2017 ANNUAL REPORT
PIONEERING THE FUTURE
OF NEUROSCIENCE
YEARS
1 | 2017 Biogen Annual Report
1 | 2017 Biogen Annual Report
About the Cover
Left: Ankur is Senior Associate Scientist, Neurology Research at Biogen
Right: Erin is Associate Director, Pharmaceutical Development, Pharmaceutical Operations & Technology (PO&T) and Albert is Principal Scientist, Pharmaceutical
Development, PO&T at Biogen
About the Graphic Artwork
The artwork highlighted in the report was submitted by Biogen’s R&D team as part of our annual RAD (Research and Development) Art contest. Each image reflects
work underway in the lab every day.
2017 Biogen Annual Report | 2
FINANCIAL PERFORMANCE
FINANCIAL PERFORMANCE
REVENUES
REVENUES
$ in millions
$ in millions
GAAP
GAAP
DILUTED
DILUTED
EPS
EPS
NON-GAAP
NON-GAAP
DILUTED
DILUTED
EPS*
EPS*
FREE CASH
FREE CASH
FLOW*
FLOW*
$ in millions
$ in millions
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
$6,932
$9,703
$10,764
$11,499
$12,274
$7.81
$12.37
$11.921
$15.34
$16.93
$8.96
$13.83
$17.01
$20.22
$21.81
$2,084
$2,279
$2,223
$2,706
$2,4842
1 “GAAP diluted EPS” for 2017 reflects the impact of The Tax Cuts and Jobs Act of 2017 and higher costs associated
with our external business development activities, including our agreements with Bristol-Myers Squibb Company, Ionis
Pharmaceuticals Inc., Neurimmune Subone AG and Alkermes Pharma Ireland Limited, a subsidiary of Alkermes plc.
2 “Free Cash Flow*” for 2017 reflects an increase in capital expenditures related to the construction of our large-scale
biologics manufacturing facility in Solothurn, Switzerland.
* “Non-GAAP diluted 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 18-20 of this Annual Report.
3 | 2017 Biogen Annual Report
MICHEL VOUNATSOS
CHIEF EXECUTIVE OFFICER
2017 Biogen Annual Report | 4
~ 1b
PEOPLE
SUFFER FROM
NEUROLOGICAL
DISORDERS
WORLDWIDE
12
LIFE-CHANGING
MEDICINES
DEAR FELLOW SHAREHOLDERS:
I am honored and humbled to write to you as the CEO of Biogen as
we celebrate our 40th anniversary in 2018. One of the world’s first
global biotechnology companies, we were founded in 1978 by Charles
Weissmann, Heinz Schaller, Kenneth Murray and Nobel Prize winners
Walter Gilbert and Phillip Sharp.
OUR FOUNDERS’ guiding principles and leadership in innovative scientific research
have sustained at Biogen to this day. Over the past decade, we have been devoted to defeating
devastating neurological diseases. Biogen has established a 20-year foundation in multiple sclerosis
(MS) treatment and, most recently, pioneered a treatment for spinal muscular atrophy (SMA).
2018 is a remarkable time to lead a company at the forefront of neuroscience. We believe no other
disease area holds as much need or as much promise for medical breakthroughs as neuroscience.
Neurological disorders affect approximately one billion people, are the leading cause of disability
and are the number two cause of death worldwide, second only to cardiovascular disease.
We believe that Biogen is uniquely positioned as a global leader in neuroscience to take on this
enormous challenge. In 2017 we declared our goal to become the global leader in neuroscience by
developing transformational therapies to address what we believe are becoming the world’s most
significant unmet medical needs.
Our strategy is simple: Leverage a strong core business to help drive future growth. Our first three
strategic priorities focus on fortifying our core business – this is Biogen today:
•
•
•
Maximizing the resilience of our core multiple sclerosis (MS) business to drive
earnings and cash flow
Accelerating our progress in spinal muscular atrophy (SMA) as we shift towards
new growth opportunities
Creating a leaner and simpler operating model
For the Biogen of tomorrow, we will build upon our core business and a leaner and simpler
operating model to create new sources of value through:
•
•
Developing and expanding our neuroscience portfolio to create the future growth
engines of Biogen
Re-prioritizing our capital allocation efforts to continue to maximize shareholder
value, with an increased focus on investment for future growth
We are pleased with the work we have done to execute on our strategy, which we believe has led to
significant progress for Biogen. We know our work is not finished and we remain committed to our
longer-term goal of becoming the leader in neuroscience and the fastest-growing large cap
biotech company.
5 | 2017 Biogen Annual Report
EXECUTING ON THE CORE BUSINESS
CREATING NEW SOURCES OF VALUE
Maximizing the resilience of our
MS core business
Accelerating our progress in
spinal muscular atrophy
Creating a leaner and simpler
operating model
Developing and expanding our
neuroscience portfolio
Re-prioritizing our capital
allocation efforts
EXECUTING ON OUR STRATEGY
We believe we delivered on our strategy in 2017. Our MS business remained core to Biogen’s
success with global revenues, including royalty revenues on sales of OCREVUS®, increasing 4
percent over 2016. In addition, the launch of SPINRAZA proved to be one of the most remarkable
biotech product launches of the year, with approximately 3,200 patients on the therapy3. Our efforts
combined to deliver strong financial performance, generating an all-time high of $12.3 billion in
total revenues. Total revenues for 2017 grew by 7 percent over 2016, or a 15 percent increase over
2016 excluding hemophilia revenues4.
3 As of December 31, 2017, approximately 3,200 patients were receiving SPINRAZA across the post-marketing setting, the expanded access program and
ongoing clinical trials.
4 In Q1 2017 Biogen completed the spin-off of its global hemophilia business into a new company, known as Bioverativ Inc. The 15 percent increase in total
revenues excludes all hemophilia revenues from 2016 through January 2017. Hemophilia revenues include ELOCTATE® and ALPROLIX® product revenues
as well as royalty and contract manufacturing revenues received from Sobi.
2017 Biogen Annual Report | 6
~20%
OF ANNUAL
REVENUES
INVESTED INTO
R&D OVER PAST
DECADE
$12.3b
IN REVENUES
IN 2017
For the Biogen of tomorrow, we plan to build upon our core business to create new sources of value.
In 2017 we made noteworthy advancements, transitioning five pipeline candidates from research to
development, nearly doubling our historical productivity. Additionally, we added seven new clinical
stage programs across our core and emerging growth areas through the advancement of our
internal candidates and external business development. These programs included:
CORE:
•BIIB098 (monomethyl fumarate prodrug)* in MS
•BIIB092 (anti-tau mAb) in Alzheimer’s disease
•BIIB092 (anti-tau mAb) in Progressive Supranuclear Palsy (PSP)
•BIIB076 (anti-tau mAb)* in Alzheimer’s disease
•BIIB080 (IONIS-MAPTRx)* in Alzheimer’s disease
EMERGING:
•BIIB093 (glibenclamide IV) in Large Hemispheric Infarction (LHI) Stroke
•Natalizumab in Epilepsy
*Collaboration programs.
CORE GROWTH AREAS
EMERGING GROWTH AREAS
MS/NEURO-
IMMUNOLOGY
ALZHEIMER’S
DISEASE/
DEMENTIA
MOVEMENT
DISORDERS
NEURO-
MUSCULAR
DISORDERS
PAIN
OPHTHAL-
MOLOGY
NEURO-
PSYCHIATRY
ACUTE
NEUROLOGY
We also re-prioritized our capital allocation with an increased focus on long-term growth while
continuing to buy back shares opportunistically, repurchasing approximately 4.9 million shares of
our common stock in 2017 with a total value of $1.4 billion.
In 2017 we further aligned our business to our strategy. We completed the spin-off of our
hemophilia business as an independent company and we continued construction of our large-scale
biologics manufacturing facility at Solothurn, Switzerland, which we expect will be operational by the
end of the decade.
In 2017 we also made several key appointments to our management team, including Jeffery D.
Capello as Executive Vice President and Chief Financial Officer, Ginger Gregory as Executive Vice
President and Chief Human Resources Officer and Chirfi Guindo as Executive Vice President and
Head of Global Marketing, Market Access and Customer Innovation.
Our people and our leaders are at the core of our success. During my time at Biogen, I have been
inspired by the commitment that all Biogen employees have to patients, to our communities, and to
our shareholders. I am privileged to work with people who have the talent and skills needed to lead
Biogen forward.
7 | 2017 Biogen Annual Report
CORE COMMERCIAL PERFORMANCE
MULTIPLE SCLEROSIS (MS)
Today, Biogen remains a global leader in all three segments of the MS market: oral, high-efficacy
and interferons. In 2017, even amid stiff competition, we were resilient with our global MS market
share of approximately 37 percent, or approximately 340,000 patients.
Our $9 billion MS franchise, including royalty revenues on sales of OCREVUS, has grown revenues
at a compounded annual growth rate of 14 percent over the last 5 years. TECFIDERA revenues
rose 6 percent to $4.2 billion in 2017 and TYSABRI remained in a stable market position with
approximately $2 billion in annual revenues.
We were able to expand U.S. access for our MS portfolio and we are excited to see it implemented
in 2018. We also executed five value-based contracts in the U.S., which we believe will give us the
opportunity to learn and develop new contracting models to better serve patients in the future.
~37%
MS PATIENTS
TREATED WITH
OUR MEDICINES
GLOBALLY
1st
& ONLY APPROVED
TREATMENT
FOR SMA
SPINAL MUSCULAR ATROPHY (SMA)
In 2017 the launch of SPINRAZA exceeded expectations. We saw strong SPINRAZA patient growth
both in the U.S. and outside the U.S. As of December 31, 2017, there were approximately 3,200
patients on the therapy5.
Worldwide SPINRAZA revenues reached $884 million as we expanded our launch of SPINRAZA
globally in 2017 and received additional approvals, including in the European Union and Japan.
SPINRAZA is the first and only approved treatment for SMA, bringing hope for the first time to
families, infants, teens and young adults.
We were also honored, along with our partner Ionis Pharmaceuticals Inc. (Ionis), when SPINRAZA
won the prestigious 2017 Prix Galien USA award for the Best New Biotechnology Product.
3
ANTI-TNF
BIOSIMILARS
APPROVED
IN THE EU6
BIOSIMILARS
Biogen is a leader in the emerging field of biosimilars through Samsung Bioepis, our joint venture
with Samsung BioLogics Co. Ltd. Together we are working to expand patient choice and offer
physicians more options to meet the needs of patients, while delivering savings to healthcare
systems. Biogen markets two biosimilars in Europe for Samsung Bioepis, BENEPALI (etanercept)
and FLIXABI (infliximab), serving more than 70,000 patients and generating $380 million in total
product revenues in 2017, representing a 277 percent increase over 2016. In addition, a third
biosimilar which we will market, IRMALDI (adalimumab), was approved in the European Union in
2017 and is expected to launch in Europe in October 2018.
CREATING NEW SOURCES OF VALUE
2017 was a transformative year for Biogen Research & Development. We provided clarity on
Biogen’s strategic priorities and we believe this is where breaking science is opening new avenues
for drug development. We believe that Biogen has a competitive advantage based on our strong
track record and intense focus on our core and emerging growth areas within neuroscience. We also
believe our successful SPINRAZA launch exemplifies our ability to bring new therapies to patients
in need. Our goal is to leverage our competitive advantage, to target our investments to the areas of
greatest need and opportunity and to advance a world-class neuroscience R&D engine.
5 As of December 31, 2017, approximately 3,200 patients were receiving SPINRAZA across the post-marketing setting, the expanded access program and
ongoing clinical trials.
6 Two currently available for treatment; a third has been granted marketing authorization by the European Commission and is expected to launch in
Europe in October 2018.
2017 Biogen Annual Report | 8
ONE OF
THE LARGEST
PRODUCERS
OF BIOLOGICS
IN BIOTECH
>$2b
SPENT ON R&D
IN 2017 ALONE
140
ACTIVE STUDIES7
As we develop and expand our portfolio, we aim to increase overall productivity at every stage,
balance our portfolio and to continue to implement a robust external portfolio strategy, which may
include acquisitions, development partnerships for resource flexibility and risk sharing and early
innovation partnerships.
MULTIPLE SCLEROSIS
As part of our long-standing commitment to the MS community, we remain dedicated to advancing
the treatment of MS and building on our leadership in this space. In 2017 we demonstrated this
commitment by advancing opicinumab (anti-LINGO-1) into a Phase 2b trial for remyelination. We
also licensed BIIB098, an oral monomethyl fumarate prodrug, from Alkermes Pharma Ireland
Limited, a subsidiary of Alkermes plc. Furthermore, we strengthened our TECFIDERA intellectual
property position through a licensing agreement with Forward Pharma A/S (Forward Pharma).
SPINAL MUSCULAR ATROPHY
As part of our commitment to the SMA community, we remain dedicated to advancing potential
additional treatment options for SMA. In December 2017 we entered into a new collaboration
agreement with Ionis to identify additional antisense oligonucleotide (ASO) drug candidates for
the treatment of SMA. In this collaboration, we are exploring novel chemistries for advancing
intrathecal ASO-based therapies that have the potential to reduce the dosing burden or increase the
therapeutic effect of a therapy.
We continue to believe that there is an opportunity in gene therapy and remain committed to
advancing our gene therapy asset for SMA to clinical trials with the aim of dosing the first patient in
the middle of 2018.
ALZHEIMER’S DISEASE
We believe we have the industry’s leading Alzheimer’s disease portfolio and are developing a variety
of investigational therapies to treat patients with the disease. We have learned from extensive
research, including from genetics, that Alzheimer’s disease can be driven by amyloid beta and
that plaque build-up occurs before symptoms of Alzheimer’s disease. Our lead investigational
compound, aducanumab, is being jointly developed with Eisai Co. LTD (Eisai) as of October 22,
2017. It is the first to show with clinical data a slowing of the progression of disease as we saw in
the Phase 1b PRIME trial. The aducanumab investigational compound differs in meaningful ways
from other investigational compounds because it is highly selective for aggregated forms of amyloid
beta and substantially removes them from the brain. The results from the Phase 1b PRIME trial
support the design of our ongoing Phase 3 trials.
In late 2017 the Independent Data Monitoring Committee determined that BAN2401, an anti-
amyloid beta protofibril antibody that we are jointly developing with Eisai, did not meet the criteria
for success based on a Bayesian analysis at 12 months as the primary endpoint in an 856-patient
Phase II trial (Study 201). The results of the final analysis are expected in the second half of 2018.
Beyond aducanumab and BAN2401, we are advancing four other clinical assets in Alzheimer’s
disease, including E2609, a BACE inhibitor being jointly developed with Eisai, two anti-tau
antibodies and an anti-tau ASO in collaboration with Ionis.
In 2017 we also renegotiated our agreements with Eisai and Neurimmune AG Subone
(Neurimmune) with the aim to improve the potential long-term economics of aducanumab.
7 Active study includes all studies between pre-Study Management Team (SMT) formation and Clinical Study Report (CSR) as defined by internal systems as
of March 9, 2018.
9 | 2017 Biogen Annual Report
BIOGEN FOR THE FUTURE
Forty years from now, we may look back at this time as a point of inflection for Biogen as we build
on our legacy of science and discovery to pursue increasingly complex challenges in neuroscience.
Leveraging substantial core competencies, including the world’s best neurologists and
neuroscientists, across a broad set of opportunities, we believe that we are well positioned
for the future.
We believe we are already executing on our well-defined strategy to deliver near-term results and
maximize long-term value. We have an energized, world-class executive team – and highly-skilled,
passionate employees – with clear opportunities in front of us based on the significant unmet
medical need and breakthroughs we see in neuroscience.
We also recognize that disease knows no borders or financial position. While we remain focused
on our priority markets, we are selectively expanding Biogen around the world. We also continue to
look for innovative ways to drive the evolution of the payer market, as evidenced by our value-based
contracting models. With an evolving payer landscape and possible political and regulatory changes
likely impacting our industry, we will focus on working to shape the future landscape in an effort to
place the patient first.
At Biogen, our credo is Caring Deeply. Working Fearlessly. Changing Lives.™ We are committed to
this philosophy, and we will continually work to improve patient access and health outcomes, build
supportive communities and inspire future generations of scientists. I am proud of the dedication of
our employees and the strength of our programs in such areas as diversity and inclusion, safety and
environmental sustainability. Biogen continues to garner the respect and admiration of its peers
and the communities in which it operates.
Through all of our work, we maintain the highest levels of ethics and transparency, which are critical
to building and maintaining trust with patients, providers, our shareholders and other stakeholders.
As we celebrate our 40th anniversary in 2018, I would like to thank our employees around the world
who are dedicated to making a positive impact on patients’ lives – and all the physicians, caregivers
and participants in our clinical development programs. Finally, I would like to thank you, my fellow
shareholders, for your past support and continued confidence in the future of Biogen.
Michel Vounatsos
Chief Executive Officer
2017 Biogen Annual Report | 10
2017 Biogen Annual Report | 10
11 | 2017 Biogen Annual Report
Over the past year, I’ve seen a construction site
turn into a high-tech vision of the future. The
next-generation biologics manufacturing facility will
lead the industry in advanced process controls and
novel techniques. Our motivated and expert staff
is excited to bring this technological innovation to
reality and deliver treatments to our patients.
Lilla Csanaky
Manufacturing Associate,
Solothurn, Switzerland
We are at a crucial moment in the field of
neuroscience, and I believe Biogen is positioned
for the future. Each day, we have an acute sense of
urgency to develop new medicines that will positively
impact the lives of millions of patients and caregivers
around the world.
Teresa G. Cachero, Ph.D., PMP
Product Development and
Commercialization Lead BIIB092
2017 was a transformative year for Biogen. We
delivered one of the most exciting biotech launches
of the year with SPINRAZA and had a record year for
MS revenues. I want to thank our employees for their
continued passion to bring innovative therapies to
market and dedication to access for
patients across the U.S.
Dell Faulkingham
Vice President,
Head of Neurology
Marketing and Field Operations
2017 Biogen Annual Report | 12
Biogen’s talented engineers and scientists know
that patients are counting on us. We continuously
look to improve development, technology transfer
and product lifecycle management to deliver novel
therapies to our patients faster and drive Biogen
forward.
Shishir Ghia
Associate Director,
Manufacturing Sciences
I speak with patients, providers and pharmacies
each day with one key goal in mind: supporting the
patient. I serve as a connection point to disease
education, financial assistance, treatment options
and support services. Having the confidence
to say to a patient, ‘I can help you with that’
is empowering.
Tennille Harper
Universal Patient
Services Coordinator
Biogen is making an unprecedented investment into
Alzheimer’s, a devastating neurological disease that
touches too many. We are at the forefront of research
and development in this therapeutic area, and we
believe that our pipeline holds great promise
for society.
Samantha Budd Haeberlein
Vice President,
Clinical Development
Alzheimer’s Disease
13 | 2017 Biogen Annual Report
Biogen has invested roughly 20 percent of our
revenues into research and development over
the past decade, which is why we’ve managed to
produce breakthrough treatments in MS and SMA.
With world-class science, we are changing lives and
fearlessly taking on some of neuroscience’s
biggest challenges.
Anirvan Ghosh
Senior Vice President,
Research and Early Development
At Biogen, diversity and inclusion live in everything
we do. It is not just seen as a must-do, it is seen as a
strength from our leadership to our employees. This
encourages me to bring my best self to work each
day, and amplifies our teams’ knowledge, strengths
and abilities.
Sini Ngobese
Manager, People Relations
and Leave Management
The development and approval of SPINRAZA
exemplifies Biogen’s mission to improve the lives of
patients. At the end of 2017, approximately 3,200
patients were receiving the treatment8, and this
is just the beginning. The pace of discovery and
innovation in neuroscience is accelerating rapidly.
Wildon Farwell, M.D., MPH
Senior Medical Director,
Clinical Development
8 As of December 31, 2017, approximately 3,200 patients were receiving SPINRAZA across the post-marketing setting, the expanded access program and
ongoing clinical trials.
2017 Biogen Annual Report | 14
2017 Biogen Annual Report | 14
7,000+
EMPLOYEES
WORLDWIDE
4
CONSECUTIVE YEARS
‘BEST PLACE TO WORK’
FOR LGBT EQUALITY
IN THE U.S.
43%
OF DIRECTOR-LEVEL
EMPLOYEE POSITIONS &
ABOVE HELD BY WOMEN
73%
REDUCTION
IN OPERATIONAL
CARBON INTENSITY
SINCE 2006
CARBON-NEUTRAL
COMPANY
SINCE 2014
100%
RENEWABLE
POWER
COMMITMENT
15 | 2017 Biogen Annual Report
15 | 2017 Biogen Annual Report
PHASE 1
PHASE 2
PHASE 3
2017 Biogen Annual Report | 16
CORE
GROWTH
AREA
EMERGING
GROWTH
AREA
PRODUCT PIPELINE
MULTIPLE SCLEROSIS AND
NEUROIMMUNOLOGY
BIIB098 (monomethyl fumarate
prodrug)* - MS
Opicinumab (anti-LINGO-1) - MS
ALZHEIMER’S DISEASE
AND DEMENTIA
Aducanumab (Aβ mAb)* - Alzheimer’s
Elenbecestat (E2609)* - Alzheimer’s
BAN2401 (Aβ mAb)* - Alzheimer’s
BIIB092 (anti-tau mAb) - Alzheimer’s
BIIB076 (anti-tau mAb)* - Alzheimer’s
BIIB080 (IONIS-MAPTRx)* - Alzheimer’s
PARKINSON’S DISEASE
AND MOVEMENT
DISORDERS
BIIB092 (anti-tau mAb) - Progressive
Supranuclear Palsy (PSP)
BIIB054 (anti-alpha-synuclein mAb) -
Parkinson’s
NEUROMUSCULAR
DISEASE INCLUDING
SMA AND ALS
BIIB067 (IONIS-SOD1Rx)* -
Amyotrophic Lateral Sclerosis (ALS)
PAIN
BIIB074 (Vixotrigine) - Trigeminal
Neuralgia
BIIB074 (Nav1.7) - Painful
Lumbosacral Radiculophath (PLSR)
OPHTHALMOLOGY
BIIB087 (gene therapy)* - X-Linked
Retinoschisis (XLRS)
ACUTE NEUROLOGY
BIIB093 (glibenclamide IV) - Large
Hemispheric Infarction (LHI) Stroke
Natalizumab - Epilepsy
OTHER
Dapirolizumab pegol (anti-CD40L)* -
Systemic Lupus Erythematosus (SLE)
BG00011 (STX-100) -
Idiopathic Pulmonary Fibrosis (IPF)
BIIB059 (anti-BDCA2) - SLE
*Collaboration programs.
17 | 2017 Biogen Annual Report
EXECUTIVE COMMITTEE
_______
(Left to Right Below)
Chirfi Guindo
Executive Vice President and Head of Global Marketing,
Market Access and Customer Innovation
Jeffrey D. Capello
Executive Vice President and
Chief Financial Officer
Susan H. Alexander
Executive Vice President,
Chief Legal Officer and Secretary
Alfred W. Sandrock, Jr., M.D., Ph.D.
Executive Vice President
and Chief Medical Officer
Michel Vounatsos
Chief Executive Officer
Paul F. McKenzie, Ph.D.
Executive Vice President,
Pharmaceutical Operations and Technology
Ginger Gregory, Ph.D.
Executive Vice President and
Chief Human Resources Officer
Michael D. Ehlers, M.D., Ph.D.
Executive Vice President,
Research and Development
2017 Biogen Annual Report | 18
FINANCIALS
_______
GAAP to Non-GAAP Reconciliation
DILUTED EPS AND NET INCOME ATTRIBUTABLE TO BIOGEN INC.
(Unaudited, $ in millions, except per share amounts)
FY |
2013
2014
2015
2016
2017
GAAP Diluted EPS
$7.81
$12.37
$15.34
$16.93
$11.92
Adjustments to net income attributable to Biogen Inc. (see below)
1.15
1.46
1.67
3.29
9.89
Non-GAAP Diluted EPS
$8.96
$13.83
$17.01
$20.22
$21.81
GAAP Net Income Attributable to Biogen Inc.
$1,862
$2,935
$3,547
$3,703
$2,539
Amortization of acquired intangible assetsA,B
TECFIDERA litigation settlement chargeA
Acquired in-process research and development
331
473
365
-
-
-
-
-
-
Loss (gain) on fair value remeasurement of contingent consideration
(1)
(39)
31
Net distribution to noncontrolling interestsC
Gain on deconsolidation of variable interest entities
Hemophilia business separation costs
Restructuring, business transformation and other cost-saving initiatives:
2017 corporate strategy implementationD
Restructuring chargesD
Cambridge manufacturing facility rationalization costsE
Weston exit costsF
Donation to Biogen Foundation
Stock option expense and other
-
-
-
-
-
-
27
-
10
-
-
-
-
-
-
-
35
12
-
-
-
-
93
-
-
-
-
374
455
-
15
-
(4)
18
-
33
55
-
-
-
815
-
120
63
110
-
19
18
1
-
-
-
-
Income tax effect related to reconciling items
(93)
(135)
(104)
(225)
(213)
Tax reformG
-
-
-
-
1,174
Non-GAAP Net Income Attributable to Biogen Inc.
$2,136
$3,281
$3,932
$4,423
$4,645
19 | 2017 Biogen Annual Report
FINANCIALS
_______
(Continued from previous page)
FREE CASH FLOW RECONCILIATION
(Unaudited, $ in millions)
FY |
2013
2014
2015
2016
2017
Net Cash Flows Provided by Operating Activities
$2,345
$2,942
$3,716
$4,522
$4,551
Purchases of property, plant and equipment (Capital Expenditures)
Contingent consideration related to Fumapharm AG acquisition
(246)
(15)
(288)
(375)
(643)
(850)
(616)
(867)
(1,200)
(1,200)
Free Cash Flow
$2,084
$2,279
$2,223
$2,706
$2,484
A Amortization of acquired intangible assets for 2017 includes $444 million of impairment and amortization charges related to the
intangible assets associated with our U.S. and rest of world licenses to Forward Pharma’s intellectual property, including Forward Pharma’s
intellectual property related to TECFIDERA. In exchange for these licenses, we paid Forward Pharma $1.25 billion in cash. During the fourth
quarter of 2016 we recognized a pre-tax charge of $455 million and in the first quarter of 2017 we recognized intangible assets of $795
million related to this agreement.
We have two intellectual property disputes with Forward Pharma, one in the U.S. and one in the European Union, concerning intellectual
property related to TECFIDERA. In March 2017 the U.S. intellectual property dispute was decided in our favor. We evaluated the
recoverability of the U.S. asset acquired from Forward Pharma and recorded an impairment charge in the first quarter of 2017 to adjust
the carrying value of the acquired U.S. asset to fair value reflecting the impact of the developments in the U.S. legal dispute. In January
2018 the European Patent Office announced its decision revoking Forward Pharma’s European Patent No. 2 801 355. Based upon our
assessment of these rulings, we continue to amortize the remaining net book value of the U.S. and rest of world intangible assets in our
consolidated statements of income utilizing an economic consumption model.
The TECFIDERA litigation settlement charge for 2016 represents the portion of the $1.25 billion cash payment made in the first quarter of
2017 attributable to our sales of TECFIDERA during the period April 2014 through December 31, 2016.
B Amortization of acquired intangible assets for 2017 includes a $31 million pre-tax impairment charge related to our acquired and in-
licensed rights and patents intangible asset due to the Article 20 Procedure of ZINBRYTA.
C Net distribution to noncontrolling interests for 2017 reflects the after-tax $150 million upfront payment made to Neurimmune in exchange
for a 15 percent reduction in royalty rates payable on potential commercial sales of aducanumab. This upfront payment is in relation to the
amendment of terms of our collaboration agreement with Neurimmune.
D 2017 corporate strategy and restructuring charges for 2017 are related to our efforts to create a leaner and simpler operating model.
2017 Biogen Annual Report | 20
FINANCIALS
_______
(Continued from previous page)
Restructuring charges for 2016 include charges of $18 million incurred in connection with our 2016 restructuring resulting from our
decision to spin-off our hemophilia business. Restructuring charges for 2016 also include severance charges of $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. Restructuring charges for 2016 further include $8 million of costs incurred in connection with our 2015 corporate
restructuring.
Restructuring charges for 2015 reflect $93 million of charges incurred in connection with our 2015 corporate restructuring.
E Cambridge manufacturing facility rationalization costs for 2016 reflect $46 million of additional depreciation expense included in cost of
sales, excluding amortization of acquired intangible assets in our condensed consolidated statements of income. Cambridge manufacturing
facility rationalization costs for 2016 also includes charges of $7 million for the write-down of excess inventory.
F This charge represents the remaining lease obligation for the vacated portion of our Weston, MA facility, net of sublease income upon
relocation of our headquarters to Cambridge, MA.
G On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act) was signed into law and has resulted in significant changes
to the U.S. corporate income tax system. The 2017 Tax Act includes a federal statutory rate reduction from 35 percent to 21 percent, the
elimination or reduction of certain domestic deductions and credits, the transition of U.S. international taxation from a worldwide tax
system towards a territorial tax system, limitations on the deductibility of interest expense and executive compensation and base-erosion
prevention measures on future non-U.S. earnings of U.S. entities, which has the effect of subjecting certain of our earnings of foreign
subsidiaries to U.S. taxation. These changes became effective beginning in 2018.
The 2017 Tax Act also includes a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries’ previously untaxed
foreign earnings (the Transition Toll Tax). Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, during
the year ended December 31, 2017, we recorded a charge totaling $1,174 million related to our current estimate of the provisions of the
2017 Tax Act, including a $990 million expense under the Transition Toll Tax. The Transition Toll Tax must be paid over an eight-year period,
starting in 2018, and will not accrue interest.
NOTES: Our “Non-GAAP net income attributable to Biogen Inc.” and “Non-GAAP earnings per share – Diluted” financial 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 initiatives, (4) stock option expense, (5) other select items and (6) their related tax effects. “Free Cash Flow” is defined as net
cash flows provided by operating activities less purchases of property, plant and equipment and contingent consideration related to our
acquisition of Fumapharm AG as disclosed within our Annual Report on Form 10-K. We believe that the disclosure of these Non-GAAP
financial measures provides additional insight into the ongoing economics of our business and reflects how we manage our business
internally, set operational goals and forms the basis of our management incentive programs. These Non-GAAP financial 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 financial measures can be found in the Investors section of www.biogen.com.
21 | 2017 Biogen Annual Report
SAFE HARBOR: This Annual Report contains forward-looking statements, including statements relating to: our strategy and plans; potential
of our commercial business and pipeline programs; capital allocation and investment strategy; clinical trials and data readouts and
presentations; regulatory filings and the timing thereof; and anticipated benefits and potential of investments, collaborations and business
development activities. These forward-looking statements may be accompanied by such words as “aim,” “anticipate,” “believe,” “could,”
“estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “plan,” “potential,” “possible,” “will” and other words and terms of similar
meaning. Drug development and commercialization involve a high degree of risk, and only a small number of research and development
programs result in commercialization of a product. Results in early stage clinical trials may not be indicative of full results or results from
later stage or larger scale clinical trials and do not ensure regulatory approval. You should not place undue reliance on these statements or
the scientific data presented.
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; 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; 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; 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; risks associated with current and
potential future healthcare reforms; problems with our manufacturing processes; risks relating to technology failures or breaches; our
dependence on collaborators and other third parties for the development, regulatory approval and commercialization of products and
other aspects of our business, which are outside of our control; failure to successfully execute on our growth initiatives; risks relating to
management and key personnel changes, including attracting and retaining key personnel; risks relating to investment in and expansion
of manufacturing capacity for future clinical and commercial requirements; failure to comply with legal and regulatory requirements;
fluctuations in our effective tax rate; the risks of doing business internationally, including currency exchange rate fluctuations; risks related
to commercialization of biosimilars; risks related to investment in properties; the market, interest and credit risks associated with our
portfolio of marketable securities; risks relating to stock repurchase programs; risks relating to access to capital and credit markets;
risks related to indebtedness; 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;
risks relating to the spin-off of our hemophilia business, including risks of operational difficulties and exposure to claims and liabilities;
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 Securities and Exchange Commission.
These statements are based on our current beliefs and expectations and speak only as of April 13, 2018. We do not undertake any
obligation to publicly update any forward-looking statements.
NOTE REGARDING TRADEMARKS: BIOGEN®, SPINRAZA®, TECFIDERA®, TYSABRI® and ZINBRYTA® are registered trademarks of Biogen. BENEPALI™,
FLIXABI™ and IMRALDI™ are trademarks of Biogen. All other trademarks are the intellectual property of their respective owners.
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, 2017
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 Section 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”, “smaller reporting
company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act.
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 $57,220,188,450.
As of January 26, 2018, the registrant had 211,562,686 shares of common stock, $0.0005 par value, outstanding.
Portions of the definitive proxy statement for our 2018 Annual Meeting of Stockholders are incorporated by reference
DOCUMENTS INCORPORATED BY REFERENCE
into Part III of this report.
BIOGEN INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2017
TABLE OF CONTENTS
Item 1.
Business
Item 1A.
Risk Factors
Item 1B. Unresolved Staff Comments
Properties
Legal Proceedings
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
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Item 13.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
PART IV
Signatures
Consolidated Financial Statements
Page
1
33
46
46
47
47
48
50
53
88
90
90
91
91
92
92
92
92
92
93
93
97
F- 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 “aim,” “anticipate,”
“believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “possible,” “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;
• our plans to invest in emerging growth areas such as pain, ophthalmology, neuropsychiatry and acute
neurology;
•
the potential impact of increased product competition in the markets in which we compete;
• patent terms, patent term extensions, patent office actions and expected availability and period of regulatory
exclusivity;
•
•
•
the costs and timing of potential clinical trials, filings 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;
the anticipated benefits and the potential costs and expenses related to our current or future initiatives to
streamline our operations and reallocate resources;
• 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 potential impact on our results of operations and liquidity of the United Kingdom's (U.K.) 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 our 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;
•
•
the anticipated benefits, costs and tax treatment of the spin-off of our hemophilia business; and
the impact of new laws, including the Tax Cuts and Jobs Act of 2017, and accounting standards.
These forward-looking statements involve risks and uncertainties, including those that are described in Item
1A. Risk Factors included in 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); and
• "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.).
NOTE REGARDING TRADEMARKS
AVONEX®, PLEGRIDY®, RITUXAN®, RITUXAN HYCELA®, SPINRAZA®, TECFIDERA®, TYSABRI® and ZINBRYTA®
are registered trademarks of Biogen. BENEPALITM, FLIXABITM, FUMADERMTM and IMRALDITM 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 and delivering worldwide
innovative therapies for people living with serious neurological and neurodegenerative diseases, including in our core
growth areas of multiple sclerosis (MS) and neuroimmunology, Alzheimer’s disease (AD) and dementia, movement
disorders and neuromuscular disorders, including spinal muscular atrophy (SMA) and amyotrophic lateral sclerosis
(ALS). We also plan to invest in emerging growth areas such as pain, ophthalmology, neuropsychiatry and acute
neurology. In addition, we are employing innovative technologies to discover potential treatments for rare and genetic
disorders, including new ways of treating diseases through gene therapy in the previously mentioned areas. We also
manufacture and commercialize biosimilars of advanced biologics.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, ZINBRYTA and FAMPYRA for the
treatment of MS, SPINRAZA for the treatment of SMA and FUMADERM for the treatment of severe plaque psoriasis.
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 for the treatment of CLL and follicular
lymphoma, OCREVUS for the treatment of primary progressive MS and relapsing MS and other potential anti-CD20
therapies under a collaboration agreement with Genentech, Inc. (Genentech), a wholly-owned member of the 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 our core
and emerging growth areas. 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 AD, progressive supranuclear palsy (PSP), a rare
condition that affects movement, speech, vision and cognitive function, Parkinson's disease and ALS.
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 our commercial agreement, we market
and sell BENEPALI, an etanercept biosimilar referencing ENBREL, and FLIXABI, an infliximab biosimilar referencing
REMICADE, in the E.U.
1
Key Developments
During 2017 we had a number of key developments affecting our business.
Corporate Matters
2017 Corporate Strategy
In July 2017 we announced an updated strategic
framework to optimize the value of our MS business
while investing for the future across our core growth
areas of MS and neuroimmunology, AD and dementia,
movement disorders and neuromuscular diseases,
including SMA and ALS. We also plan to invest in
emerging growth areas such as pain, ophthalmology,
neuropsychiatry and acute neurology.
In order to deliver positive results in the near
term while investing in the next stages of our growth,
we will focus on the following strategic priorities:
• maximizing the resilience of our MS core
business;
• accelerating efforts in SMA as a significant new
growth opportunity;
• developing and expanding our neuroscience
portfolio;
•
focusing our capital allocation efforts to drive
investment for future growth; and
• creating a leaner and simpler operating model to
streamline our operations and reallocate
resources towards prioritized research and
development and commercial value creation
opportunities.
In October 2017, in connection with creating a
leaner and simpler operating model, we approved a
corporate restructuring program intended to
streamline our operations and reallocate resources.
We expect to make total non-recurring operating and
capital expenditures of up to $170.0 million, primarily
in 2018, and our goal is to redirect resources of up to
$400.0 million annually by 2020 to prioritized
research and development and other value creation
opportunities.
TECFIDERA Settlement and License Agreement
In January 2017 we entered into a settlement
and license agreement with Forward Pharma A/S
(Forward Pharma). Pursuant to this agreement, we
obtained U.S. and rest of world licenses to Forward
Pharma’s intellectual property, including Forward
Pharma’s intellectual property related to TECFIDERA.
In exchange, we paid Forward Pharma $1.25 billion in
cash. During the fourth quarter of 2016 we
recognized a pre-tax charge of $454.8 million and in
the first quarter of 2017 we recognized intangible
assets of $795.2 million related to this agreement.
2
We have two intellectual property disputes with
Forward Pharma, one in the U.S. and one in the E.U.,
concerning intellectual property related to TECFIDERA.
In March 2017 the U.S. intellectual property dispute
was decided in our favor. Forward Pharma appealed to
the U.S. Court of Appeals for the Federal Circuit and
the appeal is pending. We evaluated the recoverability
of the U.S. asset acquired from Forward Pharma and
recorded an impairment charge in the first quarter of
2017 to adjust the carrying value of the acquired U.S.
asset to fair value reflecting the impact of the
developments in the U.S. legal dispute. In January
2018 the European Patent Office (EPO) announced its
decision revoking Forward Pharma’s European Patent
No. 2 801 355. Forward Pharma has stated that it
expects to file an appeal to the Technical Board of
Appeal of the EPO. Based upon our assessment of
these rulings, we continue to amortize the remaining
net book value of the U.S. and rest of world intangible
assets in our consolidated statements of income
utilizing an economic consumption model.
