:
(In millions, except share amounts)
Shares issued under the 2015 ESPP ..................................
Shares issued under the 1995 ESPP ..................................
Cash received under the 2015 ESPP................................... $
Cash received under the 1995 ESPP................................... $
For the Years Ended December 31,
2015
2016
190,000
—
41.5 $
— $
78,000
98,000
19.3
30.0 $
2014
**
180,000
**
46.4
F- 46
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
16.
Income Taxes
Income Tax Expense
Income before income tax provision and the income tax expense consist of the following:
(In millions)
Income before income taxes (benefit):
For the Years Ended December 31,
2015
2014
2016
Domestic.......................................................................... $
Foreign .............................................................................
Total............................................................................. $
3,655.4 $
1,277.6
4,933.0 $
3,386.7 $
1,380.6
4,767.3 $
2,557.4
1,389.2
3,946.6
Income tax expense (benefit):
Current:
Federal ............................................................................. $
State................................................................................
Foreign .............................................................................
Total.............................................................................
Deferred:
Federal ............................................................................. $
State................................................................................
Foreign .............................................................................
Total.............................................................................
Total income tax expense................................................... $
1,304.3 $
55.1
52.9
1,412.3
(125.6) $
(3.8)
(45.6)
(175.0)
1,237.3 $
1,214.1 $
38.6
54.5
1,307.2
(129.6) $
(1.9)
(14.1)
(145.6)
1,161.6 $
1,159.5
65.2
73.4
1,298.1
(280.9)
(21.0)
(6.3)
(308.2)
989.9
Deferred Tax Assets and Liabilities
Significant components of our deferred tax assets and liabilities are summarized as follows:
(In millions)
Deferred tax assets:
2016
2015
Tax credits............................................................................................... $
Inventory, other reserves and accruals .......................................................
Intangibles, net ........................................................................................
Net operating loss....................................................................................
Share-based compensation.......................................................................
Other.......................................................................................................
Valuation allowance..................................................................................
Total deferred tax assets ...................................................................... $
Deferred tax liabilities:
Purchased intangible assets ..................................................................... $
Depreciation, amortization and other .........................................................
Total deferred tax liabilities ................................................................... $
201.1 $
250.6
459.8
65.9
61.5
49.0
(16.1)
1,071.8 $
(376.6) $
(113.5)
(490.1) $
189.3
243.9
328.3
24.7
63.8
35.8
(14.1)
871.7
(440.1)
(102.7)
(542.8)
In addition to deferred tax assets and liabilities, we have recorded prepaid tax and deferred charges related to
intercompany transactions. As of December 31, 2016 and 2015, the total deferred charges and prepaid taxes were
$989.8 million and $697.9 million, respectively.
F- 47
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Tax Rate
A reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:
For the Years Ended December 31,
2015
2014
2016
Statutory rate .......................................................................
State taxes...........................................................................
Taxes on foreign earnings......................................................
Credits and net operating loss utilization ................................
Purchased intangible assets ..................................................
Manufacturing deduction .......................................................
Other permanent items .........................................................
Other ...................................................................................
Effective tax rate.................................................................
35.0%
0.9
(9.6)
(1.4)
1.2
(1.9)
0.5
0.4
25.1%
35.0%
0.5
(10.0)
(1.3)
1.0
(1.8)
0.7
0.3
24.4%
35.0%
1.2
(9.5)
(1.1)
1.2
(1.8)
0.5
(0.4)
25.1%
Our effective tax rate for 2016 compared to 2015 increased primarily due to a net state tax benefit in 2015
resulting from the remeasurement of one of our uncertain tax positions, described below, and a higher relative
percentage of our earnings being attributed to the U.S., a higher tax jurisdiction.
Our effective tax rate for 2015 compared to 2014 benefited from lower taxes on foreign earnings and reflects a
$27.0 million benefit from the 2015 remeasurement of one of our uncertain tax positions.
As of December 31, 2016, we had net operating losses and general business credit carry forwards for federal
income tax purposes of approximately $22.5 million and $140.0 million, respectively, which begin to expire in 2020.
Additionally, for state income tax purposes, we had net operating loss carry forwards of approximately $86.4 million,
which begin to expire in 2017. For state income tax purposes, we also had research and investment credit carry
forwards of approximately $126.6 million, which begin to expire in 2017. For foreign income tax purposes, we had
$489.4 million of net operating loss carryforwards, which begin to expire in 2021.
In assessing the realizability of our deferred tax assets, we have considered whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in which those temporary differences
become deductible. In making this determination, under the applicable financial reporting standards, we are allowed
to consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning
strategies. Our estimates of future taxable income take into consideration, among other items, our estimates of
future income tax deductions related to the exercise of stock options. Based upon the level of historical taxable
income and income tax liability and projections for future taxable income over the periods in which the deferred tax
assets are utilizable, we believe it is more likely than not that we will realize the net benefits of the deferred tax
assets of our wholly owned subsidiaries. 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, 2016, undistributed foreign earnings of non-U.S. subsidiaries included in consolidated
retained earnings and other basis differences aggregated approximately $7.6 billion. We intend to reinvest these
earnings indefinitely in operations outside the U.S. The residual U.S. tax liability, if cumulative amounts were
repatriated, would be between $1.8 billion to $2.3 billion as of December 31, 2016.
F- 48
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accounting for Uncertainty in Income Taxes
A reconciliation of the beginning and ending amount of our unrecognized tax benefits is summarized as follows:
(In millions)
Balance at January 1, ............................................................... $
Additions based on tax positions related to the current period ...
Additions for tax positions of prior periods................................
Reductions for tax positions of prior periods .............................
Statute expirations .................................................................
Settlements ...........................................................................
Balance at December 31,.......................................................... $
2016
2015
2014
67.9 $
7.2
36.3
(13.3)
(1.4)
(64.3)
32.4 $
131.5 $
10.5
19.5
(49.9)
(1.2)
(42.5)
67.9 $
110.1
20.8
86.1
(23.4)
(1.6)
(60.5)
131.5
We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in the
U.S. federal jurisdiction, various U.S. states, and foreign jurisdictions. With few exceptions, including the proposed
disallowance we discuss below, we are no longer subject to U.S. federal tax examination for years before 2013 or
state, local, or non-U.S. income tax examinations for years before 2005.
Included in the balance of unrecognized tax benefits as of December 31, 2016, 2015 and 2014 are $26.9
million, $15.7 million and $53.6 million (net of the federal benefit on state issues), respectively, of unrecognized tax
benefits that, if recognized, would affect the effective income tax rate in future periods.
We recognize potential interest and penalties accrued related to unrecognized tax benefits in income tax
expense. In 2016 we recognized a net interest expense of $9.1 million. In 2015 we recognized net interest expense
of $3.1 million. In 2014 we recognized a net interest expense of approximately $4.1 million. We have accrued
approximately $25.2 million and $12.5 million for the payment of interest as of December 31, 2016 and 2015,
respectively.
In March 2015 we received a final assessment from the Danish Tax Authority (SKAT) for fiscal 2009 regarding
withholding taxes and the treatment of certain intercompany transactions involving a Danish affiliate and another of
our affiliates. In April 2016 we received final assessments from the SKAT for 2011 and 2013 regarding withholding
taxes for similar intercompany transactions. The total amount assessed for 2009, 2011 and 2013 is estimated to
be $58.3 million, including interest. For the assessments related to 2011 and 2013 we have made payments to
SKAT totaling $12.2 million. We continue to dispute the assessments for all of these periods and believe that the
positions taken in our historical filings are valid.
Federal Uncertain Tax Positions
During the year ended December 31, 2015, the net effect of adjustments to one of our uncertain tax positions
was a net benefit of approximately $27.0 million, primarily related to the state impact of a federal uncertain tax item.
It is reasonably possible that we will adjust the value of our uncertain tax positions related to our revenues
from anti-CD20 therapeutic programs and certain transfer pricing issues as we receive additional information from
various taxing authorities, including reaching settlements with the authorities. In addition, the IRS and other national
tax authorities routinely examine our intercompany transfer pricing with respect to intellectual property related
transactions and it is possible that they may disagree with one or more positions we have taken with respect to such
valuations.
F- 49
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
17.
Other Consolidated Financial Statement Detail
Supplemental Cash Flow Information
Supplemental disclosure of cash flow information for the years ended December 31, 2016, 2015 and 2014, is
as follows:
(In millions)
Cash paid during the year for:
For the Years Ended December 31,
2015
2014
2016
Interest......................................................................... $
Income taxes ................................................................ $
281.2 $
1,642.2 $
39.1 $
1,674.8 $
41.2
1,163.2
Non-cash Operating, Investing and Financing Activity
In December 2016 we accrued $454.8 million related to the recent settlement and license agreement with
Forward Pharma A/S (Forward Pharma). For additional information related to this transaction, please read Note 21,
Commitment and Contingencies to these consolidated financial statements.
In the fourth quarter of 2016 we accrued $300.0 million upon reaching $11.0 billion in total cumulative sales
of Fumapharm Products. The amount, net of tax benefit, was accounted for as an increase to goodwill in accordance
with the accounting standard applicable to business combinations when we acquired Fumapharm and is expected to
be paid in the first quarter of 2017. For additional information related to this transaction, please read Note 21,
Commitments and Contingencies to these consolidated financial statements.
In connection with the construction of our manufacturing facility in Solothurn, Switzerland, we accrued charges
related to processing equipment and engineering services of approximately $100.0 million in our consolidated
balance sheet. For additional information related to this transaction, please read Note 10, Property, Plant and
Equipment to these consolidated financial statements.
t
In February 2015 upon completion of our acquisition of Convergence, we recorded a contingent consideration
obligation of $274.5 million as part of the purchase price. For additional information related to this transaction,
please read Note 2, Acquisitions to these consolidated financial statements.
Other Income (Expense), Net
Components of other income (expense), net, are summarized as follows:
(In millions)
Interest income .................................................................. $
Interest expense ................................................................
Gain (loss) on investments, net ...........................................
Foreign exchange gains (losses), net....................................
Other, net...........................................................................
Total other income (expense), net...................................... $
For the Years Ended December 31,
2015
2014
2016
63.4 $
(260.0)
6.0
(9.8)
(17.0)
(217.4) $
22.1 $
(95.5)
(3.8)
(32.7)
(13.8)
(123.7) $
12.2
(29.5)
11.8
(11.6)
(8.7)
(25.8)
Other Current Assets
Other current assets include prepaid taxes totaling approximately $817.0 million and $550.6 million as of
December 31, 2016 and 2015, respectively.
F- 50
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accrued Expenses and Other
Accrued expenses and other consists of the following:
(In millions)
Current portion of contingent consideration obligations ................................. $
Accrued TECFIDERA litigation settlement and license charges ........................
Revenue-related reserves for discounts and allowances ................................
Employee compensation and benefits ..........................................................
Royalties and licensing fees ........................................................................
Construction in progress .............................................................................
Collaboration expenses...............................................................................
Other .........................................................................................................
Total accrued expenses and other.............................................................. $
As of December 31,
2016
2015
580.8 $
454.8
438.6
282.9
195.8
134.0
130.9
685.7
2,903.5 $
504.7
—
518.1
270.8
167.9
87.9
31.2
516.2
2,096.8
Pricing of TYSABRI in Italy - AIFA
In the fourth quarter of 2011 Biogen Italia SRL, our Italian subsidiary, received a notice from the Italian National
Medicines Agency (Agenzia Italiana del Farmaco or AIFA) that sales of TYSABRI after mid-February 2009 through mid-
February 2011 exceeded by EUR30.7 million a reimbursement limit established pursuant to a Price Determination
Resolution granted by AIFA in December 2006. In January 2012 we filed an appeal against AIFA in administrative
court in Rome, Italy seeking a ruling that the reimbursement limit in the Price Determination Resolution should apply
as written to only “the first 24 months” of TYSABRI sales, which ended in mid-February 2009. That appeal is still
pending. Since being notified in the fourth quarter of 2011 that AIFA believed a reimbursement limit was still in
effect, we deferred revenue on sales of TYSABRI as if the reimbursement limit were in effect for each biannual period
beginning in mid-February 2009.
In July 2013 we negotiated an agreement in principle with AIFA's Price and Reimbursement Committee that
would have resolved all of AIFA's claims relating to sales of TYSABRI in excess of the reimbursement limit for the
periods from February 2009 through January 2013 for an aggregate repayment of EUR33.3 million. As a result of
this agreement in principle, we recorded a liability and reduction to revenue of EUR15.4 million at June 30, 2013,
which approximated 50% of the claim related to the period from mid-February 2009 through mid-February 2011. As
of December 31, 2016, we have approximately EUR79 million recorded as accrued expenses and other in our
consolidated balance sheets for the periods mid-February 2009 through January 2013, respectively.
