e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
(Mark One)
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended
September 30,
2010
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
Commission File Number 0-19311
BIOGEN IDEC INC.
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
33-0112644
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
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):
|
|
|
|
Large
accelerated
filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act): Yes o No þ
The number of shares of the issuers Common Stock,
$0.0005 par value, outstanding as of October 22, 2010,
was 238,302,269 shares.
BIOGEN
IDEC INC.
FORM 10-Q
Quarterly Report
For the Quarterly Period Ended September 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:
|
|
|
|
|
the anticipated level, mix and timing of future product sales,
royalty revenues or obligations, milestone payments, expenses,
liabilities, contractual obligations, currency hedges, effective
tax rate and amortization of intangible assets;
|
|
|
|
the growth trends for TYSABRI and our ability to improve the
benefit-risk profile of TYSABRI;
|
|
|
|
the assumed remaining life of the core technology relating to
AVONEX and expected lifetime revenue of AVONEX;
|
|
|
|
the incidence, timing, outcome and impact of litigation,
proceedings related to patents and other intellectual property
rights, tax audits and assessments and other legal proceedings;
|
|
|
|
the timing and impact of accounting standards;
|
|
|
|
the impact of healthcare reform and other measures designed to
reduce healthcare costs;
|
|
|
|
the impact of the global macroeconomic environment and the
deterioration of the credit and economic conditions in Europe;
|
|
|
|
our ability to finance our operations and business initiatives
and obtain funding for such activities;
|
|
|
|
the status, intended use and financial impact of our
manufacturing facilities and other properties; and
|
|
|
|
the drivers for growing our business, including our plans to
pursue external business development and research opportunities,
and the impact of competition.
|
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®
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
(unaudited,
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
876,850
|
|
|
$
|
801,689
|
|
|
$
|
2,560,305
|
|
|
$
|
2,326,067
|
|
Unconsolidated joint business
|
|
|
257,981
|
|
|
|
283,919
|
|
|
|
819,281
|
|
|
|
838,307
|
|
Other
|
|
|
40,958
|
|
|
|
34,910
|
|
|
|
117,765
|
|
|
|
85,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,175,789
|
|
|
|
1,120,518
|
|
|
|
3,497,351
|
|
|
|
3,250,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding amortization of acquired intangible
assets
|
|
|
95,918
|
|
|
|
93,486
|
|
|
|
299,958
|
|
|
|
282,404
|
|
Research and development
|
|
|
319,054
|
|
|
|
304,055
|
|
|
|
957,759
|
|
|
|
999,986
|
|
Selling, general and administrative
|
|
|
244,160
|
|
|
|
226,755
|
|
|
|
755,147
|
|
|
|
669,415
|
|
Collaboration profit sharing
|
|
|
63,991
|
|
|
|
60,697
|
|
|
|
190,240
|
|
|
|
152,608
|
|
Amortization of acquired intangible assets
|
|
|
53,531
|
|
|
|
51,347
|
|
|
|
155,568
|
|
|
|
233,830
|
|
Acquired in-process research and development
|
|
|
205,000
|
|
|
|
|
|
|
|
244,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
981,654
|
|
|
|
736,340
|
|
|
|
2,603,648
|
|
|
|
2,338,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
194,135
|
|
|
|
384,178
|
|
|
|
893,703
|
|
|
|
912,049
|
|
Other income (expense), net
|
|
|
(6,945
|
)
|
|
|
9,360
|
|
|
|
(14,318
|
)
|
|
|
30,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
187,190
|
|
|
|
393,538
|
|
|
|
879,385
|
|
|
|
942,935
|
|
Income tax expense
|
|
|
75,011
|
|
|
|
113,936
|
|
|
|
252,564
|
|
|
|
271,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
112,179
|
|
|
|
279,602
|
|
|
|
626,821
|
|
|
|
671,066
|
|
Net income (loss) attributable to noncontrolling interest, net
of tax
|
|
|
(141,936
|
)
|
|
|
1,939
|
|
|
|
(138,174
|
)
|
|
|
6,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec Inc.
|
|
$
|
254,115
|
|
|
$
|
277,663
|
|
|
$
|
764,995
|
|
|
$
|
664,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to Biogen Idec Inc.
|
|
$
|
1.06
|
|
|
$
|
0.96
|
|
|
$
|
2.98
|
|
|
$
|
2.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Biogen Idec Inc.
|
|
$
|
1.05
|
|
|
$
|
0.95
|
|
|
$
|
2.95
|
|
|
$
|
2.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in calculating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to Biogen Idec Inc.
|
|
|
239,864
|
|
|
|
288,917
|
|
|
|
256,586
|
|
|
|
288,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Biogen Idec Inc.
|
|
|
242,313
|
|
|
|
291,037
|
|
|
|
258,906
|
|
|
|
290,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these unaudited consolidated financial
statements
4
(unaudited,
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
626,757
|
|
|
$
|
581,889
|
|
Marketable securities
|
|
|
197,835
|
|
|
|
681,835
|
|
Accounts receivable, net
|
|
|
616,697
|
|
|
|
551,208
|
|
Due from unconsolidated joint business
|
|
|
221,618
|
|
|
|
193,789
|
|
Inventory
|
|
|
269,313
|
|
|
|
293,950
|
|
Other current assets
|
|
|
198,911
|
|
|
|
177,924
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,131,131
|
|
|
|
2,480,595
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
560,006
|
|
|
|
1,194,080
|
|
Property, plant and equipment, net
|
|
|
1,641,791
|
|
|
|
1,637,083
|
|
Intangible assets, net
|
|
|
1,715,342
|
|
|
|
1,871,078
|
|
Goodwill
|
|
|
1,138,621
|
|
|
|
1,138,621
|
|
Investments and other assets
|
|
|
207,256
|
|
|
|
230,397
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,394,147
|
|
|
$
|
8,551,854
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
143,699
|
|
|
$
|
118,534
|
|
Taxes payable
|
|
|
115,689
|
|
|
|
75,891
|
|
Accrued expenses and other
|
|
|
553,796
|
|
|
|
500,755
|
|
Current portion of notes payable and line of credit
|
|
|
11,296
|
|
|
|
19,762
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
824,480
|
|
|
|
714,942
|
|
|
|
|
|
|
|
|
|
|
Notes payable and line of credit
|
|
|
1,068,776
|
|
|
|
1,080,207
|
|
Long-term deferred tax liability
|
|
|
174,615
|
|
|
|
240,618
|
|
Other long-term liabilities
|
|
|
256,075
|
|
|
|
254,205
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,323,946
|
|
|
|
2,289,972
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 9, 14, 16, 17 and 18)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.001 per share
|
|
|
|
|
|
|
|
|
Common stock, par value $0.0005 per share
|
|
|
124
|
|
|
|
144
|
|
Additional paid-in capital
|
|
|
3,855,690
|
|
|
|
5,781,920
|
|
Accumulated other comprehensive income
|
|
|
(9,161
|
)
|
|
|
50,496
|
|
Retained earnings
|
|
|
1,646,852
|
|
|
|
1,068,890
|
|
Treasury stock, at cost
|
|
|
(462,810
|
)
|
|
|
(679,920
|
)
|
|
|
|
|
|
|
|
|
|
Total Biogen Idec Inc. shareholders equity
|
|
|
5,030,695
|
|
|
|
6,221,530
|
|
Noncontrolling interest
|
|
|
39,506
|
|
|
|
40,352
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
5,070,201
|
|
|
|
6,261,882
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
7,394,147
|
|
|
$
|
8,551,854
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these unaudited consolidated financial
statements
5
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
626,821
|
|
|
$
|
671,066
|
|
Adjustments to reconcile net income to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment
and intangible assets
|
|
|
260,089
|
|
|
|
334,761
|
|
Acquired in-process research and development
|
|
|
271,376
|
|
|
|
|
|
Share-based compensation
|
|
|
134,594
|
|
|
|
119,902
|
|
Non-cash interest (income) expense and foreign exchange
remeasurement loss (gain), net
|
|
|
1,124
|
|
|
|
(12,861
|
)
|
Deferred income taxes
|
|
|
(61,244
|
)
|
|
|
(72,580
|
)
|
Realized gain on sale of marketable securities and strategic
investments
|
|
|
(16,113
|
)
|
|
|
(17,185
|
)
|
Write-down of inventory to net realizable value
|
|
|
9,918
|
|
|
|
13,431
|
|
Loss on disposal of property, plant and equipment, net
|
|
|
1,748
|
|
|
|
|
|
Impairment of marketable securities, investments and other assets
|
|
|
19,319
|
|
|
|
9,866
|
|
Excess tax benefit from share-based compensation
|
|
|
(6,284
|
)
|
|
|
(3,194
|
)
|
Changes in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(72,719
|
)
|
|
|
(96,215
|
)
|
Due from unconsolidated joint business
|
|
|
(27,829
|
)
|
|
|
13,646
|
|
Inventory
|
|
|
16,311
|
|
|
|
(25,195
|
)
|
Other assets
|
|
|
(22,435
|
)
|
|
|
8,555
|
|
Accrued expenses and other current liabilities
|
|
|
17,377
|
|
|
|
(37,733
|
)
|
Other liabilities and taxes payable
|
|
|
41,564
|
|
|
|
(110,706
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
1,193,617
|
|
|
|
795,558
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(1,371,769
|
)
|
|
|
(3,001,156
|
)
|
Proceeds from sales and maturities of marketable securities
|
|
|
2,490,363
|
|
|
|
2,334,093
|
|
Acquisitions
|
|
|
(39,976
|
)
|
|
|
|
|
Acquisition of a variable interest entity, net
|
|
|
(84,952
|
)
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(124,220
|
)
|
|
|
(110,129
|
)
|
Purchases of other investments
|
|
|
(5,499
|
)
|
|
|
(36,519
|
)
|
Proceeds from the sale of a strategic equity investment
|
|
|
|
|
|
|
6,067
|
|
Collateral received under securities lending
|
|
|
|
|
|
|
29,991
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities
|
|
|
863,947
|
|
|
|
(777,653
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
(2,077,579
|
)
|
|
|
(57,631
|
)
|
Proceeds from issuance of stock for share-based compensation
arrangements
|
|
|
80,447
|
|
|
|
33,236
|
|
Change in cash overdraft
|
|
|
2,586
|
|
|
|
7,497
|
|
Net distributions to noncontrolling interest
|
|
|
(6,401
|
)
|
|
|
(2,832
|
)
|
Excess tax benefit from share-based compensation
|
|
|
6,284
|
|
|
|
3,194
|
|
Repayment of borrowings
|
|
|
(16,182
|
)
|
|
|
(10,867
|
)
|
Obligation under securities lending
|
|
|
|
|
|
|
(29,991
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
|
(2,010,845
|
)
|
|
|
(57,394
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
46,719
|
|
|
|
(39,489
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,851
|
)
|
|
|
2,892
|
|
Cash and cash equivalents, beginning of the period
|
|
|
581,889
|
|
|
|
622,385
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
626,757
|
|
|
$
|
585,788
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these unaudited consolidated financial
statements.