For additional information on our settlement and
license agreement with Forward Pharma and related
intangible assets, please read Note 7, Intangible
Assets and Goodwill, to our consolidated financial
statements included in this report. For additional
information on these disputes, please read Note 21,
Litigation, to our consolidated financial statements
included in this report.
Tax Reform
The Tax Cuts and Jobs Act of 2017 (the 2017
Tax Act), which was signed into law on December 22,
2017, has resulted in significant changes to the U.S.
corporate income tax system. These changes include
a federal statutory rate reduction from 35% to 21%,
the elimination or reduction of certain domestic
deductions and credits and limitations on the
deductibility of interest expense and executive
compensation. The 2017 Tax Act also transitions
international taxation from a worldwide system to a
modified territorial system and includes base erosion
prevention measures on non-U.S. earnings, which has
the effect of subjecting certain earnings of our foreign
subsidiaries to U.S. taxation as global intangible low-
taxed income (GILTI). These changes are effective
beginning in 2018.
The 2017 Tax Act also includes a one-time
mandatory deemed repatriation tax on accumulated
foreign subsidiaries' previously untaxed foreign
earnings (the Transition Toll Tax).
Changes in tax rates and tax laws are accounted
Under this agreement, we are responsible for the
for in the period of enactment. Therefore, during the
year ended December 31, 2017, we recorded a
charge totaling $1,173.6 million related to our current
estimate of the provisions of the 2017 Tax Act,
including a $989.6 million expense under the
Transition Toll Tax. The Transition Toll Tax will be paid
over an eight-year period, starting in 2018, and will
not accrue interest.
The 2017 Tax Act will provide us with flexibility in
deploying our cash resources to advance our
business interests. We expect that it will have a
modest positive effect on our income tax rate in 2018
and a potential incremental benefit thereafter.
Hemophilia Spin-Off
On February 1, 2017, we completed the spin-off
of our hemophilia business, Bioverativ Inc.
(Bioverativ), as an independent, publicly traded
company trading under the symbol "BIVV" on the
Nasdaq Global Select Market. The spin-off was
accomplished through the distribution of all the then
outstanding shares of common stock of Bioverativ to
Biogen shareholders, who received one share of
Bioverativ common stock for every two shares of
Biogen common stock they owned. The separation
and distribution was structured to be tax-free for
shareholders for federal income tax purposes.
Bioverativ assumed 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).
Our consolidated results of operations and
financial position included in this report reflect the
financial results of our hemophilia business for all
periods through January 31, 2017.
For additional information on the spin-off of our
hemophilia business, please read Note 3, Hemophilia
Spin-Off, to our consolidated financial statements
included in this report.
BIIB093 Acquisition
In May 2017 we completed an asset purchase of
the Phase 3-ready candidate BIIB093 (intravenous
glibencamide) (formerly known as CIRARA) from
Remedy Pharmaceuticals Inc. (Remedy). The target
indication for BIIB093 is large hemispheric infarction
(LHI), a severe form of ischemic stroke where brain
swelling (cerebral edema) often leads to a
disproportionately large share of stroke-related
morbidity and mortality. The U.S. Food and Drug
Administration (FDA) recently granted BIIB093 Orphan
Drug Designation for severe cerebral edema in
patients with acute ischemic (AI) stroke. The FDA has
also granted BIIB093 Fast Track designation.
3
future development and commercialization of
BIIB093. Remedy will share in the cost of
development for the target indication for BIIB093 in
LHI stroke.
For additional information on our transaction with
Remedy, please read Note 2, Acquisitions, to our
consolidated financial statements included in this
report.
BIIB092 License Agreement
In June 2017 we completed an exclusive license
agreement with Bristol-Myers Squibb Company (BMS)
for BIIB092 (formerly known as BMS-986168), a
Phase 2-ready experimental medicine with potential in
AD and PSP. BIIB092 is an antibody targeting tau, the
protein that forms the deposits, or tangles, in the
brain associated with AD and other neurodegenerative
tauopathies such as PSP.
Under this agreement, we received worldwide
rights to BIIB092 and are responsible for the full
development and global commercialization of BIIB092
in AD and PSP.
For additional information on our collaboration
arrangement with BMS, please read Note 20,
Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
Eisai Collaboration Agreement
In October 2017 we entered into a new
collaboration agreement with Eisai Co. Ltd. (Eisai) for
the joint development and commercialization of
aducanumab, our anti-amyloid beta antibody
candidate for AD (Aducanumab Collaboration
Agreement). Under the Aducanumab Collaboration
Agreement, we will continue to lead the ongoing
Phase 3 development of aducanumab and will remain
responsible for 100% of development costs for
aducanumab until April 2018. Eisai will then
reimburse us for 15% of aducanumab development
expenses for the period April 2018 through December
2018, and 45% thereafter. Upon commercialization,
both companies will co-promote aducanumab with a
region-based profit split.
In addition, we and Eisai will continue to jointly
develop two product candidates for AD, BAN2401, a
monoclonal antibody that targets amyloid beta
aggregates, and E2609, a BACE inhibitor.
We and Eisai will co-promote AVONEX, TYSABRI
and TECFIDERA in Japan in certain settings and Eisai
will distribute AVONEX, TYSABRI, TECFIDERA and
PLEGRIDY in India and other Asia-Pacific markets,
excluding China.
For additional information on our collaboration
Ionis Collaboration Agreement
In December 2017 we entered into a new
collaboration agreement with Ionis Pharmaceuticals
Inc. (Ionis) to identify new antisense oligonucleotide
(ASO) drug candidates for the treatment of SMA.
Under this agreement, we have the option to license
therapies arising out of this collaboration and will be
responsible for the development and
commercialization of these therapies.
For additional information on our new
collaboration arrangement with Ionis, please read
Note 20, Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
Management Changes
During 2017 we appointed several new
executives, each of whom has significant experience
in the biopharmaceutical industry and is a leader in
his or her functional area. These appointments
included:
• Michel Vounatsos, Chief Executive Officer;
•
Jeffrey Capello, Executive Vice President and
Chief Financial Officer;
• Ginger Gregory, Executive Vice President and
Chief Human Resources Officer; and
• Chirfi Guindo, Executive Vice President and Head
of Global Marketing, Market Access and
Customer Innovation.
For additional information on these and our other
executive officers, please read the subsection entitled
“Our Executive Officers” included in this report.
arrangement with Eisai, please read Note 20,
Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
Neurimmune Collaboration Agreement
In October 2017 we amended the terms of our
collaboration and license agreement with
Neurimmune Subone AG (Neurimmune). Under the
amended agreement, we made a $150.0 million
payment to Neurimmune, which is reflected as a
charge to noncontrolling interests, in exchange for a
15% reduction in royalty rates payable on products
developed under the agreement, including on
potential commercial sales of aducanumab. Our
royalty rates payable on products developed under the
agreement, including on potential commercial sales of
aducanumab, will now range from the high single
digits to low-teens.
Under the amended agreement, we also have an
option that will expire in April 2018 to further reduce
our royalty rates payable on products developed under
the agreement, including on potential commercial
sales of aducanumab, by an additional 5% in
exchange for a $50.0 million payment to
Neurimmune.
For additional information on our collaboration
arrangement with Neurimmune, please read Note 19,
Investments in Variable Interest Entities, to our
consolidated financial statements included in this
report.
BIIB098 License Agreement
In November 2017 we entered into an exclusive
license and collaboration agreement with Alkermes
Pharma Ireland Limited, a subsidiary of Alkermes plc
(Alkermes), for BIIB098 (formerly known as ALKS
8700), an oral monomethyl fumarate (MMF) prodrug
in Phase 3 development for the treatment of relapsing
forms of MS.
Under this agreement, we received an exclusive,
worldwide license to develop and commercialize
BIIB098 and will pay Alkermes a royalty on potential
worldwide net sales of BIIB098. Beginning in 2018 we
are responsible for all development expenses related
to BIIB098. Alkermes will maintain responsibility for
regulatory interactions with the FDA through the
potential approval of the New Drug Application (NDA)
for BIIB098 for the treatment of MS.
For additional information on our collaboration
arrangement with Alkermes, please read Note 20,
Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
4
Product/Pipeline Developments
Core Growth Areas
Multiple Sclerosis and Neuroimmunology
TECFIDERA (dimethyl fumarate)
•
In April 2017 we presented new real-world data evidence supporting TECFIDERA at the 69th annual meeting of
the American Academy of Neurology (AAN) in Boston, MA.
We presented a comparison of real-world data that supported TECFIDERA’s strong efficacy relative to other oral
MS therapies, both in newly-treated MS patients and those previously treated with a prior disease modifying
therapy (DMT). Subgroup analyses of the open-label studies PROTEC and RESPOND assessed TECFIDERA in
early MS and early switch patients, respectively. Results showed that TECFIDERA significantly reduced the
annualized relapse rate over one year in the early MS subgroups, including those who switched to TECFIDERA
from a prior DMT. Additional data presented at the AAN meeting affirmed the well-characterized, long-term safety
profile of TECFIDERA in patients treated for up to nine years.
TYSABRI (natalizumab)
•
•
In February 2017 the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines
Agency (EMA) adopted a positive opinion to update the TYSABRI E.U. label with pediatric information to remove
the contraindication in pediatrics and to describe the results of the post-marketing meta-analysis of pediatric
data. The label update entitles us to apply for a six-month extension to the E.U. patent Supplementary
Protection Certificate.
In April 2017 we presented new real-world data from the TYSABRI Observational Program that confirmed the
efficacy of TYSABRI and demonstrated that early and continued treatment leads to better clinical outcomes.
These data were presented at the 69th annual meeting of AAN in Boston, MA.
FAMPYRA (prolonged-release fampridine tablets)
•
In May 2017 the European Commission (EC) granted a standard marketing authorization for FAMPYRA for
walking improvement in people with MS.
ZINBRYTA (daclizumab)
•
•
•
In July 2017 the EMA announced that it had provisionally restricted the use of ZINBRYTA to adult patients with
highly active relapsing disease despite a full and adequate course of treatment with at least one DMT or with
rapidly evolving severe relapsing MS who are unsuitable for treatment with other DMTs. These restrictions
followed the initiation of an EMA review (referred to as an Article 20 Procedure) of ZINBRYTA following the
report of a case of fatal fulminant liver failure, as well as four cases of serious liver injury.
In October 2017, as part of the Article 20 Procedure of ZINBRYTA, the EMA Pharmacovigilance Risk
Assessment Committee (PRAC) completed its assessment and recommended a further set of restrictions on
the use of ZINBRYTA by MS patients.
In November 2017 the CHMP adopted an opinion, confirming the PRAC's recommendations, for further
restrictions to minimize the risk of serious liver injury with ZINBRYTA, including restriction of its use to adult
patients with relapsing forms of MS who have had an inadequate response to at least two DMTs and for whom
treatment with any other DMT is contraindicated or otherwise unsuitable. In January 2018 the EC adopted a
final and legally-binding decision, which concluded the Article 20 Procedure, confirming the CHMP opinion. As a
result of the CHMP's recommendation of these restrictions, we recorded net impairment charges related to
intangible assets, inventory, property, plant and equipment and prepaid tax assets, totaling approximately
$190.8 million. Offsetting these amounts was an unrecorded tax benefit related to certain ZINBRYTA related
assets totaling approximately $93.8 million.
Opicinumab (anti-LINGO-1)
•
In October 2017 we initiated the Phase 2b clinical trial AFFINITY, designed to evaluate opicinumab as an
investigational add-on therapy in people with relapsing MS. The trial follows the comprehensive review of
SYNERGY, a Phase 2 trial, which identified a specific population that may be more likely to respond to
treatment.
5
•
•
•
•
•
•
•
•
•
•
•
In October 2017 we presented data supporting opicinumab as a potential therapy to repair damage to the
central nervous system caused by MS. These data were presented at the seventh Joint Meeting of the
European Committee for Treatment and Research in MS and Americas Committee for Treatment and Research
in MS (ECTRIMS-ACTRIMS).
Neuromuscular Disorders
SPINRAZA (nusinersen)
In January 2017 we presented new data from the Phase 3 ENDEAR study of SPINRAZA, which demonstrated a
statistically significant reduction in the risk of death or permanent ventilation in SPINRAZA-treated infants with
SMA compared to untreated infants. The data were presented at the British Pediatric Neurology Association
annual conference in Cambridge, U.K.
In April 2017 the CHMP of the EMA adopted a positive opinion recommending the granting of a marketing
authorization in the E.U. for SPINRAZA to treat patients with SMA.
In April 2017 we presented Phase 3 end of study SPINRAZA data from CHERISH, which demonstrated a highly
statistically significant and clinically meaningful improvement in motor function in children with later-onset
(most likely to develop Type 2 or Type 3) SMA compared to untreated children. The overall findings continued to
support the efficacy and favorable safety profile of SPINRAZA across a broad range of individuals with SMA.
We also presented interim data from the Phase 2 NURTURE study evaluating SPINRAZA for the treatment of
infants under six weeks old with genetically diagnosed SMA who were presymptomatic at treatment initiation. At
the time of the interim analysis, infants (n=20) were enrolled for a median of 317.5 days, and all infants were
alive and none required respiratory intervention (chronic non-invasive ventilation, invasive ventilation or
tracheostomy). Further, most infants achieved motor milestone and growth parameter gains generally
consistent with normal development, such as head control, independent sitting, standing and walking
independently, as measured by validated scales.
These data were presented at the 69th annual meeting of AAN in Boston, MA.
In June 2017 the EC granted a marketing authorization for SPINRAZA for the treatment of 5q SMA in pediatric
and adult patients in the E.U. SPINRAZA is the first approved treatment in the E.U. for SMA. SPINRAZA was
reviewed under the EMA’s accelerated assessment program.
In June 2017 we presented robust efficacy and safety data from Phase 2 and Phase 3 SPINRAZA studies at the
Cure SMA 2017 Annual SMA Conference in Orlando, FL. Data demonstrated motor function improvements in
infants on permanent ventilation and no increase in the risk of adverse events in children with scoliosis.
In July 2017 the Japanese Ministry of Health, Labor and Welfare approved the use of SPINRAZA for the
treatment of infantile SMA.
In September 2017 the Japanese Ministry of Health, Labor and Welfare approved the use of SPINRAZA for the
treatment of pediatric and adult patients with SMA.
In October 2017 we presented new data at the 22nd International Congress of the World Muscle Society
demonstrating that earlier initiation of treatment with SPINRAZA may improve motor function outcomes in
infants and children with SMA. Results demonstrated the favorable efficacy and safety profile of SPINRAZA.
In October 2017 we and Ionis were awarded the 2017 Prix Galien USA Award for Best Biotechnology Product for
SPINRAZA.
In November 2017 the end of study results from ENDEAR, the Phase 3 study of SPINRAZA, were published in
The New England Journal of Medicine.
Alzheimer's Disease and Dementia
Aducanumab (BIIB037)
•
•
In March 2017 we presented data from research of aducanumab at the 13th International Conference on
Alzheimer’s and Parkinson’s Diseases (AD/PD™) in Vienna, Austria.
In April 2017 we presented data from a Phase 1b study of aducanumab at the 69th annual meeting of the AAN
in Boston, MA. This data was previously presented at the Clinical Trials on Alzheimer’s Disease (CTAD) meeting
6
•
•
•
•
in December 2016 and 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 (LTE).
In May 2017 we announced that we had amended the protocol of the Phase 3 trials of aducanumab. ApoE4
carriers that previously would be on a high dose of 6 mg/kg may now be titrated up to 10 mg/kg. This
amendment is being reviewed by regulatory bodies and clinical study ethic independent review boards globally
and may be implemented on a country by country basis. The change has already been incorporated in the U.S.
In July 2017 we presented a new post-hoc analysis of the Phase 1b PRIME study of aducanumab at the
Alzheimer’s Association International Conference in London, U.K. Data presented included changes in the
cognitive and functional subscores of the clinical dementia rating score. Aducanumab slowed decline on both
the cognitive and functional assessments compared to placebo, and the results of all subgroups studied were
consistent with the overall study population.
In August 2017 we announced results from a recently conducted analysis of the LTE of our ongoing Phase 1b
study of aducanumab. The updated analyses include data from the placebo-controlled period and the LTE for
patients treated with aducanumab up to 24 months in the titration cohort and up to 36 months in the fixed-
dose cohorts. The results are consistent with previously reported analyses from this ongoing Phase 1b study
and support the design of the ongoing Phase 3 studies of aducanumab for early AD.
In November 2017 we presented new data from the LTE of our ongoing Phase 1b study of aducanumab at the
CTAD meeting in Boston, MA. The data included results from patients in the Phase 1b study who were treated
with a gradually increased dose of aducanumab for up to 24 months and those who were treated with a fixed
dose of 3, 6 or 10 mg/kg aducanumab for up to 36 months. The results are consistent with previously reported
analyses from the Phase 1b study and support the design of the ongoing Phase 3 studies of aducanumab for
early AD.
BAN2401 (A mAb)
•
In December 2017 we announced that an Independent Data Monitoring Committee determined that BAN2401
did not meet the criteria for success based on a Bayesian analysis at 12 months as the primary endpoint in an
856-patient Phase 2 clinical study. Following the predefined study protocol, the blinded study will continue and
a comprehensive final analysis will be conducted at 18 months seeking to demonstrate clinically significant
results. The results of the final analysis are expected to be obtained during the second half of 2018.
BIIB076
•
In January 2017 we initiated a Phase 1 trial of BIIB076, an anti-tau monoclonal antibody, in healthy volunteers
and participants with AD.
BIIB092
•
In June 2017 we dosed our first patient in our Phase 2 study of BIIB092 for PSP.
BIIB080 (also known as Ionis-MAPTRx)
•
In October 2017 our collaboration partner Ionis announced the initiation of a Phase 1/2a clinical study of
IONIS-MAPTRx in patients with mild AD. IONIS-MAPTRx is an antisense drug designed to selectively reduce the
production of microtubule-associated protein tau (MAPT), or tau protein, in the brain. We have an option to
develop and commercialize IONIS-MAPTRx.
Movement Disorders
BIIB054 (anti-alpha-synuclein antibody)
•
In March 2017 we presented data from research of BIIB054, our investigational treatment for Parkinson’s
disease, at the 13th International Conference on Alzheimer’s and Parkinson’s Diseases (AD/PD™) in Vienna,
Austria.
•
In July 2017 we completed enrollment in the Phase 1 study of BIIB054 in both healthy volunteers and patients
with early onset Parkinson’s disease.
•
In January 2018 we dosed our first patient in our Phase 2 SPARK study of BIIB054 in Parkinson's disease.
7
Emerging Growth Areas
Acute Neurology
Natalizumab ( 4-integrin inhibitor) - Acute Ischemic Stroke
•
In August 2017 we completed enrollment in the Phase 2b ACTION2 study evaluating the effects of natalizumab
versus placebo on clinical measures of functional independence and activities of daily living in acute ischemic
stroke patients.
Natalizumab - Epilepsy
•
In October 2017 we initiated the Phase 2 OPUS study evaluating the efficacy, safety and tolerability of
natalizumab in drug-resistant focal epilepsy.
Biosimilars
Samsung Bioepis - Biogen's Joint Venture with Samsung Biologics
BENEPALI (Etanercept)
•
In June 2017 we presented real-world evidence from investigator-initiated studies supported by us
demonstrating sustained efficacy and safety of, and high acceptance and adherence in patients initiating
treatment with, BENEPALI. These data were presented at the Annual European Congress of Rheumatology
(EULAR) in Madrid.
IMRALDI (Adalimumab)
•
In June 2017 the CHMP of the EMA issued a positive opinion for IMRALDI, an adalimumab biosimilar candidate
referencing HUMIRA.
•
In August 2017 the EC granted a marketing authorization for IMRALDI.
Genentech Relationship
Anti-CD20 Therapies
OCREVUS (ocrelizumab)
•
In March 2017 the FDA approved OCREVUS, a humanized anti-CD20 monoclonal antibody, for the treatment of
relapsing MS (RMS) and primary progressive MS (PPMS).
•
In July 2017 OCREVUS was approved in Australia for the treatment of RMS and PPMS.
•
In September 2017 OCREVUS was approved in Switzerland for the treatment of RMS and PPMS.
•
In January 2018 the EC granted a marketing authorization for OCREVUS for the treatment of RMS and PPMS.
•
•
•
RITUXAN (rituximab)
In March 2017 Roche announced that the FDA’s Oncologic Drugs Advisory Committee voted unanimously that
the benefit-risk of rituximab/hyaluronidase for subcutaneous (under the skin) injection was favorable for the
treatment of certain blood cancers. This new co-formulation includes the same monoclonal antibody as
intravenous RITUXAN and hyaluronidase, a molecule that helps to deliver medicine under the skin.
In June 2017 the FDA approved RITUXAN HYCELA (rituximab and hyaluronidase human) for subcutaneous
injection for the treatment of adults with previously untreated and relapsed or refractory follicular lymphoma,
previously untreated diffuse large B-cell lymphoma and CLL. This new treatment includes the same monoclonal
antibody as intravenous RITUXAN in combination with hyaluronidase human, an enzyme that helps to deliver
rituximab under the skin.
GAZYVA
In November 2017 the FDA approved GAZYVA in combination with chemotherapy, followed by GAZYVA alone in
those who responded, for people with previously untreated advanced follicular lymphoma. The approval is
based on results from the Phase 3 GALLIUM study, which showed superior progression-free survival for patients
who received this GAZYVA-based regimen compared with those who received a RITUXAN-based regimen as an
initial therapy.
8
Other
Idiopathic Pulmonary Fibrosis
BG00011 (STX-100)
•
In October 2017 we reported that BG00011 (STX-100) achieved proof of biology in a Phase 2a study in
patients with idiopathic pulmonary fibrosis (IPF), a chronic irreversible and ultimately fatal disease characterized
by a progressive decline in lung function. We plan to initiate a Phase 2b study for BG00011 in 2018.
Marketed Products
The following graphs show our revenues by product and revenues from anti-CD20 therapeutic programs and
geography as a percentage of revenues for the years ended December 31, 2017, 2016 and 2015.
(1) Interferon includes AVONEX and PLEGRIDY
(2) Other includes ZINBRYTA, FAMPYRA, ELOCTATE, ALPROLIX,
FUMADERM, BENEPALI and FLIXABI
9
Product sales for TECFIDERA, AVONEX and TYSABRI and anti-CD20 therapeutic programs for RITUXAN each
accounted for more than 10% of our total revenues for the years ended December 31, 2017, 2016 and 2015. For
additional financial information about our product and other revenues and geographic areas where we operate,
please read Note 25, 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 Item 1A. Risk Factors included in this
report.
Multiple Sclerosis and Neuroimmunology
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 RMS 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.
Canada
France
Germany
Italy
Spain
U.K.
U.S.
France
Germany
Japan
Italy
Spain
U.K.
U.S.
France
Germany
Italy
Spain
U.K.
U.S.
France
Germany
Italy
Spain
U.K.
U.S.
Germany
Walking ability for patients with MS
Acorda Therapeutics, Inc.
(Acorda)
France
Germany
10
Neuromuscular Diseases
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
SMA 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. In
June 2017 the EC approved SPINRAZA for the treatment of SMA in pediatric and adult patients in the E.U. The
Japanese Ministry of Health, Labor and Welfare approved SPINRAZA for the treatment of infantile SMA in July 2017
and for the treatment of pediatric and adult patients with SMA in September 2017.
Our products for SMA and major markets include:
Product
Indication
Collaborator
Major Markets
SMA
Ionis
U.S.
France
Germany
Japan
Turkey
Biosimilars
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. In August 2017 the EC granted a marketing authorization for IMRALDI, an
adalimumab biosimilar referencing HUMIRA, in the E.U.
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
Germany
Norway
Sweden
U.K.
Germany
11
Genentech Relationships
We have a collaboration agreement with Genentech that entitles us to certain business and financial rights
with respect to RITUXAN, GAZYVA, OCREVUS 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.
RMS
PPMS
U.S.
Australia
Switzerland
For information about our anti-CD20 therapeutic programs and related agreements with Genentech, please
read Note 1, Summary of Significant Accounting Policies, and Note 20, Collaborative and Other Relationships, to our
consolidated financial statements included in this report.
Other
Product
Indication
Collaborator
Major Markets
Moderate to severe plaque
psoriasis
None
Germany
12
Patient Support and Access
Distribution Arrangements
We interact with patients, advocacy
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.
Marketing and Distribution
Sales Force and Marketing
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 and BENEPALI and
FLIXABI with Samsung Bioepis in certain countries in
the E.U.
We and Eisai co-promote AVONEX, TYSABRI and
TECFIDERA in Japan in certain settings.
RITUXAN, GAZYVA and OCREVUS are marketed
by the Roche Group and its sublicensees.
We focus our sales and marketing efforts on
specialist physicians in private practice or at major
medical centers. We use customary pharmaceutical
company practices to market our products and to
educate physicians, such as sales representatives
calling on individual physicians, advertisements,
professional symposia, direct mail, public relations
and other methods.
We 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.
We distribute BENEPALI and FLIXABI in certain
countries in the E.U.
Eisai distributes AVONEX, TYSABRI, TECFIDERA
and PLEGRIDY in India and other Asia-Pacific markets,
excluding China.
RITUXAN, GAZYVA and OCREVUS are 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, 2017, 2016 and 2015, and on
a combined basis, accounted for approximately 56%,
57% and 60% of our gross product revenues for the
years ended December 31, 2017, 2016 and 2015,
respectively. For additional information, please read
Note 25, Segment Information, to our consolidated
financial statements included in this report.
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
13
extension (for up to 5 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.
14
Product
TECFIDERA
AVONEX and
PLEGRIDY
PLEGRIDY
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
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
TYSABRI
U.S.
6,602,503
FAMPYRA
ZINBRYTA
SPINRAZA
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.
U.S.
Europe
Europe
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
9,717,750
1910395
2548560
Footnotes follow on next page.
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 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
Compositions And Methods For Modulation of SMN2
Splicing
15
Patent
Expiration(1)
2018
2018
2028
2018
2019
2019
2018
2019(2)
2028(3)
2026
2022
2023
2027
2019
2023(4)
2020
2023
2027
2020(5)
2023
2025(6)
2025(7)
2024
2024
2032
2023
2017
2018
2023
2027
2025
2030
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
PLEGRIDY
Product
TECFIDERA U.S.
E.U.
U.S.
E.U.
E.U.
U.S.
E.U.
U.S.
E.U.
FAMPYRA
ZINBRYTA
SPINRAZA
Expected Expiration
2018
2024
2026
2024
2021
2028
*
2023
2027**
*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.
**SPINRAZA may be eligible for an additional two years exclusivity in Europe based on the orphan pediatric indication.
(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) This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries
to 2028.
(5) Reflects SPCs granted in most European countries and pediatric extension in some countries.
(6) This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries
to 2026.
(7) 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 Item 1A. Risk Factors included in this report, and a discussion
of legal proceedings related to certain patents described above is set forth in Note 21, Litigation, to our consolidated
financial statements included in this report.
16
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)
GILENYA (fingolimod)
GLATOPA (glatiramer
acetate)
LEMTRADA
(alemtuzumab)
OCREVUS (ocrelizumab)
REBIF
(interferon-beta-1)
Competitor
Sanofi
Bayer Group
Teva Pharmaceuticals
Industries Ltd.
Novartis AG
Novartis AG
Sandoz, a division of
Novartis AG
Sanofi
Genentech
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 that was approved in the U.S. in 2017 and in
the E.U. in 2018 is OCREVUS, a treatment for RMS
and PPMS that was developed by Genentech. While
we have a financial interest in OCREVUS, future sales
of our MS products may be adversely affected if
OCREVUS continues to gain market share, or if other
MS products that we or our competitors are
developing are commercialized. Future sales may also
be negatively impacted by the introduction of generics,
prodrugs of existing therapeutics or biosimilars of
existing products and other technologies.
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 or have commercialized
products similar to those we market or are developing
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.
17
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.
Spinal Muscular Atrophy
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.
Genentech Relationships in Other Indications
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.
18
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 Item 1A. Risk Factors included in this report.
MS and Neuroimmunology
BIIB098 (monomethly fumarate prodrug)* - MS
Phase 3
Opicinumab (anti-LINGO-1) - MS
Phase 2
Core
Growth
Areas
Alzheimer's Disease and Dementia
Elenbecestat (E2609)* - Alzheimer's
BIIB092 (anti-tau mAb) - Alzheimer's
BIIB076 (anti-tau mAb)* - Alzheimer's
BIIB080 (IONIS-MAPTRx)* - Alzheimer's
BIIB092 (anti-tau mAb) - PSP
Parkinson's Disease and Movement Disorders
BIIB054 (anti-alpha-synuclein mAb) - Parkinson's
Phase 3
Phase 3
Phase 2
Phase 1
Phase 1
Phase 1
Phase 2
Phase 2
Emerging
Growth
Areas
Neuromuscular Disease Including SMA and ALS
BIIB067 (IONIS-SOD1Rx)* - ALS
Phase 1
Pain
BIIB074 (Vixotrigine) - Trigeminal Neuralgia
BIIB074 (Nav1.7) - PLSR#
Phase 2
Phase 2
Ophthalmology
BIIB087 (gene therapy)* - XLRS^
Phase 1/2
Acute Neurology
Natalizumab - AI Stroke
BIIB093 (glibenclamide IV) - LHI Stroke
Natalizumab - Epilepsy
Dapirolzumab pegol (anti-CD40L)* - SLE@
Other
BG00011 (STX-100) - IPF
BIIB059 (anti-BDCA2) - SLE@
Phase 2
Phase 2
Phase 2
Phase 2
Phase 2
Phase 2
* Collaboration programs
# Painful Lumbosacral Radiculophath (PLSR)
^ X-linked Retinoschisis (XLRS)
@ Systemic Lupus Erythematosus (SLE)
For information about certain of our agreements with collaborators and other third parties, please read the
subsection entitled “Business Relationships” below and Note 20, Collaborative and Other Relationships, to our
consolidated financial statements included in this report.
pipeline and provide us with certain rights to existing
and potential new products and technologies. For
additional information on certain of these
relationships, including their ongoing financial and
accounting impact on our business, please read Note
19, Investments in Variable Interest Entities, and Note
20, Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
Business Relationships
As part of our business strategy, we establish
business relationships, including joint ventures and
collaborative arrangements with other companies,
universities and medical research institutions, to
assist in the clinical development and/or
commercialization of certain of our products and
product candidates and to provide support for our
research programs. We also evaluate opportunities for
acquiring products or rights to products and
technologies that are complementary to our business
from other companies, universities and medical
research institutions.
Below is a brief description of certain business
relationships and collaborations that expand our
19
AbbVie, Inc.
Eisai Co., Ltd.
We have a collaboration agreement with AbbVie
for the development and commercialization of
ZINBRYTA in MS. Under this agreement, we and
AbbVie conduct ZINBRYTA co-promotion activities in
the U.S., E.U. and Canadian territories, and we are
responsible for all manufacturing and research and
development activities.
For information on the Article 20 Procedure of
ZINBRYTA and resulting impairment of ZINBRYTA
related assets, please read Note 20, Collaborative
and Other Relationships, to our consolidated financial
statements included in this report.
Acorda Therapeutics, Inc.
We have a collaboration and license agreement
with Acorda to develop and commercialize products
containing fampridine, such as FAMPYRA, in markets
outside the U.S. We are responsible for all regulatory
activities and the future clinical development of
related products in those markets.
Alkermes
We have an exclusive license and collaboration
agreement with Alkermes to develop and
commercialize BIIB098, an oral MMF prodrug in Phase
3 development for the treatment of relapsing forms of
MS.
Applied Genetic Technologies Corporation
We have a collaboration agreement with Applied
Genetic Technologies Corporation (AGTC) to develop
gene-based therapies for multiple ophthalmic
diseases. This collaboration is focused 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. This agreement also
provides us with options to early stage discovery
programs in two ophthalmic diseases and one non-
ophthalmic condition.
Bristol-Myers Squibb Company
We have an exclusive license agreement with
BMS for the development and commercialization of
BIIB092. Under this agreement, we received
worldwide rights to BIIB092 and are responsible for
the full development and global commercialization of
BIIB092 in AD and PSP.
We have a collaboration agreement with Eisai to
jointly develop and commercialize E2609 and
BAN2401, two Eisai product candidates for the
treatment of AD. Eisai serves as the global
operational and regulatory lead for both 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.
We also have the Aducanumab Collaboration
Agreement with Eisai for the joint development and
commercialization of aducanumab. Under the
Aducanumab Collaboration Agreement, the two
companies will co-promote aducanumab with a region-
based profit split and we will continue to lead the
ongoing Phase 3 development of aducanumab.
We and Eisai will co-promote AVONEX, TYSABRI
and TECFIDERA in Japan in certain settings and Eisai
will distribute AVONEX, TYSABRI, TECFIDERA and
PLEGRIDY in India and other Asia-Pacific markets,
excluding China.
Genentech (Roche Group)
We have a collaboration agreement with
Genentech which entitles us to certain financial and
other rights with respect to RITUXAN, GAZYVA,
OCREVUS and other anti-CD20 product candidates.
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 responsible for the development and
commercialization of SPINRAZA for the treatment of
SMA.
We also have research collaboration agreements
with Ionis, under which both companies perform
discovery level research and will develop and
commercialize new ASO drug candidates for the
treatment of SMA and additional antisense and other
therapeutics for the treatment of neurological
disorders.
Neurimmune
We have a collaboration and license agreement
with Neurimmune for the development and
commercialization of antibodies for the treatment of
AD, including aducanumab. Under this agreement, we
are responsible for the development, manufacturing
and commercialization of all licensed products.
20
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 (UPenn) to advance gene
therapy and gene editing technologies. The
collaboration is primarily focused on the development
of therapeutic approaches that target the eye, skeletal
muscle and the central nervous system. The alliance
is also focused 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 Biologics
License Application (BLA) or a New Drug Application
(NDA). In response to a BLA or NDA, the FDA may
grant marketing approval, request additional
information or deny the application if it determines
the application does not provide an adequate basis
for approval.
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.
21
The FDA has developed four distinct approaches
intended to make therapeutically important drugs
available as rapidly as possible, especially when the
drugs are the first available treatment or have
advantages over existing treatments: accelerated
approval, fast track, breakthrough therapy and priority
review.
• Accelerated Approval: The FDA may grant
“accelerated approval” status to products that
treat serious or life-threatening illnesses and
that provide meaningful therapeutic benefits to
patients over existing treatments. Under this
pathway, the FDA may approve a product based
on surrogate endpoints, or clinical endpoints
other than survival or irreversible morbidity.
When approval is based on surrogate endpoints
or clinical endpoints other than survival or
morbidity, the sponsor will be required to conduct
additional post-approval clinical studies to verify
and describe clinical benefit. Under the FDA'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 30 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: The FDA may grant
“breakthrough therapy” status to drugs designed
to treat, alone or in combination with another
drug or drugs, a serious or life-threatening
disease or condition and for which preliminary
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
22
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 of the
treatment, diagnosis or prevention of serious
conditions when compared to standard
applications. 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 the 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.
In December 2016, the FDA issued us a rare
pediatric disease priority review voucher in
connection with the approval of SPINRAZA.
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.
ADVERSE EVENT REPORTING
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. Pursuant
to FDA guidance, a company can make safety and
efficacy claims from data either in or consistent with
the label. 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.
Regulation of Combination Products
Combination products are defined by the FDA to
include products comprising two or more regulated
components (e.g., a biologic and a device). Biologics
and devices each have their own regulatory
requirements, and combination products may have
additional requirements. Some of our marketed
23
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 authorization application is similar to the
NDA or BLA in the U.S. and is evaluated by the CHMP,
the expert scientific committee of the EMA
responsible for human medicines. If the CHMP
determines that the marketing authorization
application fulfills the requirements for quality, safety
and efficacy and that the medicine has a positive
benefit risk balance, it will adopt a positive opinion
recommending grant of the marketing authorization by
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 of
the E.U. 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 national procedure, which requires an
application to the competent authority of an E.U.
country (if an application is to be made in more
than one E.U. country, following approval in the
first country, the applicant must submit
applications in the other countries using the
mutual recognition procedure);
• a decentralized procedure, whereby applicants
submit identical applications to several countries
and receive simultaneous approval, if the
medicine has not yet been authorized in any E.U.
country; and
• a mutual recognition procedure, where applicants
that have a medicine authorized in one E.U.
country can apply for mutual recognition of this
authorization in other E.U. countries.
In the E.U., there is detailed legislation on
pharmacovigilance and extensive guidance on good
pharmacovigilance practices.
Regardless of the approval process employed,
various parties share responsibilities for the
monitoring, detection and evaluation of adverse
events post-approval, including national authorities,
the EMA, the EC and the marketing authorization
holder. The EMA’s PRAC is responsible for assessing
and monitoring the safety of human medicines and
makes recommendations on product safety issues.
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 approval 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 guidelines, 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
24
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.
In April 2014, the EC adopted a new Clinical Trial
Regulation, which was effective in June 2014 but is
not expected to apply until the second half of 2019.
The regulation harmonizes the procedures for
assessment and governance of clinical trials
throughout the E.U. and will require that information
on the authorization, conduct and results of each
clinical trial conducted in the E.U. be publicly
available.
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 were, and there are likely to
continue 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.
A biosimilars approval pathway has been in place
in the E.U. since 2003. The EMA has issued a
number of scientific and product specific biosimilar
guidelines, including requirements for approving
biosimilars containing monoclonal antibodies. In the
E.U., biosimilars are generally approved under the
centralized procedure. The approval pathway allows
sponsors of a biosimilar to seek and obtain regulatory
approval based in part on reliance on the clinical trial
data of an innovator product to which the biosimilar
has been demonstrated, through comprehensive
comparability studies, to be “similar”. In many cases,
this allows biosimilars to be brought to market
without conducting the full complement of clinical
trials typically required for novel biologic drugs.
Orphan Drug Act
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 that receive an orphan designation
are entitled to 10 years of market exclusivity following
approval, 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 and 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, may impose restrictions on access, coverage
or pricing of particular drugs 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. The
program 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. 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.
• 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. Each drug plan establishes its
own Medicare Part D formulary for prescription
drug coverage and pricing, which the drug plan
may modify from time-to-time. The prescription
drug plans negotiate pricing with manufacturers
and pharmacies, and may condition formulary
placement on the availability of manufacturer
25
discounts. In addition, manufacturers, including
us, are required to provide to the 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 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.
Outside the U.S.
Outside the U.S., 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 and 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 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 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.