In June 2014 AIFA approved a resolution affirming that there is no reimbursement limit from and after February
2013. As a result, we recognized $53.5 million of TYSABRI revenues related to the periods February 2013 through
June 2014 that were previously deferred.
In January 2017 we negotiated an agreement in principle with AIFA's Price and Reimbursement Committee to
settle all of AIFA's existing claims relating to sales of TYSABRI in excess of the reimbursement limit for the periods
from February 2009 through January 2013 for an aggregate repayment of EUR37.4 million. The agreement is subject
to ratification by AIFA. If this most recent settlement agreement is accepted, we will recognize approximately EUR42
million in revenue upon final resolution of this matter.
F- 51
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
18.
Investments in Variable Interest Entities
Consolidated Variable Interest Entities
Our consolidated financial statements include the financial results of variable interest entities in which we are
the primary beneficiary. The following are our significant variable interest entities.
Neurimmune SubOne AG
In 2007 we entered into a collaboration agreement with Neurimmune SubOne AG (Neurimmune), a subsidiary
of Neurimmune AG, for the development and commercialization of antibodies for the treatment of Alzheimer’s
disease. Neurimmune conducts research to identify potential therapeutic antibodies and we are responsible for the
development, manufacturing and commercialization of all products. Our anti-amyloid beta antibody, aducanumab, for
the treatment of Alzheimer’s disease resulted from this collaboration. In September 2015 we announced that the
first patient had been enrolled in a Phase 3 trial for aducanumab, which triggered a $60.0 million milestone payment
due to Neurimmune. As we consolidate the financial results of Neurimmune, we recognized this payment as a charge
to noncontrolling interest in the third quarter of 2015. Based upon our current development plans for aducanumab,
we may pay Neurimmune up to $275.0 million in remaining milestone payments. We may also pay royalties in the
low-to-mid-teens on sales of any resulting commercial products.
We determined that we are the primary beneficiary of Neurimmune because we have the power through the
collaboration to direct the activities that most significantly impact the entity’s economic performance and are
required to fund 100% of the research and development costs incurred in support of the collaboration agreement.
Accordingly, we consolidate the results of Neurimmune.
We are required to reimburse Neurimmune for amounts that are incurred by Neurimmune for research and
development expenses in support of the collaboration. Amounts reimbursed are reflected in research and
development expense in our consolidated statements of income. During the years ending December 31, 2016, 2015
and 2014, these amounts were immaterial. Future milestone payments and royalties, if any, will be reflected in our
consolidated statements of income as a charge to noncontrolling interest, net of tax, when such milestones are
achieved.
The assets and liabilities of Neurimmune are not significant to our financial position or results of operations as
it is a research and development organization. We have provided no financing to Neurimmune other than previously
contractually required amounts.
Rodin Therapeutics, Inc.
In December 2015 we paid $8.0 million for preferred stock in Rodin Therapeutics, Inc. (Rodin) and entered into
an option and collaboration agreement which gave us the right to purchase all remaining outstanding shares of
Rodin at any time until 35 days after acceptance of an Investigational New Drug (IND) application by the FDA. As we
determined that we were the primary beneficiary of Rodin, we consolidated the results of Rodin and recorded an
IPR&D intangible asset of approximately $8.7 million and assigned approximately $10.9 million to noncontrolling
interest.
During the fourth quarter of 2016 we terminated our collaboration agreement with Rodin. Upon termination of
the collaboration agreement, we deconsolidated the results of Rodin and impaired the IPR&D asset, resulting in an
impairment loss of $8.7 million related to the IPR&D asset recorded upon entering into the collaboration agreement.
The assets and liabilities of Rodin were not significant to our financial position or results of operations as
Rodin is a research and development organization. We had provided no financing to Rodin other than the
contractually required amounts disclosed above.
Ataxion Inc.
In February 2014 we paid $1.6 million for preferred stock in Ataxion, Inc. (Ataxion) and entered into an option
and collaboration agreement which gave us the right to purchase all outstanding shares of Ataxion at any time until
30 days after delivery of a Phase 1 clinical trial study report. As we determined that we were the primary beneficiary
of Ataxion, we consolidated the results of Ataxion and recorded an IPR&D intangible asset of $3.5 million and
assigned that amount to noncontrolling interest.
F- 52
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the fourth quarter of 2016 we terminated our option agreement with Ataxion. Upon termination of the
collaboration agreement, we deconsolidated the results of Ataxion and impaired the IPR&D asset, resulting in an
impairment loss of $3.5 million related to the IPR&D asset recorded upon entering into the collaboration agreement.
The assets and liabilities of Ataxion were not significant to our financial position or results of operations as
Ataxion is a research and development organization. We had provided no financing to Ataxion other than the
contractually required amounts disclosed above.
Unconsolidated Variable Interest Entities
We have relationships with other variable interest entities that we do not consolidate as we lack the power to
direct the activities that significantly impact the economic success of these entities. These relationships include
investments in certain biotechnology companies and research collaboration agreements.
As of December 31, 2016 and 2015, the total carrying value of our investments in biotechnology companies
totaled $47.4 million and $29.2 million, respectively. Our maximum exposure to loss related to these variable
interest entities is limited to the carrying value of our investments.
We have also entered into research collaboration agreements with certain variable interest entities where we
are required to fund certain development activities. These development activities are included in research and
development expense in our consolidated statements of income, as they are incurred. We have provided no financing
to these variable interest entities other than previously contractually required amounts.
19.
Collaborative and Other Relationships
In connection with our business strategy, we have entered into various collaboration agreements which provide
us with rights to develop, produce and market products using certain know-how, technology and patent rights
maintained by our collaborative partners. Terms of the various collaboration agreements may require us to make
milestone payments upon the achievement of certain product research and development objectives and pay royalties
on future sales, if any, of commercial products resulting from the collaboration.
Depending on the collaborative arrangement, we may record funding receivable or payable balances with our
partners, based on the nature of the cost-sharing mechanism and activity within the collaboration. Our significant
collaboration arrangements are discussed below.
Genentech (Roche Group)
We have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's
lymphoma (NHL), chronic lymphocytic leukemia (CLL) and other conditions, GAZYVA indicated for the treatment of
CLL and follicular lymphoma, and other potential anti-CD20 therapies under a collaboration agreement with
Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group. The Roche Group and its sub-licensees
maintain sole responsibility for the development, manufacturing and commercialization of GAZYVA in the U.S.
Our collaboration agreement will continue in effect until we mutually agree to terminate the collaboration,
except that if we undergo a change in control, as defined in the collaboration agreement, Genentech has the right to
present an offer to buy the rights to RITUXAN and we must either accept Genentech’s offer or purchase Genentech’s
rights on the same terms as its offer. Genentech will also be deemed concurrently to have purchased our rights to
any other anti-CD20 products in development in exchange for a royalty and our rights to GAZYVA in exchange for the
compensation described in the table below. Our collaboration with Genentech was created through a contractual
arrangement and not through a joint venture or other legal entity.
RITUXAN
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 in the U.S.
F- 53
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Canada
We and Genentech have assigned our rights under our collaboration agreement with respect to Canada to the
Roche Group.
GAZYVA
We recognize our share of the development and commercialization expenses of GAZYVA as a reduction of our
share of pre-tax profits in revenues from anti-CD20 therapeutic programs.
Commercialization of GAZYVA impacts our percentage of the co-promotion profits for RITUXAN, as summarized
in the table below.
OCREVUS (Ocrelizumab)
Genentech is solely responsible for development and commercialization of OCREVUS, a humanized anti-CD20
monoclonal antibody currently in development for MS, and funding future costs. Genentech cannot develop
OCREVUS in CLL, NHL or Rheumatoid Arthritis (RA). We will receive tiered royalties between 13.5% and 24% on U.S.
net sales of OCREVUS if approved for commercial sale by the FDA. The FDA has accepted for review the Biologics
License Application for OCREVUS for the treatment of relapsing multiple sclerosis (RMS) and primary-progressive
multiple sclerosis (PPMS), and has granted the application Priority Review Designation. There will be a 50% reduction
to these royalties if a biosimilar to OCREVUS is approved in the U.S. In addition, we will receive a 3% royalty on net
sales of OCREVUS outside the U.S., with the royalty period lasting 11 years from the first commercial sale of
OCREVUS on a country-by-country basis. In June 2016 the European Medicines Agency (EMA) validated its marketing
authorization application (MAA) of OCREVUS for the treatment of RMS and PPMS in the E.U.
Commercialization of OCREVUS will not impact the percentage of the co-promotion profits we receive for
RITUXAN or GAZYVA.
Profit-sharing Formulas
RITUXAN Profit Share
Our current pretax co-promotion profit-sharing formula for RITUXAN provides for a 30% share on the first $50.0
million of co-promotion operating profits earned each calendar year. Our share of annual co-promotion profits in
excess of $50.0 million varies, as summarized in the table below, upon the following events:
Until GAZYVA First Non-CLL FDA Approval ..............................................................................
After GAZYVA First Non-CLL FDA Approval until First GAZYVA Threshold Date ............................
After First GAZYVA Threshold Date until Second GAZYVA Threshold Date .................................
After Second GAZYVA Threshold Date ...................................................................................
40.0%
39.0%
37.5%
35.0%
First Non-CLL GAZYVA FDA Approval means the FDA’s first approval of GAZYVA in an indication other than CLL.
pp
First GAZYVA Threshold Date means the earlier of (1) the date of the First Non-CLL GAZYVA FDA approval if U.S.
gross sales of GAZYVA for the preceding consecutive 12 month period were at least $150.0 million or (2) the
first day of the calendar quarter after the date of the First Non-CLL GAZYVA FDA Approval that U.S. gross sales
of GAZYVA within any consecutive 12 month period have reached $150.0 million.
Second GAZYVA Threshold Date means the first day of the calendar quarter after U.S. gross sales of GAZYVA
within any consecutive 12 month period have reached $500.0 million. The Second GAZYVA Threshold Date can
be achieved regardless of whether GAZYVA has been approved in a non-CLL indication.
Our share of RITUXAN pre-tax profits in the U.S. decreased to 39% from 40% as GAZYVA was approved by the
FDA in follicular lymphoma in February 2016.
In addition, should the FDA approve an anti-CD20 product other than OCREVUS or GAZYVA that is acquired or
developed by Genentech and subject to the collaboration agreement, our share of the co-promotion operating profits
would be between 30% and 38% based on certain events.
F- 54
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GAZYVA Profit Share
Our current pretax profit-sharing formula for GAZYVA provides for a 35% share on the first $50.0 million of
operating profits earned each calendar year. Our share of annual profits in excess of $50.0 million varies, as
summarized in the table below, upon the following events:
Until First GAZYVA Threshold Date ........................................................................................
After First GAZYVA Threshold Date until Second GAZYVA Threshold Date .................................
After Second GAZYVA Threshold Date ...................................................................................
39.0%
37.5%
35.0%
In 2016, 2015 and 2014, our share of operating losses on GAZYVA was 35%.
Revenues from Anti-CD20 Therapeutic Programs
Revenues from anti-CD20 therapeutic programs are summarized as follows:
(In millions)
Biogen's share of pre-tax profits in the U.S. for RITUXAN and
GAZYVA, including the reimbursement of selling and
development expenses ........................................................ $
Revenue on sales in the rest of world for RITUXAN.................
Total revenues from anti-CD20 therapeutic programs ....... $
2016
2015
2014
1,249.5 $
65.0
1,314.5 $
1,269.8 $
69.4
1,339.2 $
1,117.1
78.3
1,195.4
In 2016 the 39% profit-sharing threshold was met during the first quarter. In 2015 and 2014, the 40% profit-
sharing threshold was met during the first quarter.
Prior to regulatory approval, we record our share of the expenses incurred by the collaboration for the
development of anti-CD20 products in research and development expense in our consolidated statements of
income. After an anti-CD20 product is approved, we record our share of the development expenses related to that
product as a reduction of our share of pre-tax profits in revenues from anti-CD20 therapeutic programs.
Acorda
In 2009 we entered into a collaboration and license agreement with Acorda Therapeutics, Inc. (Acorda) to
develop and commercialize products containing fampridine in markets outside the U.S, including FAMPYRA. We also
have responsibility for regulatory activities and the future clinical development of related products in those markets.
Under the terms of the collaboration and license agreement, we pay Acorda tiered royalties based on the level
of ex-U.S. net sales. We may pay up to $375.0 million of additional milestone payments to Acorda based on the
successful achievement of certain regulatory and commercial milestones. The next expected milestone would be
$15.0 million, due if ex-U.S. net sales reach $100.0 million over a period of four consecutive quarters. We will
capitalize these additional milestones as intangible assets upon achievement of the milestone which will then be
amortized utilizing an economic consumption model and recognized as amortization of acquired intangible assets.
Royalty payments are recognized as a cost of goods sold.
