Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19311
biogenlogostandarda15.jpg
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, MA 02142
(617) 679-2000
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer x
 
Accelerated filer  o
Non-accelerated filer o
 
Smaller reporting company  o
(Do not check if a smaller reporting company)
 
Emerging growth company  o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  o    No  x
The number of shares of the issuer’s Common Stock, $0.0005 par value, outstanding as of April 20, 2018 was 211,007,945 shares.
 

Table of Contents

BIOGEN INC.
FORM 10-Q — Quarterly Report
For the Quarterly Period Ended March 31, 2018
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II — OTHER INFORMATION
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 


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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are being made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 (the Act) with the intention of obtaining the benefits of the “Safe Harbor” provisions of the Act. These forward-looking statements may be accompanied by such words as “aim,” “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “possible,” “will” and other words and terms of similar meaning. Reference is made in particular to forward-looking statements regarding:
•
the anticipated amount, timing and accounting of revenues, contingent payments, milestone, royalty and other payments under licensing, collaboration or acquisition agreements, tax positions and contingencies, collectability of receivables, pre-approval inventory, cost of sales, research and development costs, compensation and other selling, general and administrative expenses, amortization of intangible assets, foreign currency exchange risk, estimated fair value of assets and liabilities and impairment assessments;
•
expectations, plans and prospects relating to sales, pricing, growth and launch of our marketed and pipeline products;
•
our plans to invest in emerging growth areas such as pain, ophthalmology, neuropsychiatry and acute neurology;
•
the potential impact of increased product competition in the markets in which we compete;
•
patent terms, patent term extensions, patent office actions and expected availability and period of regulatory exclusivity;
•
the costs and timing of potential clinical trials, filings and approvals, and the potential therapeutic scope of the development and commercialization of our and our collaborators’ pipeline products;
•
the drivers for growing our business, including our plans and intent to commit resources relating to business development opportunities and research and development programs;
•
the anticipated benefits and the potential costs and expenses related to our current or future initiatives to streamline our operations and reallocate resources;
•
our manufacturing capacity, use of third-party contract manufacturing organizations and plans and timing relating to the expansion of our manufacturing capabilities, including anticipated investments and activities in new manufacturing facilities;
•
the potential impact on our results of operations and liquidity of the United Kingdom's (U.K.) intent to voluntarily depart from the European Union (E.U.);
•
the impact of the continued uncertainty of the credit and economic conditions in certain countries in Europe and our collection of accounts receivable in such countries;
•
the potential impact of healthcare reform in the United States (U.S.) and measures being taken worldwide designed to reduce healthcare costs to limit the overall level of government expenditures, including the impact of pricing actions and reduced reimbursement for our products;
•
the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to our patents and other proprietary and intellectual property rights, tax audits, assessments and settlements, pricing matters, sales and promotional practices, product liability and other matters;
•
lease commitments, purchase obligations and the timing and satisfaction of other contractual obligations;
•
our ability to finance our operations and business initiatives and obtain funding for such activities;
•
adverse safety events involving our marketed products;
•
the anticipated timing to complete certain business development transactions;
•
the anticipated costs and tax treatment of the spin-off of our hemophilia business; and
•
the impact of new laws, including the Tax Cuts and Jobs Act of 2017, and accounting standards.

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These forward-looking statements involve risks and uncertainties, including those that are described in Item 1A. Risk Factors included in this report and elsewhere in this report that could cause actual results to differ materially from those reflected in such statements. You should not place undue reliance on these statements. Forward-looking statements speak only as of the date of this report. We do not undertake any obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.
NOTE REGARDING COMPANY AND PRODUCT REFERENCES
References in this report to:
•
“Biogen,” the “company,” “we,” “us” and “our” refer to Biogen Inc. and its consolidated subsidiaries;
•
“RITUXAN” refers to both RITUXAN (the trade name for rituximab in the U.S., Canada and Japan) and MabThera (the trade name for rituximab outside the U.S., Canada and Japan); and
•
"ELOCTATE" refers to both ELOCTATE (the trade name for Antihemophilic Factor (recombinant), Fc Fusion Protein in the U.S., Canada and Japan) and ELOCTA (the trade name for Antihemophilic Factor (recombinant), Fc Fusion Protein in the E.U.).
NOTE REGARDING TRADEMARKS
AVONEX®, PLEGRIDY®, RITUXAN®, SPINRAZA®, TECFIDERA®, TYSABRI® and ZINBRYTA® are registered trademarks of Biogen. BENEPALITM, FLIXABITM, FUMADERMTM and IMRALDITM are trademarks of Biogen. ALPROLIX®, ELOCTATE®, ENBREL®, FAMPYRATM, GAZYVA®, HUMIRA®, OCREVUS®, REMICADE® and other trademarks referenced in this report are the property of their respective owners.

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Table of Contents

PART I FINANCIAL INFORMATION

BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share amounts)
 
 
For the Three Months
Ended March 31,
 
2018
 
2017
Revenues:
 
 
 
Product, net
$
2,523.5

 
$
2,380.1

Revenues from anti-CD20 therapeutic programs
443.2

 
340.6

Other
164.4

 
90.0

Total revenues
3,131.1

 
2,810.7

Cost and expenses:
 
 
 
Cost of sales, excluding amortization of acquired intangible assets
446.0

 
384.6

Research and development
496.7

 
423.4

Selling, general and administrative
501.3

 
498.7

Amortization of acquired intangible assets
103.9

 
448.5

Collaboration profit (loss) sharing
42.5

 
20.8

Acquired in-process research and development
10.0

 
—

(Gain) loss on fair value remeasurement of contingent consideration
(5.6
)
 
10.0

Restructuring charges
1.6

 
—

Total cost and expenses
1,596.4

 
1,786.0

Income from operations
1,534.7

 
1,024.7

Other income (expense), net
(41.0
)
 
(38.0
)
Income before income tax expense and equity in loss of investee, net of tax
1,493.7

 
986.7

Income tax expense
322.5

 
239.2

Equity in loss of investee, net of tax
—

 
—

Net income
1,171.2

 
747.5

Net income (loss) attributable to noncontrolling interests, net of tax
(1.7
)
 
(0.1
)
Net income attributable to Biogen Inc.
$
1,172.9

 
$
747.6

Net income per share:
 
 
 
Basic earnings per share attributable to Biogen Inc.
$
5.55

 
$
3.47

Diluted earnings per share attributable to Biogen Inc.
$
5.54

 
$
3.46

Weighted-average shares used in calculating:
 
 
 
Basic earnings per share attributable to Biogen Inc.
211.4

 
215.6

Diluted earnings per share attributable to Biogen Inc.
211.7

 
215.9












See accompanying notes to these unaudited condensed consolidated financial statements.

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BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
 
 
For the Three Months
Ended March 31,
 
2018
 
2017
Net income attributable to Biogen Inc.
$
1,172.9

 
$
747.6

Other comprehensive income:
 
 
 
Unrealized gains (losses) on securities available for sale, net of tax
(2.2
)
 
(1.6
)
Unrealized gains (losses) on cash flow hedges, net of tax
(29.0
)
 
(23.8
)
Unrealized gains (losses) on pension benefit obligation, net of tax
(0.5
)
 
0.1

Currency translation adjustment
44.7

 
20.0

Total other comprehensive income (loss), net of tax
13.0

 
(5.3
)
Comprehensive income attributable to Biogen Inc.
1,185.9

 
742.3

Comprehensive income (loss) attributable to noncontrolling interests, net of tax
(1.7
)
 
(0.1
)
Comprehensive income
$
1,184.2

 
$
742.2






































See accompanying notes to these unaudited condensed consolidated financial statements.