26
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
to pay 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 U.K.
generally will be subject to the Bribery Act. Penalties
under the Bribery Act include significant fines for
27
companies and criminal sanctions for corporate
officers under certain circumstances.
NIH Guidelines
We seek to conduct research at our U.S.
facilities in compliance with the current U.S. National
Institutes of Health Guidelines for Research Involving
Recombinant DNA Molecules (NIH Guidelines). By
local ordinance, we are required to, among other
things, comply with the NIH Guidelines in relation to
our facilities in Research Triangle Park (RTP), NC 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.
The European Parliament and the Council of the
European Union adopted a comprehensive general
data privacy regulation (GDPR) in 2016 to replace the
current E.U. Data Protection Directive and related
country-specific legislation. The GDPR will take effect
in May 2018 and governs the collection and use of
personal data in the E.U. The GDPR, which is wide-
ranging in scope, will impose several requirements
relating to the consent of the individuals to whom the
personal data relates, the information provided to the
individuals, the security and confidentiality of the
personal data, data breach notification and the use of
third party processors in connection with the
processing of the personal data. The GDPR will also
impose strict rules on the transfer of personal data
out of the E.U. to the U.S., will provide an
enforcement authority and will impose large penalties
for noncompliance, including the potential for fines of
up to €20 million or 4% of the annual global revenues
of the infringer, whichever is greater.
We also have a new oligonucleotide synthesis
manufacturing (OSM) facility in RTP, NC. This facility
gives us the capability to manufacture ASO drugs like
SPINRAZA as well as our other ASO candidates
currently in our clinical pipeline.
During the first quarter of 2016 we purchased
land in Solothurn, Switzerland and are building a
large-scale biologics manufacturing facility at this site.
We expect this facility to be operational by the end of
the decade.
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 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 and 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, to a
lesser extent, product candidates.
We source all of our fill-finish and the majority of
final product assembly and storage operations for our
products, along with a substantial part of our
packaging operations, to a concentrated group of
third-party 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.
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.
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. We expect this
facility 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, NC
including a parenteral facility and an oral solid dose
products manufacturing facility.
The parenteral facility adds capabilities and
capacity for filling biologics into vials and is principally
used for filling product candidates. The oral solid
dose products facility supplements our outsourced
small molecule manufacturing capabilities, including
the manufacture of TECFIDERA.
28
Our Employees
As of December 31, 2017, we had approximately 7,300 employees worldwide.
Our Executive Officers (as of February 1, 2018)
Officer
Michel Vounatsos
Susan H. Alexander
Jeffrey D. Capello
Gregory F. Covino
Michael D. Ehlers, M.D., Ph.D.
Ginger Gregory, Ph.D.
Chirfi Guindo
Paul McKenzie, Ph.D.
Current Position
Chief Executive Officer
Executive Vice President, Chief Legal, Corporate Services and
Secretary
Executive Vice President and Chief Financial Officer
Vice President, Finance and Chief Accounting Officer
Executive Vice President, Research and Development
Executive Vice President and Chief Human Resources Officer
Executive Vice President and Head of Global Marketing, Market
Access and Customer Innovation
Executive Vice President, Pharmaceutical Operations and
Technology
Alfred W. Sandrock, Jr., M.D., Ph.D. Executive Vice President and Chief Medical Officer
Year
Joined
Biogen
2016
2006
2017
2012
2016
2017
2017
Age
56
61
53
52
49
50
52
52
2016
60
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, payors 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, Corporate Services and Secretary since
March 2017. Prior to that, from December 2011 to March 2017, Ms. Alexander served as our Executive Vice
President, Chief Legal Officer and Secretary and from 2006 to December 2011, 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.
29
Jeffrey D. Capello
Experience
Mr. Capello has served as our Executive Vice President and Chief Financial Officer since December 2017. Prior to
that, Mr. Capello served as the Chief Financial Officer of Beacon Health Options, Inc., a behavioral health company,
with responsibility for finance, human resources, information technology, real estate and procurement, from October
2016 until November 2017. From July 2015 until September 2016, Mr. Capello was the founder and Chief
Executive Officer of Monomoy Advisors which focuses on helping companies drive shareholder value. From July
2014 until June 2015, Mr. Capello served as the Executive Vice President and Chief Financial Officer of Ortho-
Clinical Diagnostics, an in vitro diagnostics company that was acquired by the Carlyle Group from Johnson &
Johnson, with responsibility for global finance and business development. Prior to his role at Ortho-Clinical
Diagnostics, Mr. Capello served as Chief Financial Officer and Executive Vice President of Boston Scientific
Corporation, a medical device company, from March 2010 to December 2013. At Boston Scientific, Mr. Capello was
responsible for the worldwide management of Boston Scientific’s finance, information systems, business
development and corporate strategy functions. Mr. Capello joined Boston Scientific in June 2008 and served as
Senior Vice President and Chief Accounting Officer until March 2010. Prior to joining Boston Scientific, he was the
Senior Vice President and Chief Financial Officer with responsibilities for global finance and business development
at PerkinElmer, Inc., a life sciences tool company, from 2006 to 2008. Previously, he served as PerkinElmer’s Vice
President of Finance, Corporate Controller, Treasurer and Chief Accounting Officer from 2001 to 2006. Prior to his
tenure at PerkinElmer, Mr. Capello was a Partner at PricewaterhouseCoopers LLP, both in the United States and in
the Netherlands.
Public Company Boards
OvaScience, Inc., a biotechnology company
Flex Pharma, Inc., a biotechnology company
Education
University of Vermont, B.S. in Business Administration
Harvard Business School, M.B.A.
Gregory F. Covino
Experience
Mr. Covino has served as our Vice President and Chief Accounting Officer since April 2012. From June 2017 to
December 2017, Mr. Covino also served as our interim Principal Financial Officer. From March 2010 to April 2012,
Mr. Covino served at Boston Scientific Corporation, a medical device company, as Vice President, Corporate
Analysis and Control, 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
30
Michael D. Ehlers, M.D., Ph.D.
Experience
Dr. Ehlers has served as our Executive Vice President, Head of Research and Development since May 2016. Prior
to joining Biogen, from August 2010 to April 2016, Dr. Ehlers served in leadership positions at Pfizer, Inc., a
biopharmaceutical company, 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 Johns Hopkins University School of Medicine, M.D.
The Johns Hopkins University School of Medicine, Ph.D. Neuroscience
Ginger Gregory, Ph.D.
Experience
Dr. Gregory has served as our Executive Vice President and Chief Human Resources Officer since July 2017. Prior
to joining Biogen, Dr. Gregory served as Executive Vice President and Chief Human Resources Officer at Shire PLC,
a global specialty biopharmaceutical company, from February 2014 to April 2017. Prior to that, Dr. Gregory held
executive-level human resources positions for several multinational companies across a variety of industries,
including Dunkin’ Brands, where she served as Chief Human Resource Officer; Novartis, AG, where she was the
division head of Human Resources for Novartis Vaccines and Diagnostics, Novartis Consumer Health and Novartis
Institutes of BioMedical Research from 2005 to 2012; and Novo Nordisk, where she served as Senior Vice
President, Corporate People & Organization at the company’s headquarters in Copenhagen, Denmark. Earlier in her
career, she held a variety of human resources generalist and specialist positions at Bristol-Myers Squibb and
served as a consultant with Booz Allen & Hamilton in the area of organization change and effectiveness.
Education
University of Massachusetts B.A., in Psychology
The George Washington University, Ph.D. Psychology
Chirfi Guindo
Experience
Mr. Guindo has served as our Executive Vice President and Head of Global Marketing, Market Access and
Customer Innovation since November 2017. Prior to joining Biogen, Mr. Guindo spent 27 years in the global
pharmaceutical industry and has held several leadership positions at Merck in Canada, the U.S., France, Africa and
the Netherlands. He worked in several disciplines including Finance, Sales & Marketing, General Management and
Global Strategy/Product Development in specialty, acute and hospital care. Most recently Mr. Guindo was Vice
President and Managing Director and President and Managing Director of Merck Canada from October 2014 to
November 2017. From January 2011 to October 2014, he was Vice President and General Manager, Global HIV
Franchise at Merck & Co.
Education
Ecole Central de Paris (France), Engineering
Stern School of Business, New York University, M.B.A. in Finance/Economics
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Paul McKenzie, Ph.D.
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
Alfred W. Sandrock, Jr., M.D., Ph.D.
Experience
Dr. Sandrock has served as our Executive Vice President and Chief Medical Officer since October 2017. Prior to
that, Dr. Sandrock served as our Executive Vice President, Chief Medical Officer Neurology and Neurodegeneration
from October 2015 to October 2017, as our Chief Medical Officer and Group Senior Vice President from April 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)
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.
32
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 will 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 are further
reliant and concentrated on sales of our MS products in an increasingly competitive market, and revenues from
sales of our product for SMA. 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, including lower-priced 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 has been approved by, among others, the FDA, the EC and the Japanese Ministry of Health, Labor
and Welfare, and is in the early stages of commercial launch in these and other markets. 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 SMA 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 SMA;
•
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 SMA
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 increasing 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, as well as lower-
priced competing 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;
33
• 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;
• 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; and
• our value-based contracting pilot program pursuant to which we aim to tie the pricing of our products to their
clinical values by either aligning price to patient outcomes or adjusting price for patients who discontinue
therapy for any reason, including efficacy or tolerability concerns.
Our ability to set the price for our products varies 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 favorable prices in a particular country may not only limit the
revenues 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. In addition, competition from current and future competitors may negatively impact our ability to maintain
pricing and our market share. New products or treatments brought to market by our competitors could cause
revenues for our products to decrease due to potential price reductions and lower sales volumes. 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.
34
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, patient and/or investor confidence
in our products and our reputation. Any of these could result in liabilities, loss of revenues, 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, a serious brain infection, or
liver injury in the label for certain of our products, may significantly reduce expected revenues for those products and
require significant expense and management time.
If we are unable to obtain and maintain adequate protection for our data, intellectual property and other proprietary
rights, our business may be harmed.
Our success depends in part on our ability to obtain and defend patent and other intellectual property rights
that are important to the commercialization of our products and product candidates. The degree of patent protection
that will be afforded to our products and processes in the U.S. and in other important markets remains uncertain
and is dependent upon the scope of protection decided upon by the patent offices, courts, 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 revenues 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, administrative challenges or other similar types of
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.
35
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.
Successful preclinical work or early stage clinical trials does 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.
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 cGCP. If we or our
third-party clinical trial providers or third-party CROs do not successfully carry out these clinical activities, our clinical
trials or the potential regulatory approval of a product candidate may be delayed or be unsuccessful.
We have opened clinical sites and are enrolling patients in a number of countries where our experience is
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.
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, 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. 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
36
and the expansion of the number of hospitals eligible for discounts under Section 340B of the PHSA. These changes
have had and are expected to continue to have a significant impact on our business.
We may face uncertainties as a result of 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.
The administration has also indicated an intent to address prescription drug pricing and recent Congressional
hearings have brought increased public attention to the costs of prescription drugs. These actions and the
uncertainty about the future of the PPACA and healthcare laws may put downward pressure on pharmaceutical
pricing and increase our regulatory burdens and operating costs.
There is also significant economic pressure on state budgets that results 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 limit 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. These measures have negatively
impacted our revenues, and may continue to adversely affect our revenues and results of operations in the future.
Manufacturing issues could substantially increase our costs, limit supply of our products and/or 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.
• 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 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.
37
• 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 revenues or market share as patients and physicians turn to competing therapeutics, diminish our
profitability or damage our reputation.
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, “hacktivists” and employees or
contractors acting with malicious intent. Cyber-attacks could include the deployment of harmful malware and key
loggers, ransomware, 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.
We depend on relationships with collaborators and other third parties for revenues, and for the development,
regulatory approval, commercialization and marketing of certain of our products and product candidates, which are
outside of our full control.
We rely on a number of significant collaborative and other third-party relationships for revenues, and for 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;
38
•
•
the interests of our collaborators or third parties may not always be aligned with our interests, and 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
• 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 execute our growth initiatives, then our business and financial results may be
adversely affected and we may incur asset impairment or restructuring charges.
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 our chief financial officer. 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 you 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.
39
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. Due to the long lead times necessary for the expansion of manufacturing capacity, we expect to make
significant investments to build 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.
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 significant 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.
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 judicial
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;
•
•
the hiring freeze implemented by the federal government in 2017, including at the FDA, could impact the review
and potential approval of new products, which may adversely affect our business and financial condition;
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.
40
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 you 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/or adversely affect our business.
Our effective tax rate fluctuates, 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, including the 2017 Tax Act. 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.
The 2017 Tax Act has resulted in significant changes to the U.S. corporate income tax system. These changes
include a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic
deductions and credits and limitations on the deductibility of interest expense and executive compensation. The
2017 Tax Act also transitions international taxation from a worldwide system to a modified territorial system and
includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings
of our foreign subsidiaries to U.S. taxation as GILTI. These changes are effective beginning in 2018.
The 2017 Tax Act also includes the Transition Toll Tax, which is a one-time mandatory deemed repatriation tax
on accumulated foreign subsidiaries' previously untaxed foreign earnings. The Transition Toll Tax will be paid over an
eight-year period, starting in 2018, and will not accrue interest.
Our preliminary estimate of the Transition Toll Tax and the remeasurement of our deferred tax assets and
liabilities is subject to the finalization of management's analysis related to certain matters, such as developing
interpretations of the provisions of the 2017 Tax Act, changes to certain estimates and amounts related to the
earnings and profits of certain subsidiaries and the filing of our tax returns. U.S. Treasury regulations, administrative
interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and changes in our
estimates, which could have a material adverse effect on our business, results of operations or financial conditions.
The final determination of the Transition Toll Tax and the remeasurement of our deferred tax assets and liabilities will
be completed as additional information becomes available, but no later than one year from the enactment of the
2017 Tax Act.
In addition, 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.
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;
• uncertainties regarding the collectability of accounts receivable;
•
fluctuations in foreign currency exchange rates that may adversely impact our revenues and net income;
41
• 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 Bribery Act, and elsewhere
and escalation of investigations and prosecutions pursuant to such laws;
•
the effects of the implementation of the U.K.’s decision to voluntarily depart from the E.U., known as Brexit;
• 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 FCPA
prohibits U.S. companies and their representatives from paying, offering to pay, promising to pay 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. 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.
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 or other initiatives to streamline our operations and reallocate resources;
•
•
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.
42
Our revenues are also subject to foreign currency 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 other
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.
Our investment in Samsung Bioepis, and our success in commercializing biosimilars developed by Samsung Bioepis,
is 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, is subject to a number of risks, including:
• Reliance on Third Parties. We are dependent on the efforts of Samsung Bioepis and other third parties over
whom we have limited or no control in the development and manufacturing of biosimilars products. If Samsung
Bioepis or such other third parties fail to perform successfully, we may not realize the anticipated benefits of
our investment in Samsung Bioepis;
• Regulatory Compliance. Biosimilar products may face regulatory hurdles or delays due to the evolving and
uncertain regulatory and commercial pathway of biosimilars products in certain jurisdictions;
•
Intellectual Property and Regulatory Challenges. Biosimilar products may face extensive patent clearances,
patent infringement litigation, injunctions or regulatory challenges, which could prevent the commercial launch
of a product or delay it for many years;
• Failure to Gain Market and Patient Acceptance. Market success of biosimilar products will be adversely affected
if patients, physicians and/or payors 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 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, 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.
43
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
program to repurchase up to $5.0 billion of our common stock, which was authorized by our Board of Directors in
July 2016 (2016 Share Repurchase Program). 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 shareholders 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, our results of operations, our financial condition and other factors beyond
our control that we may deem relevant. A reduction in, or the completion or expiration of, our stock repurchase
programs could have a negative effect on our stock price. We can provide no assurance that we will repurchase
stock at favorable prices, if at all.
We may not be able to access the capital and credit markets on terms that are favorable to us.
We may seek access to the capital and credit 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 in the past, 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 or credit 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 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 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.
44
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.
We may incur operational difficulties or be exposed to claims and liabilities as a result of the spin-off of our
hemophilia business.
On February 1, 2017, we distributed all of the then outstanding shares of Bioverativ common stock to Biogen
shareholders in connection with the spin-off 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 us and Bioverativ 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).
The spin-off of our hemophilia business as an independent public company is intended to qualify for tax-free
treatment to Biogen and its shareholders under the Internal Revenue Code. Completion of the spin-off was
conditioned upon, among other things, our receipt of a favorable opinion from our tax advisors with respect to the
tax-free nature of the transaction. The opinion is not binding on the U.S. Internal Revenue Service (IRS) or the
courts, and there can be no assurance that the IRS or the courts will not challenge the qualification of the spin-off
as a tax-free transaction or that any such challenge would not prevail. If the spin-off is determined to be taxable, the
full financial benefits expected to result from the separation may not be achieved and/or Biogen and its
shareholders could incur significant tax liabilities, which could adversely affect our business, financial condition or
results of operations and the value of our stock could be adversely impacted.
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
45
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.
The spin-off of Bioverativ continues to involve a number of risks, including, among other things, the
indemnification risks described above. 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 anticipated benefits of the spin-off of our hemophilia business, which may
adversely affect our business.
We may not be able to achieve the full strategic and financial benefits expected to result from the spin-off of
our hemophilia business, or such benefits may not occur at all. If we fail to achieve some or all of the expected
benefits of the spin-off, our business, financial condition, results of operations and the value of our stock could be
adversely impacted.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Below is a summary of our owned and leased properties as of December 31, 2017.
Massachusetts
In Cambridge, MA, 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 totaling approximately 245,000 square feet.
In addition, we lease a total of approximately 1,157,000 square feet in Massachusetts, which is summarized as
follows:
• 800,000 square feet in Cambridge, MA, which is comprised of offices for our corporate headquarters, and other
administrative and development functions and laboratories, of which 242,000 square feet is subleased by
multiple companies for general office space, laboratories and manufacturing facilities; and
• 357,000 square feet of office space in Weston, MA, of which 174,000 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, NC, we own approximately 1,022,000 square feet of real estate space, which is summarized as follows:
• 357,000 square feet of laboratory and office space;
• 188,000 square feet related to an oral solid dose manufacturing facility;
• 175,000 square feet related to a large-scale biologics manufacturing facility;
• 105,000 square feet related to a small-scale biologics manufacturing facility;
• 84,000 square feet of warehouse space and utilities;
• 70,000 square feet related to a parenteral fill-finish facility; and
46
• 43,000 square feet related to a large-scale purification facility.
In addition, we own approximately 40,000 square feet of warehouse space in Durham, NC.
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 purchased land in Solothurn, Switzerland and are building a large-scale biologics
manufacturing facility at this site. We expect this facility to be operational by the end of the decade. Upon
completion, the facility will include 393,000 square feet related to a large-scale biologics manufacturing facility,
290,000 square feet of warehouse, utilities and support space and 51,000 square feet of administrative space.
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.
Item 3.
Legal Proceedings
For a discussion of legal matters as of December 31, 2017, please read Note 21, 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.
47
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, 2017 and 2016:
First Quarter ....................................................... $
Second Quarter .................................................. $
Third Quarter ...................................................... $
Fourth Quarter .................................................... $
Common Stock Price
2017
High
298.00 $
291.90 $
330.00 $
348.84 $
Low
254.15 $
244.28 $
269.50 $
301.81 $
2016
High
Low
301.02 $
292.69 $
333.65 $
329.83 $
242.07
223.02
240.07
268.00
The sales prices in the first quarter of 2017 in the tables above have been adjusted for the impact of the spin-
off of our hemophilia business. For additional information on the spin-off of our hemophilia business, please read
Note 3, Hemophilia Spin-Off, to our consolidated financial statements included in this report.
As of January 26, 2018, there were approximately 665 shareholders 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 our 2016 Share Repurchase Program, which is a program to
repurchase up to $5.0 billion of our common stock. This authorization does not have an expiration date. All share
repurchases under this authorization will be retired.
During the year ended December 31, 2017, we repurchased and retired approximately 3.7 million shares of
common stock at a cost of $1.0 billion under our 2016 Share Repurchase Program. As of December 31, 2017,
approximately $3.0 billion remains available for share repurchases under our 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). Shares repurchased under this authorization were principally
used to offset common stock issuances under our share-based compensation programs.
During the year ended December 31, 2017, we repurchased approximately 1.2 million shares of common stock
at a cost of $365.4 million under our 2011 Share Repurchase Program. Our 2011 Share Repurchase Program was
completed as of March 31, 2017.
48
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, 2012 with dividends being reinvested. The stock price performance in the graph below is
not necessarily indicative of future price performance. The table below reflects the stock prices as adjusted for the
spin-off of our hemophilia business, which was effected on February 1, 2017. For additional information on the spin-
off of our hemophilia business, please read Note 3, Hemophilia Spin-Off, to our consolidated financial statements
included in this report.
Biogen Inc.
Nasdaq Pharmaceutical
S&P 500 Index
Nasdaq Biotechnology
2012
2013
2014
2015
2016
2017
100.00
100.00
100.00
100.00
191.00
135.68
132.39
166.02
231.91
165.29
150.51
223.13
209.30
174.27
152.59
249.39
193.74
172.37
170.84
196.15
235.96
205.33
208.14
238.64
49
Item 6.
Selected Financial Data
BIOGEN INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Our results of operations are summarized as follows:
2017
(a) (b) (c) (d) (e)
(In millions, except per share amounts)
Results of Operations (1)
Product revenues, net (2) ........................ $ 10,354.7 $
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. ...... $
1,559.2
360.0
12,273.9
6,929.7
—
5,344.2
(215.4)
5,128.8
2,458.7
—
2,670.1
131.0
2,539.1 $
For the Years Ended December 31,
2016
(c) (e)
2015
(e) (f)
2014
2013
(g)
9,817.9 $
9,188.5 $
8,203.4 $
5,542.3
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
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. .......................
11.92 $
16.93 $
15.34 $
12.37 $
7.81
213.0
218.8
231.2
237.2
238.3
Our financial condition is summarized as follows:
2017
2016
2015
2014
2013
As of December 31,
(In millions)
Financial Condition (1)
Cash, cash equivalents and marketable
securities ............................................... $
1,848.5
Total assets............................................ $ 23,652.6 $ 22,876.8 $ 19,504.8 $ 14,314.7 $ 11,863.3
Notes payable and other financing
arrangements, less current portion (3)...... $
6,512.7 $
Total Biogen Inc. shareholders’ equity (4) . $ 12,612.8 $ 12,140.1 $
6,521.5 $
580.3 $
9,372.8 $ 10,809.0 $
592.4
8,620.2
3,316.0 $
7,724.5 $
6,188.9 $
5,935.0 $
6,746.3 $
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 Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations included in this report and our previously filed Annual
Reports on Form 10-K.
50
(1) On February 1, 2017, we completed the spin-off of our hemophilia business, Bioverativ, as an independent,
publicly traded company. Our consolidated results of operations and financial position reflect the financial
results of our hemophilia business for all periods through January 31, 2017. For additional information on the
spin-off of our hemophilia business, please read Note 3, Hemophilia Spin-Off, to our consolidated financial
statements included in this report.
(2) Product revenues, net reflect the impact of the following product launches:
• Commercial sales of SPINRAZA in the U.S. began in the fourth quarter of 2016 and in rest of world
markets in the first quarter of 2017.
• Under 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 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.
• Commercial sales of TECFIDERA began in April 2013.
(3) Notes payable and other financing arrangements reflects:
• Our 2017 repayment of our 6.875% notes that were issued in 2008 with an aggregate principal amount
of $550.0 million, and
• The issuance of our senior unsecured notes for an aggregate principal amount of $6.0 billion in
September 2015.
(4) Total Biogen Inc. shareholders' equity reflects the repurchase of approximately 29.9 million shares of our
common stock at a cost of approximately $8.7 billion between 2013 and 2017:
• During 2017 we repurchased and retired approximately 3.7 million shares of our common stock at a cost
of $1.0 billion under our 2016 Share Repurchase Program.
• During 2017 we repurchased approximately 1.2 million shares of our common stock at a cost of $365.4
million under our 2011 Share Repurchase Program.
• 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 a program authorized by our Board of Directors in May 2015 for the repurchase
of up to $5.0 billion of our common stock (2015 Share Repurchase Program).
• During 2014 and 2013 we repurchased approximately 2.9 million and 2.0 million shares, respectively, of
our common stock at a cost of approximately $1.3 billion under our 2011 Share Repurchase Program.
(a) Total cost and expenses for the year ended December 31, 2017, includes a pre-tax charge to acquired in-
process research and development of $120.0 million for an upfront payment made to Remedy upon closing of
our asset purchase transaction for BIIB093.
(b) Net income (loss) attributable to noncontrolling interests, net of tax for the year ended December 31, 2017,
includes a pre-tax charge of $150.0 million for a payment to Neurimmune in exchange for a 15% reduction in
royalty rates payable on products developed under the agreement, including on potential commercial sales of
aducanumab.
(c) Total cost and expenses for the year ended December 31, 2016, includes a pre-tax charge of $454.8 million
related to our January 2017 settlement and license agreement with Forward Pharma.
Total cost and expenses for the year ended December 31, 2017, includes $444.2 million of amortization and
impairment charges related to our U.S. and rest of world licenses to Forward Pharma’s intellectual property,
including Forward Pharma's intellectual property related to TECFIDERA. For additional information on our
51
settlement and license agreement with Forward Pharma and related intangible assets, please read Note 7,
Intangible Assets and Goodwill, to our consolidated financial statements included in this report.
(d) Income tax expense for the year ended December 31, 2017, includes $1,173.6 million related to our current
estimate of the provisions of the 2017 Tax Act, including a $989.6 million expense under the Transition Toll Tax.
For additional information on the 2017 Tax Act, please read Note 17, Income Taxes, to our consolidated
financial statements included in this report.
(e) Total cost and expenses for the years ended December 31, 2017, 2016 and 2015, include restructuring
charges of $0.9 million, $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 cease manufacturing and vacate our small-scale biologics facility in
Cambridge, MA as well as close and vacate our warehouse in Somerville, MA. Total cost and expenses for the
years ended December 31, 2017 and 2016, also includes $19.2 million and $18.1 million, respectively, of
costs incurred directly related to the spin-off of our hemophilia business into an independent, publicly traded
company.
(f) Net income attributable to Biogen Inc. for the year ended December 31, 2015, includes a pre-tax charge to
noncontrolling interest of $60.0 million for a milestone payment due to Neurimmune upon the enrollment of the
first patient in a Phase 3 trial for aducanumab.
(g) 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 closing of this transaction, our collaboration
agreement was terminated.
52
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 and delivering
worldwide innovative therapies for people living with
serious neurological and neurodegenerative diseases,
including in our core growth areas of MS and
neuroimmunology, AD and dementia, movement
disorders and neuromuscular disorders, including
SMA and ALS. We also plan to invest in emerging
growth areas such as pain, ophthalmology,
neuropsychiatry and acute neurology. In addition, we
are employing innovative technologies to discover
potential treatments for rare and genetic disorders,
including new ways of treating diseases through gene
therapy in the previously mentioned areas. We also
manufacture and commercialize biosimilars of
advanced biologics.
Our marketed products include TECFIDERA,
AVONEX, PLEGRIDY, TYSABRI, ZINBRYTA and FAMPYRA
for the treatment of MS, SPINRAZA for the treatment
of SMA and FUMADERM for the treatment of severe
plaque psoriasis. We also have certain business and
financial rights with respect to RITUXAN for the
treatment of non-Hodgkin's lymphoma, CLL and other
conditions, GAZYVA for the treatment of CLL and
follicular lymphoma, OCREVUS for the treatment of
PPMS and RMS, and other potential anti-CD20
therapies under a collaboration agreement with
Genentech.
Our current revenues depend upon continued
sales of our principal products and, unless we
develop, acquire rights to and/or commercialize new
products and technologies, we may be substantially
dependent on sales from our principal products for
many years.
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/or successful execution of
external business development opportunities.
53
Our innovative drug development and
commercialization activities are complemented by our
biosimilar therapies, which 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. Under our
commercial agreement, we market and sell BENEPALI,
an etanercept biosimilar referencing ENBREL, and
FLIXABI, an infliximab biosimilar referencing
REMICADE, in the E.U.
2017 Corporate Strategy
In July 2017 we announced an updated strategic
framework to optimize the value of our MS business
while investing for the future across our core growth
areas of MS and neuroimmunology, AD and dementia,
movement disorders, and neuromuscular diseases,
including SMA and ALS. We also plan to invest in
emerging growth areas such as pain, ophthalmology,
neuropsychiatry, and acute neurology.
We expect the continued performance of our
commercial assets and the expiration of the
contingent payments related to TECFIDERA, discussed
further in the “Contractual Obligations and Off-Balance
Sheet Arrangements” section of this report, to enable
us to invest in and build an industry leading
neuroscience pipeline. We view investment in growth
as our top priority, but also recognize the value of
opportunistically returning excess capital to
shareholders through share repurchases.
In order to deliver positive results in the near
term while investing in the next stages of our growth,
we will focus on the following strategic priorities:
• maximizing the resilience of our MS core
business;
• accelerating efforts in SMA as a significant new
growth opportunity;
• developing and expanding our neuroscience
portfolio;
•
focusing our capital allocation efforts to drive
investment for future growth; and
• creating a leaner and simpler operating model to
streamline our operations and reallocate
resources towards prioritized research and
development and commercial value creation
opportunities.
In October 2017, in connection with creating a
leaner and simpler operating model, we approved a
corporate restructuring program intended to
streamline our operations and reallocate resources.
We expect to make total non-recurring operating and
capital expenditures of up to $170.0 million, primarily
in 2018, and our goal is to redirect resources of up to
$400.0 million annually by 2020 to prioritized
research and development and other value creation
opportunities.
Tax Reform
The 2017 Tax Act has resulted in significant
changes to the U.S. corporate income tax system.
These changes include a federal statutory rate
reduction from 35% to 21%, the elimination or
reduction of certain domestic deductions and credits
and limitations on the deductibility of interest expense
and executive compensation. The 2017 Tax Act also
transitions international taxation from a worldwide
system to a modified territorial system and includes
base erosion prevention measures on non-U.S.
earnings, which has the effect of subjecting certain
earnings of our foreign subsidiaries to U.S. taxation
as GILTI. These changes are effective beginning in
2018.
The 2017 Tax Act also includes the Transition
Toll Tax, which is a one-time mandatory deemed
repatriation tax on accumulated foreign subsidiaries'
previously untaxed foreign earnings.
Changes in tax rates and tax laws are accounted
for in the period of enactment. Therefore, during the
year ended December 31, 2017, we recorded a
charge totaling $1,173.6 million related to our current
estimate of the provisions of the 2017 Tax Act,
including a $989.6 million expense under the
Transition Toll Tax. The Transition Toll Tax will be paid
over an eight-year period, starting in 2018, and will
not accrue interest.
The 2017 Tax Act will provide us with flexibility in
deploying our cash resources to advance our
business interests. We expect that it will have a
modest positive effect on our income tax rate in 2018
and a potential incremental benefit thereafter.
Hemophilia Spin-Off
On February 1, 2017, we completed the spin-off
of our hemophilia business, Bioverativ, as an
independent, publicly traded company trading under
the symbol "BIVV" on the Nasdaq Global Select
Market. The spin-off was accomplished through the
distribution of all the then outstanding shares of
common stock of Bioverativ to Biogen shareholders,
who received one share of Bioverativ common stock
for every two shares of Biogen common stock they
owned. The separation and distribution was
structured to be tax-free for shareholders for federal
income tax purposes. Bioverativ assumed all of our
rights and obligations under our collaboration
agreement with Sobi and our collaboration and
license agreement with Sangamo.
Our consolidated results of operations and
financial position included in this report reflect the
financial results of our hemophilia business for all
periods through January 31, 2017.
For additional information on the spin-off of our
hemophilia business, please read Note 3, Hemophilia
Spin-Off, to our consolidated financial statements
included in this report.
Financial Highlights
Diluted earnings per share attributable to Biogen
Inc. were $11.92 for 2017, representing a decrease
of 29.6% versus the same period in 2016.
As described below under “Results of
Operations,” our income from operations for the year
ended December 31, 2017 reflects the following:
• Total revenues were $12,273.9 million for 2017,
representing an increase of 7.2% over the same
period in 2016.
• Product revenues, net totaled $10,354.7 million
for 2017, representing an increase of 5.5% over
the same period in 2016. This increase was
primarily driven by revenues from SPINRAZA,
TECFIDERA and BENEPALI, partially offset by the
elimination of worldwide ALPROLIX and
ELOCTATE revenues resulting from the spin-off of
our hemophilia business on February 1, 2017
and a net decrease in total Interferon sales.
54
• Revenues from anti-CD20 therapeutic programs
totaled $1,559.2 million for 2017, representing
an increase of 18.6% over the same period in
2016. This increase was primarily driven by
royalty revenues on sales of OCREVUS and
Biogen's share of pre-tax profits on RITUXAN.
• Other revenues totaled $360.0 million for 2017,
representing an increase of 13.8% from the
same period in 2016. This increase was
primarily driven by an increase in other royalty
and corporate revenues.
• Total cost and expenses totaled $6,929.7
million for 2017, representing an increase of
10.0%, compared to the same period in 2016.
This increase was primarily driven by $444.2
million of amortization and impairment charges
related to our U.S. and rest of world licenses to
Forward Pharma's intellectual property, including
Forward Pharma's intellectual property related to
TECFIDERA, a 14.2% increase in research and
development primarily related to higher
milestone and upfront expenses, a 10.2%
increase in cost of goods sold, a $120.0 million
pre-tax charge to acquired in-process research
and development for an upfront payment made
to Remedy upon the closing of the asset
purchase transaction for BIIB093 and an
increase in collaboration profit sharing. These
increases were partially offset by a $454.8
million litigation settlement charge in the prior
year.
As described below under "Financial Condition,
Liquidity and Capital Resources":
• We generated $4,551.0 million of net cash flows
from operations for 2017, which were primarily
driven by earnings.
• Cash, cash equivalents and marketable
securities totaled approximately $6,746.3
million as of December 31, 2017.
• We repurchased approximately 4.9 million
shares of common stock at a cost of $1.4 billion
during 2017 under our share repurchase
programs.
Acquisitions
BIIB093 Acquisition
In May 2017 we completed an asset purchase of
the Phase 3-ready candidate BIIB093 (intravenous
glibencamide) (formerly known as CIRARA) from
Remedy. The target indication for BIIB093 is LHI, a
severe form of ischemic stroke where cerebral edema
often leads to a disproportionately large share of
stroke-related morbidity and mortality. The FDA
recently granted BIIB093 Orphan Drug Designation for
55
severe cerebral edema in patients with acute
ischemic stroke. The FDA has also granted BIIB093
Fast Track designation.
Under this agreement, we are responsible for the
future development and commercialization of
BIIB093. Remedy will share in the cost of
development for the target indication for BIIB093 in
LHI stroke.
For additional information on our transaction with
Remedy, please read Note 2, Acquisitions, to our
consolidated financial statements included in this
report.
Collaborative and Other Relationships
BIIB092 License Agreement
In June 2017 we completed an exclusive license
agreement with BMS for BIIB092 (formerly known as
BMS-986168), a Phase 2-ready experimental
medicine with potential in AD and PSP. BIIB092 is an
antibody targeting tau, the protein that forms the
deposits, or tangles, in the brain associated with AD
and other neurodegenerative tauopathies such as PSP.
Under this agreement, we received worldwide
rights to BIIB092 and are responsible for the full
development and global commercialization of BIIB092
in AD and PSP.
For additional information on our collaboration
arrangement with BMS, please read Note 20,
Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
Eisai Collaboration Agreement
In October 2017 we entered into a new
collaboration agreement with Eisai for the joint
development and commercialization of aducanumab
(the Aducanumab Collaboration Agreement). Under
the Aducanumab Collaboration Agreement, we will
continue to lead the ongoing Phase 3 development of
aducanumab and will remain responsible for 100% of
development costs for aducanumab until April 2018.
Eisai will then reimburse us for 15% of aducanumab
development expenses for the period April 2018
through December 2018, and 45% thereafter. Upon
commercialization, both companies will co-promote
aducanumab with a region-based profit split.
In addition, we and Eisai will continue to jointly
develop BAN2401 and E2609.
We and Eisai will co-promote AVONEX, TYSABRI
and TECFIDERA in Japan in certain settings and Eisai
will distribute AVONEX, TYSABRI, TECFIDERA and
PLEGRIDY in India and other Asia-Pacific markets,
excluding China.
For additional information on our collaboration
Ionis Collaboration Agreement
arrangement with Eisai, please read Note 20,
Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
Neurimmune Collaboration Agreement
In October 2017 we amended the terms of our
collaboration and license agreement with
Neurimmune. Under the amended agreement, we
made a $150.0 million payment to Neurimmune,
which is reflected as a charge to noncontrolling
interests, in exchange for a 15% reduction in royalty
rates payable on products developed under the
agreement, including on potential commercial sales of
aducanumab. Our royalty rates payable on products
developed under the agreement, including on
potential commercial sales of aducanumab, will now
range from the high single digits to low-teens.
Under the amended agreement, we also have an
option that will expire in April 2018 to further reduce
our royalty rates payable on products developed under
the agreement, including on potential commercial
sales of aducanumab, by an additional 5% in
exchange for a $50.0 million payment to
Neurimmune.
For additional information on our collaboration
arrangement with Neurimmune, please read Note 19,
Investments in Variable Interest Entities, to our
consolidated financial statements included in this
report.
BIIB098 License Agreement
In November 2017 we entered into an exclusive
license and collaboration agreement with Alkermes for
BIIB098 (formerly known as ALKS 8700), an oral MMF
prodrug in Phase 3 development for the treatment of
relapsing forms of MS.
Under this agreement, we received an exclusive,
worldwide license to develop and commercialize
BIIB098 and will pay Alkermes a royalty on potential
worldwide net sales of BIIB098. Beginning in 2018 we
are responsible for all development expenses related
to BIIB098. Alkermes will maintain responsibility for
regulatory interactions with the FDA through the
potential approval of the NDA for BIIB098 for the
treatment of MS.
For additional information on our collaboration
arrangement with Alkermes, please read Note 20,
Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
In December 2017 we entered into a new
collaboration agreement with Ionis to identify new
ASO drug candidates for the treatment of SMA. Under
this agreement, we have the option to license
therapies arising out of this collaboration and will be
responsible for the development and
commercialization of these therapies.
For additional information on our new
collaboration arrangement with Ionis, please read
Note 20, Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
Business Environment
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 and have considerable experience in
undertaking clinical trials and in obtaining regulatory
approval to market pharmaceutical products. 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 therapies or biosimilars of
existing products and other technologies.