In connection with the collaboration and license agreement, we have also entered into a supply agreement with
Acorda for the commercial supply of FAMPYRA. This agreement is a sublicense arrangement of an existing
agreement between Acorda and Alkermes, who acquired Elan Drug Technologies, the original party to the license with
Acorda. During the years ending December 31, 2016, 2015 and 2014, total cost of sales related to royalties and
commercial supply of FAMPRYA reflected in our consolidated statements of income were $31.5 million, $30.6 million
and $29.2 million, respectively.
F- 55
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
AbbVie
We have a collaboration agreement with AbbVie aimed at advancing the development and commercialization of
ZINBRYTA in MS, which was approved for the treatment of relapsing forms of MS in the U.S. in May 2016 and the
E.U. in July 2016. We made milestone payments totaling $32.0 million related to these approvals, which were
capitalized as intangible assets, net in our consolidated balance sheets.
Under the agreement, we and AbbVie conduct ZINBRYTA co-promotion activities in the U.S., E.U. and Canadian
territories (Collaboration Territory), where development and commercialization costs and profits are shared equally.
Outside of the Collaboration Territory, we are solely responsible for development and commercialization of ZINBRYTA
and will pay a tiered royalty to AbbVie as a percentage of net sales in the low to high teens.
We are responsible for manufacturing and research and development activities in both the Collaboration
Territory and outside the Collaboration Territory and will record these activities within their respective lines in our
consolidated statements of income, net of any reimbursement of research and development expenditures received
from AbbVie. For the years ended December 31, 2016, 2015 and 2014, the collaboration incurred $48.6 million,
$113.8 million and $117.8 million for research and development activities, for which we recognized $24.3 million,
$60.8 million and $67.4 million, respectively, in our consolidated statements of income. During 2015 we made
milestone payments of $16.0 million for the development of ZINBRYTA as a result of filing for regulatory approval in
the U.S. and E.U. during the year. These payments were recorded as research and development expense in our
consolidated statements of income.
Prior to regulatory approval, we also recognized $22.0 million of pre-commercialization expenses within our
selling, general and administrative expense, which represents 50% of the collaboration's pre-commercialization
costs for 2016. After ZINBRYTA was approved by the FDA and EMA in 2016, we began to recognize our share of the
collaboration activities within the U.S., E.U. and Canadian territories as described below.
Co-promotion Profits and Losses
In the U.S., AbbVie recognizes revenues on sales to third parties and we recognize our 50% share of the co-
promotion profits or losses as a component of total revenues in our consolidated statements of income. The
collaboration began selling ZINBRYTA in the U.S. in the third quarter of 2016. For the year ended December 31,
2016, we recognized a net reduction in revenue of $21.9 million to reflect our share of an overall net loss within the
collaboration.
The following table provides a summary of the U.S. collaboration and our share of the co-promotion losses on
ZINBRYTA in the U.S.:
For the Year Ended
December 31,
(In millions)
Product revenues, net ............................................................................................................. $
Costs and expenses ...............................................................................................................
2016
Co-promotion losses in the U.S................................................................................................ $
Biogen's share of co-promotion losses in the U.S. .................................................................... $
6.1
50.0
43.9
21.9
In the E.U. and Canada, we recognize revenues on sales to third parties in product revenues, net in our
consolidated statements of income. We also record the related cost of revenues and sales and marketing expenses
to their respective line items in our consolidated statements of income as these costs are incurred. We reimburse
AbbVie for their 50% share of the co-promotion profits or losses in the E.U. and Canada. This reimbursement is
recognized in collaboration profit (loss) sharing in our consolidated statements of income. We began to recognize
product revenues on sales of ZINBRYTA in the E.U. in the third quarter of 2016. For the year ended December 31,
2016, we recognized income of $4.9 million to reflect AbbVie's 50% sharing of the net collaboration losses in the
E.U. and Canada.
F- 56
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Swedish Orphan Biovitrum AB (publ)
In January 2007 we acquired 100% of the stock of Syntonix. Syntonix, now known as Bioverativ Therapeutics
Inc. (formerly Biogen Hemophilia Inc.), had previously entered into a collaboration agreement with Swedish Orphan
Biovitrum AB (publ) (Sobi) to jointly develop and commercialize Factor VIII and Factor IX hemophilia products,
including ELOCTATE and ALPROLIX. Under an amended and restated collaboration agreement, we have commercial
rights for North America (the Biogen North America Territory) and for rest of the world markets outside of the Sobi
Territory, as defined below (the Biogen Direct Territory). Subject to the exercise of an option right that Sobi controls,
Sobi has commercial rights in substantially all of Europe, Russia and certain countries in Northern Africa and the
Middle East (the Sobi Territory). The collaboration agreement was amended and restated in April 2014. (References
to the collaboration agreement refer to the amended and restated collaboration agreement).
In November 2014 Sobi exercised its option to assume final development and commercialization activities in
the Sobi Territory for ELOCTA (the trade name for ELOCTATE in the E.U.). In July 2015 Sobi exercised its option to
assume final development and commercialization of ALPROLIX in the Sobi Territory. Upon each exercise of opt-in right
under the terms of the collaboration agreement, Sobi made a $10.0 million payment in escrow.
ELOCTA was approved by the EC in November 2015 and Sobi had its first commercial sale of ELOCTA in
January 2016. In March 2016 the EC approved the transfer of the marketing authorization for ELOCTA in the E.U.
from Biogen to Sobi, making Sobi the marketing authorization holder of ELOCTA in the E.U. As the marketing
authorization holder, Sobi assumes full legal responsibility for ELOCTA, from a regulatory perspective, during its
entire life cycle in the E.U. As of December 31, 2016, approximately $144.0 million in expenditures for ELOCTA, net
of the $10.0 million escrow payment and other royalty adjustments as described in the table and its footnote (3)
below, are reimbursable by Sobi under the collaboration agreement due to its election to assume final development
and commercialization of ELOCTA within the Sobi Territory, which is the Opt-In Consideration for ELOCTA. This
reimbursement will be recognized by us as royalty revenue in proportion to collaboration revenues, over a ten-year
period, consistent with the initial patent term of the product.
ALPROLIX was approved in the E.U. by the EC in May 2016 and Sobi had its first commercial sale in June
2016. In September 2016 the EC approved the transfer of the marketing authorization for ALPROLIX in the E.U. from
Biogen to Sobi, making Sobi the marketing authorization holder of ALPROLIX in the E.U. As the marketing
authorization holder, Sobi assumes full legal responsibility for ALPROLIX, from a regulatory perspective, during its
entire life cycle in the E.U. As of December 31, 2016, approximately $123.0 million in expenditures for ALPROLIX,
net of the $10.0 million escrow payment and other royalty adjustments as described in the table and its footnote (3)
below, are reimbursable to us by Sobi under the collaboration agreement due to Sobi's election to assume final
development and commercialization of ALPROLIX in the Sobi Territory, which is the Opt-In Consideration for
ALPROLIX. This reimbursement will be recognized by us as royalty revenue in proportion to collaboration revenues,
over a ten-year period, consistent with the initial patent term of the product.
The Opt-In Consideration for each product will be paid by Sobi using a cross-royalty cash payment structure for
sales in each company’s respective territories as an adjustment to the Base Rate in the table below. Under the
collaboration agreement, cash payments are as follows:
Royalty and Net Revenue Share Rates:
Sobi rate to Biogen on net sales in the Sobi Territory
Biogen rate to Sobi on net sales in the Biogen North
America Territory
Biogen rate to Sobi on net sales in the Biogen Direct
Territory
Biogen rate to Sobi on net revenue(1)
from the Biogen Distributor Territory(2)
Method
Royalty
Royalty
Royalty
Net
Revenue
Share
Rates post Sobi Opt-In(3)
Base Rate following
1st commercial sale in
the Sobi Territory:
12%
12%
17%
50%
Rate during the
Reimbursement
Period:
Base Rate
plus 5%
Base Rate
less 5%
Base Rate
less 5%
Base Rate
less 15%
(1) Net revenue represents Biogen’s pre-tax receipts from third-party distributors, less expenses incurred by Biogen in the
conduct of commercialization activities supporting the distributor activities.
(2) The Biogen Distributor Territory represents Biogen territories where sales are derived utilizing a third-party distributor.
F- 57
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(3) A credit will be issued to Sobi against its reimbursement of the Opt-in Consideration for each product in an amount equal to
the difference in the rate paid by Biogen to Sobi on sales in the Biogen territories for certain periods prior to the first
commercial sale in the Sobi Territory versus the rate that otherwise would have been payable on such sales.
We are recording revenue at the effective royalty rate expected over the term of the agreement of approximately
14% and recording cost of sales at the effective royalty rate expected over the term of the agreement of
approximately 11%.
If the reimbursement of the Opt-in Consideration has not been achieved within six years of the first commercial
sale of such product, we maintain the right to require Sobi to pay any remaining balances due to us within 90 days of
the six-year anniversary date of the first commercial sale.
Following the spin-off of our hemophilia business, this collaboration agreement with Sobi will continue with
Bioverativ, an independent public company. For additional information about the spin-off, please see Note 1,
Summary of Significant Accounting Policies and Note 26, Subsequent Events to these consolidated financial
statements.
Ionis Pharmaceuticals, Inc.
Long-Term Strategic Research Collaboration
In September 2013 we entered into a six-year research collaboration with Ionis, formerly known as Isis
Pharmaceuticals Inc. under which both companies collaborate to perform discovery level research and then develop
and commercialize antisense or other therapeutics for the treatment of neurological disorders. Under the
collaboration, Ionis will perform research on a set of neurological targets identified within the agreement. Once the
research has reached a specific stage of development, we will make the determination whether antisense is the
preferred approach to develop a therapeutic candidate or whether another modality is preferred. If antisense is
selected, Ionis will continue development and identify a product candidate. If another modality is used, we will
assume the responsibility for identifying a product candidate and developing it.
Under the terms of this agreement, we paid Ionis an upfront amount of $100.0 million. Of this payment, we
recorded prepaid research and discovery services of approximately $25.0 million, representing the value of the Ionis
full time equivalent employee resources which are required by the collaboration to provide research and discovery
services to us over the term. The remaining $75.0 million of the upfront payment was recorded as research and
development expense as it represented the purchase of intellectual property that had not reached technological
feasibility.
Ionis is also eligible to receive milestone payments, license fees and royalty payments for all product
candidates developed through this collaboration, with the specific amount dependent upon the modality of the
product candidate advanced by us. During the years ending December 31, 2016, 2015 and 2014, we triggered
milestones of $5.5 million, $20.0 million and $20.0 million, respectively, related to the advancement of IONIS-
SOD1Rx for the treatment of ALS and other neurological targets identified.
For non-ALS antisense product candidates, Ionis will be responsible for global development through the
completion of a Phase 2 trial and we will provide advice on the clinical trial design and regulatory strategy. For ALS
antisense product candidates, we are responsible for global development, clinical trial design and regulatory
strategy. We have an option to license a product candidate until completion of the Phase 2 trial. If we exercise our
option, we will pay Ionis up to a $70.0 million license fee and assume global development, regulatory and
commercialization responsibilities. Ionis could receive additional milestone payments upon the achievement of
certain regulatory milestones of up to $130.0 million, plus additional amounts related to the cost of clinical trials
conducted by Ionis under the collaboration, and royalties on future sales if we successfully develop the product
candidate after option exercise.
For product candidates using a different modality, we will be responsible for global development through all
stages and will pay Ionis up to $90.0 million upon the achievement of certain regulatory milestones and royalties on
future sales if we successfully develop the product candidate.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Product Collaborations
In 2012 we entered into three separate exclusive worldwide option and collaboration agreements with Ionis
under which both companies will develop and commercialize SPINRAZA (nusinersen) for the treatment of SMA,
antisense therapeutics for up to three gene targets and IONIS-DMPKRX for the treatment of myotonic dystrophy type 1
(DM1), respectively.
SPINRAZA (nusinersen)
In January 2012 we entered into an exclusive worldwide option and collaboration agreement with Ionis under
which both companies will develop and commercialize the antisense investigational drug candidate, SPINRAZA, for
the treatment of SMA. Under the terms of this agreement, we paid Ionis $29.0 million as an upfront payment. During
2014 we amended the agreement to adjust the amount of potential additional payments and terms of the exercise
of our opt-in right to license SPINRAZA, which included providing for additional opt-in scenarios, based on the filing or
acceptance of a new drug application (NDA) or marketing authorization application with the FDA or EMA. Consistent
with the initial agreement, Ionis remained responsible for conducting the pivotal/Phase 3 trials and we provided
input on the clinical trial design and regulatory strategy for the development of SPINRAZA.
During 2016, 2015 and 2014, we triggered clinical trial payments of $35.3 million, $42.8 million and $57.3
million, respectively, related to the advancement of the program.