6
BIOGEN
IDEC INC. AND SUBSIDIARIES
(unaudited)
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
(CLL) 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 nine
months ended September 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 of an
entity, 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 determines the 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 subsequent events.
However, we did have the following nonrecognizable subsequent
events:
|
|
|
|
|
On October 1, 2010, we sold our San Diego campus for
cash proceeds of approximately $128.0 million. As part of
this transaction, we have also agreed to leaseback all of the
San Diego facilities for a period of 15 months. We
will account for this transaction as a financing arrangement.
For a more detailed description of these transactions, please
read Note 9, Property, Plant and Equipment.
|
|
|
|
On October 19, 2010, we and Genentech, Inc., a member of
the Roche Group (Genentech), amended and restated our Amended
and Restated Collaboration Agreement dated June 19, 2003
with regard to the development of ocrelizumab, a humanized
anti-CD20 antibody, and agreed to terms for the development of
GA101, a next-generation anti-CD20 antibody. For a more detailed
description of this transaction and its effect on our
collaboration with Genentech, please read Note 17,
Collaborations.
|
|
|
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 acquisition of BIH 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. For a more detailed description of this
acquisition, please read Note 2, Acquisitions and
Dispositions to our consolidated financial statements
included within our 2009
Form 10-K.
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.
8
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Revenues
from Unconsolidated Joint Business
We collaborate with Genentech 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.
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.
Multiple-Deliverable
Revenue Arrangements
During the third quarter of 2010, we elected to early adopt
Accounting Standards Update (ASU)
No. 2009-13,
Multiple-Deliverable Revenue Arrangements (ASU
2009-13).
ASU 2009-13,
amends existing revenue recognition accounting pronouncements
and provides accounting principles and application guidance on
whether multiple deliverables exist, how the arrangement should
be separated, and the consideration allocated. This guidance
eliminates the requirement to establish the fair value of
undelivered products and services and instead provides for
separate revenue recognition based upon managements
estimate of the selling price for an undelivered item when there
is no other means to determine the fair value of that
undelivered item. Previous accounting principles required that
the fair value of the undelivered item be the price of the item
either sold in a separate transaction between unrelated third
parties or the price charged for each item when the item is sold
separately by the vendor. The early adoption of this standard
requires the disclosure of the effect of this guidance as
applied to all previously reported interim periods in the fiscal
year of adoption. Our adoption of this standard did not have a
material impact our financial position or results of
9
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
operations as through the third quarter of 2010, we had not
recorded any revenue in accordance with revenue recognition
rules for multiple deliverables as described in ASU
2009-13 or
its predecessor pronouncements.
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 economies, and
associated impacts on the relevant financial markets and our
business, especially in light of the global economic downturn.
The credit and economic conditions within Greece, Italy, Spain,
Portugal and Ireland, among other members of the European Union,
have deteriorated throughout 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
September 30, 2010, our accounts receivable in Greece,
Italy, Spain, Portugal and Ireland totaled approximately
$250.4 million. To date, we have not experienced any
significant losses with respect to the collection of our
accounts receivable.
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, which ships product for qualifying patients from its
own inventory purchased from us. Gross revenue and the related
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
|
|
|
58.0
|
|
|
|
204.7
|
|
|
|
12.3
|
|
|
|
275.0
|
|
Adjustments relating to prior years
|
|
|
(2.4
|
)
|
|
|
(2.2
|
)
|
|
|
(1.8
|
)
|
|
|
(6.4
|
)
|
Payments/returns relating to sales in current year
|
|
|
(45.9
|
)
|
|
|
(110.3
|
)
|
|
|
(0.5
|
)
|
|
|
(156.7
|
)
|
Payments/returns relating to sales in prior years
|
|
|
(9.5
|
)
|
|
|
(60.7
|
)
|
|
|
(9.5
|
)
|
|
|
(79.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of September 30, 2010
|
|
$
|
14.1
|
|
|
$
|
101.8
|
|
|
$
|
19.4
|
|
|
$
|
135.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The total reserves above, included in our consolidated balance
sheets, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
Reduction of accounts receivable
|
|
$
|
34.7
|
|
|
$
|
43.3
|
|
Current liability
|
|
|
100.6
|
|
|
|
59.8
|
|
|
|
|
|
|
|
|
|
|
Total reserves
|
|
$
|
135.3
|
|
|
$
|
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 did 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 also 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, in 2011, a new fee will be payable by branded prescription
drug manufacturers and importers. This fee will be calculated
based upon each organizations percentage share of total
branded prescription drug sales to qualifying
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, of which $2.5 billion is
payable in 2011.
This new legislation contains a number of provisions that affect
existing government programs and has required the creation of
new programs, policies and processes, many of which remain under
development and have not been fully implemented. For example, we
do not yet fully know the extent of additional entities eligible
to participate under the 340(B) program or when and how
discounts will be provided to these entities. In addition, the
operation of the Medicare Part D coverage gap remains
uncertain, though, as noted above, this program and others will
not be effective until 2011.
Inventory is 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 inventory are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
Raw materials
|
|
$
|
51.6
|
|
|
$
|
49.2
|
|
Work in process
|
|
|
126.0
|
|
|
|
174.0
|
|
Finished goods
|
|
|
91.7
|
|
|
|
70.8
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
269.3
|
|
|
$
|
294.0
|
|
|
|
|
|
|
|
|
|
|
11
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
5.
|
Intangible
Assets and Goodwill
|
Intangible
Assets
Intangible assets, net of accumulated amortization, impairment
charges and adjustments, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 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
|
|
|
$
|
(339.9
|
)
|
|
$
|
238.1
|
|
|
$
|
578.0
|
|
|
$
|
(306.0
|
)
|
|
$
|
272.0
|
|
Core developed technology
|
|
|
15-23 years
|
|
|
|
3,005.3
|
|
|
|
(1,593.9
|
)
|
|
|
1,411.4
|
|
|
|
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
|
|
|
$
|
(1,949.8
|
)
|
|
$
|
1,715.3
|
|
|
$
|
3,665.1
|
|
|
$
|
(1,794.0
|
)
|
|
$
|
1,871.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets were unchanged as of September 30, 2010,
compared to December 31, 2009, exclusive of the impact of
amortization.
Our most significant intangible asset is the core technology
related to our AVONEX product. The net book value of this asset
as of September 30, 2010 was $1,396.7 million. We
believe the economic benefit of our core technology is consumed
as revenue is generated from our AVONEX product, which we refer
to as the economic consumption amortization model. This
amortization methodology involves calculating a ratio of actual
current period sales to total anticipated sales for the life of
the product and applying this ratio to the carrying amount of
the intangible asset. An analysis of the anticipated product
sales of AVONEX is performed at least annually during our long
range planning cycle, and this analysis serves as the basis for
the calculation of our economic consumption amortization model.
Although we believe this process has allowed us to reliably
determine the best estimate of the pattern in which we will
consume the economic benefits of our core technology intangible
asset, the model could result in deferring amortization charges
to future periods in certain instances, due to continued sales
of the product at a nominal level after patent expiration or
otherwise. In order to ensure that amortization charges are not
unreasonably deferred to future periods, we compare the amount
of amortization determined under the economic consumption model
against the minimum amount of amortization recalculated each
year under the straight-line method. Amortization is then
recorded based upon the higher of the amount of amortization
determined under the economic consumption model or the minimum
amortization amount determined under the straight-line method.
We completed our most recent long range planning cycle in the
third quarter of 2010. Based upon this analysis, we have
continued to amortize this asset on the economic consumption
model for the third quarter of 2010, and expect to apply the
same model for the subsequent three quarters. In addition, this
analysis did not result in a significant change in the expected
lifetime revenue of AVONEX. As a result, the amortization
recorded in relation to our core intangible asset for the
current and three subsequent quarters is anticipated to be
comparable to amounts recorded during the prior four quarters.
We monitor events and expectations on product performance. If
there are any indications that the assumptions underlying our
most recent analysis would be different than those utilized
within our current estimates, our analysis would be updated and
may result in a significant change in the anticipated lifetime
revenue of AVONEX determined during our most recent annual
review.