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 on a global basis.
In addition, our sales and operations are subject
to the risks of doing business internationally. For
example, the effects of the implementation of the
U.K.’s decision to voluntarily depart from the E.U.,
known as Brexit, remain unclear; compliance with any
resulting regulatory mandates may prove challenging
and the macroeconomic impact on our sales and
consolidated results of operations from these
developments remains unknown.
For additional information on our competition
and pricing risks that could negatively impact our
product sales, please read Item 1A. Risk Factors and
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk included in this report.
56
Results of Operations
Revenues
Revenues are summarized as follows:
(In millions, except percentages)
Product Revenues:
For the Years Ended
December 31,
2017
2016
2015
% Change
2017
compared to
2016
2016
compared to
2015
United States ..................................... $
Rest of world......................................
Total product revenues ....................
7,017.1 $
3,337.6
10,354.7
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.....................................
1,339.2
236.1
Total revenues................................ $ 12,273.9 $ 11,448.8 $ 10,763.8
1,314.5
316.4
1,559.2
360.0
(0.5)%
20.6 %
5.5 %
18.6 %
13.8 %
7.2 %
7.7 %
4.7 %
6.8 %
(1.8)%
34.0 %
6.4 %
Product Revenues
Product revenues are summarized as follows:
(In millions, except percentages)
Multiple Sclerosis:
For the Years Ended
December 31,
2017
2016
2015
% Change
2017
compared to
2016
2016
compared to
2015
TECFIDERA ........................................ $
Interferon* ........................................
TYSABRI............................................
FAMPYRA...........................................
ZINBRYTA ..........................................
4,214.0 $
2,645.8
1,973.1
91.6
52.7
3,968.1 $
2,795.2
1,963.8
84.9
7.8
3,638.4
2,968.7
1,886.1
89.7
—
6.2 %
(5.3)%
0.5 %
7.9 %
**
9.1 %
(5.8)%
4.1 %
(5.4)%
**
Spinal Muscular Atrophy:
SPINRAZA..........................................
883.7
4.6
—
**
**
Hemophilia:
ELOCTATE..........................................
ALPROLIX ..........................................
Other product revenues:
FUMADERM .......................................
BENEPALI ..........................................
FLIXABI .............................................
48.4
26.0
39.6
370.8
9.0
Total product revenues ..................... $ 10,354.7 $
* Interferon includes AVONEX and PLEGRIDY.
** Percentage not meaningful.
513.2
333.7
45.9
100.6
0.1
9,817.9 $
319.7
234.5
51.4
—
—
9,188.5
(90.6)%
(92.2)%
(13.7)%
**
**
5.5 %
60.5 %
42.3 %
(10.7)%
**
**
6.8 %
57
Multiple Sclerosis (MS)
TECFIDERA
Interferon
AVONEX and PLEGRIDY
For 2017 compared to 2016, the increase in
For 2017 compared to 2016, the decrease 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
3%.
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 2017 compared to 2016, the increase in rest
of world TECFIDERA revenues was primarily due to
increases in unit sales volume of 19% primarily in the
E.U., partially offset by pricing reductions in certain
European countries.
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.
We anticipate a modest increase in TECFIDERA
demand on a global basis in 2018, compared to
2017, with expected volume growth in our
international markets partially offset by declines in
the U.S., due to increased competition from additional
treatments for MS, including OCREVUS.
58
U.S. Interferon revenues was primarily due to an
overall decrease in Interferon unit sales volumes of
12%, which was primarily attributable to patients
transitioning to other MS therapies, partially offset by
price increases.
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.
For 2017 compared to 2016, the decrease in
rest of world Interferon revenues was primarily due to
an overall decrease in AVONEX unit sales volume of
14% primarily due to patients transitioning to other
MS therapies in the E.U.
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.
We expect that overall Interferon revenues will
For 2017 compared to 2016, the increase in
continue to decline compared to prior year periods as
a result of increasing competition from our other
products as well as other treatments for MS, including
biosimilars.
AVONEX
For 2017, 2016 and 2015, U.S. AVONEX
revenues totaled $1,593.6 million, $1,675.3 million
and $1,790.2 million, respectively.
For 2017, 2016 and 2015 rest of world AVONEX
revenues totaled $557.9 million, $638.2 million and
$840.0 million, respectively.
PLEGRIDY
For 2017, 2016 and 2015, U.S. PLEGRIDY
revenues totaled $295.5 million, $305.0 million and
$227.1 million, respectively.
For 2017, 2016 and 2015, rest of world
PLEGRIDY revenues totaled $198.8 million, $176.7
million and $111.4 million, respectively.
TYSABRI
rest of world TYSABRI revenues was primarily due to
the recognition of approximately $45.0 million of
previously deferred revenue in Italy relating to the
pricing agreement with AIFA and a 12% increase in
unit sales volume primarily in our international partner
markets, partially offset by a prior year favorable
adjustment of approximately $20.0 million to previous
reserves estimates related to a government price
reimbursement program included in our discounts and
allowances. For information on our agreement with
AIFA relating to sales of TYSABRI in Italy, please read
Note 18, Other Consolidated Financial Statement
Detail, to our consolidated financial statements
included in this report.
For 2016 compared to 2015, the 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.
We anticipate a decline in TYSABRI demand on a
global basis in 2018, compared to 2017, with
expected volume declines in the U.S., due to
increased competition from additional treatments for
MS, including OCREVUS, offsetting volume growth in
our international markets.
ZINBRYTA
For 2017 compared to 2016, the decrease in
U.S. TYSABRI revenues was primarily due to higher
discounts and allowances and a decrease in unit
sales volume of 4%, partially offset by price
increases.
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.
Under 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 2017 compared to 2016, the increase in
ZINBRYTA revenues was primarily due to an increase
in unit sales volume.
59
We expect that the future sales growth of
ZINBRYTA will be negatively impacted as a result of
the EC approved restrictions on the use of ZINBRYTA.
Biosimilars
BENEPALI and FLIXABI
For additional information on our relationship
with AbbVie, including information on the Article 20
Procedure of ZINBRYTA and resulting impairment of
ZINBRYTA related assets, please read Note 20,
Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
Spinal Muscular Atrophy (SMA)
SPINRAZA
Under 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 and third quarters of 2016, respectively.
For 2017 compared to 2016, the increase in
biosimilar revenues was primarily due to an increase
in BENEPALI unit sales volume in new and existing
markets.
For additional information on our relationship
with Samsung Bioepis, please read Note 20,
Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
We began to recognize revenues on sales of
SPINRAZA in the U.S. in the fourth quarter of 2016
and the rest of world in the first quarter of 2017.
We expect that the rate at which SPINRAZA
revenues will grow will moderate over time due to the
loading dynamics as patients transition to dosing
once every four months.
For additional information on our relationship
with Ionis, please read Note 20, Collaborative and
Other Relationships, to our consolidated financial
statements included in this report.
60
In November 2017 the FDA approved GAZYVA in
combination with chemotherapy, followed by GAZYVA
alone, for people with previously untreated advanced
follicular lymphoma.
In June 2017 the FDA approved RITUXAN
HYCELA for subcutaneous injection for the treatment
of adults with previously untreated and relapsed or
refractory follicular lymphoma, previously untreated
diffuse large B-cell lymphoma and CLL. This new
treatment includes the same monoclonal antibody as
intravenous RITUXAN in combination with
hyaluronidase human, an enzyme that helps to deliver
rituximab under the skin.
For 2017 compared to 2016, the increase in
U.S. product revenues was primarily due to selling
price increases and an increase in RITUXAN and
GAZYA unit sales volume of 2% and 6%, respectively,
partially offset by higher discounts and allowances.
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.
Collaboration costs and expenses for 2017, as
depicted in the table above, excludes certain
expenses charged to the collaboration by Genentech
that we believe remain the responsibility of Genentech
and that we are not obligated to pay under the terms
of the collaboration agreement. Accordingly, we did
not recognize the effect of those expenses in the
determination of our share of pre-tax collaboration
profits and Genentech has withheld approximately
$120 million from amounts due to us in relation to
collaboration activity for 2017, representing
Genentech’s estimate of our share of these
expenses. We remain in discussions with Genentech
about a resolution relating to these amounts.
Excluding amounts under dispute, collaboration
costs and expenses for 2017 compared to 2016
increased primarily due to higher branded
pharmaceutical drug fees and an increase in RITUXAN
selling and marketing costs, partially offset by a
decrease in GAZYVA research and development costs.
Collaboration costs and expenses for 2016
compared to 2015 increased primarily due to an
increase in RITUXAN product cost of sales.
Revenues from Anti-CD20 Therapeutic
Programs
Genentech (Roche Group)
Our share of RITUXAN and GAZYVA collaboration
operating profits in the U.S. and other revenues on
anti-CD20 therapeutic programs are summarized as
follows:
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,
2017
2016
2015
(In millions)
Product
revenues, net ..... $4,206.9 $3,941.8 $3,847.9
Cost and
expenses ...........
Pre-tax profits in
the U.S. ............. $3,451.7 $3,197.3 $3,174.2
Biogen's share of
pre-tax profits ..... $1,316.4 $1,249.5 $1,269.8
755.2
744.5
673.7
Our share of RITUXAN annual pre-tax co-
promotion profits in the U.S. in excess of $50.0
million decreased to 39% from 40% in February 2016
when GAZYVA was approved by the FDA as a new
treatment for follicular lymphoma and further
decreased to 37.5% in the third quarter of 2017 as
gross sales of GAZYVA in the U.S. for the preceding
12-month period exceeded $150.0 million.
61
Other Revenues from Anti-CD20 Therapeutic
Programs
Other revenues from anti-CD20 therapeutic
programs primarily consist of royalty revenues on
sales of OCREVUS and our share of pre-tax co-
promotion profits on RITUXAN in Canada.
For 2017 compared to 2016, other revenues
from anti-CD20 therapeutic programs increased
primarily due to the launch of OCREVUS in the second
quarter of 2017.
For 2016 compared to 2015, other revenues
from anti-CD20 therapeutic programs decreased as a
result of lower pre-tax co-promotion profits on
RITUXAN in Canada.
OCREVUS
In March 2017 the FDA approved OCREVUS, a
humanized anti-CD20 monoclonal antibody, for the
treatment of RMS and PPMS. Under our agreement
with Genentech, we will receive a tiered royalty on
U.S. net sales from 13.5% and increasing up to 24%
if annual net sales exceed $900.0 million. There will
be a 50% reduction to these royalties if a biosimilar to
OCREVUS is approved in the U.S.
Other Revenues
Other revenues are summarized as follows:
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. OCREVUS
was approved for treatment of RMS and PPMS in
Australia, Switzerland and the E.U. in July 2017,
September 2017 and January 2018, respectively.
Marketing applications for OCREVUS are currently
under review in numerous markets worldwide,
including in Latin America and the Middle East.
The commercialization of OCREVUS does not
impact the percentage of the co-promotion profits we
receive for RITUXAN or GAZYVA. Genentech is solely
responsible for development and commercialization of
OCREVUS and funding future costs. OCREVUS royalty
revenues were based on our estimates from third
party and market research data of OCREVUS sales
occurring during the corresponding period. Differences
between actual and estimated royalty revenues will be
adjusted for in the period in which they become
known, which is expected to be the following quarter.
For additional information on 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 20, Collaborative and Other
Relationships, to our consolidated financial
statements included in this report.
(In millions, except percentages)
Revenues from collaborative and other
relationships .......................................... $
Other royalty and corporate revenues .......
Total other revenues ............................... $
For The Years
Ended December 31,
2017
2016
2015
% Change
2017
compared to
2016
2016
compared to
2015
36.5 $
323.5
360.0 $
39.3 $
277.1
316.4 $
69.1
167.0
236.1
(7.1)%
16.7 %
13.8 %
(43.1)%
65.9 %
34.0 %
62
Revenues from Collaborative and Other
Other Royalty and Corporate Revenues
Relationships
Other revenues from collaborative and other
relationships include revenues earned under 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. Prior to
the spin-off of our hemophilia business, other
revenues from collaborative and other relationships
also included revenues earned under our
manufacturing services agreement with Sobi on
shipments of ELOCTA and ALPROLIX to Sobi and
royalties from Sobi on sales of ELOCTA and ALPROLIX
in their territory, which included substantially all of
Europe, Russia and certain markets in Northern Africa
and the Middle East. Bioverativ assumed all of our
rights and obligations under our agreement with Sobi
on February 1, 2017.
For 2017 compared to 2016, the decrease in
other revenues from collaborative and other
relationships was primarily due to the impact of the
spin-off of our hemophilia business on February 1,
2017, partially offset by higher revenues earned
under our manufacturing services agreement with
Samsung Bioepis.
For 2016 compared to 2015, the decrease in
other revenues from collaborative and other
relationships was primarily due to a net overall loss in
the collaboration with AbbVie of $21.9 million within
the U.S. 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 additional information on our collaborative
and other relationships, please read Note 20,
Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
63
We receive royalties from net sales on products
related to patents that we have out-licensed and we
record other corporate revenues primarily from
amounts earned under contract manufacturing
agreements.
For 2017 compared to 2016, the increase in
royalty and other corporate revenues was primarily
due to an increase in sales of the underlying products
from which we receive royalties and higher contract
manufacturing revenues related to the volume of
shipments of drug substance production provided to
our strategic partners, including Bioverativ.
For 2016 compared to 2015, the increase in
royalty and 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, 2017, 2016
and 2015, reserves for discounts and allowances as
a percentage of gross product revenues were 22.0%,
21.3% and 19.3%, respectively.
Discounts
Discounts include trade term discounts and
wholesaler incentives.
64
For 2017 compared to 2016, the decrease in
discounts was primarily driven by the impact from the
spin-off of our hemophilia business on February 1,
2017, partially offset by an increase in rest of world
product revenues, due in part to an increase in
biosimilar revenues, as well as an increase in gross
selling prices.
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.
Contractual Adjustments
Contractual adjustments primarily relate to
Medicaid and managed care rebates, co-payment
assistance (copay), VA and PHS discounts, specialty
pharmacy program fees and other government rebates
or applicable allowances.
For 2017 compared to 2016, the increase in
contractual adjustments was primarily due to higher
managed care rebates and Medicaid and other
governmental rebates and allowances in the U.S., due
in part to an increase in gross selling prices and the
launch of SPINRAZA in the U.S. in the fourth quarter
of 2016, partially offset by the impact from the spin-
off of our hemophilia business on February 1, 2017.
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.
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
product expiration. Provisions for product returns are
recorded in the period the related revenue is
recognized, resulting in a reduction to product sales.
For 2017 compared to 2016, return provisions
were relatively consistent.
For 2016 compared to 2015, return reserves
decreased primarily due to a reduction in return rates
based on recent experiences of returned products.
For additional information on our reserves,
please read Note 5, Reserves for Discounts and
Allowances, to our consolidated financial statements
included in this report.
Cost and Expenses
A summary of total cost and expenses is as follows:
(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...................................................
Acquired in-process research and
development ..........................................
Collaboration profit sharing .....................
Loss (gain) on fair value remeasurement
of contingent consideration.....................
Restructuring charges.............................
TECFIDERA litigation settlement charge....
Total cost and expenses ................... $
6,929.7 $
For the Years Ended
December 31,
2017
2016
2015
% Change
2017
compared to
2016
2016
compared to
2015
1,630.0 $
2,253.6
1,935.5
1,478.7 $
1,973.3
1,947.9
1,240.4
2,012.8
2,113.1
10.2 %
14.2 %
(0.6)%
19.2 %
(2.0)%
(7.8)%
814.7
120.0
112.3
62.7
0.9
—
385.6
382.6
111.3 %
0.8 %
—
10.2
—
—
**
**
14.8
33.1
454.8
6,298.4 $
30.5
93.4
—
5,872.8
323.6 %
(97.3)%
(100.0)%
10.0 %
**
**
(51.5)%
(64.6)%
**
7.2 %
** Percentage not meaningful.
Cost of Sales, Excluding Amortization of Acquired
Product Cost of Sales
Intangible Assets (Cost of Sales)
For 2017 compared to 2016, the increase in
product cost of sales was primarily driven by higher
unit sales volume related to our biosimilar product
shipments, higher contract manufacturing shipments
of drug substance production provided to our strategic
partners, including Bioverativ, and an increase in
inventory amounts written down as a result of excess,
obsolescence, unmarketability or other reasons.
These increases were partially offset by the impact
from the spin-off of our hemophilia business on
February 1, 2017, and the accelerated depreciation
recorded in the second, third and fourth quarters of
2016 as a result of our decision to cease
manufacturing in Cambridge, MA.
For 2016 compared to 2015, the increase in
product cost of sales was primarily driven by costs
noted below as well as 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 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
small-scale biologics manufacturing facility in
Cambridge, MA and warehouse space in Somerville,
MA.
65
Inventory amounts written down as a result of
Research and Development
excess, obsolescence, unmarketability or other
reasons totaled $76.9 million, $48.2 million and
$41.9 million for the years ended December 31,
2017, 2016 and 2015, respectively. Amounts written
down during the year ended December 31, 2017,
includes the impairment of $14.4 million related to
the EC approved restrictions on the use of ZINBRYTA.
For additional information on the Article 20
Procedure of ZINBRYTA and resulting impairment of
ZINBRYTA related assets, please read Note 20,
Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
Royalty Cost of Sales
For 2017 compared to 2016, the increase in
royalty cost of sales was primarily driven by the
recognition of royalties payable to Ionis on sales of
SPINRAZA and higher royalties on sales of AVONEX
and PLEGRIDY in the U.S., as described below. These
increases were partially offset by the elimination of
royalties payable on sales of hemophilia product
resulting from the spin-off of our hemophilia business
on February 1, 2017 and lower royalties on sales of
TYSABRI resulting from the expiration of certain third-
party royalties.
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.
66
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 our core and emerging growth
areas.
A significant amount of our 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,
information technology and facility-based expenses.
These costs are considered other research and
development costs in the table above and are not
allocated to a specific program or stage.
Research and development expense incurred in
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. 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 2017 compared to 2016, the increase in
research and development expense was primarily
related to milestone and upfront expenses and costs
incurred in connection with our early stage and late
stage programs, partially offset by decreased costs
incurred in connection with our marketed products.
For 2016 compared to 2015, the decrease in
research and development expense was primarily
related to a decrease 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 and
research and discovery programs.
We intend to continue committing significant
resources to targeted research and development
opportunities where there is a significant unmet need
and where a drug candidate has the potential to be
highly differentiated.
67
Milestone and Upfront Expenses included in
Research and Development Expense
Research and development expense for 2017
includes:
• $300.0 million upfront payment made to BMS
upon entering into our agreement to exclusively
license BIIB092;
• $60.0 million developmental milestone
payment due to the former shareholders of
iPierian, Inc. (iPierian), which became payable
upon dosing of the first patient in the Phase 2
PSP study for BIIB092;
• $28.0 million upfront payment made to
Alkermes upon entering into our agreement to
exclusively license BIIB098, representing our
share of BIIB098 development costs already
incurred in 2017;
• $50.0 million accrual based upon the expected
continuation of our agreement with Alkermes to
develop and exclusively license BIIB098; and
• $25.0 million upfront payment recognized upon
entering into a new collaboration agreement
with Ionis to identify new ASO drug candidates
for the treatment of SMA.
Research and development expense for 2016
includes:
• $75.0 million license fee paid to Ionis as we
exercised our option to develop and
commercialize SPINRAZA from Ionis;
• $50.0 million milestone payment to Eisai
related to the initiation of a Phase 3 trial for
E2609; and
• $20.0 million upfront payment recognized upon
entering into a collaboration and alliance
agreement with UPenn.
Research and development expense for 2015
includes:
• $60.0 million recognized upon entering into our
collaboration with Mitsubishi Tanabe Pharma
Corporation;
• $48.1 million recognized upon entering into our
collaboration with AGTC;
• $30.0 million in milestones recognized 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
2015.
68
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 additional information about these
collaborations, please read Note 20, Collaborative and
Other Relationships, to our consolidated financial
statements included in this report.
Early Stage Programs
The increase in spending associated with our
early stage programs for 2017 compared to 2016
was primarily related to spending associated with the
development of BIIB092 in AD and PSP pursuant to
our license agreement with BMS, BIIB074 in
trigeminal neuralgia (TGN) and BIIB076 in AD. These
increases were partially offset by a reduction in costs
resulting from our discontinuance of development of
amiselimod in the third quarter of 2016.
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 in AD 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 in TGN and increased
costs associated with our discontinuance of
development of amiselimod in the third quarter of
2016.
Late Stage Programs
The increase in spending associated with our
late stage programs for 2017 compared to 2016 was
primarily related the increased costs associated with
the development of aducanumab in AD and costs
incurred associated with the development of E2609, a
BACE inhibitor that was advanced to a late stage
program in the fourth quarter of 2016. These
increases were partially offset by advancement of
SPINRAZA to marketed products following its approval
in the U.S. in the fourth quarter of 2016.
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 in AD, the increased costs
incurred to advance our SPINRAZA program 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.
Marketed Products
Amortization of Acquired Intangible Assets
The decrease in spending associated with our
marketed products for 2017 compared to 2016 was
primarily due to a reduction in spending resulting from
the spin-off of our hemophilia business on February 1,
2017 and a reduction in spending related to
TECFIDERA. These decreases were partially offset by
increased spending related to SPINRAZA following its
approval in the U.S. in the fourth 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 MS 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.
Selling, General and Administrative
For 2017 compared to 2016, the decrease in
selling, general and administrative expenses was
primarily due to a reduction in operational spending
resulting from the spin-off of our hemophilia business
on February 1, 2017, the execution of targeted cost
reduction initiatives and a reduction in costs resulting
from the discontinuance of our TECFIDERA television
advertising campaign in the second quarter of 2016.
These decreases were offset by an increase in
SPINRAZA commercialization costs and an increase in
corporate giving.
For 2016 compared to 2015, the decrease in
selling, general and administrative expenses reflect
cost savings in connection with our corporate
restructuring, which are described below under the
heading "Restructuring, Business Transformation and
Other Cost Savings Initiatives," partially offset by an
increase in costs associated with developing
commercial capabilities for ZINBRYTA and SPINRAZA.
69
Our amortization expense is based on the
economic consumption and impairment of intangible
assets. Our most significant intangible assets are
related to our TECFIDERA, AVONEX and TYSABRI
products. Annually, during our long-range planning
cycle, we perform an analysis of anticipated lifetime
revenues of TECFIDERA, AVONEX and TYSABRI. This
analysis is also updated whenever events or changes
in circumstances would significantly affect the
anticipated lifetime revenues of any of these
products.
Our most recent long-range planning cycle was
completed in the third quarter of 2017. The results of
our TECFIDERA, AVONEX and TYSABRI analyses were
impacted by changes in the estimated timing of the
impact of other alternative MS formulations, including
OCREVUS, which may compete with TYSABRI,
TECFIDERA and AVONEX. The outcome of this most
recent analysis did not result in a significant net
change in our expected rate of amortization for
acquired intangible assets.
Based upon this most recent analysis, the
estimated future amortization of acquired intangible
assets for the next five years is expected to be as
follows:
(In millions)
As of December 31,
2017
2018 ........................................... $
2019 ...........................................
2020 ...........................................
2021 ...........................................
2022 ...........................................
423.5
401.8
381.6
254.3
242.3
We monitor events and expectations regarding
TECFIDERA License Rights
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 products. 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 2017 compared to 2016, the increase in
amortization of acquired intangible assets was
primarily due to $444.2 million of amortization and
impairment charges associated with our U.S. and rest
of world licenses to Forward Pharma's intellectual
property, including Forward Pharma's intellectual
property related to TECFIDERA, acquired in the first
quarter of 2017, as discussed further below.
Amortization of acquired intangible assets for 2017
also reflects the $31.2 million impairment of our
acquired and in-licensed rights and patents intangible
asset related to the Article 20 Procedure of
ZINBRYTA.
For additional information on the Article 20
Procedure of ZINBRYTA and resulting impairment of
ZINBRYTA related assets, please read Note 20,
Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
For 2016 compared to 2015, 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. Amortization of acquired
intangible assets for 2016 also reflects impairment
charges recognized upon the termination of our
collaboration agreements with Rodin Therapeutics,
Inc. and Ataxion Inc., which resulted 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 intangible assets
during 2015 were insignificant.
In January 2017 we entered into a settlement
and license agreement with Forward Pharma.
Pursuant to this agreement, we obtained U.S. and
rest of world licenses to Forward Pharma's intellectual
property, including Forward Pharma's intellectual
property related to TECFIDERA. In exchange, we paid
Forward Pharma $1.25 billion in cash. During the
fourth quarter of 2016, we recognized a pre-tax
charge of $454.8 million and in the first quarter of
2017 we recognized an intangible asset of $795.2
million related to this agreement. The pre-tax charge
recognized in the fourth quarter of 2016 represented
the fair value of our licenses to Forward Pharma’s
intellectual property for the period April 2014, when
we started selling TECFIDERA, through December 31,
2016. The intangible asset represented the fair value
of the U.S. and rest of world licenses to Forward
Pharma’s intellectual property related to TECFIDERA
revenues for the period January 2017, the month in
which we entered into this agreement, through
December 2020, the last month before royalty
payments could first commence pursuant to this
agreement.
We have two intellectual property disputes with
Forward Pharma, one in the U.S. and one in the E.U.,
concerning intellectual property related to TECFIDERA.
In March 2017 the U.S. intellectual property dispute
was decided in our favor. Forward Pharma appealed to
the U.S. Court of Appeals for the Federal Circuit and
the appeal is pending. We evaluated the recoverability
of the U.S. asset acquired from Forward Pharma and
recorded an impairment charge in the first quarter of
2017 to adjust the carrying value of the acquired U.S.
asset to fair value reflecting the impact of the
developments in the U.S. legal dispute. In January
2018 the EPO announced its decision revoking
Forward Pharma’s European Patent No. 2 801 355.
Forward Pharma has stated that it expects to file an
appeal to the Technical Board of Appeal of the EPO.
Based upon our assessment of these rulings, we
continue to amortize the remaining net book value of
the U.S. and rest of world intangible assets in our
consolidated statements of income utilizing an
economic consumption model.
For additional information on our settlement and
license agreement with Forward Pharma and related
intangible assets, please read Note 7, Intangible
Assets and Goodwill, to our consolidated financial
statements included in this report. For additional
information on these disputes, please read Note 21,
Litigation, to our consolidated financial statements
included in this report.
70
In Process Research & Development (IPR&D) related
Acquired In-Process Research and Development
In May 2017 we completed an asset purchase of
the Phase 3-ready candidate, BIIB093, from Remedy.
In connection with the closing of this transaction, we
made an upfront $120.0 million payment to Remedy,
which was recorded as acquired in-process research
and development in our consolidated statements of
income as BIIB093 had not yet reached technological
feasibility. For additional information on our
transaction with Remedy, please read Note 2,
Acquisitions, to our consolidated financial statements
included in this report.
to Business Combinations
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.
We review amounts capitalized as acquired
IPR&D for impairment at least annually, as of October
31, and whenever events or changes in
circumstances indicate to us that the carrying value of
the assets might not be recoverable. Our most recent
impairment assessment as of October 31, 2017,
resulted in no impairments. Changes to clinical
development plans, regulatory feedback received, life
cycle management strategies and changes in program
economics, including foreign currency exchange rates,
are evaluated regularly. The field of developing
treatments for forms of neuropathic pain, such as
TGN, is 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 other indications, including our
ability to confirm safety and efficacy based on data
from clinical trials, or that a successfully developed
therapy will be able to secure sufficient pricing in a
competitive market. Changes in events and
circumstances for these programs may have a
material impact on the value of our related IPR&D.
For additional information on the impairment and
amortization of acquired intangible assets, including
our TECFIDERA settlement and license agreement,
please read Note 7, Intangible Assets and Goodwill, to
our consolidated financial statements included in this
report.
71
Collaboration Profit (Loss) Sharing
Loss (Gain) on Fair Value Remeasurement of
Contingent Consideration
Consideration payable for certain of our
business combinations includes future payments that
are contingent upon the occurrence of a particular
event or events. 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 2017 was primarily due
to the increase in the probability of achieving certain
developmental milestones based upon the
progression of the underlying clinical programs.
The loss on fair value remeasurement of
contingent consideration for 2016 was primarily due
to changes in the probability of achieving certain
developmental milestones based upon the
progression of the underlying clinical programs and
changes in the discount rate.
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.
Collaboration profit (loss) sharing includes our
partner's 50% share of the profit or loss related to
our biosimilars commercial agreement with Samsung
Bioepis and our partner's 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.
We began to recognize revenues on sales of
biosimilars in the first quarter of 2016. For 2017 we
shared collaboration profits and therefore recognized
net expense of $111.0 million as compared to net
expense of $15.1 million in the prior year comparative
period. The increase in profit sharing expense for the
comparative period was primarily due to increased
collaboration profits resulting from increased
biosimilar product sales.
We began to recognize revenues on sales of
ZINBRYTA in the E.U. in the third quarter of 2016. For
2017 we recognized net expense of $1.3 million to
reflect AbbVie's 50% sharing of the net collaboration
profits in the E.U. and Canada as compared to net
income recognized of $4.9 million in the prior year
comparative period, to reflect AbbVie's 50% sharing of
the net collaboration losses in the E.U. and Canada.
The increase in profit sharing expense for the
comparative period was primarily due to increased
collaboration profits resulting from increased
ZINBRYTA product sales.
We expect that the future sales growth of
ZINBRYTA will be negatively impacted as a result of
the EC approved restrictions on the use of ZINBRYTA.
For additional information on our relationship with
AbbVie, including information on the Article 20
Procedure of ZINBRYTA and resulting impairment of
ZINBRYTA related assets, please read Note 20,
Collaborative and Other Relationships, to our
consolidated financial statements included in this
report.
72
Restructuring, Business Transformation and Other
Cost Saving Initiatives
2017 Corporate Strategy
In July 2017 we announced an updated strategic
framework to optimize the value of our MS business
while investing for the future across our core growth
areas of MS and neuroimmunology, AD and dementia,
Parkinson’s disease and movement disorders and
neuromuscular diseases including SMA and ALS. We
also plan to invest in emerging growth areas such as
pain, ophthalmology, neuropsychiatry and acute
neurology.
We expect the continued performance of our
commercial assets and the expiration of the
contingent payments related to TECFIDERA, discussed
further in the “Contractual Obligations and Off-Balance
Sheet Arrangements” section of this report, to enable
us to invest in and build an industry leading
neuroscience pipeline. We view investment in growth
as our top priority, but also recognize the value of
opportunistically returning excess capital to
shareholders through share repurchases.
In order to deliver positive results in the near
term while investing in the next stages of our growth,
we will focus on the following strategic priorities:
• maximizing the resilience of our MS core
business;
• accelerating efforts in SMA as a significant new
growth opportunity;
• developing and expanding our neuroscience
portfolio;
•
focusing our capital allocation efforts to drive
investment for future growth; and
• creating a leaner and simpler operating model to
streamline our operations and reallocate
resources towards prioritized research and
development and commercial value creation
opportunities.
73
In October 2017, in connection with creating a
leaner and simpler operating model, we approved a
corporate restructuring program intended to
streamline our operations and reallocate resources.
We expect to make total non-recurring operating and
capital expenditures of up to $170.0 million, primarily
in 2018, and our goal is to redirect resources of up to
$400.0 million annually by 2020 to prioritized
research and development and other value creation
opportunities.
For the year ended December 31, 2017, we
recognized charges in our consolidated statements of
income totaling $19.4 million related to this effort, of
which $18.5 million is included in selling, general and
administrative expense and $0.9 million is reflected
as restructuring charges. These restructuring charges,
which were substantially incurred and paid in 2017,
were primarily related to severance.
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 restructuring
charges described below. These amounts, which were
substantially incurred and paid by the end of 2016,
were 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 intended to
cease manufacturing and vacate our 67,000 square
foot small-scale biologics manufacturing facility in
Cambridge, MA and close and vacate our 46,000
square foot warehouse space in Somerville, MA.
In December 2016 we subleased our rights to
the Cambridge, MA manufacturing facility 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 closed and vacated
our warehouse space in Somerville, MA.
Our departure from these facilities shortened the
TECFIDERA Litigation Settlement Charge
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.
In the fourth quarter of 2016 we also recognized
charges totaling $7.4 million for severance costs
related to certain employees separated from Biogen
in connection with this transaction. These amounts
were substantially incurred and paid by the end of first
quarter of 2017 and are reflected in restructuring
charges in our consolidated statements of income.
2015 Cost Saving Initiatives
2015 Restructuring Charges
In October 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.
During the years ended December 31, 2016 and
2015, we recognized $8.0 million and $93.4 million,
respectively, of restructuring charges related to our
2015 restructuring program in our consolidated
statements of income. 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:
As described above under "Amortization of
Acquired Intangible Assets - TECFIDERA License Rights,”
in January 2017 we entered into a settlement and
license agreement with Forward Pharma pursuant to
which we obtained U.S. and rest of world licenses to
Forward Pharma's intellectual property, including
Forward Pharma's intellectual property related to
TECFIDERA. In exchange, we paid Forward
Pharma $1.25 billion in cash. During the fourth
quarter of 2016, we recognized a pre-tax charge
of $454.8 million and in the first quarter of 2017 we
recognized an intangible asset of $795.2
million related to this agreement. The pre-tax charge
recognized in the fourth quarter of 2016 represented
the fair value of our licenses to Forward Pharma’s
intellectual property for the period April 2014, when
we started selling TECFIDERA, through December 31,
2016.
For additional information on our TECFIDERA
settlement and license agreement, please read Note
7, Intangible Assets and Goodwill, to our consolidated
financial statements included in this report.
Workforce
Reduction
Pipeline
Programs
Total
4.9
(31.2)
(In millions)
Restructuring reserve
as of December 31,
2015 ......................... $ 33.7 $
Expense .....................
Payment.....................
Adjustments to
previous estimates,
net.............................
Restructuring reserve
as of December 31,
2016 ......................... $
Payment .....................
Restructuring reserve
as of December 31,
2017 ......................... $
2.2 $
(1.7)
(5.2)
3.6 $ 37.3
10.3
5.4
(40.2)
(9.0)
2.9
(2.3)
2.9 $
(2.9)
5.1
(4.6)
0.5 $ — $
0.5
74
Other Income (Expense), Net
Income Tax Provision
For 2017 compared to 2016, the change in other
income (expense), net was primarily due to an
increase in foreign currency exchange gains, an
increase in interest income and a decrease in interest
expense, partially offset by other than temporary
impairments recorded on strategic investments and
marketable debt securities during the year.
Interest expense for the year ended December
31, 2017, includes a net $5.2 million debt
extinguishment charge recognized in November 2017
upon redemption of our 6.875% Senior Notes due
March 1, 2018.
For additional information on this redemption
and our outstanding indebtedness, please read Note
12, Indebtedness, to our consolidated financial
statements included in this report.
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.
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 changes in tax laws, variability in the
allocation of our taxable earnings among multiple
jurisdictions, the amount and characterization of our
research and development expenses, the levels of
certain deductions and credits, acquisitions and
licensing transactions.
Our effective tax rate for 2017 compared to
2016 increased primarily due to the effect of the
2017 Tax Act and the impairment of prepaid tax
assets related to our ZINBRYTA program.
On December 22, 2017, the 2017 Tax Act was
signed into law and has resulted in significant
changes to the U.S. corporate income tax system.
The 2017 Tax Act includes a federal statutory rate
reduction from 35% to 21%, the elimination or
reduction of certain domestic deductions and credits,
the Transition Toll Tax and other changes to taxation
of foreign subsidiaries.
Changes in tax rates and tax laws are accounted
for in the period of enactment. Therefore, during the
year ended December 31, 2017, we recorded a
charge totaling $1,173.6 million related to our current
estimate of the provisions of the 2017 Tax Act,
including a $989.6 million expense under the
Transition Toll Tax. The Transition Toll Tax will be paid
over an eight-year period, starting in 2018, and will
not accrue interest.
75
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 additional information on this transaction,
please read Note 20, Collaborative and Other
Relationships, to our consolidated financial
statements included in this report.
The 2017 Tax Act will provide us with flexibility in
deploying our cash resources to advance our
business interests. We expect that it will have a
modest positive effect on our income tax rate in 2018
and a potential incremental benefit thereafter.
Article 20 Procedure of ZINBRYTA
As a result of the CHMP's recommendation of
restrictions on the use of ZINBRYTA, we impaired
prepaid tax balances totaling $142.6 million.
Offsetting these amounts was an unrecorded tax
benefit related to certain ZINBRYTA related assets
totaling approximately $93.8 million. For additional
information on the Article 20 Procedure of ZINBRYTA
and resulting impairment of ZINBRYTA related assets,
please read Note 20, Collaborative and Other
Relationships, to our consolidated financial
statements included in this report.
Excluding the effect of the 2017 Tax Act and the
ZINBRTYA impairments, our income tax rate would
have decreased due to a lower percentage of our
earnings being recognized in the U.S., a higher tax
jurisdiction. The geographic split of our earnings was
affected by milestone and upfront payments in the
current year and the spin-off of our hemophilia
business, partially offset by growth from the U.S.
launch of SPINRAZA and increases in our revenues
from anti-CD20 therapeutic programs in the U.S. In
addition, in 2017 we earned a lower benefit from the
orphan drug credit due to the FDA's approval of
SPINRAZA.
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.
Accounting for Uncertainty in Income Taxes
For additional information on our uncertain tax
positions and income tax rate reconciliation for 2017,
2016 and 2015, please read Note 17, Income Taxes,
to our consolidated financial statements included in
this report.
76
Noncontrolling Interest
For 2017 compared to 2016, the change in net
income (loss) attributable to noncontrolling interests,
net of tax, was primarily related to a $150.0 million
pre-tax upfront payment made to Neurimmune in
exchange for a 15% reduction in royalty rates payable
on products developed under the agreement, including
on potential commercial sales of aducanumab.
Financial Condition, Liquidity and Capital Resources
Our financial condition is summarized as follows:
(In millions, except percentages)
Financial assets:
Under the amended agreement, we also have an
option that will expire in April 2018 to further reduce
our royalty rates payable on products developed under
the agreement, including on potential commercial
sales of aducanumab, by an additional 5% in
exchange for a $50.0 million payment to
Neurimmune.
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 pre-
tax milestone payment made to Neurimmune in 2015.
For additional information on our collaboration
arrangement with Neurimmune, please read Note 19,
Investments in Variable Interest Entities, to our
consolidated financial statements included in this
report.
As of December 31,
2017
2016
% Change
2017
compared to
2016
Cash and cash equivalents ....................................................... $
Marketable securities — current ...............................................
Marketable securities — non-current .........................................
