UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2016 | |
or
o | 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 | 33-0112644 | |
(State or other jurisdiction of incorporation or organization) | (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 | Name of Each Exchange on Which Registered | |
Common Stock, $0.0005 par value | The Nasdaq Global Select Market | |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x
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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) | ||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $52,843,669,823.
As of January 27, 2017, the registrant had 215,951,945 shares of common stock, $0.0005 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for our 2017 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.
BIOGEN INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2016
TABLE OF CONTENTS
Page | ||
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are being made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 (the Act) with the intention of obtaining the benefits of the “Safe Harbor” provisions of the Act. These forward-looking statements may be accompanied by such words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “target,” “will” and other words and terms of similar meaning. Reference is made in particular to forward-looking statements regarding:
• | the anticipated amount, timing and accounting of revenues, contingent payments, milestone, royalty and other payments under licensing, collaboration or acquisition agreements, tax positions and contingencies, collectability of receivables, pre-approval inventory, cost of sales, research and development costs, compensation and other selling, general and administrative expenses, amortization of intangible assets, foreign currency exchange risk, estimated fair value of assets and liabilities, and impairment assessments; |
• | expectations, plans and prospects relating to sales, pricing, growth and launch of our marketed and pipeline products; |
• | the potential impact of increased product competition in the markets in which we compete; |
• | the spin off of our hemophilia business, including its anticipated benefits, costs and tax treatment; |
• | the anticipated amount and timing of payments under the Settlement and License Agreement with Forward Pharma A/S (Forward Pharma) and the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to our patents and other proprietary intellectual property rights under our agreement with Forward Pharma; |
• | patent terms, patent term extensions, patent office actions and expected availability and period of regulatory exclusivity; |
• | the costs and timing of potential clinical trials, filing and approvals, and the potential therapeutic scope of the development and commercialization of our and our collaborators’ pipeline products; |
• | the drivers for growing our business, including our plans and intent to commit resources relating to business development opportunities and research and development programs; |
• | potential costs and expenses incurred in connection with corporate restructurings and to execute business transformation and optimization initiatives; |
• | our manufacturing capacity, use of third-party contract manufacturing organizations and plans and timing relating to the expansion of our manufacturing capabilities, including anticipated investments and activities in new manufacturing facilities; |
• | the expected financial impact of ceasing manufacturing activities and vacating our biologics manufacturing facility in Cambridge, MA and warehouse space in Somerville, MA; |
• | the potential impact on our results of operations and liquidity of the United Kingdom's (U.K.'s) intent to voluntarily depart from the European Union (E.U.); |
• | the impact of the continued uncertainty of the credit and economic conditions in certain countries in Europe and our collection of accounts receivable in such countries; |
• | the potential impact of healthcare reform in the United States (U.S.) and measures being taken worldwide designed to reduce healthcare costs to constrain the overall level of government expenditures, including the impact of pricing actions and reduced reimbursement for our products; |
• | the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to patents and other proprietary and intellectual property rights, tax audits, assessments and settlements, pricing matters, sales and promotional practices, product liability and other matters; |
• | lease commitments, purchase obligations and the timing and satisfaction of other contractual obligations; |
• | our ability to finance our operations and business initiatives and obtain funding for such activities; and |
• | the impact of new laws and accounting standards. |
These forward-looking statements involve risks and uncertainties, including those that are described in the “Risk Factors” section of this report and elsewhere in this report, that could cause actual results to differ materially from those reflected in such statements. You should not place undue reliance on these statements. Forward-looking statements speak only as of the date of this report. Except as required by law, we do not undertake any obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.
NOTE REGARDING COMPANY AND PRODUCT REFERENCES
References in this report to:
• | “Biogen,” the “company,” “we,” “us” and “our” refer to Biogen Inc. and its consolidated subsidiaries; |
• | “RITUXAN” refers to both RITUXAN (the trade name for rituximab in the U.S., Canada and Japan) and MabThera (the trade name for rituximab outside the U.S., Canada and Japan); |
• | "ELOCTATE" refers to both ELOCTATE (the trade name for Antihemophilic Factor (Recombinant), Fc Fusion Protein in the U.S., Canada and Japan) and ELOCTA (the trade name for Antihemophilic Factor (Recombinant), Fc Fusion Protein in the E.U.); and |
• | “ANGIOMAX” refers to both ANGIOMAX (the trade name for bivalirudin in the U.S., Canada and Latin America) and ANGIOX (the trade name for bivalirudin in Europe). |
NOTE REGARDING TRADEMARKS
AVONEX®, BENEPALI®, FLIXABI®, PLEGRIDY®, RITUXAN®, TECFIDERA®, TYSABRI® and ZINBRYTA® are registered trademarks of Biogen. FUMADERMTM and SPINRAZATM are trademarks of Biogen. ALPROLIX®, ELOCTATE®, ENBREL®, FAMPYRATM, GAZYVA®, HUMIRA®, OCREVUS®, REMICADE® and other trademarks referenced in this report are the property of their respective owners.
PART I
Item 1. Business
Overview
Biogen is a global biopharmaceutical company focused on discovering, developing, manufacturing and delivering therapies to people living with serious neurological, rare and autoimmune diseases.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, ZINBRYTA and FAMPYRA for multiple sclerosis (MS), FUMADERM for the treatment of severe plaque psoriasis and SPINRAZA for the treatment of spinal muscular atrophy (SMA). We also have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions, GAZYVA indicated for the treatment of CLL and follicular lymphoma and other potential anti-CD20 therapies under a collaboration agreement with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group (Roche Group).
We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities, particularly within areas of our scientific, manufacturing and technical capabilities. For nearly two decades we have led in the research and development of new therapies to treat MS, resulting in our leading portfolio of MS treatments. Now our research is focused on additional improvements in the treatment of MS, such as the development of next generation therapies for MS, with a goal to reverse or possibly repair damage caused by the disease. We are also applying our scientific expertise to solve some of the most challenging and complex diseases, including Alzheimer's disease, Parkinson's disease and amyotrophic lateral sclerosis (ALS), and are employing innovative technologies to discover potential treatments for rare and genetic disorders, including new ways of treating diseases through gene therapy.
Our innovative drug development and commercialization activities are complemented by our biosimilar therapies that expand access to medicines and reduce the cost burden for healthcare systems. We are leveraging our manufacturing capabilities and know-how to develop, manufacture and market biosimilars through Samsung Bioepis, our joint venture with Samsung BioLogics Co. Ltd. (Samsung Biologics). Under this agreement, we are currently manufacturing and commercializing two anti-tumor necrosis factor (TNF) biosimilars in certain European Union (E.U.) countries.
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Key Developments
During 2016 we had a number of key developments affecting our business.
Corporate Matters
Hemophilia Spin-Off
In May 2016 we announced our intention to spin off our hemophilia business, Bioverativ Inc. (Bioverativ), as an independent, publicly traded company. Bioverativ will focus on the discovery, development and commercialization of therapies for treatment of hemophilia and other blood disorders, including ELOCTATE for the treatment of hemophilia A and ALPROLIX for the treatment of hemophilia B. Bioverativ will also assume all of our rights and obligations under our collaboration agreement with Swedish Orphan Biovitrum AB (Sobi) and our collaboration and license agreement with Sangamo Biosciences Inc. (Sangamo).
On February 1, 2017, we completed the distribution of all the then outstanding shares of common stock of Bioverativ to Biogen stockholders, who received one share of Bioverativ common stock for every two shares of Biogen common stock. As a result of the distribution, Bioverativ is now an independent public company whose shares of common stock are trading under the symbol "BIVV" on the Nasdaq Global Select Market.
The financial results of Bioverativ are included in our consolidated results of operations and financial position in our audited consolidated financial statements for the periods presented in this Form 10-K. The financial results of Bioverativ will be excluded from our consolidated results of operations and financial position commencing February 1, 2017. For additional information regarding the separation of Bioverativ, please read Note 26, Subsequent Events to our consolidated financial statements included in this report.
Management Changes
During 2016 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 include Michel Vounatsos, Chief Executive Officer, Michael D. Ehlers, Executive Vice President, Research and Development and Paul McKenzie, Executive Vice President, Pharmaceutical Operations and Technology. For additional information related to these and our other Executive Officers, please read "Our Executive Officers" included in this report.
Cost Saving Initiatives
In 2016 we initiated cost saving measures intended to realign our organizational structure in anticipation of the changes in roles and workforce resulting from our decision to spin off our hemophilia business, as well as to achieve further targeted cost reductions.
In December 2016 after an evaluation of our manufacturing capacity and needs, we ceased manufacturing at our Cambridge, MA manufacturing facility and subleased our rights to this facility to Brammer Bio MA, LLC (Brammer). In addition to the sublease, Brammer purchased certain leasehold improvements and other assets at this facility and agreed to provide certain manufacturing and other transition and support services to us.
TECFIDERA Settlement and License Agreement
In January 2017 we agreed to enter into a settlement and license agreement with Forward Pharma A/S (Forward Pharma). The settlement and license agreement provides us an irrevocable license to all intellectual property owned by Forward Pharma and results in the termination of the German Infringement Litigation. Under the terms of the settlement and license agreement with Forward Pharma, we agreed to pay Forward Pharma $1.25 billion in cash. During the fourth quarter of 2016 we recognized a pre-tax charge of $454.8 million related to this matter. For more information on the settlement and license agreement please read Note 21, Commitments and Contingencies to our consolidated financial statements included in this report.
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Product/Pipeline Developments
Multiple Sclerosis | |
TYSABRI (natalizumab) | |
l | In June 2016 the European Commission (EC) approved a variation to the marketing authorization of TYSABRI, which extended its indication to include relapsing-remitting MS patients with highly active disease activity despite a full and adequate course of treatment with at least one disease modifying therapy. TYSABRI was previously indicated only for patients who had failed to respond to beta-interferon or glatiramer acetate in the E.U. |
ZINBRYTA (daclizumab) | |
l | ZINBRYTA was approved for the treatment of relapsing forms of MS in the U.S. in May 2016 and the E.U. in July 2016. |
Opicinumab (Anti-LINGO-1) | |
l | In June 2016 we reported top-line results from SYNERGY, our Phase 2 trial evaluating opicinumab in people with relapsing forms of MS. Opicinumab did not meet the primary endpoint or its secondary efficacy endpoint. However, based on these results, there was a subset of patients within the study that we believe have potential to benefit from treatment, and we are therefore planning another Phase 2 clinical trial related to opicinumab. |
Neurodegeneration | |
Aducanumab (BIIB037) | |
l | In June 2016 we announced that aducanumab, our investigational treatment for early Alzheimer’s disease, was accepted into the European Medicines Agency's (EMA's) Priority Medicines (PRIME) program. PRIME aims to bring treatments to patients more quickly by enhancing the EMA's support for the development of investigational medicines for diseases without available treatments or in need of better treatment options. |
l | In September 2016 aducanumab was granted "Fast Track" designation by the U.S. Food and Drug Administration (FDA). The FDA’s Fast Track program supports the development of new treatments for serious conditions with an unmet medical need such as Alzheimer’s disease. |
l | In September 2016 we announced that efficacy and safety data from an additional interim analysis from our Phase 1b study of aducanumab in early Alzheimer's disease were consistent with results previously reported from the Phase 1b study. |
l | In December 2016 we presented new data from the Phase 1b study of aducanumab, which included interim results from the titration cohort of the placebo-controlled period of the Phase 1b study as well as data from the first year of the long-term extension. The results supported the ongoing Phase 3 studies of aducanumab for early Alzheimer’s disease. |
Rare Diseases | |
SPINRAZA (nusinersen) | |
l | In August 2016 we and Ionis Pharmaceuticals, Inc. (Ionis) announced that SPINRAZA met the primary endpoint for the interim analysis of ENDEAR, the Phase 3 trial evaluating SPINRAZA in infantile-onset (consistent with Type 1) SMA. Based on these results, we exercised our option under our collaboration agreement with Ionis to assume development and commercialization of SPINRAZA, and paid Ionis a $75.0 million license fee in connection with our option exercise. |
l | In September 2016 we completed the rolling submission of a New Drug Application (NDA) to the FDA for the approval of SPINRAZA, and in October 2016 we filed a marketing authorization application (MAA) with the EMA, which had already granted Accelerated Assessment status to SPINRAZA. These applications have been accepted for review by the applicable regulatory authorities. |
l | In October 2016 we dosed our first patient in our infantile-onset SMA Expanded Access Program to provide patient access to SPINRAZA. |
l | In November 2016 we and Ionis announced that SPINRAZA met the primary endpoint for the interim analysis of CHERISH, the Phase 3 trial evaluating SPINRAZA in later-onset (consistent with Type 2) SMA. The analysis found that children receiving SPINRAZA experienced a highly statistically significant improvement in motor function compared to those who did not receive treatment. SPINRAZA demonstrated a favorable safety profile in the study. |
l | In December 2016 SPINRAZA was approved by the FDA for the treatment of SMA in pediatric and adult patients in the U.S. The FDA also issued us a rare pediatric disease priority review voucher with the approval of SPINRAZA, which confers priority review to a subsequent drug application that would not otherwise qualify for priority review. |
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Biosimilars (Samsung Bioepis - Biogen's Joint Venture with Samsung Biologics) | |
BENEPALI | |
l | In January 2016 the EC approved Samsung Bioepis' MAA for BENEPALI, an etanercept biosimilar referencing ENBREL, for marketing in the E.U. Under our agreement with Samsung Bioepis, we are manufacturing and commercializing BENEPALI in specified E.U. countries. |
FLIXABI | |
l | In May 2016 the EC approved Samsung Bioepis' MAA for FLIXABI, an infliximab biosimilar candidate referencing REMICADE, for marketing in the E.U. Under our agreement with Samsung Bioepis, we are manufacturing and commercializing FLIXABI in specified E.U. countries. |
Adalimumab (SB5) | |
l | In July 2016 the EMA accepted Samsung Bioepis' MAA for SB5, an adalimumab biosimilar candidate referencing HUMIRA. |
Genentech Relationships | |
GAZYVA (obinutuzumab) | |
l | In February 2016 the Roche Group announced that the FDA approved GAZYVA plus bendamustine chemotherapy followed by GAZYVA alone as a new treatment for people with follicular lymphoma who did not respond to a RITUXAN-containing regiment, or whose follicular lymphoma returned after such treatment. |
l | In May 2016 the Roche Group announced positive results from the Phase 3 GALLIUM study, which investigated the efficacy and safety of GAZYVA in combination with chemotherapy followed by maintenance with GAZYVA alone, compared to RITUXAN in combination with chemotherapy followed by maintenance with RITUXAN alone in previously untreated patients with follicular lymphoma. Results from pre-planned interim analysis showed that GAZYVA-based treatment significantly reduced the risk of disease worsening or death compared to RITUXAN-based treatment. |
l | In July 2016 the Roche Group announced that the Phase 3 GOYA study evaluating GAZYVA plus CHOP chemotherapy in people with previously untreated diffuse large B-cell lymphoma did not meet its primary endpoint of significantly reducing the risk of disease worsening or death compared to RITUXAN plus CHOP chemotherapy. Adverse events with GAZYVA and RITUXAN were consistent with those seen in previous clinical trials when each was combined with various chemotherapies. |
OCREVUS (ocrelizumab) | |
l | In June 2016 the Roche Group announced that the EMA validated its MAA of OCREVUS for the treatment of relapsing multiple sclerosis (RMS) and primary progressive multiple sclerosis (PPMS) in the E.U. The FDA has also accepted for review the Roche Group's Biologics License Application (BLA) for OCREVUS for the treatment of RMS and PPMS. |
RITUXAN (rituximab) | |
l | In November 2016 Genentech announced the FDA accepted its BLA for a subcutaneous formulation of RITUXAN. |
Discontinued Programs | |
l | During 2016 we discontinued development of amiselimod (MT-1303) under our agreement with Mitsubishi Tanabe Pharma Corporation, and IONIS-DMPKRx under one of our collaboration agreements with Ionis. Additionally, we terminated our collaboration agreements with Rodin Therapeutics, Inc. and Ataxion Inc. |
4
Marketed Products
The following graphs show our revenues by product and revenues from anti-CD20 therapeutic programs and geography as a percentage of revenue for the years ended December 31, 2016, 2015 and 2014.
(1) Interferon includes AVONEX and PLEGRIDY
(2) Other includes ZINBRYTA, FAMPYRA, ELOCTATE, ALPROLIX, FUMADERM, SPINRAZA, BENEPALI and FLIXABI
Product sales for TECFIDERA, AVONEX and TYSABRI and anti-CD20 therapeutic programs for RITUXAN each accounted for more than 10% of our total revenue for the years ended December 31, 2016, 2015 and 2014. For additional financial information about our product and other revenues and geographic areas in which we operate, please read Note 24, Segment Information to our consolidated financial statements, Item 6. Selected Financial Data and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. A discussion of the risks attendant to our operations is set forth in the “Risk Factors” section of this report.
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Multiple Sclerosis
We develop, manufacture and market a number of products designed to treat patients with MS. MS is a progressive neurological disease in which the body loses the ability to transmit messages along nerve cells, leading to a loss of muscle control, paralysis and, in some cases, death. Patients with active relapsing MS experience an uneven pattern of disease progression characterized by periods of stability that are interrupted by flare-ups of the disease after which the patient returns to a new baseline of functioning.
Our MS products and major markets include:
Product | Indication | Collaborator | Major Markets | ||
 | Relapsing forms of MS in the U.S. Relapsing-remitting MS (RRMS) in the E.U. | None | U.S. France Germany Italy Spain United Kingdom | ||
 | Relapsing forms of MS | None | U.S. France Germany Italy Spain United Kingdom | ||
 | Relapsing forms of MS in the U.S. RRMS in the E.U. | None | U.S. France Germany Italy Spain United Kingdom | ||
 | Relapsing forms of MS Crohn's disease in the U.S. | None | U.S. France Germany Italy Spain United Kingdom | ||
 | Relapsing forms of MS | AbbVie Inc. (AbbVie) | U.S. Germany | ||
 | Walking ability for patients with MS | Acorda Therapeutics, Inc. (Acorda) | France Germany Spain | ||
Spinal Muscular Atrophy
SMA is characterized by loss of motor neurons in the spinal cord and lower brain stem, resulting in severe and progressive muscular atrophy and weakness. Ultimately, individuals with the most severe type of SMA can become paralyzed and have difficulty performing the basic functions of life, like breathing and swallowing. Due to a loss of, or defect in the SMN1 gene, people with SMA do not produce enough survival motor neuron (SMN) protein, which is critical for the maintenance of motor neurons. The severity of SMA correlates with the amount of SMN protein. People with Type 1 SMA, the most severe life-threatening form, produce very little SMN protein and do not achieve the ability to sit without support or live beyond two years without respiratory support. People with Type 2 and Type 3 produce greater amounts of SMN protein and have less severe, but still life-altering, forms of SMA.