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BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share amounts)
 
 
As of March 31,
2018
 
As of December 31,
2017
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
4,108.0

 
$
1,573.8

Marketable securities
1,808.0

 
2,115.2

Accounts receivable, net
1,939.2

 
1,787.0

Due from anti-CD20 therapeutic programs
553.5

 
532.6

Inventory
890.8

 
902.7

Other current assets
895.9

 
962.0

Total current assets
10,195.4

 
7,873.3

Marketable securities
1,200.2

 
3,057.3

Property, plant and equipment, net
3,334.7

 
3,182.4

Intangible assets, net
3,794.5

 
3,879.6

Goodwill
4,907.8

 
4,632.5

Deferred tax assets
2,277.4

 
595.9

Investments and other assets
380.1

 
431.6

Total assets
$
26,090.1

 
$
23,652.6

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Current portion of notes payable
$
3.3

 
$
3.2

Taxes payable
231.9

 
68.2

Accounts payable
345.8

 
395.5

Accrued expenses and other
2,571.1

 
2,901.3

Total current liabilities
3,152.1

 
3,368.2

Notes payable
5,929.4

 
5,935.0

Deferred tax liabilities
1,331.1

 
122.6

Other long-term liabilities
1,640.0

 
1,628.7

Total liabilities
12,052.6

 
11,054.5

Commitments and contingencies


 


Equity:
 
 
 
Biogen Inc. shareholders’ equity:
 
 
 
Preferred stock, par value $0.001 per share
—

 
—

Common stock, par value $0.0005 per share
0.1

 
0.1

Additional paid-in capital
—

 
97.8

Accumulated other comprehensive loss
(303.9
)
 
(318.4
)
Retained earnings
17,334.6

 
15,810.4

Treasury stock, at cost
(2,977.1
)
 
(2,977.1
)
Total Biogen Inc. shareholders’ equity
14,053.7

 
12,612.8

Noncontrolling interests
(16.2
)
 
(14.7
)
Total equity
14,037.5

 
12,598.1

Total liabilities and equity
$
26,090.1

 
$
23,652.6


See accompanying notes to these unaudited condensed consolidated financial statements.

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BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
 
 
For the Three Months
Ended March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
1,171.2

 
$
747.5

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
168.9

 
512.0

Acquired in-process research and development
10.0

 
—

Share-based compensation
43.4

 
37.0

Deferred income taxes
53.1

 
76.1

Other
26.1

 
18.1

Changes in operating assets and liabilities, net:
 
 
 
Accounts receivable
(134.0
)
 
(195.7
)
Inventory
2.6

 
(46.2
)
Accrued expenses and other current liabilities
(121.8
)
 
(684.2
)
Income tax assets and liabilities
257.6

 
(195.1
)
Other changes in operating assets and liabilities, net
(20.0
)
 
(34.3
)
Net cash flows provided by operating activities
1,457.1

 
235.2

Cash flows from investing activities:
 
 
 
Proceeds from sales and maturities of marketable securities
4,068.9

 
1,884.3

Purchases of marketable securities
(1,919.2
)
 
(1,256.7
)
Contingent consideration paid related to Fumapharm AG acquisition
(600.0
)
 
(300.0
)
Purchases of property, plant and equipment
(194.7
)
 
(210.0
)
Acquired in-process research and development
(10.0
)
 
—

Acquisitions of intangible assets
—

 
(855.2
)
Other
1.6

 
(6.6
)
Net cash flows provided by (used in) investing activities
1,346.6

 
(744.2
)
Cash flows from financing activities:
 
 
 
Purchases of treasury stock
(250.0
)
 
(583.6
)
Payments related to issuance of stock for share-based compensation arrangements, net
(21.2
)
 
(25.5
)
Net cash contribution to Bioverativ Inc.
—

 
(302.7
)
Other
2.6

 
10.4

Net cash flows used in financing activities
(268.6
)
 
(901.4
)
Net (decrease) increase in cash and cash equivalents
2,535.1

 
(1,410.4
)
Effect of exchange rate changes on cash and cash equivalents
(0.9
)
 
7.9

Cash and cash equivalents, beginning of the period
1,573.8

 
2,326.5

Cash and cash equivalents, end of the period
$
4,108.0

 
$
924.0










See accompanying notes to these unaudited condensed consolidated financial statements.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


1.    Summary of Significant Accounting Policies
Business Overview
Biogen is a global biopharmaceutical company focused on discovering, developing and delivering worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases, including in our core growth areas of multiple sclerosis (MS) and neuroimmunology, Alzheimer's disease (AD) and dementia, movement disorders and neuromuscular disorders, including spinal muscular atrophy (SMA) and amyotrophic lateral sclerosis (ALS). We also plan to invest in emerging growth areas such as pain, ophthalmology, neuropsychiatry and acute neurology. In addition, we are employing innovative technologies to discover potential treatments for rare and genetic disorders, including new ways of treating diseases through gene therapy in the previously mentioned areas. We also manufacture and commercialize biosimilars of advanced biologics.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for the treatment of MS, SPINRAZA for the treatment of SMA and FUMADERM for the treatment of severe plaque psoriasis. We also have certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions, GAZYVA for the treatment of CLL and follicular lymphoma, OCREVUS for the treatment of primary progressive MS and relapsing MS and other potential anti-CD20 therapies under a collaboration agreement with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group. In March 2018 we and AbbVie Inc. (AbbVie) announced the voluntary worldwide withdrawal of ZINBRYTA for relapsing MS. For additional information on our voluntary withdrawal of ZINBRYTA, please read Note 18, Collaborative and Other Relationships, to these condensed consolidated financial statements.
We support our drug discovery and development efforts through the commitment of significant resources to discovery, research and development programs and business development opportunities, particularly within our core and emerging growth areas. For nearly two decades we have led in the research and development of new therapies to treat MS, resulting in our leading portfolio of MS treatments. Now our research is focused on additional improvements in the treatment of MS, such as the development of next generation therapies for MS, with a goal to reverse or possibly repair damage caused by the disease. We are also applying our scientific expertise to solve some of the most challenging and complex diseases, including AD, progressive supranuclear palsy, a rare condition that affects movement, speech, vision and cognitive function, Parkinson's disease and ALS.
Our innovative drug development and commercialization activities are complemented by our biosimilar therapies that expand access to medicines and reduce the cost burden for healthcare systems. We are leveraging our manufacturing capabilities and know-how to develop, manufacture and market biosimilars through Samsung Bioepis, our joint venture with Samsung BioLogics Co. Ltd. (Samsung Biologics). Under our commercial agreement, we market and sell BENEPALI, an etanercept biosimilar referencing ENBREL, and FLIXABI, an infliximab biosimilar referencing REMICADE, in the European Union (E.U.).
Basis of Presentation
In the opinion of management, our accompanying unaudited condensed consolidated financial statements (condensed consolidated financial statements) include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial statements for interim periods in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The information included in this quarterly report on Form 10-Q should be read in conjunction with our consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2017 (2017 Form 10-K). Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2017 Form 10-K and updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended March 31, 2018, are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
We operate as one operating segment, focused on discovering, developing and delivering worldwide innovative therapies for people living with serious neurological and neurodegenerative diseases.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Consolidation
Our condensed consolidated financial statements reflect our financial statements, those of our wholly-owned subsidiaries and those of certain variable interest entities where we are the primary beneficiary. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interests in our condensed consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.
In determining whether we are the primary beneficiary of an entity, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. These considerations impact the way we account for our existing collaborative relationships and other arrangements. We continuously assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in us consolidating or deconsolidating one or more of our collaborators or partners.
Use of Estimates
The preparation of our condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed below, we do not believe that the adoption of recently issued standards have or may have a material impact on our condensed consolidated financial statements and disclosures.
Revenue Recognition
In May 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services.
The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. We adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).
The new revenue standards became effective for us on January 1, 2018, and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018, did not change our revenue recognition as the majority of our revenues continue to be recognized when the customer takes control of our product. As we did not identify any accounting changes that impacted the amount of reported revenues with respect to our product revenues, revenues from anti-CD20 therapeutic programs or other revenues, no adjustment to retained earnings was required upon adoption. However, the adoption of the new revenue standards may result in a change in the timing of revenue recognition related to certain of our contract manufacturing activities based upon the terms of the underlying agreements.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Under the new revenue standards, we recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Product Revenues
In the U.S. we sell our products primarily to wholesale distributors and specialty pharmacy providers. In other countries, we sell our products primarily to wholesale distributors, hospitals, pharmacies and other third-party distribution partners. These customers subsequently resell our products to health care providers and patients. In addition, we enter into arrangements with health care providers and payors that provide for government-mandated or privately-negotiated discounts and allowances related to our products.
Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial.
Reserves for Discounts and Allowances
Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, health care providers or payors, including those associated with the implementation of pricing actions in certain of the international markets in which we operate. Our process for estimating reserves established for these variable consideration components do not differ materially from our historical practices.
Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, contractual adjustments and returns.
These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer). Our estimates of reserves established for variable consideration typically utilize the most likely method and reflect our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.
In addition to discounts, rebates and product returns, we also maintain certain customer service contracts with distributors and other customers in the distribution channel that provide us with inventory management, data and distribution services, which are generally reflected as a reduction of revenues. To the extent we can demonstrate a separable benefit and fair value for these services we classify these payments in selling, general and administrative expenses.
For additional information on our revenues, please read Note 4, Revenues, to these condensed consolidated financial statements.
Revenues from Anti-CD20 Therapeutic Programs
Our collaboration with Genentech is within the scope of Accounting Standards Codification (ASC) 808, Collaborative Agreements, which provides guidance on the presentation and disclosure of collaborative arrangements. Our share of the pre-tax co-promotion profits on RITUXAN and GAZYVA and royalty revenues on the sale of OCREVUS resulted from an exchange of a license. As we do not have any future performance obligations under the license or collaboration agreement, revenues are recognized as the underlying sales occur.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Revenues from anti-CD20 therapeutic programs consist of:
(i)
our share of pre-tax profits and losses in the U.S. for RITUXAN and GAZYVA;
(ii)
reimbursement of our selling and development expenses in the U.S. for RITUXAN; and
(iii)
other revenues from anti-CD20 therapeutic programs, which primarily consist of our share of pre-tax co-promotion profits on RITUXAN in Canada and royalty revenues on sales of OCREVUS.
For additional information on our collaboration with Genentech, please read Note 20, Collaborative and Other Relationships, to our consolidated financial statements included in our 2017 Form 10-K.
Collaborative and Other Relationships
Our development and commercialization arrangements with AbbVie and Samsung Bioepis also represent collaborative arrangements as each party is an active participant and exposed to significant risks and rewards of the arrangements. These arrangements resulted from an exchange of a license and utilize the sales and usage based royalty exception. Therefore, revenues are recognized as the underlying sales occur. Where we are the principal on sales transactions with third parties, we recognize revenues, cost of sales and operating expenses on a gross basis in their respective lines in our condensed consolidated statements of income. Where we are not the principal on sales transactions with third parties, we record our share of the revenues, cost of sales and operating expenses on a net basis in collaborative and other relationships included in other revenues in our condensed consolidated statements of income.
For additional information on our collaborations with AbbVie and Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to these condensed consolidated financial statements.
Royalty Revenues
We receive royalty revenues on sales by our licensees of other products covered under patents that we own. We do not have future performance obligations under these license arrangements. We record these revenues based on estimates of the sales that occurred during the relevant period as a component of other revenues. The relevant period estimates of sales are based on interim data provided by licensees and analysis of historical royalties that have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known, typically the following quarter. Historically, adjustments have not been material when compared to actual amounts paid by licensees.
Other Corporate Revenues
We record other corporate revenues primarily from amounts earned under contract manufacturing agreements. Revenues under contract manufacturing agreements are recognized when the customer obtains control of our product, which may occur at a point in time or over time depending on the terms and conditions of the agreement.
Accounts Receivable
The majority of our accounts receivable arise from product sales and primarily represent amounts due from our wholesale and other third-party distributors, public hospitals, pharmacies and other government entities.
We do not adjust our receivables for the effects of a significant financing component at contract inception if we expect to collect the receivables in one year or less from the time of sale.
In countries where we have experienced a pattern of payments extending beyond our contractual payment term and we expect to collect receivables greater than one year from the time of sale, we have assessed whether the customer has a significant financing component and discounted our receivables and reduced related revenues over the period of time that we estimate those amounts will be paid using the country’s market-based borrowing rate for such period. The related receivables are classified at the time of sale as non-current assets. We accrete interest income on these receivables, which is recognized as a component of other income (expense), net in our condensed consolidated statements of income.
We provide reserves against trade receivables for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve. 