Total cash, cash equivalents and marketable securities .......... $
1,573.8 $
2,115.2
3,057.3
6,746.3 $
2,326.5
2,568.6
2,829.4
7,724.5
Borrowings:
Current portion of notes payable and other financing
arrangements .......................................................................... $
Notes payable and other financing arrangements........................
Total borrowings
Working Capital:
$
3.2 $
5,935.0
5,938.2 $
4.7
6,512.7
6,517.4
Current assets ......................................................................... $
Current liabilities......................................................................
Total working capital ............................................................. $
7,873.3 $
(3,368.2)
4,505.1 $
8,732.2
(3,419.9)
5,312.3
(32.4)%
(17.7)%
8.1 %
(12.7)%
(31.9)%
(8.9)%
(8.9)%
(9.8)%
(1.5)%
(15.2)%
77
For the year ended December 31, 2017, certain
significant cash flows were as follows:
• $4.6 billion in net cash flows provided by
operating activities, net of:
$1.1 billion in total net payments for
income taxes;
$463.0 million in upfront and milestone
payments to BMS, iPierian, Eisai, Alkermes
and Ionis; and
• $1.2 billion in contingent payments made to
former shareholders of Fumapharm AG and
holders of their rights;
• $1.0 billion used for share repurchases;
• $616.1 million used for purchases of property,
plant and equipment; and
• $82.0 million in milestone payments made to
Samsung Bioepis and AbbVie.
$454.8 million payment made to Forward
Overview
Pharma for the litigation settlement charge
that was accrued as of December 31,
2016;
• $1.4 billion used for share repurchases;
• $1.2 billion in contingent payments made to
former shareholders of Fumapharm AG and
holders of their rights;
• $867.4 million used for purchases of property,
plant and equipment;
•
$795.2 million payment made to Forward
Pharma to license Forward Pharma's intellectual
property, including Forward Pharma's intellectual
property related to TECFIDERA;
• $557.7 million payment made for the
redemption of our 6.875% Senior Notes due
March 1, 2018 prior to their maturity;
• $302.7 million net cash contribution made in
connection with the spin-off of our hemophilia
business;
• $295.0 million in upfront and milestone
payments made to Remedy, Ionis and Samsung
Bioepis; and
• $132.4 million payment, net of tax, made to
Neurimmune in exchange for a 15% reduction in
royalty rates payable on products developed
under the agreement, including on potential
commercial sales of aducanumab.
For the year ended December 31, 2016, certain
significant cash flows were as follows:
• $4.6 billion in net cash flows provided by
operating activities, net of:
$1.6 billion in total net payments for
income taxes;
$75.0 million license fee payment made
to Ionis; and
$20.0 million upfront payment to UPenn;
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.
Tax Reform
On December 22, 2017, the 2017 Tax Act was
signed into law and has resulted in significant
changes to the U.S. corporate income tax system.
The 2017 Tax Act eliminates the deferral of U.S.
income tax on the historical unrepatriated earnings by
imposing the Transition Toll Tax, which is a one-time
mandatory deemed repatriation tax on undistributed
foreign earnings. The Transition Toll Tax is assessed
on the U.S. shareholder's share of the foreign
corporation's accumulated foreign earnings that have
not previously been taxed. Earnings in the form of
cash and cash equivalents will be taxed at a rate of
15.5% and all other earnings will be taxed at a rate of
8.0%. As of December 31, 2017, we have accrued
income tax liabilities of $989.6 million under the
Transition Toll Tax, of which $78.3 million is expected
to be paid within one year. The Transition Toll Tax will
be paid over an eight-year period, starting in 2018,
and will not accrue interest.
Of the total cash, cash equivalents and
marketable securities at December 31, 2017,
approximately $4.0 billion was generated in foreign
78
jurisdictions and may now be deployed with greater
flexibility to advance our business interests.
portfolio that limits the amount of exposure as to
institution, maturity and investment type.
For additional information on certain risks that
The net decrease in cash, cash equivalents and
marketable securities at December 31, 2017, from
December 31, 2016, was primarily due to the
payment made to Forward Pharma in connection with
our January 2017 settlement and license agreement,
the payment made for the redemption of our 6.875%
Senior Notes due March 1, 2018 prior to their
maturity in November 2017, cash used for share
repurchases, the net cash contribution made in
connection with the spin-off of our hemophilia
business in February 2017, net purchases of property,
plant and equipment, upfront and milestone payments
made to Remedy, Ionis and Samsung Bioepis and the
payment to Neurimmune in exchange for a 15%
reduction in royalty rates payable on products
developed under the agreement, including on
potential commercial sales of aducanumab.
Borrowings
The following is a summary of our principal
indebtedness as of December 31, 2017:
• $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.
These senior unsecured notes were issued at a
discount and are amortized as additional interest
expense over the period from issuance through
maturity.
In November 2017 we redeemed our 6.875%
Senior Notes due March 1, 2018, with an aggregate
principal amount of $550.0 million. For additional
information on this redemption please read Note 12,
Indebtedness, to our consolidated financial
statements included in this report.
could negatively impact our consolidated financial
position or future results of operations, please read
Item 1A. Risk Factors and Item 7A. Quantitative and
Qualitative Disclosures About Market Risk included in
this report.
Share Repurchase Programs
In July 2016 our Board of Directors authorized
our 2016 Share Repurchase Program to repurchase
up to $5.0 billion of our common stock. This
authorization does not have an expiration date. All
share repurchases under this authorization will be
retired. Under this authorization, we repurchased and
retired 3.7 million and 3.3 million shares of our
common stock during the years ended December 31,
2017 and 2016, respectively, at a cost of $1.0 billion
for each year. As of December 31, 2017,
approximately $3.0 billion remains available for share
repurchases under this authorization.
In May 2015 our Board of Directors authorized
our 2015 Share Repurchase Program to repurchase
up to $5.0 billion of our common stock. All share
repurchases under this authorization were retired. Our
2015 Share Repurchase Program was completed as
of December 31, 2015. Under this authorization, we
repurchased and retired 16.8 million shares of our
common stock at a cost of $5.0 billion during the year
ended December 31, 2015.
In February 2011 our Board of Directors
authorized our 2011 Share Repurchase Program to
repurchase up to 20.0 million shares of our common
stock. Shares repurchased under this authorization
have been principally used to offset common stock
issuances under our share-based compensation
plans. Our 2011 Share Repurchase Program was
completed as of March 31, 2017. Under this
authorization, we repurchased 1.2 million shares of
our common stock at a cost of $365.4 million during
the year ended December 31, 2017. We did not
repurchase any shares of our common stock under
this authorization during the years ended
December 31, 2016 and 2015.
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
79
During the third quarter of 2015, we entered into
Working Capital
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, 2017, we had no outstanding
borrowings and were in compliance with all covenants
under this facility.
In connection with our 2006 distribution
agreement with Fumedica, we issued notes totaling
61.4 million Swiss Francs that are payable to
Fumedica in varying amounts from June 2008 through
June 2018. Our remaining note payable to Fumedica,
payable in June 2018, had a carrying value of 3.1
million Swiss Francs ($3.2 million) and 6.2 million
Swiss Francs ($6.0 million) as of December 31, 2017
and 2016, respectively.
For a summary of the fair values of our
outstanding borrowings as of December 31, 2017 and
2016, please read Note 8, Fair Value Measurements,
to our consolidated financial statements included in
this report.
Cash Flows
The following table summarizes our cash flow activity:
We define working capital as current assets less
current liabilities. The change in working capital at
December 31, 2017, from December 31, 2016,
reflects a decrease in total current assets of $858.9
million, partially offset by a decrease in current
liabilities of $51.7 million.
The decrease in total current assets was driven
by a decrease in net cash, cash equivalents and
marketable securities, as described above, partially
offset by an increase in accounts receivable due to an
increase in revenues and the timing of customer
payments, including amounts due in connection with
anti-CD20 therapeutic programs.
The decrease in total current liabilities primarily
resulted from a reduction in taxes payable and
accrued expenses primarily due to the payment of the
$454.8 million charge that was accrued as of
December 31, 2016, in relation to our settlement and
license agreement with Forward Pharma, offset by an
increase in the accrual of contingent payments
related to FUMADERM and TECFIDERA (together, the
Fumapharm Products) upon reaching $15.0 billion
and $16.0 billion in total cumulative sales of
Fumapharm Products in the fourth quarter of 2017.
(In millions, except percentages)
Net cash flows provided by operating
activities................................................ $
Net cash flows used in by investing
activities................................................ $
Net cash flows (used in) provided by
financing activities ................................. $
For the Years Ended
December 31,
2017
2016
2015
% Change
2017
compared to
2016
2016
compared to
2015
4,551.0 $
4,587.2 $
3,919.4
(0.8)%
17.0 %
(2,963.1) $
(2,484.8) $
(4,553.6)
19.2 %
(45.4)%
(2,380.0) $
(1,052.6) $
783.1
126.1 %
(234.4)%
Operating Activities
Cash flows from operating activities represent
the cash receipts and disbursements related to all of
our activities other than investing and financing
activities. We expect cash provided from operating
activities will continue to be our primary source of
funds to finance operating needs and capital
expenditures for the foreseeable future.
Operating cash flow is derived by adjusting our
net income for:
• Non-cash operating items such as depreciation
and amortization, impairment charges, acquired
in-process research and development and share-
based compensation;
• Changes in operating assets and liabilities which
reflect timing differences between the receipt
and payment of cash associated with
transactions and when they are recognized in
results of operations; and
• Changes associated with the fair value of
contingent payments associated with our
acquisitions of businesses and payments related
to collaborations.
For 2017 compared to 2016, net cash flows
provided by operations were relatively consistent.
Higher sales and lower income tax payments were
offset by the $454.8 million payment related to our
settlement and license agreement with Forward
Pharma, which had been accrued as of December 31,
2016, and the timing of customer payments, including
80
amounts due in connection with anti-CD20
therapeutic programs.
Net income was lower in 2017, primarily due to
the Transition Toll Tax under the 2017 Tax Act and
higher depreciation and amortization.
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.
Investing Activities
For 2017 compared to 2016, the increase in net
cash flows used in investing activities was primarily
due to:
•
the $795.2 million payment made to Forward
Pharma to license Forward Pharma's intellectual
property, including Forward Pharma's intellectual
property related to TECFIDERA;
• an increase in purchases of property, plant and
equipment primarily related to the construction
of our Solothurn, Switzerland facility;
• $175.0 million in milestone payments made to
Ionis and Samsung Bioepis; and
•
the $120.0 million payment made to Remedy for
the purchase of BIIB093.
These increases were partially offset by an
increase in net proceeds of marketable securities.
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 Pharmaceuticals
(Convergence) in February 2015, partially offset by an
increase in the contingent consideration related to the
Fumapharm AG acquisition.
Financing Activities
For 2017 compared to 2016, the increase in net
cash flows used in financing activities was primarily
due to an increase in cash used for share
repurchases, the payment made for the redemption of
our 6.875% Senior Notes due March 1, 2018 prior to
their maturity, the $302.7 million net cash
contribution made in connection with the spin-off of
our hemophilia business on February 1, 2017, and
the net distributions to noncontrolling interest,
including the payment made to Neurimmune in
exchange for a 15% reduction in royalty rates payable
on products developed under the agreement, including
on potential commercial sales of aducanumab.
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.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2017, 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)
Non-cancellable operating leases (1), (2) . $
Long-term debt obligations (3) ................
Purchase and other obligations (4) ..........
Defined benefit obligation.......................
Total
428.5 $
9,430.0
1,657.1
91.8
Total contractual obligations ................. $ 11,607.4 $
Payments Due by Period
Less than
1 Year
1 to 3
Years
3 to 5
Years
After
5 Years
48.3 $
244.8
637.3
—
930.4 $
92.1 $
88.3 $
1,983.3
344.9
—
1,396.3
234.6
—
2,420.3 $
1,719.2 $
199.8
5,805.6
440.3
91.8
6,537.5
81
(1) 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.
(2) Obligations are presented net of sublease
income expected to be received for the vacated
small-scale biologics manufacturing facility in
Cambridge, MA, the vacated portion of our
Weston, MA facility and other facilities
throughout the world.
(3) Long-term debt obligations are primarily related
to our Senior Notes, including principal and
interest payments.
(4) Purchase and other obligations primarily includes
our obligations to purchase direct materials,
$989.6 million related to our current estimate of
the impact of the 2017 Tax Act, $270.0 million
in contractual commitments for the construction
of our large-scale biologics manufacturing facility
in Solothurn, Switzerland and $111.3 million
related to the fair value of net liabilities on
derivative contracts.
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 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, and Perrigo subsequently sold its
rights to these payments to a third party effective
January 2017.
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 recorded
the contingent consideration liabilities associated
with these transactions at their fair value on the
82
acquisition date and revalue these obligations each
reporting period. We may pay up to approximately
$1.1 billion in remaining milestones related to these
acquisitions. For additional information on 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 the 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 12-
month period, as defined in the acquisition
agreement.
During 2017 we paid $1.2 billion in contingent
payments as we reached the $11.0 billion, $12.0
billion, $13.0 billion and $14.0 billion cumulative
sales levels related to the Fumapharm Products in the
fourth quarter of 2016 and the first, second and third
quarters of 2017, respectively, and accrued $600.0
million upon reaching $15.0 billion and $16.0 billion
in total cumulative sales of Fumapharm Products in
the fourth quarter of 2017.
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 that 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, 2017, we could make potential future
milestone payments to third parties of up to
approximately $4.2 billion, including approximately
$0.7 billion in development milestones, approximately
$1.5 billion in regulatory milestones and
approximately $2.0 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 was not considered probable as
of December 31, 2017, 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.
Provided various development, regulatory or
commercial milestones are achieved, we anticipate
that we may pay approximately $110.0 million of
milestone payments in 2018.
Other Funding Commitments
As of December 31, 2017, we have several on-
going clinical studies in various clinical trial stages.
Our most significant clinical trial expenditures are to
CROs. The contracts with CROs are generally
cancellable, with notice, at our option. We have
recorded accrued expenses of approximately $40.0
million in our consolidated balance sheet for
expenditures incurred by CROs as of December 31,
2017. We have approximately $460.0 million in
cancellable future commitments based on existing
CRO contracts as of December 31, 2017.
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, 2017, we have
approximately $77.3 million of net liabilities
associated with uncertain tax positions.
As of December 31, 2017, we have accrued
income tax liabilities of $989.6 million under the
Transition Toll Tax, of which $78.3 million is expected
to be paid within one year. The Transition Toll Tax will
be paid over an eight-year period, starting in 2018,
and will not accrue interest.
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, 2017, please read Note 21, Litigation,
to our consolidated financial statements included in
this report.
Critical Accounting Estimates
The preparation of our consolidated financial
statements, which have been prepared in accordance
with accounting principles generally accepted in the
U.S. (U.S. GAAP), requires us to make estimates,
judgments and assumptions that may affect the
reported amounts of assets, liabilities, equity,
revenues and expenses and related disclosure of
contingent assets and liabilities. On an on-going basis
we evaluate our estimates, judgments and
methodologies. We base our estimates on historical
experience and on various other assumptions that we
believe are reasonable, the results of which form the
basis for making judgments about the carrying values
of assets, liabilities and equity and the amount of
revenues and expenses. Actual results may differ
from these estimates under different assumptions or
conditions. Other significant accounting policies are
outlined in Note 1, Summary of Significant Accounting
Policies, to our consolidated financial statements
included in this report.
Revenue Recognition and Related Allowances
We recognize revenues 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 on 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.
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
83
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.
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.
For additional information on our concentration
of credit risk associated with our accounts receivable
balances, please read the subsection entitled “Credit
Risk” in Item 7A. Quantitative and Qualitative
Disclosures About Market Risk included in this report.
Capitalization of Inventory Costs
We capitalize inventory costs associated with
our products prior to regulatory approval, when, based
on management’s judgment, future commercialization
is considered probable and the future economic
benefit is expected to be realized. We consider
numerous attributes in evaluating whether the costs
to manufacture a particular product should be
capitalized as an asset. We assess the regulatory
approval process and where the particular product
stands in relation to that approval process, including
any known safety or efficacy concerns, potential
labeling restrictions and other impediments to
approval. We evaluate our anticipated research and
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. 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)
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 upon its acquisition
date. Future costs to develop these assets are
recorded to research and development expense as
they are incurred.
84
We have acquired, and expect to continue to
Impairment and Amortization of Long-lived Assets
acquire, intangible assets through the acquisition of
biotechnology companies or through the consolidation
of variable interest entities. These intangible assets
primarily consist of technology associated with human
therapeutic products and IPR&D product candidates.
When significant identifiable intangible assets are
acquired, we generally engage an independent third-
party valuation firm to assist in determining the fair
values of these assets as of the acquisition date.
Management will determine the fair value of less
significant identifiable intangible assets acquired.
Discounted cash flow models are typically used in
these valuations, and these models require the use of
significant estimates and assumptions including but
not limited to:
• estimating the timing of and expected costs to
complete the in-process projects;
• projecting regulatory approvals;
• estimating future cash flows from product sales
resulting from completed products and in
process projects; and
• developing appropriate discount rates and
probability rates by project.
We believe the fair values assigned to the
intangible assets acquired are based upon
reasonable estimates and assumptions given
available facts and circumstances as of the
acquisition dates.
If these projects are not successfully developed,
the sales and profitability of the company may be
adversely affected in future periods. Additionally, the
value of the acquired intangible assets may become
impaired. We believe that the foregoing assumptions
used in the IPR&D analysis were reasonable. 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.
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
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
treatments for forms of neuropathic pain, such as
TGN. Such programs could become impaired if
assumptions used in determining the fair value
change.
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 relate to obtaining the fair value
of the U.S. and rest of world licenses to Forward
Pharma's intellectual property, including Forward
Pharma's intellectual property related to TECFIDERA,
and 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 TECFIDERA, TYSABRI
and AVONEX using the economic consumption method
based on revenues generated from the products
underlying the related intangible assets. An analysis
of the anticipated lifetime revenues of TECFIDERA,
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
TECFIDERA, TYSABRI or AVONEX.
For additional information on the impairment
charges related to our long-lived assets during 2017
and 2016, please read Note 7, 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.
85
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, we would
record an impairment loss equal to the difference.
We completed our required annual impairment
test in the fourth quarters of 2017, 2016 and 2015,
respectively, and determined in each of those periods
that the carrying value of goodwill was not impaired.
In each year, the fair value of our reporting unit, which
includes goodwill, was significantly in excess of the
carrying value of our reporting unit.
Investments, including Fair Value Measures and
Impairments
We invest in various types of securities,
including short-term and long-term marketable
securities, principally corporate notes, government
securities including government sponsored enterprise
mortgage-backed securities and credit card and auto
loan asset-backed securities, in which our excess
cash balances are invested.
In accordance with the accounting standard for
fair value measurements, we have classified our
financial assets as Level 1, 2 or 3 within the fair value
hierarchy. Fair values determined by Level 1 inputs
utilize quoted prices (unadjusted) in active markets for
identical assets that we have the ability to access.
Fair values determined by Level 2 inputs utilize data
points that are observable such as quoted prices,
interest rates, yield curves and foreign currency spot
rates. Fair values determined by Level 3 inputs utilize
unobservable data points for the asset.
As noted in Note 8, Fair Value Measurements, to
our consolidated financial statements included in this
report, 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.
86
Determining the appropriate valuation model and
Restructuring Charges
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.
Contingent Consideration
For acquisitions completed before January 1,
2009, we record contingent consideration resulting
from a business combination when the contingency is
resolved. For acquisitions completed after January 1,
2009, we record contingent consideration resulting
from a business combination at its fair value on the
acquisition date. Each reporting period thereafter, we
revalue these obligations and record increases or
decreases in their fair value as an adjustment to
contingent consideration expense 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.
We have made estimates and judgments
regarding the amount and timing of our restructuring
expense and liability, including current and future
period termination benefits, pipeline program
termination costs and other exit costs to be incurred
when related actions take place. Severance and other
related costs are reflected in our consolidated
statements of income as a component of total
restructuring charges incurred. Actual results may
differ from these estimates.
Income Taxes
We prepare and file income tax returns based on
our interpretation of each jurisdiction’s tax laws and
regulations. In preparing our consolidated financial
statements, we estimate our income tax liability in
each of the jurisdictions in which we operate by
estimating our actual current tax expense together
with assessing temporary differences resulting from
differing treatment of items for tax and financial
reporting purposes. These differences result in
deferred tax assets and liabilities, which are included
in our consolidated balance sheets. Significant
management judgment is required in assessing the
realizability of our deferred tax assets. In performing
this assessment, we consider whether it is more likely
than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation
of future taxable income during the periods in which
those temporary differences become deductible. In
making this determination, under the applicable
financial accounting standards, we are allowed to
consider the scheduled reversal of deferred tax
liabilities, projected future taxable income and the
effects of tax planning strategies. Our estimates of
future taxable income include, among other items, our
estimates of future income tax deductions related to
the exercise of stock options. In the event that actual
results differ from our estimates, we adjust our
estimates in future periods and we may need to
establish a valuation allowance, which could
materially impact our consolidated 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,
87
income tax liabilities of $989.6 million under the
Transition Toll Tax, of which $78.3 million is expected
to be paid within one year. The Transition Toll Tax will
be paid over an eight-year period, starting in 2018,
and will not accrue interest.
New Accounting Standards
For a discussion of new accounting standards
and their expected impact on our consolidated
financial statements or disclosures, please read
Note 1, Summary of Significant Accounting Policies, 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 that 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 counterparties to these
contracts are major financial institutions, and there is
no significant concentration of exposure with any one
counterparty.
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, and Central and South America. In
addition, we recognize our share of pre-tax co-
promotion profits on RITUXAN in Canada. As a result,
our consolidated financial position, results of
operations and cash flows can be affected by market
fluctuations in foreign currency exchange rates,
primarily with respect to the Euro, British pound
sterling, Canadian dollar, Swiss franc, Danish krone
and Japanese yen.
2017, total deferred charges and prepaid taxes were
$617.7 million. For additional information on the new
accounting standard related to 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.
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.
On December 22, 2017, the 2017 Tax Act was
signed into law and has resulted in significant
changes to the U.S. corporate income tax system.
The 2017 Tax Act eliminates the deferral of U.S.
income tax on the historical unrepatriated earnings by
imposing the Transition Toll Tax, which is a one-time
mandatory deemed repatriation tax on undistributed
foreign earnings. The Transition Toll Tax is assessed
on the U.S. shareholder's share of the foreign
corporation's accumulated foreign earnings that have
not previously been taxed. Earnings in the form of
cash and cash equivalents will be taxed at a rate of
15.5% and all other earnings will be taxed at a rate of
8.0%. As of December 31, 2017, we have accrued
88
While the financial results of our global activities
Balance Sheet Risk Management Hedging Program
are reported in U.S. dollars, the functional currency
for most of our foreign subsidiaries is their respective
local currency. Fluctuations in the foreign currency
exchange rates of the countries in which we do
business will affect our operating results, often in
ways that are difficult to predict. In particular, as the
U.S. dollar strengthens versus other currencies, the
value of the non-U.S. revenues 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. expenses, which
will also decline when reported in U.S. dollars. As the
U.S. dollar weakens versus other currencies, the
value of the non-U.S. revenues 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 currency exchange rates.
In June 2016 the U.K. voted in a referendum to
voluntarily depart from the E.U., known as Brexit, and
in March 2017, the U.K. formally started the process
for the U.K. to leave the E.U. The macroeconomic
impact on our results of operations from these
developments remains unknown. To date, the foreign
currency exchange impact has been insignificant
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 21 months. We do not
engage in currency speculation. For a more detailed
disclosure of our revenue and operating expense
hedging program, please read Note 10, 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.
89
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 and liabilities 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 statements 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,
2017 and 2016, 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 $286.0 million and
$172.0 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 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,
2017 and 2016, we estimate that such hypothetical
100 basis point adverse movement would result in a
hypothetical loss in fair value of approximately $50.0
million to our interest rate sensitive instruments. The
fair values of our investments were determined using
third-party pricing services or other market observable
data.
To achieve a desired mix of fixed and floating
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, 2017 and 2016, a 100 basis-point
adverse movement (increase in LIBOR) would increase
annual interest expense by approximately
$6.8 million.
Pricing Pressure
Governments in some international markets in
which we operate have implemented measures aimed
at reducing healthcare costs to limit the 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.
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
consolidated financial position or results of
operations.
Our products are also susceptible to increasing
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, as well as lower-priced competing 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 consolidated results of operations.
There is also significant economic pressure on
state budgets that results 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
90
particular drugs.
Credit Risk
We are subject to credit risk from our accounts
receivable related to our product sales. The majority
of our accounts receivable arise from product sales in
the U.S. and Europe with concentrations of credit risk
limited due to the wide variety of customers and
markets using our products, as well as their
dispersion across many different geographic areas.
Our accounts receivable are primarily due from
wholesale distributors, public hospitals and other
government entities. We monitor the financial
performance and creditworthiness of our 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, 2017
and 2016. 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-78 of this report
and is incorporated herein by reference.
Changes in and Disagreements
Item 9.
with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures and
Internal Control over Financial Reporting
Controls and Procedures
We have carried out an evaluation, under the
supervision and with the participation of our
management, including our principal executive officer
and principal financial officer, of the effectiveness of
the design and operation of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934,
as amended), as of December 31, 2017. 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:
• pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect
our transactions and dispositions of our assets;
• provide reasonable assurance that transactions
are recorded as necessary to permit preparation
of financial statements in accordance with
U.S. GAAP, and that our receipts and
expenditures are being made only in accordance
with authorizations of our management and
directors; and
• provide reasonable assurance regarding
prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that
could have a material effect on our financial
statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the
risk that controls may become inadequate because of
changes in conditions, or that the degree of
compliance with the policies or procedures may
deteriorate.
Our management assessed the effectiveness of
our internal control over financial reporting as of
December 31, 2017. 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, 2017, 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, 2017, has
been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as
stated in their attestation report, which is included
herein.
Item 9B. Other Information
None.
There were no changes in our internal control
over financial reporting during the quarter ended
December 31, 2017, 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
91
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 2018 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 2018 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 Item 1 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 “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
2018 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 2018 annual
meeting of stockholders.
Item 12. Security Ownership of Certain
Beneficial Owners and Management and
Related Stockholder Matters
The response to this item is incorporated by
reference from the discussion responsive thereto in
the sections entitled “Stock Ownership” and “Equity
Compensation Plan Information” contained in the proxy
statement for our 2018 annual meeting of
stockholders.
92
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) Exhibits
Page Number
F-2
F-3
F-4
F-5
F-6
F-9
F-77
The exhibits listed on the Exhibit Index beginning on page 94, which is incorporated herein by reference, are
filed or furnished as part of this report or are incorporated into this report by reference.
(3) Financial Statement Schedules
Schedules are omitted because they are not applicable, or are not required, or because the information is
included in the consolidated financial statements and notes thereto.
Item 16.
Form 10-K Summary
Not applicable.
93
Exhibit No.
2.1†
2.2
3.1
3.2
3.3
4.1
4.2
4.3
10.1
10.2†
10.3†
10.4
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*+
10.11*+
10.12*
10.13*
EXHIBIT INDEX
Description
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. dated as of January 31,
2017. 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.
Fourth Amended and Restated Bylaws. Filed as Exhibit 3.1 to our Current Report on Form
8-K filed on June 9, 2017.
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 Inc. and U.S. Bank National Association, dated as of September
15, 2015. Filed as Exhibit 4.1 to our Current Report on Form 8-K filed on September 16,
2015.
First Supplemental Indenture between Biogen Inc. and U.S. Bank National Association,
dated September 15, 2015. Filed as Exhibit 4.2 to our Current Report on Form 8-K filed
on September 16, 2015.
Credit Agreement between Biogen Inc., Bank of America, N.A., Goldman Sachs Bank USA
and other lenders party thereto, dated August 28, 2015. Filed as Exhibit 10.1 to our Current
Report on Form 8-K filed on September 1, 2015.
Second Amended and Restated Collaboration Agreement between Biogen Idec Inc. 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 Inc. 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.
Settlement and License Agreement, dated January 17, 2017, between Biogen Swiss
Manufacturing GmbH, Biogen International Holdings ltd., Forward Pharma A/S and other
parties thereto. Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on February
1, 2017.
Biogen Inc. 2017 Omnibus Equity Plan. Filed as Appendix B to our Definitive Proxy Statement
on Schedule 14A filed on April 26, 2017.
Form of restricted stock unit award agreement under the Biogen Inc. 2017 Omnibus Equity
Plan. Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2017.
Form of market stock unit award agreement under the Biogen Inc. 2017 Omnibus Equity
Plan. Filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2017.
Form of performance unit award agreement under the Biogen Inc. 2017 Omnibus Equity
Plan. Filed as Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2017.
Form of cash-settled performance unit award agreement under the Biogen Inc. 2017
Omnibus Equity Plan. Filed as Exhibit 10.5 to our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2017.
Form of performance stock units award agreement (cash-settled) under the Biogen Inc.
2017 Omnibus Equity Plan.
Form of performance stock units award agreement under the Biogen Inc. 2017 Omnibus
Equity Plan.
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.
94
Exhibit No.
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*+
10.33*+
10.34*
10.35*
10.36*
10.37*
Description
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.
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.
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 Inc. 2015 Employee Stock Purchase Plan. Filed as Appendix A to our 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 our Definitive Proxy Statement on Schedule 14A filed on May 8, 2008.
Biogen Idec Inc. 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.
Biogen Idec Inc. 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.
Biogen Idec Inc. 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 to our 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.
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 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 Jeffrey Capello dated November 14, 2017.
Letter regarding employment arrangement of Gregory Covino dated February 25, 2012.
Letter regarding employment arrangement of Michael Ehlers dated April 16, 2016.
Letter regarding employment arrangement of Susan Alexander dated December 31, 2005.
Filed as Exhibit 10.58 to our Annual Report on Form 10-K for the year ended December
31, 2009.
Employment Agreement between Biogen Idec. Inc. 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.
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.
95
Exhibit No.
10.38*
21+
23+
31.1+
31.2+
32.1++
101++
Description
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.
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, 2017, 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.
96
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 1, 2018
97
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
Capacity
Date
/S/ MICHEL VOUNATSOS
Michel Vounatsos
/S/ Jeffrey D. Capello
Jeffrey D. Capello
/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 1, 2018
Executive Vice President and Chief
Financial Officer (principal financial
officer)
Vice President, Finance, Chief
Accounting Officer (principal
accounting officer)
February 1, 2018
February 1, 2018
Director and Chairman of the Board of
Directors
February 1, 2018
Director
February 1, 2018
Director
February 1, 2018
Director
February 1, 2018
Director
February 1, 2018
Director
February 1, 2018
Director
February 1, 2018
Director
February 1, 2018
Director
February 1, 2018
Director
February 1, 2018
98
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-77
F- 1
BIOGEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
Revenues:
Product, net ........................................................................ $
Revenues from anti-CD20 therapeutic programs ....................
Other..................................................................................
Total revenues ................................................................
10,354.7 $
1,559.2
360.0
12,273.9
9,817.9 $
1,314.5
316.4
11,448.8
9,188.5
1,339.2
236.1
10,763.8
For the Years Ended December 31,
2017
2016
2015
Cost and expenses:
Cost of sales, excluding amortization of acquired intangible
assets................................................................................
Research and development..................................................
Selling, general and administrative .......................................
Amortization of acquired intangible assets ............................
Acquired in-process research and development .....................
Collaboration profit (loss) sharing .........................................
Loss (gain) on fair value remeasurement of contingent
consideration ......................................................................
Restructuring charges..........................................................
TECFIDERA litigation settlement charge.................................
Total cost and expenses ..................................................
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. .................................... $
Net income per share:
1,630.0
2,253.6
1,935.5
814.7
120.0
112.3
62.7
0.9
—
6,929.7
5,344.2
(215.4)
5,128.8
2,458.7
—
2,670.1
1,478.7
1,973.3
1,947.9
385.6
—
10.2
14.8
33.1
454.8
6,298.4
5,150.4
(217.4)
4,933.0
1,237.3
—
3,695.7
131.0
2,539.1 $
(7.1)
3,702.8 $
Basic earnings per share attributable to Biogen Inc. .............. $
Diluted earnings per share attributable to Biogen Inc. ............ $
11.94 $
11.92 $
16.96 $
16.93 $
Weighted-average shares used in calculating:
Basic earnings per share attributable to Biogen Inc. ..............
Diluted earnings per share attributable to Biogen Inc. ............
212.6
213.0
218.4
218.8
1,240.4
2,012.8
2,113.1
382.6
—
—
30.5
93.4
—
5,872.8
4,891.0
(123.7)
4,767.3
1,161.6
12.5
3,593.2
46.2
3,547.0
15.38
15.34
230.7
231.2
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.
$
2,539.1 $
3,702.8 $
3,547.0
For the Years Ended December 31,
2017
2016
2015
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, net
of tax .................................................................................
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 ......................................................... $
(3.5)
12.7
9.2
(193.8)
31.5
(162.3)
(4.1)
158.7
1.5
(10.6)
0.6
(10.0)
51.6
(4.0)
47.6
5.1
(138.6)
(95.9)
2,540.6
3,606.9
(1.7)
1.3
(0.4)
110.8
(172.3)
(61.5)
(6.2)
(96.4)
(164.5)
3,382.5
131.0
(7.1)
46.2
2,671.6 $
3,599.8 $
3,428.7
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,
2017
2016
ASSETS
Current assets:
Cash and cash equivalents ........................................................................ $
Marketable securities ................................................................................
Accounts receivable, net ............................................................................
Due from anti-CD20 therapeutic programs...................................................
Inventory ..................................................................................................
Other current assets .................................................................................
Total current assets...............................................................................
Marketable securities ..................................................................................
Property, plant and equipment, net ...............................................................
Intangible assets, net ..................................................................................
Goodwill .....................................................................................................
Investments and other assets ......................................................................
1,573.8 $
2,115.2
1,787.0
532.6
902.7
962.0
7,873.3
3,057.3
3,182.4
3,879.6
4,632.5
1,027.5
Total assets.......................................................................................... $
23,652.6 $
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; 23.8 million and 22.6 million shares, respectively ....
Total Biogen Inc. shareholders’ equity .....................................................
Noncontrolling interests ...............................................................................
Total equity ...........................................................................................
Total liabilities and equity....................................................................... $
3.2 $
68.2
395.5
2,901.3
3,368.2
5,935.0
122.6
1,628.7
11,054.5
—
0.1
97.8
(318.4)
15,810.4
(2,977.1)
12,612.8
(14.7)
12,598.1
23,652.6 $
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
22,876.8
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
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 ..................................................................
Acquired in-process research and development..........................................
Share-based compensation ......................................................................
Deferred income taxes .............................................................................
Contingent consideration..........................................................................
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 .......................
Acquired in-process research and development ..............................................
Acquisitions of businesses, net of cash acquired ...........................................
Purchases of property, plant and equipment...................................................
Acquisitions of intangible assets ...................................................................
Other ..........................................................................................................
For the Years Ended December 31,
2017
2016
2015
2,670.1 $
3,695.7 $
3,593.2
1,081.0
120.0
128.0
91.7
62.7
162.1
(435.6)
(232.0)
(94.5)
(76.6)
(227.4)
1,303.9
(2.4)
4,551.0
5,565.9
(5,355.2)
(1,200.0)
(120.0)
—
(867.4)
(975.4)
(11.0)
682.7
—
154.8
(175.0)
14.8
89.0
(241.4)
13.9
(165.6)
59.1
622.3
(232.6)
69.5
600.4
—
161.4
(145.6)
30.5
129.9
29.0
(31.1)
(174.4)
(127.0)
199.3
(429.4)
83.2
4,587.2
3,919.4
7,378.9
(7,913.2)
(1,200.0)
—
—
(616.1)
(111.6)
(22.8)
4,063.0
(6,864.9)
(850.0)
—
(198.8)
(643.0)
(15.4)
(44.5)
Net cash flows used in investing activities ..........................................
(2,963.1)
(2,484.8)
(4,553.6)
Cash flows from financing activities:
Purchases of treasury stock..........................................................................
Payments related to issuance of stock for share-based compensation
arrangements, net........................................................................................
Net distribution to noncontrolling interest.......................................................
Proceeds from borrowings ............................................................................
Repayments of borrowings ............................................................................
Net cash contribution to Bioverativ, Inc. .........................................................
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 .........................
(1,365.4)
(1,000.0)
(5,000.0)
(5.3)
(134.1)
—
(560.9)
(302.7)
(3.0)
(8.6)
(2,380.0)
(792.1)
39.4
(8.5)
—
—
(2.7)
—
(38.6)
(2.8)
(1,052.6)
1,049.8
(31.3)
(70.9)
(56.1)
5,930.5
(2.1)
—
(13.1)
(5.2)
783.1
148.9
(45.8)
Cash and cash equivalents, beginning of the year.............................................
Cash and cash equivalents, end of the year ..................................................... $
2,326.5
1,308.0
1,204.9
1,573.8 $
2,326.5 $
1,308.0
See accompanying notes to these consolidated financial statements.
F- 5
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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 and delivering worldwide
innovative therapies for people living with serious neurological and neurodegenerative diseases, including in our core
growth areas of multiple sclerosis (MS) and neuroimmunology, Alzheimer’s disease (AD) and dementia, movement
disorders and neuromuscular disorders, including spinal muscular atrophy (SMA) and amyotrophic lateral sclerosis
(ALS). We also plan to invest in emerging growth areas such as pain, ophthalmology, neuropsychiatry and acute
neurology. In addition, we are employing innovative technologies to discover potential treatments for rare and genetic
disorders, including new ways of treating diseases through gene therapy in the previously mentioned areas. We also
manufacture and commercialize biosimilars of advanced biologics.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, ZINBRYTA and FAMPYRA for the
treatment of MS, SPINRAZA for the treatment of SMA and FUMADERM for the treatment of severe plaque psoriasis.
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 for the treatment of CLL and follicular
lymphoma, OCREVUS for the treatment of primary progressive MS and relapsing MS and other potential anti-CD20
therapies under a collaboration agreement with Genentech, Inc. (Genentech), a wholly-owned member of the 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 our core
and emerging growth areas. 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 AD, progressive supranuclear palsy (PSP), a rare condition
that affects movement, speech, vision and cognitive function, Parkinson's disease and ALS.
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 our commercial agreement, we market
and sell BENEPALI, an etanercept biosimilar referencing ENBREL, and FLIXABI, an infliximab biosimilar referencing
REMICADE in the European Union (E.U.).