12
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
For the three and nine months ended September 30, 2010,
amortization for acquired intangible assets totaled
$53.5 million and $155.6 million, respectively,
compared to $51.3 million and $233.8 million,
respectively, in the prior year comparative periods and is
expected to be in the range of approximately $170.0 million
to $210.0 million annually through 2015.
Goodwill
Our goodwill balance remained unchanged as of September 30,
2010, compared to December 31, 2009. As of
September 30, 2010, we had no accumulated impairment losses.
|
|
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 September 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 September 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 include investments in certain
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
September 30, 2010 and December 31, 2009. The fair
value of
13
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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
fund 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 financings or by reviewing the underlying
economic fundamentals and liquidation value of the companies
that the funds invest in. 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 for all periods
presented.
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
|
|
|
|
September 30,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
(In millions)
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
534.3
|
|
|
$
|
|
|
|
$
|
534.3
|
|
|
$
|
|
|
Marketable debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
226.3
|
|
|
|
|
|
|
|
226.3
|
|
|
|
|
|
Government securities
|
|
|
476.0
|
|
|
|
|
|
|
|
476.0
|
|
|
|
|
|
Mortgage and other asset backed securities
|
|
|
55.5
|
|
|
|
|
|
|
|
55.5
|
|
|
|
|
|
Strategic investments
|
|
|
36.4
|
|
|
|
36.4
|
|
|
|
|
|
|
|
|
|
Venture capital investments
|
|
|
21.8
|
|
|
|
|
|
|
|
|
|
|
|
21.8
|
|
Derivative contracts
|
|
|
1.0
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
Plan assets for deferred compensation
|
|
|
12.3
|
|
|
|
|
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,363.6
|
|
|
$
|
36.4
|
|
|
$
|
1,305.4
|
|
|
$
|
21.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
24.5
|
|
|
$
|
|
|
|
$
|
24.5
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24.5
|
|
|
$
|
|
|
|
$
|
24.5
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Beginning balance
|
|
$
|
20.4
|
|
|
$
|
21.6
|
|
|
$
|
21.9
|
|
|
$
|
23.9
|
|
Total net unrealized gains (losses) included in earnings
|
|
|
0.5
|
|
|
|
0.9
|
|
|
|
(1.1
|
)
|
|
|
(2.2
|
)
|
Net purchases, issuances, and settlements
|
|
|
0.9
|
|
|
|
0.6
|
|
|
|
1.0
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
21.8
|
|
|
$
|
23.1
|
|
|
$
|
21.8
|
|
|
$
|
23.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair and carrying value of our debt instruments are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010
|
|
|
As of December 31, 2009
|
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
(In millions)
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Credit line from Dompé
|
|
$
|
10.3
|
|
|
$
|
10.2
|
|
|
$
|
17.2
|
|
|
$
|
17.2
|
|
Notes payable to Fumedica
|
|
|
23.6
|
|
|
|
20.9
|
|
|
|
31.3
|
|
|
|
30.0
|
|
6.0% Senior Notes due 2013
|
|
|
493.6
|
|
|
|
449.7
|
|
|
|
475.7
|
|
|
|
449.6
|
|
6.875% Senior Notes due 2018
|
|
|
646.8
|
|
|
|
599.3
|
|
|
|
589.1
|
|
|
|
603.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,174.3
|
|
|
$
|
1,080.1
|
|
|
$
|
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
15
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
and corroborated sources; within the hierarchy of fair value
measurements, these are classified as Level 2 fair values.
Marketable
Securities, including Strategic Investments
The following tables summarize our marketable securities and
strategic investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
As of September 30, 2010 (In millions):
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
55.3
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
55.2
|
|
Non-current
|
|
|
171.0
|
|
|
|
3.3
|
|
|
|
(0.1
|
)
|
|
|
167.8
|
|
Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
142.4
|
|
|
|
0.2
|
|
|
|
|
|
|
|
142.2
|
|
Non-current
|
|
|
333.6
|
|
|
|
1.3
|
|
|
|
(0.1
|
)
|
|
|
332.4
|
|
Mortgage and other asset backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Non-current
|
|
|
55.4
|
|
|
|
0.4
|
|
|
|
(0.2
|
)
|
|
|
55.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
757.8
|
|
|
$
|
5.3
|
|
|
$
|
(0.4
|
)
|
|
$
|
752.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic investments, non-current
|
|
$
|
36.4
|
|
|
$
|
7.2
|
|
|
$
|
|
|
|
$
|
29.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
In the tables above, as of September 30, 2010 and
December 31, 2009, government securities included
$127.2 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 in the tables above. As of
September 30, 2010 and December 31, 2009, the
commercial paper, including accrued interest, had fair and
carrying values of $148.5 million and $76.9 million,
respectively, and short-term debt securities had fair and
carrying values of $385.8 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 September 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
|
|
$
|
168.2
|
|
|
$
|
167.9
|
|
|
$
|
522.0
|
|
|
$
|
519.5
|
|
Due after one year through five years
|
|
|
545.9
|
|
|
|
541.6
|
|
|
|
1,143.7
|
|
|
|
1,133.4
|
|
Due after five years
|
|
|
43.7
|
|
|
|
43.4
|
|
|
|
210.2
|
|
|
|
207.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
757.8
|
|
|
$
|
752.9
|
|
|
$
|
1,875.9
|
|
|
$
|
1,860.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average maturity of our marketable securities as of
September 30, 2010 and December 31, 2009 was
13 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 Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Proceeds from maturities and sales
|
|
$
|
487.8
|
|
|
$
|
696.5
|
|
|
$
|
2,490.4
|
|
|
$
|
2,334.1
|
|
Realized gains
|
|
$
|
5.0
|
|
|
$
|
3.1
|
|
|
$
|
18.1
|
|
|
$
|
17.0
|
|
Realized losses
|
|
$
|
0.2
|
|
|
$
|
1.3
|
|
|
$
|
2.0
|
|
|
$
|
3.4
|
|
Realized losses for the three and nine months ended
September 30, 2010, primarily relate to the sale of agency
mortgage-backed securities and corporate debt securities. The
realized losses for the three and nine months ended
September 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.
17
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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.
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 nine months ended September 30, 2010, we
recognized $2.8 million and $19.8 million,
respectively, in charges for the
other-than-temporary
impairment of our publicly held strategic investments,
investments in venture capital funds and investments in
privately-held companies compared to $0.5 million and
$6.5 million in the prior year comparative periods. The
increase for the nine month comparative periods was primarily
due to 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
nine months ended September 30, 2009. No impairments were
recognized related to our marketable debt securities for the
three months ended September 30, 2009 or for the three and
nine months ended September 30, 2010.
|
|
8.
|
Derivative
Instruments
|
Our primary market exposure is to changes (or fluctuations) in
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
September 30, 2010 and December 31, 2009 had remaining
durations of 1 to 13 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
18
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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.
The notional value of foreign currency forward contracts that
were entered into to hedge forecasted revenue is summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Foreign Currency: (In millions)
|
|
2010
|
|
|
2009
|
|
|
Euro
|
|
$
|
511.6
|
|
|
$
|
495.9
|
|
Canadian Dollar
|
|
|
29.6
|
|
|
|
22.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
541.2
|
|
|
$
|
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 losses of
$17.1 million and net gains of $1.2 million as of
September 30, 2010 and December 31, 2009,
respectively. We expect all contracts to be settled over the
next 13 months and any amounts in accumulated other
comprehensive income to be reported as an adjustment to 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 September 30, 2010 and December 31,
2009, credit risk did not materially change the fair value of
our forward contracts.
For the three and nine months ended September 30, 2010, we
recognized $20.7 million and $40.6 million,
respectively, of gains in product revenue for the settlement of
certain effective cash flow hedge forward contracts compared to
losses recognized in the amount of $16.3 million and
$28.6 million, respectively, in the prior year comparative
periods. These settlements were recorded in the same period as
the related forecasted revenue.
In relation to our foreign currency forward contracts, we
recognized in earnings net gains of $1.4 million and
$0.9 million, respectively, due to hedge ineffectiveness
for the three and nine months ended September 30, 2010. We
recognized net losses of $0.1 million and
$0.9 million, respectively, in the prior year comparative
periods.
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 September 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
|
|
September 30, 2010
|
|
|
Other Current Assets
|
|
|
$
|
|
|
|
|
Accrued Expenses and Other
|
|
|
$
|
16.5
|
|
December 31, 2009
|
|
|
Other Current Assets
|
|
|
$
|
10.8
|
|
|
|
Accrued Expenses and Other
|
|
|
$
|
9.8
|
|
19
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 nine months ended September 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(17.1
|
)
|
|
Revenue
|
|
$
|
20.7
|
|
|
Other income (expense)
|
|
$
|
1.4
|
|
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(34.7
|
)
|
|
Revenue
|
|
$
|
(16.3
|
)
|
|
Other income (expense)
|
|
$
|
(0.1
|
)
|
For the Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(17.1
|
)
|
|
Revenue
|
|
$
|
40.6
|
|
|
Other income (expense)
|
|
$
|
0.9
|
|
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(34.7
|
)
|
|
Revenue
|
|
$
|
(28.6
|
)
|
|
Other income (expense)
|
|
$
|
(0.9
|
)
|
Other
Derivatives
We enter into other foreign currency forward contracts, with one
month durations, to mitigate the foreign currency risk related
to certain balance sheet positions. We have not elected hedge
accounting for these transactions. As of September 30,
2010, the aggregate notional amount of our outstanding foreign
currency contracts was $170.1 million. The fair value of
these contracts was a net liability of $7.0 million. Net
losses of $10.1 million and net gains of $3.0 million
related to these contracts were recognized as a component of
other income (expense), net, for the three and nine months ended
September 30, 2010, respectively. We recognized net losses
of $2.2 million and a de minimis amount, respectively, as a
component of other income (expense), net for the three and nine
months ended September 30, 2009.
|
|
9.
|
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 $737.7 million at
September 30, 2010 and $642.5 million at
December 31, 2009.