In August 2016 we and Ionis announced that SPINRAZA met the primary endpoint for the interim analysis of
the Phase 3 trial evaluating SPINRAZA in infantile-onset SMA. In November 2016 we and Ionis announced that
SPINRAZA met the primary endpoint for the interim analysis of the Phase 3 trial evaluating SPINRAZA in later-onset
SMA. During the third quarter of 2016 we exercised our option to develop and commercialize SPINRAZA and paid
Ionis a $75.0 million license fee in connection with the option exercise. This amount was recognized as research
and development expense in our consolidated statements of income. In December 2016 SPINRAZA was approved by
the FDA for the treatment of SMA in pediatric and adult patients in the U.S. During the fourth quarter of 2016 we
accrued a $60.0 million milestone payment due to Ionis for the approval of SPINRAZA in the U.S. This amount was
capitalized in intangible assets, net in our consolidated balance sheets.
During the years ending December 31, 2016, 2015 and 2014, $257.8 million, $74.9 million and $27.7 million,
respectively, were reflected in research and development expense in our consolidated statements of income related
to the advancement of the program.
We may pay Ionis up to approximately $90.0 million in additional milestone payments upon the achievement of
certain regulatory milestones as well as a royalty rate in the mid-teens on future sales of SPINRAZA.
Antisense Therapeutics
Under the terms of the December 2012 agreement relating to the development and commercialization of up to
three gene targets we provided Ionis with an upfront payment of $30.0 million and agreed to make potential
additional payments, prior to licensing, of up to $10.0 million based on the development of the selected product
candidate as well as a mark-up of the cost estimate of the Phase 1 and Phase 2 trials. During 2015 we triggered a
$10.0 million milestone payment. Ionis will be responsible for global development of any product candidate through
the completion of a Phase 2 trial and we will provide advice on the clinical trial design and regulatory strategy. We
have an option to license the product candidate until completion of the Phase 2 trial. If we exercise our option, we
will pay Ionis up to a $70.0 million license fee and assume global development, regulatory and commercialization
responsibilities. Ionis could receive up to another $130.0 million in milestone payments upon the achievement of
certain regulatory milestones as well as royalties on future sales if we successfully develop the product candidate
after option exercise.
IONIS-DMPKRx
Under the terms of the June 2012 agreement for the DM1 candidate, we provided Ionis with an upfront
payment of $12.0 million and agreed to make potential additional payments, prior to licensing, of up to $59.0 million
based on the development of the selected product candidate. During 2015 we amended the agreement to adjust the
amount of potential additional payments by an additional $4.2 million due to changes in the clinical trial design.
F- 59
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During 2016 we terminated the development of the IONIS-DMPKRx product candidate to treat DM1 and returned
the product to Ionis. During the years ending December 31, 2016, 2015 and 2014, $3.1 million, $9.0 million and
$10.9 million, respectively, were reflected in research and development expense in our consolidated statements of
income.
Eisai Co., Ltd.
BAN2401 and E2609 Collaboration
In March 2014 we entered into a collaboration agreement with Eisai Co., Ltd. (Eisai) (Eisai Collaboration
Agreement) to jointly develop and commercialize two Eisai product candidates for the treatment of Alzheimer’s
disease, BAN2401, a monoclonal antibody that targets amyloid-beta aggregates, and E2609, a BACE inhibitor. Under
the Eisai Collaboration Agreement, Eisai serves as the global operational and regulatory lead for both compounds
and all costs, including research, development, sales and marketing expenses, will be shared equally by us and
Eisai. Following marketing approval in major markets, such as the U.S., the E.U. and Japan, we will co-promote
BAN2401 and E2609 with Eisai and share profits equally. In smaller markets, Eisai will distribute these products
and pay us a royalty. The Eisai Collaboration Agreement also provides the parties with certain rights and obligations
in the event of a change in control of either party.
The Eisai Collaboration Agreement also provides Eisai an option to jointly develop and commercialize
aducanumab, our anti-amyloid beta antibody candidate for Alzheimer’s disease (Aducanumab Option) and an option
to jointly develop and commercialize one of our anti-tau monoclonal antibodies (Anti-Tau Option). Upon exercise of
each of the Aducanumab Option and the Anti-Tau Option, we will execute a separate collaboration agreement with
Eisai on terms and conditions that mirror the Eisai Collaboration Agreement.
Aducanumab Option
Eisai may exercise the Aducanumab Option after either (i) the Phase 1b clinical trial for aducanumab and the
Phase 2 clinical trial for BAN2401 (Post-Phase 2 Aducanumab Option), or (ii) completion of the Phase 3 clinical trial
for aducanumab (Post-Phase 3 Aducanumab Option) under certain conditions.
The consideration we will receive if Eisai exercises the Post-Phase 2 Aducanumab Option depends on the
development status of BAN2401. If BAN2401 is then determined to advance to Phase 3, we will be entitled to
receive a single payment from Eisai upon regulatory approval of aducanumab and we will no longer be required to
pay Eisai any milestone payments for products containing BAN2401 under the Eisai Collaboration Agreement. If the
development of BAN2401 has instead been terminated, we will receive development and commercial milestone
payments from Eisai (Post-Phase 2 Aducanumab Milestone Payments). If Eisai does not exercise its Post-Phase 2
Aducanumab Option, we may elect to terminate the Eisai Collaboration Agreement with respect to BAN2401 but,
under certain conditions, will have the option to reinstate the Eisai Collaboration Agreement after completion of a
BAN2401 Phase 3 clinical trial.
If Eisai exercises its Post-Phase 3 Aducanumab Option, Eisai will be required to pay us all Phase 3
development and commercialization costs plus a mark-up and an amount equal to any unpaid Post-Phase 2
Aducanumab Milestone Payments that would have been payable if Eisai had exercised its Post-Phase 2 Aducanumab
Option.
Anti-Tau Option
Eisai may exercise the Anti-Tau Option after completion of the Phase 1 clinical trial of such anti-tau monoclonal
antibody. If Eisai exercises its Anti-Tau Option, we will receive an upfront payment from Eisai and will be entitled to
additional development and commercial milestone payments.
Upon the effective date of the Eisai Collaboration Agreement, we paid Eisai $100.0 million and recorded $17.7
million, reflecting the fair value of the options granted under the Eisai Collaboration Agreement, both of which were
classified as research and development expense in our consolidated statements of income. During the second
quarter of 2014 Eisai exercised its option under the Eisai Collaboration Agreement to expand the joint development
and commercialization activities to include Japan. Upon such exercise, we paid Eisai an additional $35.0 million, and
recorded $21.6 million as research and development expense in our consolidated statements of income, which
represented the difference between the payment made upon exercise of the option and the fair value of that option
recorded as research and development expense upon closing of the agreement in the first quarter of 2014. During
the fourth quarter of 2016 we recognized a $50.0 million milestone payment related to the initiation of a phase 3
F- 60
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
trial for E2609, which is included in research and development expense in our consolidated statements of income.
We could pay Eisai up to an additional $1.0 billion under the Eisai Collaboration Agreement based on the future
achievement of certain development, regulatory and commercial milestones.
In addition to our arrangements with Eisai, Neurimmune is entitled to milestone and royalty payments related to
the development and commercialization of aducanumab and certain anti-tau antibodies. For additional information
regarding our agreement with Neurimmune, please see Note 18, Investments in Variable Interest Entities to these
consolidated financial statements.
A summary of activity related to our collaboration with Eisai is as follows:
(In millions)
Total development expense incurred by the collaboration............ $
Biogen’s share of development expense, excluding upfront and
milestone payments, reflected in our consolidated statements of
income.................................................................................... $
Applied Genetic Technologies Corporation
For the Years Ended
December 31,
2016
2015
2014
95.1 $
84.1 $
57.5
50.5 $
40.4 $
29.1
In July 2015 we announced a collaboration and license agreement to develop gene-based therapies for
multiple ophthalmic diseases with Applied Genetic Technologies Corporation (AGTC). The collaboration will focus on
the development of a portfolio of AGTC’s therapeutic programs, including both a clinical-stage candidate for X-linked
Retinoschisis (XLRS) and a pre-clinical candidate for the treatment of X-Linked Retinitis Pigmentosa (XLRP). The
agreement also includes options for early stage discovery programs in two ophthalmic diseases and one non-
ophthalmic condition, as well as an equity investment in AGTC.
During the third quarter of 2015 we made an upfront payment of $124.0 million, which included a $30.0
million equity investment in AGTC, prepaid research and development expenditures of $58.4 million and total
licensing and other fees of $35.6 million. The $58.4 million of prepaid research and development expenditures were
recorded in investments and other assets in our consolidated balance sheets and will be expensed as the services
are provided. During 2015 we recorded $54.5 million as research and development expense associated with AGTC
in our consolidated statements of income, including the $35.6 million total licensing and other fees, $6.5 million in
research and development services, a $7.5 million premium on our equity investment and a $5.0 million clinical
development milestone related to XLRS. During 2016 we recorded $26.5 million in research and development
services in research and development expense in our consolidated statements of income.
AGTC is eligible to receive development, regulatory and commercial milestone payments aggregating in excess
of $1.1 billion, which includes up to $472.5 million collectively for the two lead programs and up to $592.5 million
across the discovery programs. AGTC is also eligible to receive royalties in the mid-single digit to mid-teen
percentages of annual net sales.
We were granted worldwide commercialization rights for the XLRS and XLRP programs. AGTC has an option to
share development costs and profits after the initial clinical trial data are available, and an option to co-promote the
second of these products to be approved in the U.S. AGTC will lead the clinical development programs of XLRS
through product approval and of XLRP through the completion of first-in-human trials. We will support the clinical
development costs, subject to certain conditions, following the first-in-human study for XLRS and IND-enabling
studies for XLRP. Under the manufacturing license, we have received an exclusive license to use AGTC’s proprietary
technology platform to make AAV vectors for up to six genes, three of which are in AGTC’s discretion, in exchange for
payment of milestones and royalties.
PP
University of Pennsylvania
In May 2016 we entered into a collaboration and alliance with the University of Pennsylvania (UPenn) to
advance gene therapy and gene editing technologies. The collaboration will primarily focus on the development of
therapeutic approaches that target the eye, skeletal muscle and the central nervous system. The alliance is also
expected to focus on the research and validation of next-generation gene transfer technology using adeno-
associated virus gene delivery vectors and exploring the expanded use of genome editing technology as a potential
therapeutic platform.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the second quarter of 2016 we paid Penn an upfront fee of $20.0 million, which was recorded as
research and development expense in our consolidated statements of income, and prepaid research and
development expenditures of $15.0 million, which was recorded in investments and other assets in our consolidated
balance sheets. We also expect to fund an additional $47.5 million in the aggregate in research and development
costs extending over the next three to five years in seven preclinical research and development programs, as well as
the exploration of genome-editing technology.
If all of the collaborations programs are successful and we exercise all of our options under the Penn
collaboration and alliance, we may be required to make future payments of over $2.0 billion in research funding,
options and milestone payments, in addition to royalties payable on net sales of products.
Sangamo BioSciences, Inc.
In February 2014 we completed an exclusive worldwide research, development and commercialization
collaboration and license agreement with Sangamo under which both companies will develop and commercialize
product candidates for the treatment of two inherited blood disorders, sickle cell disease and beta-thalassemia. The
collaboration is currently in the research stage of development.
Under the terms of the agreement, we paid Sangamo an upfront payment of $20.0 million in cash, with
additional payments of up to approximately $300.0 million based on the achievement of certain development,
regulatory and commercial milestones, plus royalties based on sales. We recorded the $20.0 million upfront
payment as research and development expense in our consolidated statements of income. Under this arrangement,
Sangamo will be responsible for identifying a product candidate for the treatment of beta-thalassemia and advancing
that candidate through a completed Phase 1 human clinical trial, at which point we would assume responsibility for
development. We will jointly develop a sickle cell disease candidate through the potential filing of an investigative
new drug application, after which we would assume clinical responsibilities. We will lead the global development and
commercialization efforts and Sangamo will have the option to assume co-promotion responsibilities in the U.S.
During the years ending December 31, 2016, 2015 and 2014, $13.4 million, $13.6 million and $28.9 million,
respectively, of expense was reflected in our consolidated statements of income.
Following the spin-off of our hemophilia business, this collaboration and license agreement with Sangamo will
continue with Bioverativ, an independent public company. For additional information about the spin-off, please see
Note 1, Summary of Significant Accounting Policies and Note 26, Subsequent Events to these consolidated financial
statements.
Mitsubishi Tanabe Pharma Corporation
In September 2015 we announced an agreement with Mitsubishi Tanabe Pharma Corporation (MTPC) to
exclusively license amiselimod (MT-1303), a late stage experimental medicine with potential in multiple autoimmune
indications. Amiselimod is an oral compound that targets the sphingosine 1-phosphate receptor. During the fourth
quarter of 2015 the agreement became effective and we made an upfront payment of $60.0 million, which was
recorded as research and development expense in our consolidated statements of income.