In December 2016 the FDA approved SPINRAZA for the treatment of SMA in pediatric and adult patients. We are currently in the early stages of commercial launch in the U.S.
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Our products for SMA and major markets include:
Product | Indication | Collaborator | Major Markets | ||
 | Spinal muscular atrophy | Ionis | U.S. | ||
Other
Product | Indication | Collaborator | Major Markets | ||
 | Moderate to severe plaque psoriasis | None | Germany | ||
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:
Product | Indication | Major Markets | |
 | Moderate to severe rheumatoid arthritis Progressive psoriatic arthritis Axial spondyloarthritis Moderate to severe plaque psoriasis | Denmark Germany Netherlands Norway United Kingdom | |
 | Rheumatoid arthritis Moderate to severe Crohn's disease Severe ulcerative colitis Severe ankylosing spondylitis Psoriatic arthritis Moderate to severe plaque psoriasis | Germany Netherlands United Kingdom | |
Genentech Relationships
We have a collaboration agreement with Genentech that entitles us to certain business and financial rights with respect to RITUXAN, GAZYVA and other anti-CD20 product candidates. Current products include:
Product | Indication | Major Markets | |
 | Non-Hodgkin's lymphoma CLL Rheumatoid arthritis Two forms of ANCA-associated vasculitis | U.S. Canada | |
 | In combination with chlorambucil for previously untreated CLL Follicular lymphoma | U.S. | |
For information about our anti-CD20 therapeutic programs and related agreements with Genentech, please read Note 1, Summary of Significant Accounting Policies and Note 19, Collaborative and Other Relationships to our consolidated financial statements included in this report.
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Patient Support and Access
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.
We focus our sales and marketing efforts on specialist physicians in private practice or at major medical centers. We use customary pharmaceutical company practices to market our products and to educate physicians, such as sales representatives calling on individual physicians, advertisements, professional symposia, direct mail, public relations and other methods.
Distribution Arrangements
We distribute our products in the U.S. principally through wholesale distributors of pharmaceutical products, mail order specialty distributors or shipping service providers. In other countries, the distribution of our products varies from country to country, including through wholesale distributors of pharmaceutical products and third-party distribution partners who are responsible for most marketing and distribution activities.
AbbVie distributes ZINBRYTA in the U.S., and we distribute ZINBRYTA in ex-U.S. markets.
RITUXAN and GAZYVA are marketed and distributed by the Roche Group and its sublicensees.
Our product sales to two wholesale distributors, AmerisourceBergen and McKesson, each accounted for more than 10% of our total revenues for the years ended December 31, 2016, 2015 and 2014, and on a combined basis, accounted for approximately 60% of our gross product revenues for such years, respectively. For additional information, please read Note 1, Summary of Significant Accounting Policies to our consolidated financial statements included in this report.
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Patents and Other Proprietary Rights
Patents are important to obtaining and protecting exclusive rights in our products and product candidates. We regularly seek patent protection in the U.S. and in selected countries outside the U.S. for inventions originating from our research and development efforts. In addition, we license rights to various patents and patent applications.
U.S. patents, as well as most foreign patents, are generally effective for 20 years from the date the earliest application was filed; however, U.S. patents that issue on applications filed before June 8, 1995 may be effective until 17 years from the issue date, if that is later than the 20 year date. In some cases, the patent term may be extended to recapture a portion of the term lost during regulatory review of the claimed therapeutic or, in the case of the U.S., because of U.S. Patent and Trademark Office (USPTO) delays in prosecuting the application. Specifically, in the U.S., under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, a patent that covers an FDA-approved drug may be eligible for patent term extension (for up to five years, but not beyond a total of 14 years from the date of product approval) as compensation for patent term lost during the FDA regulatory review process. The duration and extension of the term of foreign patents varies, in accordance with local law. For example, supplementary protection certificates (SPCs) on some of our products have been granted in a number of European countries, compensating in part for delays in obtaining marketing approval.
Regulatory exclusivity, which may consist of regulatory data protection and market protection, also can provide meaningful protection for our products. Regulatory data protection provides to the holder of a drug or biologic marketing authorization, for a set period of time, the exclusive use of the proprietary pre-clinical and clinical data that it created at significant cost and submitted to the applicable regulatory authority to obtain approval of its product. After the applicable set period of time, third parties are then permitted to rely upon our data to file for approval of their abbreviated applications for, and to market (subject to any applicable market protection), their generic drugs and biosimilars referencing our data. Market protection provides to the holder of a drug or biologic marketing authorization the exclusive right to commercialize its product for a set period of
time, thereby preventing the commercialization of another product containing the same active ingredient(s) during that period. Although the World Trade Organization's agreement on trade-related aspects of intellectual property rights (TRIPS) requires signatory countries to provide regulatory exclusivity to innovative pharmaceutical products, implementation and enforcement varies widely from country to country.
We also rely upon other forms of unpatented confidential information to remain competitive. We protect such information principally through confidentiality agreements with our employees, consultants, outside scientific collaborators, scientists whose research we sponsor and other advisers. In the case of our employees, these agreements also provide, in compliance with relevant law, that inventions and other intellectual property conceived by such employees during their employment shall be our exclusive property.
Our trademarks are important to us and are generally covered by trademark applications or registrations in the USPTO and the patent or trademark offices of other countries. We also use trademarks licensed from third parties, such as the trademark FAMPYRA which we license from Acorda. Trademark protection varies in accordance with local law, and continues in some countries as long as the trademark is used and in other countries as long as the trademark is registered. Trademark registrations generally are for fixed but renewable terms.
Our Patent Portfolio
The following table describes our patents in the U.S. and Europe that we currently consider of primary importance to our marketed products, including the territory, patent number, general subject matter and expected expiration dates. Except as otherwise noted, the expected expiration dates include any granted patent term extensions and issued SPCs. In some instances, there are later-expiring patents relating to our products directed to, among other things, particular forms or compositions, methods of manufacturing, or use of the drug in the treatment of particular diseases or conditions. We also continue to pursue additional patents and patent term extensions in the U.S. and other territories covering various aspects of our products that may, if issued, extend exclusivity beyond the expiration of the patents listed in the table.
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Product | Territory | Patent No. | General Subject Matter | Patent Expiration(1) | ||||
TECFIDERA | U.S. | 7,619,001 | Methods of treatment | 2018 | ||||
U.S. | 7,803,840 | Methods of treatment | 2018 | |||||
U.S. | 8,399,514 | Methods of treatment | 2028 | |||||
U.S. | 8,524,773 | Methods of treatment | 2018 | |||||
U.S. | 6,509,376 | Formulations of dialkyl fumarates for use in the treatment of autoimmune diseases | 2019 | |||||
U.S. | 8,759,393 | Formulations | 2019 | |||||
U.S. | 7,320,999 | Methods of treatment | 2020 | |||||
Europe | 1131065 | Formulations of dialkyl fumarates and their use for treating autoimmune diseases | 2019(2) | |||||
Europe | 2137537 | Methods of use | 2028(3) | |||||
AVONEX and PLEGRIDY | U.S. | 7,588,755 | Use of recombinant beta interferon for immunomodulation | 2026 | ||||
PLEGRIDY | U.S. | 7,446,173 | Polymer conjugates of interferon beta-1a | 2022 | ||||
U.S. | 8,524,660 | Methods of treatment | 2023 | |||||
U.S. | 8,017,733 | Polymer conjugates of interferon beta-1a | 2025 | |||||
Europe | 1656952 | Polymer conjugates of interferon-beta-1a and uses thereof | 2019 | |||||
Europe | 1476181 | Polymer conjugates of interferon-beta-1a and uses thereof | 2023 | |||||
TYSABRI | U.S. | 5,840,299 | Humanized immunoglobulins; nucleic acids; pharmaceutical compositions; methods of use | 2017 | ||||
U.S. | 6,602,503 | Humanized recombinant antibodies; nucleic acids and host cells; processes for production; therapeutic compositions; methods of use | 2020 | |||||
U.S. | 7,807,167 | Methods of treatment | 2023 | |||||
U.S. | 9,493,567 | Methods of treatment | 2027 | |||||
Europe | 0804237 | Humanized immunoglobulins; nucleic acids; pharmaceutical compositions; medical uses | 2020(4) | |||||
Europe | 1485127 | Methods of use | 2023 | |||||
FAMPYRA | Europe | 1732548 | Sustained-release aminopyridine compositions for increasing walking speed in patients with MS | 2025(5) | ||||
Europe | 23775536 | Sustained-release aminopyridine compositions for treating MS | 2025(6) | |||||
ZINBRYTA | U.S. | 8,454,965 | Methods of treatment | 2024 | ||||
U.S. | 7,258,859 | Methods of treatment | 2024 | |||||
U.S. | 9,340,619 | Daclizumab HYP compositions | 2032 | |||||
Europe | 1539200 | Anti-IL-2-receptor antibody for use in a method of treating a subject with MS | 2023 | |||||
SPINRAZA | U.S. | 6,166,197 | Oligomeric Compounds Having Pyrimidine Nucleotide(s) | 2017 | ||||
U.S. | 6,210,892 | Alteration of Cellular Behavior By Antisense Modulation of MRNA Processing | 2018 | |||||
U.S. | 7,101,993 | Oligonucleotides Containing 2’-O-Modified Purines | 2023 | |||||
U.S. | 7,838,657 | SMA Treatment Via Targeting of SMN2 Splice Site Inhibitory Sequences | 2027 | |||||
U.S. | 8,110,560 | SMA Treatment Via Targeting of SMN2 Splice Site Inhibitory Sequences | 2025 | |||||
U.S. | 8,361,977 | Compositions And Methods For Modulation of SMN2 Splicing | 2030 | |||||
U.S. | 8,980,853 | Compositions And Methods For Modulation of SMN2 Splicing | 2030 | |||||
Europe | 1910395 | Compositions And Methods For Modulation of SMN2 Splicing | 2026 | |||||
Europe | 2548560 | Compositions And Methods For Modulation of SMN2 Splicing | 2026 | |||||
Footnotes follow on next page.
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(1) | In addition to patent protection, certain of our products are entitled to regulatory exclusivity in the U.S. and the E.U. expected until the dates set forth below: |
Product | Territory | Expected Expiration | ||
TECFIDERA | U.S. | 2018 | ||
E.U. | 2024 | |||
PLEGRIDY | U.S. | 2026 | ||
E.U. | 2024 | |||
TYSABRI | U.S. | 2016 | ||
E.U. | 2016 | |||
FAMPYRA | E.U. | 2021 | ||
ZINBRYTA | U.S. | 2028 | ||
E.U. | * | |||
SPINRAZA | U.S. | 2023 | ||
*ZINBRYTA was not designated a new active substance at the time of its approval in the E.U. and is not automatically entitled to regulatory exclusivity. Regulatory exclusivity may, however, be available for independent development of known active substances. We intend to assert the protection of its data on this basis.
(2) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2024. |
(3) | This patent was revoked in a European opposition. This decision is being appealed. The patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2029. |
(4) | Reflects SPCs granted in most European countries. |
(5) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2026. |
(6) | This patent is subject to granted SPCs in certain European countries, which extended the patent term in those countries to 2026. |
The existence of patents does not guarantee our right to practice the patented technology or commercialize the patented product. Patents relating to pharmaceutical, biopharmaceutical and biotechnology products, compounds and processes, such as those that cover our existing compounds, products and processes and those that we will likely file in the future, do not always provide complete or adequate protection. Litigation, interferences, oppositions, inter partes reviews or other proceedings are, have been and may in the future be necessary in some instances to determine the validity and scope of certain of our patents, regulatory exclusivities or other proprietary rights, and in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. We may also face challenges to our patents, regulatory exclusivities and other proprietary rights covering our products by manufacturers of generics and biosimilars. A discussion of certain risks and uncertainties that may affect our patent position, regulatory exclusivities and other proprietary rights is set forth in the “Risk Factors” section of this report, and a discussion of legal proceedings related to certain patents described above is set forth in Note 20, Litigation to our consolidated financial statements included in this report.
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Competition
Competition in the biopharmaceutical industry is intense and comes from many sources, including specialized biotechnology firms and large pharmaceutical companies. Many of our competitors are working to develop products similar to those we are developing or already market and have considerable experience in undertaking clinical trials and in obtaining regulatory approval to market pharmaceutical products. Certain of these companies have substantially greater financial, marketing and research and development resources than we do.
We believe that competition and leadership in the industry is based on managerial and technological excellence and innovation as well as establishing patent and other proprietary positions through research and development. The achievement of a leadership position also depends largely upon our ability to maximize the approval, acceptance and use of products resulting from research and the availability of adequate financial resources to fund facilities, equipment, personnel, clinical testing, manufacturing and marketing. Another key aspect of remaining competitive within the industry is recruiting and retaining leading scientists and technicians. We believe that we have been successful in attracting and retaining skilled and experienced scientific personnel.
Competition among products approved for sale may be based, among other things, on patent position, product efficacy, safety, convenience/delivery devices, reliability, availability and price. In addition, early entry of a new pharmaceutical product into the market may have important advantages in gaining product acceptance and market share. Accordingly, the relative speed with which we can develop products, complete the testing and approval process and supply commercial quantities of products will have a significant impact on our competitive position.
The introduction of new products or technologies, including the development of new processes or technologies by competitors or new information about existing products or technologies, may result in increased competition for our marketed products or pricing pressure on our marketed products. It is also possible that the development of new or improved treatment options or standards of care or cures for the diseases our products treat could reduce or eliminate the use of our products or may limit the utility and application of ongoing clinical trials for our product candidates. We may also face increased competitive pressures as a result of generics and the emergence of biosimilars in the U.S. and E.U. If a generic or biosimilar version of one of our products were approved, it could reduce our sales of that product.
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 | Competitor | |
AUBAGIO (teriflunomide) | Sanofi | |
BETASERON/BETAFERON (interferon-beta-1b) | Bayer Group | |
COPAXONE (glatiramer acetate) | Teva Pharmaceuticals Industries Ltd. | |
EXTAVIA (interferon-beta-1b) | Novartis AG | |
GLATOPA (glatiramer acetate) | Sandoz, a division of Novartis AG | |
GILENYA (fingolimod) | Novartis AG | |
LEMTRADA (alemtuzumab) | Sanofi | |
REBIF (interferon-beta-1) | Merck KGaA (and co-promoted with Pfizer Inc. in the U.S.) | |
FAMPYRA is indicated as a treatment to improve walking in adult patients with MS who have walking disability and is the first treatment that addresses this unmet medical need with demonstrated efficacy in people with all types of MS. FAMPYRA is currently the only therapy approved to improve walking in patients with MS.
Competition in the MS market is intense. Along with us, a number of companies are working to develop additional treatments for MS that may in the future compete with our MS products. One such product candidate is OCREVUS, a potential treatment for RMS and PPMS being developed by Genentech. While we have a financial interest in OCREVUS, future sales of our MS products may be adversely affected by the commercialization of OCREVUS, as well as by other MS products we or our competitors are developing. Future sales may also be negatively impacted by the introduction of generics, prodrugs of existing therapeutics or biosimilars of existing products.
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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.
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Research and Development Programs
A commitment to research is fundamental to our mission. Our research efforts are focused on better understanding the underlying biology of diseases so we can discover and deliver treatments that have the potential to make a real difference in the lives of patients with high unmet medical needs. By applying our expertise in biologics and our growing capabilities in small molecule, antisense, gene therapy, gene editing and other technologies, we target specific medical needs where we believe new or better treatments are needed.
We intend to continue committing significant resources to research and development opportunities. As part of our ongoing research and development efforts, we have devoted significant resources to conducting clinical studies to advance the development of new pharmaceutical products and technologies and to explore the utility of our existing products in treating disorders beyond those currently approved in their labels.
The table below highlights our current research and development programs that are in clinical trials and the current phase of such programs. Drug development involves a high degree of risk and investment, and the status, timing and scope of our development programs are subject to change. Important factors that could adversely affect our drug development efforts are discussed in the “Risk Factors” section of this report.
Product Candidate | Collaborator | PHASE 1 | PHASE 2 | PHASE 3 | FILED | ||||||||
OCREVUS | Genentech (Roche Group) | Primary Progressive & Relapsing Multiple Sclerosis | |||||||||||
Biosimilar adalimumab | Samsung Bioepis | Multiple Immunology Indications in Europe | |||||||||||
GAZYVA | Genentech (Roche Group) | Front-Line Indolent Non Hodgkin’s Lymphoma | |||||||||||
Aducanumab | Neurimmune SubOne AG | Alzheimer's Disease | |||||||||||
E2609 | Eisai Co., Ltd. (Eisai) | Alzheimer's Disease | |||||||||||
BIIB074 | None | Trigeminal Neuralgia | |||||||||||
BIIB074 | None | Lumbosacral Radiculopathy | |||||||||||
BIIB074 | None | Erythromelalgia | |||||||||||
BAN2401 | Eisai | Alzheimer's Disease | |||||||||||
Opicinumab (anti-LINGO-1) | None | Multiple Sclerosis | |||||||||||
TYSABRI | None | Acute Ischemic Stroke | |||||||||||
rAAV-XLRS | AGTC | X-linked Juvenile Retinoschisis | |||||||||||
BG00011 (STX-100) | None | Idiopathic Pulmonary Fibrosis | |||||||||||
Dapirolizumab pegol | UCB Pharma | Lupus | |||||||||||
BIIB059 (Anti-BDCA02) | None | Lupus | |||||||||||
BIIB061 | None | MS | |||||||||||
BIIB054 | None | PD* | |||||||||||
BIIB067 (IONIS-SOD1Rx) | Ionis | ALS** | |||||||||||
BIIB068 (BTK Inhibitor) | None | A*** | |||||||||||
* Parkinson's Disease
** Amyotrophic Lateral Sclerosis
*** Autoimmune
For information about certain of our agreements with collaborators and other third parties, please read the subsection entitled “Business Relationships” below and Note 19, Collaborative and Other Relationships to our consolidated financial statements included in this report.
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Late Stage Product Candidates
Additional information about our late stage product candidates, which includes programs in Phase 3 development or in registration stage, is set forth below.
