e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30,
2010
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 0-19311
BIOGEN IDEC INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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33-0112644
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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133 Boston Post Road, Weston, MA 02493
(781) 464-2000
(Address, including zip code,
and telephone number, including
area code, of registrants 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 þ 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 þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Exchange Act): Yes o No þ
The number of shares of the issuers Common Stock,
$0.0005 par value, outstanding as of July 16, 2010,
was 241,915,236 shares.
BIOGEN
IDEC INC.
FORM 10-Q
Quarterly Report
For the Quarterly Period Ended June 30, 2010
TABLE OF CONTENTS
2
NOTE REGARDING
FORWARD-LOOKING STATEMENTS
In addition to historical information, this report contains
forward-looking statements that are based on our current beliefs
and expectations. These forward-looking statements do not relate
strictly to historical or current facts and they may be
accompanied by such words as anticipate,
believe, estimate, expect,
forecast, intend, may,
plan, will and other words and terms of
similar meaning. Reference is made in particular to
forward-looking statements regarding:
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the anticipated level, mix and timing of future product sales,
royalty revenues or obligations, milestone payments, expenses,
liabilities, contractual obligations, effective tax rate and
amortization of intangible assets;
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the growth trends for TYSABRI and our ability to improve the
benefit-risk profile of TYSABRI;
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the assumed remaining life of the core technology relating to
AVONEX;
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the incidence, timing, outcome and impact of litigation,
proceedings related to patents and other intellectual property
rights, tax assessments and other legal proceedings;
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the timing and impact of accounting standards;
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the design, costs and timing of our clinical trials;
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the timing and outcome of regulatory filings and meetings with
regulatory authorities.
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the impact of healthcare reform and the global macroeconomic
environment;
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our ability to finance our operations and source funding for
such activities;
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the status, intended use and financial impact of our properties,
including our manufacturing facilities;
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our share repurchase programs; and
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the drivers for growing our business, including our plans to
pursue external business development and research opportunities,
and the impact of competition.
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These forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those
reflected in such forward-looking statements, including those
discussed in the Risk Factors section of this report
and elsewhere in this report. You should not place undue
reliance on these statements. Forward-looking statements, like
all statements in this report, speak only as of the date of this
report, unless another date is indicated. Unless required by
law, we do not undertake any obligation to publicly update any
forward-looking statements, whether as a result of new
information, future events, or otherwise.
REFERENCES
Throughout this report, Biogen Idec, the
Company, we, us and
our refer to Biogen Idec Inc. and its consolidated
subsidiaries. References to RITUXAN refer 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 ANGIOMAX refers to both
ANGIOMAX (the trade name for bivalirudin in the U.S., Canada and
Latin America) and ANGIOX (the trade name for bivalirudin in
Europe).
AVONEX®
and
RITUXAN®
are registered trademarks of Biogen Idec.
FUMADERMtm
is a common law trademark of Biogen Idec.
TYSABRI®
is a registered trademark of Elan Pharmaceuticals, Inc. The
following are trademarks of the respective companies listed
ANGIOMAX®
and
ANGIOX®
are registered trademarks of The Medicines Company;
ARZERRAtm
Glaxo Group Limited;
BETASERON®
Bayer Schering Pharma AG;
EXTAVIA®
Novartis AG; and
REBIF®
Ares Trading, S.A.
3
PART I
FINANCIAL INFORMATION
BIOGEN
IDEC INC. AND SUBSIDIARIES
(unaudited, in thousands,
except per share amounts)
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For the Three Months
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For the Six Months
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Ended June 30,
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Ended June 30,
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2010
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2009
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2010
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2009
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Revenues:
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Product
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$
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859,235
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$
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790,970
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$
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1,683,455
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$
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1,524,378
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Unconsolidated joint business
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306,371
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275,570
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561,300
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554,388
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Other
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47,096
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26,749
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76,807
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51,008
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Total revenues
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1,212,702
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1,093,289
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2,321,562
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2,129,774
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Costs and expenses:
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Cost of sales, excluding amortization of acquired intangible
assets
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106,985
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90,721
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204,040
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188,918
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Research and development
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331,675
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416,453
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638,705
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695,931
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Selling, general and administrative
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262,322
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220,829
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510,987
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442,660
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Collaboration profit sharing
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62,692
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49,138
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126,249
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91,911
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Amortization of acquired intangible assets
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53,148
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93,234
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102,037
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182,482
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Acquired in-process research and development
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39,976
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Total costs and expenses
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816,822
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870,375
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1,621,994
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1,601,902
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Income from operations
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395,880
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222,914
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699,568
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527,872
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Other income (expense), net
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1,012
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14,680
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(7,373
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)
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21,526
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Income before income tax expense
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396,892
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237,594
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692,195
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549,398
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Income tax expense
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102,243
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92,709
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177,553
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157,934
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Net income
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294,649
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144,885
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514,642
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391,464
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Net income attributable to noncontrolling interest, net of tax
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1,211
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2,040
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3,762
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4,632
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Net income attributable to Biogen Idec Inc.
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$
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293,438
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$
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142,845
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$
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510,880
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$
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386,832
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Net income per share:
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Basic earnings per share attributable to Biogen Idec Inc.
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$
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1.13
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$
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0.49
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$
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1.92
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$
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1.34
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Diluted earnings per share attributable to Biogen Idec Inc.
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$
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1.12
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$
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0.49
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$
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1.91
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$
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1.33
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Weighted-average shares used in calculating:
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Basic earnings per share attributable to Biogen Idec Inc.
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259,938
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288,615
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265,018
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288,162
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Diluted earnings per share attributable to Biogen Idec Inc.
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261,658
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290,359
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267,272
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290,014
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See accompanying notes to these unaudited consolidated financial
statements.
4
(unaudited, in thousands,
except per share amounts)
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As of June 30,
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As of December 31,
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2010
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2009
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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720,962
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$
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581,889
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Marketable securities
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248,710
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681,835
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Accounts receivable, net
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548,893
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551,208
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Due from unconsolidated joint business
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|
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250,143
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|
|
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193,789
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Inventory
|
|
|
267,878
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|
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293,950
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Other current assets
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218,645
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177,924
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Total current assets
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2,255,231
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2,480,595
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Marketable securities
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566,118
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1,194,080
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Property, plant and equipment, net
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1,571,521
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1,637,083
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Intangible assets, net
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1,768,929
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1,871,078
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Goodwill
|
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1,138,621
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1,138,621
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Investments and other assets
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201,730
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230,397
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Total assets
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$
|
7,502,150
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$
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8,551,854
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LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
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Accounts payable
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$
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144,476
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$
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118,534
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Taxes payable
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113,283
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75,891
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Accrued expenses and other
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487,803
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500,755
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Current portion of notes payable and line of credit
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10,096
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19,762
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Total current liabilities
|
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755,658
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714,942
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Notes payable and line of credit
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1,069,725
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1,080,207
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Long-term deferred tax liability
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207,492
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240,618
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Other long-term liabilities
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257,985
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254,205
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Total liabilities
|
|
|
2,290,860
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2,289,972
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Commitments and contingencies (Notes 14, 16 and 17)
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Shareholders equity:
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Preferred stock, par value $0.001 per share
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Common stock, par value $0.0005 per share
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|
129
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|
|
144
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Additional paid-in capital
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|
4,282,739
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5,781,920
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Accumulated other comprehensive income
|
|
|
(28,422
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)
|
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|
50,496
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Retained earnings
|
|
|
1,405,340
|
|
|
|
1,068,890
|
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Treasury stock, at cost
|
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|
(488,980
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)
|
|
|
(679,920
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)
|
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|
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|
|
|
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|
Total Biogen Idec Inc. shareholders equity
|
|
|
5,170,806
|
|
|
|
6,221,530
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|
Noncontrolling interest
|
|
|
40,484
|
|
|
|
40,352
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
5,211,290
|
|
|
|
6,261,882
|
|
|
|
|
|
|
|
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|
Total liabilities and shareholders equity
|
|
$
|
7,502,150
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|
|
$
|
8,551,854
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|
|
|
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|
See accompanying notes to these unaudited consolidated financial
statements.
5
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For the Six Months
|
|
|
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Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
514,642
|
|
|
$
|
391,464
|
|
Adjustments to reconcile net income to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment
and intangible assets
|
|
|
169,961
|
|
|
|
248,877
|
|
Acquired in-process research and development (Note 2)
|
|
|
39,976
|
|
|
|
|
|
Share-based compensation
|
|
|
95,370
|
|
|
|
78,892
|
|
Non-cash interest (income) expense and foreign exchange
remeasurement loss (gain), net
|
|
|
6,469
|
|
|
|
(7,592
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)
|
Deferred income taxes
|
|
|
(30,317
|
)
|
|
|
(42,772
|
)
|
Realized gain on sale of marketable securities and strategic
investments
|
|
|
(11,300
|
)
|
|
|
(15,434
|
)
|
Write-down of inventory to net realizable value
|
|
|
5,654
|
|
|
|
11,475
|
|
Loss on disposal of property, plant and equipment, net
|
|
|
389
|
|
|
|
|
|
Impairment of marketable securities, investments and other assets
|
|
|
17,231
|
|
|
|
10,002
|
|
Excess tax benefit from share-based compensation
|
|
|
(5,598
|
)
|
|
|
(2,800
|
)
|
Changes in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(22,955
|
)
|
|
|
(63,842
|
)
|
Due from unconsolidated joint business
|
|
|
(56,354
|
)
|
|
|
8,719
|
|
Inventory
|
|
|
21,447
|
|
|
|
(14,353
|
)
|
Other assets
|
|
|
3,637
|
|
|
|
(5,537
|
)
|
Accrued expenses and other current liabilities
|
|
|
(23,732
|
)
|
|
|
22,950
|
|
Other liabilities and taxes payable
|
|
|
40,856
|
|
|
|
(90,748
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
765,376
|
|
|
|
529,301
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(941,268
|
)
|
|
|
(1,869,415
|
)
|
Proceeds from sales and maturities of marketable securities
|
|
|
2,002,543
|
|
|
|
1,637,562
|
|
Acquisitions (Note 2)
|
|
|
(39,976
|
)
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(85,260
|
)
|
|
|
(71,721
|
)
|
Purchases of other investments
|
|
|
(2,338
|
)
|
|
|
(35,202
|
)
|
Proceeds from the sale of a strategic equity investment
|
|
|
|
|
|
|
5,565
|
|
Collateral received under securities lending
|
|
|
|
|
|
|
29,991
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities
|
|
|
933,701
|
|
|
|
(303,220
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
(1,609,334
|
)
|
|
|
(57,631
|
)
|
Proceeds from issuance of stock for share-based compensation
arrangements
|
|
|
63,193
|
|
|
|
24,387
|
|
Change in cash overdraft
|
|
|
2,912
|
|
|
|
7,525
|
|
Net contributions from noncontrolling interest
|
|
|
2,187
|
|
|
|
|
|
Excess tax benefit from share-based compensation
|
|
|
5,598
|
|
|
|
2,800
|
|
Repayment of borrowings
|
|
|
(14,142
|
)
|
|
|
(10,867
|
)
|
Obligation under securities lending
|
|
|
|
|
|
|
(29,991
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
|
(1,549,586
|
)
|
|
|
(63,777
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
149,491
|
|
|
|
162,304
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(10,418
|
)
|
|
|
2,115
|
|
Cash and cash equivalents, beginning of the period
|
|
|
581,889
|
|
|
|
622,385
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
720,962
|
|
|
$
|
786,804
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these unaudited consolidated financial
statements.
6
BIOGEN
IDEC INC. AND SUBSIDIARIES
(unaudited)
Business
Overview
Biogen Idec is a global biotechnology company that discovers,
develops, manufactures and commercializes innovative therapies
for human health care. We currently have four marketed products:
AVONEX, RITUXAN, TYSABRI, and FUMADERM. Our marketed products
are used for the treatment of multiple sclerosis (MS),
non-Hodgkins lymphoma (NHL), rheumatoid arthritis (RA),
Crohns disease, chronic lymphocytic leukemia and psoriasis.
Basis
of Presentation
In the opinion of management, the accompanying unaudited
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, 2009 (2009
Form 10-K).
Our accounting policies are described in the Notes to
Consolidated Financial Statements in our 2009
Form 10-K
and updated, as necessary, in this
Form 10-Q.
The year-end consolidated balance sheet data presented for
comparative purposes was derived from audited financial
statements, but does not include all disclosures required by
U.S. GAAP. The results of operations for the three and six
months ended June 30, 2010 are not necessarily indicative
of the operating results for the full year or for any other
subsequent interim period.
Consolidation
Our consolidated financial statements reflect our financial
statements, those of our wholly-owned subsidiaries and those of
certain variable interest entities in which we are the primary
beneficiary. For such consolidated entities in which we own less
than a 100% interest, we record net income (loss) attributable
to noncontrolling interest in our consolidated statements of
income equal to the percentage of the economic or ownership
interest retained in the collaborative arrangement or joint
venture by the respective noncontrolling parties. All material
intercompany balances and transactions have been eliminated in
consolidation.
In determining whether we are the primary beneficiary, we
consider a number of factors, including our ability to direct
the activities that most significantly affect the entitys
economic success, our contractual rights and responsibilities
under the arrangement and the significance of the arrangement to
each party. These considerations impact the way we account for
our existing collaborative and joint venture relationships and
may result in the future consolidation of companies or entities
with which we have collaborative or other arrangements.
Use of
Estimates
The preparation of consolidated financial statements in
accordance with U.S. GAAP requires management to make
estimates and judgments that may affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates and judgments, including those
related to revenue recognition and related allowances,
marketable securities, derivatives and hedging activities,
inventory, impairments of long-lived assets including intangible
assets, impairments of goodwill, the consolidation of variable
interest entities, income taxes including the valuation
allowance for deferred tax assets, valuation of investments,
research and development expenses, contingencies and litigation,
and share-based payments. We base our estimates on historical
experience and on various other assumptions that are believed to
be reasonable, the results of which form the basis for making
judgments about the carrying values of assets and liabilities.
Actual results may differ from these estimates under different
assumptions or conditions.
7
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Subsequent
Events
We did not have any material recognizable or nonrecognizable
subsequent events.
|
|
2.
|
Acquisitions
and Dispositions
|
Biogen
Idec Hemophilia Inc. (formerly Syntonix Pharmaceuticals,
Inc.)
In connection with our acquisition of Biogen Idec Hemophilia
Inc. (BIH), formerly Syntonix Pharmaceuticals, Inc. (Syntonix),
in January 2007, we agreed to make additional future
consideration payments based upon the achievement of certain
milestone events associated with the development of BIHs
lead product, long-acting recombinant Factor IX, a product for
the treatment of hemophilia B. In January 2010, we initiated
patient enrollment in a registrational stage study for Factor IX
which resulted in the achievement of one of those milestone
events. As a result of the achievement of this milestone, we
paid approximately $40.0 million to the former shareholders
of Syntonix. As the Syntonix acquisition occurred prior to our
January 1, 2009 adoption of a new accounting standard for
business combinations, this acquisition continues to be
accounted for under previously issued guidance. Accordingly, we
recorded this payment as a charge to acquired in-process
research and development (IPR&D) within our consolidated
statements of income. Please read Note 2, Acquisitions
and Dispositions, to our Consolidated Financial Statements
included within our 2009
Form 10-K,
for a more detailed description of this acquisition.
We recognize revenue when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has
occurred or services have been rendered; the sellers price
to the buyer is fixed or determinable; and collectability is
reasonably assured.
Product
Revenues
Revenues from product sales are recognized when title and risk
of loss have passed to the customer, which is typically upon
delivery. However, sales of TYSABRI in the U.S. are
recognized on the sell-through model, that is, upon
shipment of the product by Elan Pharma International, Ltd.
(Elan), an affiliate of Elan Corporation, plc, to its third
party distributor rather than upon shipment to Elan.
Product revenues are recorded net of applicable reserves for
trade term discounts, wholesaler incentives, Medicaid rebates,
Veterans Administration (VA) and Public Health Service (PHS)
discounts, managed care rebates, product returns and other
applicable allowances.
Revenues
from Unconsolidated Joint Business
We collaborate with the Roche Group, through its wholly-owned
member Genentech, Inc., on the development and commercialization
of RITUXAN. Revenues from unconsolidated joint business consist
of (1) our share of pre-tax co-promotion profits in the
U.S.; (2) reimbursement of our selling and development
expense in the U.S.; and (3) revenue on sales of RITUXAN in
the rest of world, which consists of our share of pretax
co-promotion profits in Canada and royalty revenue on sales of
RITUXAN outside the U.S. and Canada by F.
Hoffmann-La Roche Ltd. (Roche) and its sublicensees.
Pre-tax co-promotion profits are calculated and paid to us by
Genentech in the U.S. and by Roche in Canada. Pre-tax
co-promotion profits consist of U.S. and Canadian sales of
RITUXAN to third-party customers net of discounts and allowances
less the cost to manufacture RITUXAN, third-party royalty
expenses, distribution, selling and marketing, and joint
development expenses incurred by Genentech, Roche and us. We
record our royalty and co-promotion profit revenue on sales of
RITUXAN in the rest of world on a cash basis.
8
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Royalty
Revenues
We receive royalty revenues on sales by our licensees of other
products covered under patents that we own. There are no future
performance obligations on our part under these license
arrangements. We record these revenues based on estimates of the
sales that occurred during the relevant period. The relevant
period estimates of sales are based on interim data provided by
licensees and analysis of historical royalties that have been
paid to us, adjusted for any changes in facts and circumstances,
as appropriate. We maintain regular communication with our
licensees in order to assess the reasonableness of our
estimates. Differences between actual royalty revenues and
estimated royalty revenues are adjusted for in the period in
which they become known, typically the following quarter.
Historically, adjustments have not been material when compared
to actual amounts paid by licensees. If we are unable to
accurately estimate revenue, then we record revenues on a cash
basis.
Milestone
Revenues
Under the terms of our collaboration agreement with Elan, once
sales of TYSABRI exceeded specific thresholds, Elan was required
to make milestone payments to us in order to continue sharing
equally in the collaborations results. These amounts,
totaling $125.0 million, were recorded as deferred revenue
upon receipt and are recognized as revenue in our consolidated
statements of income based on the ratio of units shipped in the
current period over the total units expected to be shipped over
the remaining term of the collaboration agreement.
Bad
Debt Reserves
Bad debt reserves are based on our estimated uncollectible
accounts receivable. Given our historical experiences with bad
debts, combined with our credit management policies and
practices, we do not presently maintain significant bad debt
reserves.
Concentrations
of Credit Risk
The majority of our accounts receivable arise from product sales
in the United States and Europe and are primarily due from
wholesale distributors, large pharmaceutical companies and
public hospitals. We monitor the financial performance and
credit worthiness of our large customers so that we can properly
assess and respond to changes in their credit profile. We
continue to monitor economic conditions, including the
volatility associated with international sovereign economies,
and associated impacts on the financial markets and our
business, especially in light of the global economic downturn
and European sovereign debt crisis. We believe the credit and
economic conditions within Greece, Spain, Italy and Portugal,
among other members of the European Union, have deteriorated
through the first half of 2010. These conditions have resulted
in, and may continue to result in, an increase in the average
length of time that it takes to collect on our accounts
receivable outstanding in these countries. As of June 30,
2010, our accounts receivable in Greece, Italy, Spain and
Portugal totaled approximately $201.7 million. To date, we
have not experienced any significant losses with respect to the
collection of our accounts receivable related to sales within
these countries.
Reserves
for Discounts and Allowances
We establish reserves for trade term discounts, wholesaler
incentives, Medicaid rebates, VA and PHS discounts, managed care
rebates, product returns and other applicable allowances.
Reserves established for these discounts and allowances are
classified as reductions of accounts receivable (if the amount
is payable to our customer) or a liability (if the amount is
payable to a party other than our customer).
In addition, we distribute no-charge product to qualifying
patients under our patient assistance and patient replacement
goods program. This program is administered through one of our
distribution partners, who ships product for qualifying patients
from their own inventory purchased from us. Gross revenue and
the related
9
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
reserves are not recorded on product shipped under this program
and cost of sales is recorded when the product is shipped.
Product revenue reserves are categorized as follows: discounts,
contractual adjustments, and returns. An analysis of the amount
of, and change in, reserves is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
(In millions)
|
|
Discounts
|
|
|
Adjustments
|
|
|
Returns
|
|
|
Total
|
|
|
Balance, as of December 31, 2009
|
|
$
|
13.9
|
|
|
$
|
70.3
|
|
|
$
|
18.9
|
|
|
$
|
103.1
|
|
Current provisions relating to sales in current year
|
|
|
39.5
|
|
|
|
126.3
|
|
|
|
8.4
|
|
|
|
174.2
|
|
Adjustments relating to prior years
|
|
|
(0.1
|
)
|
|
|
(4.0
|
)
|
|
|
(1.9
|
)
|
|
|
(6.0
|
)
|
Payments/returns relating to sales in current year
|
|
|
(26.0
|
)
|
|
|
(52.8
|
)
|
|
|
(0.3
|
)
|
|
|
(79.1
|
)
|
Payments/returns relating to sales in prior years
|
|
|
(8.5
|
)
|
|
|
(60.7
|
)
|
|
|
(5.8
|
)
|
|
|
(75.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of June 30, 2010
|
|
$
|
18.8
|
|
|
$
|
79.1
|
|
|
$
|
19.3
|
|
|
$
|
117.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total reserves above, included in our consolidated balance
sheets, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
Reduction of accounts receivable
|
|
$
|
49.7
|
|
|
$
|
43.3
|
|
Current liability
|
|
|
67.5
|
|
|
|
59.8
|
|
|
|
|
|
|
|
|
|
|
Total reserves
|
|
$
|
117.2
|
|
|
$
|
103.1
|
|
|
|
|
|
|
|
|
|
|
Healthcare
Reform
In March 2010, healthcare reform legislation was enacted in the
U.S. This legislation contains several provisions that
affect our business.
Although many provisions of the new legislation do not take
effect immediately, several provisions became effective in the
first quarter of 2010. These include (1) an increase in the
minimum Medicaid rebate to states participating in the Medicaid
program from 15.1% to 23.1% on our branded prescription drugs;
(2) the extension of the Medicaid rebate to Managed Care
Organizations that dispense drugs to Medicaid beneficiaries; and
(3) the expansion of the 340(B) Public Health Services drug
pricing program, which provides outpatient drugs at reduced
rates, to include additional hospitals, clinics, and healthcare
centers.
Beginning in 2011, the new law requires drug manufacturers to
provide a 50% discount to Medicare beneficiaries whose
prescription drug costs cause them to be subject to the Medicare
Part D coverage gap (i.e., the donut
hole). Also, beginning in 2011, we will be assessed our
share of a new fee payable by all branded prescription drug
manufacturers and importers. This fee will be calculated based
upon each organizations percentage share of total branded
prescription drug sales to U.S. government programs (such
as Medicare, Medicaid and VA and PHS discount programs) made
during the previous year.
The manner in which this new legislation will be implemented is
still being formulated. For example, the Health Resources and
Services Administration (HRSA) is developing policy and
implementation plans and building system capacity necessary to
enroll new covered entities that are impacted by the new
legislation. This will allow HRSA to begin working directly with
new eligible entities and enrolling them in the 340(B) program.