During the third quarter of 2016 we discontinued our development of amiselimod. We expect to formally
terminate the agreement and return the program to MTPC in the first quarter of 2017. We will have no further
license to or continuing involvement in the development of this compound. For the year ended December 31, 2016,
$22.8 million was reflected in research and development expense in our consolidated statements of income.
Other Research and Discovery Arrangements
During the years ended December 31, 2016, 2015 and 2014, we entered into several research, discovery and
other related arrangements that resulted in $10.3 million, $9.7 million and $40.0 million, respectively, recorded as
research and development expense in our consolidated statements of income.
These additional arrangements include the potential for future milestone payments based on clinical and
commercial development over a period of several years.
F- 62
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Samsung Bioepis
Joint Venture Agreement
In February 2012 we entered into a joint venture agreement with Samsung BioLogics Co. Ltd. (Samsung
Biologics), establishing an entity, Samsung Bioepis, to develop, manufacture and market biosimilar
pharmaceuticals. Samsung Biologics contributed 280.5 billion South Korean won (approximately $250.0 million) for
an 85% stake in Samsung Bioepis and we contributed approximately 49.5 billion South Korean won (approximately
$45.0 million) for the remaining 15% ownership interest. Under the joint venture agreement, we have no obligation to
provide any additional funding and our ownership interest may be diluted due to financings in which we do not
participate. As of December 31, 2016, our ownership interest is approximately 6.5%, which reflects the effect of
additional equity financings in which we did not participate. We maintain an option to purchase additional stock in
Samsung Bioepis that would allow us to increase our ownership percentage up to 49.9%. The exercise of this option
is within our control and is based on paying for 49.9% of the total investment made by Samsung Biologics into
Samsung Bioepis in excess of what we have already contributed under the agreement plus a rate that will represent
their return on capital. If we do not exercise this option by a date in 2018 determined pursuant to the joint venture
agreement, this option will expire and Samsung Biologics will have the right to purchase all of Samsung Bioepis’
shares then held by us.
Samsung Biologics has the power to direct the activities of Samsung Bioepis which will most significantly and
directly impact its economic performance. We account for this investment under the equity method of accounting as
we maintain the ability to exercise significant influence over Samsung Bioepis through a presence on the entity’s
Board of Directors and our contractual relationship. Under the equity method, we recorded our original investment at
cost and subsequently adjust the carrying value of our investment for our share of equity in the entity’s income or
losses according to our percentage of ownership. We recognize our share of the results of operations related to our
investment in Samsung Bioepis one quarter in arrears when the results of the entity become available, which is
reflected as equity in loss of investee, net of tax in our consolidated statements of income. During the years ended
December 31, 2015 and 2014, we recognized a loss on our investment of $12.5 million and $15.1 million,
respectively. During 2015, as our share of losses exceeded the carrying value of our investment, we suspended
recognizing additional losses and will continue to do so unless we commit to providing additional funding.
Commercial Agreement
In December 2013 pursuant to our rights under the joint venture agreement with Samsung Biologics, we
entered into an agreement with Samsung Bioepis to commercialize, over a 10-year term, three anti-tumor necrosis
factor (TNF) biosimilar product candidates in Europe and in the case of one anti-TNF biosimilar, Japan. Under the
terms of this agreement, we have made total upfront and clinical development milestone payments of $46.0 million,
all of which have been recorded as research and development expense in our consolidated statements of income as
the programs they relate to had not achieved regulatory approval. We also agreed to make additional milestone
payments of $25.0 million upon regulatory approval in the E.U. for each of the three anti-TNF biosimilar product
candidates. During the year ended December 31, 2016, we paid $50.0 million in milestone payments, which have
been capitalized in intangible assets, net in our consolidated balance sheets as BENEPALI received regulatory
approval in the E.U. in January 2016 and FLIXABI received regulatory approval in the E.U. in May 2016. In July 2016
the EMA accepted Samsung Bioepis' MAA for SB5, an adalimumab biosimilar candidate referencing HUMIRA.
We began to recognize revenue on sales of BENEPALI in the E.U. in the first quarter of 2016 and FLIXABI in the
E.U. in the third quarter of 2016. We reflect revenues on sales of BENEPALI and FLIXABI to third parties in product
revenues, net in our consolidated statements of income and record the related cost of revenues and sales and
marketing expenses in our consolidated statements of income to their respective line items when these costs are
incurred. We share 50% of the profit or loss related to our commercial agreement with Samsung Bioepis. This profit
sharing with Samsung Bioepis is recognized in collaboration profit (loss) sharing in our consolidated statements of
income. For the year ended December 31, 2016, we recognized a net expense of $15.1 million related to the
collaboration profit share.
F- 63
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Services
Simultaneous with the formation of Samsung Bioepis, we also entered into a license agreement, a technical
development services agreement and a manufacturing agreement with Samsung Bioepis. Under the terms of the
license agreement, we granted Samsung Bioepis an exclusive license to use, develop, manufacture and
commercialize biosimilar products created by Samsung Bioepis using Biogen product-specific technology. In
exchange, we will receive single digit royalties on all biosimilar products developed and commercialized by Samsung
Bioepis. Under the terms of the technical development services agreement, we provide Samsung Bioepis technical
development and technology transfer services, which include, but are not limited to, cell culture development,
purification process development, formulation development and analytical development. Under the terms of our
manufacturing agreement, we manufacture clinical and commercial quantities of bulk drug substance of biosimilar
products for Samsung Bioepis pursuant to contractual terms. Under limited circumstances, we may also supply
Samsung Bioepis with quantities of drug product of biosimilar products for use in clinical trials through
arrangements with third-party contract manufacturers.
For the years ended December 31, 2016, 2015 and 2014, we recognized $20.2 million, $62.9 million and
$58.5 million, respectively, in revenues in relation to these services, which is reflected as a component of other
revenues in our consolidated statements of income.
20.
Litigation
We are currently involved in various claims and legal proceedings, including the matters described below. For
information as to our accounting policies relating to claims and legal proceedings, including use of estimates and
contingencies, please read Note 1, Summary of Significant Accounting Policies to these consolidated financial
statements.
With respect to some loss contingencies, an estimate of the possible loss or range of loss cannot be made
until management has further information, including, for example, (i) which claims, if any, will survive dispositive
motion practice; (ii) information to be obtained through discovery; (iii) information as to the parties' damages claims
and supporting evidence; (iv) the parties’ legal theories; and (v) the parties' settlement positions.
The claims and legal proceedings in which we are involved also include challenges to the scope, validity or
enforceability of the patents relating to our products, pipeline or processes, and challenges to the scope, validity or
enforceability of the patents held by others. These include claims by third parties that we infringe their patents. An
adverse outcome in any of these proceedings could result in one or more of the following and have a material impact
on our business or consolidated results of operations and financial position: (i) loss of patent protection; (ii) inability
to continue to engage in certain activities; and (iii) payment of significant damages, royalties, penalties and/or
license fees to third parties.
Loss Contingencies
Forward Pharma German Patent Litigation
On November 18, 2014, Forward Pharma A/S (Forward Pharma) filed suit against us in the Regional Court of
Düsseldorf, Germany (the German Infringement Litigation) alleging that TECFIDERA infringes German Utility Model
DE 20 2005 022 112 U1 (the utility model), which was issued in April 2014 and expired in October 2015. Forward
Pharma subsequently extended its allegations to assert that TECFIDERA infringes Forward Pharma's European Patent
No. 2,801,355 (the '355 patent), which was issued in May 2015 and expires in October 2025. We have entered a
settlement and license agreement with Forward Pharma that will provide us an irrevocable license to all intellectual
property owned by Forward Pharma and result in the termination of the German Infringement Litigation. For more
information on the settlement and license agreement please read Note 21, Commitments and Contingencies to these
consolidated financial statements.
F- 64
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Italian National Medicines Agency
In the fourth quarter of 2011 Biogen Italia SRL received notice from the Italian National Medicines Agency
(Agenzia Italiana del Farmaco or AIFA) that sales of TYSABRI after mid-February 2009 exceeded a reimbursement
limit established pursuant to a Price Determination Resolution (Price Resolution) granted by AIFA in December 2006.
On January 12, 2012, we filed an appeal in the Regional Administrative Tribunal of Lazio (Il Tribunale Amministrativo
Regionale per il Lazio) in Rome, Italy seeking a ruling that the reimbursement limit in the Price Resolution should
apply as written to only “the first 24 months” of TYSABRI sales, which ended in mid-February 2009. The appeal is
still pending. In June 2014 AIFA approved a resolution affirming that there is no reimbursement limit from and after
February 2013. In January 2017 we negotiated an agreement in principle with AIFA's Price and Reimbursement
Committee to settle all of AIFA's existing claims relating to sales of TYSABRI in excess of the reimbursement limit for
the periods from February 2009 through January 2013 for an aggregate repayment of EUR37.4 million. The
agreement is subject to ratification by AIFA.
For additional information regarding this matter, please read Note 17, Other Consolidated Financial Statement
Detail to these consolidated financial statements.
Qui Tam Litigation
On July 6, 2015, a qui tam action filed on behalf of the United States and certain states were unsealed by the
U.S. District Court for the District of Massachusetts. The action alleges sales and promotional activities in violation
of the federal False Claims Act and state law counterparts, and seeks single and treble damages, civil penalties,
interest, attorneys’ fees and costs. Our motion to dismiss is pending. The United States has not made an
intervention decision. An estimate of the possible loss or range of loss cannot be made at this time.
Securities Litigation
We and certain current and former officers are defendants in In re Biogen Inc. Securities Litigation, filed by a
shareholder on August 18, 2015 in the U.S. District Court for the District of Massachusetts. The amended complaint
alleges violations of federal securities laws under 15 U.S.C. §78j(b) and §78t(a) and 17 C.FR. §240.10b-5. The lead
plaintiff sought a declaration of the action as a class action, certification as a representative of the class and its
counsel as class counsel, and an award of damages, interest and attorneys' fees. On July 1, 2016, the U.S. District
Court dismissed the case and in September 2016 denied the plaintiff's motion to vacate the order of dismissal. The
plaintiff has appealed. An estimate of the possible loss or range of loss cannot be made at this time.
FF
We and certain current and former officers are also defendants in an action filed by another shareholder on
October 20, 2016 in the U.S. District Court for the District of Massachusetts, related to the matter described above.
The complaint alleges violations of federal securities laws under 15 U.S.C. §78j(b) and §78t(a) and 17 C.FR. FF
§240.10b-5 and seeks a declaration of the action as a class action and an award of damages, interest and
attorney's fees. An estimate of the possible loss or range of loss cannot be made at this time.
Other Matters
Interference Proceeding with Forward Pharma
In April 2015 the U.S. Patent and Trademark Office (USPTO) declared an interference between Forward
Pharma’s pending U.S. Patent Application No. 11/576,871 and our U.S. Patent No. 8,399,514 (the '514 patent).
The '514 patent includes claims covering the treatment of multiple sclerosis with 480 mg of dimethyl fumarate as
provided for in our TECFIDERA label. We are awaiting a decision in this matter.
Inter Partes Review Proceeding
On March 22, 2016, the USPTO instituted inter partes review of the '514 patent on the petition of the Coalition
for Affordable Drugs V LLC, an entity associated with a hedge fund. We are awaiting a decision in this matter.
On April 18, 2016, Swiss Pharma International AG filed petitions in the USPTO for inter partes review of U.S.
Patent Nos. 8,349,321 and 8,900,577, relating to specific formulations of natalizumab (TYSABRI), and U.S. Patent
No. 8,815,236, relating to methods for treating MS and Crohn's disease using specific formulations of natalizumab
(TYSABRI). In October 2016 the USPTO declined to institute proceedings under all three petitions. Swiss Pharma
filed requests for rehearing, which are pending.
F- 65
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
European Patent Office Oppositions
In June 2016 the European Patent Office issued a written decision confirming its earlier revocation of our
European patent number 2 137 537 (the '537 patent), which we have appealed. The '537 patent includes claims
covering the treatment of MS with 480 mg of dimethyl fumarate as provided for in our TECFIDERA label.
Patent Revocation Matter
In December 2015 Swiss Pharma International AG brought an action in the Patents Court of the United
Kingdom to revoke the UK counterpart of our European Patent Number 1 485 127 (“Administration of agents to treat
inflammation”) (the '127 patent), which was issued in June 2011 and concerns administration of natalizumab
(TYSABRI) to treat MS. The patent expires in February 2023. Subsequently, the same entity brought an actions in the
District Court of The Hague (on January 11, 2016) and the German Patents Court (on March 3, 2016) to invalidate
the Dutch and German counterparts of the '127 patent. In September 2016 we resolved the UK action by agreeing
to revocation of the UK patent. A hearing has been scheduled in the Dutch action for early 2017 and the German
action for early 2018.