San Diego
Campus
On October 1, 2010, we sold our San Diego campus,
which is comprised of 43 acres of land and buildings
totaling approximately 355,000 square feet of laboratory
and office space, for cash proceeds of approximately
$128.0 million. Under the terms of the agreement, we have
an option to cause the buyer to construct a 160,000 square
foot office and laboratory facility in San Diego which we
would lease for a term of 10 years. Under this option, we
would receive approximately $22.0 million. This option will
expire on November 1, 2010. As part of this transaction, we
have also agreed to leaseback all of the San Diego
facilities
20
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
for a period of 15 months. We will account for this
transaction as a financing arrangement, incurring debt service
payments and interest totaling approximately $9.4 million
over the term of the leaseback period.
We have determined that the transaction does not qualify the
facility for held for sale classification due to our
continuing involvement under the leaseback terms. Accordingly,
the campus assets remain classified as held for use and their
carrying value is reflected as a component of Property, plant
and equipment, net within our consolidated balance sheet as of
September 30, 2010. We have not recognized a loss or
impairment charge related to the San Diego campus.
As of September 30, 2010, our San Diego campus was not
encumbered by any liabilities. The net carrying amounts of the
major classes of assets are summarized as follows:
|
|
|
|
|
|
|
As of
|
|
|
|
September 30,
|
|
(In millions)
|
|
2010
|
|
|
Land
|
|
$
|
46.1
|
|
Buildings
|
|
|
73.8
|
|
Furniture and fixtures
|
|
|
2.7
|
|
Machinery and equipment
|
|
|
5.8
|
|
|
|
|
|
|
Total
|
|
$
|
128.4
|
|
|
|
|
|
|
Impairment
We regularly evaluate our current facility utilization strategy
and assess 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. In
addition, 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 or vacate one or
more of our properties.
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 our 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 cost,
including lease termination fees, rent expense in excess of
sublease income and impairment of leasehold improvements.
Shareholders equity as of September 30, 2010,
decreased $1,191.7 million compared to December 31,
2009.
For the nine months ended September 30, 2010, we
repurchased approximately 40.3 million shares at a cost of
approximately $2.1 billion 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 a reduction in
additional
paid-in-capital
by the same amount. Our 2010 and 2009 stock repurchase programs
were completed during the third and first quarters of 2010,
respectively.
This decline in shareholders equity was offset by net
income attributable to Biogen Idec Inc. of $765.0 million,
and the increase to additional paid-in capital resulting from
the amortization of expense associated with our share-based
compensation programs of $137.1 million.
21
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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 September 30, 2010
|
|
|
Ended September 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
|
|
$
|
254.1
|
|
|
$
|
(141.9
|
)
|
|
$
|
112.2
|
|
|
$
|
277.7
|
|
|
$
|
1.9
|
|
|
$
|
279.6
|
|
Unrealized gains (losses) on investments
|
|
|
5.8
|
|
|
|
|
|
|
|
5.8
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(0.5
|
)
|
Unrealized gains (losses) on foreign currency forward contracts
|
|
|
(71.1
|
)
|
|
|
|
|
|
|
(71.1
|
)
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
(2.3
|
)
|
(Over) underfunded status of pension and post-retirement benefit
plans
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
Translation adjustments
|
|
|
84.4
|
|
|
|
4.5
|
|
|
|
88.9
|
|
|
|
28.4
|
|
|
|
1.3
|
|
|
|
29.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
273.4
|
|
|
$
|
(137.4
|
)
|
|
$
|
136.0
|
|
|
$
|
303.5
|
|
|
$
|
3.2
|
|
|
$
|
306.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30, 2010
|
|
|
Ended September 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
|
|
$
|
765.0
|
|
|
$
|
(138.2
|
)
|
|
$
|
626.8
|
|
|
$
|
664.5
|
|
|
$
|
6.6
|
|
|
$
|
671.1
|
|
Unrealized gains (losses) on investments
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
3.0
|
|
|
|
|
|
|
|
3.0
|
|
Unrealized gains (losses) on foreign currency forward contracts
|
|
|
(16.8
|
)
|
|
|
|
|
|
|
(16.8
|
)
|
|
|
9.6
|
|
|
|
|
|
|
|
9.6
|
|
(Over) underfunded status of pension and post-retirement benefit
plans
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
Translation adjustments
|
|
|
(39.2
|
)
|
|
|
(1.3
|
)
|
|
|
(40.5
|
)
|
|
|
35.4
|
|
|
|
1.9
|
|
|
|
37.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
705.3
|
|
|
$
|
(139.5
|
)
|
|
$
|
565.8
|
|
|
$
|
712.7
|
|
|
$
|
8.5
|
|
|
$
|
721.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on investments are shown net
of tax of $3.4 million and $2.1 million for the three
and nine months ended September 30, 2010, respectively,
compared to $0.3 million and $1.7 million in the prior
year comparative periods.
Unrealized gains (losses) on foreign currency forward contracts
are shown net of tax of $8.0 million, and $1.5 million
for the three and nine months ended September 30, 2010,
respectively, compared to $0.8 million and
$0.3 million in the prior year comparative periods.
22
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The (over) underfunded status of pension and post-retirement
benefit plans is shown net of tax as of September 30, 2010
and September 30, 2009. Tax for both years was immaterial.
The following table reconciles equity attributable to
noncontrolling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Noncontrolling interest, beginning of period
|
|
$
|
40.5
|
|
|
$
|
33.2
|
|
|
$
|
40.4
|
|
|
$
|
27.9
|
|
Fair value of assets and liabilities acquired and assigned to
noncontrolling interests (Note 16)
|
|
|
145.0
|
|
|
|
|
|
|
|
145.0
|
|
|
|
|
|
Net income (loss) attributable to noncontrolling interest
|
|
|
(141.9
|
)
|
|
|
1.9
|
|
|
|
(138.2
|
)
|
|
|
6.6
|
|
Translation adjustments
|
|
|
4.5
|
|
|
|
1.3
|
|
|
|
(1.3
|
)
|
|
|
1.9
|
|
Distributions to noncontrolling interest
|
|
|
(8.9
|
)
|
|
|
(2.8
|
)
|
|
|
(8.9
|
)
|
|
|
(2.8
|
)
|
Capital contributions from noncontrolling interest
|
|
|
0.3
|
|
|
|
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest, end of period
|
|
$
|
39.5
|
|
|
$
|
33.6
|
|
|
$
|
39.5
|
|
|
$
|
33.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to us from our joint ventures were
negligible for the three and nine months ended
September 30, 2010 and 2009.
Basic and diluted earnings per share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec
|
|
$
|
254.1
|
|
|
$
|
277.7
|
|
|
$
|
765.0
|
|
|
$
|
664.5
|
|
Adjustment for net income allocable to preferred shares
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
(1.5
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income used in calculating basic and diluted earnings per
share
|
|
$
|
253.6
|
|
|
$
|
277.2
|
|
|
$
|
763.5
|
|
|
$
|
663.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
239.9
|
|
|
|
288.9
|
|
|
|
256.6
|
|
|
|
288.4
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and employee stock purchase plan
|
|
|
0.9
|
|
|
|
0.6
|
|
|
|
0.9
|
|
|
|
0.7
|
|
Time-vested restricted stock units
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
1.4
|
|
|
|
1.3
|
|
Market stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-vested restricted stock units settled in shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
2.4
|
|
|
|
2.1
|
|
|
|
2.3
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculating diluted earnings per share
|
|
|
242.3
|
|
|
|
291.0
|
|
|
|
258.9
|
|
|
|
290.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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 Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to preferred shares
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
1.5
|
|
|
$
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
4.5
|
|
|
|
8.4
|
|
|
|
4.9
|
|
|
|
7.4
|
|
Time-vested restricted stock units
|
|
|
1.2
|
|
|
|
2.3
|
|
|
|
1.0
|
|
|
|
2.1
|
|
Market stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-vested restricted stock units settled in shares
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.1
|
|
Convertible preferred stock
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6.2
|
|
|
|
11.4
|
|
|
|
6.4
|
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Research and development
|
|
$
|
15.9
|
|
|
$
|
15.6
|
|
|
$
|
48.0
|
|
|
$
|
46.0
|
|
Selling, general and administrative
|
|
|
26.9
|
|
|
|
27.2
|
|
|
|
97.1
|
|
|
|
78.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
42.8
|
|
|
|
42.8
|
|
|
|
145.1
|
|
|
|
124.7
|
|
Capitalized share-based payment costs
|
|
|
(0.9
|
)
|
|
|
(1.7
|
)
|
|
|
(2.5
|
)
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in total costs and
expenses
|
|
|
41.9
|
|
|
|
41.1
|
|
|
|
142.6
|
|
|
|
119.9
|
|
Income tax effect
|
|
|
(13.0
|
)
|
|
|
(12.6
|
)
|
|
|
(45.4
|
)
|
|
|
(36.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in net income
attributable to Biogen Idec
|
|
$
|
28.9
|
|
|
$
|
28.5
|
|
|
$
|
97.2
|
|
|
$
|
83.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The following table summarizes share-based compensation expense
associated with each of our share-based compensation programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Stock options
|
|
$
|
3.0
|
|
|
$
|
5.5
|
|
|
$
|
23.1
|
|
|
$
|
16.6
|
|
Market stock units
|
|
|
2.3
|
|
|
|
|
|
|
|
7.8
|
|
|
|
|
|
Time-vested restricted stock units
|
|
|
30.8
|
|
|
|
34.4
|
|
|
|
96.5
|
|
|
|
99.9
|
|
Performance-vested restricted stock units settled in shares
|
|
|
0.7
|
|
|
|
(0.3
|
)
|
|
|
4.4
|
|
|
|
3.0
|
|
Performance-vested restricted stock units settled in cash
|
|
|
2.7
|
|
|
|
|
|
|
|
8.0
|
|
|
|
|
|
Employee stock purchase plan
|
|
|
3.3
|
|
|
|
3.2
|
|
|
|
5.3
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
42.8
|
|
|
$
|
42.8
|
|
|
$
|
145.1
|
|
|
$
|
124.7
|
|
Capitalized share-based payment costs
|
|
|
(0.9
|
)
|
|
|
(1.7
|
)
|
|
|
(2.5
|
)
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in total costs and
expenses
|
|
$
|
41.9
|
|
|
$
|
41.1
|
|
|
$
|
142.6
|
|
|
$
|
119.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
For the nine months ended September 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, compared to approximately 1.0 million
stock options granted in the prior year comparative period with
a weighted average exercise price of $50.02 and weighted average
grant date fair value of $18.01. 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.