Hemophilia Spin-Off
On February 1, 2017, we completed the spin-off of our hemophilia business, Bioverativ Inc. (Bioverativ), as an
independent, publicly traded company. Our consolidated results of operations and financial position included in these
audited consolidated financial statements reflect the financial results of our hemophilia business for all periods
through January 31, 2017.
For additional information on the spin-off of our hemophilia business, please read Note 3, Hemophilia Spin-Off,
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
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 revenues and expenses. Actual results may differ from these estimates
under different assumptions or conditions.
Revenue Recognition
We recognize revenues 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, non-US pharmaceutical taxes 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 United States (U.S.) for RITUXAN and GAZYVA;
(ii) reimbursement of our selling and development expenses in the U.S. for RITUXAN; and
(iii) other revenues from anti-CD20 therapeutic programs, which primarily consist of our share of pre-tax co-
promotion profits on RITUXAN in Canada and royalty revenues on sales of OCREVUS.
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. Our share of the pre-tax profits on RITUXAN and GAZYVA
in the U.S. and pre-tax co-promotion profits on RITUXAN in Canada include estimates made by Genentech and those
estimates are subject to change. Actual results may differ from our estimates. For additional information on our
collaboration with Genentech, please read Note 20, 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.
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 revenues 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.
Revenues allocated to an individual element are recognized when all other revenue recognition criteria are met for
that element.
Collaborative and Other Relationships
Our development and commercialization arrangement with AbbVie Inc. (AbbVie) represents a collaborative
arrangement as each party is an active participant and exposed to significant risks and rewards of the arrangement.
Where we are the principal on sales transactions with third parties, we recognize revenues, 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 on our collaboration with AbbVie, please read Note 20, 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, 2017 and 2016.
F- 12
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Assets and Liabilities
The carrying amounts reflected in our 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, 2017 and 2016, 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 that 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, 2017 and 2016, two wholesale distributors individually accounted for approximately 26.5%
and 19.0%, and 37.2% and 19.2%, 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.
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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 sheets. 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 sheets.
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 collaborative 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 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.
F- 14
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 that 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 Category
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 in our consolidated balance sheets and include any resulting gain or loss in
our consolidated statements 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 obtaining the fair value of the U.S. and rest of
world licenses to Forward Pharma A/S' (Forward Pharma) intellectual property, including Forward Pharma's
intellectual property related to TECFIDERA, and 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 TECFIDERA, TYSABRI and AVONEX using the economic
consumption method based on revenues generated from the products underlying the related intangible assets. An
analysis of the anticipated lifetime revenues of TECFIDERA, 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 TECFIDERA, 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.
F- 16
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Acquired In-process Research and Development (IPR&D)
Acquired IPR&D represents the fair value assigned to research and development 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 revenues from the projects and
discounting the net cash flows to present value. The revenues 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.
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 treatments for forms of neuropathic pain, such as trigeminal neuralgia (TGN). Such programs could
become impaired if assumptions used in determining the fair value change. Impairments are recorded as
amortization of acquired intangible assets in our consolidated statements of income.
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, we would record an impairment loss equal
to the difference. As described in Note 25, 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.
F- 17
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Contingent Consideration
The consideration for our acquisitions often includes future payments that are contingent upon the occurrence
of a particular event or events. 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 our 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.
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 currency
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.
F- 18
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Royalty Cost of Sales
We make royalty payments to a number of third parties under license or purchase agreements associated with
our acquisition of intellectual property. These royalty payments are typically calculated as a percentage (royalty rate)
of the sales of our products in a particular year. That royalty rate may remain constant, increase or decrease within
each year based on the total amount of sales during the annual period. Each quarterly period, we estimate our total
royalty obligation for the full year and recognize the proportional amount as cost of sales based on actual quarterly
sales as a percentage of full year estimated sales. For example, if the level of net sales in any calendar year
increases the royalty rate within the year, we will record our cost of sales at an even rate over the year, based on the
estimated blended royalty rate.
Accounting for Share-Based Compensation
Our share-based compensation programs grant awards that have included stock options, restricted stock units
that vest based on stock performance known as market stock units (MSUs), performance-vested restricted stock
units that settle in cash (CSPUs), time-vested restricted stock units (RSUs), performance-vested restricted stock
units that 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,
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 the employee becomes 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, net of forfeitures, 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 in 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.
F- 19
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
From time to time, we enter into development agreements in which we share expenses with a collaborative
partner. We record payments received from our collaborative partners for their share of the development costs as a
reduction of research and development expense, except as discussed in Note 20, 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 revenues 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, 2017, 2016 and 2015,
advertising costs totaled $75.2 million, $106.3 million and $108.6 million, respectively.
Income Taxes
The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for
under the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax
consequences of temporary differences between the financial statement carrying amounts and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the year in which the temporary differences are expected to be recovered or settled. We evaluate the realizability
of our deferred tax assets and establish a valuation allowance when it is more likely than not that all or a portion of
deferred tax assets will not be realized.
All tax effects associated with intercompany transfers of assets 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 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.
F- 20
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
below, we do not believe that the adoption of recently issued standards have or may have a material impact on our
consolidated financial statements or disclosures.
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. This 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 subsequently issued amendments to ASU No. 2014-09 that have the same effective date and
transition date. These new standards became effective for us on January 1, 2018, and will be adopted using the
modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of that date.
We have performed a review of these new standards as compared to our current accounting policies for customer
contracts and collaborative relationships. During the fourth quarter of 2017 we finalized our assessments over the
impact that these new standards will have on our consolidated results of operations, financial position and
disclosures. As of December 31, 2017, we have not identified any accounting changes that would materially impact
the amount of reported revenues with respect to our product revenues, revenues from anti-CD20 therapeutic
programs or other revenues; however, the adoption of these new standards may result in a change in the timing of
revenue recognition related to certain of our contract manufacturing activities. As of December 31, 2017, we expect
to recognize an immaterial adjustment to retained earnings reflecting the cumulative impact for the accounting
changes related to certain contract manufacturing arrangements made upon adoption of these new standards.
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 for financial instruments, including the requirement that equity
investments with readily determinable fair values are to be measured at fair value with any changes in fair value
recognized in a company's results of operations. This new standard does not apply to investments accounted for
under the equity method of accounting or those investments 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 became effective for us on January 1, 2018. Based
on our current investment holdings, the adoption of this new standard is not expected to have a material impact on
our consolidated financial position or results of operations; however, it will result in the reclassification of where we
recognize changes in fair value related to certain investments prospectively.
In February 2016 the FASB issued ASU No. 2016-02, Leases (Topic 842). This new standard establishes a right-
of-use (ROU) model that requires all lessees recognize right-of-use assets and liabilities on their balance sheet that
arise from leases with terms longer than 12 months as well as provide disclosures with respect to certain qualitative
and quantitative information related to their leasing arrangements. This new standard will become effective for us on
January 1, 2019. A modified retrospective transition approach is required for leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the financial statements, with certain practical
expedients available. While we are currently evaluating the impact that this new standard may have on our
consolidated results of operations, financial position and disclosures, we expect that the adoption of this new
standard may materially affect the reported amount of total assets and total liabilities within our consolidated
balance sheet with no material impact to our consolidated statement of income. We are unable to quantify the
impact at this time as the ultimate impact of adopting this new standard will depend on the total amount of our
lease commitments as of the adoption date.
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 and classification of awards as either
equity or liabilities in the statement of cash flows. This new standard became effective for us on January 1, 2017.
The adoption of this new standard did not have a material impact on our consolidated financial position, results of
F- 21
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
operations or statement of cash flows; however, it has resulted in the reclassification of certain prior year amounts in
our consolidated statements of cash flows to conform to our current year presentation. Specifically, amounts
previously disclosed in net cash flows used in financing activities related to our excess tax benefit from share-based
compensation have been reclassified to net cash flows provided by operating activities and amounts related to cash
paid when withholding shares for tax withholding purposes, previously disclosed in net cash flows provided by
operating activities, have been reclassified to net cash flows used in financing activities.
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 deferral of the tax effects of intra-entity asset transfers other
than inventory. As a result, the income tax consequences from the intra-entity transfer of an asset other than
inventory and associated changes to deferred taxes will be recognized when the transfer occurs. This new standard
became effective for us on January 1, 2018. We will adopt this new standard using the modified retrospective
method, through a cumulative-effect adjustment directly to retained earnings as of the beginning of that date. Based
on currently enacted tax rates, upon adoption, we will record additional deferred tax assets of approximately $0.5
billion and an increase to retained earnings of approximately $0.5 billion. We will recognize incremental deferred
income tax expense thereafter as these net deferred tax assets are utilized.
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. We elected to early adopt this new standard as of January 1, 2017,
with prospective application to any business development transactions, including our recent asset acquisition of
BIIB093 from Remedy Pharmaceuticals Inc. (Remedy) in May 2017. For additional information on this transaction,
please read Note 2, Acquisitions, to these consolidated financial statements.
In January 2017 the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the
Test of Goodwill Impairment. This new standard eliminates Step 2 from the goodwill impairment test. Under the
amendments in ASU No. 2017-04, an entity should recognize an impairment charge for the amount by which the
carrying amount of a reporting unit exceeds that reporting unit’s fair value; however, the loss recognized should not
exceed the total amount of goodwill allocated to that reporting unit. We elected to early adopt this new standard as
of October 31, 2017, during our annual review of goodwill. The adoption of this new standard resulted in a change to
our accounting policy; however, did not have an impact on our consolidated financial position or results of operations.
In March 2017 the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic
310-20): Premium Amortization on Purchased Callable Debt Securities. This new standard amends the amortization
period for certain purchased callable debt securities held at a premium by shortening the amortization period for the
premium to the earliest call date. This new standard will become effective for us on January 1, 2019. We are
currently evaluating the potential impact that this new standard may have on our consolidated financial position and
results of operations.
In August 2017 the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements
to Accounting for Hedging Activities. This new standard is intended to simplify hedge accounting by better aligning
how an entity’s risk management activities and hedging relationships are presented in its financial statements and
simplifies the application of hedge accounting guidance in certain situations. This new standard expands and refines
hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of
the effects of the hedging instrument and the hedged item in the financial statements. This new standard will
become effective for us on January 1, 2019; however, early adoption is permitted. For cash flow hedges existing at
the adoption date, this new standard requires adoption on a modified retrospective basis with a cumulative-effect
adjustment to retained earnings as of the effective date. The amendments to presentation guidance and disclosure
requirements are required to be adopted prospectively. We are currently evaluating the date upon which we will adopt
this new standard and the impact this new standard may have on our consolidated financial statements.
F- 22
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2. Acquisitions
Remedy Pharmaceuticals Inc.
In May 2017 we completed an asset purchase of the Phase 3-ready candidate, BIIB093 (intravenous
glibencamide) (formerly known as CIRARA), from Remedy. The target indication for BIIB093 is large hemispheric
infarction (LHI), a severe form of ischemic stroke where brain swelling (cerebral edema) often leads to a
disproportionately large share of stroke-related morbidity and mortality. The U.S. Food and Drug Administration (FDA)
recently granted BIIB093 Orphan Drug designation for severe cerebral edema in patients with acute ischemic stroke.
The FDA has also granted BIIB093 Fast Track designation.
Under this agreement, we are responsible for the future development and commercialization of BIIB093 and
Remedy will share in the cost of development for the target indication for BIIB093 in LHI stroke.
We accounted for this transaction as an asset acquisition as we did not acquire any employees from Remedy
nor did we acquire any significant processes required in the development of BIIB093. In connection with the closing
of this transaction, we made an upfront payment of $120.0 million to Remedy, which was recorded as acquired in-
process research and development in our consolidated statements of income as BIIB093 has not yet reached
technological feasibility. We also have agreed to pay Remedy certain development and sales based milestone
payments that are substantially payable upon or after regulatory approval, as well as royalties on future commercial
sales.
Convergence Pharmaceuticals
In February 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 (formerly known as
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 is
associated with the development and approval of BIIB074 for the treatment of TGN. In connection with the closing of
this transaction, we recorded a liability of $274.5 million representing the fair value of the contingent consideration
resulting in an adjusted purchase price of $474.6 million. The separately identifiable assets and liabilities acquired
were primarily comprised of $424.6 million and $128.3 million attributed to in-process research and development
and goodwill, respectively. These amounts were partially offset by the establishment of a deferred tax liability for the
acquired IPR&D intangible assets which had no tax basis.
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. The
goodwill was not tax deductible.
3.
Hemophilia Spin-Off
On February 1, 2017, we completed the spin-off of our hemophilia business, Bioverativ, as an independent,
publicly traded company trading under the symbol "BIVV" on the Nasdaq Global Select Market. The spin-off was
accomplished through the distribution of all the then outstanding shares of common stock of Bioverativ to Biogen
shareholders, who received one share of Bioverativ common stock for every two shares of Biogen common stock
they owned. The separation and distribution was structured to be tax-free for shareholders for federal income tax
purposes. Bioverativ assumed 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).
In connection with the distribution, Biogen and Bioverativ entered into a separation 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. In addition, under the separation agreement, Bioverativ is obligated to indemnify us for
F- 23
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
liabilities that may exist relating to its business activities, whether incurred prior to or after the distribution, including
any pending or future litigation.
The services under these agreements generally commenced on February 1, 2017 (the distribution date), and
terminate within 12 months of the distribution date, with the exception of the manufacturing and supply agreement,
which has an initial term of 5 years, with a 5 year extension at Bioverativ's sole discretion and a further 5 year
extension with Bioverativ's and our consent.
In connection with the distribution we made a net cash contribution to Bioverativ, during the first quarter of
2017, totaling $302.7 million. The following table summarizes the assets and liabilities that were charged against
equity as a result of the spin-off of our hemophilia business:
(In millions)
Assets
Cash............................................................................................................................... $
Accounts receivable .........................................................................................................
Inventory .........................................................................................................................
Property, plant and equipment, net ....................................................................................
Intangible assets, net.......................................................................................................
Goodwill ..........................................................................................................................
Other, net ........................................................................................................................
Assets transferred, net....................................................................................................... $
Liabilities
Accrued expenses and other current liabilities ................................................................... $
Other long-term liabilities..................................................................................................
Liabilities transferred, net................................................................................................... $
302.7
144.7
116.1
20.2
56.8
314.1
53.7
1,008.3
87.8
67.7
155.5
Pursuant to the terms of our agreements with Bioverativ, upon completion of the spin-off, we distributed
ALPROLIX and ELOCTATE on behalf of Bioverativ until Bioverativ obtained appropriate regulatory authorizations in
certain countries, including a Biologics License Application transfer in the U.S., which was received in September
2017. Accordingly, commencing October 2017, we ceased distribution of ALPROLIX and ELOCTATE on behalf of
Bioverativ under this arrangement.
Under the manufacturing and supply agreement, we manufacture and supply certain products and materials to
Bioverativ. For the year ended December 31, 2017, we recognized $64.8 million in revenues in relation to these
contract manufacturing services, which is reflected as a component of other royalty and corporate revenues in our
consolidated statements of income. We also recorded $15.1 million as cost of sales in relation to these services
during the year ended December 31, 2017.
Amounts earned under the non-manufacturing and supply related transaction service agreements are recorded
as a reduction of costs and expenses in their respective expense line items. These amounts, which were primarily
reflected as a reduction to selling, general and administrative expenses in our consolidated statements of income,
were not significant for the year ended December 31, 2017.
Hemophilia related product revenues reflected in our consolidated statements of income for the years ended
December 31, 2017, 2016 and 2015 totaled $74.4 million, $846.9 million and $554.2 million, respectively. Results
for the year ended December 31, 2017 only reflect hemophilia-related product revenues through January 31, 2017.
Patents
Prior to the spin-off of our hemophilia business, we were awarded various methods of treatment and
composition of matter patents related to ELOCTATE and ALPROLIX. Upon completion of the spin-off, these patents
were transferred to the patent portfolio of Bioverativ.
F- 24
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4. Restructuring, Business Transformation and Other Cost Saving Initiatives
2017 Corporate Strategy
In July 2017 we announced an updated strategic framework to optimize the value of our MS business while
investing for the future across our core growth areas of MS and neuroimmunology, AD and dementia, movement
disorders and neuromuscular diseases including SMA and ALS. We also plan to invest in emerging growth areas
such as pain, ophthalmology, neuropsychiatry and acute neurology. In addition, we are employing innovative
technologies to discover potential treatments for rare and genetic disorders, including new ways of treating diseases
through gene therapy in the previously mentioned areas.
In order to deliver positive results in the near term while investing in the next stages of our growth, we will focus
on the following strategic priorities:
• maximizing the resilience of our MS core business;
• accelerating efforts in SMA as a significant new growth opportunity;
• developing and expanding our neuroscience portfolio;
•
focusing our capital allocation efforts to drive investment for future growth; and
• creating a leaner and simpler operating model to streamline our operations and reallocate resources towards
prioritized research and development and commercial value creation opportunities.
In October 2017, in connection with creating a leaner and simpler operating model, we approved a corporate
restructuring program intended to streamline our operations and reallocate resources. We expect to make total non-
recurring operating and capital expenditures of up to $170.0 million, primarily in 2018, and our goal is to redirect
resources of up to $400.0 million annually by 2020 to prioritized research and development and other value creation
opportunities.
For the year ended December 31, 2017, we recognized charges in our consolidated statements of income
totaling $19.4 million related to this effort, of which $18.5 million is included in selling, general and administrative
expense and $0.9 million is reflected as restructuring charges. These restructuring charges, which were substantially
incurred and paid in 2017, were primarily related to severance.
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
restructuring charges described below. These amounts, which were substantially incurred and paid by the end of
2016, were 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 intended to cease manufacturing and vacate our 67,000 square foot small-scale biologics
manufacturing facility in Cambridge, MA and close and vacate our 46,000 square foot warehouse space in
Somerville, MA.
In December 2016 we subleased our rights to the Cambridge, MA manufacturing facility 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 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
F- 25
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
In the fourth quarter of 2016 we also recognized charges totaling $7.4 million for severance costs related to
certain employees separated from Biogen in connection with our departure from these facilities. These amounts
were substantially incurred and paid by the end of first quarter of 2017 and are reflected in restructuring charges in
our consolidated statements of income for the year ended December 31, 2016.
2015 Cost Saving Initiatives
2015 Restructuring Charges
In October 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.
During the years ended December 31, 2016 and 2015, we recognized $8.0 million and $93.4 million,
respectively, of restructuring charges related to our 2015 restructuring program in our consolidated statements of
income. 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
2017:
(In millions)
Restructuring reserve as of December 31, 2015 .................. $
Expense ............................................................................
Payments ..........................................................................
Adjustments to previous estimates, net ...............................
Restructuring reserve as of December 31, 2016 .................. $
Payments ..........................................................................
Restructuring reserve as of December 31, 2017 .................. $
Workforce
Reduction
Pipeline
Programs
Total
33.7 $
4.9
(31.2)
(5.2)
2.2 $
(1.7)
0.5 $
3.6 $
5.4
(9.0)
2.9
2.9 $
(2.9)
— $
37.3
10.3
(40.2)
(2.3)
5.1
(4.6)
0.5
5. Reserves for Discounts and Allowances
An analysis of the change in reserves for discounts and allowances is summarized as follows:
(In millions)
2017
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
71.6 $
482.7 $
51.2 $
605.5
583.0
(0.1)
2,307.4
15.0
26.9
(8.9)
2,917.3
6.0
(475.8)
(1,756.9)
(0.1)
(2,232.8)
(69.1)
109.6 $
(442.2)
606.0 $
(23.1)
46.0 $
(534.4)
761.6
F- 26
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(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 ................................................ $
(In millions)
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................................................ $
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
Discounts
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
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,
2017
2016
189.6 $
572.0
761.6 $
166.9
438.6
605.5
6.
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,
2017
2016
162.4 $
605.7
157.4
925.5 $
902.7 $
22.8
925.5 $
170.4
698.7
170.3
1,039.4
1,001.6
37.8
1,039.4
Balances in the table above as of December 31, 2017 reflect the elimination of certain amounts transferred to
Bioverativ in connection with the completion of the spin-off of our hemophilia business. Balances transferred to
Bioverativ related to work in process and finished goods inventory totaled $84.5 million and $31.6 million,
respectively. For additional information on the spin-off of our hemophilia business, please read Note 3, Hemophilia
Spin-Off, to these consolidated financial statements.
F- 27
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Long-term inventory, which primarily consists of work in process, is included in investments and other assets in
our consolidated balance sheets.
Inventory amounts written down as a result of excess, obsolescence, unmarketability or other reasons are
charged to cost of sales, and totaled $76.9 million, $48.2 million and $41.9 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
7.
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, 2017
As of December 31, 2016
13-23 years $ 543.3 $ (535.6) $
15-23 years
3,005.3
Indefinite until
commercialization
(2,689.0)
680.6
—
7.7 $ 543.3 $ (523.6) $
316.3
3,005.3
(2,634.3)
680.6
648.0
Indefinite
64.0
—
64.0
64.0
Net
19.7
371.0
648.0
64.0
—
—
4-18 years
3,971.4
(1,160.4)
2,811.0
3,481.7
(776.1)
2,705.6
$8,264.6 $ (4,385.0) $3,879.6 $7,742.3 $ (3,934.0) $3,808.3
Amortization of acquired intangible assets totaled $814.7 million, $385.6 million and $382.6 million for the
years ended December 31, 2017, 2016 and 2015, respectively.
Amortization of acquired intangible assets for the year ended December 31, 2017, includes $444.2 million of
amortization and impairment charges related to our U.S. and rest of world licenses to Forward Pharma's intellectual
property, including Forward Pharma's intellectual property related to TECFIDERA, as discussed below. Amortization of
acquired intangible assets for 2017 also reflects a $31.2 million impairment charge related to the Article 20
Procedure of ZINBRYTA in the E.U. For additional information on the Article 20 Procedure of ZINBRYTA and resulting
impairment of ZINBRYTA related assets, please read Note 20, Collaborative and Other Relationships, to these
consolidated financial statements.
Balances in the table above as of December 31, 2017 also reflect the elimination of certain amounts
transferred to Bioverativ in connection with the completion of the spin-off of our hemophilia business. For additional
information on the spin-off of our hemophilia business, please read Note 3, Hemophilia Spin-Off, to these
consolidated financial statements. In-process research and development balances include adjustments related to
foreign currency exchange rate fluctuations.
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.
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, 2017 was $309.5 million.
F- 28
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 acquired and had not
reached technological feasibility at the date of acquisition. Upon commercialization, we will determine the estimated
useful life and amortize these amounts based upon an economic consumption method. The carrying value
associated with our IPR&D assets as of December 31, 2017 and 2016 relates to the various IPR&D programs we
acquired in connection with our acquisitions of Convergence, Stromedix Inc. (Stromedix) and Biogen International
Neuroscience GmbH (BIN) in 2015, 2012 and 2010, respectively. These amounts have and will be adjusted for
foreign exchange rate fluctuations.
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 2017. 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.
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. The net book value of this asset as of December 31, 2017 was $2,236.2 million.
The net change in acquired and in-licensed rights and patents during 2017 reflects $90.0 million in total
milestone payments paid to Ionis Pharmaceuticals, Inc. (Ionis) for the approvals of SPINRAZA in the E.U. and Japan
in June 2017 and July 2017, respectively, the $25.0 million milestone payment paid to Samsung Bioepis, for the
approval of IMRALDI, an adalimumab biosimilar referencing HUMIRA, in the E.U. in August 2017, and the net carrying
value recognized in relation to our acquisition of TECFIDERA license rights, as described below. These net increases
were in part offset by amortization and the $31.2 million impairment charge related to the Article 20 Procedure of
ZINBRYTA.
For additional information on our relationships with Ionis and Samsung Bioepis and the European Commission (EC)
approved restrictions on the use of ZINBRYTA, please read Note 20, Collaborative and Other Relationships, to these
consolidated financial statements.
TECFIDERA License Rights
In January 2017 we entered into a settlement and license agreement among Biogen Swiss Manufacturing
GmbH, Biogen International Holding Ltd., Forward Pharma and certain related parties, which was effective as of
February 1, 2017. Pursuant to this agreement, we obtained U.S. and rest of world licenses to Forward Pharma's
intellectual property, including Forward Pharma's intellectual property related to TECFIDERA. In exchange, we paid
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 agreement and in the first quarter of 2017 we recognized an intangible asset of $795.2 million
related to this agreement. The pre-tax charge recognized in the fourth quarter of 2016 represented the fair value of
our license to Forward Pharma’s intellectual property for the period April 2014, when we started selling TECFIDERA,
through December 31, 2016. The intangible asset represented the fair value of the U.S. and rest of world licenses to
Forward Pharma’s intellectual property related to TECFIDERA revenues for the period January 2017, the month in
which we entered into this agreement, through December 2020, the last month before royalty payments could first
commence pursuant to this agreement.
We have two intellectual property disputes with Forward Pharma, one in the U.S. and one in the E.U., concerning
intellectual property related to TECFIDERA. In March 2017 the U.S. intellectual property dispute was decided in our
favor. Forward Pharma appealed to the U.S. Court of Appeals for the Federal Circuit and the appeal is pending. We
evaluated the recoverability of the U.S. asset acquired from Forward Pharma and recorded an impairment charge in
the first quarter of 2017 to adjust the carrying value of the acquired U.S. asset to fair value reflecting the impact of
the developments in the U.S. legal dispute. In January 2018 the European Patent Office (EPO) announced its
decision revoking Forward Pharma’s European Patent No. 2 801 355. Forward Pharma has stated that it expects to
file an appeal to the Technical Board of Appeal of the EPO. Based upon our assessment of these rulings, we continue
to amortize the remaining net book value of the U.S. and rest of world intangible assets in our consolidated
statements of income utilizing an economic consumption model.
For additional information on these disputes, please read Note 21, Litigation, to these consolidated financial
statements.
F- 29
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated Future Amortization of Intangible Assets
Our amortization expense is based on the economic consumption and impairment of intangible assets. Our
most significant intangible assets are related to our TECFIDERA, AVONEX and TYSABRI products. Annually, during our
long-range planning cycle, we perform an analysis of anticipated lifetime revenues of TECFIDERA, AVONEX and
TYSABRI. This analysis is also updated whenever events or changes in circumstances would significantly affect the
anticipated lifetime revenues of any of these products.
Our most recent long-range planning cycle was completed in the third quarter of 2017. Based upon this
analysis, the estimated future amortization of acquired intangible assets for the next five years is expected to be as
follows:
(In millions)
As of December 31, 2017
2018 ............................................................................................................................... $
2019 ...............................................................................................................................
2020 ...............................................................................................................................
2021 ...............................................................................................................................
2022 ...............................................................................................................................
423.5
401.8
381.6
254.3
242.3
Goodwill
The following table provides a roll forward of the changes in our goodwill balance:
(In millions)
Goodwill, beginning of year ........................................................................ $
Elimination of goodwill allocated to our hemophilia business .......................
Increase to goodwill ................................................................................
Other .....................................................................................................
Goodwill, end of year................................................................................. $
As of December 31,
2017
2016
3,669.3 $
(314.1)
1,267.3
10.0
4,632.5 $
2,663.8
—
1,026.9
(21.4)
3,669.3
The elimination of goodwill represents an allocation based upon the relative enterprise fair value of the
hemophilia business as of the distribution date. For additional information on the spin-off of our hemophilia
business, please read Note 3, Hemophilia Spin-Off, to these consolidated financial statements.
The increase in goodwill during 2017 and 2016 was related to $1.5 billion and $1.2 billion in contingent
milestones achieved (exclusive of $232.7 million and $173.1 million in tax benefits), respectively, and payable to the
former shareholders of Fumapharm AG or holders of their rights.
Other includes changes related to foreign currency exchange rate fluctuations. As of December 31, 2017, we
had no accumulated impairment losses related to goodwill.
For additional information on future contingent payments to the former shareholders of Fumapharm AG or
holders of their rights, please read Note 22, Commitments and Contingencies, to these consolidated financial
statements.
F- 30
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8. 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,
2017
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
1,229.4 $
— $
1,229.4 $
(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:
2,609.8
1,919.3
643.4
11.8
2.7
28.5
6,444.9 $
Derivative contracts.......................................... $
Contingent consideration obligations .................
Total........................................................ $
111.3 $
523.6
634.9 $
111.3 $
—
111.3 $
—
523.6
523.6
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 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,609.8
1,919.3
643.4
—
2.7
28.5
6,433.1 $
2,663.8
2,172.5
561.7
—
61.0
34.5
7,533.1 $
—
—
—
11.8
—
—
11.8 $
— $
—
— $
—
—
—
24.9
—
—
24.9 $
— $
—
— $
(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
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, please read Note 1, Summary of Significant Accounting Policies: Fair Value
Measurements, to these consolidated financial statements.
F- 31
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,
2017
2016
3.2 $
—
1,517.7
1,032.9
1,851.9
2,077.6
6,483.3 $
6.1
583.7
1,521.5
1,026.6
1,796.0
1,874.5
6,808.4
In November 2017 we redeemed our 6.875% Senior Notes due March 1, 2018 with an aggregate principal
amount of $550.0 million. For information on this redemption please read Note 12, Indebtedness, to these
consolidated financial statements.
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 value of each series of our Senior Notes was
determined through market, observable and corroborated sources. For additional information on our debt
instruments, please read Note 12, Indebtedness, to these consolidated financial statements.
Contingent Consideration Obligations
In connection with our acquisitions of Convergence, Stromedix and BIN in 2015, 2012 and 2010, respectively,
we agreed to make additional payments based upon the achievement of certain milestone events. 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....................................................................... $
Changes in fair value...............................................................................
Payments and other ................................................................................
Fair value, end of year ............................................................................... $
As of December 31,
2017
2016
467.6 $
62.7
(6.7)
523.6 $
506.0
14.8
(53.2)
467.6
As of December 31, 2017 and 2016, approximately $279.0 million and $246.8 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. Changes in the fair value of our contingent consideration obligations are primarily due to changes in the
expected timing and probabilities of success related to the achievement of certain developmental milestones and
changes in the discount rate. Payments and other for 2016 includes $7.9 million of a Convergence milestone
converted to a short-term obligation under the acquisition agreement.
There were no changes in valuation techniques or transfers between fair value measurement levels during the
years ended December 31, 2017 and 2016. 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 on
the valuation techniques and inputs utilized in the valuation of our financial assets and liabilities, please read Note
1, Summary of Significant Accounting Policies, to these consolidated financial statements.
F- 32
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 additional
information on this transaction, please read Note 2, Acquisitions, to these consolidated financial statements.
As of December 31, 2017 and 2016, the fair value of this contingent consideration obligation was $259.0
million and $258.9 million, respectively. Our most recent valuation was determined based upon net cash flow
projections of $400.0 million, probability weighted and discounted using a rate of 2.4%, which is a measure of the
credit risk associated with settling the liability.
For 2017 compared to 2016, 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 $147.9 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.
Stromedix Inc.
In connection with our acquisition of Stromedix in March 2012 we recorded a contingent consideration
obligation of $122.2 million. As of December 31, 2017 and 2016, the fair value of this contingent consideration
obligation was $162.4 million and $133.2 million, respectively. Our most recent valuation was determined based
upon net cash outflow projections of $344.0 million, probability weighted and discounted using a rate of 2.4%, which
is a measure of the credit risk associated with settling the liability.
For 2017 compared to 2016, the net increase in the fair value of this obligation was primarily due to an
increase in the probability of success related to the achievement of certain remaining developmental milestones,
partially offset by changes in the discount rate. Approximately $76.7 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 BIN in December 2010 we recorded a contingent consideration obligation
of $81.2 million. As of December 31, 2017 and 2016, the fair value of this contingent consideration obligation was
$102.2 million and $75.5 million, respectively. Our most recent valuation was determined based upon net cash
outflow projections of $355.0 million, probability weighted and discounted using a rate of 2.8%, which is a measure
of the credit risk associated with settling the liability.
For 2017 compared to 2016, the net increase in the fair value of this obligation was primarily due to an
increase in the probability of success related to the achievement of certain remaining developmental milestones,
partially offset by a $6.7 million developmental milestone payment. Approximately $20.0 million is reflected as a
component of accrued expenses and other in our consolidated balance sheets as we achieved the developmental
milestone of dosing our first patient in our Phase 2 SPARK study of BIIB054 in Parkinson's disease in January 2018.
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. These
assets will be tested for impairment annually until commercialization, after which time the IPR&D will be amortized
over its estimated useful life using the economic consumption method. For additional information on this
transaction, please read Note 2, Acquisitions, to these consolidated financial statements.
F- 33
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. 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 in our consolidated balance sheets:
(In millions)
Commercial paper ...................................................................................... $
Overnight reverse repurchase agreements ....................................................
Money market funds ...................................................................................
Short-term debt securities...........................................................................
Total ........................................................................................................ $
As of December 31,
2017
2016
30.5 $
3.6
948.0
247.3
1,229.4 $
31.0
—
741.7
1,266.9
2,039.6
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.
The following tables summarize our marketable debt and equity securities, classified as available for sale:
As of December 31, 2017 (In millions)
Corporate debt securities
Fair
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Current ...................................................... $
Non-current ................................................
1,039.3 $
1,570.5
Government securities
Current ......................................................
Non-current ................................................
1,075.1
844.2
Mortgage and other asset backed securities
Current ......................................................
Non-current ................................................
Total marketable debt securities ................ $
Marketable equity securities, non-current........ $
0.8
642.6
5,172.5 $
11.8 $
— $
0.9
0.1
0.2
—
1.1
2.3 $
1.8 $
(0.2) $
—
1,039.5
1,569.6
(0.7)
(1.1)
—
(0.8)
(2.8) $
(4.4) $
1,075.7
845.1
0.8
642.3
5,173.0
14.4
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
F- 34
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Summary of Contractual Maturities: Available-for-Sale Securities
The estimated fair value and amortized cost of our marketable debt securities available-for-sale by contractual
maturity are summarized as follows:
(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, 2017
As of December 31, 2016
Estimated
Fair Value
2,115.2 $
2,730.0
327.3
5,172.5 $
Amortized
Cost
2,116.0 $
2,730.0
327.0
5,173.0 $
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
The average maturity of our marketable debt securities available-for-sale as of December 31, 2017 and 2016
was 17 months and 12 months, respectively.
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,
2017
2016
2015
5,565.9 $
3.0 $
22.4 $
7,378.9 $
3.3 $
4.3 $
4,063.0
1.5
3.5
Realized losses for the year ended December 31, 2017 primarily relate to impairments recognized on certain of
our available-for-sale marketable debt securities as we intend to sell these securities as a result of the Tax Cuts and
Jobs Act of 2017 (the 2017 Tax Act), sales of agency mortgage-backed securities, corporate bonds and government
securities. 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.
Strategic Investments
As of December 31, 2017 and 2016, our strategic investment portfolio was comprised of investments totaling
$85.8 million and $99.9 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.
10. 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, 2017 and 2016 had durations of 1 to 21
months and 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 revenues when the sale of product in the
currency being hedged is recognized and 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.
F- 35
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The notional value of foreign currency forward contracts that were entered into to hedge forecasted revenues
and operating expenses is summarized as follows:
Foreign Currency: (In millions)
Euro .......................................................................................................... $
British pound sterling..................................................................................
Swiss francs ..............................................................................................
Canadian dollar ..........................................................................................
Total foreign currency forward contracts...................................................... $
Notional Amount
As of December 31,
2017
2016
1,875.6 $
150.9
88.7
83.5
2,198.7 $
871.7
—
—
—
871.7
The pre-tax 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 losses of $113.0 million for the year
ended December 31, 2017, and net gains of $49.8 million and $1.8 million for the years ended December 31, 2016
and 2015, respectively. We expect the net losses of $113.0 million to be settled over the next 21 months, of which
$98.5 million is expected to be settled over the next 12 months, with 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, 2017 and 2016, 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 in our consolidated statements of income:
For the Years Ended December 31,
Net Gains/(Losses)
Reclassified from AOCI into Operating Income
(Effective Portion) (in millions)
Location
2017
2016
2015
Revenues .... $
(32.5) $
5.3 $
173.2
Operating
expenses..... $
0.6 $
(1.5) $
—
Interest Rate Contracts - Hedging Instruments
Net Gains/(Losses)
Recognized into Net Income
(Ineffective Portion) (in millions)
Location
Other
income
(expense) .... $
Other
income
(expense) .... $
2017
2016
2015
8.9 $
2.9 $
4.9
(0.2) $
0.1 $
—
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 12, Indebtedness, to these consolidated financial statements, 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.
F- 36
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest Rate Swap Contracts
In connection with the issuance of our 2.90% Senior Notes, as described in Note 12, Indebtedness, to these
consolidated financial statements, 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 $564.9 million and $902.1
million as of December 31, 2017 and 2016, respectively. Net gains of $4.5 million and net losses of $29.2 million
and $23.8 million related to these contracts were recognized as a component of other income (expense), net, for the
years ended December 31, 2017, 2016 and 2015, respectively.
Summary of Derivatives
While certain of our derivatives are subject to netting arrangements with our counterparties, we do not offset
derivative assets and liabilities in our consolidated balance sheets.
The following table summarizes the fair value and presentation in our consolidated balance sheets of our
outstanding derivatives including those designated as hedging instruments:
(In millions)
Hedging Instruments:
Balance Sheet Location
Fair Value
As of December 31, 2017
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 ........................ $
0.7
0.2
84.7
23.6
1.8
3.0
(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
F- 37
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. 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,
2017
2016
141.2 $
1,213.6
80.6
1,207.7
767.1
55.3
1,276.0
4,741.5
(1,559.1)
3,182.4 $
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
Depreciation expense totaled $266.3 million, $309.3 million and $217.9 million for 2017, 2016 and 2015,
respectively.
For 2017, 2016 and 2015, we capitalized interest costs related to construction in progress totaling
approximately $30.7 million, $12.9 million and $10.4 million, respectively. The increase in capitalized interest costs
is primarily due to the construction of our Solothurn, Switzerland facility, as discussed below.
Solothurn, Switzerland Facility
During the first quarter of 2016 we purchased land in Solothurn, Switzerland for 64.4 million Swiss Francs
(approximately $62.5 million) and are building a large-scale biologics manufacturing facility at this site. We expect
this facility to be operational by the end of the decade. Upon completion, the facility will include 393,000 square feet
related to a large-scale biologics manufacturing facility, 290,000 square feet of warehouse, utilities and support
space and 51,000 square feet of administrative space. As of December 31, 2017 and 2016, we had approximately
$1.2 billion and $481.5 million, respectively, capitalized as construction in progress related to this facility.
Research Triangle Park Facility Purchase
In August 2015 we completed the purchase of a drug product manufacturing facility and supporting
infrastructure in Research Triangle Park (RTP), NC from Eisai Inc. (Eisai). The $104.8 million purchase price was
comprised of $58.6 million for buildings, $25.9 million for machinery and equipment and $20.3 million for land.