As a result, we do not yet know when and how discounts will be
provided to the additional entities eligible to participate
under the 340(B) program. In addition, the operation of the
Medicare Part D coverage gap and the calculation and
allocation of the annual fee on branded prescription drugs
remains unclear, though, as noted above, these programs will not
be effective until 2011.
10
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Inventories are stated at the lower of cost or market with cost
determined under the
first-in,
first-out (FIFO) method. Included in inventory are raw materials
used in the production of pre-clinical and clinical products,
which are charged to research and development expense when
consumed.
The components of inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
Raw materials
|
|
$
|
49.1
|
|
|
$
|
49.2
|
|
Work in process
|
|
|
127.6
|
|
|
|
174.0
|
|
Finished goods
|
|
|
91.1
|
|
|
|
70.8
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
267.8
|
|
|
$
|
294.0
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Intangible
Assets and Goodwill
|
Intangible
Assets
Intangible assets, net of accumulated amortization, impairment
charges and adjustments, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
As of December 31, 2009
|
|
|
|
Estimated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
(In millions)
|
|
Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Out-licensed patents
|
|
|
12 years
|
|
|
$
|
578.0
|
|
|
$
|
(329.4
|
)
|
|
$
|
248.6
|
|
|
$
|
578.0
|
|
|
$
|
(306.0
|
)
|
|
$
|
272.0
|
|
Core/developed technology
|
|
|
15-23 years
|
|
|
|
3,005.3
|
|
|
|
(1,550.8
|
)
|
|
|
1,454.5
|
|
|
|
3,005.3
|
|
|
|
(1,472.4
|
)
|
|
|
1,532.9
|
|
Trademarks and tradenames
|
|
|
Indefinite
|
|
|
|
64.0
|
|
|
|
|
|
|
|
64.0
|
|
|
|
64.0
|
|
|
|
|
|
|
|
64.0
|
|
In-licensed patents
|
|
|
14 years
|
|
|
|
3.0
|
|
|
|
(1.3
|
)
|
|
|
1.7
|
|
|
|
3.0
|
|
|
|
(1.1
|
)
|
|
|
1.9
|
|
Assembled workforce
|
|
|
4 years
|
|
|
|
2.1
|
|
|
|
(2.0
|
)
|
|
|
0.1
|
|
|
|
2.1
|
|
|
|
(1.8
|
)
|
|
|
0.3
|
|
Distribution rights
|
|
|
2 years
|
|
|
|
12.7
|
|
|
|
(12.7
|
)
|
|
|
|
|
|
|
12.7
|
|
|
|
(12.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
3,665.1
|
|
|
$
|
(1,896.2
|
)
|
|
$
|
1,768.9
|
|
|
$
|
3,665.1
|
|
|
$
|
(1,794.0
|
)
|
|
$
|
1,871.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets were unchanged as of June 30, 2010 as
compared to December 31, 2009, exclusive of the impact of
amortization. Our most significant intangible asset is the core
technology related to AVONEX. The net book value of this asset
as of June 30, 2010 was $1,439.3 million.
For the three and six months ended June 30, 2010,
amortization for acquired intangible assets totaled
$53.1 million and $102.0 million, respectively, as
compared to $93.2 million and $182.5 million,
respectively, for the prior year comparative periods.
Goodwill
Goodwill remained unchanged as of June 30, 2010 as compared
to December 31, 2009. As of June 30, 2010, we had no
accumulated impairment losses.
11
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
6.
|
Fair
Value Measurements
|
In January 2010, we adopted a newly issued accounting standard
which requires additional disclosure about the amounts of and
reasons for significant transfers in and out of Level 1 and
Level 2 fair value measurements. This standard also
clarifies existing disclosure requirements related to the level
of disaggregation of fair value measurements for each class of
assets and liabilities and disclosures about inputs and
valuation techniques used to measure fair value for both
recurring and nonrecurring Level 2 and Level 3
measurements. As this newly issued accounting standard only
requires enhanced disclosure, the adoption of this standard did
not impact our financial position or results of operations. In
addition, effective for interim and annual periods beginning
after December 15, 2010, this standard will require
additional disclosure and require an entity to present
disaggregated information about activity in Level 3 fair
value measurements on a gross basis, rather than as one net
amount.
The tables below present information about our assets and
liabilities that are measured at fair value on a recurring basis
as of June 30, 2010 and December 31, 2009 and indicate
the fair value hierarchy of the valuation techniques we utilized
to determine such fair value. In general, fair values determined
by Level 1 inputs utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities. Fair values
determined by Level 2 inputs utilize data points from
active markets that are observable, such as quoted prices,
interest rates and yield curves. Fair values determined by
Level 3 inputs utilize unobservable data points for the
asset or liability.
A majority of our financial assets and liabilities have been
classified as Level 2. Our financial assets and liabilities
(which include our cash equivalents, derivative contracts,
marketable debt securities, and plan assets for deferred
compensation) have been initially valued at the transaction
price and subsequently valued, at the end of each reporting
period, typically utilizing third party pricing services or
other market observable data. The pricing services utilize
industry standard valuation models, including both income and
market based approaches and observable market inputs to
determine value. These observable market inputs include
reportable trades, benchmark yields, credit spreads,
broker/dealer quotes, bids, offers, current spot rates and other
industry and economic events. We validate the prices provided by
our third party pricing services by reviewing their pricing
methods and matrices, obtaining market values from other pricing
sources, analyzing pricing data in certain instances and
confirming that the relevant markets are active. After
completing our validation procedures, we did not adjust or
override any fair value measurements provided by our pricing
services as of June 30, 2010 and December 31, 2009.
Our strategic investments in publicly traded equity securities
are classified as Level 1 assets as their fair values are
readily determinable and based on quoted market prices.
Our venture capital investments represent investments in equity
securities of certain privately held biotechnology companies or
biotechnology oriented venture capital funds which primarily
invest in small privately-owned, venture-backed biotechnology
companies. These investments are the only assets for which we
used Level 3 inputs to determine the fair value and
represented approximately 0.3% of total assets as of both
June 30, 2010 and December 31, 2009. The fair value of
our investments in these venture capital funds has been
estimated using the net asset value of the fund. The investments
cannot be redeemed within the funds. Distributions from each
will be received as the underlying investments of the fund are
liquidated. The funds and therefore a majority of the underlying
assets of the funds will not be liquidated in the near future.
The underlying assets in these funds are initially measured at
transaction prices and subsequently valued using the pricing of
recent financing or by reviewing the underlying economic
fundamentals and liquidation value of the companies. Gains and
losses (realized and unrealized) included in earnings for the
period are reported in other income (expense), net.
There have been no transfers of assets or liabilities between
the fair value measurement classifications.
12
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The following tables set forth our financial assets and
liabilities that were recorded at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Balance as of
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
June 30,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
(In millions)
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
612.8
|
|
|
$
|
|
|
|
$
|
612.8
|
|
|
$
|
|
|
Marketable debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
249.3
|
|
|
|
|
|
|
|
249.3
|
|
|
|
|
|
Government securities
|
|
|
469.5
|
|
|
|
|
|
|
|
469.5
|
|
|
|
|
|
Mortgage and other asset backed securities
|
|
|
96.0
|
|
|
|
|
|
|
|
96.0
|
|
|
|
|
|
Strategic investments
|
|
|
24.0
|
|
|
|
24.0
|
|
|
|
|
|
|
|
|
|
Venture capital investments
|
|
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
20.4
|
|
Derivative contracts
|
|
|
63.2
|
|
|
|
|
|
|
|
63.2
|
|
|
|
|
|
Plan assets for deferred compensation
|
|
|
14.4
|
|
|
|
|
|
|
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,549.6
|
|
|
$
|
24.0
|
|
|
$
|
1,505.2
|
|
|
$
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Balance as of
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
(In millions)
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
476.4
|
|
|
$
|
|
|
|
$
|
476.4
|
|
|
$
|
|
|
Marketable debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
504.1
|
|
|
|
|
|
|
|
504.1
|
|
|
|
|
|
Government securities
|
|
|
1,133.5
|
|
|
|
|
|
|
|
1,133.5
|
|
|
|
|
|
Mortgage and other asset backed securities
|
|
|
238.3
|
|
|
|
|
|
|
|
238.3
|
|
|
|
|
|
Strategic investments
|
|
|
5.9
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
Venture capital investments
|
|
|
21.9
|
|
|
|
|
|
|
|
|
|
|
|
21.9
|
|
Derivative contracts
|
|
|
15.8
|
|
|
|
|
|
|
|
15.8
|
|
|
|
|
|
Plan assets for deferred compensation
|
|
|
13.6
|
|
|
|
|
|
|
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,409.5
|
|
|
$
|
5.9
|
|
|
$
|
2,381.7
|
|
|
$
|
21.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
11.1
|
|
|
$
|
|
|
|
$
|
11.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11.1
|
|
|
$
|
|
|
|
$
|
11.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The following table provides a roll forward of the fair value of
our venture capital investments, where fair value is determined
by Level 3 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Beginning balance
|
|
$
|
20.8
|
|
|
$
|
24.3
|
|
|
$
|
21.9
|
|
|
$
|
23.9
|
|
Total net unrealized gains (losses) included in earnings
|
|
|
(0.1
|
)
|
|
|
(2.8
|
)
|
|
|
(1.6
|
)
|
|
|
(3.1
|
)
|
Net purchases, issuances and settlements
|
|
|
(0.3
|
)
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
20.4
|
|
|
$
|
21.6
|
|
|
$
|
20.4
|
|
|
$
|
21.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair and carrying value of our debt instruments are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
As of December 31, 2009
|
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
(In millions)
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Credit line from Dompé
|
|
$
|
11.1
|
|
|
$
|
11.0
|
|
|
$
|
17.2
|
|
|
$
|
17.2
|
|
Notes payable to Fumedica
|
|
|
21.1
|
|
|
|
18.5
|
|
|
|
31.3
|
|
|
|
30.0
|
|
6.0% Senior Notes due 2013
|
|
|
492.9
|
|
|
|
449.7
|
|
|
|
475.7
|
|
|
|
449.6
|
|
6.875% Senior Notes due 2018
|
|
|
619.3
|
|
|
|
600.6
|
|
|
|
589.1
|
|
|
|
603.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,144.4
|
|
|
$
|
1,079.8
|
|
|
$
|
1,113.3
|
|
|
$
|
1,100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of our credit line from Dompé and our note
payable to Fumedica were estimated using an income-based
approach with market observable inputs including current
interest and foreign currency exchange rates. The fair value of
our Senior Notes was determined through a market-based approach
using observable and corroborated sources; within the hierarchy
of fair value measurements, these are classified as Level 2
fair values.
14
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Marketable
Securities, including Strategic Investments
The following tables summarize our marketable securities and
strategic investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
As of June 30, 2010 (In millions):
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
89.7
|
|
|
$
|
0.8
|
|
|
$
|
|
|
|
$
|
88.9
|
|
Non-current
|
|
|
159.6
|
|
|
|
2.7
|
|
|
|
(0.1
|
)
|
|
|
157.0
|
|
Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
153.0
|
|
|
|
0.5
|
|
|
|
(0.1
|
)
|
|
|
152.6
|
|
Non-current
|
|
|
316.5
|
|
|
|
2.4
|
|
|
|
|
|
|
|
314.1
|
|
Mortgage and other asset backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
6.0
|
|
|
|
0.1
|
|
|
|
|
|
|
|
5.9
|
|
Non-current
|
|
|
90.0
|
|
|
|
2.0
|
|
|
|
(0.1
|
)
|
|
|
88.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
814.8
|
|
|
$
|
8.5
|
|
|
$
|
(0.3
|
)
|
|
$
|
806.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic investments, non-current
|
|
$
|
24.0
|
|
|
$
|
1.1
|
|
|
$
|
(6.4
|
)
|
|
$
|
29.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
As of December 31, 2009 (In millions):
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
177.2
|
|
|
$
|
1.5
|
|
|
$
|
|
|
|
$
|
175.7
|
|
Non-current
|
|
|
326.9
|
|
|
|
5.7
|
|
|
|
(0.3
|
)
|
|
|
321.5
|
|
Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
501.6
|
|
|
|
1.2
|
|
|
|
|
|
|
|
500.4
|
|
Non-current
|
|
|
631.9
|
|
|
|
4.1
|
|
|
|
(0.5
|
)
|
|
|
628.3
|
|
Mortgage and other asset backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
3.0
|
|
|
|
0.1
|
|
|
|
|
|
|
|
2.9
|
|
Non-current
|
|
|
235.3
|
|
|
|
4.1
|
|
|
|
(0.5
|
)
|
|
|
231.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
1,875.9
|
|
|
$
|
16.7
|
|
|
$
|
(1.3
|
)
|
|
$
|
1,860.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic investments, non-current
|
|
$
|
5.9
|
|
|
$
|
2.7
|
|
|
$
|
(0.3
|
)
|
|
$
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the tables above, as of June 30, 2010 and
December 31, 2009, government securities included
$111.3 million and $298.8 million, respectively, of
Federal Deposit Insurance Corporation (FDIC) guaranteed senior
notes issued by financial institutions under the Temporary
Liquidity Guarantee Program.
Certain commercial paper and short-term debt securities with
original maturities of less than 90 days are included in
cash and cash equivalents on the accompanying consolidated
balance sheets and are not included
15
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
in the tables above. As of June 30, 2010 and
December 31, 2009, the commercial paper, including accrued
interest, had fair and carrying values of $137.5 million
and $76.9 million, respectively, and short-term debt
securities had fair and carrying values of $475.3 million
and $399.5 million, respectively.
Summary
of Contractual Maturities:
Available-for-Sale
Securities
The estimated fair value and amortized cost of securities,
excluding strategic investments,
available-for-sale
by contractual maturity are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
As of December 31, 2009
|
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
(In millions)
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Due in one year or less
|
|
$
|
205.9
|
|
|
$
|
204.8
|
|
|
$
|
522.0
|
|
|
$
|
519.5
|
|
Due after one year through five years
|
|
|
523.3
|
|
|
|
517.9
|
|
|
|
1,143.7
|
|
|
|
1,133.4
|
|
Due after five years
|
|
|
85.6
|
|
|
|
83.9
|
|
|
|
210.2
|
|
|
|
207.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
814.8
|
|
|
$
|
806.6
|
|
|
$
|
1,875.9
|
|
|
$
|
1,860.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average maturity of our marketable securities as of
June 30, 2010 and December 31, 2009 was 12 months
and 15 months, respectively.
Proceeds
from Marketable Securities, excluding Strategic
Investments
The proceeds from maturities and sales of marketable securities,
excluding strategic investments, which were primarily
reinvested, and resulting realized gains and losses, are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Six Months
|
|
|
Ended June 30,
|
|
Ended June 30,
|
(In millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Proceeds from maturities and sales
|
|
$
|
973.2
|
|
|
$
|
579.9
|
|
|
$
|
2,002.5
|
|
|
$
|
1,637.6
|
|
Realized gains
|
|
$
|
7.4
|
|
|
$
|
8.2
|
|
|
$
|
13.1
|
|
|
$
|
13.9
|
|
Realized losses
|
|
$
|
1.1
|
|
|
$
|
0.6
|
|
|
$
|
1.8
|
|
|
$
|
2.0
|
|
Realized losses for the three and six months ended June 30,
2010 primarily relate to the sale of agency mortgage-backed
securities and corporate debt securities. The realized losses
for the three and six months ended June 30, 2009 primarily
relate to losses on the sale of corporate debt securities and
non-agency mortgage-backed securities.
Impairments
Evaluating
Investments for
Other-than-Temporary
Impairments
We conduct periodic reviews to identify and evaluate each
investment that has an unrealized loss, in accordance with the
meaning of
other-than-temporary
impairment and its application to certain investments. An
unrealized loss exists when the current fair value of an
individual security is less than its amortized cost basis.
Unrealized losses on
available-for-sale
debt securities that are determined to be temporary, and not
related to credit loss, are recorded, net of tax, in accumulated
other comprehensive income.
For
available-for-sale
debt securities with unrealized losses, management performs an
analysis to assess whether we intend to sell or whether we would
more likely than not be required to sell the security before the
expected recovery of the amortized cost basis. Where we intend
to sell a security, or may be required to do so, the
securitys decline in fair value is deemed to be
other-than-temporary
and the full amount of the unrealized loss is recorded within
earnings as an impairment loss.
16
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Regardless of our intent to sell a security, we perform
additional analysis on all securities with unrealized losses to
evaluate losses associated with the creditworthiness of the
security. Credit losses are identified where we do not expect to
receive cash flows sufficient to recover the amortized cost
basis of a security and are recorded within earnings as an
impairment loss.
For equity securities, when assessing whether a decline in fair
value below our cost basis is
other-than-temporary,
we consider the fair market value of the security, the duration
of the securitys decline, and the financial condition of
the issuer. We then consider our intent and ability to hold the
equity security for a period of time sufficient to recover our
carrying value. Where we have determined that we lack the intent
and ability to hold an equity security to its expected recovery,
the securitys decline in fair value is deemed to be
other-than-temporary
and is recorded within earnings as an impairment loss.
Recognition
and Measurement of
Other-than-Temporary
Impairment
For the three and six months ended June 30, 2010, we
recognized $1.2 million and $17.0 million,
respectively, in charges for the
other-than-temporary
impairment of our publicly held strategic investments, venture
funds and investments in privately-held companies as compared to
$3.5 million and $6.0 million for the prior year
comparable periods. The increase in the six month comparative
periods was primarily the result of AVEO Pharmaceuticals, Inc.,
one of our strategic investments, executing an equity offering
at a price below our cost basis during the first quarter of 2010.
We recognized $3.6 million in
other-than-temporary
impairment charges on our marketable debt securities during the
six months ended June 30, 2009. No impairments were
recognized related to our marketable debt securities for the
three months ended June 30, 2009 or for the three and six
months ended June 30, 2010.
|
|
8.
|
Derivative
Instruments
|
Our primary market exposure is to foreign exchange rates. We use
certain derivative instruments to help manage this exposure. We
execute these instruments with financial institutions we judge
to be creditworthy and the majority of the foreign currencies
are denominated in currencies of major industrial countries. We
do not hold or issue derivative instruments for trading or
speculative purposes.
We recognize all derivative instruments as either assets or
liabilities at fair value in our consolidated balance sheets. We
classify the cash flows from these instruments in the same
category as the cash flows from the hedged items.
Foreign
Currency Forward Contracts
Due to the global nature of our operations, portions of our
revenues are earned in currencies other than the
U.S. dollar. The value of revenues measured in
U.S. dollars is subject to changes in currency exchange
rates. In order to mitigate these changes we use foreign
currency forward contracts to lock in exchange rates.
Foreign currency forward contracts in effect as of June 30,
2010 and December 31, 2009 had remaining durations of 1 to
12 months. These contracts have been designated as cash
flow hedges and accordingly, to the extent effective, any
unrealized gains or losses on these foreign currency forward
contracts are reported in accumulated other comprehensive
income. Realized gains and losses for the effective portion of
such contracts are recognized in revenue when the sale of
product in the currency being hedged is recognized. To the
extent ineffective, hedge transaction gains and losses are
reported in other income (expense), net at each reporting date.
17
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The notional value of foreign currency forward contracts that
were entered into to hedge forecasted revenue is summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Foreign Currency: (In millions)
|
|
As of June 30, 2010
|
|
|
As of December 31, 2009
|
|
|
Euro
|
|
$
|
558.8
|
|
|
$
|
495.9
|
|
Canadian Dollar
|
|
|
37.0
|
|
|
|
22.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
595.8
|
|
|
$
|
518.2
|
|
|
|
|
|
|
|
|
|
|
The portion of the fair value of these foreign currency forward
contracts that was included in accumulated other comprehensive
income within total equity reflected net gains of
$62.1 million and $1.2 million as of June 30,
2010 and December 31, 2009, respectively. We expect all
contracts to be settled over the next 12 months and any
amounts in accumulated other comprehensive income to be reported
as revenue. We consider the impact of our and our
counterparties credit risk on the fair value of the
contracts as well as the ability of each party to execute its
obligations under the contract. As of June 30, 2010 and
December 31, 2009, credit risk did not materially change
the fair value of our forward contracts.
In relation to our foreign currency forward contracts, we
recognize gains and losses in earnings due to hedge
ineffectiveness. During the three and six months ended
June 30, 2010, we recognized net losses of
$0.6 million and $0.5 million, respectively, as
compared to net gains of $1.7 million and net losses of
$0.8 million, respectively, in the prior year comparable
periods. In addition, we recognized $19.7 million and
$19.9 million of gains in product revenue for the
settlement of certain effective cash flow hedge forward
contracts for the three and six months ended June 30, 2010,
respectively, as compared to losses recognized in the amount of
$9.2 million and $12.3 million, respectively, in the
prior year comparable periods. These settlements were recorded
in the same period as the related forecasted revenue.
Summary
of Derivatives Designated as Hedging Instruments
The following table summarizes the fair value and presentation
in the consolidated balance sheets for derivatives designated as
hedging instruments as of June 30, 2010 and
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Forward Contracts
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
(In millions)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
June 30, 2010
|
|
|
Other Current Assets
|
|
|
$
|
61.4
|
|
|
|
Accrued Expenses and Other
|
|
|
$
|
0.1
|
|
December 31, 2009
|
|
|
Other Current Assets
|
|
|
$
|
10.8
|
|
|
|
Accrued Expenses and Other
|
|
|
$
|
9.8
|
|
18
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The following table summarizes the effect of derivatives
designated as hedging instruments on the consolidated statements
of income for the three and six months ended June 30, 2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
Amount
|
|
|
|
|
|
|
Recognized in
|
|
|
|
Reclassified from
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Other
|
|
|
|
Other
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
Income
|
|
Income
|
|
Income
|
|
Income
|
|
Amount of
|
|
|
on Derivative
|
|
Statement
|
|
into Income
|
|
Statement
|
|
Gain/(Loss)
|
|
|
Gain/(Loss)
|
|
Location
|
|
Gain/(Loss)
|
|
Location
|
|
Recorded
|
(In millions)
|
|
(Effective Portion)
|
|
(Effective Portion)
|
|
(Effective Portion)
|
|
(Ineffective Portion)
|
|
(Ineffective Portion)
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
62.1
|
|
|
Revenue
|
|
$
|
19.7
|
|
|
Other income (expense)
|
|
$
|
(0.6
|
)
|
June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(31.7
|
)
|
|
Revenue
|
|
$
|
(9.2
|
)
|
|
Other income (expense)
|
|
$
|
1.7
|
|
For the Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
62.1
|
|
|
Revenue
|
|
$
|
19.9
|
|
|
Other income (expense)
|
|
$
|
(0.5
|
)
|
June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(31.7
|
)
|
|
Revenue
|
|
$
|
(12.3
|
)
|
|
Other income (expense)
|
|
$
|
(0.8
|
)
|
Other
Derivatives
We enter into foreign currency forward contracts, with one month
durations, to mitigate the foreign currency risk related to
certain balance sheet items. We have not elected hedge
accounting for these transactions. As of June 30, 2010, the
aggregate notional amount of our outstanding foreign currency
contracts was $189.0 million. The fair value of these
contracts was a net gain of $1.7 million. Net gains of
$7.9 million and $13.1 million related to these
contracts were recognized as a component of other income
(expense), net, in the three and six months ended June 30,
2010, respectively. We recognized net gains of $1.4 million
as a component of other income (expense), net for the three and
six months ended June 30, 2009.