'755 Patent Litigation
On May 28, 2010, Biogen MA Inc. (formerly Biogen Idec MA Inc.) filed a complaint in the U.S. District Court for
the District of New Jersey alleging infringement by Bayer Healthcare Pharmaceuticals Inc. (Bayer) (manufacturer,
marketer and seller of BETASERON and manufacturer of EXTAVIA), EMD Serono, Inc. (EMD Serono) (manufacturer,
marketer and seller of REBIF), Pfizer Inc. (co-marketer of REBIF) and Novartis Pharmaceuticals Corp. (Novartis)
(marketer and seller of EXTAVIA) of our U.S. Patent No. 7,588,755 ('755 Patent), which claims the use of interferon
beta for immunomodulation or treating a viral condition, viral disease, cancers or tumors. The complaint seeks
monetary damages, including lost profits and royalties. Bayer had previously filed a complaint against us in the same
court, on May 27, 2010, seeking a declaratory judgment that it does not infringe the '755 Patent and that the patent
is invalid, and seeking monetary relief in the form of attorneys' fees, costs and expenses. The court has
consolidated the two lawsuits, and we refer to the two actions as the “Consolidated '755 Patent Actions.”
Bayer, Pfizer, Novartis and EMD Serono have all filed counterclaims in the Consolidated '755 Patent Actions
seeking declaratory judgments of patent invalidity and non-infringement, and seeking monetary relief in the form of
costs and attorneys' fees, and EMD Serono and Bayer have each filed a counterclaim seeking a declaratory
judgment that the '755 Patent is unenforceable based on alleged inequitable conduct. Bayer has also amended its
complaint to seek such a declaration. Trial has been set for September 2017.
Government Matters
We have learned that state and federal governmental authorities are investigating our sales and promotional
practices and have received related subpoenas. We are cooperating with the government.
On March 4, 2016, we received a subpoena from the federal government for documents relating to our
relationship with non-profit organizations that provide assistance to patients taking drugs sold by Biogen. We are
cooperating with the government.
On July 1, 2016, we received a civil investigative demand from the federal government for documents and
information relating to our treatment of certain service agreements with wholesalers when calculating and reporting
Average Manufacturer Prices in connection with the Medicaid Drug Rebate Program. We are cooperating with the
government.
On December 5, 2016, we received a subpoena from the federal government for documents relating to
government price reporting, rebate payments and Biogen's co-pay assistance programs for AVONEX, TECFIDERA,
TYSABRI and PLEGRIDY. We are cooperating with the government.
On December 29, 2016, we received a civil investigative demand from the federal government for documents
and information relating to our relationships with entities providing clinical education and reimbursement support
services. We are cooperating with the government.
F- 66
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Product Liability and Other Legal Proceedings
We are also involved in product liability claims and other legal proceedings generally incidental to our normal
business activities. While the outcome of any of these proceedings cannot be accurately predicted, we do not believe
the ultimate resolution of any of these existing matters would have a material adverse effect on our business or
financial condition.
21. Commitments and Contingencies
TECFIDERA Litigation Settlement and License Agreement
In January 2017 we agreed to enter into a settlement and license agreement with Forward Pharma that will
provide us an irrevocable license to all intellectual property owned by Forward Pharma and results in the termination
of the German Infringement Litigation. Under the terms of the settlement and license agreement with Forward
Pharma, we have agreed to pay Forward Pharma $1.25 billion in cash. Under certain circumstances outlined in the
agreement, we will pay Forward Pharma royalties on net sales of our products for the treatment of multiple sclerosis
that are covered by a Forward Pharma patent and have dimethyl fumarate (“DMF”) as an active pharmaceutical
ingredient.
During the fourth quarter of 2016 we recognized a pre-tax charge of $454.8 million related to this matter. This
amount represents the fair value of estimated royalties on our sales of TECFIDERA during the period April 2014
through December 31, 2016. When the cash payment is made following approval of the settlement and license
agreement, we will recognize assets of $656.3 million and $138.9 million, reflecting the estimated fair value of the
license acquired that is attributable to the U.S. and E.U., respectively. If Forward Pharma does not receive a patent in
either the Interference Proceeding pending in the U.S. or the pending European Opposition Proceeding (which
proceedings are defined in the settlement and license agreement), we would likely recognize an immediate
impairment charge equal to the value of the license that is attributable to that jurisdiction as additional litigation
expense and we would not be obligated to pay Forward Pharma royalties in such jurisdiction. If Forward Pharma
receives a patent in either the U.S. Interference Proceeding or the E.U. Opposition Proceeding, we would amortize
the assets related to a license of intellectual property in the related jurisdiction utilizing an economic consumption
model and we may be obligated to royalties on a country by country basis in Europe and other ex-U.S. markets.
For additional information with respect to the terms of this agreement, including potential royalties payable,
please read the Settlement and License Agreement dated January 17, 2017, between Biogen Swiss Manufacturing
GmbH, Biogen International Holding Ltd, Forward Pharma A/S and the other parties thereto which is filed as Exhibit
10.41 to this 2016 Form 10-K. For additional information related to the ongoing Interference Proceeding with
Forward Pharma in the U.S. or the European Office Opposition in the E.U., please read Note 20, Litigation to these
consolidated financial statements.
TYSABRI Contingent Payments
In 2013 we acquired from Elan full ownership of all remaining rights to TYSABRI that we did not already own or
control. Under the terms of the acquisition agreement, we are obligated to make contingent payments to Elan of 18%
on annual worldwide net sales up to $2.0 billion and 25% on annual worldwide net sales that exceed $2.0 billion.
Royalty payments to Elan and other third parties are recognized as cost of sales in our consolidated statements of
income. Elan was acquired by Perrigo Company plc (Perrigo) in December 2013. Following that acquisition, we began
making these royalty payments to Perrigo.
Contingent Consideration related to Business Combinations
In connection with our acquisitions of Convergence, Stromedix and Biogen International Neuroscience GmbH
(BIN), we agreed to make additional payments based upon the achievement of certain milestone events.
As the acquisitions of Convergence, Stromedix and BIN, formerly Panima Pharmaceuticals AG, occurred after
January 1, 2009, we record contingent consideration liabilities at their fair value on the acquisition date and revalue
these obligations each reporting period. We may pay up to approximately $1.2 billion in remaining milestones related
to these acquisitions. For additional information related to our acquisition of Convergence please read Note 2,
Acquisitions, to these consolidated financial statements.
F- 67
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fumapharm AG
In 2006 we acquired Fumapharm AG. As part of this acquisition we acquired FUMADERM and TECFIDERA
(together, Fumapharm Products). We paid $220.0 million upon closing of the transaction and agreed to pay an
additional $15.0 million if a Fumapharm Product was approved for MS in the U.S. or E.U. In the second quarter of
2013 we paid this $15.0 million contingent payment as TECFIDERA was approved in the U.S. for MS by the FDA. We
are also required to make additional contingent payments to former shareholders of Fumapharm AG or holders of
their rights based on the attainment of certain cumulative sales levels of Fumapharm Products and the level of total
net sales of Fumapharm Products in the prior twelve month period, as defined in the acquisition agreement.
During 2016 we paid $1.2 billion in contingent payments as we reached the $7.0 billion, $8.0 billion, $9.0
billion and $10.0 billion cumulative sales levels related to the Fumapharm Products in the fourth quarter of 2015
and the first, second and third quarters of 2016, respectively, and accrued $300.0 million upon reaching $11.0
billion in total cumulative sales of Fumapharm Products in the fourth quarter of 2016.
We will owe an additional $300.0 million contingent payment for every additional $1.0 billion in cumulative
sales level of Fumapharm Products reached if the prior 12 months sales of the Fumapharm Products exceed $3.0
billion, until such time as the cumulative sales level reaches $20.0 billion, at which time no further contingent
payments shall be due. If the prior 12 months sales of Fumapharm Products are less than $3.0 billion, contingent
payments remain payable on a decreasing tiered basis. These payments will be accounted for as an increase to
goodwill as incurred, in accordance with the accounting standard applicable to business combinations when we
acquired Fumapharm. Any portion of the payment which is tax deductible will be recorded as a reduction to goodwill.
Payments are due within 60 days following the end of the quarter in which the applicable cumulative sales level has
been reached.
Contingent Development, Regulatory and Commercial Milestone Payments
Based on our development plans as of December 31, 2016, we could make potential future milestone
payments to third parties of up to approximately $3.1 billion, including approximately $0.5 billion in development
milestones, approximately $0.8 billion in regulatory milestones and approximately $1.8 billion in commercial
milestones as part of our various collaborations, including licensing and development programs. Payments under
these agreements generally become due and payable upon achievement of certain development, regulatory or
commercial milestones. Because the achievement of these milestones had not occurred as of December 31, 2016,
such contingencies have not been recorded in our financial statements. Amounts related to contingent milestone
payments are not considered contractual obligations as they are contingent on the successful achievement of
certain development, regulatory approval and commercial milestones.
Other Funding Commitments
As of December 31, 2016, we have several on-going clinical studies in various clinical trial stages. Our most
significant clinical trial expenditures are to contract research organizations (CROs). The contracts with CROs are
generally cancellable, with notice, at our option. We have recorded accrued expenses of approximately $21.0 million
on our consolidated balance sheet for expenditures incurred by CROs as of December 31, 2016. We have
approximately $500.0 million in cancellable future commitments based on existing CRO contracts as of
December 31, 2016.
Tax Related Obligations
We exclude liabilities pertaining to uncertain tax positions from our summary of contractual obligations as we
cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. As of
December 31, 2016, we have approximately $47.8 million of net liabilities associated with uncertain tax positions.
Solothurn, Switzerland Facility
On December 1, 2015, we purchased land in Solothurn, Switzerland where we are building a biologics
manufacturing facility over the next several years. As of December 31, 2016, we had contractual commitments of
$176.3 million for the construction of this facility.
F- 68
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Leases
We rent laboratory and office space and certain equipment under non-cancelable operating leases. These
lease agreements contain various clauses for renewal at our option and, in certain cases, escalation clauses
typically linked to rates of inflation. Rental expense under these leases, net of amounts recognized in relation to
exiting our manufacturing facility in Cambridge, Massachusetts and our Weston, Massachusetts facility, which
terminate at various dates through 2028, amounted to $68.7 million, $68.6 million and $62.4 million in 2016,
2015 and 2014, respectively. In addition to rent, the leases may require us to pay additional amounts for taxes,
insurance, maintenance and other operating expenses.
As of December 31, 2016, minimum rental commitments under non-cancelable leases, net of income from
subleases, for each of the next five years and total thereafter were as follows:
(In millions)
Minimum lease payments........... $
Less: income from subleases (1)
Net minimum lease
payments ............................ $
2017
2018
2019
2020
2021
Thereafter
Total
75.3 $
(8.9)
69.8 $
(15.2)
69.1 $
(15.5)
65.7 $
(15.7)
64.6 $ 331.9 $ 676.4
(126.9)
(55.4)
(16.2)
66.4 $
54.6 $
53.6 $
50.0 $
48.4 $ 276.5 $ 549.5
(1) Represents sublease income expected to be received for the vacated manufacturing facility in Cambridge, MA, the vacated
portion of our Weston, Massachusetts facility and other facilities throughout the world. For additional information related to
the sublease of the vacated manufacturing facility in Cambridge, MA, please read Note 3, Restructuring, Business
Transformation and Other Cost Savings Initiatives to these consolidated financial statements.
Under certain of our lease agreements, we are contractually obligated to return leased space to its original
condition upon termination of the lease agreement. At the inception of a lease with such conditions, we record an
asset retirement obligation liability and a corresponding capital asset in an amount equal to the estimated fair value
of the obligation. In subsequent periods, for each such lease, we record interest expense to accrete the asset
retirement obligation liability to full value and depreciate each capitalized asset retirement obligation asset, both
over the term of the associated lease agreement. Our asset retirement obligations were not significant as of
December 31, 2016 or 2015.
Eisai Financing Arrangement
During 2015 we amended our existing lease related to Eisai's oral solid dose products manufacturing facility in
PP
RTP, North Carolina where we manufacture our and Eisai's oral solid dose products. For additional information,
please read Note 10, Property, Plant and Equipment to these consolidated financial statements. As of December 31,
2016, the net present values of the future minimum lease payments were as follows:
t
(In millions)
2017 ........................................................................................................................ $
2018 ........................................................................................................................
Total .............................................................................................................................
Less: interest ..............................................................................................................
Net present value of the future minimum lease payments ................................................. $
As of December 31, 2016
2.0
16.7
18.7
(0.6)
18.1
22. Guarantees
As of December 31, 2016 and 2015, we did not have significant liabilities recorded for guarantees.
We enter into indemnification provisions under our agreements with other companies in the ordinary course of
business, typically with business partners, contractors, clinical sites and customers. Under these provisions, we
generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party
as a result of our activities. These indemnification provisions generally survive termination of the underlying
agreement. The maximum potential amount of future payments we could be required to make under these
indemnification provisions is unlimited. However, to date we have not incurred material costs to defend lawsuits or
settle claims related to these indemnification provisions. As a result, the estimated fair value of these agreements
is minimal. Accordingly, we have no liabilities recorded for these agreements as of December 31, 2016 and 2015.