Neurodegeneration | |
Aducanumab (BIIB037) | |
l | In September 2015 we enrolled our first patient in our two global Phase 3 studies, ENGAGE and EMERGE. ENGAGE and EMERGE will assess the efficacy and safety of aducanumab, our investigational treatment for early Alzheimer's disease, in approximately 2,700 people with early Alzheimer's disease. The studies are identical in design and eligibility criteria. Each study will be conducted in more than 20 countries in North America, Europe and Asia. In October 2015 we announced that we received FDA agreement on a special protocol assessment on the Phase 3 study protocols. |
l | In June 2016 we announced that aducanumab was accepted into the European Medicines Agency's (EMA's) Priority Medicines (PRIME) program. PRIME aims to bring treatments to patients more quickly by enhancing the EMA's support for the development of investigational medicines for diseases without available treatments or in need of better treatment options. |
l | In September 2016 aducanumab was granted Fast Track designation by the FDA. The FDA’s Fast Track program supports the development of new treatments for serious conditions with an unmet medical need such as Alzheimer’s disease. We also announced that in a recently completed interim analysis from our Phase 1b study of aducanumab in early Alzheimer's disease efficacy and safety data were consistent with results previously reported. |
l | In December 2016 we presented new data from the Phase 1b study of aducanumab, which included interim results from the titration cohort of the placebo-controlled period of the Phase 1b study as well as data from the first year of the long-term extension. The results supported the ongoing Phase 3 studies of aducanumab for early Alzheimer’s disease. |
E2609 | |
l | In October 2016 Eisai announced enrollment has commenced in MISSION AD, a Phase 3 clinical program of the beta secretase cleaving enzyme (BACE) inhibitor E2609 in patients with early Alzheimer's disease in the U.S. |
Biosimilars (Samsung Bioepis - Biogen's Joint Venture with Samsung Biologics) | |
Adalimumab (SB5) | |
l | In July 2016 the EMA accepted Samsung Bioepis' MAA for SB5, an adalimumab biosimilar candidate referencing HUMIRA. If approved by the EC, we will manufacture and commercialize SB5 in specified E.U. countries. |
Genentech Relationships | |
GAZYVA (obinutuzumab) | |
l | The Roche Group is managing GALLIUM, a Phase 3 study examining the efficacy and safety of GAZYVA plus chemotherapy followed by GAZYVA alone for up to two years, as compared head-to-head against RITUXAN plus chemotherapy followed by RITUXAN alone for up to two years. At a pre-planned interim analysis in May 2016, an independent data monitoring committee determined that the study met its primary endpoint early. The results showed GAZYVA-based treatment significantly reduced the risk of disease worsening or death (progression-free survival) compared to RITUXAN-based treatment. |
OCREVUS (ocrelizumab) | |
l | In June 2015 the Roche Group announced positive results from two Phase 3 studies evaluating OCREVUS compared with interferon beta-1a in people with relapsing forms of MS. Treatment with OCREVUS compared with interferon beta-1a significantly reduced the annualized relapse rate over a two-year period; significantly reduced the progression of clinical disability; and led to a significant reduction in the number of lesions in the brain as measured by MRI. |
l | In September 2015 the Roche Group announced positive results from a Phase 3 study evaluating OCREVUS in people with PPMS. Treatment with OCREVUS significantly reduced the progression of clinical disability compared with placebo, as measured by the Expanded Disability Status Scale. |
l | In June 2016 the Roche Group announced that the EMA validated its MAA of OCREVUS for the treatment of RMS and PPMS in the E.U. The FDA has also accepted for review its BLA for OCREVUS for the treatment of RMS and PPMS, and has granted the application priority review designation. Under our agreement with Genentech, if OCREVUS is approved, we will receive tiered royalty payments on sales of OCREVUS in the U.S. |
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Business Relationships
As part of our business strategy, we establish business relationships, including joint ventures and collaborative arrangements with other companies, universities and medical research institutions, to assist in the clinical development and/or commercialization of certain of our products and product candidates and to provide support for our research programs. We also evaluate opportunities for acquiring products or rights to products and technologies that are complementary to our business from other companies, universities and medical research institutions.
Below is a brief description of certain business relationships and collaborations that expand our pipeline and provide us with certain rights to existing and potential new products and technologies. For more information regarding certain of these relationships, including their ongoing financial and accounting impact on our business, please read Note 19, Collaborative and Other Relationships to our consolidated financial statements included in this report.
AbbVie, Inc.
We have a collaboration agreement with AbbVie aimed at advancing the development and commercialization of ZINBRYTA in MS. Under the agreement, we and AbbVie conduct ZINBRYTA co-promotion activities in the U.S., E.U. and Canadian territories, and we are responsible for manufacturing and research and development activities.
Acorda Therapeutics, Inc.
We collaborate with Acorda to develop and commercialize products containing fampridine, such as FAMPYRA, in markets outside the U.S. We also have responsibility for regulatory activities and the future clinical development of related products in those markets.
Applied Genetic Technologies Corporation
We have a collaboration agreement with Applied Genetic Technologies Corporation (AGTC) to develop gene-based therapies for multiple ophthalmic diseases. The collaboration focuses on the development of a clinical-stage candidate for X-linked Retinoschisis (XLRS) and a preclinical candidate for the treatment of X-linked Retinitis Pigmentosa (XLRP), for which we were granted worldwide commercialization rights. The agreement also provides us with options to early stage discovery programs in two ophthalmic diseases and one non-ophthalmic condition.
Eisai Co., Ltd.
We have a collaboration with Eisai to jointly develop and commercialize E2609 and BAN2401, two Eisai product candidates for the treatment of Alzheimer’s disease. Eisai serves as the global operational and regulatory lead for E2609 and BAN2401 and all costs, including research, development, sales and marketing expenses, are shared equally between us and Eisai. Following marketing approval in major markets, we will co-promote E2609 and BAN2401 with Eisai and share profits equally. In smaller markets, Eisai will distribute these products and pay us a royalty.
The agreement also provides Eisai with options to jointly develop and commercialize two of our candidates for Alzheimer’s disease, aducanumab and an anti-tau monoclonal antibody, upon the exchange or provision of clinical data. Upon exercise of the applicable option, we will execute a separate collaboration agreement with Eisai on terms and conditions that mirror the financial arrangements we have with Eisai with respect to E2609 and BAN2401.
Genentech (Roche Group)
We have a collaboration agreement with Genentech which entitles us to certain financial and other rights with respect to RITUXAN, GAZYVA and other anti-CD20 product candidates. Additionally, under our agreement with Genentech, if OCREVUS is approved, we will receive tiered royalty payments on sales of OCREVUS in the U.S.
Ionis Pharmaceuticals, Inc.
We have an exclusive, worldwide option and collaboration agreement with Ionis relating to the development and commercialization of up to three gene targets, and an exclusive worldwide option and collaboration agreement with Ionis under which both companies are developing and commercializing SPINRAZA for the treatment of SMA.
We also have a six-year research collaboration agreement with Ionis, under which both companies perform discovery level research and will develop and commercialize antisense and other therapeutics for the treatment of neurological disorders.
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Samsung Bioepis
We and Samsung Biologics established a joint venture, Samsung Bioepis, to develop, manufacture and market biosimilar pharmaceuticals. We also have an agreement with Samsung Bioepis to commercialize, over a 10-year term, three anti-TNF biosimilar product candidates in specified E.U. countries and, in the case of BENEPALI, Japan. Under this agreement, we are manufacturing and commercializing BENEPALI, an etanercept biosimilar referencing ENBREL and FLIXABI, an infliximab biosimilar referencing REMICADE.
In addition to our joint venture and commercialization agreement with Samsung Bioepis, we license certain of our proprietary technology to Samsung Bioepis in connection with Samsung Bioepis' development, manufacture and commercialization of its biosimilar products. We also provide technical development and technology transfer services to Samsung Bioepis, and manufacture clinical and commercial quantities of bulk drug substance of Samsung Bioepis' biosimilar products.
University of Pennsylvania
We have a collaboration and alliance with the University of Pennsylvania to advance gene therapy and gene editing technologies. The collaboration will primarily focus on the development of therapeutic approaches that target the eye, skeletal muscle and the central nervous system. The alliance is also expected to focus on the research and validation of next-generation gene transfer technology using adeno-associated virus gene delivery vectors and exploring the expanded use of genome editing technology as a potential therapeutic platform.
Regulatory
Our current and contemplated activities and the products, technologies and processes that result from such activities are subject to substantial government regulation.
Regulation of Pharmaceuticals
Product Approval and Post-Approval Regulation in the U.S.
APPROVAL PROCESS
Before new pharmaceutical products may be sold in the U.S., preclinical studies and clinical trials of the products must be conducted and the results submitted to the FDA for approval. With limited exceptions, the FDA requires companies to register both pre-approval and post-approval clinical trials and disclose clinical trial results in public databases. Failure to register a trial or disclose study results within the required time periods could result in penalties, including civil monetary penalties. Clinical trial programs must establish efficacy, determine an appropriate dose and dosing regimen, and define the conditions for safe use. This is a high-risk process that requires stepwise clinical studies in which the candidate product must successfully meet predetermined endpoints. The results of the preclinical and clinical testing of a product are then submitted to the FDA in the form of a BLA or a NDA. In response to a BLA or NDA, the FDA may grant marketing approval, request additional information or deny the application if it determines the application does not provide an adequate basis for approval.
Product development and receipt of regulatory approval takes a number of years, involves the expenditure of substantial resources and depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments, potential safety signals observed in preclinical or clinical tests, and the risks and benefits of the product as demonstrated in clinical trials. The FDA has substantial discretion in the product approval process, and it is impossible to predict with any certainty whether and when the FDA will grant marketing approval. The agency may require the sponsor of a BLA or NDA to conduct additional clinical studies or to provide other scientific or technical information about the product, and these additional requirements may lead to unanticipated delay or expense. Furthermore, even if a product is approved, the approval may be subject to limitations based on the FDA's interpretation of the existing pre-clinical or clinical data.
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The FDA has developed four distinct approaches intended to make therapeutically important drugs available as rapidly as possible, especially when the drugs are the first available treatment or have advantages over existing treatments: accelerated approval, fast track, breakthrough therapy and priority review.
• | Accelerated Approval: The FDA may grant “accelerated approval” status to products that treat serious or life-threatening illnesses and that provide meaningful therapeutic benefits to patients over existing treatments. Under this pathway, the FDA may approve a product based on surrogate endpoints, or clinical endpoints other than survival or irreversible morbidity. When approval is based on surrogate endpoints or clinical endpoints other than survival or morbidity, the sponsor will be required to conduct additional post-approval clinical studies to verify and describe clinical benefit. Under the agency's accelerated approval regulations, if the FDA concludes that a drug that has been shown to be effective can be safely used only if distribution or use is restricted, it may require certain post-marketing restrictions as necessary to assure safe use. In addition, for products approved under accelerated approval, sponsors may be required to submit all copies of their promotional materials, including advertisements, to the FDA at least thirty days prior to initial dissemination. The FDA may withdraw approval under accelerated approval after a hearing if, for instance, post-marketing studies fail to verify any clinical benefit, it becomes clear that restrictions on the distribution of the product are inadequate to ensure its safe use, or if a sponsor fails to comply with the conditions of the accelerated approval. |
• | Fast Track Status: The FDA may grant "fast track" status to products that treat a serious condition and have data demonstrating the potential to address an unmet medical need or a drug that has been designated as a qualified infectious disease product. |
• | Breakthrough Therapy: 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 FDA regarding the development of nonclinical and clinical data and permits the FDA to offer product development or regulatory advice for the purpose of shortening the time to product approval. Breakthrough therapy status does not guarantee that a product will be developed or reviewed more quickly and does not ensure FDA approval. |
• | Priority Review: Priority Review only applies to applications (original or efficacy supplement) for a drug that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. Priority Review may also be granted for any supplement that proposes a labeling change due to studies completed in response to a written request from FDA for pediatric studies, for an application for a drug that has been designated as a qualified infectious disease product, or any application or supplement for a drug submitted with a priority review voucher. |
POST-MARKETING STUDIES
Regardless of the approval pathway employed, the FDA may require a sponsor to conduct additional post-marketing studies as a condition of approval to provide data on safety and effectiveness. If a sponsor fails to conduct the required studies, the agency may withdraw its approval. In addition, if the FDA concludes that a drug that has been shown to be effective can be safely used only if distribution or use is restricted, it can mandate post-marketing restrictions as necessary to assure safe use. In such a case, the sponsor may be required to establish rigorous systems to assure use of the product under safe conditions. These systems are usually referred to as Risk Evaluation and Mitigation Strategies (REMS). The FDA can impose financial penalties for failing to comply with certain post-marketing commitments, including REMS. In addition, any changes to an approved REMS must be reviewed and approved by the FDA prior to implementation.
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ADVERSE EVENT REPORTING
We monitor information on side effects and adverse events reported during clinical studies and after marketing approval and report such information and events to regulatory agencies. Non-compliance with the FDA's safety reporting requirements may result in civil or criminal penalties. Side effects or adverse events that are reported during clinical trials can delay, impede, or prevent marketing approval. Based on new safety information that emerges after approval, the FDA can mandate product labeling changes, impose a new REMS or the addition of elements to an existing REMS, require new post-marketing studies (including additional clinical trials), or suspend or withdraw approval of the product. These requirements may affect our ability to maintain marketing approval of our products or require us to make significant expenditures to obtain or maintain such approvals.
APPROVAL OF CHANGES TO AN APPROVED PRODUCT
If we seek to make certain types of changes to an approved product, such as adding a new indication, making certain manufacturing changes, or changing manufacturers or suppliers of certain ingredients or components, the FDA will need to review and approve such changes in advance. In the case of a new indication, we are required to demonstrate with additional clinical data that the product is safe and effective for a use other than that initially approved. FDA regulatory review may result in denial or modification of the planned changes, or requirements to conduct additional tests or evaluations that can substantially delay or increase the cost of the planned changes.
REGULATION OF PRODUCT ADVERTISING AND PROMOTION
The FDA regulates all advertising and promotion activities and communications for products under its jurisdiction both before and after approval. A company can make only those claims relating to safety and efficacy that are approved by the FDA. However, physicians may prescribe legally available drugs for uses that are not described in the drug's labeling. Such off-label uses are common across medical specialties, and often reflect a physician's belief that the off-label use is the best treatment for patients. The FDA does not regulate the behavior of physicians in their choice of treatments, but FDA regulations do impose stringent restrictions on manufacturers' communications regarding off-label uses. Failure to comply with applicable FDA requirements may subject a company to adverse publicity, enforcement action by the FDA, corrective advertising, and the full range of civil and criminal penalties available to the government.
Regulation of Combination Products
Combination products are defined by the FDA to include products comprising two or more regulated components (e.g., a biologic and a device). Biologics and devices each have their own regulatory requirements, and combination products may have additional requirements. Some of our marketed products meet this definition and are regulated under this framework and similar regulations outside the U.S., and we expect that some of our pipeline product candidates may be evaluated for regulatory approval under this framework as well.
Product Approval and Post-Approval Regulation Outside the U.S.
We market our products in numerous jurisdictions outside the U.S. Most of these jurisdictions have product approval and post-approval regulatory processes that are similar in principle to those in the U.S. In Europe, for example, where a substantial part of our ex-U.S. efforts are focused, there are several tracks for marketing approval, depending on the type of product for which approval is sought. Under the centralized procedure, a company submits a single application to the EMA. The marketing application is similar to the NDA or BLA in the U.S. and is evaluated by the Committee for Medicinal Products for Human Use (CHMP), the expert scientific committee of the EMA. If the CHMP determines that the marketing application fulfills the requirements for quality, safety, and efficacy, it will submit a favorable opinion to the EC. The CHMP opinion is not binding, but is typically adopted by the EC. A marketing application approved by the EC is valid in all member states. The centralized procedure is required for all biological products, orphan medicinal products, and new treatments for neurodegenerative disorders, and it is available for certain other products, including those which constitute a significant therapeutic, scientific or technical innovation.
In addition to the centralized procedure, Europe also has:
• | a nationalized procedure, which requires a separate application to and approval determination by each country; |
• | a decentralized procedure, whereby applicants submit identical applications to several countries and receive simultaneous approval; and |
• | a mutual recognition procedure, where applicants submit an application to one country for review and other countries may accept or reject the initial decision. |
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Regardless of the approval process employed, various parties share responsibilities for the monitoring, detection, and evaluation of adverse events post-approval, including national authorities, the EMA, the EC, and the marketing authorization holder. In some regions, it is possible to receive an “accelerated” review whereby the national regulatory authority will commit to truncated review timelines for products that meet specific medical needs.
Good Manufacturing Practices
Regulatory agencies regulate and inspect equipment, facilities and processes used in the manufacturing and testing of pharmaceutical and biologic products prior to approving a product. If, after receiving clearance from regulatory agencies, a company makes a material change in manufacturing equipment, location or process, additional regulatory review and approval may be required. We also must adhere to current Good Manufacturing Practices (cGMP) and product-specific regulations enforced by regulatory agencies following product approval. The FDA, the EMA and other regulatory agencies also conduct periodic visits to re-inspect equipment, facilities and processes following the initial approval of a product. If, as a result of these inspections, it is determined that our equipment, facilities or processes do not comply with applicable regulations and conditions of product approval, regulatory agencies may seek civil, criminal or administrative sanctions or remedies against us, including significant financial penalties and the suspension of our manufacturing operations.
Good Clinical Practices
The FDA, the EMA and other regulatory agencies promulgate regulations and standards for designing, conducting, monitoring, auditing and reporting the results of clinical trials to ensure that the data and results are accurate and that the rights and welfare of trial participants are adequately protected (commonly referred to as current Good Clinical Practices (cGCP)). Regulatory agencies enforce cGCP through periodic inspections of trial sponsors, principal investigators and trial sites, contract research organizations (CROs), and institutional review boards. If our studies fail to comply with applicable cGCP, the clinical data generated in our clinical trials may be deemed unreliable and relevant regulatory agencies may require us to perform additional clinical trials before approving our marketing applications. Noncompliance can also result in civil or criminal sanctions. We rely on third parties, including CROs, to carry out many of our clinical trial-related activities. Failure of such third parties to comply with cGCP can likewise result in rejection of our clinical trial data or other sanctions.
Approval of Biosimilars
The Patient Protection and Affordable Care Act (PPACA) amended the Public Health Service Act (PHSA) to authorize the FDA to approve biological products, referred to as biosimilars or follow-on biologics, that are shown to be highly similar to previously approved biological products based upon potentially abbreviated data packages. The biosimilar must show it has no clinically meaningful differences in terms of safety and effectiveness from the reference product, and only minor differences in clinically inactive components are allowable in biosimilars products. The approval pathway for biosimilars does, however, grant a biologics manufacturer a 12-year period of exclusivity from the date of approval of its biological product before biosimilar competition can be introduced. There is uncertainty, however, as the approval framework for biosimilars originally was enacted as part of the PPACA. In 2017, there are likely to be federal legislative and administrative efforts to repeal, substantially modify or invalidate some or all of the provisions of the PPACA. If the PPACA is repealed, substantially modified or invalidated, it is unclear what, if any, impact such action would have on biosimilar regulation.
Biosimilars legislation has also been in place in the E.U. since 2003. In December 2012 guidelines issued by the EMA for approving biosimilars of marketed monoclonal antibody products became effective. In the E.U., biosimilars have been approved under a specialized pathway of centralized procedures. The pathway allows sponsors of a biosimilar to seek and obtain regulatory approval based in part on the clinical trial data of an innovator product to which the biosimilar has been demonstrated to be “similar”. In many cases, this allows biosimilars to be brought to market without conducting the full complement of clinical trials typically required for novel biologic drugs.