Shareholders equity decreased $1,050.6 million as of
June 30, 2010 as compared to December 31, 2009.
During the six months ended June 30, 2010, we repurchased
approximately 31.3 million shares at a cost of
approximately $1,609.3 million under our 2010 and 2009
stock repurchase authorizations. We retired all of these shares
as they were acquired. In connection with this retirement, in
accordance with our policy, we recorded an approximately
$1,609.3 million reduction in additional
paid-in-capital.
This decline in stockholders equity was offset by net
income of $514.6 million and the increase to additional
paid in capital resulting from the amortization of expense
associated with our share-based compensation programs of
$95.5 million.
From July 1, 2010 through July 16, 2010, we
repurchased an additional 4.7 million shares under the 2010
repurchase program at a total cost of approximately
$233.2 million, all of which were retired. Approximately
$235.0 million remains available for repurchase of our
common stock under the 2010 program. The number of
19
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
remaining shares that may be purchased under this program will
vary based on price fluctuations of our common stock. The 2009
repurchase program was completed during the first quarter of
2010.
|
|
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 $703.6 million at
June 30, 2010 and $642.5 million at December 31,
2009.
We own or lease real estate primarily consisting of buildings
that contain research laboratories, office space, and biologic
manufacturing operations, some of which are located in markets
that are experiencing high vacancy rates and decreasing property
values. If we decide to consolidate, co-locate or dispose of
certain aspects of our business operations, for strategic or
other operational reasons, we may dispose of one or more of our
properties. Due to reduced expectations of product demand,
improved yields on production and other factors, we may not
fully utilize our manufacturing facilities at normal levels
resulting in idle time at facilities or substantial excess
manufacturing capacity. We are always evaluating our current
facility utilization strategy and assessing alternatives. In
June 2010, we decided to delay completion of our
manufacturing facility in Hillerød, Denmark upon completion
of the facilitys operational qualification activities in
the fourth quarter of 2010.
If any of our owned properties are held for sale and we
determine that the fair value of the properties is lower than
their book value, we may not realize the full investment in
these properties and incur impairment charges which may be
significant. In addition, if we decide to fully or partially
vacate a leased property, we may incur significant costs,
including lease termination fees, rent expense in excess of
sublease income and impairment of leasehold improvements.
The following tables reflect the activity in comprehensive
income included within equity attributable to the shareholders
of Biogen Idec, equity attributable to noncontrolling interests,
and total shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
|
|
Ended June 30, 2010
|
|
|
Ended June 30, 2009
|
|
|
|
Biogen Idec
|
|
|
|
|
|
Total
|
|
|
Biogen Idec
|
|
|
|
|
|
Total
|
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
Shareholders
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
Shareholders
|
|
(In millions)
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
293.4
|
|
|
$
|
1.2
|
|
|
$
|
294.6
|
|
|
$
|
142.9
|
|
|
$
|
2.0
|
|
|
$
|
144.9
|
|
Unrealized gains(losses) on investments
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
(6.5
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
1.4
|
|
Unrealized gains(losses) on foreign currency forward contracts
|
|
|
26.5
|
|
|
|
|
|
|
|
26.5
|
|
|
|
(16.3
|
)
|
|
|
|
|
|
|
(16.3
|
)
|
(Over) underfunded status of pension and post-retirement benefit
plans
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
Translation adjustments
|
|
|
(71.8
|
)
|
|
|
(3.4
|
)
|
|
|
(75.2
|
)
|
|
|
58.4
|
|
|
|
(1.4
|
)
|
|
|
57.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
241.4
|
|
|
$
|
(2.2
|
)
|
|
$
|
239.2
|
|
|
$
|
186.5
|
|
|
$
|
0.6
|
|
|
$
|
187.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30, 2010
|
|
|
Ended June 30, 2009
|
|
|
|
Biogen Idec
|
|
|
|
|
|
Total
|
|
|
Biogen Idec
|
|
|
|
|
|
Total
|
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
Shareholders
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
Shareholders
|
|
(In millions)
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
510.9
|
|
|
$
|
3.8
|
|
|
$
|
514.7
|
|
|
$
|
386.8
|
|
|
$
|
4.6
|
|
|
$
|
391.4
|
|
Unrealized gains(losses) on investments
|
|
|
(9.4
|
)
|
|
|
|
|
|
|
(9.4
|
)
|
|
|
3.5
|
|
|
|
|
|
|
|
3.5
|
|
Unrealized gains(losses) on foreign currency forward contracts
|
|
|
54.3
|
|
|
|
|
|
|
|
54.3
|
|
|
|
11.9
|
|
|
|
|
|
|
|
11.9
|
|
(Over) underfunded status of pension and post-retirement benefit
plans
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
(124.2
|
)
|
|
|
(6.0
|
)
|
|
|
(130.2
|
)
|
|
|
7.0
|
|
|
|
0.7
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
431.3
|
|
|
$
|
(2.2
|
)
|
|
$
|
429.1
|
|
|
$
|
409.2
|
|
|
$
|
5.3
|
|
|
$
|
414.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on investments are shown net
of tax of $3.8 million and $5.5 million for the three
and six months ended June 30, 2010, respectively, as
compared to $0.8 million and $2.0 million for the
prior year comparative periods.
Unrealized gains (losses) on foreign currency forward contracts
are shown net of tax of $3.6 million, and $6.5 million
for the three and six months ended June 30, 2010,
respectively, as compared to $2.6 million and
$0.5 million for the prior year comparative periods.
The (over) underfunded status of pension and post-retirement
benefit plans is shown net of tax as of June 30, 2010 and
June 30, 2009. Tax for both years was immaterial.
The following table reconciles equity attributable to
noncontrolling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Noncontrolling interest, beginning of period
|
|
$
|
41.2
|
|
|
$
|
32.6
|
|
|
$
|
40.4
|
|
|
$
|
27.9
|
|
Net income attributable to noncontrolling interest
|
|
|
1.2
|
|
|
|
2.0
|
|
|
|
3.8
|
|
|
|
4.6
|
|
Translation adjustments
|
|
|
(3.4
|
)
|
|
|
(1.4
|
)
|
|
|
(6.0
|
)
|
|
|
0.7
|
|
Distributions to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions from noncontrolling interest
|
|
|
1.4
|
|
|
|
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest, end of period
|
|
$
|
40.4
|
|
|
$
|
33.2
|
|
|
$
|
40.4
|
|
|
$
|
33.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to us from our joint ventures were
negligible for the three and six months ended June 30, 2010
and 2009.
21
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Basic and diluted earnings per share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec
|
|
$
|
293.4
|
|
|
$
|
142.8
|
|
|
$
|
510.9
|
|
|
$
|
386.8
|
|
Adjustment for net income allocable to preferred shares
|
|
|
(0.6
|
)
|
|
|
(0.2
|
)
|
|
|
(0.9
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income used in calculating basic and diluted earnings per
share
|
|
$
|
292.8
|
|
|
$
|
142.6
|
|
|
$
|
510.0
|
|
|
$
|
386.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
259.9
|
|
|
|
288.6
|
|
|
|
265.0
|
|
|
|
288.2
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and employee stock purchase plan
|
|
|
0.8
|
|
|
|
0.7
|
|
|
|
0.9
|
|
|
|
0.7
|
|
Time-vested restricted stock units
|
|
|
1.0
|
|
|
|
1.1
|
|
|
|
1.4
|
|
|
|
1.1
|
|
Market stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-vested restricted stock units settled in shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
2.3
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculating diluted earnings per share
|
|
|
261.7
|
|
|
|
290.4
|
|
|
|
267.3
|
|
|
|
290.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following amounts were not included in the calculation of
net income per diluted share because their effects were
anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to preferred shares
|
|
$
|
0.6
|
|
|
$
|
0.2
|
|
|
$
|
0.9
|
|
|
$
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
5.3
|
|
|
|
7.4
|
|
|
|
5.1
|
|
|
|
7.3
|
|
Time-vested restricted stock units
|
|
|
1.4
|
|
|
|
1.1
|
|
|
|
1.0
|
|
|
|
1.1
|
|
Market stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-vested restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7.2
|
|
|
|
9.0
|
|
|
|
6.6
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Share-based
Compensation Expense
The following table summarizes share-based compensation expense
included within our consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Research and development
|
|
$
|
15.4
|
|
|
$
|
14.1
|
|
|
$
|
32.1
|
|
|
$
|
30.4
|
|
Selling, general and administrative
|
|
|
34.0
|
|
|
|
28.4
|
|
|
|
70.2
|
|
|
|
51.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
49.4
|
|
|
|
42.5
|
|
|
|
102.3
|
|
|
|
82.0
|
|
Capitalized share-based payment costs
|
|
|
(0.7
|
)
|
|
|
(1.4
|
)
|
|
|
(1.6
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in total costs and
expenses
|
|
|
48.7
|
|
|
|
41.1
|
|
|
|
100.7
|
|
|
|
78.9
|
|
Income tax effect
|
|
|
(15.7
|
)
|
|
|
(12.7
|
)
|
|
|
(32.4
|
)
|
|
|
(24.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in net income
attributable to Biogen Idec
|
|
$
|
33.0
|
|
|
$
|
28.4
|
|
|
$
|
68.3
|
|
|
$
|
54.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes share-based compensation expense
associated with each of our share-based compensation programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Stock options
|
|
$
|
9.3
|
|
|
$
|
6.0
|
|
|
$
|
20.1
|
|
|
$
|
11.2
|
|
Market stock units
|
|
|
1.9
|
|
|
|
|
|
|
|
5.5
|
|
|
|
|
|
Time-vested restricted stock units
|
|
|
32.3
|
|
|
|
33.9
|
|
|
|
65.8
|
|
|
|
65.4
|
|
Performance-vested restricted stock units settled in shares
|
|
|
1.3
|
|
|
|
2.2
|
|
|
|
3.7
|
|
|
|
3.4
|
|
Performance-vested restricted stock units settled in cash
|
|
|
4.2
|
|
|
|
|
|
|
|
5.2
|
|
|
|
|
|
Employee stock purchase plan
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
49.4
|
|
|
|
42.5
|
|
|
|
102.3
|
|
|
|
82.0
|
|
Capitalized share-based payment costs
|
|
|
(0.7
|
)
|
|
|
(1.4
|
)
|
|
|
(1.6
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in total costs and
expenses
|
|
$
|
48.7
|
|
|
$
|
41.1
|
|
|
$
|
100.7
|
|
|
$
|
78.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
During the six months ended June 30, 2010, approximately
124,000 stock options were granted with a weighted average
exercise price of $57.38 and weighted average grant date fair
value of $16.52. In the six months ended June 30, 2009,
approximately 996,000 stock options were granted with a weighted
average exercise price of $50.05 and weighted average grant date
fair value of $18.03. The fair values of our stock option grants
are estimated as of the date of grant using the Black-Scholes
option valuation model. The estimated fair values of the stock
options, including the effect of estimated forfeitures, are then
expensed over the options requisite service period, which
is typically the vesting period.
23
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Market
Stock Units and Cash Settled Performance Shares
Beginning in the first quarter of 2010, we revised our long term
incentive program to include two new forms of equity-based
compensation awards to certain employees: restricted stock units
which will vest based on stock price performance, referred to as
Market Stock Units (MSUs), and performance-vested restricted
stock units which will be settled in cash, referred to as Cash
Settled Performance Shares (CSPSs). We will apply forfeiture
rate assumptions to these types of awards similar to those
utilized by us when accounting for our other share-based
compensation programs.
Market
Stock Units
During the six months ended June 30, 2010, approximately
334,000 MSUs were granted with a weighted average grant date
fair value of $61.87. MSU awards vest in four equal annual
increments beginning on the anniversary of the grant date. The
vesting of these awards is subject to the respective
employees continued employment. The number of MSUs
reflected as granted represents the target number of units that
are eligible to be earned based on the attainment of certain
market-based criteria involving our stock price. The number of
MSUs earned is calculated at each annual anniversary from the
date of grant over the respective vesting periods, resulting in
multiple performance periods. Participants may ultimately earn
between 0% and 150% of the target number of units granted based
on actual stock performance. Accordingly, additional MSUs may be
issued or currently outstanding MSUs may be cancelled upon final
determination of the number of awards earned.
We have valued the granted MSUs using a lattice model with a
Monte Carlo simulation. This valuation methodology utilizes
several key assumptions, including the 60 calendar day average
closing stock price on grant date, expected volatility of our
stock price, risk-free rates of return and expected dividend
yield. The assumptions used in our valuation are summarized as
follows:
|
|
|
Expected dividend yield
|
|
0%
|
Range of expected stock price volatility
|
|
28.60% - 36.48%
|
Range of risk-free rates of return
|
|
0.37% - 1.98%
|
60 calendar day average closing stock price on grant date
|
|
$54.12
|
We apply a graded vesting expense methodology when accounting
for MSUs. The probability of actual shares expected to be earned
is considered in the grant date valuation, therefore the expense
will not be adjusted to reflect the actual units earned.
Cash
Settled Performance Shares
During the six months ended June 30, 2010, approximately
373,000 CSPSs were granted. CSPS awards vest in three equal
annual increments beginning on the anniversary of the grant
date. The vesting of these awards is subject to the respective
employees continued employment. The number of CSPSs
reflected as granted in 2010 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 December 31, 2010.
Participants may ultimately earn between 0% and 200% of the
target number of units granted based on the degree of actual
performance metric achievement. Accordingly, additional CSPSs
may be issued or currently outstanding CSPSs may be cancelled
upon final determination of the number of units earned. CSPSs
are settled in cash based on the 60 calendar day average closing
stock price through each vesting date once the actual vested and
earned number of units is known.
We apply a graded vesting expense methodology when accounting
for the CSPSs and the fair value of the liability is remeasured
at the end of each reporting period through expected cash
settlement. Compensation
24
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
expense associated with CSPS awards is based upon the stock
price and the number of units expected to be earned after
assessing the probability that certain performance criteria will
be met and the associated targeted payout level that is
forecasted will be achieved, net of estimated forfeitures.
Cumulative adjustments are recorded each quarter to reflect
changes in the stock price and estimated outcome of the
performance-related conditions until the date results are
determined and settled.
Time-Vested
Restricted Stock Units
The fair values of our time-vested restricted stock units (RSUs)
are based on the market value of our stock on the date of grant
and are recognized over the applicable service period, adjusted
for the effect of estimated forfeitures. During the six months
ended June 30, 2010, approximately 1.7 million RSUs
were granted with a weighted average grant date fair value of
$56.44, as compared to approximately 2.4 million RSUs
granted during the prior year comparative period with a weighted
average grant date fair value of $49.37.
Performance-Vested
Restricted Stock Units
During the six months ended June 30, 2009, approximately
318,000 PVRSUs were granted with a weighted average grant date
fair value of $49.48. The number of PVRSUs earned was subject to
the attainment of certain performance criteria during 2009.
Based on our 2009 performance, 99% of the granted PVRSUs were
earned. These awards vest in three equal increments on
(1) the later of the first anniversary of the grant date or
the date of results determination; (2) the second
anniversary of the grant date; and (3) the third
anniversary of the grant date, and are also subject to the
respective employees continued employment.
We apply a graded vesting expense methodology when accounting
for our PVRSUs. Compensation expense associated with PVRSU
awards is initially based upon the number of shares expected to
vest after assessing the probability that certain performance
criteria will be met and the associated targeted payout level
that is forecasted will be achieved, net of estimated
forfeitures. Cumulative adjustments are recorded quarterly to
reflect subsequent changes in the estimated outcome of
performance-related conditions until the date results are
determined.
Employee
Stock Purchase Plan
The purchase price of common stock under the employee stock
purchase plan (ESPP) is equal to 85% of the lower of
(i) the market value per share of the common stock on the
participants entry date into an offering period or
(ii) the market value per share of the common stock on the
purchase date. However, for each participant whose entry date is
other than the start date of the offering period, the amount
shall in no event be less than the market value per share of the
common stock as of the beginning of the related offering period.
The fair value of the discounted purchases made under the ESPP
is calculated using the Black-Scholes model. The fair value of
the look-back provision plus the 15% discount is recognized as
compensation expense over the purchase period. We apply a graded
vesting approach since our ESPP provides for multiple purchase
periods and is, in substance, a series of linked awards.
During six months ended June 30, 2010, a total of
approximately 335,000 shares were issued under the ESPP as
compared to a total of approximately 315,000 shares issued
during the prior year comparative period.
CEO
Agreements
On June 30, 2010, we announced that George A.
Scangos, Ph.D., was appointed Chief Executive Officer and a
member of the Board of Directors, effective July 15, 2010.
Under the terms of his Employment Agreement with the Company,
Dr. Scangos received a grant of 63,165 RSUs valued at
approximately
25
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
$3,375,000 and a grant of 56,905 MSUs also valued at
approximately $3,375,000. Both grants were made under the Biogen
Idec Inc. 2008 Omnibus Equity Plan on July 15, 2010. The
number of RSUs and MSUs subject to each award was determined
based on the closing price of Biogen Idec common stock on that
date. If Dr. Scangos retires from the Company after
reaching the age of 65, any outstanding and unvested RSUs and
CSPSs, if granted, will continue to vest as if Dr. Scangos
continued to be employed by the Company. Dr. Scangos
succeeds James C. Mullen.
On June 8, 2010, James C. Mullen retired as our President
and Chief Executive Officer. Under the terms of the transition
agreement we entered into with Mr. Mullen dated
January 4, 2010, we agreed, amongst other provisions, to
vest all of Mr. Mullens then-unvested equity awards
on the date of his retirement and allow Mr. Mullen to
exercise his vested stock options until June 8, 2013 or
their expiration, whichever is earlier. The modifications to
Mr. Mullens existing stock options, RSUs and PVRSUs
resulted in an incremental charge of approximately
$18.6 million, which was recognized evenly over the service
period from January 4, 2010 to June 8, 2010 as per the
terms of the transition agreement.
Tax
Rate
Our effective tax rates were 25.8% and 25.7% for the three and
six months ended June 30, 2010, respectively, compared to
39.0% and 28.7%, respectively, for the prior year comparative
periods.
Our income tax rate for the three and six months ended
June 30, 2010 was favorably impacted, compared to the same
periods in 2009, by a higher percentage of our profits being
earned in lower rate international jurisdictions. This change in
the location of our relative profits was caused by the growth of
our international operations, a benefit related to transfer
pricing between our international affiliates and lower 2010
domestic earnings as a proportion of total consolidated earnings
due to U.S. healthcare reform legislation enacted in March
2010.
During 2010, we also experienced a favorable impact from a
statutory increase in the U.S. manufacturers tax
deduction and an increase in expenditures eligible for our
orphan drug credit offset by the 2009 expiration of the federal
research and development tax credit. In addition, our 2009
effective tax rate for the three and six months ended
June 30, 2009 was increased by 7.5% and 2.3%, respectively,
as a result of the $110.0 million upfront payment incurred
in connection with the collaboration and license agreement
entered into with Acorda Therapeutics, Inc. (Acorda) in the
second quarter of 2009. Our effective tax rate for the six
months ended June 30, 2009 was also favorably impacted by
5.5% for changes in tax law which became effective during the
first quarter of 2009 in certain state jurisdictions in which we
operate and resulted in a $30.3 million reduction of our
tax expense for the six months ended June 30, 2009.
26
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Reconciliation between the U.S. federal statutory tax rate
and our effective tax rate is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes
|
|
|
1.9
|
|
|
|
4.1
|
|
|
|
1.9
|
|
|
|
1.1
|
|
Taxes on foreign earnings
|
|
|
(10.3
|
)
|
|
|
(2.7
|
)
|
|
|
(10.1
|
)
|
|
|
(4.4
|
)
|
Credits and net operating loss utilization
|
|
|
(1.6
|
)
|
|
|
(1.3
|
)
|
|
|
(1.6
|
)
|
|
|
(5.9
|
)
|
Purchased intangible assets
|
|
|
1.5
|
|
|
|
4.4
|
|
|
|
1.5
|
|
|
|
2.8
|
|
IPR&D
|
|
|
0.8
|
|
|
|
1.4
|
|
|
|
0.8
|
|
|
|
1.2
|
|
Permanent items
|
|
|
(1.7
|
)
|
|
|
(2.6
|
)
|
|
|
(1.7
|
)
|
|
|
(1.8
|
)
|
Other
|
|
|
0.2
|
|
|
|
0.7
|
|
|
|
(0.1
|
)
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
25.8
|
%
|
|
|
39.0
|
%
|
|
|
25.7
|
%
|
|
|
28.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting
for Uncertainty in Income Taxes
We and our subsidiaries are routinely examined by various taxing
authorities. We file income tax returns in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. With
few exceptions, we are no longer subject to U.S. federal
tax examination for years before 2007 or state, local, or
non-U.S. income
tax examinations by tax authorities for years before 2001.
In 2006, the Massachusetts Department of Revenue (DOR) issued a
Notice of Assessment against Biogen Idec MA Inc. (BIMA), one of
our wholly-owned subsidiaries, for $38.9 million of
corporate excise tax for 2002, which includes associated
interest and penalties. The assessment asserts that the portion
of sales attributable to Massachusetts, the computation of
BIMAs research and development credits and the
availability of certain claimed deductions were not appropriate,
resulting in unpaid taxes for 2002. In December 2006, we filed
an abatement application with the DOR, seeking abatement for
2001-2003,
which was denied. In July 2007, we filed a petition with the
Massachusetts Appellate Tax Board, seeking among other items,
abatements of corporate excise tax for
2001-2003
and adjustments in certain credits and credit carryforwards for
2001-2003.
We anticipate that the hearing on our petition will take place
in the fourth quarter of 2010. On June 8, 2010, we received
Notices of Assessment from the DOR against BIMA for
$103.5 million of corporate excise tax, including
associated interest and penalties, related to our 2004, 2005 and
2006 tax filings. The asserted basis for these assessments is
consistent with that for 2002. Including associated interest and
penalties, assessments related to periods under dispute totaled
$142.4 million. We believe that positions taken in our tax
filings are valid and believe that we have meritorious defenses
in these disputes. We intend to contest these matters vigorously.
Our tax filings for 2007 and 2008 have not yet been audited by
the DOR but have been prepared in a manner consistent with prior
filings which may result in an assessment for those years. Due
to tax law changes effective January 1, 2009, the
computation and deductions at issue in previous tax filings will
not be part of our tax filings in Massachusetts starting in 2009.
We believe that these assessments do not impact the level of
liabilities for income tax contingencies. However, there is a
possibility that we may not prevail in defending all of our
assertions with the DOR. If these matters are resolved
unfavorably in the future, the resolution could have a material
adverse impact on our future effective tax rate and our results
of operations.