Market
Stock Units (MSUs) and Cash Settled Performance Shares
(CSPSs)
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
MSUs, and performance-vested restricted stock units which will
be settled in cash, referred to as 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
For the nine months ended September 30, 2010, approximately
400,000 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.
25
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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
|
|
28.3% - 38.8%
|
Range of risk-free interest rates
|
|
0.3% - 2.0%
|
60 calendar day average stock price on grant date
|
|
$49.08 - $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
For the nine months ended September 30, 2010, approximately
378,000 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 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 (RSUs)
For the nine months ended September 30, 2010, approximately
2.0 million RSUs were granted with a weighted average grant
date fair value of $54.63, compared to approximately
2.5 million RSUs granted in the prior year comparative
period with a weighted average grant date fair value of $49.35.
The fair values of our 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.
Performance-Vested
Restricted Stock Units (PVRSUs)
For the nine months ended September 30, 2009, approximately
321,000 PVRSUs were granted with a weighted average grant date
fair value of $49.46. 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.
26
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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 (ESPP)
For the nine months ended September 30, 2010, approximately
457,000 shares were issued under the ESPP compared to
approximately 426,000 shares issued in the prior year
comparative period.
The purchase price of common stock under our 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.
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 and a grant of
56,905 MSUs which are included within the total award grants
described above. Awards made to Dr. Scangos are subject to
the same terms and conditions as other grants except that 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 succeeded James C. Mullen, who retired as our
President and Chief Executive Officer on June 8, 2010.
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.
For the three and nine months ended September 30, 2010, our
effective worldwide income tax rates were 40.1% and 28.7%,
respectively, compared to 29.0% and 28.8% in the prior year
comparative periods.
Our effective tax rate for the three and nine months ended
September 30, 2010, was negatively impacted due to the
attribution to noncontrolling interest of $145.0 million of
the IPR&D charge related to our collaboration and license
agreement with Knopp Neurosciences, Inc. As such, the attributed
amount will not generate a tax deduction, causing our tax rate
to be unfavorably impacted by 13.5% and 2.7%, respectively. The
impact of the Knopp transaction was partially offset by a higher
percentage of our profits being earned in lower rate
international jurisdictions in 2010. This change in the location
of our relative profits was caused by
27
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
the growth of our international operations and lower 2010
domestic earnings as a proportion of total consolidated earnings
due, in part, to the U.S. healthcare reform legislation
enacted in March 2010. For a more detailed description of our
transaction with Knopp, please read Note 16, Investments
in Variable Interest Entities.
During 2010, we also experienced a favorable impact on our
effective tax rates due to a statutory increase in the
U.S. manufacturers tax deduction and an increase in
expenditures eligible for our orphan drug credit. The favorable
impact of these items were offset by the expiration of the
federal research and development tax credit which was not in
effect for the nine months ended September 30, 2010. In
addition, our 2009 effective tax rate for the three and nine
months ended September 30, 2009 was increased by 2.4% 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 nine months ended September 30, 2009 was also
favorably impacted by 3.2% for changes in tax law which became
effective during the first quarter of 2009 in certain state
jurisdictions in which we operate.
Reconciliation between the U.S. federal statutory tax rate
and our effective tax rate is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes
|
|
|
2.4
|
|
|
|
2.2
|
|
|
|
2.0
|
|
|
|
1.6
|
|
Taxes on foreign earnings
|
|
|
(13.6
|
)
|
|
|
(7.7
|
)
|
|
|
(10.8
|
)
|
|
|
(5.8
|
)
|
Credits and net operating loss utilization
|
|
|
(4.3
|
)
|
|
|
(1.5
|
)
|
|
|
(2.2
|
)
|
|
|
(4.1
|
)
|
Purchased intangible assets
|
|
|
2.9
|
|
|
|
0.9
|
|
|
|
1.8
|
|
|
|
2.0
|
|
IPR&D
|
|
|
21.6
|
|
|
|
0.9
|
|
|
|
5.2
|
|
|
|
1.1
|
|
Permanent items
|
|
|
(3.8
|
)
|
|
|
(1.0
|
)
|
|
|
(2.1
|
)
|
|
|
(1.5
|
)
|
Other
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
40.1
|
%
|
|
|
29.0
|
%
|
|
|
28.7
|
%
|
|
|
28.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2002 and 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,
2002 and 2003 and adjustments in certain credits and credit
carryforwards 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
28
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
availability of deductions for certain expenses and partnership
flow-through items. We anticipate that the hearing on our
petition will take place in the second quarter of 2011.
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.
|
|
15.
|
Other
Income (Expense), Net
|
Components of other income (expense), net, are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Interest income
|
|
$
|
3.1
|
|
|
$
|
10.9
|
|
|
$
|
18.6
|
|
|
$
|
37.8
|
|
Interest expense
|
|
|
(9.3
|
)
|
|
|
(8.5
|
)
|
|
|
(26.6
|
)
|
|
|
(27.6
|
)
|
Impairments of investments
|
|
|
(2.8
|
)
|
|
|
(0.5
|
)
|
|
|
(19.8
|
)
|
|
|
(10.1
|
)
|
Net gains(losses) on foreign currency transactions
|
|
|
(3.5
|
)
|
|
|
3.2
|
|
|
|
(3.2
|
)
|
|
|
10.6
|
|
Net realized gains(losses) on marketable securities
|
|
|
4.8
|
|
|
|
1.8
|
|
|
|
16.1
|
|
|
|
13.7
|
|
Other, net
|
|
|
0.8
|
|
|
|
2.5
|
|
|
|
0.6
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
(6.9
|
)
|
|
$
|
9.4
|
|
|
$
|
(14.3
|
)
|
|
$
|
30.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
29
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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
September 30, 2010 are total joint venture assets and
liabilities of $167.1 million and $75.1 million,
respectively. The joint ventures most significant assets
are accounts receivable from the ordinary course of business of
$118.5 million.
We have provided no financing to these joint ventures other than
previously contractually required amounts.
Knopp
In August 2010, we entered into a license agreement with Knopp
Neurosciences, Inc. (Knopp), a subsidiary of Knopp Holdings,
LLC, for the development, manufacture and commercialization of
KNS-760704 (dexpramipexole), an orally administered small
molecule in clinical development for the treatment of
amyotrophic lateral sclerosis (ALS). Under the terms of the
license agreement we made a $26.4 million upfront payment
and agreed to pay Knopp up to an additional $265.0 million
in development and sales-based milestone payments, as well as
royalties on future commercial sales. In exchange, we will be
responsible for all development activities and, if successful,
we will also be responsible for the manufacture and global
commercialization of dexpramipexole. Royalties are payable to
Knopp on a country by country basis until the later of
10 years from the first commercial sale of a dexpramipexole
product or the loss of exclusivity in such country. In addition,
we also purchased 30.0% of the Class B common shares of
Knopp for $60.0 million.
Due to the terms of the license agreement and our investment in
Knopp, we have determined that we are the primary beneficiary of
Knopp as we have the power to direct the activities that most
significantly impact Knopps economic performance. As such,
we consolidate the results of Knopp. The assets and liabilities
of Knopp are not significant to our financial position or
results of operations.
As the license agreement and our investment in Knopp only gives
us access to the underlying intellectual property of
dexpramipexole and we did not acquire any employees or other
processes, we have determined that this transaction was an
acquisition of an asset rather than a business. Therefore, we
have recorded an IPR&D charge of approximately
$205.0 million upon the initial consolidation of Knopp,
which is included within earnings for the three and nine months
ended September 30, 2010. The amount allocated to
IPR&D represents the fair value of the intellectual
property of Knopp, which as of the effective date of the
agreement, had not reached technological feasibility and had no
alternative future use. This charge was determined using
internal models based on projected revenues and development
costs and adjusted for industry-specific probabilities of
success. Estimated revenues from dexpramipexole are expected to
be recognized beginning in 2014. A discount rate of 14% was used
in the valuation of this asset, which we believe to be
commensurate with the stage of development and level of risk
associated with the underlying biologic compound. Within the
30
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
hierarchy of fair value measurements, this IPR&D charge is
classified as having a Level 3 fair value. We have
attributed approximately $145.0 million of the IPR&D
charge to the noncontrolling interest.
Future development and sales-based milestone payments will be
reflected within our consolidated statements of income as a
charge to the noncontrolling interest, net of tax, when such
milestones are achieved. Although we have assumed responsibility
for the development of dexpramipexole, we may also be required
to reimburse certain Knopp expenses directly attributable to the
license agreement. Any additional amounts incurred by Knopp that
we reimburse will be reflected within total costs and expenses
in our consolidated statements of income.