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Orphan Drug Act
Under the U.S. Orphan Drug Act, the FDA may grant orphan drug designation to drugs or biologics intended to treat a “rare disease or condition,” which generally is a disease or condition that affects fewer than 200,000 individuals in the U.S. If a product which has an orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, i.e., the FDA may not approve any other applications to market the same drug for the same indication for a period of seven years following marketing approval, except in certain very limited circumstances, such as if the later product is shown to be clinically superior to the orphan product. Legislation similar to the U.S. Orphan Drug Act has been enacted in other countries to encourage the research, development and marketing of medicines to treat, prevent or diagnose rare diseases. In the E.U., medicinal products intended for diagnosis, prevention or treatment of life-threatening or very serious diseases affecting less than five in 10,000 people receive 10-year market exclusivity, protocol assistance and access to the centralized procedure for marketing authorization. SPINRAZA has been granted orphan drug designation in the U.S., E.U. and Japan.
Regulation Pertaining to Pricing and Reimbursement
In both domestic and foreign markets, sales of our products depend, in part, on the availability and amount of reimbursement by third-party payors, including governments, private health plans and other organizations. Substantial uncertainty exists regarding the pricing reimbursement of our products, and drug prices continue to receive significant scrutiny. Governments may regulate coverage, reimbursement and pricing of our products to control cost or affect utilization of our products. Challenges to our pricing strategies, by either government or private stakeholders, could harm our business. The U.S. and foreign governments have enacted and regularly consider additional reform measures that affect health care coverage and costs. Private health plans may also seek to manage cost and utilization by implementing coverage and reimbursement limitations. Other payors, including managed care organizations, health insurers, pharmacy benefit managers, government health administration authorities and private health insurers, seek price discounts or rebates in connection with the placement of our products on their formularies and, in some cases, the imposition of restrictions on access or coverage of particular drugs or pricing determined based on perceived value.
Within the U.S.
• | Medicaid: Medicaid is a joint federal and state program that is administered by the states for low income and disabled beneficiaries. Under the Medicaid Drug Rebate Program, we are required to pay a rebate for each unit of product reimbursed by the state Medicaid programs. The amount of the rebate is established by law and is adjusted upward if average manufacture price (AMP) increases more than inflation (measured by the Consumer Price Index - Urban). The rebate amount is calculated each quarter based on our report of current AMP and best price for each of our products to the Centers for Medicare & Medicaid Services (CMS). The requirements for calculating AMP and best price are complex. We are required to report any revisions to AMP or best price previously reported within a certain period, which revisions could affect our rebate liability for prior quarters. In addition, if we fail to provide information timely or we are found to have knowingly submitted false information to the government, the statute governing the Medicaid Drug Rebate Program provides for civil monetary penalties. |
• | Medicare: Medicare is a federal program that is administered by the federal government that covers individuals age 65 and over as well as those with certain disabilities. Medicare Part B generally covers drugs that must be administered by physicians or other health care practitioners; are provided in connection with certain durable medical equipment; or are certain oral anti-cancer drugs and certain oral immunosuppressive drugs. In addition, clotting factors for hemophilia are typically paid under Medicare Part B. Medicare Part B pays for such drugs under a payment methodology based on the average sales price (ASP) of the drugs. Manufacturers, including us, are required to provide ASP information to the CMS on a quarterly basis. The manufacturer-submitted information is used to calculate Medicare payment rates. If a manufacturer is found to have made a misrepresentation in the reporting of ASP, the governing statute provides for civil monetary penalties. |
• | Medicare Part D provides coverage to enrolled Medicare patients for self-administered drugs (i.e., drugs that are not administered by a physician). Medicare Part D is administered by private prescription drug plans approved by the U.S. government and each drug plan establishes its own Medicare Part D formulary for prescription drug coverage and pricing, which the drug plan may modify from time-to-time. The prescription drug plans negotiate pricing with |
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manufacturers and pharmacies, and may condition formulary placement on the availability of manufacturer discounts. In addition, manufacturers, including us, are required to provide to CMS a 50% discount on brand name prescription drugs utilized by Medicare Part D beneficiaries when those beneficiaries reach the coverage gap in their drug benefits.
• | Federal Agency Discounted Pricing: Our products are subject to discounted pricing when purchased by federal agencies via the Federal Supply Schedule (FSS). FSS participation is required for our products to be covered and reimbursed by the Veterans Administration (VA), Department of Defense, Coast Guard and Public Health Service (PHS). Coverage under Medicaid, Medicare and the PHS pharmaceutical pricing program is also conditioned upon FSS participation. FSS pricing is intended not to exceed the price that we charge our most-favored non-federal customer for a product. In addition, prices for drugs purchased by the VA, Department of Defense (including drugs purchased by military personnel and dependents through the TriCare retail pharmacy program), Coast Guard and PHS are subject to a cap on pricing equal to 76% of the non-federal average manufacturer price (non-FAMP). An additional discount applies if non-FAMP increases more than inflation (measured by the Consumer Price Index - Urban). In addition, if we fail to provide information timely or we are found to have knowingly submitted false information to the government, the governing statute provides for civil monetary penalties. |
• | 340B Discounted Pricing: To maintain coverage of our products under the Medicaid Drug Rebate Program and Medicare Part B, we are required to extend significant discounts to certain covered entities that purchase products under Section 340B of the PHS pharmaceutical pricing program. Purchasers eligible for discounts include hospitals that serve a disproportionate share of financially needy patients, community health clinics, hemophilia treatment centers and other entities that receive certain types of grants under the PHSA. For all of our products, we must agree to charge a price that will not exceed the amount determined under statute (the “ceiling price”) when we sell outpatient drugs to these covered entities. In addition, we may, but are not required to, offer these covered entities a price lower than the 340B ceiling price. The 340B discount formula is based on AMP and is generally similar to the level of rebates calculated under the Medicaid Drug Rebate Program. |
Outside the U.S.
Outside the U.S., the E.U. represents a major market. Within the E.U., our products are paid for by a variety of payors, with governments being the primary source of payment. Governments may determine or influence reimbursement of products. Governments may also set prices or otherwise regulate pricing. Negotiating prices with governmental authorities can delay commercialization of our products. Governments may use a variety of cost-containment measures to control the cost of products, including price cuts, mandatory rebates, value-based pricing, and reference pricing (i.e., referencing prices in other countries and using those reference prices to set a price). Budgetary pressures in many E.U. countries are continuing to cause governments to consider or implement various cost-containment measures, such as price freezes, increased price cuts and rebates, and expanded generic substitution and patient cost-sharing.
Regulation Pertaining to Sales and Marketing
We are subject to various federal and state laws pertaining to health care “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws generally prohibit a prescription drug manufacturer from soliciting, offering, receiving, or paying any remuneration to generate business, including the purchase or prescription of a particular drug. Although the specific provisions of these laws vary, their scope is generally broad and there may be no regulations, guidance or court decisions that clarify how the laws apply to particular industry practices. There is therefore a possibility that our practices might be challenged under the anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third-party payors (including Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including fines and civil monetary penalties, and exclusion from federal health care programs (including Medicare and Medicaid). In the U.S., federal and state authorities are paying increased attention to enforcement of these laws within the pharmaceutical industry and private individuals have been active in alleging violations of the laws and bringing suits on behalf of the government under the federal civil False Claims Act. If we were subject to allegations concerning, or were convicted of violating, these laws, our business could be harmed.
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Laws and regulations have been enacted by the federal government and various states to regulate the sales and marketing practices of pharmaceutical manufacturers. The laws and regulations generally limit financial interactions between manufacturers and health care providers or require disclosure to the government and public of such interactions. The laws include federal “sunshine” provisions. The sunshine provisions apply to pharmaceutical manufacturers with products reimbursed under certain government programs and require those manufacturers to disclose annually to the federal government (for re-disclosure to the public) certain payments made to physicians and certain other healthcare practitioners or to teaching hospitals. State laws may also require disclosure of pharmaceutical pricing information and marketing expenditures. Many of these laws and regulations contain ambiguous requirements. Given the lack of clarity in laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent federal and state laws and regulations. Outside the U.S., other countries have implemented requirements for disclosure of financial interactions with healthcare providers and additional countries may consider or implement such laws.
Other Regulations
Foreign Anti-Corruption
We are subject to various federal and foreign laws that govern our international business practices with respect to payments to government officials. Those laws include the U.S. Foreign Corrupt Practices Act (FCPA), which prohibits U.S. companies and their representatives from paying, offering to pay, promising, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate for the purpose of obtaining or retaining business or to otherwise obtain favorable treatment or influence a person working in an official capacity. In many countries, the health care professionals we regularly interact with may meet the FCPA's definition of a foreign government official. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls.
The laws to which we are subject also include the U.K. Bribery Act 2010 (Bribery Act) which proscribes giving and receiving bribes in the public and private sectors, bribing a foreign public official, and failing to have adequate procedures to prevent employees and other agents from giving bribes. U.S. companies that conduct business in the United Kingdom generally will be subject to the Bribery Act. Penalties under the Bribery Act include potentially unlimited fines for companies and criminal sanctions for corporate officers under certain circumstances.
NIH Guidelines
We seek to conduct research at our U.S. facilities in compliance with the current U.S. National Institutes of Health Guidelines for Research Involving Recombinant DNA Molecules (NIH Guidelines). By local ordinance, we are required to, among other things, comply with the NIH Guidelines in relation to our facilities in RTP, North Carolina and are required to operate pursuant to certain permits.
Other Laws
Our present and future business has been and will continue to be subject to various other laws and regulations. Various laws, regulations and recommendations relating to data privacy and protection, safe working conditions, laboratory practices, the experimental use of animals, and the purchase, storage, movement, import, export and use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research work are or may be applicable to our activities. Certain agreements entered into by us involving exclusive license rights may be subject to national or international antitrust regulatory control, the effect of which cannot be predicted. The extent of government regulation, which might result from future legislation or administrative action, cannot accurately be predicted.
Environmental Matters
We strive to comply in all material respects with applicable laws and regulations concerning the environment. While it is impossible to predict accurately the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is not expected to require significant capital expenditures and has not had, and is not expected to have, a material adverse effect on our operations or competitive position.
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Manufacturing
We are committed to ensuring an uninterrupted supply of medicines to patients around the world. To that end, we continually review our manufacturing capacity, capabilities, processes and facilities. We believe that our manufacturing facilities, together with the third-party contract manufacturing organizations we outsource to, currently provide sufficient capacity for our products and the contract manufacturing services we provide to Samsung Bioepis, our joint venture that develops, manufactures and markets biosimilars, and other strategic contract manufacturing partners. In light of the development of our pipeline, we are expanding our production capacity by building a large-scale biologics manufacturing facility in Solothurn, Switzerland, which is expected to be operational by the end of the decade.
Manufacturing Facilities
Our drug substance manufacturing facilities include:
Facility | Drug Substance Manufactured | |
RTP, North Carolina | ALPROLIX AVONEX ELOCTATE PLEGRIDY TYSABRI ZINBRYTA Other* | |
Hillerød, Denmark | TYSABRI Biosimilars | |
* Other includes products manufactured for contract manufacturing partners
In addition to our drug substance manufacturing facilities, we have a drug product manufacturing facility and supporting infrastructure in RTP, North Carolina. This parenteral facility adds capabilities and capacity for filling biologics into vials.
We also lease from Eisai an oral solid dose products manufacturing facility in RTP, North Carolina, where we manufacture TECFIDERA and other oral solid dose products, including products for Eisai. This facility supplements our outsourced small molecule manufacturing capabilities. Under our lease arrangement, Eisai may provide us with packaging services for oral solid dose products. In August 2015 we agreed to purchase this facility following the expiration of our current three-year lease in the third quarter of 2018 and Eisai's completion of certain activities.
For a period of time following the spin-off of Bioverativ, we agreed to manufacture and supply, exclusively for Bioverativ, drug substance, drug product and finished goods with respect to ELOCTATE and ALPROLIX and pipeline product candidates.
Genentech is responsible for all worldwide manufacturing activities for bulk RITUXAN and GAZYVA and has sourced the manufacture of certain bulk RITUXAN and GAZYVA requirements to a third party, Acorda Therapeutics supplies FAMPYRA to us pursuant to its supply agreement with Alkermes, Inc. and Ionis supplies the active pharmaceutical ingredient (API) for SPINRAZA.
Third-Party Suppliers and Manufacturers
We principally use third parties to manufacture the API, except as noted above for SPINRAZA, and, to a lesser extent, the final product for our small molecule products and product candidates, including TECFIDERA and FUMADERM and the final drug product for our large molecule products and product candidates, including SPINRAZA.
We source all of our fill-finish and the majority of final product assembly and storage operations for our products, along with a substantial part of our packaging operations, to a concentrated group of third-party contract manufacturing organizations. We have internal label and packaging capability for clinical and commercial products at our Hillerød facility. Raw materials, delivery devices, such as syringes and auto-injectors, and other supplies required for the production of our products and product candidates are procured from various third-party suppliers and manufacturers in quantities adequate to meet our needs. Continuity of supply of such raw materials, devices and supplies is assured using a strategy of dual sourcing where possible or by a risk-based inventory strategy. Our third-party service providers, suppliers and manufacturers may be subject to routine cGMP inspections by the FDA or comparable agencies in other jurisdictions and undergo assessment and certification by our quality management group.
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Our Employees
As of December 31, 2016, we had approximately 7,400 employees worldwide.
Our Executive Officers (as of February 2, 2017)
Officer | Current Position | Age | Year Joined Biogen | |||
Michel Vounatsos | Chief Executive Officer | 55 | 2016 | |||
Susan H. Alexander | Executive Vice President, Chief Legal Officer and Corporate Secretary | 60 | 2006 | |||
Paul J. Clancy | Executive Vice President, Finance and Chief Financial Officer | 55 | 2001 | |||
Gregory F. Covino | Vice President, Finance and Chief Accounting Officer | 51 | 2012 | |||
Michael D. Ehlers | Executive Vice President, Research and Development | 48 | 2016 | |||
Paul McKenzie | Executive Vice President, Pharmaceutical Operations and Technology | 51 | 2016 | |||
Kenneth DiPietro | Executive Vice President, Human Resources | 58 | 2012 | |||
Adriana (Andi) Karaboutis | Executive Vice President, Technology, Business Solutions and Corporate Affairs | 54 | 2014 | |||
Alfred W. Sandrock, Jr., M.D., Ph.D. | Chief Medical Officer and Executive Vice President of Neurology Discovery and Development | 59 | 1998 | |||
Michel Vounatsos | |
Experience | |
Mr. Vounatsos has served as our Chief Executive Officer since January 2017. Prior to that, from April 2016 to December 2016, Mr. Vounatsos served as our Executive Vice President and Chief Commercial Officer. Prior to joining Biogen, Mr. Vounatsos spent 20 years at Merck where he most recently served as President, Primary Care, Customer Business Line. In this role, he led Merck’s global primary care business unit, a role which encompassed Merck’s cardiology-metabolic, general medicine, women’s health and biosimilars groups and developed and instituted a strategic framework for enhancing the company’s relationships with key constituents, including the most significant providers, payers and retailers and the world’s largest governments. Mr. Vounatsos previously held leadership positions across Europe and in China for Merck. Prior to that, Mr. Vounatsos held management positions at Ciba-Geigy. | |
Education | |
l | Universite Victor Segalen, Bordeaux II, France, C.S.C.T. Certificate in Medicine |
l | HEC School of Management - Paris, M.B.A. |
Susan H. Alexander | |
Experience | |
Ms. Alexander has served as our Executive Vice President, Chief Legal Officer and Corporate Secretary since December 2011. Prior to that, from 2006 to December 2011, Ms. Alexander served as our Executive Vice President, General Counsel and Corporate Secretary. From 2003 to January 2006, Ms. Alexander served as the Senior Vice President, General Counsel and Corporate Secretary of PAREXEL International Corporation, a biopharmaceutical services company. From 2001 to 2003, Ms. Alexander served as General Counsel of IONA Technologies, a software company. From 1995 to 2001, Ms. Alexander served as Counsel at Cabot Corporation, a specialty chemicals and performance materials company. Prior to that, Ms. Alexander was a partner at the law firms of Hinckley, Allen & Snyder and Fine & Ambrogne. | |
Public Company Boards | |
l | Board of Directors of Invacare Corporation, a medical and healthcare product company |
Education | |
l | Wellesley College, B.A |
l | Boston University School of Law, J.D. |
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Paul J. Clancy | |
Experience | |
Mr. Clancy has served as our Executive Vice President, Finance and Chief Financial Officer since August 2007. Mr. Clancy joined Biogen, Inc. in 2001 and has held several senior executive positions with us, including Vice President of Business Planning, Portfolio Management and U.S. Marketing, and Senior Vice President of Finance with responsibilities for leading the Treasury, Tax, Investor Relations and Business Planning groups. Prior to that, he spent 13 years at PepsiCo, a food and beverage company, serving in a range of financial and general management positions. | |
Public Company Boards | |
l | Board of Directors of Agios Pharmaceuticals, Inc., a biopharmaceutical company |
l | Board of Directors of Incyte Corporation, a biopharmaceutical company |
Education | |
l | Babson College, B.S. in Finance |
l | Columbia University, M.B.A. |
Gregory F. Covino | |
Experience | |
Mr. Covino has served as our Vice President, Finance and Chief Accounting Officer since April 2012. Prior to that, Mr. Covino served at Boston Scientific Corporation, a medical device company, as Vice President, Corporate Analysis and Control since March 2010, having responsibility for the company's internal audit function, and as Vice President, Finance, International from February 2008 to March 2010, having responsibility for the financial activities of the company's international division. Prior to that, Mr. Covino held several finance positions at Hubbell Incorporated, an electrical products company, including Vice President, Chief Accounting Officer and Controller from 2002 to January 2008, Interim Chief Financial Officer from 2004 to 2005, and Director, Corporate Accounting from 1999 to 2002. | |
Education | |
l | Bryant University, B.S. in Business Administration |
Michael D. Ehlers | |
Experience | |
Dr. Ehlers has served as our Executive Vice President, Head of R&D since May 2016. Prior to joining Biogen, Dr. Ehlers served in leadership positions at Pfizer, Inc., including Senior Vice President & Head BioTherapeutics R&D and Chief Scientific Officer, Neuroscience & Pain. Prior to that, Dr. Ehlers was the George Barth Geller Professor of Neurobiology and an Investigator of the Howard Hughes Medical Institute at Duke University Medical Center. He is the recipient of numerous awards including the Eppendorf & Science Prize in Neurobiology, the John J. Abel Award in Pharmacology, the Society for Neuroscience Young Investigator Award, a National Institute of Mental Health MERIT Award, the National Alliance for Schizophrenia and Depression Distinguished Investigator Award, and the Massachusetts Medical Society Honored Business Leader Award. In 2013, Dr. Ehlers became the 11th recipient of the Thudichum Medal of the Biochemical Society of the United Kingdom. Past recipients include two Nobel laureates. Dr. Ehlers has authored over 100 scientific papers, has served on the Editorial Boards of Annual Reviews in Medicine, Annual Reviews in Pharmacology and Toxicology, the Journal of Neuroscience, the Journal of Biological Chemistry, the Journal of Molecular and Cellular Neuroscience, and has sat on advisory committees of the National Institutes of Health. | |
Outside Affiliations | |
l | PhRMA Foundation Basic Pharmacology Advisory Committee |
l | Janelia Research Institute Advisory Committee |
l | McKnight Endowment Fund for Neuroscience Board |
l | World Economic Forum Global Agenda Council on Brain Research |
Education | |
l | California Institute of Technology, B.S. Chemistry |
l | The John Hopkins University School of Medicine, M.D. |
l | The John Hopkins University School of Medicine, Ph.D. Neuroscience |
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Paul McKenzie | |
Experience | |
Dr. McKenzie has served as our Executive Vice President, Pharmaceutical Operations and Technology since July 2016. Prior to that, from February 2016 to June 2016, he served as our Senior Vice President for Global Biologics Manufacturing & Technical Operations. Prior to joining Biogen, since 2008, Dr. McKenzie held a number of positions of increasing responsibility at Johnson & Johnson (J&J), including Vice President of R&D for J&J’s Ethicon business where he led the manufacturing and technical operations team responsible for internal and external manufacturing of Janssen’s pharmaceutical portfolio. He also ran global Development for Janssen R&D, helping to manage pipeline activities from discovery through clinical development and commercialization. Prior to J&J, Dr. McKenzie also held various R&D and manufacturing positions at Bristol-Myers Squibb and Merck & Co. | |
Education | |
l | University of Pennsylvania, B.S. Chemical Engineering |
l | Carnegie Mellon University, Ph.D. Chemical Engineering |
Kenneth DiPietro | |
Experience | |
Mr. DiPietro has served as our Executive Vice President, Human Resources since January 2012. Mr. DiPietro joined Biogen from Lenovo Group, a technology company, where he served as Senior Vice President, Human Resources from 2005 to June 2011. From 2003 to 2005, he served as Corporate Vice President, Human Resources at Microsoft Corporation, a technology company. From 1999 to 2002, Mr. DiPietro worked as Vice President, Human Resources at Dell Inc., a technology company. Prior to that, he spent 17 years at PepsiCo, a food and beverage company, serving in a range of human resource and general management positions. | |
Public Company Boards | |
l | Board of Directors of InVivo Therapeutics Corporation, a medical device company |
Education | |
l | Cornell University, B.S. in Industrial and Labor Relations |
Adriana (Andi) Karaboutis | |
Experience | |
Ms. Karaboutis has served as our Executive Vice President, Technology, Business Solutions and Corporate Affairs since December 2015 and prior to that served as our Executive Vice President, Technology and Business Solutions since joining Biogen in September 2014. Prior to that, Ms. Karaboutis was Vice President and Global Chief Information Officer of Dell, Inc., where she was responsible for leading a global IT organization focused on powering Dell as an end-to-end technology solutions provider. Prior to joining Dell in 2010, Ms. Karaboutis spent over 20 years at General Motors and Ford Motor Company in various international leadership positions including computer-integrated manufacturing, supply chain operations, and information technology. | |
Public Company Boards | |
l | Board of Directors of Advance Auto Parts, an automotive aftermarket parts provider |
Education | |
l | Wayne State University, B.S. in Computer Science |
Alfred W. Sandrock, Jr., M.D., Ph.D. | |
Experience | |
Dr. Sandrock has served as our Chief Medical Officer and Executive Vice President of Neurology Discovery and Development since November 2015. Prior to that, Dr. Sandrock served as our Chief Medical Officer and Group Senior Vice President from May 2013 to October 2015, and as our Chief Medical Officer and Senior Vice President of Development Sciences from February 2012 to April 2013. Prior to that, Dr. Sandrock held several senior executive positions since joining us in 1998, including Senior Vice President of Neurology Research and Development and Vice President of Clinical Development, Neurology. | |
Public Company Boards | |
l | Board of Directors of Neurocrine Biosciences, Inc., a life sciences company |
Education | |
l | Stanford University, B.A. in Human Biology |
l | Harvard Medical School, M.D. |
l | Harvard University, Ph.D. in Neurobiology |
l | Massachusetts General Hospital, internship in Medicine, residency and chief residency in Neurology, and clinical fellowship in Neuromuscular Disease and Clinical Neurophysiology (electromyography) |
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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.