27
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
15.
|
Other
Income (Expense), Net
|
Components of other income (expense), net, are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Interest income
|
|
$
|
6.7
|
|
|
$
|
12.1
|
|
|
$
|
15.6
|
|
|
$
|
26.9
|
|
Interest expense
|
|
|
(9.0
|
)
|
|
|
(9.3
|
)
|
|
|
(17.3
|
)
|
|
|
(19.2
|
)
|
Impairments of investments (Note 7)
|
|
|
(1.2
|
)
|
|
|
(3.5
|
)
|
|
|
(17.0
|
)
|
|
|
(9.6
|
)
|
Net gains(losses) on foreign currency transactions
|
|
|
(0.7
|
)
|
|
|
3.6
|
|
|
|
0.3
|
|
|
|
6.5
|
|
Net realized gains on marketable securities
|
|
|
6.3
|
|
|
|
7.5
|
|
|
|
11.3
|
|
|
|
11.9
|
|
Other, net
|
|
|
(1.1
|
)
|
|
|
4.3
|
|
|
|
(0.3
|
)
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
1.0
|
|
|
$
|
14.7
|
|
|
$
|
(7.4
|
)
|
|
$
|
21.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Investments
in Variable Interest Entities
|
Effective January 1, 2010, we adopted a newly issued
accounting standard which provides guidance for the
consolidation of variable interest entities and requires an
enterprise to determine whether its variable interest or
interests give it a controlling financial interest in a variable
interest entity. This new consolidation guidance for variable
interest entities replaces the prior quantitative approach for
identifying which enterprise should consolidate a variable
interest entity, which was based on which enterprise was exposed
to a majority of the risks and rewards, with a qualitative
approach, based on which enterprise has both (1) the power
to direct the economically significant activities of the entity
and (2) the obligation to absorb losses of, or the right to
receive benefits from, the entity that could potentially be
significant to the variable interest entity. The adoption of
this standard did not have an impact on our financial position
or results of operations. Determination about whether an
enterprise should consolidate a variable interest entity is
required to be evaluated continuously as changes to existing
relationships or future transactions may result in us
consolidating or deconsolidating our partner(s) to
collaborations and other arrangements.
Consolidated
Variable Interest Entities
Our consolidated financial statements include the financial
results of variable interest entities in which we are the
primary beneficiary.
Investments
in Joint Ventures
We consolidate the operations of Biogen Dompé SRL and
Biogen Dompé Switzerland GmbH, our respective sales
affiliates in Italy and Switzerland, as we retain the
contractual power to direct the activities of these entities
which most significantly and directly impact their economic
performance. The activity of each of these joint ventures is
significant to our overall operations. The assets of these joint
ventures are restricted, from the standpoint of Biogen Idec, in
that they are not available for our general business use outside
the context of each joint venture. The holders of the
liabilities of each joint venture, including the credit line
from Dompé described in our 2009
Form 10-K,
have no recourse to Biogen Idec.
Included within our consolidated balance sheet at June 30,
2010 are total joint venture assets and liabilities of
$139.4 million and $55.2 million, respectively. The
joint ventures most significant assets are accounts
receivable from the ordinary course of business of
$99.2 million.
We have provided no financing to these joint ventures other than
previously contractually required amounts.
28
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Neurimmune
We have a collaboration agreement with Neurimmune SubOne AG
(Neurimmune), a subsidiary of Neurimmune Therapeutics AG, for
the development and commercialization of antibodies for the
treatment of Alzheimers disease. Neurimmune conducts
research to identify potential therapeutic antibodies and we are
responsible for the development, manufacturing and
commercialization of all products. Based upon our current
development plans, we may pay Neurimmune up to
$360.0 million in remaining milestone payments, as well as
royalties on sales of any resulting commercial products.
We have determined that we are the primary beneficiary of
Neurimmune because we control the activities of the
collaboration and are required to fund 100% of the research
and development costs incurred in support of the collaboration
agreement. As such, we consolidate the results of Neurimmune.
The assets and liabilities of Neurimmune are not significant as
it is a research and development organization. Amounts that we
reimburse Neurimmune for research and development expense
incurred in support of the collaboration are reflected in
research and development expense in our consolidated statements
of income.
A summary of activity related to this collaboration is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Six Months
|
|
|
Ended June 30,
|
|
Ended June 30,
|
(In millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Milestone payments made to Neurimumune
|
|
$
|
|
|
|
$
|
2.5
|
|
|
$
|
|
|
|
$
|
7.5
|
|
Total development expense incurred by the collaboration
|
|
$
|
5.3
|
|
|
$
|
1.9
|
|
|
$
|
10.4
|
|
|
$
|
3.7
|
|
Total expense reflected within our consolidated statements of
income
|
|
$
|
5.3
|
|
|
$
|
4.4
|
|
|
$
|
10.4
|
|
|
$
|
11.2
|
|
We have provided no financing to Neurimmune other than
previously contractually required amounts.
Cardiokine
We collaborate with Cardiokine Biopharma LLC (Cardiokine), a
subsidiary of Cardiokine Inc., on the joint development of
Lixivaptan, an oral compound for the potential treatment of
hyponatremia in patients with congestive heart failure. Based
upon our current development plans, we may pay up to
$100.0 million in remaining development milestone payments,
as well as royalties on commercial sales under the terms of our
collaboration agreement.
We have determined that we are the primary beneficiary of
Cardiokine because we control the activities of the
collaboration and are required to fund 90% of the
development costs under the collaboration agreement. As such, we
consolidate the results of Cardiokine. The assets and
liabilities of Cardiokine are not significant as it is a
research and development organization. Amounts that we reimburse
Cardiokine for research and development expense incurred in
support of the collaboration are reflected in research and
development expense in our consolidated statements of income.
29
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
A summary of activity related to this collaboration is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Six Months
|
|
|
Ended June 30,
|
|
Ended June 30,
|
(In millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Milestone payments made to Cardiokine
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Total development expense incurred by the collaboration
|
|
$
|
19.0
|
|
|
$
|
17.5
|
|
|
$
|
36.4
|
|
|
$
|
31.2
|
|
Biogen Idecs share of expense reflected within our
consolidated statements of income
|
|
$
|
17.1
|
|
|
$
|
15.8
|
|
|
$
|
32.8
|
|
|
$
|
28.1
|
|
Collaboration expense allocated to noncontrolling interests, net
of tax
|
|
$
|
1.9
|
|
|
$
|
1.7
|
|
|
$
|
3.6
|
|
|
$
|
3.1
|
|
We have provided no financing to Cardiokine other than
previously contractually required amounts.
Unconsolidated
Variable Interest Entities
We have relationships with other variable interest entities
which we do not consolidate as we lack the power to direct the
activities that significantly impact the economic success of
these entities. These relationships include investments in
certain biotechnology companies and research collaboration
agreements.
At June 30, 2010 the total carrying value of our
investments in biotechnology companies that we have determined
to be variable interest entities is $22.3 million. Our
maximum exposure to loss related to these variable interest
entities is limited to the carrying value of our investments.
We have entered into research collaborations with certain
variable interest entities where we are required to share or
fund certain development activities. These development
activities are included in research and development expense
within our consolidated statements of income, as they are
incurred. Depending on the collaborative arrangement, we may
record funding receivables or payable balances with our
partners, based on the nature of the cost-sharing mechanism and
activity within the collaboration. At June 30, 2010 we have
recorded a receivable of $6.5 million related to a cost
sharing arrangement with one of our collaborative relationships.
We have provided no financing to these variable interest
entities other than previously contractually required amounts.
Along with several other major pharmaceutical and biotechnology
companies, Biogen, Inc. (now BIMA) or, in some cases, Biogen
Idec Inc., was named as a defendant in lawsuits filed by the
City of New York and numerous Counties of the State of New York.
All of the cases except for cases filed by the
County of Erie, County of Oswego and County of Schenectady
(Three County Actions) are the subject of a
Consolidated Complaint, first filed on September 15, 2005
in the U.S. District Court for the District of
Massachusetts in Multi-District Litigation No. 1456 (MDL
proceedings). The complaints allege that the defendants
(i) fraudulently reported (or caused others to report
incorrectly) the Average Wholesale Price for certain drugs for
which Medicaid provides reimbursement (Covered Drugs);
(ii) marketed and promoted the sale of Covered Drugs to
providers based on the providers ability to collect
inflated payments from the government and Medicaid beneficiaries
that exceeded payments possible for competing drugs;
(iii) provided financing incentives to providers to
over-prescribe Covered Drugs or to prescribe Covered Drugs in
place of competing drugs; and (iv) overcharged Medicaid for
illegally inflated Covered Drugs reimbursements. Among other
things, the complaints allege violations of New York state law
and advance common law claims for unfair trade practices, fraud,
and unjust enrichment. In addition, the amended Consolidated
Complaint alleges that the defendants failed to accurately
report the best price on the Covered Drugs to the
30
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Secretary of Health and Human Services pursuant to rebate
agreements, and excluded from their reporting certain discounts
and other rebates that would have reduced the best
price. With respect to the MDL proceedings, some of the
plaintiffs claims were dismissed, and the parties,
including Biogen Idec, began a mediation of the outstanding
claims on July 1, 2008. We have not formed an opinion that
an unfavorable outcome is either probable or
remote in any of these cases, and do not express an
opinion at this time as to their likely outcome or as to the
magnitude or range of any potential loss. We believe that we
have good and valid defenses to each of these complaints and are
vigorously defending against them.
In 2006, the Massachusetts Department of Revenue (DOR) issued a
Notice of Assessment against BIMA for $38.9 million of
corporate excise tax for 2002, which includes associated
interest and penalties. The assessment asserts that the portion
of sales attributable to Massachusetts, the computation of
BIMAs research and development credits and the
availability of certain claimed deductions were not appropriate,
resulting in unpaid taxes for 2002. On December 6, 2006, we
filed an abatement application with the DOR, seeking abatements
for 2001, 2002 and 2003. The abatement application was denied on
July 24, 2007. On July 25, 2007, we filed a petition
with the Massachusetts Appellate Tax Board, seeking, among other
items, abatements of corporate excise tax for 2001, 2002 and
2003 and adjustments in certain credits and credit carry
forwards for 2001, 2002 and 2003. Issues before the Board
include the computation of BIMAs sales factor for 2001,
2002 and 2003, computation of BIMAs research credits for
those same years, and the availability of deductions for certain
expenses and partnership flow-through items. We anticipate that
the hearing on our petition will take place in the fourth
quarter of 2010.
On June 8, 2010, we received Notices of Assessment from the
DOR against BIMA for $103.5 million of corporate excise
tax, including associated interest and penalties, related to our
2004, 2005 and 2006 tax filings. The asserted basis for these
assessments is consistent with that for 2002. For all periods
under dispute, we believe that positions taken in our tax
filings are valid and believe that we have meritorious defenses
in these disputes. We intend to contest these matters vigorously.
On October 27, 2008, Sanofi-Aventis Deutschland GmbH
(Sanofi) filed suit against Genentech and Biogen Idec in federal
court in Texas (E.D. Tex.) (Texas Action) claiming that RITUXAN
and certain other Genentech products infringe U.S. Patents
5,849,522 (522 patent) and 6,218,140 (140 patent).
Sanofi seeks preliminary and permanent injunctions, compensatory
and exemplary damages, and other relief. The same day Genentech
and Biogen Idec filed a complaint against Sanofi, Sanofi-Aventis
U.S. LLC, and Sanofi-Aventis U.S., Inc. in federal court in
California (N.D. Cal.) (California Action) seeking a declaratory
judgment that RITUXAN and other Genentech products do not
infringe the 522 patent or the 140 patent and a
declaratory judgment that those patents are invalid.
(Sanofi-Aventis U.S. LLC and Sanofi-Aventis U.S., Inc. were
later dismissed voluntarily.) The Texas Action was ordered
transferred to the federal court in the Northern District of
California and consolidated with the California Action and we
refer to the two actions together as the Consolidated Actions.
We have not formed an opinion that an unfavorable outcome in the
Consolidated Actions is either probable or
remote, and do not express an opinion at this time
as to the likely outcome of the matters or as to the magnitude
or range of any potential loss. We believe that we have good and
valid defenses and are vigorously defending against the
allegations.
On October 24, 2008, Hoechst GmbH filed with the ICC
International Court of Arbitration (Paris) a request for
arbitration against Genentech, relating to a terminated license
agreement between Hoechsts predecessor and Genentech that
pertained to the above-referenced patents and related patents
outside the U.S. The license was entered as of
January 1, 1991 and was terminated by Genentech on
October 27, 2008. We understand that Hoechst seeks payment
of royalties on sales of Genentech products, including RITUXAN,
damages for breach of contract, and other relief. We estimate,
based solely on our understanding of Hoechsts claims and
not on any evaluation of the merits of the claims, that
royalties and interest, if awarded in connection with RITUXAN,
could total $100 million based on the 0.5% royalty rate set
forth in the agreement
31
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
and historical RITUXAN net sales. Although we are not a party to
the arbitration, any damages awarded to Hoechst based on sales
of RITUXAN may be a cost charged to our collaboration with
Genentech. Please read Note 17, Collaborations, to
our Consolidated Financial Statements included within our 2009
Form 10-K,
for a description of our collaboration with Genentech.
On September 15, 2009, we were issued U.S. patent
No. 7,588,755, which claims the use of beta interferon for
immunomodulation or treating a viral condition, viral disease,
cancers or tumors. This patent, which expires in September 2026,
covers, among other things, the treatment of MS with our product
AVONEX. On May 27, 2010, Bayer Healthcare Pharmaceuticals
Inc. (Bayer) filed a lawsuit against us in federal
court in the District of New Jersey seeking a declatory judgment
of patent invalidity and noninfringement and seeking monetary
relief in the form of attorneys fees, costs and expenses.
On May 28, 2010 we filed a lawsuit in federal court in the
District of New Jersey alleging infringement of the 755
patent by EMD Serono, Inc. (manufacturer, marketer and seller of
REBIF), Pfizer, Inc. (co-marketer of REBIF), Bayer
(manufacturer, marketer and seller of BETASERON and manufacturer
of EXTAVIA), and Novartis Pharmaceuticals Corp. (marketer and
seller of EXTAVIA) and seeking monetary damages, including lost
profits and royalties.
On March 23, 2010, we and Genentech were issued
U.S. Patent No. 7,682,612 (the 612 patent)
relating to a method of treating chronic lymphocytic leukemia
(CLL) using an anti-CD20 antibody. The patent which expires
in November 2019, covers, among other things, the treatment of
CLL with RITUXAN. On March 23, 2010, we filed a lawsuit in
federal court in the Southern District of California against
Glaxo Group Limited and GlaxoSmithKline LLC (collectively, GSK)
alleging infringement of that patent based upon GSKs
manufacture, marketing and sale of ARZERRA. We seek damages,
including a royalty and lost profits, and injunctive relief. On
May 14, 2010, GSK filed a counterclaim seeking a
declaratory judgment of patent invalidity and noninfringement,
and seeking monetary relief in the form of costs and
attorneys fees.
We are also involved in product liability claims and other legal
proceedings generally incidental to our normal business
activities. While the outcome of any of these proceedings cannot
be accurately predicted, we do not believe the ultimate
resolution of any of these existing matters would have a
material adverse effect on our business or financial conditions.
We operate in one business segment, which is the business of
development, manufacturing and commercialization of innovative
therapies for human health care and therefore, our chief
operating decision-maker manages the operation of our Company as
a single operating segment.
|
|
19.
|
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 are adopted by the Company as of
the specified effective date. Unless otherwise discussed, we
believe that the impact of recently issued standards that are
not yet effective will not have a material impact on our
financial position or results of operations upon adoption.
Recently
Issued Accounting Standards
In April 2010, the FASB issued Accounting Standards Update (ASU)
No. 2010-17,
Revenue Recognition Milestone Method (ASU
2010-017).
ASU 2010-017
provides guidance in applying the milestone method of revenue
recognition to research or development arrangements. Under this
guidance management may recognize revenue contingent upon the
achievement of a milestone in its entirety, in the period in
which the milestone is
32
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
achieved, only if the milestone meets all the criteria within
the guidance to be considered substantive. This ASU is effective
on a prospective basis for research and development milestones
achieved in fiscal years, beginning on or after June 15,
2010, which for Biogen Idec means fiscal 2011. Early adoption is
permitted; however, adoption of this guidance as of a date other
than January 1, 2011 will require us to apply this guidance
retrospectively effective as of January 1, 2010 and will
require disclosure of the effect of this guidance as applied to
all previously reported interim periods in the fiscal year of
adoption. As we plan to implement ASU
No. 2010-17
prospectively, the effect of this guidance will be limited to
future transactions. We do not expect adoption of this standard
to have a material impact on our financial position or results
of operations as we have no material research and development
arrangements which will be accounted for under the milestone
method.
33
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read in conjunction with our
consolidated financial statements and related notes beginning on
page 3 of this quarterly report on
Form 10-Q.
Executive
Summary
Introduction
Biogen Idec is a global biotechnology company that discovers,
develops, manufactures and commercializes innovative therapies
for human health care. Our business strategy is focused on
discovering and developing
first-in-class
or
best-in-class
products that we can deliver to specialty markets globally.
Patients around the world benefit from Biogen Idecs
significant products that address medical needs in the areas of
neurology, oncology and immunology.
In the near term, we are dependent upon continued sales of
AVONEX, RITUXAN and TYSABRI to drive our revenue growth. In the
longer term, our revenue growth will also be dependent upon the
successful clinical development, regulatory approval and launch
of new commercial products. As part of our ongoing research and
development efforts, we have also incurred significant
expenditures related to conducting clinical studies to develop
new pharmaceutical products and explore the utility of our
existing products in treating disorders beyond those currently
approved in their labels. We continue to focus our research and
development efforts within our core and emergent areas of
neurology, oncology, immunology, cardiopulmonary and hemophilia.
Financial
Highlights
The following table is a summary of results achieved:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended June 30,
|
(In millions, except per share amounts and percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
Total revenues
|
|
$
|
1,212.7
|
|
|
$
|
1,093.3
|
|
|
|
10.9
|
%
|
Income from operations
|
|
$
|
395.9
|
|
|
$
|
222.9
|
|
|
|
77.6
|
%
|
Net income attributable to Biogen Idec
|
|
$
|
293.4
|
|
|
$
|
142.8
|
|
|
|
105.4
|
%
|
Diluted earnings per share attributable to Biogen Idec
|
|
$
|
1.12
|
|
|
$
|
0.49
|
|
|
|
128.6
|
%
|
As described below under Results of Operations, our operating
results for the three months ended June 30, 2010 were
primarily driven by:
|
|
|
|
|
Increased AVONEX worldwide revenue. AVONEX revenues totaled
$628.1 million in the second quarter 2010, representing a
6.3% increase over the same period in 2009.
|
|
|
|
Continued TYSABRI growth. Our share of TYSABRI revenues totaled
$219.2 million for the second quarter of 2010, representing
an increase of 16.8% over the same period in 2009.
|
|
|
|
Our share of RITUXAN revenues in the second quarter of 2010
totaled $306.4 million, representing an increase of 11.2%
over the same period in 2009. Included within this amount is our
share of co-promotion profits in the U.S. totaling
$228.1 million, representing an increase of 14.9% over the
same period in 2009. This is based upon $707.1 million of
U.S. in-market sales of RITUXAN during the second quarter
of 2010. Our share of revenue on sales of RITUXAN in the rest of
world remained flat at $60.7 million, which includes a
$21.3 million cumulative underpayment of royalties owed to us by
Genentech. Selling and development expenses incurred by us and
reimbursed by Genentech, which are also included within our
total unconsolidated joint business revenues, increased 5.4% to
$17.6 million.
|
|
|
|
Total costs and expenses decreased 6.2% in the second quarter of
2010 compared to the same period in 2009. This decrease was
driven by a 20.4% decrease in research and development expense
and a 43.0% decrease in amortization of acquired intangible
assets. These decreases were offset by a 27.6% increase in
collaboration profit sharing expense due to TYSABRI revenue
growth, a 17.9% increase in cost of
|
34
|
|
|
|
|
sales, excluding amortization of acquired tangible assets and an
18.8% increase in selling, general and administrative costs.
|
For the six months ended June 30, 2010 we also generated
$765.4 million of net cash flows from operations which were
primarily driven by our current earnings.
In April 2010, we announced that our Board of Directors
authorized the repurchase of up to $1.5 billion of our
common stock, with repurchased shares being retired. During the
second quarter of 2010, we repurchased approximately
20.8 million shares at a cost of approximately
$1.0 billion under this share repurchase program. From
July 1, 2010 through July 16, 2010, we repurchased
approximately an additional 4.7 million shares under this
program at a cost of $233.2 million, all of which were also
retired.
Cash and cash equivalents and marketable securities totaled
approximately $1,535.8 million as of June 30, 2010.
Results
of Operations
Revenues
Revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
433.0
|
|
|
|
35.7
|
%
|
|
$
|
423.1
|
|
|
|
38.7
|
%
|
|
$
|
843.5
|
|
|
|
36.3
|
%
|
|
$
|
816.0
|
|
|
|
38.3
|
%
|
Rest of world
|
|
|
426.2
|
|
|
|
35.1
|
%
|
|
|
367.9
|
|
|
|
33.7
|
%
|
|
|
840.0
|
|
|
|
36.2
|
%
|
|
|
708.4
|
|
|
|
33.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
859.2
|
|
|
|
70.8
|
%
|
|
$
|
791.0
|
|
|
|
72.4
|
%
|
|
$
|
1,683.5
|
|
|
|
72.5
|
%
|
|
$
|
1,524.4
|
|
|
|
71.6
|
%
|
Unconsolidated joint business
|
|
|
306.4
|
|
|
|
25.3
|
%
|
|
|
275.6
|
|
|
|
25.2
|
%
|
|
|
561.3
|
|
|
|
24.2
|
%
|
|
|
554.4
|
|
|
|
26.0
|
%
|
Other
|
|
|
47.1
|
|
|
|
3.9
|
%
|
|
|
26.7
|
|
|
|
2.4
|
%
|
|
|
76.8
|
|
|
|
3.3
|
%
|
|
|
51.0
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,212.7
|
|
|
|
100.0
|
%
|
|
$
|
1,093.3
|
|
|
|
100.0
|
%
|
|
$
|
2,321.6
|
|
|
|
100.0
|
%
|
|
$
|
2,129.8
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Revenues
Product revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
AVONEX
|
|
$
|
628.1
|
|
|
|
73.1
|
%
|
|
$
|
591.2
|
|
|
|
74.8
|
%
|
|
$
|
1,220.7
|
|
|
|
72.5
|
%
|
|
$
|
1,146.5
|
|
|
|
75.2
|
%
|
TYSABRI
|
|
|
219.2
|
|
|
|
25.5
|
%
|
|
|
187.6
|
|
|
|
23.7
|
%
|
|
|
437.9
|
|
|
|
26.0
|
%
|
|
|
352.8
|
|
|
|
23.1
|
%
|
Other
|
|
|
11.9
|
|
|
|
1.4
|
%
|
|
|
12.2
|
|
|
|
1.5
|
%
|
|
|
24.9
|
|
|
|
1.5
|
%
|
|
|
25.1
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
859.2
|
|
|
|
100.0
|
%
|
|
$
|
791.0
|
|
|
|
100.0
|
%
|
|
$
|
1,683.5
|
|
|
|
100.0
|
%
|
|
$
|
1,524.4
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVONEX
Revenues from AVONEX are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
United States
|
|
$
|
370.9
|
|
|
$
|
365.8
|
|
|
|
1.4
|
%
|
|
$
|
720.9
|
|
|
$
|
705.7
|
|
|
|
2.2
|
%
|
Rest of world
|
|
|
257.2
|
|
|
|
225.4
|
|
|
|
14.1
|
%
|
|
|
499.8
|
|
|
|
440.8
|
|
|
|
13.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AVONEX revenues
|
|
$
|
628.1
|
|
|
$
|
591.2
|
|
|
|
6.3
|
%
|
|
$
|
1,220.7
|
|
|
$
|
1,146.5
|
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
For the three and six months ended June 30, 2010 compared
to the same periods in 2009, the increase in U.S. AVONEX
revenue was due to price increases offset by decreased
commercial demand. Decreased commercial demand resulted in
declines of approximately 7% and 8% in U.S. AVONEX sales
volume for the three and six months ended June 30, 2010,
respectively, over their prior year comparative periods. In
addition, during the three and six months ended June 30,
2010, we experienced higher participation in our Access Program,
which provides free product to eligible patients.