In August 2015 we also amended our existing 10-year lease related to Eisai's oral solid dose products
manufacturing facility in RTP, NC. The amended lease provided for a three-year term and our agreement to purchase
the facility upon expiration of the lease term or at Eisai's option, their completion of certain activities at the facility.
Upon signing, we recognized assets along with a corresponding financing obligation in our consolidated balance
sheet of $20.3 million, the net present value of the future minimum lease payments. These assets were recorded as
a component of buildings and machinery and equipment. In December 2017, upon the earlier than expected
completion of Eisai's activities, we completed our purchase of this facility for $17.2 million.
F- 38
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12.
Indebtedness
Our indebtedness is summarized as follows:
(In millions)
Current portion:
As of December 31,
2017
2016
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.........................
3.2 $
—
3.2 $
— $
1,482.4
994.3
1,736.3
1,722.0
—
—
Non-current portion of notes payable and other financing arrangements .. $
5,935.0 $
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
6.875% Senior Notes due March 1, 2018
On March 4, 2008, we issued $550.0 million aggregate principal amount of 6.875% Senior Notes due
March 1, 2018 at 99.184% of par. These notes were senior unsecured obligations. We also 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 contracts, the carrying amount of these notes were increased by $62.8
million with this amount being amortized using the effective interest rate method over the remaining life of the
Senior Notes and recognized as a reduction of interest expense.
In November 2017 we redeemed these notes prior to their maturity and recognized a net charge of $5.2 million
upon the extinguishment of these notes. This charge, which was recognized in interest expense in other income
(expense) net in our consolidated statements of income for the year ended December 31, 2017, reflects the
payment of a $7.7 million early call premium and the write off of remaining unamortized original debt issuance costs
and discount balances, partially offset by a $2.9 million gain related to the remaining unamortized balance of the
interest rate swap liability discussed above.
2015 Senior Notes
The following is a summary of our principal indebtedness as of December 31, 2017:
• $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 $47.5 million have been recorded as a reduction to
the carrying amount of the debt in 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.
These notes are senior unsecured obligations. These Senior 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. These Senior Notes
F- 39
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 $10.1 million related to changes in the fair
value of these contracts. For additional information on our interest rate contracts, please read Note 10, Derivative
Instruments, to these consolidated financial statements.
Notes Payable to Fumedica
In connection with our 2006 distribution agreement with Fumedica, we issued notes totaling 61.4 million Swiss
Francs that are payable to Fumedica in varying amounts from June 2008 through June 2018. Our remaining note
payable to Fumedica, payable in June 2018, had a carrying value of 3.1 million Swiss Francs ($3.2 million) and 6.2
million Swiss Francs ($6.0 million) as of December 31, 2017 and 2016, 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, 2017, 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 for
Eisai's oral solid dose products manufacturing facility in RTP, NC. In December 2017 we completed the purchase of
this facility for $17.2 million and derecognized the remaining unamortized portion of the financing obligation from
our consolidated balance sheet as of that date. For additional information on this transaction, please read Note 11,
Property, Plant and Equipment, to these consolidated financial statements.
Debt Maturity
The total gross payments, excluding our financing arrangement, due under our debt arrangements are as
follows:
(In millions)
2018 ............................................................................................................................ $
2019 ............................................................................................................................
2020 ............................................................................................................................
2021 ............................................................................................................................
2022 ............................................................................................................................
2023 and thereafter.......................................................................................................
Total ....................................................................................................................... $
As of December 31, 2017
3.2
—
1,500.0
—
1,000.0
3,500.0
6,003.2
The fair value of our debt is disclosed in Note 8, Fair Value Measurements, to these consolidated financial
statements.
13.
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 shareholders 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 2017, 2016 and 2015.
F- 40
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Common Stock
The following table describes the number of shares authorized, issued and outstanding of our common stock
as of December 31, 2017 and 2016:
(In millions)
Common stock ......................
Authorized
Issued
1,000.0
235.3
Outstanding
211.5
Authorized
Issued
Outstanding
1,000.0
238.5
215.9
As of December 31, 2017
As of December 31, 2016
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. All share repurchases under
this authorization will be retired. Under this authorization, we repurchased and retired 3.7 million and 3.3 million
shares of common stock during the years ended December 31, 2017 and 2016, respectively, at a cost of $1.0
billion for each year. As of December 31, 2017, approximately $3.0 billion remains available for share repurchases
under this authorization.
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). All shares repurchased under this authorization were retired. Our 2015 Share
Repurchase Program was completed as of December 31, 2015. Under this authorization, we repurchased and retired
approximately 16.8 million shares of common stock at a cost of $5.0 billion during the year ended December 31,
2015.
In February 2011 our Board of Directors authorized a program to repurchase up to 20.0 million shares of our
common stock (2011 Share Repurchase Program). Shares repurchased under this authorization were principally
used to offset common stock issuances under our share-based compensation programs. Our 2011 Share
Repurchase Program was completed as of March 31, 2017. Under this authorization, we repurchased 1.2 million
shares of common stock at a cost of $365.4 million during the year ended December 31, 2017. We did not
repurchase any shares of common stock under this authorization during the years ended December 31, 2016 and
2015.
14.
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,
net of tax
Unrealized Gains
(Losses) on Cash
Flow Hedges, net
of tax
Unfunded Status
of Postretirement
Benefit Plans, net
of tax
Translation
Adjustments
Total
Balance, December 31, 2016 .. $
(10.8) $
57.8 $
(32.7) $
(334.2) $
(319.9)
Other comprehensive
income (loss) before
reclassifications..................
Amounts reclassified from
accumulated other
comprehensive income
(loss) .................................
Net current period other
comprehensive income (loss) .
Balance, December 31, 2017 .. $
(3.5)
(193.8)
(4.1)
158.7
(42.7)
12.7
9.2
31.5
(162.3)
—
(4.1)
—
158.7
44.2
1.5
(1.6) $
(104.5) $
(36.8) $
(175.5) $
(318.4)
F- 41
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In millions)
Balance, December 31, 2015 .. $
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 .. $
Unrealized Gains
(Losses) on
Securities
Available for Sale,
net of tax
Unrealized Gains
(Losses) on Cash
Flow Hedges, net
of tax
Unfunded Status
of Postretirement
Benefit Plans, net
of tax
Translation
Adjustments
Total
(0.8) $
10.2 $
(37.8) $
(195.6) $
(224.0)
(10.6)
51.6
5.1
(138.6)
(92.5)
0.6
(10.0)
(10.8) $
(4.0)
47.6
—
5.1
57.8 $
(32.7) $
(334.2) $
(138.6)
(95.9)
(319.9)
—
(3.4)
(In millions)
Unrealized Gains
(Losses) on
Securities
Available for Sale,
net of tax
Unrealized Gains
(Losses) on Cash
Flow Hedges, net
of tax
Unfunded Status
of Postretirement
Benefit Plans, net
of tax
Translation
Adjustments
Total
Balance, December 31, 2014 .. $
(0.4) $
71.7 $
(31.6) $
(99.2) $
(59.5)
(1.7)
110.8
(6.2)
(96.4)
6.5
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)
The following table summarizes the amounts reclassified from accumulated other comprehensive income:
Amounts Reclassified from
Accumulated Other Comprehensive Income
For the Years Ended December 31,
(In millions)
Income Statement Location
2017
2016
2015
Gains (losses) on securities
available for sale..................... Other income (expense) ...... $
Income tax benefit
(expense)...........................
(19.5) $
(0.9) $
6.8
0.3
Gains (losses) on cash flow
hedges ................................... Revenues...........................
Operating expenses ............
Other income (expense) ......
Income tax benefit
(expense)...........................
(32.5)
0.6
0.3
0.1
5.3
(1.5)
0.2
—
(2.0)
0.7
173.2
—
(0.1)
(0.8)
Total reclassifications, net of
tax .........................................
$
(44.2) $
3.4 $
171.0
F- 42
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15.
Earnings per Share
Basic and diluted earnings per share are calculated as follows:
(In millions)
Numerator:
For the Years Ended December 31,
2017
2016
2015
Net income attributable to Biogen Inc................................. $
2,539.1 $
3,702.8 $
3,547.0
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 .....
212.6
0.1
0.2
0.1
0.4
213.0
218.4
0.1
0.2
0.1
0.4
218.8
230.7
0.1
0.3
0.1
0.5
231.2
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, 2017, 2016 and 2015 reflects, on a weighted average
basis, the repurchase of 3.7 million shares, 0.7 million shares and 4.6 million shares, respectively, of our common
stock under our share repurchase authorizations.
The adjustments related to the spin-off of our hemophilia business did not have a material impact on the
potentially dilutive securities to be considered in the calculation of diluted earnings per share of common stock.
16. 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,
2017
2016
2015
74.0 $
95.7
—
169.7
(9.6)
160.1
(42.8)
84.5 $
121.7
(1.8)
204.4
(14.6)
189.8
(54.0)
88.6
127.3
(8.6)
207.3
(11.0)
196.3
(55.8)
117.3 $
135.8 $
140.5
F- 43
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,
2017
2016
2015
22.4 $
38.4 $
107.3
18.4
12.3
9.3
169.7
(9.6)
120.0
16.3
18.6
11.1
204.4
(14.6)
38.1
119.0
22.4
13.9
13.9
207.3
(11.0)
160.1 $
189.8 $
196.3
As of December 31, 2017, unrecognized compensation cost related to unvested share-based compensation
was approximately $168.0 million, net of estimated forfeitures. We expect to recognize the cost of these unvested
awards over a weighted-average period of 1.9 years.
Spin-off Related Equity Adjustments
Pursuant to an employee matters agreement entered into in connection with the spin-off of our hemophilia
business and the provisions of our existing share-based compensation arrangements, we made certain adjustments
to the number and terms of our outstanding stock options, RSUs, CSPUs and other share-based awards to preserve
the intrinsic value of the awards immediately before and after the spin-off. For purposes of the vesting of these
equity awards, continued employment or service with Biogen or with Bioverativ was treated as continued employment
for purposes of both Biogen’s and Bioverativ’s equity awards with the outstanding awards continuing to vest over
their respective original vesting periods. Outstanding unvested awards for employees transferring to Bioverativ were
converted to unvested Bioverativ awards.
Adjustments to the number of our share-based compensation awards were made using an adjustment ratio
based upon the weighted-average closing price of our common stock for the 10 calendar days prior to the effective
date of the spin-off and the volume-weighted average prices for the 10 calendar days of our common stock following
the effective date of the spin-off. For stock options, the exercise prices of the awards were modified to maintain the
pre-spin intrinsic value of the awards in relation to the post-spin stock price of Biogen. The difference between the
fair value of the awards based upon the adjustment ratio and the opening price on the distribution date was not
material.
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. 2017 Omnibus
Equity Plan (2017 Omnibus Equity Plan); and (iii) the Biogen Inc. 2015 Employee Stock Purchase Plan (2015 ESPP).
Directors Plan
In May 2006 our shareholders 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, RSUs, 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 shareholders approved an amendment to extend the term of the
2006 Directors Plan until June 2025.
F- 44
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Omnibus Plan
In June 2017 our shareholders approved the 2017 Omnibus Equity Plan for share-based awards to our
employees. Awards granted from the 2017 Omnibus Equity Plan may include stock options, shares of restricted
stock, RSUs, performance shares, 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 grant under the 2017 Omnibus Equity Plan consist of 8.0 million shares
reserved for this purpose, plus shares of common stock that remained available for grant under our 2008 Omnibus
Equity Plan as of June 7, 2017 or that could again become available for grant if outstanding awards under the 2008
Omnibus Equity Plan as of June 7, 2017 are cancelled, surrendered or terminated in whole or in part. The 2017
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 2008 Omnibus Equity Plan since our shareholders approved the
2017 Omnibus Equity Plan, and do not intend to make any awards pursuant to the 2008 Omnibus Equity Plan in the
future, except that unused shares under the 2008 Omnibus Equity Plan have been carried over for use under the
2017 Omnibus Equity Plan.
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 2017, 2016 and
2015. As of December 31, 2017, 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, 2016 ............................................................
Hemophilia spin-off adjustment .................................................................
Granted ...................................................................................................
Exercised.................................................................................................
Cancelled ................................................................................................
Outstanding at December 31, 2017 ............................................................
Shares
66,000 $
— $
— $
(14,000) $
(10,000) $
42,000 $
Weighted
Average
Exercise
Price
54.06
—
—
50.89
55.11
53.83
The total intrinsic values of options exercised in 2017, 2016 and 2015 totaled $3.4 million, $10.4 million and
$38.0 million, respectively. The aggregate intrinsic values of options outstanding as of December 31, 2017 totaled
$11.1 million. The weighted average remaining contractual term for options outstanding as of December 31, 2017
was 1.3 years.
F- 45
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the amount of tax benefit realized for stock options and cash received from the
exercise of stock options:
(In millions)
Tax benefit realized for stock options ..................................... $
Cash received from the exercise of stock options ................... $
For the Years Ended December 31,
2017
2016
2015
3.4 $
0.7 $
4.0 $
2.2 $
11.9
6.3
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 and thereafter vest in three equal annual increments beginning on the
first anniversary of the grant date, and participants may ultimately earn between 0% and 200% of the target number
of units granted based on actual stock performance.
The vesting of these awards is subject to the respective employee’s continued employment. The number of
MSUs granted represents the target number of units that are eligible to be earned based on the attainment of
certain market-based criteria involving our stock price. The number of MSUs earned is calculated at each annual
anniversary from the date of grant over the respective vesting periods, resulting in multiple performance periods.
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, 2016 ................................................................
Hemophilia spin-off adjustment .................................................................
Granted (a) ..............................................................................................
Vested.....................................................................................................
Forfeited ..................................................................................................
Unvested at December 31, 2017 ................................................................
Shares
230,000 $
4,000 $
94,000 $
(112,000) $
(45,000) $
171,000 $
Weighted
Average
Grant Date
Fair Value
355.60
—
382.59
311.17
372.35
370.83
(a) MSUs granted in 2017 include approximately 9,000 MSUs issued in 2017 based upon the attainment of performance
criteria set for 2013, in relation to awards granted in that year. MSUs granted during 2017 also include awards granted in
conjunction with our annual awards made in February 2017 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. MSUs granted in 2017 reflect an
adjustment based upon the final performance multiplier in relation to shares granted in 2016, 2015 and 2014.
We value grants of MSUs using a lattice model with a Monte Carlo simulation. This valuation methodology
utilizes several key assumptions, including the 60 calendar day average closing stock price on grant date for MSUs
awarded prior to 2014, the 30 calendar day average closing stock price on the date of grant for MSUs awarded in
2014 and thereafter, expected volatility of our stock price, risk-free rates of return and expected dividend yield.
The assumptions used in our valuation are summarized as follows:
For the Years Ended December 31,
Expected dividend yield .......................................
Range of expected stock price volatility ................
Range of risk-free interest rates...........................
30 calendar day average stock price on grant date $263.18 - $267.88 $260.67 - $304.86 $277.35 - $426.27
Weighted-average per share grant date fair value ..
$493.43
$328.03
$382.59
2016
—%
38.2% - 40.7%
0.6% - 0.9%
2015
—%
31.0% - 33.2%
0.2% - 1.0%
2017
—%
33.0% - 35.6%
0.9% - 1.6%
F- 46
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of MSUs vested in 2017, 2016 and 2015 totaled $31.4 million, $39.3 million and $109.0
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 and thereafter 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.
The following table summarizes our CSPU activity:
Unvested at December 31, 2016..........................................................................................
Hemophilia spin-off adjustment ..........................................................................................
Granted (a)........................................................................................................................
Vested ..............................................................................................................................
Forfeited ...........................................................................................................................
Unvested at December 31, 2017 ..........................................................................................
Shares
122,000
3,000
83,000
(69,000)
(34,000)
105,000
(a) CSPUs granted in 2017 include awards granted in conjunction with our annual awards made in February 2017 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. CSPUs granted in 2017 also include CSPUs issued in 2017 based upon the attainment of performance
criteria set for 2016 in relation to shares granted in 2016.
The cash paid in settlement of CSPUs vested in 2017, 2016 and 2015 totaled $16.6 million, $31.9 million
and $79.8 million, respectively.
Performance-vested Restricted Stock Units (PUs)
PUs are granted to certain employees in the form of RSUs 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 CSPUs, 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.
F- 47
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes our PU activity:
Unvested at December 31, 2016..........................................................................................
Hemophilia spin-off adjustment ..........................................................................................
Granted (a)........................................................................................................................
Vested ..............................................................................................................................
Forfeited ...........................................................................................................................
Unvested at December 31, 2017 ..........................................................................................
Shares
110,000
3,000
40,000
(43,000)
(19,000)
91,000
(a) PUs granted in 2017 include awards granted in conjunction with our annual awards made in February 2017 and PUs granted
in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the
time of grant.
During 2015 32,000 PUs were converted to share settlements, of which approximately 11,000 shares were
vested and issued. All other PUs that vested in 2015 were settled in cash totaling $12.4 million.
All PUs that vested in 2017 and 2016 were settled in cash totaling $11.5 million and $8.1 million, respectively.
Time-Vested Restricted Stock Units (RSUs)
RSUs awarded to employees generally vest no sooner than one-third per year over three years on the
anniversary of the date of grant, or upon the third anniversary of the date of the grant, provided the employee
remains continuously employed with us, except as otherwise provided in the plan. Shares of our common stock will
be delivered to the employee upon vesting, subject to payment of applicable withholding taxes. RSUs awarded to
directors for service on our Board of Directors vest on the first anniversary of the date of grant, provided in each
case that the director continues to serve on our Board of Directors through the vesting date. Shares of our common
stock will be delivered to the director upon vesting and are not subject to any withholding taxes. The fair value of all
RSUs is based on the market value of our stock on the date of grant. Compensation expense, including the effect of
forfeitures, is recognized over the applicable service period.
The following table summarizes our RSU activity:
Unvested at December 31, 2016................................................................
Hemophilia spin-off adjustment ................................................................
Granted (a)..............................................................................................
Vested ....................................................................................................
Forfeited .................................................................................................
Unvested at December 31, 2017 ................................................................
Shares
888,000 $
12,000 $
464,000 $
(350,000) $
(182,000) $
832,000 $
Weighted
Average
Grant Date
Fair Value
303.49
—
293.41
308.04
292.57
291.85
(a) RSUs granted in 2017 primarily represent RSUs granted in conjunction with our annual awards made in February 2017 and
awards made in conjunction with the hiring of new employees. RSUs granted in 2017 also include approximately 11,000
RSUs granted to our Board of Directors.
RSUs granted in 2016 and 2015 had weighted average grant date fair values of $268.52 and $388.88,
respectively.
The fair values of RSUs vested in 2017, 2016 and 2015 totaled $100.0 million, $104.6 million and $239.7
million, respectively.
F- 48
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Employee Stock Purchase Plan (ESPP)
In June 2015 our shareholders approved the 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.
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,
2017
2016
2015
167,000
—
39.8 $
— $
190,000
—
41.5 $
— $
78,000
98,000
19.3
30.0
17.
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,
2017
2016
2015
Domestic.......................................................................... $
Foreign .............................................................................
Total............................................................................. $
3,540.4 $
1,588.4
5,128.8 $
3,655.4 $
1,277.6
4,933.0 $
3,386.7
1,380.6
4,767.3
Income tax expense (benefit):
Current:
Federal ............................................................................. $
State................................................................................
Foreign .............................................................................
Total.............................................................................
Deferred:
Federal ............................................................................. $
State................................................................................
Foreign .............................................................................
Total.............................................................................
Total income tax expense................................................... $
2,201.4 $
57.0
108.6
2,367.0
241.0 $
9.9
(159.2)
91.7
2,458.7 $
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
Tax Reform
The 2017 Tax Act, which was signed into law on December 22, 2017, has resulted in significant changes to the
U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%, the
elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest
expense and executive compensation. The 2017 Tax Act also transitions international taxation from a worldwide
system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which
has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation as global intangible low-
taxed income (GILTI). These changes are effective beginning in 2018.
The 2017 Tax Act also includes a one-time mandatory deemed repatriation tax on accumulated foreign
subsidiaries' previously untaxed foreign earnings (the Transition Toll Tax).
Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, during the year
ended December 31, 2017, we recorded a charge totaling $1,173.6 million related to our current estimate of the
provisions of the 2017 Tax Act.
F- 49
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Transition Toll Tax
The 2017 Tax Act eliminates the deferral of U.S. income tax on the historical unrepatriated earnings by
imposing the Transition Toll Tax, which is a one-time mandatory deemed repatriation tax on undistributed foreign
earnings. The Transition Toll Tax is assessed on the U.S. shareholder's share of the foreign corporation's
accumulated foreign earnings that have not previously been taxed. Earnings in the form of cash and cash
equivalents will be taxed at a rate of 15.5% and all other earnings will be taxed at a rate of 8.0%.
As of December 31, 2017, we have accrued income tax liabilities of $989.6 million under the Transition Toll Tax,
of which $78.3 million is expected to be paid within one year. The Transition Toll Tax will be paid over an eight-year
period, starting in 2018, and will not accrue interest.
At December 31, 2017, we considered none of our earnings to be permanently reinvested outside the U.S. and
have therefore recorded tax liabilities associated with an estimate of the total withholding taxes that may be a result
of our repatriation of earnings.
Effect on Deferred Tax Assets and Liabilities and other Adjustments
Our deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these
temporary differences are expected to be realized or settled.
As our deferred tax assets exceed the balance of our deferred tax liabilities at the date of enactment, we have
recorded a tax expense of $184.0 million, reflecting the decrease in the U.S. corporate income tax rate and other
changes to U.S. tax law. It is our current policy to not recognize deferred taxes for basis differences expected to
reverse as GILTI is incurred and instead to account for any taxes assessed as period costs.
Status of our Assessment
Our preliminary estimate of the Transition Toll Tax and the remeasurement of our deferred tax assets and
liabilities is subject to the finalization of management’s analysis related to certain matters, such as developing
interpretations of the provisions of the 2017 Tax Act, changes to certain estimates and amounts related to the
earnings and profits of certain subsidiaries and the filing of our tax returns. U.S. Treasury regulations, administrative
interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and changes in our
estimates.
The final determination of the Transition Toll Tax and the remeasurement of our deferred assets and liabilities
will be completed as additional information becomes available, but no later than one year from the enactment of the
2017 Tax Act.
Article 20 Procedure of ZINBRYTA
As a result of the Article 20 Procedure of ZINBRYTA, we have recognized a net impairment charge on certain tax
assets reflected within income tax expense of $48.8 million. This charge reflects the write off of $142.6 million
related to prepaid taxes, which was partially offset by the recognition of an unrecorded deferred tax benefit of $93.8
million. For additional information on the Article 20 Procedure of ZINBRYTA and resulting impairment of ZINBRYTA
related assets, please read Note 20, Collaborative and Other Relationships, to these consolidated financial
statements.
F- 50
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred Tax Assets and Liabilities
Significant components of our deferred tax assets and liabilities are summarized as follows:
(In millions)
Deferred tax assets:
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 ................................................................... $
As of December 31,
2017
2016
60.0 $
147.8
378.8
209.8
26.9
25.1
(16.6)
831.8 $
(250.7) $
(107.9)
(358.6) $
201.1
250.6
459.8
65.9
61.5
49.0
(16.1)
1,071.8
(376.6)
(113.5)
(490.1)
In addition to deferred tax assets and liabilities, we have recorded prepaid tax and deferred charges related to
intercompany transactions. As of December 31, 2017 and 2016, the total deferred charges and prepaid taxes were
$617.7 million and $989.8 million, respectively.
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 deferral of the tax effects of intra-entity asset transfers other
than inventory. As a result, the income tax consequences from the intra-entity transfer of an asset other than
inventory and associated changes to deferred taxes will be recognized when the transfer occurs.
This new standard becomes effective for us on January 1, 2018. We will adopt this standard using the modified
retrospective method, through a cumulative-effect adjustment directly to retained earnings as of that date. Based on
currently enacted tax rates, upon adoption in 2018, we will record additional deferred tax assets of approximately
$0.5 billion and an increase to retained earnings of approximately $0.5 billion. We will recognize incremental
deferred income tax expense thereafter as these net deferred tax assets are utilized.
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,
2017
2016
2015
Statutory rate .......................................................................
State taxes...........................................................................
Taxes on foreign earnings ......................................................
Credits and net operating loss utilization ................................
Purchased intangible assets ..................................................
Manufacturing deduction .......................................................
2017 Tax Act ........................................................................
Impairment of ZINBRYTA related tax assets ............................
Other permanent items .........................................................
Other ...................................................................................
Effective tax rate.................................................................
35.0%
0.8
(11.1)
(0.8)
1.4
(1.9)
22.9
0.9
0.7
—
47.9%
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%
F- 51
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Changes in Tax Rate
The most significant factors contributing to the increase in our effective tax rate for the year ended
December 31, 2017, as compared to 2016 is the effect of the enactment of the 2017 Tax Act and the impairment of
certain ZINBRYTA related tax assets, both of which are discussed above. Excluding the effect of these items, our
income tax rate would have decreased due to a lower percentage of our earnings being recognized in the U.S., a
higher tax jurisdiction. The geographic split of our earnings was affected by milestone and upfront payments in the
current year and the spin-off of our hemophilia business, partially offset by growth from the U.S. launch of SPINRAZA
and increases in our revenues from anti-CD20 therapeutic programs in the U.S. In addition, in 2017 we earned a
lower benefit from the orphan drug credit due to the FDA's approval of SPINRAZA.
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.
Tax Attributes
As of December 31, 2017, we had net operating losses and general business credit carry forwards for federal
income tax purposes of approximately $1.4 million and $1.3 million, respectively, which begin to expire in 2020.
Additionally, for state income tax purposes, we had net operating loss carry forwards of approximately $19.3 million
that begin to expire in 2018. For state income tax purposes, we also had research and investment credit carry
forwards of approximately $129.7 million that begin to expire in 2018. For foreign income tax purposes, we had $2.1
billion of net operating loss carryforwards that 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
consolidated financial position and results of operations.
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 .................................................................
Settlement refund (payment) ...................................................
Balance at December 31,.......................................................... $
2017
2016
2015
32.4 $
5.7
7.3
(21.8)
(1.4)
44.6
66.8 $
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
Our 2017 activity above reflects a refund received from a state, related to the settlement of an uncertain tax
position.
We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in
various U.S. states and in U.S. federal and other foreign jurisdictions. With few exceptions, 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 2010.
F- 52
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Included in the balance of unrecognized tax benefits as of December 31, 2017, 2016 and 2015 are $64.3
million, $26.9 million and $15.7 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 2017 we recognized a net interest expense of $4.8 million. In 2016 we recognized net interest expense
of $9.1 million. In 2015 we recognized a net interest expense of approximately $3.1 million. We have accrued
approximately $16.1 million and $25.2 million for the payment of interest and penalties as of December 31, 2017
and 2016, respectively.
International Uncertain Tax Positions
We have made payments totaling approximately $60.0 million to the Danish Tax Authority (SKAT) for
assessments received for fiscal 2009, 2011 and 2013 regarding withholding taxes and the treatment of certain
intercompany transactions involving a Danish affiliate and another of our affiliates. We continue to dispute the
assessments for all of these periods and believe that the positions taken in our historical filings are valid.
It is reasonably possible that we will adjust the value of our uncertain tax positions related to Danish
withholding taxes based on potential European court decisions expected in 2018 on similar matters.
Federal and State Uncertain Tax Positions
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 Internal Revenue
Service 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.
18.
Other Consolidated Financial Statement Detail
Supplemental Cash Flow Information
Supplemental disclosure of cash flow information for the years ended December 31, 2017, 2016 and 2015, is
as follows:
(In millions)
Cash paid during the year for:
For the Years Ended December 31,
2017
2016
2015
Interest......................................................................... $
Income taxes ................................................................ $
281.7 $
1,066.4 $
281.2 $
1,642.2 $
39.1
1,674.8
Non-cash Operating, Investing and Financing Activity
In the fourth quarter of 2017 we accrued $600.0 million upon reaching $15.0 billion and $16.0 billion in total
cumulative sales of FUMADERM and TECFIDERA (together, the 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 2018. For additional
information on this transaction, please read Note 22, Commitments and Contingencies, to these consolidated
financial statements.
In connection with the construction of our large-scale biologics manufacturing facility in Solothurn, Switzerland,
we accrued charges related to processing equipment and engineering services of approximately $150.0 million and
$100.0 million in our consolidated balance sheets as of December 31, 2017 and 2016, respectively. For additional
information on this matter, please read Note 11, Property, Plant and Equipment, to these consolidated financial
statements.
In December 2016 we accrued $454.8 million related to the settlement and license agreement with Forward
Pharma. For additional information on this transaction, please read Note 7, Intangible Assets and Goodwill, to these
consolidated financial statements.
F- 53
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 on 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,
2017
2016
2015
78.5 $
(250.8)
(36.3)
6.3
(13.1)
(215.4) $
63.4 $
(260.0)
6.0
(9.8)
(17.0)
(217.4) $
22.1
(95.5)
(3.8)
(32.7)
(13.8)
(123.7)
Interest expense for the year ended December 31, 2017, includes a $5.2 million charge recognized in
November 2017 upon the redemption of our 6.875% Senior Notes due March 1, 2018. For additional information on
the redemption of these notes, please read Note 12, Indebtedness, to these consolidated financial statements.
Gain (loss) on investments, net for the year ended December 31, 2017, includes other than temporary
impairments recorded on strategic investments and marketable debt securities during the year.
Other Current Assets
Other current assets include prepaid taxes totaling approximately $657.6 million and $817.0 million as of
December 31, 2017 and 2016, respectively.
As a result of the Article 20 Procedure of ZINBRYTA, we impaired prepaid tax balances totaling $142.6 million.
For additional information on the Article 20 Procedure of ZINBRYTA and resulting impairment of ZINBRYTA related
assets, please read Note 20, Collaborative and Other Relationships, to these consolidated financial statements.
Accrued Expenses and Other
Accrued expenses and other consists of the following:
(In millions)
Current portion of contingent consideration obligations ................................. $
Revenue-related reserves for discounts and allowances ................................
Employee compensation and benefits ..........................................................
Royalties and licensing fees ........................................................................
Collaboration expenses...............................................................................
Construction in progress .............................................................................
Accrued TECFIDERA litigation settlement charge ...........................................
Other .........................................................................................................
Total accrued expenses and other.............................................................. $
As of December 31,
2017
2016
844.6 $
572.0
297.7
206.7
183.7
159.7
—
636.9
2,901.3 $
580.8
438.6
282.9
195.8
130.9
134.0
454.8
685.7
2,903.5
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. 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
F- 54
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
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 the first quarter of 2017 we reached an agreement with AIFA's Price and Reimbursement Committee
resolving all of AIFA's claims relating to sales of TYSABRI in excess of the reimbursement limit for prior periods. As a
result, in the first quarter of 2017, we recognized EUR41.8 million (approximately $45.0 million) in revenues for
sales that were previously deferred. These amounts were previously accrued for and included in the table above in
Other as of December 31, 2016.
19.
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
In November 2007 we entered into a collaboration and license agreement with Neurimmune Subone AG
(Neurimmune) for the development and commercialization of antibodies for the treatment of AD. We are responsible
for the development, manufacturing and commercialization of all collaboration products. This agreement is effective
for the longer of the duration of certain patents relating to a licensed product, or 12 years from the first commercial
sale of any product using such a licensed compound. Our anti-amyloid beta antibody, aducanumab, for the treatment
of AD resulted from this collaboration.
We consolidate the results of Neurimmune as 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 we are required to fund 100% of the research and development costs
incurred in support of the collaboration. Under this agreement, we are also required to pay royalties on sales of any
resulting commercial products and make payments upon the achievement of certain milestone events.
In October 2017 we amended the terms of our collaboration and license agreement with Neurimmune. Under
the amended agreement, we made a $150.0 million payment to Neurimmune in exchange for a 15% reduction in
royalty rates payable on products developed under the agreement, including on potential commercial sales of
aducanumab. Our royalty rates payable on products developed under the agreement, including on potential
commercial sales of aducanumab, will now range from the high single digits to low teens. As we consolidate the
results of Neurimmune, we recognized this payment as a charge to noncontrolling interest in the fourth quarter of
2017 and treated it as a distribution. Under the amended agreement, we also have an option that will expire in April
2018 to further reduce our royalty rates payable on products developed under the agreement, including on potential
commercial sales of aducanumab, by an additional 5% in exchange for a $50.0 million payment to Neurimmune.
Research and development costs for which we reimburse Neurimmune are reflected in research and
development expense in our consolidated statements of income. During the years ending December 31, 2017, 2016
and 2015 amounts reimbursed were immaterial.
In September 2015 we recognized a $60.0 million milestone payable to Neurimmune upon enrollment of the
first patient in a Phase 3 trial for aducanumab. We recognized this payment as a charge to noncontrolling interest.
Based upon our current development plans for aducanumab, we may pay Neurimmune up to $275.0 million in
remaining milestone payments. 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.
F- 55
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The assets and liabilities of Neurimmune are not significant to our consolidated 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.
Under the terms of our October 2017 collaboration agreement with Eisai for the joint development and
commercialization of aducanumab, Eisai may elect to share in the benefit and cost associated with the royalty
reductions discussed above. Eisai has elected to not share in the benefit and cost of the October 2017 royalty
reduction. For additional information on our collaboration arrangement with Eisai, please read Note 20, Collaborative
and Other Relationships, to these consolidated financial statements.
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, 2017 and 2016, the carrying value of our investments in biotechnology companies totaled
$48.3 million and $47.4 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.
20.
Collaborative and Other Relationships
In connection with our business strategy, we have entered into various collaboration agreements that 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, CLL and other conditions, GAZYVA for the treatment of CLL and follicular lymphoma, OCREVUS for the
treatment of primary progressive MS (PPMS) and relapsing MS (RMS) and other potential anti-CD20 therapies under
a collaboration agreement with 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 our 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.
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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
In March 2017 the FDA approved OCREVUS, a humanized anti-CD20 monoclonal antibody, for the treatment of
RMS and PPMS. Under our agreement with Genentech, we will receive a tiered royalty on U.S. net sales from 13.5%
and increasing up to 24% if annual net sales exceed $900.0 million. 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. OCREVUS was approved
for the treatment of RMS and PPMS in Australia, Switzerland and the E.U. in July 2017, September 2017 and
January 2018, respectively.
The commercialization of OCREVUS does not impact the percentage of the co-promotion profits we receive for
RITUXAN or GAZYVA. Genentech is solely responsible for development and commercialization of OCREVUS and
funding future costs. Genentech cannot develop OCREVUS in CLL, non-Hodgkin's lymphoma or rheumatoid arthritis.
OCREVUS royalty revenues were based on our estimates from third party and market research data of OCREVUS
sales occurring during the corresponding period. Differences between actual and estimated royalty revenues will be
adjusted for in the period in which they become known, which is expected to be the following quarter.
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.
First GAZYVA Threshold Date means the earlier of (i) 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 (ii) 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% in February 2016 when GAZYVA
was approved by the FDA as a new treatment for follicular lymphoma and was further decreased to 37.5% in the
third quarter of 2017 as gross sales of GAZYVA in the U.S. for the preceding 12 month period exceeded $150.0
million.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 37.5% based on certain events.
In June 2017 the FDA approved RITUXAN HYCELA for subcutaneous injection for the treatment of adults with
previously untreated and relapsed or refractory follicular lymphoma, previously untreated diffuse large B-cell
lymphoma and CLL. This new treatment includes the same monoclonal antibody as intravenous RITUXAN in
combination with hyaluronidase human, an enzyme that helps to deliver rituximab under the skin.
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 2017, 2016 and 2015 our share of operating profits on GAZYVA was 35%.
In November 2017 the FDA approved GAZYVA in combination with chemotherapy, followed by GAZYVA alone, for
people with previously untreated advanced follicular lymphoma.
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 ........................................................ $
Other revenues from anti-CD20 therapeutic programs ............
For the Years Ended December 31,
2017
2016
2015
1,316.4 $
1,249.5 $
1,269.8
242.8
65.0
69.4
Total revenues from anti-CD20 therapeutic programs ....... $
1,559.2 $
1,314.5 $
1,339.2
In 2017 the 37.5% profit-sharing threshold was met during the third quarter and the 39% profit-sharing
threshold was met during the first quarter. In 2016 the 39% profit-sharing threshold was met during the first quarter.
In 2015, the 40% profit-sharing threshold was met during the first quarter.
Biogen's share of pre-tax profits in the U.S. for RITUXAN and GAZYVA, including the reimbursement of selling
and development expenses for 2017, as depicted in the table above, excludes certain expenses charged to the
collaboration by Genentech that we believe remain the responsibility of Genentech and that we are not obligated to
pay under the terms of the collaboration agreement. Accordingly, we did not recognize the effect of those expenses
in the determination of our share of pre-tax collaboration profits and Genentech has withheld approximately $120
million from amounts due to us in relation to collaboration activity for 2017, representing Genentech’s estimate of
our share of these expenses. We remain in discussions with Genentech about a resolution relating to these
amounts.
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.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
AbbVie
We have a collaboration agreement with AbbVie for the development and commercialization of ZINBRYTA, which
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.
Under this 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 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, 2017, 2016 and 2015, the collaboration incurred $39.9 million,
$48.6 million and $113.8 million for research and development activities, respectively, for which we recognized
$19.9 million, $24.3 million and $60.8 million, respectively, 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 represented 50% of the collaboration's pre-commercialization
costs for 2016. After ZINBRYTA was approved by the FDA and European Medicines Agency (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 under "Co-promotion Profits and Losses."
Article 20 Procedure of ZINBRYTA
In July 2017 the EMA announced that it had provisionally restricted the use of ZINBRYTA to adult patients with
highly active relapsing disease despite a full and adequate course of treatment with at least one disease modifying
therapy (DMT) or with rapidly evolving severe relapsing MS who are unsuitable for treatment with other DMTs. These
restrictions followed the initiation of an EMA review (referred to as an Article 20 Procedure) of ZINBRYTA following
the report of a case of fatal fulminant liver failure, as well as four cases of serious liver injury.
In October 2017, as part of this Article 20 Procedure of ZINBRYTA, the EMA Pharmacovigilance Risk Assessment
Committee (PRAC) completed its assessment and recommended a further set of restrictions on the use of ZINBRYTA
by MS patients.