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Item 1A. Risk Factors
We are substantially dependent on revenues from our principal products.
Our current revenues depend upon continued sales of our principal products, and, unless we develop or acquire rights to new products and technologies, we may be substantially dependent on sales from our principal products for many years. Further, following the completion of the spin-off of our hemophilia business, our revenues will be further reliant and concentrated on sales of our MS products in an increasingly competitive market, and revenue from sales of our product for spinal muscular atrophy. Any of the following negative developments relating to any of our principal products may adversely affect our revenues and results of operations or could cause a decline in our stock price:
• | safety or efficacy issues; |
• | the introduction or greater acceptance of competing products; |
• | constraints and additional pressures on product pricing or price increases, including those resulting from governmental or regulatory requirements, increased competition, or changes in, or implementation of, reimbursement policies and practices of payors and other third parties; or |
• | adverse legal, administrative, regulatory or legislative developments. |
SPINRAZA was recently approved by the FDA, and is in the early stages of commercial launch. In addition to risks associated with new product launches and the other factors described in these “Risk Factors”, our ability to successfully commercialize SPINRAZA may be adversely affected due to:
• | our limited marketing experience within the spinal muscular atrophy market, which may impact our ability to develop relationships with the associated medical and scientific community; |
• | the lack of readiness of healthcare providers to treat patients with spinal muscular atrophy; |
• | the effectiveness of our commercial strategy for marketing SPINRAZA; and |
• | our ability to maintain a positive reputation among patients, healthcare providers and others in the spinal muscular atrophy community, which may be impacted by pricing and reimbursement decisions relating to SPINRAZA. |
If we fail to compete effectively, our business and market position would suffer.
The biopharmaceutical industry and the markets in which we operate are intensely competitive. We compete in the marketing and sale of our products, the development of new products and processes, the acquisition of rights to new products with commercial potential and the hiring and retention of personnel. We compete with biotechnology and pharmaceutical companies that have a greater number of products on the market and in the product pipeline, greater financial and other resources and other technological or competitive advantages. One or more of our competitors may benefit from significantly greater sales and marketing capabilities, may develop products that are accepted more widely than ours or may receive patent protection that dominates, blocks or adversely affects our product development or business.
Our products are also susceptible to competition from generics and biosimilars in many markets. Generic versions of drugs and biosimilars are likely to be sold at substantially lower prices than branded products. Accordingly, the introduction of generic or biosimilar versions of our marketed products likely would significantly reduce both the price that we receive for such marketed products and the volume of products that we sell, which may have an adverse impact on our results of operations.
In the MS market, we face intense competition as the number of products and competitors continues to expand. Due to our significant reliance on sales of our MS products, our business may be harmed if we are unable to successfully compete in the MS market. More specifically, our ability to compete, maintain and grow our share in the MS market may be adversely affected due to a number of factors, including:
• | the introduction of more efficacious, safer, less expensive or more convenient alternatives to our MS products, including our own products and products of our collaborators; |
• | the introduction of lower-cost biosimilars, follow-on products or generic versions of branded MS products sold by our competitors, and the possibility of future competition from generic versions or prodrugs of existing therapeutics or from off-label use by physicians of therapies indicated for other conditions to treat MS patients; |
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• | patient dynamics, including the size of the patient population and our ability to attract new patients to our therapies; |
• | damage to physician and patient confidence in any of our MS products or to our sales and reputation as a result of label changes or adverse experiences or events that may occur with patients treated with our MS products; |
• | inability to obtain appropriate pricing and reimbursement for our MS products compared to our competitors in key international markets; or |
• | our ability to obtain and maintain patent, data or market exclusivity for our MS products. |
Sales of our products depend, to a significant extent, on adequate coverage, pricing and reimbursement from third-party payors, which are subject to increasing and intense pressure from political, social, competitive and other sources. Our inability to maintain adequate coverage, or a reduction in pricing or reimbursement, could have an adverse effect on our business, revenues and results of operations and could cause a decline in our stock price.
Sales of our products are dependent, in large part, on the availability and extent of coverage, pricing and reimbursement from government health administration authorities, private health insurers and other organizations. When a new pharmaceutical product is approved, the availability of government and private reimbursement for that product may be uncertain, as is the pricing and amount for which that product will be reimbursed.
Pricing and reimbursement for our products may be adversely affected by a number of factors, including:
• | changes in, and implementation of, federal, state or foreign government regulations or private third-party payors' reimbursement policies; |
• | pressure by employers on private health insurance plans to reduce costs; and |
• | consolidation and increasing assertiveness of payors, including managed care organizations, health insurers, pharmacy benefit managers, government health administration authorities, private health insurers and other organizations, seeking price discounts or rebates in connection with the placement of our products on their formularies and, in some cases, the imposition of restrictions on access or coverage of particular drugs or pricing determined based on perceived value. |
Our ability to set the price for our products can vary significantly from country to country and as a result so can the price of our products. Certain countries set prices by reference to the prices in other countries where our products are marketed. Thus, our inability to secure adequate prices in a particular country may not only limit the revenue from our products within that country, but may also adversely affect our ability to obtain acceptable prices in other markets. This may create the opportunity for third-party cross-border trade or influence our decision to sell or not to sell a product, thus adversely affecting our geographic expansion plans and revenues.
Our failure to maintain adequate coverage, pricing, or reimbursement for our products would have an adverse effect on our business, revenues and results of operations, could curtail or eliminate our ability to adequately fund research and development programs for the discovery and commercialization of new products and could cause a decline in our stock price.
Drug prices are under significant scrutiny in the markets in which our products are prescribed. We expect drug pricing and other health care costs to continue to be subject to intense political and societal pressures on a global basis. As a result, our business and reputation may be harmed, our stock price may be adversely impacted and experience periods of volatility, and our results of operations may be adversely impacted.
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Our results of operations may be adversely affected by current and potential future healthcare reforms.
In the U.S., federal and state legislatures, health agencies and third-party payors continue to focus on containing the cost of health care. Legislative and regulatory proposals and enactments to reform health care insurance programs could significantly influence the manner in which our products are prescribed and purchased. For example, provisions of the PPACA have resulted in changes in the way health care is paid for by both governmental and private insurers, including increased rebates owed by manufacturers under the Medicaid Drug Rebate Program, annual fees and taxes on manufacturers of certain branded prescription drugs, the requirement that manufacturers participate in a discount program for certain outpatient drugs under Medicare Part D and the expansion of the number of hospitals eligible for discounts under Section 340B of the Public Health Service Act. These changes have had and are expected to continue to have a significant impact on our business. In 2017, we may face uncertainties as a result of likely federal and administrative efforts to repeal, substantially modify or invalidate some or all of the provisions of the PPACA. There is no assurance that the PPACA, as currently enacted or as amended in the future, will not adversely affect our business and financial results, and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect our business.
There is also significant economic pressure on state budgets that may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage or payment for our drugs. In recent years, some states have considered legislation and ballot initiatives that would control the prices of drugs, including laws to allow importation of pharmaceutical products from lower cost jurisdictions outside the U.S. and laws intended to impose price controls on state drug purchases. State Medicaid programs are increasingly requesting manufacturers to pay supplemental rebates and requiring prior authorization by the state program for use of any drug for which supplemental rebates are not being paid. Government efforts to reduce Medicaid expenses may lead to increased use of managed care organizations by Medicaid programs. This may result in managed care organizations influencing prescription decisions for a larger segment of the population and a corresponding constraint on prices and reimbursement for our products.
In the E.U. and some other international markets, the government provides health care at low cost to consumers and regulates pharmaceutical prices, patient eligibility or reimbursement levels to control costs for the government-sponsored health care system. Many countries have announced or implemented measures to reduce health care costs to constrain their overall level of government expenditures. These measures vary by country and may include, among other things, patient access restrictions, suspensions on price increases, prospective and possibly retroactive price reductions and other recoupments and increased mandatory discounts or rebates, recoveries of past price increases and greater importation of drugs from lower-cost countries to higher-cost countries. These measures have negatively impacted our revenues, and may continue to adversely affect our revenues and results of operations in the future.
Adverse safety events or restrictions on use and safety warnings for our products can negatively affect our business, product sales and stock price.
Adverse safety events involving our marketed products may have a negative impact on our business. Discovery of safety issues with our products could create product liability and could cause additional regulatory scrutiny and requirements for additional labeling or safety monitoring, withdrawal of products from the market and the imposition of fines or criminal penalties. Adverse safety events may also damage physician and patient confidence in our products and our reputation. Any of these could result in liabilities, loss of revenue, material write-offs of inventory, material impairments of intangible assets, goodwill and fixed assets, material restructuring charges and other adverse impacts on our results of operations.
Regulatory authorities are making greater amounts of stand-alone safety information directly available to the public through periodic safety update reports, patient registries and other reporting requirements. The reporting of adverse safety events involving our products or products similar to ours and public rumors about such events may increase claims against us and may also cause our product sales or stock price to decline or experience periods of volatility.
Restrictions on use or significant safety warnings that may be required to be included in the label of our products, such as the risk of developing progressive multifocal leukoencephalopathy (PML), a serious brain infection, in the label for certain of our products, may significantly reduce expected revenues for those products and require significant expense and management time.
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If we are unable to obtain and maintain adequate protection for our data, intellectual property and other proprietary rights, our business may be harmed.
Our success depends in part on our ability to obtain and defend patent and other intellectual property rights that are important to the commercialization of our products and product candidates. The degree of patent protection that will be afforded to our products and processes in the U.S. and in other important markets remains uncertain and is dependent upon the scope of protection decided upon by the patent offices, courts, administrative bodies and lawmakers in these countries. We can provide no assurance that we will successfully obtain or preserve patent protection for the technologies incorporated into our products and processes, or that the protection obtained will be of sufficient breadth and degree to protect our commercial interests in all countries where we conduct business. If we cannot prevent others from exploiting our inventions, we will not derive the benefit from them that we currently expect. Furthermore, we can provide no assurance that our products will not infringe patents or other intellectual property rights held by third parties.
We also rely on regulatory exclusivity for protection of our products. Implementation and enforcement of regulatory exclusivity, which may consist of regulatory data protection and market protection, varies widely from country to country. Failure to qualify for regulatory exclusivity, or failure to obtain or maintain the extent or duration of such protections that we expect in each of the markets for our products due to challenges, changes or interpretations in the law or otherwise, could affect our revenue for our products or our decision on whether to market our products in a particular country or countries or could otherwise have an adverse impact on our results of operations.
Litigation, interferences, oppositions, inter partes reviews or other proceedings are, have been and may in the future be necessary in some instances to determine the validity and scope of certain of our proprietary rights, and in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. We may also face challenges to our patent and regulatory protections covering our products by third parties, including manufacturers of generics and biosimilars that may choose to launch or attempt to launch their products before the expiration of our patent or regulatory exclusivity. Litigation, interference, oppositions, inter partes reviews, administrative challenges or other similar types of proceedings are unpredictable and may be protracted, expensive and distracting to management. The outcome of such proceedings could adversely affect the validity and scope of our patent or other proprietary rights, hinder our ability to manufacture and market our products, require us to seek a license for the infringed product or technology or result in the assessment of significant monetary damages against us that may exceed amounts, if any, accrued in our financial statements. An adverse determination in a judicial or administrative proceeding or a failure to obtain necessary licenses could prevent us from manufacturing or selling our products. Furthermore, payments under any licenses that we are able to obtain would reduce our profits derived from the covered products and services.
Our long-term success depends upon the successful development of new products and additional indications for existing products.
Our long-term viability and growth will depend upon successful development of additional indications for our existing products as well as successful development of new products and technologies from our research and development activities, our biosimilars joint venture with Samsung Biologics or licenses or acquisitions from third parties.
Product development is very expensive and involves a high degree of risk. Only a small number of research and development programs result in the commercialization of a product. Clinical trials may indicate that our product candidates lack efficacy, have harmful side effects, result in unexpected adverse events or raise other concerns that may significantly reduce the likelihood of regulatory approval. This may result in terminated programs, significant restrictions on use and safety warnings in an approved label, adverse placement within the treatment paradigm, or significant reduction in the commercial potential of the product candidate.
Clinical trials and the development of biopharmaceutical products is a lengthy and complex process. If we fail to adequately manage our clinical activities, our clinical trials or potential regulatory approvals may be delayed or denied.
Conducting clinical trials is a complex, time-consuming and expensive process. Our ability to complete clinical trials in a timely fashion depends in large part on a number of key factors. These factors include protocol design, regulatory and institutional review board approval, patient enrollment rates and compliance with extensive current Good Clinical Practices. If we or our third-party clinical trial providers or third-party contract research organizations (CROs) do not successfully carry out these clinical activities, our clinical trials or the potential regulatory approval of a product candidate may be delayed or be unsuccessful.
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We have opened clinical sites and are enrolling patients in a number of countries where our experience is more limited. In most cases, we use the services of third parties to carry out our clinical trial related activities and rely on such parties to accurately report their results. Our reliance on third parties for these activities may impact our ability to control the timing, conduct, expense and quality of our clinical trials. One CRO has responsibility for a substantial portion of our clinical trial related activities and reporting. If this CRO does not adequately perform, many of our trials may be affected. We may need to replace our CROs. Although we believe there are a number of other CROs we could engage to continue these activities, the replacement of an existing CRO may result in the delay of the affected trials or otherwise adversely affect our efforts to obtain regulatory approvals and commercialize our product candidates.
Successful preclinical work or early stage clinical trials do not ensure success in later stage trials, regulatory approval or commercial viability of a product.
Positive results in a trial may not be replicated in subsequent or confirmatory trials. Additionally, success in preclinical work or early stage clinical trials does not ensure that later stage or larger scale clinical trials will be successful or that regulatory approval will be obtained. In addition, even if later stage clinical trials are successful, regulatory authorities may delay or decline approval of our product candidates. Regulatory authorities may disagree with our view of the data, require additional studies or disagree with our trial design or endpoints. Regulatory authorities may also fail to approve the facilities or the processes used to manufacture a product candidate, our dosing or delivery methods or companion devices. Regulatory authorities may grant marketing approval that is more restricted than anticipated. These restrictions may include limiting indications to narrow patient populations and the imposition of safety monitoring, educational requirements and risk evaluation and mitigation strategies. The occurrence of any of these events could result in significant costs and expenses, have an adverse effect on our business, financial condition and results of operations and cause our stock price to decline or experience periods of volatility.