For the three and six months ended June 30, 2010 compared
to the same periods in 2009, the increase in rest of world
AVONEX revenue was due to increased commercial demand offset by
price decreases in some countries. Increased commercial demand
resulted in increases of approximately 6% and 5% in rest of
world AVONEX sales volume for the three and six months ended
June 30, 2010, respectively, over their prior year
comparative periods. The increase in rest of world AVONEX
revenue for the three month comparative periods was offset by
the negative impact of foreign currency exchange rates resulting
from the relative strengthening of the U.S. dollar against
relevant foreign currencies, primarily the Euro. Despite the
negative impact of foreign currency exchange rates experienced
during the three month comparative periods, the impact of
foreign currency exchange rates remained favorable for the six
month comparative periods.
AVONEX rest of world revenues for the three and six months ended
June 30, 2010 include gains recognized in relation to the
settlement of certain cash flow hedge instruments under our
foreign currency hedging program which totaled
$15.2 million and $13.9 million, respectively, as
compared to losses recognized of $9.2 million and
$12.3 million, respectively, in their prior year
comparative periods.
We expect AVONEX to face increasing competition in the multiple
sclerosis (MS) marketplace in both the U.S. and rest of
world from existing and new MS treatments, including oral and
other alternative formulations developed by our competitors, the
continued growth of TYSABRI and the commercialization of our
other pipeline product candidates. Increased competition may
lead to reduced unit sales of AVONEX as well as increasing price
pressure.
TYSABRI
We collaborate with Elan Pharma International, Ltd (Elan) an
affiliate of Elan Corporation, plc, on the development and
commercialization of TYSABRI. Please read Note 17,
Collaborations, to our Consolidated Financial Statements
included within our 2009
Form 10-K
for a description of this collaboration. Revenues from TYSABRI
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
United States
|
|
$
|
62.1
|
|
|
$
|
57.3
|
|
|
|
8.4
|
%
|
|
$
|
122.6
|
|
|
$
|
110.3
|
|
|
|
11.2
|
%
|
Rest of world
|
|
|
157.1
|
|
|
|
130.3
|
|
|
|
20.6
|
%
|
|
|
315.3
|
|
|
|
242.5
|
|
|
|
30.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TYSABRI revenues
|
|
$
|
219.2
|
|
|
$
|
187.6
|
|
|
|
16.8
|
%
|
|
$
|
437.9
|
|
|
$
|
352.8
|
|
|
|
24.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2010 compared
to the same period in 2009, the increase in U.S. TYSABRI
revenue was due to the continued increase in the number of
patients using TYSABRI in the U.S. Increased commercial
demand resulted in increases of approximately 15% in
U.S. TYSABRI sales volume for both the three and six months
ended June 30, 2010 as compared to the prior year
comparative periods. Net sales of TYSABRI from our collaboration
partner, Elan, to third-party customers in the U.S. for the
three and six months ended June 30, 2010 totaled
$144.9 million and $280.1 million, respectively, as
compared to $124.5 million and $240.4 million,
respectively in prior year comparative periods.
36
For the three and six months ended June 30, 2010 compared
to the same periods in 2009, the increase in rest of world
TYSABRI revenue was due to the continued increase in the number
of patients using TYSABRI in our rest of world markets offset by
price decreases in some countries. Increased commercial demand
resulted in increases of approximately 28% and 30% in rest of
world TYSABRI sales volume for the three and six months ended
June 30, 2010, respectively, over their prior year
comparative periods. The increase in rest of world TYSABRI
revenue for the three month comparative periods was offset by
the negative impact of foreign currency exchange rates resulting
from the relative strengthening of the U.S. dollar against
relevant foreign currencies, primarily the Euro. Despite the
negative impact of foreign currency exchange rates experienced
during the three month comparative periods, the impact of
foreign currency exchange rates remained favorable for the six
month comparative periods.
TYSABRI rest of world revenues for the three and six months
ended June 30, 2010 include gains recognized in relation to
the settlement of certain cash flow hedge instruments under our
foreign currency hedging program which totaled $4.5 million
and $6.0 million, respectively. No gains or losses were
recognized on the settlement of cash flow hedge instruments for
the three and six months ended June 30, 2009 as we did not
hedge against TYSABRI rest of world revenues in those periods.
The prescribing information for TYSABRI contains significant
safety warnings, including the risk of developing progressive
multifocal leukoencephalopathy (PML), a rare but serious brain
infection. In July 2010, we filed changes to the existing
U.S. TYSABRI label with the U.S. Food and Drug
Administration (FDA) to reflect that, in addition to the risks
previously outlined, the risk of PML is increased in patients
who have been treated with an immunosuppressant prior to
receiving TYSABRI and that this increased risk appears to be
independent of TYSABRI treatment duration. This label change
follows our May 2010 update to the U.S. prescribing
information to (1) reflect that if the initial evaluations
for PML are negative but clinical suspicion for PML remains
high, healthcare providers should continue to withhold TYSABRI
dosing and repeat the PML evaluations and (2) update the
existing warning to specify that Immune Reconstitution
Inflammatory Syndrome (IRIS) can be rapid, can lead to
serious neurological complications or death.
In May 2010, the European Medicines Agency (EMA) approved
changes to the TYSABRI label in the E.U. to reflect that
(1) the risk of PML increases after two years of therapy,
(2) the limited experience in patients taking TYSABRI
beyond three years means that the risk for PML in these patients
cannot currently be estimated, and (3) there is a risk for
the occurrence of IRIS in patients with TYSABRI induced PML
following discontinuation or removal of TYSABRI by plasma
exchange, a process that clears TYSABRI from patients
blood allowing the immune system to fight the infection. These
label changes were consistent with those recommended by the EMA
in January 2010. The EMA also recommended that patients have an
MRI at baseline and annual MRIs thereafter as well as be
informed of the risk of PML through the use of treatment forms
at the start of treatment and again after two years of therapy.
We continue to monitor the growth of TYSABRI unit sales, which
may be further impacted by the updated prescribing information.
We continue to research and develop protocols that may reduce
risk and improve outcomes of PML in patients. We are working to
identify patient or viral characteristics which contribute to
the risk of developing PML, including the presence of
asymptomatic JC virus infection with an assay to detect an
immune response against the JC virus. Our efforts to improve
management of PML by physicians and to improve patient outcomes
have included researching plasma exchange to more rapidly remove
TYSABRI from a patient, and drug screening that identified
mefloquine as an anti-JC virus drug candidate. Specifically with
respect to the JC virus antibody assay, we have initiated two
clinical studies in the U.S., known as STRATIFY-1 and
STRATIFY-2. These studies are intended to define the prevalence
of serum JC virus antibody in patients with relapsing MS
receiving or considering treatment with TYSABRI and to evaluate
the potential to stratify patients into lower or higher risk for
developing PML based on antibody status. Our efforts to stratify
patients into lower or higher risk for developing PML, including
evaluating the potential clinical utility of a JC virus antibody
assay, and other ongoing or future clinical trials involving
TYSABRI, may have a negative impact on prescribing behavior in
at least the short term which may result in decreased product
revenues from sales of TYSABRI.
37
Unconsolidated
Joint Business Revenue
We collaborate with Genentech on the development and
commercialization of RITUXAN. Please read Note 17,
Collaborations, to our Consolidated Financial Statements
included within our 2009
Form 10-K,
for a description of this collaboration. Revenues from
unconsolidated joint business are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Biogen Idecs share of co-promotion profits in the
U.S.
|
|
$
|
228.1
|
|
|
$
|
198.5
|
|
|
|
14.9
|
%
|
|
$
|
428.4
|
|
|
$
|
378.0
|
|
|
|
13.3
|
%
|
Reimbursement of selling and development expense in the
U.S.
|
|
|
17.6
|
|
|
|
16.7
|
|
|
|
5.4
|
%
|
|
|
33.8
|
|
|
|
31.7
|
|
|
|
6.6
|
%
|
Revenue on sales of RITUXAN in the rest of world
|
|
|
60.7
|
|
|
|
60.4
|
|
|
|
0.5
|
%
|
|
|
99.1
|
|
|
|
144.7
|
|
|
|
(31.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated joint business revenues
|
|
$
|
306.4
|
|
|
$
|
275.6
|
|
|
|
11.2
|
%
|
|
$
|
561.3
|
|
|
$
|
554.4
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a summary of amounts comprising our
share of co-promotion profits in the U.S.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Product revenues, net
|
|
$
|
707.1
|
|
|
$
|
695.9
|
|
|
|
1.6
|
%
|
|
$
|
1,393.8
|
|
|
$
|
1,337.6
|
|
|
|
4.2
|
%
|
Costs and expenses
|
|
|
136.8
|
|
|
|
199.7
|
|
|
|
(31.5
|
)%
|
|
|
310.2
|
|
|
|
379.9
|
|
|
|
(18.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-promotion profits in the U.S.
|
|
|
570.3
|
|
|
|
496.2
|
|
|
|
14.9
|
%
|
|
|
1,083.6
|
|
|
|
957.7
|
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biogen Idecs share of co-promotion profits in the
U.S.
|
|
$
|
228.1
|
|
|
$
|
198.5
|
|
|
|
14.9
|
%
|
|
$
|
428.4
|
|
|
$
|
378.0
|
|
|
|
13.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2010 compared
to the same periods in 2009, the increase in our share of
co-promotion profits in the U.S. was driven by increased
U.S. RITUXAN product revenues on sales recorded by
Genentech and a reduction of collaboration costs and expenses.
The increase in U.S. RITUXAN product revenues for the three
and six month comparative periods was primarily due to price
increases. The increase for the comparative six month periods
was also driven by increased commercial demand. Sales volume for
the three month comparative periods remained essentially
unchanged. The decrease in collaboration costs and expenses for
the three and six month comparative periods primarily resulted
from (1) a decline in expenditures for the development of
RITUXAN for use in other indications and (2) a change in
estimated reserves recorded in the first quarter 2010 related to
the newly enacted healthcare reform legislation in the
U.S. As discussed more fully below under the
sub-section
entitled, Provisions for Discounts and Allowances-Healthcare
Reform, this change in estimated reserves is primarily
driven by our expectation that fewer entities will be eligible
for enrollment in the 340(B) program.
Under our collaboration agreement, our current pretax
co-promotion profit-sharing formula, which resets annually,
provides for a 40% share of co-promotion profits if co-promotion
operating profits exceed $50.0 million. In 2010 and 2009,
the 40% threshold was met during the first quarter. Our
agreement with Genentech also provides that the successful
development and commercialization of the first New Anti-CD20
Product will decrease our percentage of co-promotion profits of
the collaboration. Please read Note 17,
Collaborations, to our Consolidated Financial Statements
included within our 2009
Form 10-K,
for additional information regarding the pretax co-promotion
profit sharing formula for RITUXAN and New Anti-CD20 Products
sold by us and Genentech following the approval date of the
first New Anti-CD20 Product.
For the three and six months ended June 30, 2010 compared
to the same period in 2009, the increase in selling and
development expenses incurred by us in the U.S. and
reimbursed by Genentech was primarily the result of our
increased sales and marketing activities in support of RITUXAN.
As discussed in Note 17, Collaborations,
38
to our Consolidated Financial Statements included within our
2009
Form 10-K,
Genentech incurs the majority of continuing development costs
for RITUXAN. Expenses incurred by Genentech in the development
of RITUXAN are not recorded as research and development expense,
but rather reduce our share of co-promotion profits recorded as
a component of unconsolidated joint business revenue. Costs
associated with the development of other anti-CD20 products,
such as GA101, are recorded as research and development expense;
however, upon achievement of the successful commercialization of
these products, additional costs incurred in their continuing
development will no longer be recorded as research and
development expense but will instead reduce our share of
co-promotion profits recorded as a component of unconsolidated
joint business revenue.
Revenue on sales of RITUXAN in the rest of world consists of our
share of pretax co-promotion profits in Canada and royalty
revenue on sales of RITUXAN outside the U.S. and Canada.
Revenues on sales of RITUXAN in the rest of world continue to
decline due to royalty expirations in certain of our rest of
world markets. The royalty period for sales in the rest of world
with respect to all products is 11 years from the first
commercial sale of such product on a
country-by-country
basis. Specifically, the royalty periods with respect to sales
in France, Spain, Germany and the United Kingdom expired in
2009. The royalty period with respect to sales in Italy expired
earlier this year. The royalty periods for substantially all of
the remaining royalty-bearing sales of RITUXAN in the rest of
the world will subsequently expire through 2012. As a result of
these expirations, we expect royalty revenues derived from sales
of RITUXAN in the rest of world to continue to decline in future
periods. The decreases experienced during the three and six
months ended June 30, 2010, were offset by a cumulative
underpayment of royalties owed to us on sales of RITUXAN in the
rest of world by Genentech totaling $21.3 million. These
unpaid royalties are expected to be received during the third
quarter of 2010.
Other
Revenues
Other revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Royalty revenues
|
|
$
|
30.1
|
|
|
$
|
25.0
|
|
|
|
20.4
|
%
|
|
$
|
56.1
|
|
|
$
|
49.1
|
|
|
|
14.3
|
%
|
Corporate partner revenues
|
|
|
17.0
|
|
|
|
1.7
|
|
|
|
899.9
|
%
|
|
|
20.7
|
|
|
|
1.9
|
|
|
|
988.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenues
|
|
$
|
47.1
|
|
|
$
|
26.7
|
|
|
|
76.4
|
%
|
|
$
|
76.8
|
|
|
$
|
51.0
|
|
|
|
50.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
Revenues
We receive royalties on sales by our licensees of a number of
products covered under patents we own. For the three and six
months ended June 30, 2010 compared to the same periods in
2009, total royalty revenues were favorably impacted by
approximately $3.3 million due to a one-time government purchase
of Hepatitis B vaccine for which we are entitled to royalties.
Our most significant source of royalty revenue is derived from
sales of ANGIOMAX by The Medicines Company (TMC). TMC sells
ANGIOMAX in the U.S., Europe, Canada, and Latin America. Royalty
revenues related to the sales of ANGIOMAX are recognized in an
amount equal to the level of net sales achieved during a
calendar year multiplied by the royalty rate in effect for that
tier under our agreement with TMC. The royalty rate increases
based upon which tier of total net sales are earned in any
calendar year. The increased royalty rate is applied
retroactively to the first dollar of net sales achieved during
the year. This formula has the effect of increasing the amount
of royalty revenue to be recognized in later quarters.
Accordingly, an adjustment is recorded in the period in which an
increase in royalty rate has been achieved.
Under the terms of our agreement, TMC is obligated to pay us
royalties earned, on a
country-by-country
basis, until the later of (1) twelve years from the date of
the first commercial sale of ANGIOMAX in such country and
(2) the date upon which the product is no longer covered by
a patent in such country. The annual royalty rate is reduced by
a specified percentage in any country where the product is no
longer covered by a patent and where sales have been reduced to
a certain volume-based market share. TMC began selling ANGIOMAX
in the U.S. in January 2001. The principal U.S. patent
that covers ANGIOMAX was due to expire in March 2010 and TMC
applied for an extension of the term of this patent. The United
States Patent and
39
Trademark Office (PTO) rejected TMCs application because
in its view the application was not timely filed. TMC is in
legal proceedings in federal district court against the PTO
seeking to extend to December 2014 the term of the principal
U.S. patent. Pursuant to court order, the PTO has issued an
interim extension extending the term of the patent through and
including the day ten days after the district court issues an
order deciding the pending cross-motions for summary judgment in
the proceedings. In the event that TMC is unsuccessful in
obtaining such a patent term extension and third parties sell
products comparable to ANGIOMAX after the period of marketing
exclusivity expires (the FDA granted TMC an additional six-month
period of marketing exclusivity for ANGIOMAX for having
investigated its use in pediatric patients), we would expect a
significant decrease in royalty revenues due to both lower
royalty rates and increased competition.
Corporate
Partner Revenues
For the three and six months ended June 30, 2010, the
increase in corporate partner revenues is primarily related to
amounts earned under the terms of our 2006 contract
manufacturing agreement with Astellas Pharma US, Inc. for the
supply of AMEVIVE.
Provision
for Discounts and Allowances
Revenues from product sales are recorded net of applicable
allowances for trade term discounts, wholesaler incentives,
Medicaid rebates, Veterans Administration (VA) and Public Health
Service (PHS) discounts, managed care rebates, product returns,
and other applicable allowances. Reserves established for these
discounts and allowances are classified as reductions of
accounts receivable (if the amount is payable to our customer)
or a liability (if the amount is payable to a party other than
our customer). Reserves for discounts, contractual adjustments
and returns that reduced gross product revenues are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Discounts
|
|
$
|
20.1
|
|
|
$
|
19.1
|
|
|
|
5.2
|
%
|
|
$
|
39.4
|
|
|
$
|
36.3
|
|
|
|
8.5
|
%
|
Contractual adjustments
|
|
|
66.4
|
|
|
|
50.9
|
|
|
|
30.5
|
%
|
|
|
122.3
|
|
|
|
92.7
|
|
|
|
31.9
|
%
|
Returns
|
|
|
1.9
|
|
|
|
3.7
|
|
|
|
(48.6
|
)%
|
|
|
6.5
|
|
|
|
9.6
|
|
|
|
(32.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reserves
|
|
$
|
88.4
|
|
|
$
|
73.7
|
|
|
|
19.9
|
%
|
|
$
|
168.2
|
|
|
$
|
138.6
|
|
|
|
21.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross product revenues
|
|
$
|
947.6
|
|
|
$
|
864.7
|
|
|
|
9.6
|
%
|
|
$
|
1,851.7
|
|
|
$
|
1,663.0
|
|
|
|
11.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of gross product revenues
|
|
|
9.3
|
%
|
|
|
8.5
|
%
|
|
|
9.4
|
%
|
|
|
9.1
|
%
|
|
|
8.3
|
%
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount reserves include trade term discounts and wholesaler
incentives. For the three and six months ended June 30,
2010 compared to the same periods in 2009, the increase in
discounts was primarily driven by increases in trade term
discounts and wholesaler incentives as a result of increased
sales.
Contractual adjustment reserves relate to Medicaid and managed
care rebates, VA and PHS discounts and other applicable
allowances. For the three and six months ended June 30,
2010 compared to the same periods in 2009, contractual
adjustments increased primarily due to the impact of higher
contractual rebates and discounts resulting from
U.S. healthcare reform legislation passed in March 2010,
increased activity under managed care programs and increased
rebates and discounts resulting from U.S. price increases.
Product return reserves are established for returns made by
wholesalers. In accordance with contractual terms, wholesalers
are permitted to return product for reasons such as damaged or
expired product. We also accept returns from our patients for
various reasons. For the three and six months ended
June 30, 2010 compared to the same periods in 2009, return
reserves remained relatively unchanged.
Healthcare
Reform
In March 2010, healthcare reform legislation was enacted in the
U.S. This legislation contains several provisions that
impact our business.
40
Although many provisions of the new legislation do not take
effect immediately, several provisions became effective in the
first quarter of 2010. These include (1) an increase in the
minimum Medicaid rebate to states participating in the Medicaid
program from 15.1% to 23.1% on our branded prescription drugs;
(2) the extension of the Medicaid rebate to Managed Care
Organizations that dispense drugs to Medicaid beneficiaries; and
(3) the expansion of the 340(B) Public Health Services drug
pricing program, which provides outpatient drugs at reduced
rates, to include additional hospitals, clinics, and healthcare
centers.
Beginning in 2011, the new law requires drug manufacturers to
provide a 50% discount to Medicare beneficiaries whose
prescription drug costs cause them to be subject to the Medicare
Part D coverage gap (i.e. the donut hole).
Also, beginning in 2011, we will be assessed our share of a new
fee payable by all branded prescription drug manufacturers and
importers. This fee will be calculated based upon each
organizations percentage share of total branded
prescription drug sales to U.S. government programs (such
as Medicare, Medicaid and VA and PHS discount programs) made
during the previous year. The aggregated industry wide fee is
expected to total $28 billion through 2019, ranging from
$2.5 billion to $4.1 billion annually.
The manner in which this new legislation will be implemented is
still being formulated. For example, the Health Resources and
Services Administration (HRSA) is developing policy and
implementation plans and building system capacity necessary to
enroll new covered entities that are impacted by the new
legislation. This will allow HRSA to begin working directly with
new eligible entities and enrolling them in the 340(B) program.
As a result, we do not yet know when and how discounts will be
provided to the additional entities eligible to participate
under the 340(B) program. In addition, the operation of the
Medicare Part D coverage gap and the calculation and
allocation of the annual fee on branded prescription drugs
remains unclear, though, as noted above, these programs will not
be effective until 2011. Accordingly, our estimate of the
financial impact of this legislation on our business is based on
numerous assumptions about the implementation of this new
legislation and actual results may differ from our estimate.
Based upon our latest estimates, we expect that the new
legislation will reduce our revenues in 2010 by approximately
$40.0 to $60.0 million as a result of the higher rebates
and discounts on our products. The decrease from our first
quarter estimate of the full year impact of this new legislation
on our 2010 revenues is primarily driven by our expectation that
fewer entities will be eligible for enrollment in the 340(B)
program. We continue to assess and refine our estimates. We are
still assessing the full extent of this legislations near
and longer term impact on our business.
While certain aspects of the new legislation implemented in 2010
are expected to reduce our revenues in 2010 and in future years,
other provisions of this legislation may offset, at some level,
any reduction in revenues when these provisions become
effective. In future years, these other provisions are expected
to result in higher revenues due to an increase in the total
number of patients covered by health insurance and an
expectation that existing insurance coverage will provide more
comprehensive consumer protections. This would include a federal
subsidy for a portion of a beneficiarys
out-of-pocket
cost under Medicare Part D. However, the favorable results
experienced as a result of the increase in patients are expected
to be offset by the branded prescription drug
manufacturers fee, which becomes effective in 2011.
In addition, we anticipate seeing continued efforts to reduce
healthcare costs in many countries outside the U.S. as these
countries attempt to manage increasing healthcare expenditures,
especially in light of the global economic downturn and the
European sovereign debt crisis. For example, certain governments
of countries in which we operate have already implemented or may
implement measures to reduce or control healthcare costs that,
among other things, include imposed price reductions,
suspensions on pricing increases on pharmaceuticals, increased
mandatory discounts or rebates or seek recoveries of past price
increases. Certain measures already implemented have negatively
impacted our revenues. Our revenues will be further negatively
impacted if these or similar measures continue to be implemented.