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

The adoption of the new revenue standards did not change our historical accounting methods for our accounts receivable.
Financial Instruments
In January 2016 the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This new standard amends certain aspects of accounting and disclosure requirements for financial instruments, including the requirement that equity investments with readily determinable fair values are to be measured at fair value with any changes in fair value recognized in a company's results of operations. This new standard does not apply to investments accounted for under the equity method of accounting or those investments that result in consolidation of the investee. Equity investments that do not have readily determinable fair values may be measured at fair value or at cost minus impairment adjusted for changes in observable prices. A financial liability that is measured at fair value in accordance with the fair value option is required to be presented separately in other comprehensive income for the portion of the total change in the fair value resulting from change in the instrument-specific credit risk. In addition, a valuation allowance should be evaluated on deferred tax assets related to available-for-sale debt securities in combination with other deferred tax assets.
We adopted this new standard on January 1, 2018, using the modified retrospective method, as of that date, and recognized a $1.3 million net adjustment to retained earnings reflecting the cumulative impact for the accounting changes made upon adoption. The adoption of the new standard resulted in the reclassification of where we recognize changes in fair value related to certain equity security investments. Prior to adoption of ASU 2016-01, we recognized changes in fair value in accumulated other comprehensive income (loss), net. Upon adoption of ASU 2016-01, we recognize changes in fair value in other income (expense), net.
Leasing
In February 2016 the FASB issued ASU No. 2016-02, Leases (Topic 842). This new standard establishes a right-of-use (ROU) model that requires all lessees to recognize ROU assets and liabilities on their balance sheet that arise from leases with terms longer than 12 months as well as provide disclosures with respect to certain qualitative and quantitative information related to their leasing arrangements. This new standard will become effective for us on January 1, 2019. A modified retrospective transition approach is required to leases existing as of, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While we are currently evaluating the impact that this new standard may have on our consolidated results of operations, financial position and disclosures, we expect that the adoption of this new standard may materially affect the reported amount of total assets and total liabilities within our condensed consolidated balance sheet with no material impact to our condensed consolidated statement of income. We are unable to quantify the impact at this time as the ultimate impact of adopting this new standard will depend on the total amount of our lease commitments as of the adoption date.
Income Taxes
In October 2016 the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than Inventory. This new standard eliminates the deferral of the tax effects of intra-entity asset transfers other than inventory. As a result, the income tax consequences from the intra-entity transfer of an asset other than inventory and associated changes to deferred taxes will be recognized when the transfer occurs.
We adopted this new standard on January 1, 2018, using the modified retrospective method, through a cumulative-effect adjustment to retained earnings as of that date. Upon adoption, we recognized additional net deferred tax assets of approximately $0.5 billion offset by a corresponding net increase to retained earnings of approximately $0.5 billion. We will recognize incremental deferred income tax expense thereafter as these net deferred tax assets are utilized.
For additional information, please read Note 15, Income Taxes, to these condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Net Periodic Pension Cost
In March 2017 the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This new standard requires that an employer disaggregate the service cost component from the other components of net benefit cost. This new standard also provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. The other components of the net periodic benefit cost must be presented separately from the line items that include service cost and outside of any subtotal of operating income on our condensed consolidated statements of income. We adopted this new standard on January 1, 2018, using the retrospective method.
As a result of this new standard, the other components of the net periodic benefit cost, which we previously presented as a component of operating income, are now classified in other income (expense), net in our condensed consolidated income statements. For the three months ended March 31, 2017, $0.4 million was reclassified from operating income to other income (expense), net in our condensed consolidated income statement to conform to our current year presentation.
Debt Securities
In March 2017 the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This new standard amends the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date. This new standard will be effective for us on January 1, 2019. We are currently evaluating the potential impact that this new standard may have on our financial position and results of operations.
Derivative Instruments and Hedging Activities
In August 2017 the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This new standard provides guidance to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. This new standard expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.
We adopted this new standard on January 1, 2018, using the modified retrospective method, which did not have an impact on our financial position or results of operations; however, the adoption of this new standard resulted in additional disclosures. Prior to the adoption of ASU 2017-12, to the extent ineffective, hedge transaction gains and losses were reported in other income (expense), net. Upon the adoption of ASU 2017-12, we recognize all fair value changes of derivatives in earnings in the same line item in our condensed consolidated statements of income that has been impacted by the hedged item.
For additional information on our derivative instruments and hedging activities, please read Note 9, Derivative Instruments, to these condensed consolidated financial statements.
We recognize all derivative instruments as either assets or liabilities at fair value in our condensed consolidated balance sheets. Changes in the fair value of derivative instruments are recognized each period in current earnings or accumulated other comprehensive income (loss), depending on whether the derivative instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction. We classify the cash flows from these instruments in the same category as the cash flows from the hedged items. We do not hold or issue derivative instruments for trading or speculative purposes.
We assess at inception and on an on-going basis, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of the hedged items. We exclude the forward points portion of the derivative instrument used in a hedging transaction from the effectiveness test and record the fair value gain or loss related to this portion each period in the same line item as the underlying hedged item. If we determine that a forecasted transaction is no longer probable of occurring, we discontinue hedge accounting for the affected portion of the hedge instrument, and any related unrealized gain or loss on the contract is recognized in current earnings.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