Even if we are able to successfully develop new products or indications, sales of new products or products with additional indications may not meet investor expectations. We may also make a strategic decision to discontinue development of a product or indication if, for example, we believe commercialization will be difficult relative to the standard of care or other opportunities in our pipeline.
Management and key personnel changes may disrupt our operations, and we may have difficulty retaining key personnel or attracting and retaining qualified replacements on a timely basis for management and other key personnel who may leave the Company.
We have experienced changes in management and other key personnel in critical functions across our organization, including our chief executive officer, and heads of research and development and pharmaceutical operations and technology. Changes in management and other key personnel have the potential to disrupt our business, and any such disruption could adversely affect our operations, programs, growth, financial condition and results of operations. Further, new members of management may have different perspectives on programs and opportunities for our business, which may cause us to focus on new business opportunities or reduce or change emphasis on our existing business programs.
Our success is dependent upon our ability to attract and retain qualified management and key personnel in a highly competitive environment. Qualified individuals are in high demand, and we may incur significant costs to attract them, particularly at the executive level. We may face difficulty in attracting and retaining key talent for a number of reasons, such as management changes, the underperformance or discontinuation of one or more late stage programs or recruitment by competitors. We cannot assure that we will be able to hire or retain the personnel necessary for our operations or that the loss of any such personnel will not have a material impact on our financial condition and results of operations.
Manufacturing issues could substantially increase our costs, limit supply of our products and reduce our revenues.
The process of manufacturing our products is complex, highly regulated and subject to numerous risks, including:
• | Risk of Product Loss. The manufacturing process for our products is extremely susceptible to product loss due to contamination, oxidation, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our products or manufacturing facilities, we may need to close our manufacturing facilities for an extended period of time to investigate and remediate the contaminant. |
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• | Risks of Reliance on Third Parties and Single Source Providers. We rely on third-party suppliers and manufacturers for many aspects of our manufacturing process for our products and product candidates. In some cases, due to the unique manner in which our products are manufactured, we rely on single source providers of several raw materials and manufacturing supplies. These third parties are independent entities subject to their own unique operational and financial risks that are outside of our control. These third parties may not perform their obligations in a timely and cost-effective manner or in compliance with applicable regulations, and they may be unable or unwilling to increase production capacity commensurate with demand for our existing or future products. Finding alternative providers could take a significant amount of time and involve significant expense due to the specialized nature of the services and the need to obtain regulatory approval of any significant changes to our suppliers or manufacturing methods. We cannot be certain that we could reach agreement with alternative providers or that the FDA or other regulatory authorities would approve our use of such alternatives. |
• | Global Bulk Supply Risks. We rely on our principal manufacturing facilities for the production of drug substance for our large molecule products and product candidates. Our global bulk supply of these products and product candidates depends on the uninterrupted and efficient operation of these facilities, which could be adversely affected by equipment failures, labor shortages, natural disasters, power failures and numerous other factors. |
• | Risks Relating to Compliance with cGMP. We and our third-party providers are generally required to maintain compliance with cGMP and other stringent requirements and are subject to inspections by the FDA and comparable agencies in other jurisdictions to confirm such compliance. Any delay, interruption or other issues that arise in the manufacture, fill-finish, packaging or storage of our products as a result of a failure of our facilities or the facilities or operations of third parties to pass any regulatory agency inspection could significantly impair our ability to develop and commercialize our products. Significant noncompliance could also result in the imposition of monetary penalties or other civil or criminal sanctions and damage our reputation. |
Any adverse developments affecting our manufacturing operations or the operations of our third-party suppliers and manufacturers may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls or other interruptions in the commercial supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Such developments could increase our manufacturing costs, cause us to lose revenue or market share as patients and physicians turn to competing therapeutics, diminish our profitability or damage our reputation.
We depend on relationships with collaborators and other third-parties for revenue, and the development, regulatory approval, commercialization and marketing of certain products, which are outside of our full control.
We rely on a number of significant collaborative relationships for revenue, and the development, regulatory approval, commercialization and marketing of certain of our products and product candidates. We also outsource to third parties certain aspects of our regulatory affairs and clinical development relating to our products and product candidates. Reliance on collaborative and other third-party relationships subjects us to a number of risks, including:
• | we may be unable to control the resources our collaborators or third parties devote to our programs or products; |
• | disputes may arise under the agreement, including with respect to the achievement and payment of milestones or ownership of rights to technology developed with our collaborators or other third parties, and the underlying contract with our collaborators or other third parties may fail to provide significant protection or may fail to be effectively enforced if the collaborators or third parties fail to perform; |
• | the interests of our collaborators or third parties may not always be aligned with our interests, such parties may not pursue regulatory approvals or market a product in the same manner or to the same extent that we would, which could adversely affect our revenues; |
• | third-party relationships and collaborations often require the parties to cooperate, and failure to do so effectively could adversely affect product sales, or the clinical development or regulatory approvals of products under joint control or could result in termination of the research, development or commercialization of product candidates or result in litigation or arbitration; and |
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• | any failure on the part of our collaborators or other third parties to comply with applicable laws and regulatory requirements in the marketing, sale and maintenance of the marketing authorization of our products or to fulfill any responsibilities our collaborators or other third parties may have to protect and enforce any intellectual property rights underlying our products could have an adverse effect on our revenues as well as involve us in possible legal proceedings. |
Given these risks, there is considerable uncertainty regarding the success of our current and future collaborative efforts. If these efforts fail, our product development or commercialization of new products could be delayed or revenues from products could decline.
Our business may be adversely affected if we do not successfully execute our growth initiatives.
We anticipate growth through internal development projects, commercial initiatives and external opportunities, which may include the acquisition, partnering and in-licensing of products, technologies and companies or the entry into strategic alliances and collaborations. While we believe we have a number of promising programs in our pipeline, failure of internal development projects to advance or difficulties in executing on our commercial initiatives could impact our current and future growth, resulting in additional reliance on external development opportunities for growth. The availability of high quality, cost-effective development opportunities is limited and competitive, and we are not certain that we will be able to identify candidates that we and our shareholders consider suitable or complete transactions on terms that are acceptable to us and our shareholders. We may fail to complete transactions for other reasons, including if we are unable to obtain desired financing on favorable terms, if at all. Even if we are able to successfully identify and complete acquisitions and other strategic alliances and collaborations, we may face unanticipated costs or liabilities in connection with the transaction or we may not be able to integrate them or take full advantage of them or otherwise realize the benefits that we expect.
Supporting our growth initiatives and the further development of our existing products and potential new products in our pipeline will require significant capital expenditures and management resources, including investments in research and development, sales and marketing, manufacturing capabilities and other areas of our business. If we do not successfully manage our growth initiatives, then our business and financial results may be adversely affected and we may incur asset impairment or restructuring charges.
We may incur operational difficulties or be exposed to claims and liabilities as a result of the separation and distribution of Bioverativ.
On February 1, 2017, we distributed all of the then outstanding shares of Bioverativ common stock to Biogen stockholders in connection with the separation of our hemophilia business. In connection with the distribution, we entered into a separation and distribution agreement and various other agreements (including a transition services agreement, a tax matters agreement, a manufacturing and supply agreement, an employee matters agreement, an intellectual property matters agreement and certain other commercial agreements). These agreements govern the separation and distribution and the relationship between the two companies going forward, including with respect to potential tax-related losses associated with the separation and distribution. They also provide for the performance of services by each company for the benefit of the other for a period of time (including under the manufacturing and supply agreement pursuant to which we will manufacture and supply certain products and materials to Bioverativ).
There could be significant liability if the separation and distribution is determined to be a taxable transaction. Bioverativ has agreed to indemnify us for certain potential liabilities that may arise, but we cannot guarantee that Bioverativ will be able to satisfy its indemnification obligations.
The separation and distribution agreement provides for indemnification obligations designed to make Bioverativ financially responsible for many liabilities that may exist relating to its business activities, whether incurred prior to or after the distribution, including any pending or future litigation. It is possible that a court would disregard the allocation agreed to between us and Bioverativ and require us to assume responsibility for obligations allocated to Bioverativ. Third parties could also seek to hold us responsible for any of these liabilities or obligations, and the indemnity rights we have under the separation and distribution agreement may not be sufficient to fully cover all of these liabilities and obligations. Even if we are successful in obtaining indemnification, we may have to bear costs temporarily. In addition, our indemnity obligations to Bioverativ may be significant. These risks could negatively affect our business, financial condition or results of operations.
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The separation of Bioverativ continues to involve a number of risks, including, among other things, the indemnification risks described above and the potential that management’s and our employees’ attention will be significantly diverted by the provision of transitional services. Certain of the agreements described above provide for the performance of services by each company for the benefit of the other for a period of time. If Bioverativ is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur losses. These arrangements could also lead to disputes over rights to certain shared property and over the allocation of costs and revenues for products and operations. Our inability to effectively manage the separation activities and related events could adversely affect our business, financial condition or results of operations.
We may not achieve some or all of the expected benefits of the separation and distribution, and such events may adversely affect our business.
We may not be able to achieve the full strategic and financial benefits expected to result from the separation and distribution, or such benefits may be delayed or not occur at all. If we fail to achieve some or all of the expected benefits of the separation, or if such benefits are delayed, our business, financial condition, results of operations and the value of our stock could be adversely impacted.
A breakdown or breach of our technology systems could subject us to liability or interrupt the operation of our business.
We are increasingly dependent upon technology systems and data. Our computer systems continue to increase in multitude and complexity due to the growth in our business, making them potentially vulnerable to breakdown, malicious intrusion and random attack. Likewise, data privacy or security breaches by individuals authorized to access our technology systems or others may pose a risk that sensitive data, including intellectual property, trade secrets or personal information belonging to us, our patients, customers or other business partners, may be exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity, and are becoming increasingly difficult to detect. They are often carried out by motivated, well-resourced, skilled and persistent actors including nation states, organized crime groups and "hacktivists." Cyber-attacks could include the deployment of harmful malware and key loggers, a denial-of-service attack, a malicious website, the use of social engineering and other means to affect the confidentiality, integrity and availability of our technology systems and data. Our key business partners face similar risks and any security breach of their systems could adversely affect our security posture. While we continue to build and improve our systems and infrastructure and believe we have taken appropriate security measures to reduce these risks to our data and information technology systems, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business or reputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.
If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, penalties and a loss of business.
Our activities, and the activities of our collaborators, distributors and other third-party providers, are subject to extensive government regulation and oversight both in the U.S. and in foreign jurisdictions. The FDA and comparable agencies in other jurisdictions directly regulate many of our most critical business activities, including the conduct of preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting and product risk management. Our interactions in the U.S. or abroad with physicians and other health care providers that prescribe or purchase our products are also subject to government regulation designed to prevent fraud and abuse in the sale and use of the products and place greater restrictions on the marketing practices of health care companies. Health care companies such as ours are facing heightened scrutiny of their relationships with health care providers from anti-corruption enforcement officials. In addition, health care companies such as ours have been the target of lawsuits and investigations alleging violations of government regulation, including claims asserting submission of incorrect pricing information, impermissible off-label promotion of pharmaceutical products, payments intended to influence the referral of health care business, submission of false claims for government reimbursement, antitrust violations or violations related to environmental matters. There is also enhanced scrutiny of company-sponsored patient assistance programs, including insurance premium and co-pay assistance programs and donations to third party charities that provide such assistance. If we, or our vendors or donation recipients, are deemed to fail to comply with relevant laws, regulations or government guidance in the operation of these programs, we could be subject to significant fines or penalties. Risks relating to compliance with laws and regulations may be heightened as we continue to expand our global operations and enter new therapeutic areas with different patient populations, which may have different product distribution methods, marketing programs or patient assistance programs from those we currently utilize or support.
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Regulations governing the health care industry are subject to change, with possibly retroactive effect, including:
• | new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to health care availability, pricing or marketing practices, compliance with wage and hour laws and other employment practices, method of delivery, payment for health care products and services, compliance with health information and data privacy and security laws and regulations, tracking and reporting payments and other transfers of value made to physicians and teaching hospitals, extensive anti-bribery and anti-corruption prohibitions, product serialization and labeling requirements and used product take-back requirements; |
• | changes in the FDA and foreign regulatory approval processes that may delay or prevent the approval of new products and result in lost market opportunity; |
• | requirements that provide for increased transparency of clinical trial results and quality data, such as the EMA’s clinical transparency policy, which could impact our ability to protect trade secrets and competitively-sensitive information contained in approval applications or could be misinterpreted leading to reputational damage, misperception or legal action which could harm our business; and |
• | changes in FDA and foreign regulations that may require additional safety monitoring, labeling changes, restrictions on product distribution or use, or other measures after the introduction of our products to market, which could increase our costs of doing business, adversely affect the future permitted uses of approved products, or otherwise adversely affect the market for our products. |
Violations of governmental regulation may be punishable by criminal and civil sanctions against us, including fines and civil monetary penalties and exclusion from participation in government programs, including Medicare and Medicaid, as well as against executives overseeing our business. In addition to penalties for violation of laws and regulations, we could be required to repay amounts we received from government payors, or pay additional rebates and interest if we are found to have miscalculated the pricing information we have submitted to the government. We cannot ensure that our compliance controls, policies and procedures will in every instance protect us from acts committed by our employees, collaborators, partners or third-party providers that would violate the laws or regulations of the jurisdictions in which we operate. Whether or not we have complied with the law, an investigation into alleged unlawful conduct could increase our expenses, damage our reputation, divert management time and attention and adversely affect our business.
Our effective tax rate may fluctuate and we may incur obligations in tax jurisdictions in excess of accrued amounts.
As a global biopharmaceutical company, we are subject to taxation in numerous countries, states and other jurisdictions. As a result, our effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Our effective tax rate, however, may be different than experienced in the past due to numerous factors, including changes in the mix of our profitability from country to country, the results of examinations and audits of our tax filings, adjustments to the value of our uncertain tax positions, changes in accounting for income taxes and changes in tax laws. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations.
In addition, our inability to secure or sustain acceptable arrangements with tax authorities and future changes in the tax laws, among other things, may result in tax obligations in excess of amounts accrued in our financial statements.
In the U.S., there are several proposals under consideration to reform tax law, including proposals that may reduce or eliminate the deferral of U.S. income tax on our unrepatriated earnings, penalize certain transfer pricing structures, and reduce or eliminate certain foreign or domestic tax credits or deductions. Our future reported financial results may be adversely affected by tax law changes which restrict or eliminate certain foreign tax credits or our ability to deduct expenses attributable to foreign earnings, or otherwise affect the treatment of our unrepatriated earnings.
In addition to U.S. tax reform proposals, the adoption of some or all of the recommendations set forth in the Organization for Economic Co-operation and Development’s project on “Base Erosion and Profit Shifting” (BEPS) by tax authorities in the countries in which we operate, could negatively impact our effective tax rate. These recommendations focus on payments from affiliates in high tax jurisdictions to affiliates in lower tax jurisdictions and the activities that give rise to a taxable presence in a particular country.
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Our indebtedness could adversely affect our business and limit our ability to plan for or respond to changes in our business.
Our indebtedness, together with our significant contingent liabilities, including milestone and royalty payment obligations, could have important consequences to our business; for example, such obligations could:
• | increase our vulnerability to general adverse economic and industry conditions; |
• | limit our ability to access capital markets and incur additional debt in the future; |
• | require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including business development efforts, research and development and mergers and acquisitions; and |
• | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, thereby placing us at a competitive disadvantage compared to our competitors that have less debt. |
Our sales and operations are subject to the risks of doing business internationally.
We are increasing our presence in international markets, particularly emerging markets, subjecting us to many risks that could adversely affect our business and revenues, such as:
• | the inability to obtain necessary foreign regulatory or pricing approvals of products in a timely manner; |
• | collectability of accounts receivable; |
• | fluctuations in foreign currency exchange rates, in particular the recent strength of the U.S. dollar versus foreign currencies that has adversely impacted our revenues and net income; |
• | difficulties in staffing and managing international operations; |
• | the imposition of governmental controls; |
• | less favorable intellectual property or other applicable laws; |
• | increasingly complex standards for complying with foreign laws and regulations that may differ substantially from country to country and may conflict with corresponding U.S. laws and regulations; |
• | the far-reaching anti-bribery and anti-corruption legislation in the U.K., including the U.K. Bribery Act 2010, and elsewhere and escalation of investigations and prosecutions pursuant to such laws; |
• | compliance with complex import and export control laws; |
• | restrictions on direct investments by foreign entities and trade restrictions; |
• | greater political or economic instability; and |
• | changes in tax laws and tariffs. |
In addition, our international operations are subject to regulation under U.S. law. For example, the Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad. In many countries, the health care professionals we regularly interact with may meet the definition of a foreign government official for purposes of the Foreign Corrupt Practices Act. Failure to comply with domestic or foreign laws could result in various adverse consequences, including: possible delay in approval or refusal to approve a product; recalls, seizures or withdrawal of an approved product from the market; disruption in the supply or availability of our products or suspension of export or import privileges; the imposition of civil or criminal sanctions; the prosecution of executives overseeing our international operations; and damage to our reputation. Any significant impairment of our ability to sell products outside of the U.S. could adversely impact our business and financial results.
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Our operating results are subject to significant fluctuations.
Our quarterly revenues, expenses and net income (loss) have fluctuated in the past and are likely to fluctuate significantly in the future due to the risks described in these “Risk Factors” as well as the timing of charges and expenses that we may take. We have recorded, or may be required to record, charges that include:
• | the cost of restructurings; |
• | impairments with respect to investments, fixed assets and long-lived assets, including in-process R&D and other intangible assets; |
• | inventory write-downs for failed quality specifications, charges for excess or obsolete inventory and charges for inventory write downs relating to product suspensions, expirations or recalls; |
• | changes in the fair value of contingent consideration; |
• | bad debt expenses and increased bad debt reserves; |
• | outcomes of litigation and other legal or administrative proceedings, regulatory matters and tax matters; |
• | milestone payments under license and collaboration agreements; and |
• | payments in connection with acquisitions and other business development activities. |
Our revenues are also subject to foreign exchange rate fluctuations due to the global nature of our operations. Although we have foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies, our efforts to mitigate the impact of fluctuating currency exchange rates may not be successful. As a result, currency fluctuations among our reporting currency, the U.S. dollar, and the currencies in which we do business will affect our operating results, often in unpredictable ways. Our net income may also fluctuate due to the impact of charges we may be required to take with respect to foreign currency hedge transactions. In particular, we may incur higher than expected charges from hedge ineffectiveness or from the termination of a hedge relationship.
Our operating results during any one period do not necessarily suggest the anticipated results of future periods.