41
Costs and
Expenses
Total costs and expenses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Cost of sales, excluding amortization of acquired intangible
assets
|
|
$
|
107.0
|
|
|
$
|
90.7
|
|
|
|
17.9
|
%
|
|
$
|
204.0
|
|
|
$
|
188.9
|
|
|
|
8.0
|
%
|
Research and development
|
|
|
331.7
|
|
|
|
416.5
|
|
|
|
(20.4
|
)%
|
|
|
638.7
|
|
|
|
695.9
|
|
|
|
(8.2
|
)%
|
Selling, general and administrative
|
|
|
262.3
|
|
|
|
220.8
|
|
|
|
18.8
|
%
|
|
|
511.0
|
|
|
|
442.7
|
|
|
|
15.4
|
%
|
Collaboration profit sharing
|
|
|
62.7
|
|
|
|
49.1
|
|
|
|
27.6
|
%
|
|
|
126.2
|
|
|
|
91.9
|
|
|
|
37.4
|
%
|
Amortization of acquired intangible assets
|
|
|
53.1
|
|
|
|
93.2
|
|
|
|
(43.0
|
)%
|
|
|
102.0
|
|
|
|
182.5
|
|
|
|
(44.1
|
)%
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
$
|
816.8
|
|
|
$
|
870.4
|
|
|
|
(6.2
|
)%
|
|
$
|
1,622.0
|
|
|
$
|
1,601.9
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Sales, Excluding Amortization of Acquired Intangible Assets
(Cost of Sales)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Six Months
|
|
|
Ended June 30,
|
|
Ended June 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Cost of sales
|
|
$
|
107.0
|
|
|
$
|
90.7
|
|
|
|
17.9
|
%
|
|
$
|
204.0
|
|
|
$
|
188.9
|
|
|
|
8.0
|
%
|
For the three and six months ended June 30, 2010 compared
to the same periods in 2009, the increase in cost of sales was
primarily due to higher sales volume and a $5.5 million
increase in costs associated with contract manufacturing
activity for the supply of AMEVIVE. In addition, we also
incurred a $6.7 million period expense in the second
quarter of 2010 related to the shutdown of our manufacturing
facility in Research Triangle Park, North Carolina, for capital
upgrades.
Amounts written down related to unmarketable inventory are
charged to cost of sales, and totaled $3.4 million and
$5.7 million for the three and six months ended
June 30, 2010, respectively, as compared to
$2.1 million and $11.5 million in the prior year
comparative periods.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Six Months
|
|
|
Ended June 30,
|
|
Ended June 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Research and development
|
|
$
|
331.7
|
|
|
$
|
416.5
|
|
|
|
(20.4
|
)%
|
|
$
|
638.7
|
|
|
$
|
695.9
|
|
|
|
(8.2
|
)%
|
For the three and six months ended June 30, 2010 compared
to the same periods in 2009, the decrease in research and
development expense was primarily related to the 2009
$110.0 million upfront payment due Acorda Therapeutics, Inc
(Acorda) under our collaboration and license agreement dated
June 30, 2009. Our research and development expense also
decreased due to a reduction in spending in certain
deprioritized programs, including Adentri, Lumiliximab,
Ocrelizumab in RA and Lupus, and CDP323. These decreases were
offset by increased clinical activity related to our Factor IX
and Factor VIII programs and the related restructuring of the
collaboration agreement with Swedish Orphan Biovitrum, during
the first quarter of 2010, whereby we assumed full development
and manufacturing responsibilities for these programs and as a
result incurred increased costs. Our research and development
spend also increased as a result of increasing clinical trial
activity for several programs including PEGylated interferon
beta-1a and Daclizumab as well as our efforts to research and
develop protocols that may reduce risk and improve outcomes of
PML in patients treated with TYSABRI.
For the three and six months ended June 30, 2010, milestone and
upfront payments due to our collaboration partners, included
within research and development expense, totaled $30.0 million
and $36.0 million, respectively, as compared to $119.0
million and $129.0 million in the prior year comparative
42
periods. Research and development expense for the three and six
months ended June 30, 2010, included a $30.0 million milestone
payment due Facet Biotech Corporation, a wholly-owned subsidiary
of Abbott Laboratories (Facet), upon initiation of patient
enrollment in a Phase 3 trial of daclizumab in relapsing MS in
May 2010. The decrease for the three and six month comparative
periods was the result of the 2009 $110.0 million upfront
payment to Acorda.
The timing of upfront fees and milestone payments in the future
may cause variability in future research and development expense.
Selling,
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Six Months
|
|
|
Ended June 30,
|
|
Ended June 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Selling, general and administrative
|
|
$
|
262.3
|
|
|
$
|
220.8
|
|
|
|
18.8
|
%
|
|
$
|
511.0
|
|
|
$
|
442.7
|
|
|
|
15.4
|
%
|
For the three months and six months ended June 30, 2010
compared to the same periods in 2009, selling, general and
administrative expenses increased primarily due to increased
sales and marketing activities in support of AVONEX and TYSABRI,
increased grant and sponsorship activity and $18.6 million
of additional expense recognized related to the modification of
equity based compensation in accordance with the transition
agreement entered into with James C. Mullen, who retired as our
President and Chief Executive Officer on June 8, 2010.
Collaboration
Profit Sharing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Six Months
|
|
|
Ended June 30,
|
|
Ended June 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Collaboration profit sharing
|
|
$
|
62.7
|
|
|
$
|
49.1
|
|
|
|
27.6
|
%
|
|
$
|
126.2
|
|
|
$
|
91.9
|
|
|
|
37.4
|
%
|
For the three and six months ended June 30, 2010 compared
to the same periods in 2009, the increase in collaboration
profit sharing expense was due to the continued increase in
TYSABRI rest of world sales resulting in higher rest of world
net operating profits to be shared with Elan and resulting in
growth in the third-party royalties Elan paid on behalf of the
collaboration. For the three and six months ended June 30,
2010, our collaboration profit sharing expense included
$11.1 million and $22.5 million, respectively, related
to the reimbursement of third-party royalty payments made by
Elan as compared to $9.4 million and $17.5 million,
respectively, for the prior year comparative periods. Please
read Note 17, Collaborations, to our Consolidated
Financial Statements included within our 2009
Form 10-K
for a description of this collaboration.
Amortization
of Acquired Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Six Months
|
|
|
Ended June 30,
|
|
Ended June 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Amortization of acquired intangible assets
|
|
$
|
53.1
|
|
|
$
|
93.2
|
|
|
|
(43.0
|
)%
|
|
$
|
102.0
|
|
|
$
|
182.5
|
|
|
|
(44.1
|
)%
|
For the three and six months ended June 30, 2010 compared
to the same periods in 2009, amortization of acquired intangible
assets decreased significantly primarily as a result of a change
in the amortization for the core technology related to our
AVONEX product which is our most significant intangible asset.
Our amortization policy reflects our belief that the economic
benefit of our core technology is consumed as revenue is
generated from our AVONEX product. We refer to this amortization
methodology as the economic consumption model. An analysis of
the anticipated lifetime revenue of AVONEX is performed at least
annually during our long range planning cycle. This analysis
serves as the basis for the calculation of economic consumption
amortization model.
43
We completed our most recent long range planning cycle in the
third quarter of 2009. This analysis is based upon certain
assumptions that we evaluate on a periodic basis, such as the
anticipated product sales of AVONEX and expected impact of
competitive products and our own pipeline product candidates, as
well as the issuance of new patents or the extension of existing
patents. The results of our most recent analysis were most
significantly impacted by the issuance in September 2009 of a
U.S. patent covering the treatment of MS with AVONEX, which
resulted in an increase in the total expected lifetime revenue
of AVONEX and an extension of the assumed remaining life of our
core intangible asset. Based upon this most recent analysis,
amortization of intangible assets is expected to be in the range
of approximately $160.0 million to $220.0 million
annually through 2014.
Acquired
In-Process Research and Development (IPR&D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Six Months
|
|
|
Ended June 30,
|
|
Ended June 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Acquired in-process research and development
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
40.0
|
|
|
$
|
|
|
|
|
|
|
In connection with our acquisition of Biogen Idec Hemophilia
Inc., formerly Syntonix Pharmaceuticals, Inc. (Syntonix), in
January 2007, we agreed to make additional future consideration
payments based upon the achievement of certain milestone events.
In January 2010, we initiated patient enrollment in a
registrational study for long-acting recombinant Factor IX in
hemophilia B, known as B-LONG. The initiation of this study
resulted in the achievement of a milestone under the acquisition
agreement, obligating us to pay approximately $40.0 million
to the former shareholders of Syntonix. This amount is reflected
as IPR&D expense within our consolidated statement of
income for the six months ended June 30, 2010.
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Interest income
|
|
$
|
6.7
|
|
|
$
|
12.1
|
|
|
|
(44.6
|
)%
|
|
$
|
15.6
|
|
|
$
|
26.9
|
|
|
|
(42.0
|
)%
|
Interest expense
|
|
|
(9.0
|
)
|
|
|
(9.3
|
)
|
|
|
(3.2
|
)%
|
|
|
(17.3
|
)
|
|
|
(19.2
|
)
|
|
|
(9.9
|
)%
|
Impairments of investments
|
|
|
(1.2
|
)
|
|
|
(3.5
|
)
|
|
|
(65.7
|
)%
|
|
|
(17.0
|
)
|
|
|
(9.6
|
)
|
|
|
77.1
|
%
|
Net gains (losses) on foreign currency transactions
|
|
|
(0.7
|
)
|
|
|
3.6
|
|
|
|
(119.4
|
)%
|
|
|
0.3
|
|
|
|
6.5
|
|
|
|
(95.4
|
)%
|
Net realized gains on marketable securities
|
|
|
6.3
|
|
|
|
7.5
|
|
|
|
(16.0
|
)%
|
|
|
11.3
|
|
|
|
11.9
|
|
|
|
(5.0
|
)%
|
Other, net
|
|
|
(1.1
|
)
|
|
|
4.3
|
|
|
|
(125.6
|
)%
|
|
|
(0.3
|
)
|
|
|
5.0
|
|
|
|
(106.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
1.0
|
|
|
$
|
14.7
|
|
|
|
(93.2
|
)%
|
|
$
|
(7.4
|
)
|
|
$
|
21.5
|
|
|
|
(134.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
For the three and six months ended June 30, 2010 compared
to the same periods in 2009, interest income decreased primarily
due to lower yields on cash, cash equivalents, and marketable
securities and lower average cash balances.
Interest
Expense
For the three and six months ended June 30, 2010, we
capitalized interest costs related to construction in progress
totaling approximately $6.9 million, and
$14.7 million, respectively, which reduced our interest
expense by the same amount. We capitalized $6.8 million and
$13.0 million, respectively, in the prior year comparative
periods.
44
Capitalized interest costs are primarily related to the
development of our large-scale biologic manufacturing facility
in Hillerød, Denmark. Upon completion of the
facilitys operational qualification activities, which are
expected during the fourth quarter of 2010, we will cease
capitalizing interest expense in relation to this project. We
will delay the start of manufacturing activities at this site
until additional capacity is required by the business.
Impairment
on Investments
For the three and six months ended June 30, 2010, we
recognized $1.2 million and $17.0 million,
respectively, in charges for the
other-than-temporary
impairment of our publicly held strategic investments, venture
funds and investments in privately held companies as compared to
$3.5 million and $6.0 million for the prior year
comparable periods. The increase in the six month comparative
periods was primarily the result of AVEO Pharmaceuticals, Inc.,
one of our strategic investments, executing an equity offering
at a price below our cost basis during the first quarter of 2010.
Net realized gains on marketable securities for the six months
ended June 30, 2009, includes $3.6 million in
other-than-temporary
impairment charges recognized during the first quarter of 2009.
No impairments were recognized related to our marketable debt
securities for the three months ended June 30, 2009 or for
the three and six months ended June 30, 2010, respectively.
Impairment
on Property, Plant and Equipment
We own or lease real estate primarily consisting of buildings
that contain research laboratories, office space, and biologic
manufacturing operations, some of which are located in markets
that are experiencing high vacancy rates and decreasing property
values. If we decide to consolidate, co-locate or dispose of
certain aspects of our business operations, for strategic or
other operational reasons, we may dispose of one or more of our
properties. Due to reduced expectations of product demand,
improved yields on production and other factors, we may not
fully utilize our manufacturing facilities at normal levels
resulting in idle time at facilities or substantial excess
manufacturing capacity. We are always evaluating our current
facility utilization strategy and assessing alternatives,
including our recent decision to delay completion of our
manufacturing facility in Denmark. If any of our owned
properties are held for sale and we determine that the fair
value of the properties is lower than their book value, we may
not realize the full investment in these properties and incur
impairment charges which may be significant. In addition, if we
decide to fully or partially vacate a leased property, we may
incur significant costs, including lease termination fees, rent
expense in excess of sublease income and impairment of leasehold
improvements.
Income
Tax Provision
Tax
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Six Months
|
|
|
Ended June 30,
|
|
Ended June 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Effective tax rate
|
|
|
25.8
|
%
|
|
|
39.0
|
%
|
|
|
(33.8
|
)%
|
|
|
25.7
|
%
|
|
|
28.7
|
%
|
|
|
(10.5
|
)%
|
Income tax expense
|
|
$
|
102.2
|
|
|
$
|
92.7
|
|
|
|
10.2
|
%
|
|
$
|
177.6
|
|
|
$
|
157.9
|
|
|
|
12.5
|
%
|
Our effective tax rate will fluctuate from period to period due
to several factors including the nature of our global
operations. The factors that most significantly impact our
effective tax rate include the variability in the allocation of
our taxable earnings in multiple jurisdictions, changes in tax
laws, acquisitions and licensing transactions.
Our income tax rate for the three and six months ended
June 30, 2010 was favorably impacted, compared to the same
periods in 2009, by a higher percentage of our profits being
earned in lower rate international jurisdictions. This change in
the location of our relative profits was caused by the growth of
our international operations, a benefit related to transfer
pricing between our international affiliates and lower 2010
domestic earnings as a proportion of total consolidated earnings
due to U.S. healthcare reform legislation enacted in March
2010.
45
During 2010, we also experienced a favorable impact from a
statutory increase in the U.S. manufacturers tax
deduction and an increase in expenditures eligible for our
orphan drug credit offset by the 2009 expiration of the federal
research and development tax credit. In addition, our 2009
effective tax rate for the three and six months ended
June 30, 2009 was increased by 7.5% and 2.3%, respectively,
as a result of the $110.0 million upfront payment incurred
in connection with the collaboration and license agreement
entered into with Acorda Therapeutics, Inc. (Acorda) in the
second quarter of 2009. Our effective tax rate for the six
months ended June 30, 2009 was also favorably impacted by
5.5% for changes in tax law which became effective during the
first quarter of 2009 in certain state jurisdictions in which we
operate and resulted in a $30.3 million reduction of our
tax expense for the six months ended June 30, 2009.
We expect our full-year 2010 effective tax rate to be between
26% and 28%. This rate does not consider the impact of a
potential renewal of the U.S. federal research and
development tax credit. Please read Note 14, Income
Taxes to our Consolidated Financial Statements included in
this report for a detailed income tax rate reconciliation for
the three and six months ended June 30, 2010 and 2009.
Market
Risk
We conduct business globally. As a result, our international
operations are subject to certain opportunities and risks which
may affect our results of operations, including volatility in
foreign currency exchange rates or weak economic conditions in
the foreign market in which we operate.
Foreign
Currency Exchange Risk
While the financial results of our global activities are
reported in U.S. dollars, the functional currency for most
of our foreign subsidiaries is their local currency.
Fluctuations in the foreign currency exchange rates of the
countries in which we do business will affect our operating
results, often in ways that are difficult to predict. For
example, when the U.S. dollar strengthens against foreign
currencies, the relative value of sales made in the respective
foreign currencies decreases, conversely, when the
U.S. dollar weakens against foreign currencies, the
relative amount of such sales in U.S. dollars increases.
Our net income may also fluctuate due to the impact of our
foreign currency hedging program. Our foreign currency
management program is designed to mitigate, over time, a portion
of the impact on volatility in exchange rate changes on net
income and earnings per share. We use foreign currency forward
contracts to manage foreign currency risk with the majority of
our forward contracts used to hedge certain forecasted revenue
transactions denominated in foreign currencies. Foreign currency
gains or losses arising from our operations are recognized in
the period in which we incur those gains or losses.
Credit
Risk
We are subject to credit risk from our accounts receivable
related to our product sales. The majority of our accounts
receivable arise from product sales in the United States and
Europe with concentrations of credit risk generally limited due
to the wide variety of customers and markets using our products,
as well as their dispersion across many different geographic
areas. Our accounts receivable are primarily due from wholesale
distributors, large pharmaceutical companies and public
hospitals. We monitor the financial performance and credit
worthiness of our large customers so that we can properly assess
and respond to changes in their credit profile. We continue to
monitor economic conditions, including the volatility associated
with international sovereign economies and associated impacts on
the financial markets and our business. Our historical
write-offs of accounts receivable have not been significant.
Within the European Union, our product sales in Italy, Spain and
Portugal continue to be subject to significant payment delays
due to government funding and reimbursement practices. We
believe the credit and
46
economic conditions within these countries has deteriorated
through the first half of 2010. These conditions have resulted
in and may continue to result in an increase in the average
length of time that it takes to collect on our accounts
receivable outstanding in these countries. Our accounts
receivable in Italy, Spain and Portugal totaled approximately
$193.2 million as of June 30, 2010. To date, we have
not experienced any significant losses with respect to the
collection of our accounts receivable related to sales within
these countries.
We believe that our concentrations of credit risk from our
accounts receivable balances related to our product sales in
Greece to date have been limited as our receivables within this
market are due from our wholesale distributor, for which related
accounts receivable balances as of June 30, 2010 remain
current and substantially in compliance with their contractual
due dates. At June 30, 2010, we had $8.5 million due
from our distributor in Greece. However, the majority of our
sales by our distributor are to government funded hospitals and
as a result our distributor maintains significant outstanding
receivables with the government. Furthermore, the government of
Greece has recently required financial support from both the
European Union and the International Monetary Fund to avoid
defaulting on its sovereign debt. In the event that Greece
defaults on its debt, and could not pay our distributor, we may
be unable to collect some or all of our remaining amounts due
from the distributor. Should the government of Greece require
pharmaceutical creditors to accept mandatory, retroactive, price
deductions in settlement of outstanding receivables, we could be
required to repay our distributor a portion of the amounts they
have paid us, but were not collected. The potential impact
resulting from such mandatory actions remains uncertain. To
date, we have not been required to repay such amounts to our
distributor or take a discount in settlement of any outstanding
receivables and do not intend to do so.
If significant changes occur in the availability of government
funding or the reimbursement practices of these or other
governments, we may not be able to collect on amounts due to us
from customers in such countries and our results of operations
could be adversely affected.
Financial
Condition and Liquidity
Our financial condition is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
(In millions, except percentages)
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
Change %
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
721.0
|
|
|
$
|
581.9
|
|
|
|
23.9
|
%
|
Marketable securities current
|
|
|
248.7
|
|
|
|
681.8
|
|
|
|
(63.5
|
)%
|
Marketable securities non-current
|
|
|
566.1
|
|
|
|
1,194.1
|
|
|
|
(52.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
1,535.8
|
|
|
$
|
2,457.8
|
|
|
|
(37.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of notes payable and line of credit
|
|
$
|
10.1
|
|
|
$
|
19.8
|
|
|
|
(49.0
|
)%
|
Notes payable and line of credit
|
|
|
1,069.7
|
|
|
|
1,080.2
|
|
|
|
(1.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
1,079.8
|
|
|
$
|
1,100.0
|
|
|
|
(1.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
2,255.2
|
|
|
$
|
2,480.6
|
|
|
|
(9.1
|
)%
|
Current liabilities
|
|
$
|
(755.7
|
)
|
|
$
|
(714.9
|
)
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total working capital
|
|
$
|
1,499.5
|
|
|
$
|
1,765.7
|
|
|
|
(15.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2010, certain significant
cash flows were as follows:
$1,609.3 million used for share repurchases;
$1,061.3 million in net proceeds received on sales
and maturities of marketable securities;
$141.6 million in total payments for income taxes;
$85.3 million used for purchases of property, plant
and equipment;
$63.2 million in proceeds from the issuance of stock
for share-based compensation arrangements;
47
|
|
|
|
|
$40.0 million payment made to the former shareholders of
Syntonix recognized as IPR&D expense; and
|
$30.0 million milestone payment made to Facet
recognized as research and development expense.
For the six months ended June 30, 2009, certain significant
cash flows were as follows:
$349.5 million in total payments for income taxes;
$231.9 million used for net purchases of marketable
securities;
$71.7 million used for purchases of property, plant
and equipment.
$57.6 million used for share repurchases;
$35.2 million in net purchases of strategic
investments; and
$24.4 million in proceeds from the issuance of stock
for share-based compensation arrangements;
We have financed our operating and capital expenditures
principally through cash flows from our operations. We expect to
continue financing our current and planned operating
requirements principally through cash from operations, as well
as existing cash resources. We believe that existing funds, cash
generated from operations and existing sources of, and access
to, financing are adequate to satisfy our operating, working
capital, strategic alliance and acquisition, milestone payment,
capital expenditure and debt service requirements for the
foreseeable future. In addition, we plan to opportunistically
return cash to shareholders and pursue other business
initiatives, including acquisition and licensing activities. We
may, from time to time, seek additional funding through a
combination of new collaborative agreements, strategic alliances
and additional equity and debt financings or from other sources.
Please read the Risk Factors section of this report
and the Quantitative and Qualitative Disclosures About
Market Risk section of our 2009
Form 10-K
for items that could negatively impact our cash position and
ability to fund future operations.
Share
Repurchase Programs
In April 2010, we announced that our Board of Directors
authorized the repurchase of up to $1.5 billion of our
common stock, with repurchased shares being retired. This
repurchase authorization does not have an expiration date. As of
June 30, 2010, approximately 20.8 million shares at a
cost of approximately $1.0 billion have been repurchased
under this program, all of which were retired. From July 1,
2010 through July 16, 2010, we repurchased approximately an
additional 4.7 million shares under this program at a cost
of $233.2 million, all of which were also retired.
Approximately $235.0 million remains available for
repurchase of our common stock under the 2010 program. The
number of remaining shares that may be purchased under this
program will vary based on price fluctuations of our common
stock.
In October 2009, our Board of Directors authorized the
repurchase of up to $1.0 billion of our common stock with
the objective of reducing shares outstanding and returning
excess cash to shareholders. This repurchase program was
completed during the first quarter of 2010. During the first
quarter of 2010, approximately 10.5 million shares of our
common stock were repurchased for approximately
$577.6 million under this program. During 2009, we
repurchased approximately 8.8 million shares under this
program at a cost of approximately $422.4 million. All
shares repurchased under this program were retired.
As a result of the approximately 31.3 million shares
repurchased during the six months ended June 30, 2010,
common shares outstanding have decreased approximately 11.4%
since December 31, 2009.