A summary of activity related to this collaboration, excluding
the initial accounting for the consolidation of Knopp, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Total upfront payments made to Knopp
|
|
$
|
26.4
|
|
|
$
|
|
|
|
$
|
26.4
|
|
|
$
|
|
|
Total development expense incurred in the development of
dexpramipexole
|
|
$
|
1.0
|
|
|
$
|
|
|
|
$
|
1.0
|
|
|
$
|
|
|
Biogen Idecs share of expense reflected within our
consolidated statements of income
|
|
$
|
27.4
|
|
|
$
|
|
|
|
$
|
27.4
|
|
|
$
|
|
|
We have provided no financing to Knopp other than the
contractually required amounts disclosed above.
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 are
incurred by Neurimmune for research and development expense
incurred in support of the collaboration that we reimburse 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 Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Milestone payments made to Neurimumune
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7.5
|
|
Total development expense incurred by the collaboration
|
|
$
|
2.4
|
|
|
$
|
1.9
|
|
|
$
|
12.8
|
|
|
$
|
5.5
|
|
Total expense reflected within our consolidated statements of
income
|
|
$
|
2.4
|
|
|
$
|
1.9
|
|
|
$
|
12.8
|
|
|
$
|
13.0
|
|
We have provided no financing to Neurimmune other than
previously contractually required amounts.
31
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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 are incurred
by Cardiokine for research and development expense incurred in
support of the collaboration that we reimburse 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 Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Milestone payments made to Cardiokine
|
|
$
|
|
|
|
$
|
20.0
|
|
|
$
|
|
|
|
$
|
20.0
|
|
Total development expense incurred by the collaboration
|
|
$
|
10.9
|
|
|
$
|
17.2
|
|
|
$
|
47.4
|
|
|
$
|
48.5
|
|
Biogen Idecs share of expense reflected within our
consolidated statements of income
|
|
$
|
9.8
|
|
|
$
|
35.5
|
|
|
$
|
42.7
|
|
|
$
|
63.7
|
|
Collaboration expense allocated to noncontrolling interests, net
of tax
|
|
$
|
1.1
|
|
|
$
|
1.7
|
|
|
$
|
4.7
|
|
|
$
|
4.8
|
|
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.
As of September 30, 2010 the total carrying value of our
investments in biotechnology companies that we have determined
to be variable interest entities is $22.7 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. As of September 30,
2010, we have recorded a receivable of $7.9 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.
32
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
On October 19, 2010, we and Genentech amended and restated
our Amended and Restated Collaboration Agreement dated
June 19, 2003 with regard to the development of
ocrelizumab, a humanized
anti-CD20
antibody, and agreed to terms for the development of GA101, a
next-generation
anti-CD20
antibody, as summarized below.
Ocrelizumab
Genentech will have responsibility for the further development
and commercialization of ocrelizumab in MS and will fund all of
the related costs going forward. We will be entitled to receive
tiered royalties between 13.5% and 24% on U.S. sales of
ocrelizumab. Commercialization of ocrelizumab will not impact
our percentage of the co-promotion profits for RITUXAN.
GA101
We will increase our share of the losses and profits related to
the development and commercialization of GA101 in the U.S. We
will pay 35% of the development and commercialization expenses
of GA101 and will receive between 35% and 39% of the profits of
GA101 based upon the achievement of certain sales milestones. To
date, we had paid 30% of the GA101 development expenses. We will
pay approximately $10.0 million to compensate Genentech for
our increased share of such previously incurred expenses.
Commercialization of GA101 will impact our percentage of the
co-promotion profits for RITUXAN, as summarized in the table
below.
RITUXAN
Our current pretax co-promotion profit-sharing formula, which
resets annually, provides for a 30% share of the first
$50.0 million of co-promotion operating profits for RITUXAN
in the U.S. and Canada and a 40% share of such profits in
excess of $50.0 million. Our share of the co-promotion
profits for RITUXAN will change, as summarized in the table
below, upon the following events:
|
|
|
|
|
First New Product FDA Approval: the
FDAs first approval of an anti-CD20 product other than
ocrelizumab and GA101 that is acquired or developed by Genentech
and is subject to the collaboration agreement (New Product).
|
|
|
|
First Non-CLL GA101 FDA Approval: the
FDAs first approval of GA101 in an indication other than
CCL.
|
|
|
|
GA101 CLL Sales Trigger: the first day
of the quarter after U.S. gross sales of GA101 in any
consecutive 12 month period reach $500.0 million.
|
33
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Our share of the co-promotion operating profits for RITUXAN is
calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before First New Product FDA Approval
|
|
|
|
After First New
|
|
|
First Non-CLL GA101
|
|
|
GA101 CLL Sales
|
|
|
|
Product FDA
|
|
|
FDA Approval Occurs
|
|
|
Trigger Occurs
|
|
Co-promotion Operating Profits
|
|
Approval
|
|
|
First
|
|
|
First
|
|
|
I. First $50.0 million
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
30
|
%
|
II. Above $50.0 million
|
|
|
|
|
|
|
|
|
|
|
35
|
%
|
A. Until First GA101 Threshold Date
|
|
|
38
|
%
|
|
|
39
|
%
|
|
|
|
|
B. After First GA101 Threshold Date
|
|
|
|
|
|
|
|
|
|
|
|
|
1(a). Until First Threshold Date
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1(b). After First Threshold Date and until Second Threshold Date
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
1(c). After Second Threshold Date
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
2. Until Second GA101 Threshold Date
|
|
|
|
|
|
|
37.5
|
%
|
|
|
|
|
C. After Second GA101 Threshold Date
|
|
|
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
First GA101 Threshold
Date means the earlier
of (1) the date of the First Non-CLL GA101 FDA Approval if
U.S. gross sales of GA101 for the preceding consecutive
12 month period reach $150.0 million or (2) the
first day of the calendar quarter following the date following
the First Non-CLL GA101 FDA Approval that U.S. gross sales of
GA101 within any consecutive 12 month period have reached
$150.0 million.
|
|
|
|
Second GA101 Threshold
Date means the first day
of the calendar quarter after U.S. gross sales of GA101 within
any consecutive 12 month period have reached
$500.0 million.
|
|
|
|
First Threshold
Date means the earlier
of (1) the GA101 CLL Sales Trigger, (2) the Second
GA101 Threshold Date and (3) the later of (a) the
first date that U.S. gross sales of New Products in any calendar
year reach $150.0 million and (b) January 1 of the
calendar year following the calendar year in which the First New
Product FDA Approval occurs if gross sales of New Products
reached $150.0 million within the same calendar year in
which the First New Product FDA Approval occurred.
|
|
|
|
Second Threshold
Date means the later of
(1) the first date that U.S. gross sales of New Products in
any calendar year reach $350.0 million and (2) January
1 of the calendar year following the calendar year in which the
First Threshold Date occurs.
|
For a description of terms, conditions and activities related to
our other collaborative arrangements, please read Note 17,
Collaborations to our consolidated financial statements
included within our 2009
Form 10-K.
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
34
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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 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. On October 21,
2010, we reached a non-material out-of-court resolution of all
outstanding claims against us, and the plaintiffs have agreed to
dismiss the complaints as to us.
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 second
quarter of 2011.
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.
35
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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 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.
On September 15, 2009, we were issued U.S. patent
No. 7,588,755 (755 Patent), 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 declaratory judgment of patent invalidity and
noninfringement and seeking monetary relief in the form of
attorneys fees, costs and expenses. On May 28, 2010,
BIMA 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. The court has consolidated the two lawsuits. On
August 16, 2010, BIMA amended its complaint to add Ares
Trading S.A. (Ares), an affiliate of EMD Serono, as a defendant,
and to seek a declaratory judgment that a purported
nonsuit and option agreement between Ares and BIMA
dated October 12, 2000, that purports to provide that Ares
will have an option to obtain a license to the 755 Patent,
is not a valid and enforceable agreement or, alternatively, has
been revoked
and/or
terminated by the actions of Ares or its affiliates. Ares has
answered the amended complaint and has moved to compel
arbitration of the claims against it and its motion is pending.
Bayer, Pfizer, Novartis and EMD Serono have all filed
counterclaims seeking declaratory judgments of patent invalidity
and noninfringement, and seeking monetary relief in the form of
costs and attorneys fees.
On March 23, 2010, we and Genentech were issued
U.S. Patent No. 7,682,612 (612 patent) relating
to a method of treating 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. GSK has filed a counterclaim
seeking a declaratory judgment of patent invalidity,
noninfringement, and inequitable conduct, 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.
36
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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.
|
|
20.
|
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.
In April 2010, the FASB issued 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 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 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.
37
|
|
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 incurred significant expenditures
related to conducting clinical studies to advance the
development of new pharmaceutical products and explore the
utility of our existing products in treating disorders beyond
those currently approved in their labels.
Under the direction of our recently appointed Chief Executive
Officer, George A. Scangos, we have been evaluating the
companys strategic priorities and examining additional
means of maximizing shareholder value. This evaluation has
centered on ways to focus our research and development efforts
on high-potential projects and improve our ability to move
quickly and decisively, among other things. We anticipate
announcing and implementing the results of this evaluation
before the end of the year, which may change the companys
strategic priorities, operational initiatives and related
financial trends.