2.        Acquisitions
Karyopharm Therapeutics Inc.
In January 2018 we acquired the exclusive worldwide rights to develop and commercialize Karyopharm Therapeutics Inc.'s (Karyopharm) Phase 1 ready investigational oral compound BIIB100 (formerly known as KPT-350) for the treatment of certain neurological and neurodegenerative conditions, primarily in ALS. BIIB100 is a novel therapeutic candidate that works by inhibiting a protein known as XPO1, with the goal of reducing inflammation and neurotoxicity, along with increasing neuroprotective responses.
We accounted for this transaction as an asset acquisition as the value being acquired relates to a single asset. In connection with the closing of this transaction, we made an upfront payment of $10.0 million, which was recorded as acquired in-process research and development in our condensed consolidated statements of income as BIIB100 has not yet reached technological feasibility. We have also agreed to pay Karyopharm up to $207.0 million in additional milestone payments, as well as potential royalties.
3.        Restructuring
2017 Corporate Strategy
In October 2017, in connection with creating a leaner and simpler operating model, we approved a corporate restructuring program intended to streamline our operations and reallocate resources. We recognized restructuring charges of $0.9 million in our consolidated statements of income during the fourth quarter of 2017. These restructuring charges were substantially incurred and paid in 2017 and were primarily related to severance.
For the three months ended March 31, 2018, we recognized restructuring charges of $1.6 million in our condensed consolidated statements of income. These restructuring charges, which will be substantially incurred and paid by mid-2018, are primarily related to severance.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

4.    Revenues
Product Revenues
Revenues by product are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions)
2018
 
2017
 
United
States
 
Rest of
World
 
Total
 
United
States
 
Rest of
World
 
Total
Multiple Sclerosis:
 
 
 
 
 
 
 
 
 
 
 
TECFIDERA
$
728.9

 
$
258.0

 
$
986.9

 
$
751.1

 
$
207.1

 
$
958.2

Interferon*
371.4

 
178.9

 
550.3

 
464.8

 
183.5

 
648.3

TYSABRI
249.7

 
212.4

 
462.1

 
305.5

 
239.5

 
545.0

FAMPYRA
—

 
24.4

 
24.4

 
—

 
20.5

 
20.5

ZINBRYTA
—

 
1.4

 
1.4

 
—

 
10.7

 
10.7

Spinal Muscular Atrophy:
 
 
 
 

 
 
 
 
 

SPINRAZA
188.0

 
175.9

 
363.9

 
46.4

 
1.0

 
47.4

Hemophilia:
 
 
 
 

 
 
 
 
 

ELOCTATE
—

 
—

 
—

 
42.2

 
6.2

 
48.4

ALPROLIX
—

 
—

 
—

 
21.0

 
5.0

 
26.0

Other Product Revenues:
 
 
 
 

 
 
 
 
 

FUMADERM
—

 
7.0

 
7.0

 
—

 
9.7

 
9.7

BENEPALI
—

 
120.9

 
120.9

 
—

 
65.3

 
65.3

FLIXABI
—

 
6.6

 
6.6

 
—

 
0.6

 
0.6

Total product revenues
$
1,538.0

 
$
985.5

 
$
2,523.5

 
$
1,631.0

 
$
749.1

 
$
2,380.1

*Interferon includes AVONEX and PLEGRIDY.
We recognized revenues from two wholesalers accounting for 34.0% and 15.9% of gross product revenues for the three months ended March 31, 2018, and 36.8% and 19.3% of gross product revenues for the three months ended March 31, 2017.
An analysis of the change in reserves for discounts and allowances is summarized as follows:
(In millions)
Discounts
 
Contractual
Adjustments
 
Returns
 
Total
Balance, as of December 31, 2017
$
109.6

 
$
606.0

 
$
46.0

 
$
761.6

Current provisions relating to sales in current year
159.4

 
641.2

 
5.8

 
806.4

Adjustments relating to prior years
1.2

 
2.0

 
0.3

 
3.5

Payments/credits relating to sales in current year
(71.7
)
 
(227.7
)
 
(0.3
)
 
(299.7
)
Payments/credits relating to sales in prior years
(77.4
)
 
(326.4
)
 
(8.7
)
 
(412.5
)
Balance, as of March 31, 2018
$
121.1

 
$
695.1

 
$
43.1

 
$
859.3

The total reserves above, which are included in our condensed consolidated balance sheets, are summarized as follows:
(In millions)
As of
March 31,
2018
 
As of
December 31,
2017
Reduction of accounts receivable
$
201.8

 
$
189.6

Component of accrued expenses and other
657.5

 
572.0

Total reserves
$
859.3

 
$
761.6


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Revenues from Anti-CD20 Therapeutic Programs
Revenues from anti-CD20 therapeutic programs are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions)
2018
 
2017
Biogen’s share of pre-tax profits in the U.S. for RITUXAN and GAZYVA
$
349.6

 
$
323.5

Other revenues from anti-CD20 therapeutic programs
93.6

 
17.1

Total revenues from anti-CD20 therapeutic programs
$
443.2

 
$
340.6

For additional information on our collaboration with Genentech, please read Note 20, Collaborative and Other Relationships, to our consolidated financial statements included in our 2017 Form 10-K.
Other Revenues
Other revenues are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions)
2018
 
2017
Revenues from collaborative and other relationships:
 
 
 
AbbVie
$
(4.7
)
 
$
(5.9
)
Samsung Bioepis and other
17.9

 
12.2

Other royalty and corporate revenues:
 
 
 
Royalty
10.6

 
25.5

Other corporate
140.6

 
58.2

Total other revenues
$
164.4

 
$
90.0

For additional information related to our collaborations with AbbVie and Samsung Bioepis, please read Note 18, Collaborative and Other Relationships, to these condensed consolidated financial statements.
5.    Inventory
The components of inventory are summarized as follows:
(In millions)
As of
March 31,
2018
 
As of
December 31,
2017
Raw materials
$
164.3

 
$
162.4

Work in process
594.3

 
605.7

Finished goods
148.0

 
157.4

Total inventory
$
906.6

 
$
925.5

 
 
 
 
Balance Sheet Classification:
 
 
 
Inventory
$
890.8

 
$
902.7

Investments and other assets
15.8

 
22.8

Total inventory
$
906.6

 
$
925.5

Long-term inventory, which primarily consists of work in process, is included in investments and other assets in our condensed consolidated balance sheets.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

6.    Intangible Assets and Goodwill
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments, are summarized as follows:
 
 
 
As of March 31, 2018
 
As of December 31, 2017
(In millions)
Estimated
Life
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
Out-licensed patents
13-23 years
 
$
543.3

 
$
(537.8
)
 
$
5.5

 
$
543.3

 
$
(535.6
)
 
$
7.7

Developed 
technology
15-23 years
 
3,005.3

 
(2,700.5
)
 
304.8

 
3,005.3

 
(2,689.0
)
 
316.3

In-process research and development
Indefinite until commercialization
 
696.4

 
—

 
696.4

 
680.6

 
—

 
680.6

Trademarks and 
tradenames
Indefinite
 
64.0

 
—

 
64.0

 
64.0

 
—

 
64.0

Acquired and in-licensed rights 
and patents
4-18 years
 
3,974.7

 
(1,250.9
)
 
2,723.8

 
3,971.4

 
(1,160.4
)
 
2,811.0

Total intangible assets
 
 
$
8,283.7

 
$
(4,489.2
)
 
$
3,794.5

 
$
8,264.6

 
$
(4,385.0
)
 