Cash,
Cash Equivalents and Marketable Securities
Until required for use in the business, we invest our cash
reserves in bank deposits, certificates of deposit, commercial
paper, corporate notes, U.S. and foreign government
instruments and other interest bearing marketable debt
instruments in accordance with our investment policy. We attempt
to mitigate credit risk in our cash reserves and marketable
securities by maintaining a well diversified portfolio that
limits the amount of investment exposure
48
as to institution, maturity, and investment type. In particular,
the value of our investments may be adversely affected by
increases in interest rates, downgrades in the corporate bonds
included in our portfolio, instability in the global financial
markets that reduces the liquidity of securities included in our
portfolio, and by other factors which may result in
other-than-temporary
declines in the value of the investments. Each of these events
may cause us to record charges to reduce the carrying value of
our investment portfolio or sell investments for less than our
acquisition cost which could adversely impact our financial
position and our overall liquidity. Please read Note 6,
Fair Value Measurements to our Consolidated Financial
Statements included in this report for a summary of the fair
value and valuation methods of our marketable securities as of
June 30, 2010 and December 31, 2009.
The decrease in cash and marketable securities from
December 31, 2009 is primarily due to share repurchases,
tax payments, purchases of property, plant and equipment, a
$30.0 million milestone payment made to Facet and the
$40.0 milestone payment paid to the former shareholders of
Syntonix offset by cash from operations, net proceeds received
on sales and maturities of marketable securities and proceeds
from the issuance of stock under our share-based compensation
arrangements.
Borrowings
We have a $360.0 million senior unsecured revolving credit
facility, which we may use for future working capital and
general corporate purposes. This facility terminates in June
2012. As of June 30, 2010 and December 31, 2009, there
were no borrowings under this credit facility and we were in
compliance with applicable covenants. The credit rating on our
Senior Notes at June 30, 2010, was Baa3 with a stable
outlook by Moodys Investors Service and BBB+ with a stable
outlook by Standard & Poors. Please read
Note 6, Fair Value Measurements to our Consolidated
Financial Statements included in this report for a summary of
the fair and carrying value of outstanding borrowings as of
June 30, 2010 and December 31, 2009.
In connection with our 2006 distribution agreement with
Fumedica, we issued notes payable totaling 61.4 million
Swiss Francs which were to be repaid to Fumedica in varying
amounts from June 2008 through June 2018. In June 2010, we
repaid 12.0 million Swiss Francs ($10.3 million). As
of June 30, 2010, our remaining note payable to Fumedica
has a present value of 20.1 million Swiss Francs
($18.5 million) and remains payable in a series of payments
through June 2018.
There have been no other significant changes in our borrowings
since December 31, 2009.
Working
Capital
We define working capital as current assets less current
liabilities. The decrease in working capital from
December 31, 2009 primarily reflects the overall decrease
in current assets of $225.4 million and was primarily due
to the net decrease in marketable securities resulting from our
return of excess cash to shareholders via our share repurchase
programs which totaled $1,609.3 million for the six months
ended June 30, 2010 and increases in current liabilities
totaling $40.7 million.
Cash
Flows
The following table summarizes our cash flow activity:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
|
|
|
Ended June 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
Net cash flows provided by operating activities
|
|
$
|
765.4
|
|
|
$
|
529.3
|
|
|
|
44.6
|
%
|
Net cash flows provided by (used in) investing activities
|
|
$
|
933.7
|
|
|
$
|
(303.2
|
)
|
|
|
407.9
|
%
|
Net cash flows used in financing activities
|
|
$
|
(1,549.6
|
)
|
|
$
|
(63.8
|
)
|
|
|
2,328.8
|
%
|
Operating
Activities
Cash flows from operating activities represent the cash receipts
and disbursements related to all of our activities other than
investing and financing activities. Cash provided by operating
activities is primarily driven by our earnings and changes in
working capital. We expect cash provided from operating
activities will continue to be our primary source of funds to
finance operating needs and capital expenditures for the
foreseeable future.
49
Operating cash flow is derived by adjusting net income for:
|
|
|
|
|
Non-cash operating items such as depreciation and amortization,
impairment charges and share-based compensation charges;
|
|
|
|
Changes in operating assets and liabilities which reflect timing
differences between the receipt and payment of cash associated
with transactions and when they are recognized in results of
operations; and
|
|
|
|
The payment of contingent milestones associated with our prior
acquisitions of businesses.
|
The increase in cash provided by operating activities for the
six months ended June 30, 2010 compared to the same period
in 2009 was primarily driven by an increase in net income,
decreased inventory balances and a comparative decrease in
payments related to income tax liabilities offset by an increase
in receivables due from unconsolidated joint business.
Investing
Activities
The increase in cash provided by investing activities is
primarily due to net sales of marketable securities during the
six months ended June 30, 2010 compared to the same period
in 2009, offset by our purchases of property, plant and
equipment and milestone payment made to the former shareholders
of Syntonix.
Net proceeds received on net sales and maturities of marketable
securities totaled $1,061.3 million for the six months
ended June 30, 2010 as compared to net purchases of
$231.9 million made during the same period in 2009.
Financing
Activities
The increase in cash used in financing activities is due
principally to increases in the amounts of our common stock
repurchased compared to the same period in 2009. In the six
months ended June 30, 2010, we repurchased approximately
31.3 million shares of our common stock for approximately
$1.6 billion as compared to 1.2 million shares for
approximately $57.6 million in the six months ended
June 30, 2009.
Contractual
Obligations and Off-Balance Sheet Arrangements
Contractual
Obligations
Our contractual obligations primarily consists of our
obligations under non-cancellable operating leases, our notes
payable and line of credit and other purchase obligations,
excluding amounts related to uncertain tax positions, amounts
payable to tax authorities, funding commitments, contingent
milestone payments, and other off-balance sheet arrangements as
described below. There have been no significant changes in our
contractual obligations since December 31, 2009.
Tax
Related Obligations
We exclude liabilities pertaining to uncertain tax positions
from our summary of contractual obligations as we cannot make a
reliable estimate of the period of cash settlement with the
respective taxing authorities. As of June 30, 2010, we have
approximately $137.8 million of liabilities associated with
uncertain tax positions.
Included in these liabilities are amounts related to the
settlement of certain federal and state tax audits in the fourth
quarter of 2009. As of June 30, 2010, we expect to pay
approximately $81.8 million within the next twelve months
in connection with such settlements.
Funding
Commitments
As of June 30, 2010, we have funding commitments of up to
approximately $21.9 million as part of our investment in
biotechnology oriented venture capital investments.
As of June 30, 2010, we have several ongoing clinical
studies in various clinical trial stages. Our most significant
clinical trial expenditures are to clinical research
organizations (CROs). The contracts with CROs are generally
cancellable, with notice, at our option. We have recorded
$28.7 million of accrued expenses on our consolidated
balance sheet for work done by CROs as of June 30, 2010. We
have approximately $370.0 million in cancellable future
commitments based on existing CRO contracts as of June 30,
2010, which are not included within contractual obligations as
they are cancellable.
50
Contingent
Milestone Payments
Based on our development plans as of June 30, 2010, we have
committed to make potential future milestone payments to third
parties of up to approximately $1.3 billion as part of our
various collaborations including licensing and development
programs. Payments under these agreements generally become due
and payable only upon achievement of certain developmental,
regulatory or commercial milestones. Because the achievement of
these milestones had not occurred as of June 30, 2010, such
contingencies have not been recorded in our financial
statements. As of June 30, 2010, we anticipate that we may
make approximately $1.5 million of additional milestone
payments during the remainder of 2010, provided various
developmental milestones are achieved.
Amounts related to contingent milestone payments are not
considered contractual obligations as they are contingent on the
successful achievement of certain development, regulatory
approval and commercial milestones. These milestones may not be
achieved.
Other
Off-Balance Sheet Arrangements
We do not have any significant relationships with entities often
referred to as structured finance or special purpose entities,
which would have been established for the purpose of
facilitating off-balance sheet arrangements. As such, we are not
exposed to any financing, liquidity, market or credit risk that
could arise if we had engaged in such relationships. We
consolidate entities if we are the primary beneficiary.
Legal
Matters
Please read Note 17, Litigation to our Consolidated
Financial Statements included in this report for a discussion of
legal matters as of June 30, 2010.
New
Accounting Standards
Please read Note 19, New Accounting Pronouncements
to our Consolidated Financial Statements included in this
report for a discussion of new accounting standards.
Critical
Accounting Estimates
The discussion and analysis of our financial position and
results of operations is based on our consolidated financial
statements, which have been prepared in accordance with
U.S. GAAP. The preparation of these consolidated financial
statements in accordance with U.S. GAAP requires us to make
estimates and judgments that may affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing
basis, we evaluate our estimates and judgments, including those
related to revenue recognition and related allowances,
marketable securities, derivatives and hedging activities,
inventory, impairments of long-lived assets including intangible
assets, impairments of goodwill, the consolidation of variable
interest entities, income taxes including the valuation
allowance for deferred tax assets, valuation of investments,
research and development expenses, contingencies and litigation,
and share-based payments. We base our estimates on historical
experience and on various other assumptions that we believe are
reasonable, the results of which form the basis for making
judgments about the carrying values of assets and liabilities.
Actual results may differ from these estimates under different
assumptions or conditions.
Please read Part II, Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations of our 2009
Form 10-K
for a discussion of our critical accounting estimates.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Our market risks, and the ways we manage them, are summarized in
Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk of our 2009
Form 10-K.
There have been no material changes in the first six months of
2010 to our market risks or to our management of such risks.
51
|
|
Item 4.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures and Internal Control over Financial
Reporting
Disclosure
Controls and Procedures
We have carried out an evaluation, under the supervision and
with the participation of our management, including our
principal executive officer and principal financial officer, of
the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended
(Securities Exchange Act), as of June 30, 2010. Based upon
that evaluation, our principal executive officer and principal
financial officer concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures
are effective in ensuring that (a) the information required
to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms, and
(b) such information is accumulated and communicated to our
management, including our principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, our
management recognized that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the quarter ended June 30, 2010 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Part II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
Please read Note 17, Litigation, to our Consolidated
Financial Statements included in this report, which is
incorporated into this item by reference.
We are
substantially dependent on revenues from our three principal
products.
Our current and future revenues depend upon continued sales of
our three principal products, AVONEX, RITUXAN and TYSABRI, which
represented substantially all of our total revenues during the
first half of 2010. Although we have developed and continue to
develop additional products for commercial introduction, we
expect to be substantially dependent on sales from these three
products for many years. Any negative developments relating to
any of these products, such as safety or efficacy issues, the
introduction or greater acceptance of competing products,
including biosimilars, or adverse regulatory or legislative
developments may reduce our revenues and adversely affect our
results of operations. A number of new competing products are
expected to be approved for use in multiple sclerosis beginning
in 2010. If these products have a similar or more attractive
profile in terms of efficacy, convenience or safety, future
sales of AVONEX or TYSABRI could be limited, which would reduce
our revenues.
TYSABRIs
sales growth is important to our success.
We expect that our revenue growth over the next several years
will be dependent upon sales of TYSABRI. If we are not
successful in growing sales of TYSABRI, our future business
plans, revenue growth and results of operations may be adversely
affected.
52
TYSABRIs sales growth cannot be certain given the
significant restrictions on use and the significant safety
warnings in the label, including the risk of developing
progressive multifocal leukoencephalopathy (PML), a rare but
serious brain infection. The risk of developing PML increases
with prior immunosuppressant use, which may cause patients who
have previously received immunosuppressants or their physicians
to refrain from using or prescribing TYSABRI. The risk of
developing PML also increases with longer treatment duration,
with limited experience beyond three years of treatment. This
may cause prescribing physicians or patients to suspend
treatment with TYSABRI. If the incidence of PML at various
durations of exposure were to exceed the rate implied in the
TYSABRI label, it could limit sales growth, prompt regulatory
review, require significant changes to the label or result in
market withdrawal. Additional regulatory restrictions on the use
of TYSABRI or safety-related label changes, including enhanced
risk management programs, whether as a result of additional
cases of PML or otherwise, may significantly reduce expected
revenues and require significant expense and management time to
address the associated legal and regulatory issues. In addition,
ongoing or future clinical trials involving TYSABRI and efforts
at stratifying patients into groups with lower or higher risk
for developing PML, including evaluating the potential clinical
utility of a JC virus antibody assay, may have an adverse impact
on prescribing behavior in at least the short term and reduce
sales of TYSABRI.
If we
fail to compete effectively, our business and market position
would suffer.
The biotechnology and pharmaceutical industry is intensely
competitive. We compete in the marketing and sale of our
products, the development of new products and processes, the
acquisition of rights to new products with commercial potential
and the hiring and retention of personnel. We compete with
biotechnology and pharmaceutical companies that have a greater
number of products on the market and in the product pipeline,
greater financial and other resources and other technological or
competitive advantages. One or more of our competitors may
benefit from significantly greater sales and marketing
capabilities, may develop products that are accepted more widely
than ours and may receive patent protection that dominates,
blocks or adversely affects our product development or business.
In addition, recently enacted healthcare reform legislation in
the U.S. has created a pathway for the FDA to approve
biosimilars, which could compete on price and differentiation
with products that we now or could in the future market. The
introduction of more efficacious, safer, cheaper, or more
convenient alternatives to our products could reduce our
revenues and the value of our product development efforts.
In addition to competing directly with products that are
marketed by substantial pharmaceutical competitors, AVONEX,
RITUXAN and TYSABRI also face competition from off-label uses of
drugs approved for other indications. Some of our current
competitors are also working to develop alternative formulations
for delivery of their products, which may in the future compete
with ours.
Our
long-term success depends upon the successful development and
commercialization of other product candidates.
Our long-term viability and growth will depend upon the
successful development and commercialization of other products
from our research and development activities. Product
development and commercialization are very expensive and involve
a high degree of risk. Only a small number of research and
development programs result in the commercialization of a
product. Success in preclinical work or early stage clinical
trials does not ensure that later stage or larger scale clinical
trials will be successful. Even if later stage clinical trials
are successful, regulatory authorities may disagree with our
view of the data or require additional studies.
Conducting clinical trials is a complex, time-consuming and
expensive process. Our ability to complete our clinical trials
in a timely fashion depends in large part on a number of key
factors including protocol design, regulatory and institutional
review board approval, the rate of patient enrollment in
clinical trials, and compliance with extensive current good
clinical practice requirements. We have opened clinical sites
and are enrolling patients in a number of new countries where
our experience is more limited, and we are in many cases using
the services of third-party clinical trial providers. If we fail
to adequately manage the design, execution and regulatory
aspects of our large, complex and diverse clinical trials, our
studies and ultimately
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our regulatory approvals may be delayed or we may fail to gain
approval for our product candidates altogether.
Our product pipeline includes several small molecule drug
candidates. Our small molecule drug discovery platform is not as
well developed as our biologics platform, and we will have to
make a significant investment of time and resources to expand
our capabilities in this area. Currently, third party
manufacturers supply substantially all of our clinical
requirements for small molecules. If these manufacturers fail to
deliver sufficient quantities of such drug candidates in a
timely and cost-effective manner, it could adversely affect our
small molecule drug discovery efforts. If we decide to
manufacture clinical or commercial supplies of any small
molecule drugs in our own facilities, we will need to invest
substantial additional funds and recruit qualified personnel to
develop our small molecule manufacturing capabilities.
Adverse
safety events can negatively affect our business and stock
price.
Adverse safety events involving our marketed products may have a
negative impact on our commercialization efforts. Later
discovery of safety issues with our products that were not known
at the time of their approval by the FDA could cause product
liability events, additional regulatory scrutiny and
requirements for additional labeling, withdrawal of products
from the market and the imposition of fines or criminal
penalties. Any of these actions could result in, among other
things, material write-offs of inventory and impairments of
intangible assets, goodwill and fixed assets. In addition, the
reporting of adverse safety events involving our products and
public rumors about such events could cause our stock price to
decline or experience periods of volatility.
We
depend, to a significant extent, on reimbursement from third
party payors and a reduction in the extent of reimbursement
could reduce our product sales and revenue.
Sales of our products are dependent, in large part, on the
availability and extent of reimbursement from government health
administration authorities, private health insurers and other
organizations. Changes in government regulations or private
third-party payors reimbursement policies may reduce
reimbursement for our products and adversely affect our future
results. In addition, when a new medical product is approved,
the availability of government and private reimbursement for
that product is uncertain, as is the amount for which that
product will be reimbursed. We cannot predict the availability
or amount of reimbursement for our product candidates.
The U.S. Congress recently enacted legislation to reform
the health care system. While this legislation will, over time,
increase the number of patients who have insurance coverage for
our products, it also imposes cost containment measures that may
adversely affect the amount of reimbursement for our products.
These measures include increasing the minimum rebates for our
drugs covered by Medicaid programs and extending such rebates to
drugs dispensed to Medicaid beneficiaries enrolled in Medicaid
managed care organizations as well as expansion of the 340(B)
Public Health Services drug discount program.
Some states are also considering legislation that would control
the prices of drugs, and state Medicaid programs are
increasingly requesting manufacturers to pay supplemental
rebates and requiring prior authorization by the state program
for use of any drug for which supplemental rebates are not being
paid. Managed care organizations continue to seek price
discounts and, in some cases, to impose restrictions on the
coverage of particular drugs. Government efforts to reduce
Medicaid expenses may lead to increased use of managed care
organizations by Medicaid programs. This may result in managed
care organizations influencing prescription decisions for a
larger segment of the population and a corresponding constraint
on prices and reimbursement for our products. It is likely that
federal and state legislatures and health agencies will continue
to focus on additional health care reform in the future.
We encounter similar regulatory and legislative issues in most
other countries. In the European Union and some other
international markets, the government provides health care at
low cost to consumers and regulates pharmaceutical prices,
patient eligibility or reimbursement levels to control costs for
the government-sponsored health care system. Many countries are
reducing their public expenditures and we expect to see strong
efforts to reduce healthcare costs in our international markets,
including patient access restrictions, suspensions on
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price increases, prospective and possibly retroactive price
reductions and increased mandatory discounts or rebates,
recoveries of past price increases, and greater importation of
drugs from lower-cost countries to higher-cost countries. We
expect that our revenues would be negatively impacted if similar
measures are or are continued to be implemented in other
countries in which we operate. In addition, certain countries
set prices by reference to the prices in other countries where
our products are marketed. Thus, our inability to secure
adequate prices in a particular country may also impair our
ability to obtain acceptable prices in existing and potential
new markets. This may create the opportunity for third party
cross border trade or influence our decision to sell or not to
sell a product, thus affecting our geographic expansion plans.
We expect that our revenues would be negatively impacted if
similar measures are or are continued to be implemented in other
countries in which we operate.
We
depend on collaborators for both product and royalty revenue and
the clinical development of future collaboration products, which
are outside of our full control.
Collaborations between companies on products or programs are a
common business practice in the biotechnology industry.
Out-licensing typically allows a partner to collect up front
payments and future milestone payments, share the costs of
clinical development and risk of failure at various points, and
access sales and marketing infrastructure and expertise in
exchange for certain financial rights to the product or program
going to the in-licensing partner. In addition, the obligation
of in-licensees to pay royalties or share profits generally
terminates upon expiration of the related patents. We have a
number of collaborators and partners, and have both in-licensed
and out-licensed several products and programs. These
collaborations are subject to several risks:
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we are not fully in control of the royalty or profit sharing
revenues we receive from collaborators, which may be adversely
affected by patent expirations, pricing or health care reforms,
other legal and regulatory developments, the introduction of
competitive products, and new indication approvals which may
affect the sales of collaboration products;
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any failure on the part of our collaboration partners to comply
with applicable laws and regulatory requirements in the sale and
marketing of our products could have an adverse effect on our
revenues as well as involve us in possible legal
proceedings; and
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collaborations often require the parties to cooperate, and
failure to do so effectively could have an adverse impact on
product sales by our collaborators and partners, and could
adversely affect the clinical development of products or
programs under joint control.
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In addition, under our collaboration agreement with Genentech,
the successful development and commercialization of the first
anti-CD20 product acquired or developed by Genentech will
decrease our percentage of the collaborations co-promotion
profits.
If we
do not successfully execute our growth initiatives through the
acquisition, partnering and
in-licensing
of products, technologies or companies, our future performance
could be adversely affected.
We anticipate growing through internal development projects as
well as external opportunities, which include the acquisition,
partnering and in-licensing of products, technologies and
companies or the entry into strategic alliances and
collaborations. The availability of high quality opportunities
is limited and we are not certain that we will be able to
identify candidates that we and our shareholders consider
suitable or complete transactions on terms that are acceptable
to us and our shareholders. In order to pursue such
opportunities, we may require significant additional financing,
which may not be available to us on favorable terms, if at all.
Even if we are able to successfully identify and complete
acquisitions, we may not be able to integrate them or take full
advantage of them and therefore may not realize the benefits
that we expect. In addition, third parties may be reluctant to
partner with us due to the uncertainty created by the presence
on our Board of Directors of three individuals nominated by an
activist shareholder and the possibility that activist
shareholders may gain additional representation on or control of
our Board of Directors. If we are unsuccessful in our
55
external growth program, we may not be able to grow our business
significantly and we may incur asset impairment charges as a
result of acquisitions that are not successful.
If we
fail to comply with the extensive legal and regulatory
requirements affecting the health care industry, we could face
increased costs, penalties and a loss of business.
Our activities, and the activities of our collaborators and
third party providers, are subject to extensive government
regulation and oversight both in the U.S. and in foreign
jurisdictions. The FDA and comparable agencies in other
jurisdictions directly regulate many of our most critical
business activities, including the conduct of preclinical and
clinical studies, product manufacturing, advertising and
promotion, product distribution, adverse event reporting and
product risk management. States increasingly have been placing
greater restrictions on the marketing practices of health care
companies. In addition, pharmaceutical and biotechnology
companies have been the target of lawsuits and investigations
alleging violations of government regulation, including claims
asserting submission of incorrect pricing information,
impermissible off-label promotion of pharmaceutical products,
payments intended to influence the referral of federal or state
health care business, submission of false claims for government
reimbursement, antitrust violations, or violations related to
environmental matters. Violations of governmental regulation may
be punishable by criminal and civil sanctions, including fines
and civil monetary penalties and exclusion from participation in
government programs, including Medicare and Medicaid. In
addition to penalties for violation of laws and regulations, we
could be required to repay amounts we received from government
payors, or pay additional rebates and interest if we are found
to have miscalculated the pricing information we have submitted
to the government. Whether or not we have complied with the law,
an investigation into alleged unlawful conduct could increase
our expenses, damage our reputation, divert management time and
attention and adversely affect our business.
If we
fail to meet the stringent requirements of governmental
regulation in the manufacture of our products, we could incur
substantial costs and a reduction in sales.
We and our third party providers are generally required to
maintain compliance with current Good Manufacturing Practice and
are subject to inspections by the FDA or comparable agencies in
other jurisdictions to confirm such compliance. In addition, the
FDA must approve any significant changes to our suppliers or
manufacturing methods. If we or our third party service
providers cannot demonstrate ongoing current Good Manufacturing
Practice compliance, we may be required to withdraw or recall
product, interrupt commercial supply of our products or seek
more costly manufacturing alternatives. Any delay, interruption
or other issues that arise in the manufacture, fill-finish,
packaging, or storage of our products as a result of a failure
of our facilities or the facilities or operations of third
parties to pass any regulatory agency inspection could
significantly impair our ability to develop and commercialize
our products. Significant noncompliance could also result in the
imposition of monetary penalties or other civil or criminal
sanctions. This non-compliance could increase our costs, cause
us to lose revenue or market share and damage our reputation.