We are pursuing opportunities to expand our manufacturing capacity for future clinical and commercial requirements for product candidates, which will result in the incurrence of significant investment with no assurance that such investment will be recouped.
While we believe we currently have sufficient large scale manufacturing capacity to meet our near-term manufacturing requirements, it is probable that we would need additional large scale manufacturing capacity to support future clinical and commercial manufacturing requirements for product candidates in our pipeline, if such candidates are successful and approved. We are building a large scale biologics manufacturing facility in Solothurn, Switzerland and acquired an additional manufacturing facility in Research Triangle Park, North Carolina. Due to the long lead times necessary for the expansion of manufacturing capacity, we expect to incur significant investment to build or expand our facilities or obtain third-party contract manufacturers with no assurance that such investment will be recouped. If we are unable to adequately and timely manufacture and supply our products and product candidates or if we do not fully utilize our manufacturing facilities, our business may be harmed.
Our investment in Samsung Bioepis, and our success in commercializing biosimilars developed by Samsung Bioepis, are subject to risks and uncertainties inherent in the development, manufacture and commercialization of biosimilars.
Our investment in Samsung Bioepis, and our success in commercializing biosimilars developed by Samsung Bioepis, are subject to a number of risks, including:
• | Reliance on Third Parties. We are dependent on the efforts of Samsung Bioepis and other third parties over whom we have limited or no control in the development and manufacturing of biosimilars products. If Samsung Bioepis or such other third parties fail to perform successfully, we may not realize the anticipated benefits of our investment in Samsung Bioepis; |
• | Regulatory Compliance. Biosimilar products may face regulatory hurdles or delays due to the evolving and uncertain regulatory and commercial pathway of biosimilars products in certain jurisdictions; |
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• | Intellectual Property and Regulatory Challenges. Biosimilar products may face extensive patent clearances, patent infringement litigation, injunctions or regulatory challenges, which could prevent the commercial launch of a product or delay it for many years; |
• | Failure to Gain Market and Patient Acceptance. Market success of biosimilar products will be adversely affected if patients, physicians and payers do not accept biosimilar products as safe and efficacious products offering a more competitive price or other benefit over existing therapies; |
• | Ability to Provide Adequate Supply. Manufacturing biosimilars is complex. If we encounter any manufacturing or supply chain difficulties, we may be unable to meet higher than anticipated demand; and |
• | Competitive Challenges. Biosimilar products face significant competition, including from innovator products and from biosimilar products offered by other companies. In some jurisdictions, local tendering processes may restrict biosimilar products from being marketed and sold in those jurisdictions. The number of competitors in a jurisdiction, the timing of approval and the ability to market biosimilar products successfully in a timely and cost-effective matter are additional factors that may impact our success and/or the success of Samsung Bioepis in this business area. |
Our investments in properties may not be fully realized.
We own or lease real estate primarily consisting of buildings that contain research laboratories, office space and manufacturing operations. For strategic or other operational reasons, we may decide to further consolidate or co-locate certain aspects of our business operations or dispose of one or more of our properties, some of which may be located in markets that are experiencing high vacancy rates and decreasing property values. If we determine that the fair value of any of our owned properties is lower than their book value we may not realize the full investment in these properties and incur significant impairment charges or additional depreciation when the expected useful lives of certain assets have been shortened due to the anticipated closing of facilities. If we decide to fully or partially vacate a leased property, such as ceasing manufacturing at our facility in Cambridge, Massachusetts, we may incur significant cost, including facility closing costs, employee separation and retention expenses, lease termination fees, rent expense in excess of sublease income and impairment of leasehold improvements and accelerated depreciation of assets. Any of these events may have an adverse impact on our results of operations.
Our portfolio of marketable securities is subject to market, interest and credit risk that may reduce its value.
We maintain a portfolio of marketable securities for investment of our cash. Changes in the value of our portfolio of marketable securities could adversely affect our earnings. In particular, the value of our investments may decline due to increases in interest rates, downgrades of the bonds and other securities included in our portfolio, instability in the global financial markets that reduces the liquidity of securities included in our portfolio, declines in the value of collateral underlying the securities included in our portfolio and other factors. Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio or sell investments for less than our acquisition cost. Although we attempt to mitigate these risks through diversification of our investments and continuous monitoring of our portfolio's overall risk profile, the value of our investments may nevertheless decline.
There can be no assurance that we will continue to repurchase stock or that we will repurchase stock at favorable prices.
From time to time our Board of Directors authorizes stock repurchase programs, including most recently a $5.0 billion stock repurchase program in July 2016. The amount and timing of stock repurchases are subject to capital availability and our determination that stock repurchases are in the best interest of our stockholders and are in compliance with all respective laws and our agreements applicable to the repurchase of stock. Our ability to repurchase stock will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, results of operations, financial condition and other factors beyond our control that we may deem relevant. A reduction in, or the completion or expiration of, our stock repurchase programs could have a negative effect on our stock price. We can provide no assurance that we will repurchase stock at favorable prices, if at all.
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We may not be able to access the capital and credit markets on terms that are favorable to us.
We may seek access to the capital markets to supplement our existing funds and cash generated from operations for working capital, capital expenditure and debt service requirements and other business initiatives. The capital and credit markets have experienced extreme volatility and disruption which leads to uncertainty and liquidity issues for both borrowers and investors. In the event of adverse capital and credit market conditions, we may be unable to obtain capital market financing on favorable terms. Changes in credit ratings issued by nationally recognized credit rating agencies could also adversely affect our cost of financing and the market price of our securities.
Our business involves environmental risks, which include the cost of compliance and the risk of contamination or injury.
Our business and the business of several of our strategic partners involve the controlled use of hazardous materials, chemicals, biologics and radioactive compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with state, federal and foreign standards, there will always be the risk of accidental contamination or injury. If we were to become liable for an accident, or if we were to suffer an extended facility shutdown, we could incur significant costs, damages and penalties that could harm our business. Manufacturing of our products and product candidates also requires permits from government agencies for water supply and wastewater discharge. If we do not obtain appropriate permits, including permits for sufficient quantities of water and wastewater, we could incur significant costs and limits on our manufacturing volumes that could harm our business.
The illegal distribution and sale by third parties of counterfeit versions of our products or stolen products could have a negative impact on our reputation and business.
Third parties might illegally distribute and sell counterfeit or unfit versions of our products, which do not meet our rigorous manufacturing, distribution and testing standards. A patient who receives a counterfeit or unfit drug may be at risk for a number of dangerous health consequences. Our reputation and business could suffer harm as a result of counterfeit or unfit drugs sold under our brand name. Stolen inventory that is not properly stored or sold through unauthorized channels could adversely impact patient safety, our reputation and our business. In addition, inventory that is stolen from warehouses, plants or while in-transit, and that is subsequently improperly stored and sold through unauthorized channels, could adversely impact patient safety, our reputation and our business.
The increasing use of social media platforms presents new risks and challenges.
Social media is increasingly being used to communicate about our products and the diseases our therapies are designed to treat. Social media practices in the biopharmaceutical industry continue to evolve and regulations relating to such use are not always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients may use social media channels to comment on the effectiveness of a product or to report an alleged adverse event. When such disclosures occur, there is a risk that we fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend the company or the public's legitimate interests in the face of the political and market pressures generated by social media due to restrictions on what we may say about our products. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face overly restrictive regulatory actions or incur other harm to our business.
Some of our collaboration agreements contain change in control provisions that may discourage a third party from attempting to acquire us.
Some of our collaboration agreements include change in control provisions that could reduce the potential acquisition price an acquirer is willing to pay or discourage a takeover attempt that could be viewed as beneficial to shareholders. Upon a change in control, some of these provisions could trigger reduced milestone, profit or royalty payments to us or give our collaboration partner rights to terminate our collaboration agreement, acquire operational control or force the purchase or sale of the programs that are the subject of the collaboration.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
Below is a summary of our owned and leased properties as of December 31, 2016.
Massachusetts
In Cambridge, Massachusetts, we own approximately 508,000 square feet of real estate space, consisting of a building that houses a research laboratory and a cogeneration plant totaling approximately 263,000 square feet and a building that contains research, development and quality laboratories which total approximately 245,000 square feet.
In addition, we lease a total of approximately 1,250,000 square feet in Massachusetts, which is summarized as follows:
• | 893,000 square feet in Cambridge, Massachusetts, which is comprised of a 67,000 square foot biologics manufacturing facility, which is subleased by Brammer, and 826,000 square feet for our corporate headquarters, laboratory and additional office space; and |
• | 357,000 square feet of office space in Weston, Massachusetts, of which 175,000 square feet has been subleased through the remaining term of our lease agreement. |
Our Massachusetts lease agreements expire at various dates through the year 2028.
North Carolina
In RTP, North Carolina, we own approximately 834,000 square feet of real estate space, which is summarized as follows:
• | 357,000 square feet of laboratory and office space; |
• | 175,000 square feet related to a large-scale biologics manufacturing facility; |
• | 105,000 square feet related to a biologics manufacturing facility; |
• | 84,000 square feet of warehouse space and utilities; |
• | 70,000 square feet related to a parenteral fill-finish facility; and |
• | 43,000 square feet related to a large-scale purification facility. |
In addition, we lease 188,000 square feet of a facility in RTP, North Carolina from Eisai to manufacture our and Eisai's oral solid dose products and 40,000 square feet of warehouse space in Durham, North Carolina.
Denmark
We own a large-scale biologics manufacturing facility totaling approximately 228,000 square feet located in Hillerød, Denmark.
We also own approximately 306,000 square feet of additional space, which is summarized as follows:
• | 139,000 square feet of warehouse, utilities and support space; |
• | 70,000 square feet related to a label and packaging facility; |
• | 50,000 square feet related to a laboratory facility; and |
• | 47,000 square feet of administrative space. |
Switzerland
In December 2015 we acquired land in Solothurn, Switzerland where we are building a biologics manufacturing facility in the Commune of Luterbach over the next several years.
Other International
We lease office space in Zug, Switzerland, our international headquarters, the U.K., Germany, France, Denmark and numerous other countries. Our international lease agreements expire at various dates through the year 2028.
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Item 3. Legal Proceedings
For a discussion of legal matters as of December 31, 2016, please read Note 20, Litigation to our consolidated financial statements included in this report, which is incorporated into this item by reference.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market and Stockholder Information
Our common stock trades on The NASDAQ Global Select Market under the symbol “BIIB.” The following table shows the high and low sales price for our common stock as reported by The NASDAQ Global Select Market for each quarter in the years ended December 31, 2016 and 2015:
Common Stock Price | |||||||||||||||
2016 | 2015 | ||||||||||||||
High | Low | High | Low | ||||||||||||
First Quarter | $ | 301.02 | $ | 242.07 | $ | 480.18 | $ | 334.40 | |||||||
Second Quarter | $ | 292.69 | $ | 223.02 | $ | 432.88 | $ | 368.88 | |||||||
Third Quarter | $ | 333.65 | $ | 240.07 | $ | 412.24 | $ | 265.00 | |||||||
Fourth Quarter | $ | 329.83 | $ | 268.00 | $ | 311.65 | $ | 254.00 | |||||||
As of January 27, 2017, there were approximately 700 stockholders of record of our common stock.
Dividends
We have not paid cash dividends since our inception. While we historically have not paid cash dividends and do not have a current intention to pay cash dividends, we continually review our capital allocation strategies, including, among other things, payment of cash dividends, stock repurchases or acquisitions.
Issuer Purchases of Equity Securities
In July 2016 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2016 Share Repurchase Program). This authorization does not have an expiration date. Repurchased shares will be retired.
The following table summarizes our common stock repurchase activity under our 2016 Share Repurchase Program during the fourth quarter of 2016:
Period | Total Number of Shares Purchased (#) | Average Price Paid per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Programs (#) | Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under Our Programs ($ in millions) | ||||||||
October 2016 | 1,254,818 | 298.71 | 1,254,818 | $ | 4,276.3 | |||||||
November 2016 | 939,046 | 294.24 | 939,046 | $ | 4,000.0 | |||||||
December 2016 | — | — | — | $ | 4,000.0 | |||||||
Total | 2,193,864 | 296.80 | ||||||||||
As of December 31, 2016, we repurchased and retired approximately 3.3 million shares of common stock at a cost of $1.0 billion under the 2016 Share Repurchase Program.
In February 2011 our Board of Directors authorized a program to repurchase up to 20.0 million shares of our common stock (2011 Share Repurchase Program), which has been used principally to offset common stock issuances under our share-based compensation plans. The 2011 Share Repurchase Program does not have an expiration date. We did not repurchase any shares of common stock under our 2011 Share Repurchase Program during the year ended December 31, 2016, and have approximately 1.3 million shares remaining available for repurchase under this authorization.
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Stock Performance Graph
The graph below compares the five-year cumulative total stockholder return on our common stock, the S&P 500 Index, the Nasdaq Pharmaceutical Index and the Nasdaq Biotechnology Index assuming the investment of $100.00 on December 31, 2011 with dividends being reinvested. The stock price performance in the graph below is not necessarily indicative of future price performance.
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |||||||
Biogen Inc. | 100.00 | 133.00 | 254.04 | 308.45 | 278.37 | 257.68 | ||||||
NASDAQ Pharmaceutical | 100.00 | 114.32 | 155.11 | 188.95 | 199.22 | 197.05 | ||||||
S&P 500 Index | 100.00 | 116.00 | 153.57 | 174.60 | 177.01 | 198.18 | ||||||
NASDAQ Biotechnology | 100.00 | 132.74 | 220.37 | 296.19 | 331.05 | 260.37 | ||||||
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Item 6. Selected Financial Data
BIOGEN INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Our results of operations are summarized as follows: | |||||||||||||||||||
For the Years Ended December 31, | |||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||
(In millions, except per share amounts) | (d) (e) | (d) | (f) | (g) | (h) | ||||||||||||||
Results of Operations | |||||||||||||||||||
Product revenues, net (a) | $ | 9,817.9 | $ | 9,188.5 | $ | 8,203.4 | $ | 5,542.3 | $ | 4,166.1 | |||||||||
Revenues from anti-CD20 therapeutic programs | 1,314.5 | 1,339.2 | 1,195.4 | 1,126.0 | 1,137.9 | ||||||||||||||
Other revenues | 316.4 | 236.1 | 304.5 | 263.9 | 212.5 | ||||||||||||||
Total revenues | 11,448.8 | 10,763.8 | 9,703.3 | 6,932.2 | 5,516.5 | ||||||||||||||
Total cost and expenses | 6,298.4 | 5,872.8 | 5,747.7 | 4,441.6 | 3,707.4 | ||||||||||||||
Gain on sale of rights | — | — | 16.8 | 24.9 | 46.8 | ||||||||||||||
Income from operations | 5,150.4 | 4,891.0 | 3,972.4 | 2,515.5 | 1,855.9 | ||||||||||||||
Other income (expense), net | (217.4 | ) | (123.7 | ) | (25.8 | ) | (34.9 | ) | (0.7 | ) | |||||||||
Income before income tax expense and equity in loss of investee, net of tax | 4,933.0 | 4,767.3 | 3,946.6 | 2,480.6 | 1,855.1 | ||||||||||||||
Income tax expense | 1,237.3 | 1,161.6 | 989.9 | 601.0 | 470.6 | ||||||||||||||
Equity in loss of investee, net of tax | — | 12.5 | 15.1 | 17.2 | 4.5 | ||||||||||||||
Net income | 3,695.7 | 3,593.2 | 2,941.6 | 1,862.3 | 1,380.0 | ||||||||||||||
Net income (loss) attributable to noncontrolling interests, net of tax | (7.1 | ) | 46.2 | 6.8 | — | — | |||||||||||||
Net income attributable to Biogen Inc. | $ | 3,702.8 | $ | 3,547.0 | $ | 2,934.8 | $ | 1,862.3 | $ | 1,380.0 | |||||||||
Diluted Earnings Per Share | |||||||||||||||||||
Diluted earnings per share attributable to Biogen Inc. | $ | 16.93 | $ | 15.34 | $ | 12.37 | $ | 7.81 | $ | 5.76 | |||||||||
Weighted-average shares used in calculating diluted earnings per share attributable to Biogen Inc. | 218.8 | 231.2 | 237.2 | 238.3 | 239.7 | ||||||||||||||
Our financial condition is summarized as follows: | |||||||||||||||||||
As of December 31, | |||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||
(In millions) | |||||||||||||||||||
Financial Condition | |||||||||||||||||||
Cash, cash equivalents and marketable securities | $ | 7,724.5 | $ | 6,188.9 | $ | 3,316.0 | $ | 1,848.5 | $ | 3,742.4 | |||||||||
Total assets | $ | 22,876.8 | $ | 19,504.8 | $ | 14,314.7 | $ | 11,863.3 | $ | 10,130.1 | |||||||||
Notes payable and other financing arrangements, less current portion (b) | $ | 6,512.7 | $ | 6,521.5 | $ | 580.3 | $ | 592.4 | $ | 687.4 | |||||||||
Total Biogen Inc. shareholders’ equity (c) | $ | 12,140.1 | $ | 9,372.8 | $ | 10,809.0 | $ | 8,620.2 | $ | 6,961.5 | |||||||||
In addition to the following notes, the financial data included within the tables above should be read in conjunction with our consolidated financial statements and related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this report and our previously filed Form 10-Ks.