F- 69
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
23. Employee Benefit Plans
We sponsor various retirement and pension plans. Our estimates of liabilities and expenses for these plans
incorporate a number of assumptions, including expected rates of return on plan assets and interest rates used to
discount future benefits.
401(k) Savings Plan
We maintain a 401(k) Savings Plan, which is available to substantially all regular employees in the U.S. over the
age of 21. Participants may make voluntary contributions. We make matching contributions according to the 401(k)
Savings Plan’s matching formula. All matching contributions and participant contributions vest immediately. The 401
(k) Savings Plan also holds certain transition contributions on behalf of participants who previously participated in
the Biogen, Inc. Retirement Plan. The expense related to our 401(k) Savings Plan primarily consists of our matching
contributions.
Expense related to our 401(k) Savings Plan totaled $45.2 million, $51.8 million and $49.3 million for the years
ended December 31, 2016, 2015 and 2014, respectively.
Deferred Compensation Plan
We maintain a non-qualified deferred compensation plan, known as the Supplemental Savings Plan (SSP),
which allows a select group of management employees in the U.S. to defer a portion of their compensation. The SSP
also provides certain credits to highly compensated U.S. employees, which are paid by the company. These credits
are known as the Restoration Match. The deferred compensation amounts are accrued when earned. Such deferred
compensation is distributable in cash in accordance with the rules of the SSP. Deferred compensation amounts
under such plan as of December 31, 2016 and 2015, totaled approximately $128.5 million and $126.9 million,
respectively, and are included in other long-term liabilities in our consolidated balance sheets. The SSP also holds
certain transition contributions on behalf of participants who previously participated in the Biogen, Inc. Retirement
Plan. The Restoration Match and participant contributions vest immediately. Distributions to participants can be
either in one lump sum payment or annual installments as elected by the participants.
PP
Pension Plans
Our retiree benefit plans include defined benefit plans for employees in our affiliates in Switzerland and
Germany as well as other insignificant defined benefit plans in certain other countries in which we maintain an
operating presence.
Our Swiss plan is a government-mandated retirement fund that provides employees with a minimum investment
return. The minimum investment return is determined annually by the Swiss government and was 1.25% in 2016 and
1.75% in 2015 and 2014, respectively. Under the Swiss plan, both we and certain of our employees with annual
earnings in excess of government determined amounts are required to make contributions into a fund managed by
an independent investment fiduciary. Employer contributions must be in an amount at least equal to the employee’s
contribution. Minimum employee contributions are based on the respective employee’s age, salary and gender. As of
December 31, 2016 and 2015, the Swiss plan had an unfunded net pension obligation of approximately $39.1
million and $42.4 million, respectively, and plan assets which totaled approximately $68.6 million and $63.9 million,
respectively. In 2016, 2015 and 2014, we recognized expense totaling $15.3 million, $12.9 million and $9.8 million,
respectively, related to our Swiss plan.
The obligations under the German plans are unfunded and totaled $35.4 million and $27.6 million as of
December 31, 2016 and 2015, respectively. Net periodic pension cost related to the German plans totaled $4.2
million, $4.0 million and $3.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.
F- 70
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
24. Segment Information
We operate as one operating segment, which is discovering, developing, manufacturing and delivering therapies
to people living with serious neurological, rare and autoimmune diseases. Our Chief Executive Officer (CEO), as the
chief operating decision-maker, manages and allocates resources to the operations of our company on a total
company basis. Our research and development organization is responsible for the research and discovery of new
product candidates and supports development and registration efforts for potential future products. Our
pharmaceutical, operations and technology organization manages the development of the manufacturing processes,
clinical trial supply, commercial product supply, distribution, buildings and facilities. Our commercial organization is
responsible for U.S. and international development of our commercial products. The company is also supported by
corporate staff functions. Managing and allocating resources on a total company basis enables our CEO to assess
the overall level of resources available and how to best deploy these resources across functions, therapeutic areas,
and research and development projects that are in line with our long-term company-wide strategic goals. Consistent
with this decision-making process, our CEO uses consolidated, single-segment financial information for purposes of
evaluating performance, forecasting future period financial results, allocating resources and setting incentive targets.
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)
Multiple Sclerosis (MS):
United
States
2016
Rest of
World
Total
For the Years Ended December 31,
2015
Rest of
World
United
States
Total
United
States
2014
Rest of
World
Total
TECFIDERA................. $ 3,169.4 $
AVONEX .....................
PLEGRIDY ..................
TYSABRI ....................
FAMPYRA ...................
1,675.3
305.0
1,182.9
—
798.7 $ 3,968.1 $ 2,908.2 $
638.2
176.7
780.9
84.9
1,790.2
227.1
1,103.1
—
2,313.5
481.7
1,963.8
84.9
730.2 $ 3,638.4 $ 2,426.6 $
840.0
111.4
783.0
89.7
1,956.7
27.8
1,025.1
—
2,630.2
338.5
1,886.1
89.7
ZINBRYTA...................
—
7.8
7.8
—
—
—
—
Hemophilia:
ELOCTATE ..................
ALPROLIX ...................
Other product revenues:
FUMADERM................
SPINRAZA ..................
BENEPALI...................
FLIXABI ......................
445.2
268.0
—
4.6
—
—
68.0
65.7
45.9
—
100.6
0.1
513.2
333.7
45.9
4.6
100.6
0.1
308.3
208.9
—
—
—
—
11.4
25.6
51.4
—
—
—
319.7
234.5
51.4
—
—
—
58.4
72.1
—
—
—
—
482.6 $ 2,909.2
3,013.1
44.5
1,959.5
80.2
1,056.4
16.7
934.4
80.2
—
—
3.9
62.5
—
—
—
—
58.4
76.0
62.5
—
—
—
Total product
revenues ................. $ 7,050.4 $ 2,767.5 $ 9,817.9 $ 6,545.8 $ 2,642.7 $ 9,188.5 $ 5,566.7 $ 2,636.7 $ 8,203.4
F- 71
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Geographic Information
The following tables contain certain financial information by geographic area:
Europe(1)
U.S.
December 31, 2016 (In millions)
Product revenues from external
customers .................................... $ 7,050.4 $ 1,533.5 $
Revenues from anti-CD20
therapeutic programs .................... $ 1,249.5 $
Other revenues from external
customers .................................... $
70.0 $
Long-lived assets .......................... $ 1,272.3 $ 1,219.3 $
224.7 $
1.9 $
Europe(1)
U.S.
December 31, 2015 (In millions)
Product revenues from external
customers .................................... $ 6,545.8 $ 1,497.6 $
Revenues from anti-CD20
therapeutic programs .................... $ 1,269.8 $
Other revenues from external
customers .................................... $
142.0 $
Long-lived assets .......................... $ 1,296.5 $
29.6 $
879.4 $
3.5 $
Europe(1)
U.S.
December 31, 2014 (In millions)
Product revenues from external
customers .................................... $ 5,566.7 $ 1,383.9 $
Revenues from anti-CD20
therapeutic programs .................... $ 1,117.1 $
Other revenues from external
customers .................................... $
212.6 $
Long-lived assets .......................... $ 1,055.5 $
31.6 $
701.9 $
7.7 $
Germany
Asia
Other
Total
703.7 $
217.3 $
313.0 $ 9,817.9
— $
— $
63.1 $ 1,314.5
1.5 $
1.8 $
20.2 $
7.0 $
316.4
— $
1.4 $ 2,501.8
Germany
Asia
Other
Total
668.1 $
143.7 $
333.3 $ 9,188.5
— $
— $
65.9 $ 1,339.2
1.6 $
2.3 $
62.9 $
7.7 $
— $
236.1
1.7 $ 2,187.6
Germany
Asia
Other
Total
811.8 $
112.8 $
328.2 $ 8,203.4
— $
— $
70.6 $ 1,195.4
1.8 $
2.5 $
58.5 $
2.6 $
— $
304.5
3.2 $ 1,765.7
(1) Represents amounts related to Europe less those attributable to Germany.
Revenues from Anti-CD20 Therapeutic Programs
Approximately 11%, 12% and 12% of our total revenues in 2016, 2015 and 2014, respectively, are derived from
our collaboration agreement with Genentech. For additional information related to our collaboration with Genentech,
please read Note 19, Collaborative and Other Relationships to these consolidated financial statements.
Significant Customers
We recorded revenue from two wholesalers accounting for 35% and 22% of gross product revenues in 2016,
34% and 26% of gross product revenues in 2015, and 33% and 27% of gross product revenues in 2014,
respectively.
Other
As of December 31, 2016, 2015 and 2014, approximately $643.6 million, $684.9 million and $676.0 million,
respectively, of our long-lived assets were related to our manufacturing facilities in Denmark.
As of December 31, 2016 and 2015, approximately $545.5 million and $161.5 million, respectively, of our
long-lived assets were related to the construction of a biologics manufacturing facility in Solothurn, Switzerland.
For additional information related to our manufacturing facility in Solothurn, Switzerland, please read Note 10,
Property, plant and equipment to these consolidated financial statements.
t
F- 72
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
25. Quarterly Financial Data (Unaudited)
(In millions, except per share amounts)
2016
Product revenues, net.............................. $
Revenues from anti-CD20 therapeutic
programs ................................................ $
Other revenues ....................................... $
Total revenues ........................................ $
Gross profit (1) ....................................... $
Net income ............................................. $
Net income attributable to Biogen Inc. ...... $
Net income per share:
Basic earnings per share attributable to
Biogen Inc. ........................................... $
Diluted earnings per share attributable
to Biogen Inc. ....................................... $
Weighted-average shares used in
calculating:
Basic earnings per share attributable to
Biogen Inc. ...........................................
Diluted earnings per share attributable
to Biogen Inc. .......................................
(In millions, except per share amounts)
2015
Product revenues, net.............................. $
Revenues from anti-CD20 therapeutic
programs ................................................ $
Other revenues ....................................... $
Total revenues ........................................ $
Gross profit (1) ....................................... $
Net income ............................................. $
Net income attributable to Biogen Inc. ...... $
Net income per share:
Basic earnings per share attributable to
Biogen Inc. ........................................... $
Diluted earnings per share attributable
to Biogen Inc. ....................................... $
Weighted-average shares used in
calculating:
Basic earnings per share attributable to
Biogen Inc. ...........................................
Diluted earnings per share attributable
to Biogen Inc. .......................................
First
Quarter
Second
Quarter
Third
Quarter
(a)
2,309.4 $
(b)
2,466.0 $ 2,539.6 $
(b) (c)
Fourth
Quarter
(b) (d) (e)
Total
Year
2,502.9 $
9,817.9
329.5 $
87.9 $
2,726.8 $
2,413.8 $
969.2 $
970.9 $
349.2 $
79.0 $
317.6 $
98.6 $
2,894.2 $ 2,955.8 $
2,523.9 $ 2,538.9 $
1,048.4 $ 1,030.2 $
1,049.8 $ 1,032.9 $
318.2 $
50.9 $
1,314.5
316.4
2,872.0 $ 11,448.8
9,970.1
2,493.5 $
3,695.7
647.9 $
3,702.8
649.2 $
4.44 $
4.79 $
4.72 $
3.00 $
16.96
4.43 $
4.79 $
4.71 $
2.99 $
16.93
218.9
219.3
219.1
218.9
219.4
219.4
216.6
217.0
218.4
218.8
First
Quarter
Second
Quarter
Third
Quarter
(f) (g)
2,172.3 $
2,198.6 $ 2,391.7 $
Fourth
Quarter
Total
Year
(a) (h)
2,425.9 $
9,188.5
330.6 $
52.0 $
2,555.0 $
2,242.6 $
820.2 $
822.5 $
337.5 $
55.6 $
337.2 $
49.0 $
2,591.6 $ 2,777.9 $
2,305.5 $ 2,467.9 $
924.8 $ 1,019.5 $
965.6 $
927.3 $
333.9 $
79.5 $
1,339.2
236.1
2,839.3 $ 10,763.8
9,523.4
2,507.5 $
3,593.2
828.7 $
3,547.0
831.6 $
3.50 $
3.94 $
4.16 $
3.77 $
15.38
3.49 $
3.93 $
4.15 $
3.77 $
15.34
235.0
235.6
235.3
232.2
235.7
232.6
220.4
220.8
230.7
231.2
(1) Gross profit is calculated as total revenues less cost of sales, excluding amortization of acquired intangible assets.
(a) Net income and net income attributable to Biogen Inc., for the first quarter of 2016 and the fourth quarter of
2015, includes pre-tax restructuring charges totaling $9.7 million and $93.4 million, respectively related to the
2015 corporate restructuring program.