$
3,879.6

For the three months ended March 31, 2018, amortization of acquired intangible assets totaled $103.9 million, as compared to $448.5 million, in the prior year comparative period. For the three months ended March 31, 2018, compared to the same period in 2017, the decrease in amortization of acquired intangible assets was primarily due to the prior year impairment charge related to our U.S. and rest of world licenses to Forward Pharma A/S's (Forward Pharma) intellectual property, including Forward Pharma's intellectual property related to TECFIDERA, as discussed below.
Developed Technology
Developed technology primarily relates to our AVONEX product, which was recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. The net book value of this asset as of March 31, 2018, was $298.2 million.
Acquired and In-licensed Rights and Patents
Acquired and in-licensed rights and patents primarily relate to our acquisition of all remaining rights to TYSABRI from Elan Corporation plc and our U.S. and rest of world licenses to Forward Pharma's intellectual property, including Forward Pharma's intellectual property related to TECFIDERA. The net book values of the TYSABRI and TECFIDERA assets as of March 31, 2018, were $2,178.4 million and $322.5 million, respectively.
TECFIDERA License Rights
In January 2017 we entered into a settlement and license agreement among Biogen Swiss Manufacturing GmbH, Biogen International Holding Ltd., Forward Pharma and certain related parties, which was effective as of February 1, 2017. Pursuant to this agreement, we obtained U.S. and rest of world licenses to Forward Pharma's intellectual property, including Forward Pharma's intellectual property related to TECFIDERA. In exchange, we paid Forward Pharma $1.25 billion in cash.
We have two intellectual property disputes with Forward Pharma, one in the U.S. and one in the E.U., concerning intellectual property related to TECFIDERA. In March 2017 the U.S. intellectual property dispute was decided in our favor. Forward Pharma appealed to the U.S. Court of Appeals for the Federal Circuit and the appeal is pending. We evaluated the recoverability of the U.S. asset acquired from Forward Pharma and recorded an impairment charge in the first quarter of 2017 to adjust the carrying value of the acquired U.S. asset to fair value reflecting the impact of the developments in the U.S. legal dispute. In March 2018 the European Patent Office (EPO) issued its decision revoking Forward Pharma's European Patent No. 2 801 355. Forward Pharma has stated that it expects to file an appeal to the Technical Board of Appeal of the EPO. Based upon our assessment of these rulings, we continue to

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

amortize the remaining net book value of the U.S. and rest of world intangible assets in our condensed consolidated statements of income utilizing an economic consumption model.
For additional information on these disputes, please read Note 21, Litigation, to our consolidated financial statements included in our 2017 Form 10-K.
Estimated Future Amortization of Intangible Assets
Our amortization expense is based on the economic consumption and impairment of intangible assets. Our most significant intangible assets are related to our TECFIDERA, AVONEX and TYSABRI products. Annually, during our long-range planning cycle, we perform an analysis of anticipated lifetime revenues of TECFIDERA, AVONEX and TYSABRI. This analysis is also updated whenever events or changes in circumstances would significantly affect the anticipated lifetime revenues of any of these products.
Our most recent long-range planning cycle was completed in the third quarter of 2017. Based upon this analysis, the estimated future amortization of acquired intangible assets for the next five years is expected to be as follows:
(In millions)
As of
March 31,
2018
2018 (remaining nine months)
$
330.7

2019
402.6

2020
379.5

2021
255.0

2022
242.2

2023
211.2

Goodwill
The following table provides a roll forward of the changes in our goodwill balance:
(In millions)
As of
March 31,
2018
Goodwill, beginning of period
$
4,632.5

Increase to goodwill
270.5

Other
4.8

Goodwill, end of period
$
4,907.8

The increase in goodwill during the three months ended March 31, 2018, was related to $300.0 million in contingent milestones achieved (exclusive of $29.5 million in tax benefits) and payable to the former shareholders of Fumapharm AG or holders of their rights.
For additional information on future contingent payments to the former shareholders of Fumapharm AG or holders of their rights, please read Note 22, Commitments and Contingencies, to our consolidated financial statements included in our 2017 Form 10-K.
Other includes changes in foreign currency exchange rate fluctuations. As of March 31, 2018, we had no accumulated impairment losses related to goodwill.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

7.    Fair Value Measurements
The tables below present information about our assets and liabilities that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques we utilized to determine such fair value:
As of March 31, 2018 (In millions)
Total
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
3,773.7

 
$
—

 
$
3,773.7

 
$
—

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
1,557.9

 
—

 
1,557.9

 
—

Government securities
1,143.2

 
—

 
1,143.2

 
—

Mortgage and other asset backed securities
307.1

 
—

 
307.1

 
—

Marketable equity securities
22.8

 
22.8

 
—

 
—

Derivative contracts
3.2

 
—

 
3.2

 
—

Plan assets for deferred compensation
28.3

 
—

 
28.3

 
—

Total
$
6,836.2

 
$
22.8

 
$
6,813.4

 
$
—

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
147.7

 
$
—

 
$
147.7

 
$
—

Contingent consideration obligations
498.0

 
—

 
—

 
498.0

Total
$
645.7

 
$
—

 
$
147.7

 
$
498.0

As of December 31, 2017 (In millions)
Total
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
1,229.4

 
$
—

 
$
1,229.4

 
$
—

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
2,609.8

 
—

 
2,609.8

 
—

Government securities
1,919.3

 
—

 
1,919.3

 
—

Mortgage and other asset backed securities
643.4

 
—

 
643.4

 
—

Marketable equity securities
11.8

 
11.8

 
—

 
—

Derivative contracts
2.7

 
—

 
2.7

 
—

Plan assets for deferred compensation
28.5

 
—

 
28.5

 
—

Total
$
6,444.9

 
$
11.8

 
$
6,433.1

 
$
—

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
111.3

 
$
—

 
$
111.3

 
$
—

Contingent consideration obligations
523.6

 
—

 
—

 
523.6

Total
$
634.9

 
$
—

 
$
111.3

 
$
523.6

There have been no material impairments of our assets measured and carried at fair value during the three months ended March 31, 2018. In addition, there were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the three months ended March 31, 2018. The fair values of Level 2 instruments classified as cash equivalents and marketable debt securities were determined through third-party pricing services. For a description of our validation procedures related to prices provided by third-party pricing services, please read Note 1, Summary of Significant Accounting Policies: Fair Value Measurements, to our consolidated financial statements included in our 2017 Form 10-K.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Debt Instruments
The fair and carrying values of our debt instruments, which are Level 2 liabilities, are summarized as follows:
 
As of March 31, 2018
 
As of December 31, 2017
(In millions)
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
Notes payable to Fumedica AG
$
3.3

 
$
3.3

 
$
3.2

 
$
3.2

2.900% Senior Notes due September 15, 2020
1,490.7

 
1,476.0

 
1,517.7

 
1,482.4

3.625% Senior Notes due September 15, 2022
1,007.3

 
994.6

 
1,032.9

 
994.3

4.050% Senior Notes due September 15, 2025
1,788.8

 
1,736.7

 
1,851.9

 
1,736.3

5.200% Senior Notes due September 15, 2045
1,898.2

 
1,722.1

 
2,077.6

 
1,722.0

Total
$
6,188.3

 
$
5,932.7

 
$
6,483.3

 
$
5,938.2

The fair value of our notes payable to Fumedica AG was estimated using market observable inputs, including current interest and foreign currency exchange rates. The fair values of each of our series of Senior Notes were determined through market, observable and corroborated sources. For additional information on our debt instruments, please read Note 12, Indebtedness, to our consolidated financial statements included in our 2017 Form 10-K.
Contingent Consideration Obligations
In connection with our acquisitions of Convergence Pharmaceuticals, Stromedix Inc. and Biogen International Neuroscience GmbH in 2015, 2012 and 2010, respectively, we agreed to make additional payments based upon the achievement of certain milestone events. The following table provides a roll forward of the fair values of our contingent consideration obligations, which includes Level 3 measurements:
 
For the Three Months
Ended March 31,
(In millions)
2018
 
2017
Fair value, beginning of period
$
523.6

 
$
467.6

Changes in fair value
(5.6
)
 
10.0

Payments
(20.0
)
 
(6.7
)
Fair value, end of period
$
498.0

 
$
470.9

As of March 31, 2018 and December 31, 2017, $273.7 million and $279.0 million, respectively, of the fair value of our contingent consideration obligations was reflected as a component of other long-term liabilities in our condensed consolidated balance sheets with the remaining balance reflected as a component of accrued expenses and other. Changes in the fair value of our contingent consideration obligations were primarily due to an increase in the probability of achieving certain developmental milestones in the prior year period and an increase in the interest rate used to revalue our contingent consideration liabilities for the current year.
8.    Financial Instruments
The following table summarizes our financial assets with maturities of less than 90 days from the date of purchase included in cash and cash equivalents in our condensed consolidated balance sheets:
(In millions)
As of
March 31,
2018
 
As of
December 31,
2017
Commercial paper
$
51.5

 
$
30.5

Overnight reverse repurchase agreements
—

 
3.6

Money market funds
3,561.2

 
948.0

Short-term debt securities
161.0

 
247.3

Total
$
3,773.7

 
$
1,229.4

The carrying values of our commercial paper, including accrued interest, overnight reverse repurchase agreements, money market funds and short-term debt securities approximate fair value due to their short-term