Financial
Highlights
The following table is a summary of results achieved:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended September 30,
|
(In millions, except per share amounts and percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
Total revenues
|
|
$
|
1,175.8
|
|
|
$
|
1,120.5
|
|
|
|
4.9
|
%
|
Income from operations(1)
|
|
$
|
194.1
|
|
|
$
|
384.2
|
|
|
|
(49.5
|
)%
|
Net income attributable to Biogen Idec
|
|
$
|
254.1
|
|
|
$
|
277.7
|
|
|
|
(8.5
|
)%
|
Diluted earnings per share attributable to Biogen Idec
|
|
$
|
1.05
|
|
|
$
|
0.95
|
|
|
|
10.5
|
%
|
|
|
|
(1) |
|
Income from operations for the three months ended
September 30, 2010, was reduced by the $205.0 million
charge for in-process research and development (IPR&D)
related to our collaboration and license agreement with Knopp
Neurosciences, Inc. dated August 17, 2010. |
As described below under Results of Operations, our
operating results for the three months ended September 30,
2010 were primarily driven by:
|
|
|
|
|
Increased AVONEX worldwide revenue. AVONEX revenues totaled
$643.6 million in the third quarter of 2010, representing
an 11.0% increase over the same period in 2009.
|
|
|
|
Continued TYSABRI growth. Our share of TYSABRI revenues totaled
$220.7 million for the third quarter of 2010, representing
an increase of 6.6% over the same period in 2009.
|
|
|
|
Our share of RITUXAN revenues in the third quarter of 2010
totaled $258.0 million, representing a decrease of 9.1%
over the same period in 2009. This decrease was primarily driven
by royalty expirations in our rest of world markets. Our share
of revenue on sales of RITUXAN in the rest of
|
38
|
|
|
|
|
world decreased 41.7% or $27.0 million, over the same
period in 2009. Our share of co-promotion profits in the
U.S. increased 0.4% or $0.9 million for the three
month comparative periods. Selling and development expenses
incurred by us and reimbursed by Genentech, which are also
included within our total unconsolidated joint business
revenues, increased 1.3% to $16.0 million.
|
|
|
|
|
|
Total costs and expenses increased 33.3% in the third quarter of
2010, compared to the same period in 2009. This increase was
primarily driven by the $205.0 million IPR&D charge
recognized in the current period as well as a 7.7% increase in
selling, general and administrative costs, a 5.4% increase in
collaboration profit sharing expense due to TYSABRI revenue
growth, a 4.9% increase in research and development expense, a
2.6% increase in cost of sales, excluding amortization of
acquired intangible assets and a 4.3% increase in amortization
of acquired intangible assets.
|
For the three months ended September 30, 2010, we also
generated $428.2 million of net cash flows from operations
which were primarily driven by our current earnings.
Cash and cash equivalents and marketable securities totaled
approximately $1,384.6 million as of September 30,
2010.
For the three and nine months ended September 30, 2010, we
repurchased approximately 9.0 million and 40.3 million
shares at a cost of approximately $468.2 million and
$2.1 billion, respectively, under our 2010 and 2009 stock
repurchase authorizations. We retired all of these shares as
they were acquired. Our 2010 and 2009 stock repurchase programs
were completed during the third and first quarters of 2010,
respectively.
Results
of Operations
Revenues
Revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
447.6
|
|
|
|
38.1
|
%
|
|
$
|
407.8
|
|
|
|
36.4
|
%
|
|
$
|
1,291.1
|
|
|
|
36.9
|
%
|
|
$
|
1,223.9
|
|
|
|
37.7
|
%
|
Rest of world
|
|
|
429.2
|
|
|
|
36.5
|
%
|
|
|
393.9
|
|
|
|
35.2
|
%
|
|
|
1,269.2
|
|
|
|
36.3
|
%
|
|
|
1,102.2
|
|
|
|
33.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
876.8
|
|
|
|
74.6
|
%
|
|
$
|
801.7
|
|
|
|
71.6
|
%
|
|
$
|
2,560.3
|
|
|
|
73.2
|
%
|
|
$
|
2,326.1
|
|
|
|
71.6
|
%
|
Unconsolidated joint business
|
|
|
258.0
|
|
|
|
21.9
|
%
|
|
|
283.9
|
|
|
|
25.3
|
%
|
|
|
819.3
|
|
|
|
23.4
|
%
|
|
|
838.3
|
|
|
|
25.8
|
%
|
Other
|
|
|
41.0
|
|
|
|
3.5
|
%
|
|
|
34.9
|
|
|
|
3.1
|
%
|
|
|
117.8
|
|
|
|
3.4
|
%
|
|
|
85.9
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,175.8
|
|
|
|
100.0
|
%
|
|
$
|
1,120.5
|
|
|
|
100.0
|
%
|
|
$
|
3,497.4
|
|
|
|
100.0
|
%
|
|
$
|
3,250.3
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Revenues
Product revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
AVONEX
|
|
$
|
643.6
|
|
|
|
73.4
|
%
|
|
$
|
580.0
|
|
|
|
72.3
|
%
|
|
$
|
1,864.3
|
|
|
|
72.8
|
%
|
|
$
|
1,726.5
|
|
|
|
74.2
|
%
|
TYSABRI
|
|
|
220.7
|
|
|
|
25.2
|
%
|
|
|
207.0
|
|
|
|
25.8
|
%
|
|
|
658.6
|
|
|
|
25.7
|
%
|
|
|
559.8
|
|
|
|
24.1
|
%
|
Other
|
|
|
12.5
|
|
|
|
1.4
|
%
|
|
|
14.7
|
|
|
|
1.9
|
%
|
|
|
37.4
|
|
|
|
1.5
|
%
|
|
|
39.8
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
876.8
|
|
|
|
100.0
|
%
|
|
$
|
801.7
|
|
|
|
100.0
|
%
|
|
$
|
2,560.3
|
|
|
|
100.0
|
%
|
|
$
|
2,326.1
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
AVONEX
Revenues from AVONEX are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
United States
|
|
$
|
387.0
|
|
|
$
|
348.5
|
|
|
|
11.0
|
%
|
|
$
|
1,107.9
|
|
|
$
|
1,054.2
|
|
|
|
5.1
|
%
|
Rest of world
|
|
|
256.6
|
|
|
|
231.5
|
|
|
|
10.8
|
%
|
|
|
756.4
|
|
|
|
672.3
|
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AVONEX revenues
|
|
$
|
643.6
|
|
|
$
|
580.0
|
|
|
|
11.0
|
%
|
|
$
|
1,864.3
|
|
|
$
|
1,726.5
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 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 and reserves recorded related to the
newly enacted healthcare reform legislation in the U.S.
Decreased commercial demand resulted in declines of
approximately 3% and 7% in U.S. AVONEX sales volume for the
three and nine months ended September 30, 2010,
respectively, over the prior year comparative periods. In
addition, during the three and nine months ended
September 30, 2010, we experienced higher participation in
our Access Program, which provides free product to eligible
patients.
For the three and nine months ended September 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 nine
months ended September 30, 2010, respectively, over the
prior year comparative periods. The increase in rest of world
AVONEX revenue due to demand, for the three and nine 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.
AVONEX rest of world revenues for the three and nine months
ended September 30, 2010 also includes gains recognized in
relation to the settlement of certain cash flow hedge
instruments under our foreign currency hedging program which
totaled $16.8 million and $30.7 million, respectively,
compared to losses recognized of $12.0 million and
$24.3 million, respectively, in the 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. A number of companies, including us, are working to
develop products to treat MS that may compete with AVONEX now
and in the future, including oral and other alternative
formulations. For example, in September 2010, the U.S. Food
and Drug Administration (FDA) approved fingolimod which is a
pill-based treatment for relapsing forms of MS. In addition, the
continued growth of TYSABRI and the commercialization of our
other pipeline product candidates may negatively impact future
sales of AVONEX. 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. For a more detailed description of
this collaboration, please read Note 17, Collaborations
to our consolidated financial statements included within our
2009
Form 10-K.
Revenues from TYSABRI are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
United States
|
|
$
|
60.6
|
|
|
$
|
59.3
|
|
|
|
2.2
|
%
|
|
$
|
183.2
|
|
|
$
|
169.7
|
|
|
|
8.0
|
%
|
Rest of world
|
|
|
160.1
|
|
|
|
147.7
|
|
|
|
8.4
|
%
|
|
|
475.4
|
|
|
|
390.1
|
|
|
|
21.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TYSABRI revenues
|
|
$
|
220.7
|
|
|
$
|
207.0
|
|
|
|
6.6
|
%
|
|
$
|
658.6
|
|
|
$
|
559.8
|
|
|
|
17.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
For the three and nine months ended September 30, 2010,
compared to the same periods in 2009, the increase in
U.S. TYSABRI revenue was due both to the continued increase
in the number of patients using TYSABRI in the U.S. and to
price increases. These increases were offset by the impact of
the newly enacted healthcare reform legislation in the U.S. and
the sale of previously written-down TYSABRI inventory, which
became saleable following the approval of our higher-yielding
manufacturing process. As our sales price to Elan in the
U.S. is set to effect an approximate equal sharing of the
gross margin with Elan plus reimbursement for our cost of goods
sold, the distribution of this specific inventory reduced our
cost of sales, which reduced the price per unit we charged to
Elan and resulted in lower revenues to Biogen Idec of
$4.5 million and $7.0 million on a comparable basis,
respectively, for the three and nine month comparative periods.
As this inventory was substantially depleted during the third
quarter of 2010, we expect less of an impact on our TYSABRI
revenues in the fourth quarter of 2010 and no impact in future
periods.
Increased commercial demand resulted in increases of
approximately 6% and 12% in U.S. TYSABRI sales volume for
the three and nine months ended September 30, 2010,
respectively, over 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 nine months ended
September 30, 2010 totaled $150.9 million and
$431.0 million, respectively, compared to
$130.7 million and $371.1 million, respectively in the
prior year comparative periods.