Changes
in laws affecting the health care industry could adversely
affect our revenues and profitability.
We and our collaborators and third party providers operate in a
highly regulated industry. As a result, governmental actions may
adversely affect our business, operations or financial
condition, including:
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new laws, regulations or judicial decisions, or new
interpretations of existing laws, regulations or decisions,
related to health care availability, method of delivery and
payment for health care products and services;
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changes in the FDA and foreign regulatory approval processes
that may delay or prevent the approval of new products and
result in lost market opportunity;
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changes in FDA and foreign regulations that may require
additional safety monitoring, labeling changes, restrictions on
product distribution or use, or other measures after the
introduction of our products to market, which could increase our
costs of doing business, adversely affect the future permitted
uses of approved products, or otherwise adversely affect the
market for our products;
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new laws, regulations and judicial decisions affecting pricing
or marketing practices; and
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changes in the tax laws relating to our operations.
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The enactment in the U.S. of health care reform, potential
regulations easing the entry of competing follow-on biologics in
the marketplace, new legislation or implementation of existing
statutory provisions on importation of lower-cost competing
drugs from other jurisdictions, and legislation on comparative
effectiveness research are examples of previously enacted and
possible future changes in laws that could adversely affect our
business. In addition, the Food and Drug Administration
Amendments Act of 2007 included new authorization for the FDA to
require post-market safety monitoring, along with an expanded
clinical trials registry and clinical trials results database,
and expanded authority for the FDA to impose civil monetary
penalties on companies that fail to meet certain commitments.
Problems
with manufacturing or with inventory planning could result in
inventory shortages, product recalls and increased
costs.
Biologics manufacturing is extremely susceptible to product loss
due to contamination, equipment failure, or vendor or operator
error. In addition, we may need to close a manufacturing
facility for an extended period of time due to microbial, viral
or other contamination. Any of these events could result in
shipment delays or product recalls, impairing our ability to
supply products in existing markets or expand into new markets.
In the past, we have taken inventory write-offs and incurred
other charges and expenses for products that failed to meet
specifications, and we may incur similar charges in the future.
We rely solely on our manufacturing facility in Research
Triangle Park, North Carolina for the production of TYSABRI. Our
global bulk supply of TYSABRI depends on the uninterrupted and
efficient operation of this facility, which could be adversely
affected by equipment failures, labor shortages, natural
disasters, power failures and numerous other factors. If we are
unable to meet demand for TYSABRI for any reason, we would need
to rely on a limited number of qualified third party contract
manufacturers. We cannot be certain that we could reach
agreement on reasonable terms, if at all; with those
manufacturers or that the FDA would approve our use of such
manufacturers on a timely basis, if at all. Moreover, the
transition of our manufacturing process to a third party could
take a significant amount of time, involve significant expense
and increase our manufacturing costs.
Our
investments in properties, including our manufacturing
facilities, may not be fully realizable.
We own or lease real estate primarily consisting of buildings
that contain research laboratories, office space, and biologic
manufacturing operations, some of which are located in markets
that are experiencing high vacancy rates and decreasing property
values. If we decide to consolidate or co-locate certain aspects
of our business operations, for strategic or other operational
reasons, we may dispose of one or more of our properties.
Due to reduced expectations of product demand, improved yields
on production and other factors, we may not fully utilize our
manufacturing facilities at normal levels resulting in idle time
at facilities or substantial excess manufacturing capacity. We
are always evaluating our current manufacturing strategy, and
may pursue alternatives that include disposing of manufacturing
facilities.
If any of our owned properties are held for sale and we
determine that the fair value of the properties is lower than
their book value, we may not realize the full investment in
these properties and incur significant impairment charges. In
addition, if we decide to fully or partially vacate a leased
property, we may incur significant cost, including lease
termination fees, rent expense in excess of sublease income and
impairment of leasehold improvements.
We
rely on third parties to provide services in connection with the
manufacture of our products and, in some instances, manufacture
the product itself.
We rely on Genentech for all RITUXAN manufacturing. Genentech
relies on a third party to manufacture certain bulk RITUXAN
requirements. If Genentech or any third party upon which it
relies does not
57
manufacture or fill-finish RITUXAN in sufficient quantities and
on a timely and cost-effective basis, or if Genentech or any
third party does not obtain and maintain all required
manufacturing approvals, our business could be harmed.
We also source all of our fill-finish and the majority of our
final product storage operations, along with a substantial
portion of our packaging operations, to a concentrated group of
third party contractors. Any third party we use to fill-finish,
package or store our products to be sold in the U.S. must
be licensed by the FDA. As a result, alternative third party
providers may not be readily available on a timely basis or, if
available, may be more costly than current providers. The
manufacture of products and product components, fill-finish,
packaging and storage of our products require successful
coordination among us and multiple third party providers. Our
inability to coordinate these efforts, the lack of capacity
available at a third party contractor or any other problems with
the operations of these third party contractors could require us
to delay shipment of saleable products or recall products
previously shipped or impair our ability to supply products at
all. This could increase our costs, cause us to lose revenue or
market share, diminish our profitability or damage our
reputation.
Due to the unique manner in which our products are manufactured,
we rely on single source providers of several raw materials. We
make efforts to qualify new vendors and to develop contingency
plans so that production is not impacted by short-term issues
associated with single source providers. Nonetheless, our
business could be materially impacted by long-term or chronic
issues associated with single source providers.
Our
effective tax rate may fluctuate and we may incur obligations in
tax jurisdictions in excess of accrued amounts.
As a global biotechnology company, we are subject to taxation in
numerous countries, states and other jurisdictions. As a result,
our effective tax rate is derived from a combination of
applicable tax rates in the various places that we operate. In
preparing our financial statements, we estimate the amount of
tax that will become payable in each of such places. Our
effective tax rate, however, may be different than experienced
in the past due to numerous factors, including changes in the
mix of our profitability from country to country, the results of
audits of our tax filings, changes in accounting for income
taxes and changes in tax laws. Any of these factors could cause
us to experience an effective tax rate significantly different
from previous periods or our current expectations.
In addition, our inability to secure or sustain acceptable
arrangements with tax authorities and previously enacted or
future changes in the tax laws, among other things, may require
us to accrue for future tax payments in excess of amounts
accrued in our financial statements.
The Obama administration has announced several proposals to
reform U.S. tax law, including proposals that may reduce or
eliminate the deferral of U.S. income tax on our
unrepatriated earnings. These proposals, if enacted, may require
those earnings to be taxed at the U.S. federal income tax
rate, reduce or eliminate our ability to claim foreign tax
credits, and eliminate various tax deductions until foreign
earnings are repatriated to the U.S. Our future reported
financial results may be adversely affected by tax law changes
which restrict or eliminate our ability to claim foreign tax
credits or deduct expenses attributable to foreign earnings, or
otherwise affect the treatment of our unrepatriated earnings.
The
growth of our business depends on our ability to attract and
retain qualified personnel and key relationships.
The achievement of our commercial, research and development and
external growth objectives depends upon our ability to attract
and retain qualified scientific, manufacturing, sales and
marketing and executive personnel and to develop and maintain
relationships with qualified clinical researchers and key
distributors. Competition for these people and relationships is
intense and comes from a variety of sources, including
pharmaceutical and biotechnology companies, universities and
non-profit research organizations. It may be more difficult for
us to attract and retain these people and relationships due to
the uncertainty created by the presence on our Board of
Directors of three individuals nominated by an activist
shareholder and the
58
possibility that activist shareholders may gain additional
representation on or control of our Board of Directors.
Adverse
market and economic conditions may exacerbate certain risks
affecting our business.
Sales of our products are dependent on reimbursement from
government health administration authorities, private health
insurers, distribution partners and other organizations. As a
result of adverse conditions affecting the U.S. and global
economies and credit and financial markets, including the
current sovereign debt crisis in Europe, these organizations may
be unable to satisfy their reimbursement obligations or may
delay payment. In addition, governmental health authorities may
reduce the extent of reimbursements, and private insurers may
increase their scrutiny of claims. A reduction in the
availability or extent of reimbursement could reduce our product
sales and revenue.
We rely on third parties for several important aspects of our
business, including portions of our product manufacturing,
royalty revenue, clinical development of future collaboration
products, conduct of clinical trials, and raw materials. Such
third parties may be unable to satisfy their commitments to us
due to tightening of global credit or worsening economies from
time to time, which would adversely affect our business.
Our
sales and operations are subject to the risks of doing business
internationally.
We are increasing our presence in international markets, which
subjects us to many risks, such as:
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economic problems that disrupt foreign health care payment
systems;
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fluctuations in currency exchange rates;
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difficulties in staffing and managing international operations;
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the imposition of governmental controls;
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less favorable intellectual property or other applicable laws;
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the inability to obtain necessary foreign regulatory or pricing
approvals of products in a timely manner;
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restrictions on direct investments by foreign entities and trade
restrictions;
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changes in tax laws and tariffs; and
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longer payment cycles.
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In addition, our international operations are subject to
regulation under U.S. law. For example, the Foreign Corrupt
Practices Act prohibits U.S. companies and their
representatives from offering, promising, authorizing or making
payments to foreign officials for the purpose of obtaining or
retaining business abroad. In many countries, the health care
professionals we regularly interact with may meet the definition
of a foreign official for purposes of the Foreign Corrupt
Practices Act. Failure to comply with domestic or foreign laws
could result in various adverse consequences, including possible
delay in approval or refusal to approve a product, recalls,
seizures, withdrawal of an approved product from the market, and
the imposition of civil or criminal sanctions.
If we
are unable to adequately protect and enforce our intellectual
property rights, our competitors may take advantage of our
development efforts or our acquired technology.
We have filed numerous patent applications in the U.S. and
various other countries seeking protection of the processes,
products and other inventions originating from our research and
development. Patents have been issued on many of these
applications. We have also obtained rights to various patents
and patent applications under licenses with third parties, which
provide for the payment of royalties by us. The ultimate degree
of patent protection that will be afforded to biotechnology
products and processes, including ours, in the U.S. and in
other important markets remains uncertain and is dependent upon
the scope of protection decided upon by the patent offices,
courts and lawmakers in these countries. Our patents may not
afford us substantial protection or commercial benefit.
Similarly, our pending patent applications or patent
applications licensed
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from third parties may not ultimately be granted as patents and
we may not prevail if patents that have been issued to us are
challenged in court. In addition, pending legislation to reform
the patent system and court decisions or patent office
regulations that place additional restrictions on patent claims
or that facilitate patent challenges could also reduce our
ability to protect our intellectual property rights. If we
cannot prevent others from exploiting our inventions, we will
not derive the benefit from them that we currently expect.
We also rely upon unpatented trade secrets and other proprietary
information, and we cannot assure that others will not
independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade
secrets or disclose such technology, or that we can meaningfully
protect such rights. We require our employees, consultants,
outside scientific collaborators, scientists whose research we
sponsor and other advisers to execute confidentiality agreements
upon the commencement of employment or consulting relationships
with us. These agreements may not provide meaningful protection
or adequate remedies for our unpatented proprietary information
in the event of use or disclosure of such information.
If our
products infringe the intellectual property rights of others, we
may incur damages and be required to incur the expense of
obtaining a license.
A substantial number of patents have already been issued to
other biotechnology and pharmaceutical companies. To the extent
that valid third party patent rights cover our products or
services, we or our strategic collaborators would be required to
seek licenses from the holders of these patents in order to
manufacture, use or sell these products and services, and
payments under them would reduce our profits from these products
and services. We are currently unable to predict the extent to
which we may wish or be required to acquire rights under such
patents and the availability and cost of acquiring such rights,
or whether a license to such patents will be available on
acceptable terms or at all. There may be patents in the
U.S. or in foreign countries or patents issued in the
future that are unavailable to license on acceptable terms. Our
inability to obtain such licenses may hinder our ability to
manufacture and market our products.
Uncertainty
over intellectual property in the biotechnology industry has
been the source of litigation, which is inherently costly and
unpredictable.
We are aware that others, including various universities and
companies working in the biotechnology field, have filed patent
applications and have been granted patents in the U.S. and
in other countries claiming subject matter potentially useful to
our business. Some of those patents and patent applications
claim only specific products or methods of making such products,
while others claim more general processes or techniques useful
or now used in the biotechnology industry. There is considerable
uncertainty within the biotechnology industry about the
validity, scope and enforceability of many issued patents in the
U.S. and elsewhere in the world, and, to date, there is no
consistent policy regarding the breadth of claims allowed in
biotechnology patents. We cannot currently determine the
ultimate scope and validity of patents which may be granted to
third parties in the future or which patents might be asserted
to be infringed by the manufacture, use and sale of our products.
There has been, and we expect that there may continue to be,
significant litigation in the industry regarding patents and
other intellectual property rights. Litigation and
administrative proceedings concerning patents and other
intellectual property rights may be protracted, expensive and
distracting to management. Competitors may sue us as a way of
delaying the introduction of our products. Any litigation,
including any interference proceedings to determine priority of
inventions, oppositions to patents in foreign countries or
litigation against our partners may be costly and time consuming
and could harm our business. We expect that litigation may be
necessary in some instances to determine the validity and scope
of certain of our proprietary rights. Litigation may be
necessary in other instances to determine the validity, scope or
non-infringement of certain patent rights claimed by third
parties to be pertinent to the manufacture, use or sale of our
products. Ultimately, the outcome of such litigation could
adversely affect the validity and scope of our patent or other
proprietary rights or hinder our ability to manufacture and
market our products.
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Recent
proxy contests have been costly and disruptive, and the presence
of directors nominated by an activist shareholder and the
possibility that activist shareholders may gain additional
representation on or control of our Board of Directors could
cause uncertainty about the direction of our
business.
Entities affiliated with Carl Icahn have commenced proxy
contests in each of the past three years. These proxy contests
have been disruptive to our operations and caused us to incur
substantial costs. The SEC has recently proposed to give
shareholders the ability to include director nominees and
proposals relating to a shareholder nomination process in
company proxy materials, which would make it easier for
activists to nominate directors to our Board of Directors. If
the SEC implements its proxy access proposal, we may face an
increase in the number of shareholder nominees for election to
our Board of Directors. Future proxy contests could be costly
and time-consuming, disrupt our operations and divert the
attention of management and our employees from executing our
strategic plans.
As a result of our proxy contests with the Icahn entities, three
of their director nominees have been elected to our Board of
Directors. Another activist shareholder has also publicly
advocated for certain changes at our company. These and other
existing or potential shareholders may attempt to gain
additional representation on or control of our Board of
Directors, the possibility of which may create uncertainty
regarding the direction of our business. Perceived uncertainties
as to our future direction may result in the loss of potential
acquisitions, collaborations or in-licensing opportunities, and
may make it more difficult to attract and retain qualified
personnel and business partners. In addition, disagreement among
our directors about the direction of our business could impair
our ability to effectively execute our strategic plan.
Pending
and future product liability claims may adversely affect our
business and our reputation.
The administration of drugs in humans, whether in clinical
studies or commercially, carries the inherent risk of product
liability claims whether or not the drugs are actually the cause
of an injury. Our products or product candidates may cause, or
may appear to have caused, injury or dangerous drug
interactions, and we may not learn about or understand those
effects until the product or product candidate has been
administered to patients for a prolonged period of time.
We are subject from time to time to lawsuits based on product
liability and related claims. We cannot predict with certainty
the eventual outcome of any pending or future litigation. We may
not be successful in defending ourselves in the litigation and,
as a result, our business could be materially harmed. These
lawsuits may result in large judgments or settlements against
us, any of which could have a negative effect on our financial
condition and business if in excess of our insurance coverage.
Additionally, lawsuits can be expensive to defend, whether or
not they have merit, and the defense of these actions may divert
the attention of our management and other resources that would
otherwise be engaged in managing our business.
Our
operating results are subject to significant
fluctuations.
Our quarterly revenues, expenses and net income (loss) have
fluctuated in the past and are likely to fluctuate significantly
in the future due to the timing of charges and expenses that we
may take. In recent periods, for instance, we have recorded
charges that include:
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impairments that we are required to take with respect to
investments;
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impairments that we are required to take with respect to fixed
assets, including those that are recorded in connection with the
sale of fixed assets;
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inventory write-downs for failed quality specifications, charges
for excess or obsolete inventory and charges for inventory write
downs relating to product suspensions;
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milestone payments under license and collaboration agreements;
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payments in connection with acquisitions and other business
development activity; and
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the cost of restructurings.
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61
Our revenues are also subject to foreign exchange rate
fluctuations due to the global nature of our operations. We
recognize foreign currency gains or losses arising from our
operations in the period in which we incur those gains or
losses. Although we have foreign currency forward contracts to
hedge specific forecasted transactions denominated in foreign
currencies, our efforts to reduce currency exchange losses may
not be successful. As a result, currency fluctuations among our
reporting currency, the U.S. dollar, and the currencies in
which we do business will affect our operating results, often in
unpredictable ways. Additionally, our net income may fluctuate
due to the impact of charges we may be required to take with
respect to foreign currency hedge transactions. In particular,
we may incur higher charges from hedge ineffectiveness than we
expect or from the termination of a hedge relationship.
These examples are only illustrative and other risks, including
those discussed in these Risk Factors, could also
cause fluctuations in our reported earnings. In addition, our
operating results during any one period do not necessarily
suggest the anticipated results of future periods.
Our
portfolio of marketable securities is significant and subject to
market, interest and credit risk that may reduce its
value.
We maintain a significant portfolio of marketable securities.
Changes in the value of this portfolio could adversely affect
our earnings. In particular, the value of our investments may
decline due to increases in interest rates, downgrades in the
corporate bonds and other securities included in our portfolio,
instability in the global financial markets that reduces the
liquidity of securities included in our portfolio, declines in
the value of collateral underlying the mortgage and asset-backed
securities included in our portfolio, and other factors. Each of
these events may cause us to record charges to reduce the
carrying value of our investment portfolio or sell investments
for less than our acquisition cost. Although we attempt to
mitigate these risks by investing in high quality securities and
continuously monitoring our portfolios overall risk
profile, the value of our investments may nevertheless decline.
Our
level of indebtedness could adversely affect our business and
limit our ability to plan for or respond to changes in our
business.
As of June 30, 2010, we had $1.1 billion of
outstanding indebtedness, and we may incur additional debt in
the future. Our level of indebtedness could adversely affect our
business by, among other things:
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requiring us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow for other purposes,
including business development efforts and research and
development;
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limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate,
thereby placing us at a competitive disadvantage compared to our
competitors that may have less debt; and
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increasing our vulnerability to general adverse economic and
industry conditions.
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Our
business involves environmental risks, which include the cost of
compliance and the risk of contamination or
injury.
Our business and the business of several of our strategic
partners, including Genentech and Elan, involves the controlled
use of hazardous materials, chemicals, biologics and radioactive
compounds. Although we believe that our safety procedures for
handling and disposing of such materials comply with state and
federal standards, there will always be the risk of accidental
contamination or injury. By law, radioactive materials may only
be disposed of at state-approved facilities. We currently store
radioactive materials from our California laboratory
on-site
because the approval of a disposal site in California for all
California-based companies has been delayed indefinitely. If and
when a disposal site is approved, we may incur substantial costs
related to the disposal of these materials. If we were to become
liable for an accident, or if we were to suffer an extended
facility shutdown, we could incur significant costs, damages and
penalties that could harm our business. Biologics manufacturing
also requires permits from government agencies for water supply
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62
wastewater discharge. If we do not obtain appropriate permits,
or permits for sufficient quantities of water and wastewater, we
could incur significant costs and limits on our manufacturing
volumes that could harm our business.
Several
aspects of our corporate governance and our collaboration
agreements may discourage a third party from attempting to
acquire us.
Several factors might discourage a takeover attempt that could
be viewed as beneficial to shareholders who wish to receive a
premium for their shares from a potential bidder. For example:
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we are subject to Section 203 of the Delaware General
Corporation Law, which provides that we may not enter into a
business combination with an interested shareholder for a period
of three years after the date of the transaction in which the
person became an interested shareholder, unless the business
combination is approved in the manner prescribed in
Section 203;
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our board of directors has the authority to issue, without a
vote or action of shareholders, shares of preferred stock and to
fix the price, rights, preferences and privileges of those
shares, each of which could be superior to the rights of holders
of common stock;
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our collaboration agreement with Elan provides Elan with the
option to buy the rights to TYSABRI if we undergo a change of
control, which may limit our attractiveness to potential
acquirers;
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our collaboration agreement with Genentech provides that, if we
undergo a change of control, within 90 days Genentech may
present an offer to us to purchase our rights to RITUXAN. If a
change of control were to occur in the future and Genentech were
to present an offer for the RITUXAN rights, we must either
accept Genentechs offer or purchase Genentechs
rights to RITUXAN on the same terms as its offer. If Genentech
presents such an offer, then they will be deemed concurrently to
have exercised a right, in exchange for a royalty on net sales
in the U.S. of any anti-CD20 product acquired or developed
by Genentech or any anti-CD20 product that Genentech licenses
from a third party that is developed under the agreement, to
purchase our interest in each such product;
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our directors are elected to staggered terms, which prevents the
entire board from being replaced in any single year; and
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advance notice is required for nomination of candidates for
election as a director and for proposals to be brought before an
annual meeting of shareholders.
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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Issuer
Purchases of Equity Securities
The following table summarizes our common stock repurchase
activity during the second quarter of 2010:
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Total Number of
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Approximate Dollar
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Shares Purchased
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Value of Shares That
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Total Number of
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Average Price
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as Part of Publicly
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May Yet Be Purchased
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Shares Purchased
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Paid per Share
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Announced Programs
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Under Our Programs
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Period
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(#)
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($)
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(#)
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($ in millions)
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2010 Repurchase Program
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Apr-10
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1,600,000
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52.36
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1,600,000
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1,416.2
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May-10
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8,522,294
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50.87
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8,522,294
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982.7
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Jun-10
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10,676,531
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48.18
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10,676,531
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468.2
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Total
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20,798,825
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49.61
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On April 20, 2010, we announced that our Board of Directors
authorized the repurchase of up to $1.5 billion of our
common stock. This authorization is intended to continue to
reduce our shares outstanding with the objective of returning
excess cash to shareholders. We intend to retire these shares
following repurchase on the open market. This repurchase
authorization does not have an expiration date. As of
June 30,
63
2010, approximately 20.8 million shares at a cost of
approximately $1.0 billion have been repurchased under this
program, all of which were retired. From July 1, 2010
through July 16, 2010, we repurchased approximately an
additional 4.7 million shares under this program at a cost
of $233.2 million, all of which were also retired.
Approximately $235.0 million remains available for
repurchase of our common stock under the 2010 program. The
number of remaining shares that may be purchased under this
program will vary based on price fluctuations of our common
stock.
The exhibits listed on the Exhibit Index immediately
preceding such exhibits, which is incorporated herein by
reference, are filed or furnished as part of this Quarterly
Report on
Form 10-Q.
64
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BIOGEN IDEC INC.
Paul J. Clancy
Executive Vice President and