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

maturities. Upon adoption of ASU 2016-01, our marketable equity securities gains (losses) are recorded in other income (expense), net in our condensed consolidated statements of income.
The following tables summarize our marketable debt and equity securities, classified as available-for-sale:
As of March 31, 2018 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Corporate debt securities
 
 
 
 
 
 
 
Current
$
912.9

 
$
—

 
$
(0.8
)
 
$
913.7

Non-current
645.0

 
0.3

 
(0.7
)
 
645.4

Government securities
 
 
 
 
 
 
 
Current
895.0

 
—

 
(0.5
)
 
895.5

Non-current
248.2

 
0.1

 
(0.3
)
 
248.4

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current
0.1

 
—

 
—

 
0.1

Non-current
307.0

 
0.1

 
(1.0
)
 
307.9

Total marketable debt securities
$
3,008.2

 
$
0.5

 
$
(3.3
)
 
$
3,011.0

As of December 31, 2017 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Corporate debt securities
 
 
 
 
 
 
 
Current
$
1,039.3

 
$
—

 
$
(0.2
)
 
$
1,039.5

Non-current
1,570.5

 
0.9

 
—

 
1,569.6

Government securities
 
 
 
 
 
 
 
Current
1,075.1

 
0.1

 
(0.7
)
 
1,075.7

Non-current
844.2

 
0.2

 
(1.1
)
 
845.1

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current
0.8

 
—

 
—

 
0.8

Non-current
642.6

 
1.1

 
(0.8
)
 
642.3

Total marketable debt securities
$
5,172.5

 
$
2.3

 
$
(2.8
)
 
$
5,173.0

Marketable equity securities, non-current
$
11.8

 
$
1.8

 
$
(4.4
)
 
$
14.4

Summary of Contractual Maturities: Available-for-Sale Securities
The estimated fair value and amortized cost of our marketable debt securities available-for-sale by contractual maturity are summarized as follows:
 
As of March 31, 2018
 
As of December 31, 2017
(In millions)
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
Due in one year or less
$
1,808.0

 
$
1,809.3

 
$
2,115.2

 
$
2,116.0

Due after one year through five years
1,123.0

 
1,124.2

 
2,730.0

 
2,730.0

Due after five years
77.2

 
77.5

 
327.3

 
327.0

Total available-for-sale securities
$
3,008.2

 
$
3,011.0

 
$
5,172.5

 
$
5,173.0

The average maturity of our marketable debt securities available-for-sale as of March 31, 2018 and December 31, 2017, was approximately 7 months and 17 months, respectively.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Proceeds from Marketable Debt Securities
The proceeds from maturities and sales of marketable debt securities and resulting realized gains and losses are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions)
2018
 
2017
Proceeds from maturities and sales
$
4,068.9

 
$
1,884.3

Realized gains
$
1.8

 
$
1.2

Realized losses
$
(9.4
)
 
$
(1.9
)
Strategic Investments
As of March 31, 2018 and December 31, 2017, our strategic investment portfolio was comprised of investments totaling $81.6 million and $85.8 million, respectively, which are included in investments and other assets in our condensed consolidated balance sheets. Our strategic investment portfolio includes investments in equity securities of certain biotechnology companies and investments in venture capital funds where the underlying investments are in equity securities of biotechnology companies. Our investments in equity securities of certain publicly-traded biotechnology companies are regularly measured and carried at fair value and classified as Level 1 assets.
9.    Derivative Instruments
In August 2017 the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. We adopted this new standard on January 1, 2018. Among other provisions, the new standard required modifications to existing presentation and disclosure requirements on a prospective basis. As such, certain disclosures for the three months ended March 31, 2017, were modified to conform to the new disclosure requirements. For additional information on this new standard, please read Note 1, Summary of Significant Accounting Policies, to these condensed consolidated financial statements.
Foreign Currency Forward Contracts - Hedging Instruments
Due to the global nature of our operations, portions of our revenues and operating expenses are recorded in currencies other than the U.S. dollar. The value of revenues and operating expenses measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. In order to mitigate these changes we use foreign currency forward contracts to lock in exchange rates associated with a portion of our forecasted international revenues and operating expenses.
Foreign currency forward contracts in effect as of March 31, 2018 and December 31, 2017, had durations of 1 to 21 months. These contracts have been designated as cash flow hedges and any unrealized gains or losses on these foreign currency forward contracts are reported in accumulated other comprehensive income (loss) (referred to as AOCI in the tables below). Realized gains and losses of such contracts are recognized in revenues when the sale of product in the currency being hedged is recognized and in operating expenses when the expense in the currency being hedged is recorded. Prior to the adoption of ASU 2017-12, to the extent ineffective, hedge transaction gains and losses were reported in other income (expense), net. Upon adoption of ASU 2017-12, we recognize all fair value changes of derivatives in earnings in the same line item in our condensed consolidated statements of income that has been impacted by the hedged item.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

The notional value of foreign currency forward contracts that were entered into to hedge forecasted revenues and operating expenses is summarized as follows:
 
Notional Amount
Foreign Currency: (In millions)
As of
March 31,
2018
 
As of
December 31,
2017
Euro
$
1,734.9

 
$
1,875.6

British pound
110.5

 
150.9

Canadian dollar
65.5

 
83.5

Swiss franc
60.4

 
88.7

Total foreign currency forward contracts
$
1,971.3

 
$
2,198.7

The pre-tax portion of the fair value of these foreign currency forward contracts that was included in accumulated other comprehensive income (loss) in total equity reflected net losses of $142.0 million and $113.0 million as of March 31, 2018 and December 31, 2017, respectively. We expect the net losses of $142.0 million to be settled over the next 21 months, of which $127.1 million is expected to be settled over the next 12 months, with any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to revenues or operating expenses. We consider the impact of our and our counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its contractual obligations. As of March 31, 2018 and December 31, 2017, credit risk did not change the fair value of our foreign currency forward contracts.
The following tables summarize the effect of foreign currency forward contracts designated as hedging instruments in our condensed consolidated statements of income:
For the Three Months Ended March 31, 2018
Net Gains/(Losses)
Reclassified from AOCI into Operating Income (in millions)
Net Gains/(Losses)
Recognized in Operating Income (in millions)
Location
 
2018
 
Location
 
2018
Revenues
 
$
(32.9
)
 
Revenues
 
$
(0.9
)
Operating expenses
 
$
1.3

 
Operating expenses
 
$
(0.3
)

For the Three Months Ended March 31, 2017
Net Gains/(Losses)
Reclassified from AOCI into Operating Income (in millions)
Net Gains/(Losses)
Recognized Directly into Net Income (in millions)
Location
 
2017
 
Location
 
2017
Revenues
 
$
6.7

 
Other income (expense)
 
$
4.0

Operating expenses
 
$
(0.1
)
 
Other income (expense)
 
$
(0.2
)
Interest Rate Contracts - Hedging Instruments
We have entered into interest rate swap contracts on certain borrowing transactions to manage our exposure to interest rate changes.
In connection with the issuance of our 2.90% Senior Notes, we entered into interest rate swaps with an aggregate notional amount of $675.0 million, which expire on September 15, 2020. The interest rate swap contracts are designated as hedges of the fair value changes in the 2.90% Senior Notes attributable to changes in interest rates. Since the specific terms and notional amount of the swaps match the debt being hedged, it is assumed to be a highly effective hedge and all changes in the fair value of the swaps are recognized as a component of our 2.90% Senior Notes with no net impact recorded in income. Any net interest payments made or received on the interest rate swap contracts are recognized as a component of interest expense in our condensed consolidated statements of income.
Foreign Currency Forward Contracts - Other Derivatives
We also enter into other foreign currency forward contracts, usually with durations of one month or less, to mitigate the foreign currency risk related to certain balance sheet positions. We have not elected hedge accounting for these transactions.