In November 2017 the Committee for Medicinal Products for Human Use (CHMP) adopted an opinion, confirming
the PRAC's recommendations, for further restrictions to minimize the risk of serious liver injury with ZINBRYTA,
including restriction of its use to adult patients with relapsing forms of MS who have had an inadequate response to
at least two DMTs and for whom treatment with any other DMT is contraindicated or otherwise unsuitable. In January
2018 the EC adopted a final and legally-binding decision, which concluded the Article 20 Procedure, confirming the
CHMP opinion.
The recommendation of these restrictions by the CHMP resulted in the impairment of substantially all of our
assets related to ZINBRYTA as we have determined that these amounts may not be recoverable. As a result, we
recorded net impairment charges related to intangible assets, inventory, property, plant and equipment and prepaid
tax assets, totaling approximately $190.8 million. Inventory related losses are subject to our profit share with
AbbVie and are included above net of expected reimbursement. Offsetting these amounts was an unrecorded tax
benefit related to certain ZINBRYTA related assets totaling approximately $93.8 million.
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 years ended December 31,
2017 and 2016, we recognized a net reduction in revenue of $16.9 million and $21.9 million, respectively, to reflect
our share of an overall net loss within the collaboration.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.:
(In millions)
Product revenues, net............................................................................................. $
Costs and expenses...............................................................................................
Co-promotion losses in the U.S. .............................................................................. $
Biogen's share of co-promotion losses in the U.S. .................................................... $
2017
2016
53.1 $
92.6
39.5 $
16.9 $
6.1
50.0
43.9
21.9
For the Year Ended December 31,
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,
2017, we recognized net expense of $1.3 million to reflect AbbVie's 50% sharing of the net collaboration profits in
the E.U. and Canada, as compared to net income recognized of $4.9 million to reflect AbbVie's 50% sharing of the
net collaboration losses in the E.U. and Canada in the prior year.
Acorda
In June 2009 we entered into a collaboration and license agreement with Acorda Therapeutics, Inc. (Acorda) to
develop and commercialize products containing fampridine, such as FAMPYRA, in markets outside the U.S. We are
responsible for all regulatory activities and the future clinical development of related products in those markets.
Under this agreement, we pay tiered royalties based on the level of ex-U.S. net sales and potential milestone
payments based on the successful achievement of certain regulatory and commercial milestones, which would be
capitalized as intangible assets upon achievement of the milestones and amortized utilizing an economic
consumption model. 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. Royalty payments are recognized in cost of sales within our
consolidated statements of income.
In connection with the collaboration and license agreement, we 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.
For the years ending December 31, 2017, 2016 and 2015, total cost of sales related to royalties and
commercial supply of FAMPYRA reflected in our consolidated statements of income were $34.0 million, $31.5
million and $30.6 million, respectively.
Ionis Pharmaceuticals, Inc.
Product Collaborations
SPINRAZA
In January 2012 we entered into an exclusive worldwide option and collaboration agreement with Ionis to
develop and commercialize SPINRAZA for the treatment of SMA. During 2014 we amended this 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)
with the FDA or marketing authorization application with the 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.
SPINRAZA was approved for the treatment of SMA in the U.S., E.U. and Japan in December 2016, June 2017
and July 2017, respectively.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For the years ended December 31, 2017 and 2016, we recognized product revenues totaling $883.7 million
and $4.6 million, respectively, on our sales of SPINRAZA. Under our agreement with Ionis, we make royalty payments
to Ionis on annual worldwide net sales of SPINRAZA using a tiered royalty rate between 11% and 15%, which are
recognized in cost of sales within our consolidated statements of income. Royalty cost of sales related to sales of
SPINRAZA for the years ended December 31, 2017 and 2016 totaled $112.4 million and $0.5 million, respectively.
Upon entering into this agreement, we made an upfront payment of $29.0 million to Ionis. In addition, during
2017 we made milestone payments to Ionis totaling $150.0 million related to the marketing approvals discussed
above, which were capitalized in intangible assets, net in our consolidated balance sheets. During the third quarter
of 2016, upon the exercise of our option to develop and commercialize SPINRAZA, we also paid a $75.0 million
license fee to Ionis, which was recognized as research and development expense in our consolidated statements of
income.
During 2017 no clinical trial payments were made to Ionis due to the completion of study activities. During
2016 and 2015, we made clinical trial payments of $35.3 million and $42.8 million, respectively, related to the
advancement of the program, which were recorded in investments and other assets in our consolidated balance
sheets as they represented prepaid research and development expenditures. As of December 31, 2017, these
prepaid research and development amounts were fully expensed as the services were provided.
For the years ending December 31, 2017, 2016 and 2015, $234.5 million, $257.8 million and $74.9 million,
respectively, were reflected in total costs and expenses in our consolidated statements of income related to the
advancement and commercialization of the program.
Antisense Therapeutics
In December 2012 we entered into an agreement with Ionis for the development and commercialization of up
to three therapeutic targets.
Under this agreement, Ionis is 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
a license fee of up to $70.0 million to Ionis and assume global development, regulatory and commercialization
responsibilities. Ionis is eligible to 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.
Upon entering into this agreement, we made an upfront payment of $30.0 million to Ionis 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
recognized this $10.0 million developmental milestone upon the selection of BIIB080 (also known as IONIS-MAPTRx),
which is currently in Phase 1 development.
Research Collaborations
2013 Long-term Strategic Research Agreement
In September 2013 we entered into a six-year research collaboration agreement with Ionis under which both
companies collaborate to perform discovery level research and subsequent development and commercialization
activities of 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 this agreement. Once the research has
reached a specific stage of development, we will make a determination whether antisense therapy is the preferred
approach to developing a therapeutic candidate or whether another modality is preferred. If an antisense approach is
selected, Ionis will continue development and identify a potential product candidate. If another modality is selected,
we will assume responsibility for identifying a potential product candidate and assume development responsibility for
development in that modality.
Under this agreement, we made an upfront payment of $100.0 million to Ionis, of which $75.0 million was
recorded as research and development expense representing the value of intellectual property purchased that had
not reached technological feasibility. We recognized the remaining $25.0 million as prepaid research and discovery
services, representing the value of the Ionis full time equivalent employee resources required by the collaboration to
provide research and discovery services over the term of the collaboration.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2017, 2016 and 2015, we triggered
milestones of $12.0 million, $5.5 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.
2017 SMA Collaboration Agreement
In December 2017 we entered into a new collaboration agreement with Ionis to identify new antisense
oligonucleotide drug candidates for the treatment of SMA. Under this agreement, we will have the option to license
therapies arising out of this collaboration and will be responsible for their development and commercialization of
these therapies.
Upon entering into this agreement, we made a $25.0 million upfront payment to Ionis and we may pay Ionis up
to $260.0 million in additional development and regulatory milestone payments if new drugs advance to marketing
approval. Upon commercialization, we may also pay Ionis up to $800.0 million in additional performance-based
milestone payments and tiered royalties on potential net sales of such therapies.
Eisai Co., Ltd.
BAN2401 and E2609 Collaboration
In March 2014 we entered into a collaboration agreement with Eisai (Eisai Collaboration Agreement) to jointly
develop and commercialize two Eisai product candidates for the treatment of AD, 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 with all costs, including research,
development, sales and marketing expenses shared equally by us and Eisai; and following marketing approval in
major markets, such as the U.S., the E.U. and Japan, we and Eisai would co-promote BAN2401 and E2609 and
share profits equally. In smaller markets, Eisai will distribute these products and pay us a royalty. In addition, the
Eisai Collaboration Agreement provides both parties with certain rights and obligations in the event of a change in
control of either party.
The Eisai Collaboration Agreement also provided Eisai with an option to jointly develop and commercialize
aducanumab (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, a
separate collaboration agreement would be entered into with Eisai on terms and conditions that mirror the Eisai
Collaboration Agreement.
In October 2017 Eisai exercised its Aducanumab Option and we entered into a new collaboration agreement for
the joint development and commercialization of aducanumab (Aducanumab Collaboration Agreement). Eisai has not
yet exercised its Anti-Tau Option.
Under the Aducanumab Collaboration Agreement, both companies will continue to jointly develop BAN2401 and
E2609 in accordance with the Eisai Collaboration Agreement; however, we are no longer required to pay Eisai any
milestone payments for products containing BAN2401 and we are no longer entitled to any potential development
and commercial milestone payments from Eisai in relation to aducanumab.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of activity related to the Eisai Collaboration Agreement is as follows:
(In millions)
Total development expense incurred by the collaboration in
development of BAN2401 and E2609........................................ $
Biogen's share of BAN2401 and E2609 development expense
reflected in our consolidated statements of income, excluding
upfront and milestone payments ............................................... $
For the Years Ended December 31,
2017
2016
2015
146.2 $
95.1 $
84.1
74.3 $
50.5 $
40.4
During the fourth quarter of 2016 we recognized a $50.0 million milestone payment related to the initiation of
a Phase 3 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 $625.0 million under the Eisai Collaboration Agreement based on the
future achievement of certain development, regulatory and commercial milestones.
Aducanumab Collaboration Agreement
Under the Aducanumab Collaboration Agreement, we will continue to lead the ongoing Phase 3 development of
aducanumab and will remain responsible for 100% of development costs for aducanumab incurred in support of this
agreement until April 2018. Eisai will then reimburse us for 15% of aducanumab development expenses for the
period April 2018 through December 2018, and 45% thereafter. Upon commercialization, both companies will co-
promote aducanumab with a region-based profit split. We will receive a 55% share of the potential profits (losses) in
the U.S., a 68.5% share of the potential profits (losses) in the E.U. and a 20% share of the potential profits (losses)
in Japan and Asia, excluding China and South Korea. The companies will continue to share equally in the potential
profits (losses) in rest of world markets.
We and Eisai also agreed to co-promote AVONEX, TYSABRI and TECFIDERA in Japan in certain settings and
Eisai will distribute AVONEX, TYSABRI, TECFIDERA and PLEGRIDY in India and other Asia-Pacific markets, excluding
China.
During the year ended December 31, 2017, $263.4 million was reflected in research and development expense
in our consolidated statements of income related to the advancement of our aducanumab program.
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.
Bristol-Myers Squibb Company
In June 2017 we completed an exclusive license agreement with Bristol-Myers Squibb Company (BMS) for
BIIB092 (formerly known as BMS-986168), a Phase 2-ready experimental medicine with potential in AD and PSP.
BIIB092 is an antibody targeting tau, the protein that forms the deposits, or tangles, in the brain associated with AD
and other neurodegenerative tauopathies such as PSP.
Under this agreement, we received worldwide rights to BIIB092 and are responsible for the full development
and global commercialization of BIIB092 in AD and PSP.
Upon entering into this agreement, we made an upfront payment of $300.0 million to BMS and we may pay
BMS up to $410.0 million in additional milestone payments, and potential royalties. We also assumed all remaining
obligations to the former shareholders of iPierian, Inc. (iPierian) related to BMS’s acquisition of iPierian in 2014. In
June 2017 we recognized a $60.0 million developmental milestone payable to the former shareholders of iPierian
upon dosing of the first patient in the Phase 2 PSP study for BIIB092 and we may pay the former shareholders of
iPierian up to $490.0 million in remaining milestone payments, and potential royalties.
Both the $300.0 million upfront payment and the $60.0 million developmental milestone payment were
recognized as research and development expense in our consolidated statements of income for the year ended
December 31, 2017.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Alkermes
In November 2017 we entered into an exclusive license and collaboration agreement with Alkermes Pharma
Ireland Limited, a subsidiary of Alkermes plc (Alkermes), for BIIB098 (formerly known as ALKS 8700), an oral
monomethyl fumarate prodrug in Phase 3 development for the treatment of relapsing forms of MS.
Under this agreement, we received an exclusive, worldwide license to develop and commercialize BIIB098 and
will pay Alkermes a mid-teens percentage royalty on potential worldwide net sales of BIIB098. Royalties payable on
net sales of BIIB098 are subject to tiered minimum payment requirements for a period of five years following FDA
approval. Alkermes is eligible to receive royalties in the mid-single digits to low-teen percentages of annual net sales
upon successful development and commercialization of new product candidates other than BIIB098. Alkermes will
maintain responsibility for regulatory interactions with the FDA through the potential approval of the NDA for BIIB098
for the treatment of MS.
Upon entering into this agreement, we made a $28.0 million upfront payment to Alkermes representing our
share of BIIB098 development costs already incurred in 2017. Beginning in 2018 we are responsible for all
development expenses related to BIIB098. In December 2017 we also recognized a $50.0 million expense, which is
expected to be paid to Alkermes in early 2018, enabling the continuation of the agreement to develop BIIB098. Both
the $28.0 million upfront payment and $50.0 million continuation payment were recognized as research and
development expense in our consolidated financial statements for the year ended December 31, 2017.
We may also pay Alkermes up to approximately $150.0 million in additional future milestone payments upon
certain regulatory achievements related to BIIB098 under this collaboration. For the year ended December 31, 2017,
we recorded $80.3 million in research and development expense in our consolidated statements of income related
to this collaboration.
In connection with the license and collaboration agreement, we may also enter into a supply agreement with
Alkermes for the commercial supply of BIIB098 and other products developed under the license and collaboration
agreement.
Applied Genetic Technologies Corporation
In July 2015 we entered into a collaboration and license agreement to develop gene-based therapies for
multiple ophthalmic diseases with Applied Genetic Technologies Corporation (AGTC). This collaboration is focused 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). This
agreement also provides us with options for early stage discovery programs in two ophthalmic diseases and one
non-ophthalmic condition, as well as an equity investment in AGTC.
Under this agreement we received worldwide commercialization rights for the XLRS and XLRP programs. AGTC
will lead the clinical development programs of XLRS through product approval and of XLRP through the completion of
first-in-human trials and we will support the related clinical development costs, subject to certain conditions,
following the first-in-human study for XLRS and IND-enabling studies for XLRP. AGTC has an option to share
development costs and profits after the initial clinical trial data becomes available, and an option to co-promote the
second of these products approved in the U.S.
Upon entering into this agreement we made an upfront payment of $124.0 million to AGTC. AGTC is also
eligible to receive development, regulatory and commercial milestone payments aggregating in excess of $1.1 billion,
which includes up to $467.5 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 upon successful development and commercialization of new product candidates.
The $124.0 million upfront payment reflected 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 $35.6 million in
total licensing and other fees were recognized as a charge to research and development expense in our consolidated
statements of income for the year ended December 31, 2015. The $30.0 million equity investment and the $58.4
million of prepaid research and development expenditures were recorded in investments and other assets in our
consolidated balance sheets. These prepaid research and development amounts are being expensed as the
services are provided, of which $11.1 million remains as a prepaid asset as of December 31, 2017.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For the years ended December 31, 2017, 2016 and 2015 we recorded $27.5 million, $26.5 million and $54.5
million, respectively, which were reflected in research and development expense in our consolidated statements of
income related to this collaboration.
In connection with the collaboration and license agreement, we also received a manufacturing license under
which we 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.
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 is primarily focused on the development of
therapeutic approaches that target the eye, skeletal muscle and the central nervous system. The alliance is also
focused 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.
Upon entering into this agreement we made an upfront payment of $20.0 million to UPenn, which was recorded
as research and development expense in our consolidated statements of income, and made prepaid research and
development expenditures of $15.0 million, which was recorded in investments and other assets in our consolidated
balance sheets. During 2017, we made additional prepaid research and development expenditures to UPenn of
$29.1 million related to the advancement of these programs. These prepaid research and development amounts are
being expensed as the services are provided, of which $12.7 million remains as a prepaid asset as of December 31,
2017. We also expect to fund an additional $18.4 million in additional research and development costs 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 UPenn
collaboration and alliance, we may be required to make future payments of over $2.0 billion in research funding,
options and milestone payments. UPenn is also eligible to receive royalties in the mid-single digit to mid-teens
percentages of annual net sales upon successful development and commercialization of new product candidates.
For the years ended December 31, 2017 and 2016, we recorded $33.0 million and $27.8 million, respectively,
in research and development expense in our consolidated statements of income related to this collaboration.
Other Research and Discovery Arrangements
For the years ended December 31, 2017, 2016 and 2015, we entered into several research, discovery and
other related arrangements that resulted in $10.0 million, $10.3 million and $9.7 million, respectively, recorded as
research and development expense in our consolidated statements of income.
These arrangements may include the potential for future milestone payments based on the achievement of
certain clinical and commercial development payable over a period of several years.
Samsung Bioepis
Joint Venture Agreement
In February 2012 we entered into a joint venture agreement with 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, 2017,
our ownership interest is approximately 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 joint venture agreement plus a rate that will represent their return on capital. If
we do not exercise this option by mid-2018, this option will expire and Samsung Biologics will have the right to
purchase all of Samsung Bioepis’ shares then held by us.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 year ended December 31, 2015, we recognized a
loss on our investment of $12.5 million. 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 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 years ended December 31, 2017 and 2016, we paid $25.0 million and $50.0 million,
respectively, in milestone payments, which have been capitalized in intangible assets, net in our consolidated
balance sheets as IMRALDI received regulatory approval in the E.U. in August 2017, BENEPALI received regulatory
approval in the E.U. in January 2016 and FLIXABI received regulatory approval in the E.U. in May 2016.
We began to recognize revenues 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 years ended December 31, 2017 and 2016, we recognized a net expense of $111.0
million and $15.1 million, respectively, to reflect Samsung Bioepis's 50% sharing of the net collaboration profits.
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 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
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 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, 2017, 2016 and 2015, we recognized $42.7 million, $20.2 million and
$62.9 million, respectively, in revenues in relation to these services, which is reflected as a component of other
revenues in our consolidated statements of income.
21.
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.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
Qui Tam Litigation
On July 6, 2015, a qui tam action filed on behalf of the United States and certain states was 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 an action filed by a shareholder on October 20,
2016 in the U.S. District Court for the District of Massachusetts alleging violations of federal securities laws under
15 U.S.C §78j(b) and §78t(a) and 17 C.F.R. §240.10b-5 and seeking a declaration of the action as a class action
and an award of damages, interest and attorneys' fees. An estimate of the possible loss or range of loss cannot be
made at this time.
Other Matters
Abbreviated New Drug Application (ANDA) Litigation relating to TECFIDERA
In June, July, and September 2017 and January 2018, we initiated patent infringement proceedings pursuant to
the Hatch-Waxman act in the U.S. District Court for the District of Delaware against Amneal Pharmaceuticals LLC,
Aurobindo Pharma U.S.A., Inc., Caribe Holdings (Cayman) Co. Ltd. DBA Puracap Caribe, Puracap International LLC,
Graviti Pharmaceuticals Pvt. Ltd., Hetero USA, Inc., Impax Laboratories, Inc., Prinston Pharmaceutical Inc., Slayback
Pharma LLC, Teva Pharmaceuticals USA, Inc., Alkem Laboratories Ltd., Cipla Limited, Glenmark Pharmaceuticals Ltd.,
Lupin Atlantis Holdings SA, Macleods Pharmaceuticals, Ltd., MSN Laboratories Pvt. Ltd., Pharmathen S.A., Shipla
Medicare Limited, Sun Pharma Global FZE, Torrent Pharmaceuticals Ltd., TWi Pharmaceuticals, Inc., Windlas
Healthcare Pvt. Ltd., Accord Healthcare Inc., Par Pharmaceutical Inc., Sandoz Inc., Sawai USA, Inc. and Zydus
Pharmaceuticals (USA) Inc. In addition, we initiated patent infringement proceedings pursuant to the Hatch-Waxman
act against Stason Pharmaceuticals, Inc. in the U.S. District Court for the Central District of California, Zydus
Pharmaceuticals (USA) Inc. in the U.S. District Court for the District of New Jersey, Accord Healthcare Inc. in the U.S.
District Court for the Middle District of North Carolina, Par Pharmaceutical Inc. in the U.S. District Court for the
Southern District of New York, Sandoz Inc. in the U.S. District Court for the District of Colorado and Mylan
Pharmaceuticals Inc. in the U.S. District Court for the Northern District of West Virginia.
The cases against Accord Healthcare Inc., Zydus Pharmaceuticals (USA) Inc. and Sandoz Inc. have been
dismissed in the North Carolina, New Jersey and Colorado courts but will continue against those parties in Delaware.
The cases against Par Pharmaceutical Inc. in both New York and Delaware have been dismissed because Par
Pharmaceutical Inc.’s ANDA application has been withdrawn. The case against Stason Pharmaceuticals, Inc. in
California has been dismissed, but the case against its partner Sawai USA, Inc. will proceed in Delaware.
We expect a trial in the Delaware actions in December 2019, and a trial has been set in the West Virginia
action in February 2020.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 MS with 480 mg of dimethyl fumarate as provided for in
our TECFIDERA label. In March 2017 the USPTO ruled against Forward Pharma. Forward Pharma has appealed to the
U.S. Court of Appeals for the Federal Circuit and the appeal is pending. For additional information regarding this
matter, please read Note 7, Intangibles Assets and Goodwill, to these consolidated financial statements.
European Patent Office Oppositions
In 2016 the EPO decided to revoke 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.
In January 2018 the EPO announced its decision revoking Forward Pharma’s European Patent No. 2 801 355,
which was issued in May 2015 and expires in October 2025. Forward Pharma has stated that it expects to file an
appeal to the Technical Board of Appeal of the EPO. The settlement and license agreement that we entered with
Forward Pharma in January 2017 did not resolve the issues pending in this proceeding and we and Forward Pharma
intend to permit the Technical Board of Appeal and the Enlarged Board of Appeal, as applicable, to make a final
determination. For additional information regarding this matter, please read Note 7, Intangibles Assets and Goodwill,
to these consolidated financial statements.
Patent Revocation Matter
Swiss Pharma International AG filed actions in the District Court of The Hague (on January 11, 2016), the
German Patents Court (on March 3, 2016) and the Commercial Court of Rome (November 2017) to invalidate the
Dutch, German and Italian counterparts of our European Patent Number 1 485 127 (“Administration of agents to
treat inflammation”) ('127 patent), which was issued in June 2011 and concerns administration of natalizumab
(TYSABRI) to treat MS. The patent expires in February 2023. The Dutch counterpart was ruled invalid and we have
appealed. In November 2018 Bioeq gmbh (an entity associated with Swiss Pharma and Polpharma) brought an
action in the Polish Patent Office seeking to revoke the Polish counterpart of the ‘127 patent. In January 2018 the
German court announced that the German counterpart was invalid. No date for a hearing on the merits has yet been
set in the Italian action.
'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. (Pfizer) (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.
Bayer, Pfizer, Novartis and EMD Serono have all filed counterclaims seeking declaratory judgments of patent
invalidity and non-infringement, and seeking monetary relief in the form of costs and attorneys' fees. The trial against
EMD Serono and Pfizer commenced in mid-January 2018 and is ongoing. A trial date against Bayer and Novartis has
not yet been set.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
We have received subpoenas and other requests from the federal government for documents and information
relating to our relationship with non-profit organizations that provide assistance to patients taking drugs sold by
Biogen and Biogen's co-pay assistance programs. We are cooperating with the government.
On July 1, 2016, we received civil investigative demands 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.
In July 2017 we learned that the Prosecution Office of Milan is investigating our interactions with certain
healthcare providers in Italy. We are cooperating with the government.
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.
22. Commitments and Contingencies
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 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, and Perrigo subsequently sold its rights to
these payments to a third party effective January 2017.
Contingent Consideration related to Business Combinations
In connection with our acquisitions of Convergence, Stromedix and 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 recorded the
contingent consideration liabilities associated with these transactions at their fair value on the acquisition date and
revalue these obligations each reporting period. We may pay up to approximately $1.1 billion in remaining
milestones related to these acquisitions. For additional information on our acquisition of Convergence please read
Note 2, Acquisitions, to these consolidated financial statements.
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 12-month period, as defined in the acquisition agreement.
During 2017 we paid $1.2 billion in contingent payments as we reached the $11.0 billion, $12.0 billion, $13.0
billion and $14.0 billion cumulative sales levels related to the Fumapharm Products in the fourth quarter of 2016
and the first, second and third quarters of 2017, respectively, and accrued $600.0 million upon reaching $15.0
billion and $16.0 billion in total cumulative sales of Fumapharm Products in the fourth quarter of 2017.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2017, we could make potential future milestone
payments to third parties of up to approximately $4.2 billion, including approximately $0.7 billion in development
milestones, approximately $1.5 billion in regulatory milestones and approximately $2.0 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 was not considered probable as of
December 31, 2017, 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, 2017, we have several on-going clinical studies in various clinical trial stages. Our most
significant clinical trial expenditures are to CROs. The contracts with CROs are generally cancellable, with notice, at
our option. We have recorded accrued expenses of approximately $40.0 million in our consolidated balance sheet
for expenditures incurred by CROs as of December 31, 2017. We have approximately $460.0 million in cancellable
future commitments based on existing CRO contracts as of December 31, 2017.
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, 2017, we have approximately $77.3 million of net liabilities associated with uncertain tax positions.
As of December 31, 2017, we have accrued income tax liabilities of $989.6 million under the Transition Toll
Tax, of which $78.3 million is expected to be paid within one year. The Transition Toll Tax will be paid over an eight-
year period, starting in 2018, and will not accrue interest.
Solothurn, Switzerland Facility
In December 2015, we purchased land in Solothurn, Switzerland and are building a large-scale biologics
manufacturing facility at this site. We expect this facility to be operational by the end of the decade. As of
December 31, 2017, we had contractual commitments of $270.0 million for the construction of this facility.
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, net of sublease income under these leases, which terminate at
various dates through 2028, amounted to $65.3 million, $68.7 million and $68.6 million in 2017, 2016 and 2015,
respectively. In addition to rent, the leases may require us to pay additional amounts for taxes, insurance,
maintenance and other operating expenses.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2017, 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 ............................ $
2018
2019
2020
2021
2022
Thereafter
Total
72.6 $
(24.3)
72.3 $
(24.7)
68.4 $
(23.9)
66.9 $
(22.3)
65.7 $ 271.1 $ 617.0
(188.5)
(71.3)
(22.0)
48.3 $
47.6 $
44.5 $
44.6 $
43.7 $ 199.8 $ 428.5
(1) Represents sublease income expected to be received for the vacated manufacturing facility in Cambridge, MA, the vacated
portion of our Weston, MA facility and other facilities throughout the world.
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, 2017 or 2016.
23. Guarantees
As of December 31, 2017 and 2016, 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, 2017 and 2016.
24. 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 $42.6 million, $45.2 million and $51.8 million for the years
ended December 31, 2017, 2016 and 2015, respectively.
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 that 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, 2017 and 2016 totaled approximately $109.8 million and $128.5 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.
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 where 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 1.00% in 2017 and
1.25% in 2016 and 1.75% in 2015, 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, 2017 and 2016, the Swiss plan had an unfunded net pension obligation of approximately
$48.3 million and $39.1 million, respectively, and plan assets that totaled approximately $83.7 million and $68.6
million, respectively. In 2017, 2016 and 2015, we recognized expense totaling $12.3 million, $15.3 million and
$12.9 million, respectively, related to our Swiss plan.
The obligations under the German plans are unfunded and totaled $43.5 million and $35.4 million as of
December 31, 2017 and 2016, respectively. Net periodic pension cost related to the German plans totaled $5.2
million, $4.2 million and $4.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.
25. Segment Information
We operate as one operating segment, focused on discovering, developing and delivering worldwide innovative
therapies for people living with serious neurological and neurodegenerative 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.
F- 72
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenues by product are summarized as follows:
United
States
2017
Rest of
World
Total
United
States
2016
Rest of
World
Total
United
States
2015
Rest of
World
Total
For the Years Ended December 31,
(In millions)
Multiple Sclerosis (MS):
TECFIDERA................. $ 3,294.0 $
920.0 $ 4,214.0 $ 3,169.4 $
798.7 $ 3,968.1 $ 2,908.2 $
730.2 $ 3,638.4
AVONEX .....................
1,593.6
PLEGRIDY ..................
295.5
TYSABRI ....................
1,113.8
FAMPYRA ...................
ZINBRYTA...................
—
—
557.9
198.8
859.3
91.6
52.7
2,151.5
1,675.3
494.3
305.0
1,973.1
1,182.9
91.6
52.7
—
—
638.2
176.7
780.9
84.9
7.8
Spinal Muscular
Atrophy:
2,313.5
1,790.2
481.7
227.1
1,963.8
1,103.1
84.9
7.8
SPINRAZA ..................
657.0
226.7
883.7
4.6
—
4.6
Hemophilia:
ELOCTATE ..................
ALPROLIX ...................
Other product revenues:
FUMADERM................
BENEPALI...................
FLIXABI ......................
42.2
21.0
—
—
—
6.2
5.0
39.6
370.8
9.0
48.4
26.0
39.6
370.8
9.0
445.2
268.0
—
—
—
68.0
65.7
45.9
100.6
0.1
513.2
333.7
45.9
100.6
0.1
840.0
111.4
783.0
89.7
—
2,630.2
338.5
1,886.1
89.7
—
—
—
11.4
25.6
51.4
—
—
319.7
234.5
51.4
—
—
—
—
—
308.3
208.9
—
—
—
Total product
revenues ................. $ 7,017.1 $ 3,337.6 $10,354.7 $ 7,050.4 $ 2,767.5 $ 9,817.9 $ 6,545.8 $ 2,642.7 $ 9,188.5
Geographic Information
The following tables contain certain financial information by geographic area:
December 31, 2017 (In millions)
Product revenues from external customers.......... $ 7,017.1 $ 2,844.8 $
Revenues from anti-CD20 therapeutic programs .. $ 1,475.6 $
0.6 $
Other revenues from external customers............. $
67.8 $
249.5 $
Long-lived assets .............................................. $ 1,226.9 $ 1,948.2 $
Europe
U.S.
December 31, 2016 (In millions)
Product revenues from external customers.......... $ 7,050.4 $ 2,237.2 $
Revenues from anti-CD20 therapeutic programs .. $ 1,249.5 $
1.9 $
Other revenues from external customers............. $
71.5 $
224.7 $
Long-lived assets .............................................. $ 1,272.3 $ 1,221.1 $
Europe
U.S.
December 31, 2015 (In millions)
Product revenues from external customers.......... $ 6,545.8 $ 2,165.7 $
Revenues from anti-CD20 therapeutic programs .. $ 1,269.8 $
3.5 $
Other revenues from external customers............. $
31.2 $
142.0 $
Long-lived assets .............................................. $ 1,296.5 $
881.7 $
Europe
U.S.
Asia
160.1 $
— $
42.7 $
5.2 $
Other
Total
332.7 $10,354.7
83.0 $ 1,559.2
360.0
2.1 $ 3,182.4
— $
Asia
217.3 $
— $
20.2 $
7.0 $
Other
Total
313.0 $ 9,817.9
63.1 $ 1,314.5
316.4
1.4 $ 2,501.8
— $
Asia
143.7 $
— $
62.9 $
7.7 $
Other
Total
333.3 $ 9,188.5
65.9 $ 1,339.2
236.1
1.7 $ 2,187.6
— $
Revenues from Anti-CD20 Therapeutic Programs
Approximately 13%, 11% and 12% of our total revenues in 2017, 2016 and 2015, respectively, are derived from
our collaboration agreement with Genentech. For additional information on our collaboration with Genentech, please
read Note 20, Collaborative and Other Relationships, to these consolidated financial statements.
F- 73
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Significant Customers
We recorded revenues from two wholesalers accounting for 34% and 21% of gross product revenues in 2017,
35% and 22% of gross product revenues in 2016, and 34% and 26% of gross product revenues in 2015,
respectively.
Other
As of December 31, 2017, 2016 and 2015, approximately $1,215.7 million, $545.5 million and $161.5
million, respectively, of our long-lived assets were related to the construction of our large-scale biologics
manufacturing facility in Solothurn, Switzerland.
As of December 31, 2017, 2016 and 2015, approximately $707.1 million, $643.6 million and $684.9 million,
respectively, of our long-lived assets were related to our manufacturing facilities in Denmark.
For additional information on our large-scale biologics manufacturing facility in Solothurn, Switzerland, please
read Note 11, Property, Plant and Equipment, to these consolidated financial statements.
26. Quarterly Financial Data (Unaudited)
(In millions, except per share amounts)
2017
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
Fourth
Quarter
Total
Year
(a)
2,380.1 $
(a) (b) (c) (d)
(a)
(a) (e) (f) (g) (h)
2,639.7 $ 2,622.5 $
2,712.4 $ 10,354.7
340.6 $
90.0 $
2,810.7 $
2,426.1 $
747.5 $
747.6 $
397.1 $
41.6 $
406.5 $
48.8 $
3,078.4 $ 3,077.8 $
2,712.2 $ 2,707.8 $
862.8 $ 1,226.1 $
862.8 $ 1,226.1 $
415.0 $
179.6 $
1,559.2
360.0
3,307.0 $ 12,273.9
2,797.8 $ 10,643.9
2,670.1
2,539.1
(166.3) $
(297.4) $
3.47 $
4.07 $
5.80 $
(1.41) $
11.94
3.46 $
4.07 $
5.79 $
(1.40) $
11.92
215.6
215.9
211.9
211.4
212.2
211.8
211.5
212.0
212.6
213.0
F- 74
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(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. .......................................
First
Quarter
Second
Quarter
(i)
Third
Quarter
(i) (j)
2,309.4 $
2,466.0 $ 2,539.6 $
Fourth
Quarter
Total
Year
(i) (k) (l)
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
(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, second, third and fourth quarters of 2017
include a pre-tax charge of $353.6 million, $29.4 million, $30.4 million and $30.8 million, respectively, related
to our U.S. and rest of world licenses to Forward Pharma's intellectual property, including Forward Pharma's
intellectual property related to TECFIDERA.
(b) Net income and net income attributable to Biogen Inc. for the second quarter of 2017 includes a pre-tax charge
to research and development expense of $300.0 million for an upfront payment to BMS upon the closing of our
agreement to exclusively license BIIB092.
(c) Net income and net income attributable to Biogen Inc. for the second quarter of 2017 includes a pre-tax charge
to acquired in-process research and development of $120.0 million for an upfront payment to Remedy upon
closing of the asset purchase transaction.
(d) Net income and net income attributable to Biogen Inc. for the second quarter of 2017 includes a pre-tax charge
to research and development expense of $60.0 million for a developmental milestone that became payable to
the former shareholders of iPierian upon dosing of the first patient in the Phase 2 PSP study for BIIB092.
(e) Net income attributable to Biogen Inc., for the fourth quarter of 2017, includes a pre-tax charge to
noncontrolling interest of $150.0 million for a payment to Neurimmune in exchange for a 15% reduction in
royalty rates payable on potential commercial sales of aducanumab.
(f) Net income and net income attributable to Biogen Inc. for the fourth quarter of 2017 includes pre-tax charges
to research and development expense of $28.0 million and $50.0 million for an upfront payment and a
continuation payment, respectively, to Alkermes.
(g) Net income and net income attributable to Biogen Inc. for the fourth quarter of 2017 includes a pre-tax charge
to research and development expense of $25.0 million for an upfront payment to Ionis upon entering into a new
collaboration agreement to identify new antisense-oligonucleotide drug candidates for the treatment of SMA.
(h) Net income and net income attributable to Biogen Inc. for the fourth quarter of 2017 includes $1,173.6 million
related to the provisions of the 2017 Tax Act, including a $989.6 million expense under the Transition Toll Tax.
F- 75
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(i) Net income and net income attributable to Biogen Inc. for the second, third and fourth quarters of 2016
includes additional pre-tax depreciation expense totaling $15.8 million, $15.7 million and $14.0 million,
respectively, as part of our decision to cease manufacturing and vacate our small-scale biologics manufacturing
facility in Cambridge, MA as well as close and vacate our warehouse space in Somerville, MA.
(j) 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.
(k) 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.
(l) 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 our January 2017 settlement and license agreement with Forward Pharma.
27. Subsequent Events
Karyopharm Therapeutics Inc.
In January 2018 we acquired the exclusive worldwide rights to develop and commercialize Karyopharm
Therapeutics Inc.'s (Karyopharm) investigational oral compound BIIB100 (formerly known as KPT-350) for the
treatment of certain neurological and neurodegenerative conditions, primarily in ALS. We will pay Karyopharm an
upfront payment of $10.0 million and we may pay Karyopharm up to $207.0 million in additional milestone
payments, and potential royalties.
F- 76
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Biogen Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Biogen Inc. and its subsidiaries (the "Company")
as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income,
equity and cash flows for each of the three years in the period ended December 31, 2017, including the related
notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's
internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2017 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, 2017, based on criteria established
in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the
Company's internal control over financial reporting based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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
F- 77
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 1, 2018
We have served as the Company's auditor since 2003.
F- 78
CORPORATE INFORMATION
_______
Board of Directors
Stelios Papadopoulos, Ph.D.
Chairman, Biogen,
Chairman, Exelixis, Inc. and
Chairman, Regulus Therapeutics, Inc.
Caroline D. Dorsa
Retired Executive Vice President and
Chief Financial Officer, Public Service
Enterprise Group Incorporated
Michel Vounatsos
Chief Executive Officer, Biogen Inc.
Alexander J. Denner, Ph.D.
Founding Partner, Sarissa Capital
Nancy L. Leaming
Retired Chief Executive Officer and
President, Tufts Health Plan
Transfer Agent
To keep your contact information
current and for shareholder questions
regarding lost stock certificates,
address changes and changes of
ownership or names in which the
shares are held, direct inquiries to:
Computershare Trust
Company NA
250 Royall Street
Canton, MA 02021
Phone: (781) 575-2879
computershare.com
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
Richard C. Mulligan, Ph.D.
Mallinckrodt Professor
of Genetics, Emeritus, Harvard
Medical School and Portfolio Manager,
Icahn Capital LP
Robert W. Pangia
Partner, Ivy Capital Partners, LLC
Brian S. Posner
Private Investor and President, Point
Rider Group LLC
Eric K. Rowinsky, M.D.
President and Executive Chairman,
RGenix, Inc.
Lynn Schenk, J.D.
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
Independent Account
PricewaterhouseCoopers LLP
101 Seaport Boulevard
Boston, MA 02210
Market Information
Our common stock trades on the
Nasdaq Global Select Market under
the symbol “BIIB”.
News Releases
As a service to our shareholders and
prospective investors, Biogen’s news
releases are usually posted within one
hour of being issued and are available
at no cost at biogen.com.
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, 2017 and
2016.
2017
HIGH
LOW
Q1*
$298.00
$254.15
Q2
Q3
Q4
$291.90
$244.28
$330.00
$269.50
$348.84
$301.81
2016
HIGH
LOW
$301.02
$242.07
$292.69
$223.02
$333.65
$240.07
$329.83
$268.00
Q1
Q2
Q3
Q4
*The sales prices for the first quarter of 2017 in the table above has been adjusted for the impact of the spin-off of our hemophilia business as an independent, publicly traded company.
YEARS