(a) | Product revenues, net reflect the impact of the following product launches: |
• | Commercial sales of SPINRAZA began in the fourth quarter of 2016. |
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• | Under the terms of our collaboration agreement with AbbVie, we began to recognize revenues on sales of ZINBRYTA to third parties in the E.U. in the third quarter of 2016. |
• | Under the terms of our commercial agreement with Samsung Bioepis, we began to recognize revenues on sales of BENEPALI and FLIXABI to third parties in the E.U. in the first quarter of 2016 and third quarter of 2016, respectively. |
• | Commercial sales of ALPROLIX commenced in the second quarter of 2014 and commercial sales of ELOCTATE and PLEGRIDY commenced in the third quarter of 2014. |
• | TECFIDERA began in April 2013. |
(b) | Notes payable and other financing arrangements reflects the issuance of our senior unsecured notes for an aggregate principal amount of $6.0 billion in September 2015, and the 2013 repayment of our 6.0% notes that were issued in 2008 for an aggregate principal amount of $450.0 million. |
(c) | Total Biogen Inc.'s shareholders' equity reflects the repurchase of approximately 32.8 million shares of our common stock at a cost of approximately $8.3 billion between 2012 and 2016: |
• | During 2016 we repurchased and retired approximately 3.3 million shares of our common stock at a cost of $1.0 billion under our 2016 Share Repurchase Program. |
• | During 2015 we repurchased and retired approximately 16.8 million shares of our common stock at a cost of $5.0 billion under our 2015 Share Repurchase Program. |
• | During 2014, 2013 and 2012 we repurchased approximately 2.9 million, 2.0 million and 7.8 million shares, respectively of our common stock at a cost of approximately $2.3 billion under our 2011 Share Repurchase Program of which approximately 3.7 million of these shares were retired. |
(d) | Total cost and expenses for the years ended December 31, 2016 and 2015, include restructuring charges of $33.1 million and $93.4 million, respectively. In addition, total cost and expenses for the year ended December 31, 2016, also include charges to cost of sales totaling $52.4 million of expenses incurred as a result of our determination to vacate and cease manufacturing in our small-scale biologics facility in Cambridge, MA as well as vacate our warehouse in Somerville, MA. Total cost and expenses for year ended December 31, 2016, also include $18.1 million of costs incurred directly related to our separation of our hemophilia business into an independent, publicly traded company. |
(e) | Total cost and expenses for the year ended December 31, 2016, includes a pre-tax charge of $454.8 million related to the January 2017 settlement and license agreement with Forward Pharma A/S (Forward Pharma). |
(f) | In June 2014 AIFA approved a resolution affirming that there is no reimbursement limit from and after February 2013. As a result, we recognized $53.5 million of TYSABRI revenues in the second quarter of 2014 related to the periods beginning February 2013 that were previously deferred. |
(g) | Our share of revenues from anti-CD20 therapeutic programs reflects charges of $49.7 million in 2013 for damages and interest awarded to Hoechst in Genentech's arbitration with Hoechst for RITUXAN. |
(h) | Commencing in the second quarter of 2013 product and total revenues include 100% of net revenues related to sales of TYSABRI as a result of our acquisition of all remaining rights to TYSABRI from Elan Pharma International, Ltd (Elan), an affiliate of Elan Corporation, plc. Upon the closing, our collaboration agreement was terminated, and we no longer record collaboration profit sharing expense. We recognized collaboration profit sharing expense of $85.4 million and $317.9 million during the years ended December 31, 2013 and 2012, respectively. |
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and related notes beginning on page F-1 of this report. Certain totals may not sum due to rounding.
Executive Summary
Introduction
Biogen is a global biopharmaceutical company focused on discovering, developing, manufacturing and delivering therapies to people living with serious neurological, rare and autoimmune diseases.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, ZINBRYTA and FAMPYRA for multiple sclerosis (MS), FUMADERM for the treatment of severe plaque psoriasis and SPINRAZA for the treatment of spinal muscular atrophy (SMA). We also have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions, GAZYVA indicated for the treatment of CLL and follicular lymphoma, and other potential anti-CD20 therapies under a collaboration agreement with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group.
In May 2016 we announced our intention to spin off our hemophilia business, Bioverativ Inc. (Bioverativ), as an independent, publicly traded company. Bioverativ will focus on the discovery, development and commercialization of therapies for the treatment of hemophilia and other blood disorders, including ELOCTATE for the treatment of hemophilia A and ALPROLIX for the treatment of hemophilia B. Bioverativ will also assume all of our rights and obligations under our collaboration agreement with Swedish Orphan Biovitrum AB (Sobi) and our collaboration and license agreement with Sangamo Biosciences Inc. (Sangamo).
On February 1, 2017, we completed the distribution of all the then outstanding shares of common stock of Bioverativ to Biogen stockholders, who received one share of Bioverativ common stock for every two shares of Biogen common stock. As a result of the distribution, Bioverativ is now an independent public company whose shares of common stock are trading under the symbol "BIVV"
on the Nasdaq Global Select Market.
The financial results of Bioverativ are included in our consolidated results of operations and financial position in our audited consolidated financial statements for the periods presented in this Form 10-K. The financial results of Bioverativ will be excluded from our consolidated results of operations and financial position commencing February 1, 2017. For additional information regarding the separation of Bioverativ, please read Note 26, Subsequent Events to our consolidated financial statements included in this report.
Our current revenues depend upon continued sales of our principal products and, unless we develop, acquire rights to, and commercialize new products and technologies, we may be substantially dependent on sales from our principal products for many years. Further, following the completion of the spin-off of our hemophilia business, our revenues will be further reliant and concentrated on sales of our MS products in an increasingly competitive market.
In the longer term, our revenue growth will be dependent upon the successful clinical development, regulatory approval and launch of new commercial products as well as additional indications for our existing products, our ability to obtain and maintain patents and other rights related to our marketed products, assets originating from our research and development efforts and successful execution of external business development opportunities.
We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities, particularly within areas of our scientific, manufacturing and technical capabilities. For nearly two decades we have led in the research and development of new therapies to treat MS, resulting in our leading portfolio of MS treatments. Now our research is focused on additional improvements in the treatment of MS, such as, the development of next generation therapies for MS with a goal to reverse or possibly repair damage caused by the disease. We are also applying our scientific expertise to solve some of the most challenging and complex diseases, including Alzheimer's disease, Parkinson's disease and amyotrophic lateral sclerosis (ALS), and are employing innovative technologies to discover potential treatments for rare and genetic disorders, including new ways of treating diseases through gene therapy.
Our innovative drug development and commercialization activities are complemented by our biosimilar therapies that expand access to medicines and reduce the cost burden for healthcare systems. We are leveraging our manufacturing capabilities and know-how by developing, manufacturing and marketing
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biosimilars through Samsung Bioepis, our joint venture with Samsung BioLogics Co. Ltd. (Samsung Biologics). Under our commercial agreement with Samsung Bioepis, we market and sell BENEPALI, an etanercept biosimilar referencing ENBREL, and FLIXABI, an infliximab biosimilar referencing REMICADE, in the European Union (E.U.).
Financial Highlights
Diluted earnings per share attributable to Biogen Inc. were $16.93 for 2016, representing an increase of 10.4% over the same period in 2015.
As described below under “Results of Operations,” our income from operations for the year ended December 31, 2016, reflects the following:
• | Total revenues were $11,448.8 million for 2016, representing an increase of 6.4% over the same period in 2015. |
• | Product revenues, net totaled $9,817.9 million for 2016, representing an increase of 6.8% over the same period in 2015. This increase was driven by a 9.1% increase in worldwide TECFIDERA revenues, a 52.8% increase in worldwide hemophilia revenues, a 4.1% increase in worldwide TYSABRI revenues and revenues from BENEPALI. These increases are partially offset by a 5.8% decrease in worldwide Interferon revenues. Product revenues, net for |
2016, compared to the same period in 2015, were also negatively impacted by a $167.8 million decrease in hedge gains recognized under our foreign currency hedging program in comparative periods.
• | Revenues from anti-CD20 therapeutic programs totaled $1,314.5 million for 2016, representing a decrease of 1.8% over the same period in 2015. |
• | Other revenues totaled $316.4 million for 2016, representing an increase of 34.0% from the same period in 2015. This increase was primarily driven by an increase in other corporate revenues, which includes amounts earned with respect to our contract manufacturing activities. |
• | Total cost and expenses totaled $6,298.4 million for 2016, representing an increase of 7.2%, compared to the same period in 2015. This increase was driven by a $454.8 million litigation settlement and license charge and a 19.2% increase in cost of sales, which includes a charge of $45.5 million for accelerated depreciation as a result of the determination to cease manufacturing in Cambridge, MA and vacate our biologics manufacturing facility in Cambridge, MA and warehouse space in Somerville, MA. These increases were partially offset by a 7.8% decrease in selling, general and administrative expenses and a decrease in restructuring charges. |
We generated $4,522.4 million of net cash flows from operations for 2016, which were primarily driven by earnings. Cash, cash equivalents and marketable securities totaled approximately $7,724.5 million as of December 31, 2016.
During the year ended December 31, 2016, we repurchased and retired approximately 3.3 million shares of common stock at a cost of $1.0 billion under our share repurchase programs.
Collaborative and Other Relationships
In May 2016 we entered into a collaboration and alliance with the University of Pennsylvania (UPenn) to advance gene therapy and gene editing technologies. For additional information related to this transaction, please read Note 19, Collaborative and Other Relationships to our consolidated financial statements included in this report.
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Restructuring and Cost Saving Initiatives
During the third quarter of 2016 we initiated cost saving measures primarily intended to realign our organizational structure due to the changes in roles and workforce resulting from our decision to spin off our hemophilia business, and to achieve further targeted cost reductions.
Additionally, in connection with the transaction to sublease our rights to the manufacturing facility in Cambridge, MA to Brammer Bio MA, LLC (Brammer), certain employees were separated from Biogen.
For additional information related to our restructuring and cost saving initiatives, please read Note 3, Restructuring, Business Transformation and Other Cost Saving Initiatives to our consolidated financial statements included in this report.
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. In addition, the commercialization of certain of our own approved MS products, products of our collaborators and pipeline product candidates may negatively impact future sales of our existing MS products. Our products may also face increased competitive pressures from the introduction of generic versions, prodrugs of existing therapeutics or biosimilars of existing products and other technologies, such as gene therapies and bispecific antibodies.
In addition, sales of our products are dependent, in large part, on the availability and extent of coverage, pricing and reimbursement from government health administration authorities, private health insurers and other organizations. Drug prices are under significant scrutiny in the markets in which our products are prescribed. Drug pricing and other health care costs continue to be subject to intense political and societal pressures.
For additional information related to our competition and pricing risks that could negatively impact our product sales, please read the “Risk Factors” section of this report.
Results of Operations
Revenues
Revenues are summarized as follows:
For the Years Ended December 31, | % Change | ||||||||||||||||
2016 compared to 2015 | 2015 compared to 2014 | ||||||||||||||||
(In millions, except percentages) | 2016 | 2015 | 2014 | ||||||||||||||
Product Revenues: | |||||||||||||||||
United States | $ | 7,050.4 | $ | 6,545.8 | $ | 5,566.7 | 7.7 | % | 17.6 | % | |||||||
Rest of world | 2,767.5 | 2,642.7 | 2,636.7 | 4.7 | % | 0.2 | % | ||||||||||
Total product revenues | 9,817.9 | 9,188.5 | 8,203.4 | 6.8 | % | 12.0 | % | ||||||||||
Revenues from anti-CD20 therapeutic programs | 1,314.5 | 1,339.2 | 1,195.4 | (1.8 | )% | 12.0 | % | ||||||||||
Other revenues | 316.4 | 236.1 | 304.5 | 34.0 | % | (22.5 | )% | ||||||||||
Total revenues | $ | 11,448.8 | $ | 10,763.8 | $ | 9,703.3 | 6.4 | % | 10.9 | % | |||||||
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Product Revenues
Product revenues are summarized as follows:
For the Years Ended December 31, | % Change | ||||||||||||||||
2016 compared to 2015 | 2015 compared to 2014 | ||||||||||||||||
(In millions, except percentages) | 2016 | 2015 | 2014 | ||||||||||||||
Multiple Sclerosis: | |||||||||||||||||
TECFIDERA | $ | 3,968.1 | $ | 3,638.4 | $ | 2,909.2 | 9.1 | % | 25.1 | % | |||||||
Interferon* | 2,795.2 | 2,968.7 | 3,057.6 | (5.8 | )% | (2.9 | )% | ||||||||||
TYSABRI | 1,963.8 | 1,886.1 | 1,959.5 | 4.1 | % | (3.7 | )% | ||||||||||
FAMPYRA | 84.9 | 89.7 | 80.2 | (5.4 | )% | 11.8 | % | ||||||||||
ZINBRYTA | 7.8 | — | — | ** | ** | ||||||||||||
Hemophilia: | |||||||||||||||||
ELOCTATE | 513.2 | 319.7 | 58.4 | 60.5 | % | 447.4 | % | ||||||||||
ALPROLIX | 333.7 | 234.5 | 76.0 | 42.3 | % | 208.6 | % | ||||||||||
Other product revenues: | |||||||||||||||||
FUMADERM | 45.9 | 51.4 | 62.5 | (10.7 | )% | (17.8 | )% | ||||||||||
SPINRAZA | 4.6 | — | — | ** | ** | ||||||||||||
BENEPALI | 100.6 | — | — | ** | ** | ||||||||||||
FLIXABI | 0.1 | — | — | ** | ** | ||||||||||||
Total product revenues | $ | 9,817.9 | $ | 9,188.5 | $ | 8,203.4 | 6.8 | % | 12.0 | % | |||||||
* Interferon includes AVONEX and PLEGRIDY.
** Percentage not meaningful.
Multiple Sclerosis (MS)
TECFIDERA
For 2016 compared to 2015, the increase in U.S. TECFIDERA revenues was primarily due to price increases, partially offset by higher discounts and allowances and a decrease in unit sales volume of 1%.
For 2015 compared to 2014, the increase in U.S. TECFIDERA revenues was primarily due to increases in unit sales volume of 13% as TECFIDERA penetrated the U.S. market, and increases in gross
price partially offset by higher discounts and allowances.
For 2016 compared to 2015, the increase in rest of world TECFIDERA revenues was primarily due to increases in unit sales volume of 32% in existing markets and new markets where we continue to launch the product and expand our presence around the world. These increases were partially offset by pricing reductions in certain European countries. Rest of world TECFIDERA revenues for 2016, compared to 2015, were also negatively impacted by a $50.2 million decrease in hedge gains recognized under our foreign currency hedging program in the comparative period.
For 2015 compared to 2014, the increase in rest of world TECFIDERA revenues was primarily due to increases in unit sales volume in existing markets and in new markets as we continue to launch the product and expand our presence around the world. These increases were partially offset by pricing reductions in Germany as described below. Rest of world TECFIDERA revenues for 2015, compared to 2014, were also negatively impacted by foreign currency exchange losses totaling $74.1 million. These foreign currency exchange losses were partially offset by comparative net gains recognized under our foreign currency hedging program totaling $47.5 million.
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Under German legislation related to the pricing of new drug products introduced in the German market, pricing is unregulated for the first 12 months after launch. We launched TECFIDERA in Germany in February 2014 and our unregulated pricing ended in the first quarter of 2015, at which time we began recognizing revenue at the fixed price established through our negotiations with the German regulatory authorities. The negotiated annual price is fixed for three years.
We anticipate relatively stable demand for TECFIDERA in 2017 on a global basis, with patient growth in our international markets offsetting modest patient declines in the U.S. primarily resulting from increasing competition from additional treatments and product candidates for MS, including OCREVUS.
Interferon
AVONEX and PLEGRIDY
For 2016, 2015 and 2014, U.S. AVONEX revenues totaled $1,675.3 million, $1,790.2 million and $1,956.7 million, respectively.
For 2016, 2015 and 2014, U.S. PLEGRIDY revenues totaled $305.0 million, $227.1 million and $27.8 million, respectively.
For 2016 compared to 2015, the decrease in U.S. Interferon revenues was primarily due to an overall decrease in Interferon unit sales volume of 10%, which was attributable to a decrease in AVONEX unit sales volume primarily due to patients transitioning to other oral MS therapies, as well as higher discounts and allowances. These decreases were partially offset by price increases.
For 2015 compared to 2014, the increase in U.S. Interferon revenues was primarily due to gross price increases for AVONEX and an increase in PLEGRIDY unit sales volume as sales of PLEGRIDY began in the U.S. in fourth quarter of 2014. These increases were partially offset by a decrease in AVONEX unit sales volume of 17%, which was attributable in part to patients transitioning to other oral MS therapies, including TECFIDERA.
For 2016, 2015 and 2014 rest of world AVONEX revenues totaled $638.2 million, $840.0 million and $1,056.4 million, respectively.
For 2016, 2015 and 2014, rest of world PLEGRIDY revenues totaled $176.7 million, $111.4 million and $16.7 million, respectively.
For 2016 compared to 2015, the decrease in rest of world Interferon revenues was primarily due to pricing reductions in certain European countries and an overall decrease in AVONEX unit sales volume of 10% due primarily to patients transitioning to other oral MS therapies, including TECFIDERA. Rest of world Interferon revenues for 2016, compared to 2015, were also negatively impacted by a $66.1 million decrease in hedge gains recognized under our hedging program in the comparative period.
For 2015 compared to 2014, the decrease in rest of world Interferon revenues was due to a decrease in AVONEX unit sales volume of 11% primarily in Europe attributable to patients transitioning to other oral MS therapies, including TECFIDERA. These increases were partially offset by an increase in PLEGRIDY unit sales volume as sales of PLEGRIDY began in the E.U. in the third quarter of 2014. Rest of world Interferon revenues for 2015, compared to 2014, were also negatively impacted by foreign currency exchange losses of $153.1 million. These foreign currency exchange losses were partially offset by comparative net gains recognized under our foreign currency hedging program of $58.4 million.
We expect that overall Interferon revenues will continue to decline as a result of competition from our other products as well as other MS therapies.
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TYSABRI
For 2016 compared to 2015, the increase in U.S. TYSABRI revenues was primarily due to an increase in unit sales volume of 4% and increases in price, partially offset by higher discounts and allowances.
For 2015 compared to 2014, the increase in U.S. TYSABRI revenues was primarily due to an increase in unit sales volume of 4% and increases in gross price, partially offset by higher discounts and allowances.
For 2016 compared to 2015, the slight decrease in rest of world TYSABRI revenues was primarily due to the impact of a $46.1 million decrease in hedge gains recognized under our hedging program in the comparative period. This decrease was partially offset by an increase in unit sales volume of 8%, primarily in Europe.
For 2015 compared to 2014, the decrease in rest of world TYSABRI revenues was due to pricing reductions in some European countries and the prior year recognition of $53.5 million of revenue previously deferred in Italy relating to the pricing agreement with the Italian National Medicines Agency (Agenzia Italiana del Farmaco or AIFA) as discussed below.
Rest of world TYSABRI revenues for 2015, compared to 2014, were negatively impacted by foreign currency exchange losses of $136.3 million. These foreign currency exchange losses were partially offset by comparative net gains recognized under our foreign currency hedging program of $45.9 million.
In the fourth quarter of 2011 Biogen Italia SRL, our Italian subsidiary, received a notice from AIFA that sales of TYSABRI after mid-February 2009 exceeded a reimbursement limit established pursuant to a Price Determination Resolution (Price Resolution) granted by AIFA in December 2006. In January 2017, we negotiated an agreement in principle with AIFA's Price and Reimbursement Committee to settle all of AIFA's existing claims relating to sales of TYSABRI in excess of the reimbursement limit for the periods from February 2009 through January 2013 for an aggregate repayment of EUR37.4 million. The agreement is subject to ratification by AIFA. If this most recent settlement agreement is accepted, we could recognize approximately EUR42 million in revenue upon resolution of this matter. For information regarding our agreement with AIFA relating to sales of TYSABRI in Italy, please read Note 17, Other Consolidated Financial Statement Detail to our consolidated financial statements included in this report.
We anticipate relatively stable demand for TYSABRI in 2017 on a global basis, with patient growth in our international markets offsetting modest patient declines in the U.S. primarily resulting from increasing competition from additional treatments and product candidates for MS, including ZINBRYTA and OCREVUS.
ZINBRYTA