24
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

The aggregate notional amount of these outstanding foreign currency contracts was $572.2 million and $564.9 million as of March 31, 2018 and December 31, 2017, respectively. Net losses of $5.6 million related to these contracts were recognized as a component of other income (expense), net for the three months ended March 31, 2018, as compared to net gains of $1.6 million in the prior year comparative period.
Summary of Derivatives
While certain of our derivative instruments are subject to netting arrangements with our counterparties, we do not offset derivative assets and liabilities in our condensed consolidated balance sheets.
The following table summarizes the fair value and presentation in our condensed consolidated balance sheets of our outstanding derivative instruments, including those designated as hedging instruments:
 
 
Fair Value
(In millions)
Balance Sheet Location
As of March 31, 2018
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
1.8

Liability derivatives
Accrued expenses and other
$
114.1

 
Other long-term liabilities
$
32.2

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
1.4

Liability derivatives
Accrued expenses and other
$
1.4


 
 
Fair Value
(In millions)
Balance Sheet Location
As of December 31, 2017
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
0.7

 
Investments and other assets
$
0.2

Liability derivatives
Accrued expenses and other
$
84.7

 
Other long-term liabilities
$
23.6

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
1.8

Liability derivatives
Accrued expenses and other
$
3.0

10.    Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost, net of accumulated depreciation. Accumulated depreciation on property, plant and equipment was $1,631.5 million and $1,559.1 million as of March 31, 2018 and December 31, 2017, respectively.
Solothurn, Switzerland Facility
We are building a large-scale biologics manufacturing facility in Solothurn, Switzerland. We expect this facility to be operational by the end of 2020. Upon completion, the facility will include 393,000 square feet related to a large-scale biologics manufacturing facility, 290,000 square feet of warehouse, utilities and support space and 51,000 square feet of administrative space. As of March 31, 2018 and December 31, 2017, we had approximately $1.3 billion and $1.2 billion, respectively, capitalized as construction in progress related to this facility. As of March 31, 2018, we had contractual commitments of $260.0 million for the construction of this facility.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

11.    Equity
Total equity as of March 31, 2018, increased $1.4 billion compared to December 31, 2017. This increase was primarily driven by net income attributable to Biogen Inc. of approximately $1.2 billion and a net cumulative-effect adjustment of approximately $0.5 billion recognized to retained earnings upon the adoptions of ASUs 2016-16 and 2016-01, partially offset by share repurchases totaling $250.0 million, as described below.
For additional information related to the adoption of ASUs 2016-16 and 2016-01, please read Note 1, Summary of Significant Accounting Policies, to these condensed consolidated financial statements.
Share Repurchases
In July 2016 our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2016 Share Repurchase Program). Our 2016 Share Repurchase Program does not have an expiration date. All share repurchases under our 2016 Share Repurchase Program will be retired. Under our 2016 Share Repurchase Program, we repurchased and retired 0.9 million shares of common stock at a cost of $250.0 million during the three months ended March 31, 2018, and we repurchased and retired 0.8 million shares of common stock at a cost of $218.2 million during the three months ended March 31, 2017. As of March 31, 2018, approximately $2.8 billion remains available for share repurchase under our 2016 Share Repurchase Program.
In February 2011 our Board of Directors authorized a program to repurchase up to 20.0 million shares of common stock (2011 Share Repurchase Program). Shares repurchased under our 2011 Share Repurchase Program were principally used to offset common stock issuances under our share-based compensation programs. Our 2011 Share Repurchase Program was completed as of March 31, 2017. Under our 2011 Share Repurchase Program, we repurchased 1.2 million shares of common stock at a cost of $365.4 million during the three months ended March 31, 2017.
Noncontrolling Interests
The following table reconciles equity (deficit) attributable to noncontrolling interests (NCI):
 
For the Three Months
Ended March 31,
(In millions)
2018
 
2017
NCI, beginning of period
$
(14.7
)
 
$
(11.5
)
Net income (loss) attributable to NCI, net of tax
(1.7
)
 
(0.1
)
Translation adjustment and other
0.2

 
—

NCI, end of period
$
(16.2
)
 
$
(11.6
)

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

12.    Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss), net of tax by component:
(In millions)
Unrealized Gains (Losses) on Securities Available for Sale, Net of Tax
 
Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax
 
Unfunded Status of Postretirement Benefit Plans, Net of Tax
 
Translation Adjustments
 
Total
Balance, December 31, 2017
$
(1.6
)
 
$
(104.5
)
 
$
(36.8
)
 
$
(175.5
)
 
$
(318.4
)
Amount reclassified, net of tax, upon adoption of ASU 2016-01
1.5

 
—

 
—

 
—

 
1.5

Balance, January 1, 2018
(0.1
)
 
(104.5
)
 
(36.8
)
 
(175.5
)
 
(316.9
)
Other comprehensive income (loss) before reclassifications
(8.2
)
 
(60.4
)
 
(0.5
)
 
44.7

 
(24.4
)
Amounts reclassified from accumulated other comprehensive income (loss)
6.0

 
31.4

 
—

 
—

 
37.4

Net current period other comprehensive income (loss)
(2.2
)
 
(29.0
)
 
(0.5
)
 
44.7

 
13.0

Balance, March 31, 2018
$
(2.3
)
 
$
(133.5
)
 
$
(37.3
)
 
$
(130.8
)
 
$
(303.9
)
(In millions)
Unrealized Gains (Losses) on Securities Available for Sale, Net of Tax
 
Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax
 
Unfunded Status of Postretirement Benefit Plans, Net of Tax
 
Translation Adjustments
 
Total
Balance, December 31, 2016
$
(10.8
)
 
$
57.8

 
$
(32.7
)
 
$
(334.2
)
 
$
(319.9
)
Other comprehensive income (loss) before reclassifications
(2.0
)
 
(17.1
)
 
0.1

 
20.0

 
1.0

Amounts reclassified from accumulated other comprehensive income (loss)
0.4

 
(6.7
)
 
—

 
—

 
(6.3
)
Net current period other comprehensive income (loss)
(1.6
)
 
(23.8
)
 
0.1

 
20.0

 
(5.3
)
Balance, March 31, 2017
$
(12.4
)
 
$
34.0

 
$
(32.6
)
 
$
(314.2
)
 
$
(325.2
)
The following table summarizes the amounts reclassified from accumulated other comprehensive income:
(In millions)
Income Statement Location
Amounts Reclassified from Accumulated Other Comprehensive Income
For the Three Months
Ended March 31,
2018
 
2017
Gains (losses) on securities available for sale
Other income (expense)
$
(7.6
)
 
$
(0.7
)
 
Income tax benefit (expense)
1.6

 
0.3

 
 
 
 
 
Gains (losses) on cash flow hedges
Revenues
(32.9
)
 
6.7

 
Operating expenses
1.3

 
(0.1
)
 
Other income (expense)
0.1

 
0.1

 
Income tax benefit (expense)
0.1

 
—

 
 
 
 
 
Total reclassifications, net of tax
 
$
(37.4
)
 
$
6.3


27
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

13.    Earnings per Share
Basic and diluted earnings per share are calculated as follows:
 
For the Three Months
Ended March 31,
(In millions)
2018
 
2017
Numerator:
 
 
 
Net income attributable to Biogen Inc.
$
1,172.9

 
$
747.6

Denominator:
 
 
 
Weighted-average number of common shares outstanding
211.4

 
215.6

Effect of dilutive securities:
 
 
 
Stock options and employee stock purchase plan
—

 
—

Time-vested restricted stock units
0.2

 
0.2

Market stock units
0.1

 
0.1

Performance stock units settled in stock
—

 
—

Dilutive potential common shares
0.3

 
0.3

Shares used in calculating diluted earnings per share
211.7

 
215.9

Amounts excluded from the calculation of net income per diluted share because their effects were anti-dilutive were insignificant.
14. Share-based Payments
Share-based Compensation Expense
The following table summarizes share-based compensation expense included in our condensed consolidated statements of income:
 
For the Three Months
Ended March 31,
(In millions)
2018
 
2017
Research and development
$
21.9

 
$
18.7

Selling, general and administrative
28.5

 
29.4

Subtotal
50.4

 
48.1

Capitalized share-based compensation costs
(3.4
)
 
(2.7
)
Share-based compensation expense included in total cost and expenses
47.0

 
45.4

Income tax effect
(7.6
)
 
(12.4
)
Share-based compensation expense included in net income attributable to Biogen Inc.
$
39.4

 
$
33.0


28
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

The following table summarizes share-based compensation expense associated with each of our share-based compensation programs:
 
For the Three Months
Ended March 31,
(In millions)
2018
 
2017
Market stock units
$
6.1

 
$
9.6

Time-vested restricted stock units
36.1

 
26.9

Cash settled performance units
4.3

 
3.5

Performance units
(0.8
)
 
4.5

Performance stock units settled in stock
0.7

 
—

Performance stock units settled in cash
0.1

 
—

Employee stock purchase plan
3.9

 
3.6

Subtotal
50.4

 
48.1

Capitalized share-based compensation costs
(3.4
)
 
(2.7
)
Share-based compensation expense included in total cost and expenses
$
47.0

 
$
45.4

We estimate the fair value of our obligations associated with our performance units, cash settled performance units and performance stock units settled in cash at the end of each reporting period through expected settlement. Cumulative adjustments to these obligations are recognized each quarter to reflect changes in the stock price and estimated outcome of the performance-related conditions.
Performance Stock Units (PSUs)
PSUs Settled in Stock
During the first quarter of 2018, we began granting awards for performance-vested restricted stock units that will settle in stock. PSUs awarded to employees have a three-year performance period and vest on the third anniversary of the grant date. The vesting of these awards is subject to the respective employee’s continued employment. The number of PSUs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established at the beginning of the performance period, which ends on December 31 of the third year of the performance period.
Participants may ultimately earn between 0% and 200% of the target number of units granted based on the degree of the actual performance metric achievement. Accordingly, additional PSUs may be issued or currently outstanding PSUs may be cancelled upon final determination of the number of units earned. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.