F- 73
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(b) Net income and net income attributable to Biogen Inc. for the second, third and fourth quarters of 2016
includes pre-tax additional depreciation expense totaling $15.8 million, $15.7 million and $14.0 million,
respectively, as part of our determination to cease manufacturing in our small-scale biologics manufacturing
facility in Cambridge, MA as well as vacate our warehouse space in Somerville, MA. Our departure from these
facilities has shortened the expected useful lives of certain leasehold improvements and other assets at these
facilities.
(c) Net income and net income attributable to Biogen Inc. for the third quarter of 2016 includes a pre-tax charge to
research and development expense of $75.0 million for a license fee paid to Ionis as we exercised our option
to develop and commercialize SPINRAZA.
(d) Net income and net income attributable to Biogen Inc. for the fourth quarter of 2016 includes a pre-tax charge
to research and development expense of $50.0 million for a milestone payment due to Eisai related to the
initiation of a phase 3 trial for E2609.
(e) Net income and net income attributable to Biogen Inc. for the fourth quarter of 2016 includes a pre-tax charge
of $454.8 million related to the January 2017 settlement and license agreement with Forward Pharma.
(f) Net income and net income attributable to Biogen Inc. for the third quarter of 2015 includes a pre-tax charge to
research and development expense of $48.1 million recorded upon entering into the collaboration agreement
with AGTC.
(g) Net income attributable to Biogen Inc. for the third quarter of 2015 reflects the attribution of a $60.0 million
charge to noncontrolling interests, net of tax, related to a milestone payment due Neurimmune upon the
enrollment of the first patient in a Phase 3 trial for aducanumab.
(h) Net income and net income attributable to Biogen Inc. for the fourth quarter of 2015 includes a pre-tax charge
to research and development expense of $60.0 million recorded upon entering into the collaboration agreement
with MTPC.
26. Subsequent Events
On February 1, 2017, we completed the distribution of the issued and outstanding common stock of Bioverativ
to Biogen stockholders. For additional information related to the distribution of Bioverativ, please read Note 1,
Summary of Significant Accounting Policies, to these consolidated financial statements.
In connection with the distribution, we entered into a separation and distribution agreement and various other
agreements (including a transition services agreement, a tax matters agreement, a manufacturing and supply
agreement, an employee matters agreement, an intellectual property matters agreement and certain other
commercial agreements). These agreements govern the separation and distribution and the relationship between the
two companies going forward. They also provide for the performance of services by each company for the benefit of
the other for a period of time (including under the manufacturing and supply agreement pursuant to which we will
manufacture and supply certain products and materials to Bioverativ).
F- 74
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Biogen Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income,
comprehensive income, equity and cash flows present fairly, in all material respects, the financial position of Biogen
Inc. and its subsidiaries at December 31, 2016 and December 31, 2015, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2016 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, 2016, based on criteria
established in Internal Control - Integrated Framework (2013) issued 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 Report on Internal Control over Financial Reporting under
item 9A. 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.
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 2, 2017
F- 75
Exhibit No.
2.1†
2.2
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
10.1
10.2†
10.3
10.4†
10.5†
10.6*
10.7*
10.8*
10.9*
10.10*
EXHIBIT INDEX
Description
p
Asset Purchase Agreement among Biogen Idec International Holding Ltd., Elan Pharma
International Limited and Elan Pharmaceuticals, Inc., dated as of February 5, 2013. Filed
as Exhibit 2.1 to our Current Report on Form 8-K/A filed on February 12, 2013.
Separation Agreement between Biogen Inc. and Bioverativ Inc. Filed as Exhibit 2.1 to our
Current Report on Form 8-K filed on February 2, 2017.
Amended and Restated Certificate of Incorporation, as amended. Filed as Exhibit 3.1 to
our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.
Certificate of Amendment to the Certificate of Incorporation. Filed as Exhibit 3.1 to our
Current Report on Form 8-K filed on March 27, 2015.
Third Amended and Restated Bylaws. Filed as Exhibit 3.2 to our Current Report on Form
8-K filed on March 27, 2015.
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.
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).
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.
Indenture, dated September 15, 2015, between Biogen Inc. and U.S. Bank National
Association. Filed as Exhibit 4.1 to our Current Report on Form 8-K filed on September
16, 2015.
First Supplemental Indenture, dated September 15, 2015, between Biogen Inc. and U.S.
Bank National Association. Filed as Exhibit 4.2 to our Current Report on Form 8-K filed on
September 16, 2015.
Credit Agreement, dated August 28, 2015, between Biogen Inc., Bank of America, N.A.,
as administrative agent, swing line lender and an L/C issuer, and the other lenders party
thereto. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on September 1,
2015.
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.
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.
Second Amended and Restated Collaboration Agreement between Biogen Idec and
Genentech, Inc. dated as of October 18, 2010. Filed as Exhibit 10.5 to our Annual Report
on Form 10-K for the year ended December 31, 2010.
Letter agreement regarding GA101 financial terms between Biogen Idec and Genentech,
Inc. dated October 18, 2010. Filed as Exhibit 10.6 to our Annual Report on Form 10-K for
the year ended December 31, 2010.
Biogen Idec Inc. 2008 Amended and Restated Omnibus Equity Plan. Filed as Exhibit 10.1
to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.
Form of performance unit award agreement under the Biogen Idec Inc. 2008 Omnibus
Equity Plan. Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2014.
Form of market stock unit award agreement under the Biogen Idec Inc. 2008 Omnibus
Equity Plan. Filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2014.
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.
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.
A- 1
Exhibit No.
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
Description
p
Form of cash-settled performance shares award agreement under the Biogen Idec Inc.
2008 Omnibus Equity Plan. Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2010.
Form of performance shares award agreement under the Biogen Idec Inc. 2008 Omnibus
Equity Plan. Filed as Exhibit 10.12 to our Annual Report on Form 10-K for the year ended
December 31, 2013.
Form of market stock unit award agreement under the Biogen Idec Inc. 2008 Omnibus
Equity Plan. Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2010.
Biogen Inc. 2006 Non-Employee Directors Equity Plan, as amended. Filed as Exhibit 10.1
to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.
Biogen Idec Inc. 2005 Omnibus Equity Plan. Filed as Appendix A to our Definitive Proxy
Statement on Schedule 14A filed on April 15, 2005.
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.
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.
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.
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.
Biogen Inc. 2015 Employee Stock Purchase Plan. Filed as Appendix A to Biogen's Definitive
Proxy Statement on Schedule 14A filed on April 30, 2015.
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.
Voluntary Executive Supplemental Savings Plan, as amended and restated effective January
1, 2004. Filed as Exhibit 10.13 to our Annual Report on Form 10-K for the year ended
December 31, 2003.
Supplemental Savings Plan, as amended. Filed as Exhibit 10.23 to our Annual Report on
Form 10-K for the year ended December 31, 2015.
Voluntary Board of Directors Savings Plan, as amended. Filed as Exhibit 10.24 to our
Annual Report on Form 10-K for the year ended December 31, 2015.
Biogen Idec Inc. Executive Severance Policy — U.S. Executive Vice President, as amended
effective January 1, 2014. Filed as Exhibit 10.39 to our Annual Report on Form 10-K for
the year ended December 31, 2013.
Biogen Idec Inc. Executive Severance Policy — International Executive Vice President, as
amended effective January 1, 2014. Filed as Exhibit 10.40 Annual Report on Form 10-K
for the year ended December 31, 2013.
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.
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.
Annual Retainer Summary for Board of Directors. Filed as Exhibit 10.1 to our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2014.
Form of indemnification agreement for directors and executive officers. Filed as Exhibit
10.1 to our Current Report on Form 8-K filed on June 7, 2011.
Employment Agreement between Biogen Idec and George A. Scangos amended as of
August 23, 2013. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on August
26, 2013.
Letter regarding employment arrangement of Paul J. Clancy dated August 17, 2007. Filed
as Exhibit 10.49 to our Annual Report on Form 10-K for the year ended December 31,
2007.
A- 2
Exhibit No.
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
10.39*
10.40*
10.41
21+
23+
31.1+
31.2+
32.1++
101++
Description
p
Employment Agreement between Biogen Inc. and Michel Vounatsos dated December 18,
2016. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on December 19, 2016.
Letter regarding employment arrangement of Kenneth DiPietro dated December 12, 2011.
Filed as Exhibit 10.49 to our Annual Report on Form 10-K for the year ended December 31,
2012.
Letter regarding employment arrangement of Alfred Sandrock dated May 7, 2013. Filed as
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.
Letter regarding employment arrangement of Alfred Sandrock dated October 19, 2015. Filed
as Exhibit 10.37 to our Annual Report on Form 10-K for the year ended December 31, 2015.
Letter regarding employment arrangement of Susan Alexander dated December 13, 2005.
Filed as Exhibit 10.58 to our Annual Report on Form 10-K for the year ended December 31,
2009.
Letter regarding employment arrangement of Adriana Karaboutis dated August 7, 2014.
Filed as Exhibit 10.44 to our Annual Report on Form 10-K for the year ended December 31,
2014.
Letter regarding employment arrangement of John Cox dated May 19, 2016. Filed as Exhibit
10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.
Letter regarding separation arrangement of Tony Kingsley dated November 12, 2015. Filed
as Exhibit 10.42 to our Annual Report on Form 10-K for the year ended December 31, 2015.
Settlement and License Agreement, dated January 17, 2017, between Biogen Swiss
Manufacturing GmbH, Biogen International Holding Ltd, Forward Pharma A/S and the other
parties thereto. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on February
1, 2017.
Subsidiaries.
Consent of PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm.
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
The following materials from Biogen Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the
Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive
Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash
Flows, (v) the Consolidated Statements of Equity and (vi) Notes to Consolidated Financial
Statements.
^
*
†
+
References to “our” filings mean filings made by Biogen 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 or requested with respect to portions of this exhibit.
Filed herewith.
+ +
Furnished herewith.
A- 3
CORPORATE INFORMATION
Board of Directors
Stelios Papadopoulos, Ph.D.
Chairman, Biogen
Chairman, Exelixis, Inc. and
Regulus Therapeutics, Inc.
Michel Vounatsos
Chief Executive Officer, Biogen
Alexander J. Denner, Ph.D.
Founding Partner, Sarissa Capital
Shareholder Information
Corporate Headquarters
Biogen Inc.
225 Binney Street
Cambridge, MA 02142
Phone: (617) 679-2000
SEC Form 10-K
A copy of Biogen’s Annual
Report on Form 10-K filed with
the Securities and Exchange
Commission is available at sec.gov
and upon request to:
Investor Relations Department
Biogen Inc.
225 Binney Street
Cambridge, MA 02142
Phone: (781) 464-2442
Common Stock Price
Caroline D. Dorsa
Retired Executive Vice President
and Chief Financial Officer,
Public Service Enterprise Group,
Incorporated
Richard C. Mulligan, Ph.D.
Portfolio Manager, Icahn Capital
LP and Mallinckrodt Professor
of Genetics, Emeritus, Harvard
Medical School
Nancy L. Leaming
Retired Chief Executive Officer and
President, Tufts Health Plan
Robert W. Pangia
Partner, Ivy Capital Partners, LLC
Brian S. Posner
President, Point Rider Group LLC
and Private Investor
Eric K. Rowinsky, M.D.
President and Executive Chairman,
RGenix, Inc.
The Honorable Lynn Schenk
Attorney, Former Chief of Staff
to the Governor of California
and Former U.S. Congresswoman
Stephen A. Sherwin, M.D.
Clinical Professor of Medicine,
University of California, San
Francisco, and advisor to life
sciences companies
Transfer Agent
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PricewaterhouseCoopers LLP
101 Seaport Boulevard
Boston, MA 02210
Market Information
Our common stock trades on
the NASDAQ Global Select Market
under the symbol “BIIB.”
The table below shows the
high and low sales price for our
common stock as reported by the
NASDAQ Global Select Market for
each quarter in the years ended
December 31, 2016 and 2015.
News Releases
As a service to our shareholders
and prospective investors, copies
of Biogen news releases issued
in the last 12 months are now
available almost immediately 24
hours a day, seven days a week,
on the Web at businesswire.com.
Biogen’s news releases are usually
posted within one hour of being
issued and are available at no cost
at biogen.com.
HIGH
LOW
HIGH
LOW
Q1
$301.02
$242.07
Q1
$480.18
$334.40
2016
Q2
$292.69
$223.02
2015
Q2
$432.88
$368.88
Q3
$333.65
$240.07
Q3
$412.24
$265.00
Q4
$329.83
$268.00
Q4
$311.65
$254.00
About the Cover
Kernen and Braeden, siblings who both have spinal muscular atrophy (SMA). In 2016, Biogen launched the
fi rst and only treatment for SMA in the US and today is working to bring the therapy to patients worldwide.
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2 0 1 6 A N N UA L R E P O R T
BIOGEN FORWARD
225 Binney Street, Cambridge, MA 02142
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