During the three months ended March 31, 2018, 66,000 PSUs that will settle in stock were granted at a weighted average grant date fair value of $317.58.
PSUs Settled in Cash
During the first quarter of 2018, we began granting awards for performance-vested restricted stock units that will settle in cash. PSUs awarded to employees have three performance periods and vest on the third anniversary of the grant date. The vesting of these awards is subject to the respective employee’s continued employment. The number of PSUs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established when the performance objectives are defined, which will be at the beginning of each year and will end on December 31 of such year.
Participants may ultimately earn between 0% and 200% of the target number of units granted based on the degree of the actual performance metric achievement. Accordingly, additional PSUs may be issued or currently outstanding PSUs may be cancelled upon final determination of the number of units earned. PSUs will be settled in cash based on the 30 calendar day average closing stock price through the vesting date, once the actual vested and earned number of units is determined. Since no shares are issued, these awards do not dilute equity. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.

During the three months ended March 31, 2018, 44,000 PSUs that will settle in cash were granted.

29
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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

15.    Income Taxes
Tax Reform
The Tax Cuts and Jobs Act of 2017 (2017 Tax Act), which was signed into law in December 2017, has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. The 2017 Tax Act also transitions international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation as global intangible low- taxed income (GILTI). These changes became effective beginning in 2018. We do not recognize deferred taxes for basis differences expected to reverse as GILTI is incurred and instead account for any taxes assessed as period costs.
During the fourth quarter of 2017, we recognized within our provision for income taxes a $1.2 billion provisional estimate under the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118. Our provisional estimate included an amount of $989.6 million associated with a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (the Transition Toll Tax), as discussed below, and $184.0 million related to the impact of remeasuring our deferred tax balances to reflect the new federal statutory rate and other changes to U.S. tax law. During the first quarter of 2018 we recognized no significant adjustments to these estimates.
Transition Toll Tax
The 2017 Tax Act eliminated the deferral of U.S. income tax on the historical unrepatriated earnings by imposing the Transition Toll Tax, which is a one-time mandatory deemed repatriation tax on undistributed foreign earnings. The Transition Toll Tax was assessed on our share of our foreign corporation's accumulated foreign earnings that were not previously taxed. Earnings in the form of cash and cash equivalents were taxed at a rate of 15.5% and all other earnings were taxed at a rate of 8.0%.
At December 31, 2017, we considered none of our earnings to be permanently reinvested outside the U.S. and therefore recorded tax liabilities associated with an estimate of the total withholding taxes expected as a result of our repatriation of earnings. As a result, our estimate of the total withholding taxes may change as the amounts are finalized. As of March 31, 2018 and December 31, 2017, we have accrued income tax liabilities of $989.6 million under the Transition Toll Tax. Of the amounts accrued as of March 31, 2018, approximately $85.0 million is expected to be paid within one year. The Transition Toll Tax will be paid in installments over an eight-year period, which started in 2018, and will not accrue interest.
Status of our Assessment
The final determination of the Transition Toll Tax and remeasurement of our deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the 2017 Tax Act.
Our preliminary estimate of the Transition Toll Tax and the remeasurement of our deferred tax assets and liabilities is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the 2017 Tax Act, changes to certain estimates and amounts related to the earnings and profits of certain subsidiaries and the filing of our tax returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and changes in our estimates.
For additional information related to the 2017 Tax Act, please read Note 17, Income Taxes, to our consolidated financial statements included in our 2017 Form 10-K.

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BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Tax Rate
A reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:
 
For the Three Months
Ended March 31,
 
2018
 
2017
Statutory rate
21.0
 %
 
35.0
 %
State taxes
0.9

 
0.1

Taxes on foreign earnings
(0.7
)
 
(11.2
)
Credits and net operating loss utilization
(0.8
)
 
(0.7
)
Purchased intangible assets
0.6

 
1.4

Manufacturing deduction
—

 
(2.1
)
Other permanent items
0.4

 
0.7

Other
0.2

 
1.0

Effective tax rate
21.6
 %
 
24.2
 %
Changes in Tax Rate
For the three months ended March 31, 2018, compared to the same period in 2017, the decrease in our effective tax rate was primarily due to the enactment of the 2017 Tax Act. The effects of an overall reduction in the federal statutory rate in the U.S. were partially offset by the elimination of the manufacturing deduction, the imposition of the new GILTI tax on international earnings, limits on the deductibility of certain benefits and executive compensation and a reduction in the tax benefit associated with the Orphan Drug Credit, all resulting from the 2017 Tax Act. The effective tax rate for 2017 also reflected the impact of a favorable settlement related to a state tax matter in 2017.
Deferred Tax Assets and Liabilities
In addition to deferred tax assets and liabilities, we have recorded prepaid tax and deferred charges related to intercompany transactions. In October 2016 the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than Inventory. This new standard eliminates the deferral of the tax effects of intra-entity asset transfers other than inventory. As a result, the income tax consequences from the intra-entity transfer of an asset other than inventory and associated changes to deferred taxes will be recognized when the transfer occurs. We adopted this new standard on January 1, 2018, using the modified retrospective method, through a cumulative-effect adjustment to retained earnings as of that date. Upon adoption, we recognized additional deferred tax assets of approximately $2.0 billion offset by a corresponding increase to deferred tax liabilities of approximately $1.5 billion and an increase to retained earnings of approximately $0.5 billion. We will recognize incremental deferred income tax expense thereafter as these net deferred tax assets are utilized.
Accounting for Uncertainty in Income Taxes
We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in various U.S. states and in U.S. federal and other foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal tax examination for years before 2013 or state, local or non-U.S. income tax examinations for years before 2010.
The Internal Revenue Service and other national tax authorities routinely examine our intercompany transfer pricing with respect to intellectual property related transactions and it is possible that they may disagree with one or more positions we have taken with respect to such valuations.
International Uncertain Tax Positions
We have made payments totaling approximately $65 million to the Danish Tax Authority (SKAT) for assessments received for fiscal 2009, 2011 and 2013 regarding withholding taxes and the treatment of certain intercompany transactions involving a Danish affiliate and another of our affiliates. We continue to dispute the assessments for all of these periods and believe that the positions taken in our historical filings are valid. It is reasonably possible that we will adjust the value of our uncertain tax positions related to Danish withholding taxes based on potential European court decisions expected in 2018 on similar matters.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Federal and State Uncertain Tax Positions
It is reasonably possible that we will adjust the value of our uncertain tax positions related to our revenues from anti-CD20 therapeutic programs and certain transfer pricing issues as we receive additional information from various taxing authorities, including reaching settlements with such authorities.
16.    Other Consolidated Financial Statement Detail
Other Income (Expense), Net
Components of other income (expense), net, are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions)
2018
 
2017
Interest income
$
26.7

 
$
16.7

Interest expense
(50.5
)
 
(63.4
)
Gain (loss) on investments, net
(14.4
)
 
2.4

Foreign exchange gains (losses), net
(1.0
)
 
4.0

Other, net
(1.8
)
 
2.3

Total other income (expense), net
$
(41.0
)
 
$
(38.0
)
Other Current Assets
Other current assets were $895.9 million and $962.0 million as of March 31, 2018 and December 31, 2017, and include prepaid taxes totaling $587.5 million and $657.6 million, respectively.
Accrued Expenses and Other
Accrued expenses and other consists of the following:
<
(In millions)
As of
March 31,
2018
 
As of
December 31,
2017
Revenue-related reserves for discounts and allowances
$
657.5

 
$
572.0

Current portion of contingent consideration obligations
524.3

 
844.6

Royalties and licensing fees
194.6

 
206.7