For the three and nine months ended September 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 15% and
25% in rest of world TYSABRI sales volume for the three and nine
months ended September 30, 2010, respectively, over the
prior year comparative periods. The increase in rest of world
TYSABRI revenue due to demand, for the three and nine 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.
TYSABRI rest of world revenues for the three and nine months
ended September 30, 2010 also includes gains recognized in
relation to the settlement of certain cash flow hedge
instruments under our foreign currency hedging program which
totaled $3.8 million and $9.9 million, respectively,
compared to losses recognized of $4.2 million in both the
three and nine comparative 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 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 European Union 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 and therapies that
may reduce risk and improve outcomes of PML in patients. For
example, our efforts have included working to identify
41
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, and clinical testing of mefloquine as an anti-JC virus
drug candidate. Specifically with respect to the assay to detect
an immune response against the JC virus, 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.
Unconsolidated
Joint Business Revenue
We collaborate with Genentech on the development and
commercialization of RITUXAN.
Revenues from unconsolidated joint business are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Biogen Idecs share of co-promotion profits in the
U.S.
|
|
$
|
204.2
|
|
|
$
|
203.3
|
|
|
|
0.4
|
%
|
|
$
|
632.6
|
|
|
$
|
581.3
|
|
|
|
8.8
|
%
|
Reimbursement of selling and development expense in the
U.S.
|
|
|
16.0
|
|
|
|
15.8
|
|
|
|
1.3
|
%
|
|
|
49.8
|
|
|
|
47.5
|
|
|
|
4.8
|
%
|
Revenue on sales of RITUXAN in the rest of world
|
|
|
37.8
|
|
|
|
64.8
|
|
|
|
(41.7
|
)%
|
|
|
136.9
|
|
|
|
209.5
|
|
|
|
(34.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated joint business revenues
|
|
$
|
258.0
|
|
|
$
|
283.9
|
|
|
|
(9.1
|
)%
|
|
$
|
819.3
|
|
|
$
|
838.3
|
|
|
|
(2.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Product revenues, net
|
|
$
|
674.8
|
|
|
$
|
670.4
|
|
|
|
0.7
|
%
|
|
$
|
2,068.6
|
|
|
$
|
2,008.0
|
|
|
|
3.0
|
%
|
Costs and expenses
|
|
|
164.3
|
|
|
|
167.3
|
|
|
|
(1.8
|
)%
|
|
|
474.6
|
|
|
|
547.2
|
|
|
|
(13.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-promotion profits in the U.S.
|
|
|
510.5
|
|
|
|
503.1
|
|
|
|
1.5
|
%
|
|
|
1,594.0
|
|
|
|
1,460.8
|
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biogen Idecs share of co-promotion profits in the
U.S.
|
|
$
|
204.2
|
|
|
$
|
203.3
|
|
|
|
0.4
|
%
|
|
$
|
632.6
|
|
|
$
|
581.3
|
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2010,
compared to the same periods in 2009, the increase in
U.S. RITUXAN product revenues was primarily due to price
increases. The increase for the comparative nine month periods
was also driven by increased commercial demand, which resulted
in an increase in sales volume of approximately 1%. However,
sales volume for the three month comparative periods decreased
by approximately 1%. The decrease in collaboration costs and
expenses for the three and nine month comparative periods
primarily resulted from a decline in expenditures for the
development of RITUXAN for use in other indications.
Selling and development expenses incurred by us in the
U.S. and reimbursed by Genentech was essentially unchanged
for the three and nine months ended September 30, 2010,
compared to the same periods in 2009. As discussed in
Note 17, Collaborations, 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
42
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 decrease experienced during the nine month
comparative periods, was 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, which was recognized in
the second quarter of 2010.
On October 19, 2010, we and Genentech amended and restated
our Amended and Restated Collaboration Agreement dated
June 19, 2003 with regard to the development of
ocrelizumab, a humanized anti-CD20 antibody, and agreed to terms
for the development of GA101, a next-generation anti-CD20
antibody, as summarized below.
Ocrelizumab
Genentech will have responsibility for the further development
and commercialization of ocrelizumab in MS and will fund all of
the related costs going forward. We will be entitled to receive
tiered royalties between 13.5% and 24% on U.S. sales of
ocrelizumab. Commercialization of ocrelizumab will not impact
our percentage of the co-promotion profits for RITUXAN.
GA101
We will increase our share of the losses and profits related to
the development and commercialization of GA101 in the U.S. We
will pay 35% of the development and commercialization expenses
of GA101 and will receive between 35% and 39% of the profits of
GA101 based upon the achievement of certain sales milestones. To
date, we had paid 30% of the GA101 development expenses. We will
pay approximately $10.0 million to compensate Genentech for
our increased share of such previously incurred expenses.
Commercialization of GA101 will impact our percentage of the
co-promotion profits for RITUXAN, as summarized in the table
below.
RITUXAN
Our current pretax co-promotion profit-sharing formula, which
resets annually, provides for a 30% share of the first
$50.0 million of co-promotion operating profits for RITUXAN
in the U.S. and Canada and a 40% share of such profits in
excess of $50.0 million. In 2010 and 2009, the 40%
threshold was met during the first quarter. Under the amended
agreement, our share of the co-promotion profits for RITUXAN
will change, as summarized in the table below, upon the
following events:
|
|
|
|
|
First New Product FDA Approval: the
FDAs first approval of an anti-CD20 product other than
ocrelizumab and GA101 that is acquired or developed by Genentech
and is subject to the collaboration agreement (New Product).
|
|
|
|
First Non-CLL GA101 FDA Approval: the
FDAs first approval of GA101 in an indication other than
chronic lymphocytic leukemia (CLL).
|
43
|
|
|
|
|
GA101 CLL Sales Trigger: the first day
of the quarter after U.S. gross sales of GA101 in any
consecutive 12 month period reach $500.0 million.
|
Our share of the co-promotion operating profits for RITUXAN is
calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before First New Product FDA Approval
|
|
|
|
After First New
|
|
|
First Non-CLL GA101
|
|
|
GA101 CLL Sales
|
|
|
|
Product FDA
|
|
|
FDA Approval Occurs
|
|
|
Trigger Occurs
|
|
Co-promotion Operating Profits
|
|
Approval
|
|
|
First
|
|
|
First
|
|
|
I. First $50.0 million
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
30
|
%
|
II. Above $50.0 million
|
|
|
|
|
|
|
|
|
|
|
35
|
%
|
A. Until First GA101 Threshold Date
|
|
|
38
|
%
|
|
|
39
|
%
|
|
|
|
|
B. After First GA101 Threshold Date
|
|
|
|
|
|
|
|
|
|
|
|
|
1(a). Until First Threshold Date
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
1(b). After First Threshold Date and until Second Threshold Date
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
1(c). After Second Threshold Date
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
2. Until Second GA101 Threshold Date
|
|
|
|
|
|
|
37.5
|
%
|
|
|
|
|
C. After Second GA101 Threshold Date
|
|
|
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
First GA101 Threshold
Date means the earlier
of (1) the date of the First Non-CLL GA101 FDA Approval if
U.S. gross sales of GA101 for the preceding consecutive 12 month
period reach $150.0 million or (2) the first day of
the calendar quarter following the date following the First
Non-CLL GA101 FDA Approval that U.S. gross sales of GA101 within
any consecutive 12 month period have reached
$150.0 million.
|
|
|
|
Second GA101 Threshold
Date means the first day
of the calendar quarter after U.S. gross sales of GA101 within
any consecutive 12 month period have reached
$500.0 million.
|
|
|
|
First Threshold
Date means the earlier
of (1) the GA101 CLL Sales Trigger, (2) the Second
GA101 Threshold Date and (3) the later of (a) the
first date that U.S. gross sales of New Products in any calendar
year reach $150.0 million and (b) January 1 of the
calendar year following the calendar year in which the First New
Product FDA Approval occurs if gross sales of New Products
reached $150.0 million within the same calendar year in
which the First New Product FDA Approval occurred.
|
|
|
|
Second Threshold
Date means the later of
(1) the first date that U.S. gross sales of New Products in
any calendar year reach $350.0 million and (2) January
1 of the calendar year following the calendar year in which the
First Threshold Date occurs.
|
Other
Revenues
Other revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Royalty revenues
|
|
$
|
36.0
|
|
|
$
|
34.5
|
|
|
|
4.3
|
%
|
|
$
|
92.1
|
|
|
$
|
83.6
|
|
|
|
10.2
|
%
|
Corporate partner revenues
|
|
|
5.0
|
|
|
|
0.4
|
|
|
|
1150.0
|
%
|
|
|
25.7
|
|
|
|
2.3
|
|
|
|
1017.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenues
|
|
$
|
41.0
|
|
|
$
|
34.9
|
|
|
|
17.5
|
%
|
|
$
|
117.8
|
|
|
$
|
85.9
|
|
|
|
37.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
Revenues
We receive royalties on sales by our licensees of a number of
products covered under patents we own. For the three and nine
months ended September 30, 2010, compared to the same
periods in 2009, the increase
44
in total royalty revenues was primarily driven by increased
sales of ANGIOMAX (bivalirudin) licensed to The Medicines
Company (TMC).
Our most significant source of royalty revenue is derived from
sales of ANGIOMAX by TMC. TMC sells ANGIOMAX in the U.S.,
Europe, Canada, Central America, South America, Israel and
Australia. 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 and, as a
result, an adjustment is recorded in the period in which an
increase in royalty rate has been achieved. We expect to
recognize such an adjustment in the fourth quarter of 2010 of
approximately $11.5 million due to a change in the
applicable royalty rate based upon our estimate of expected net
product sales of ANGIOMAX, as defined under our agreement with
TMC.
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. Initially,
the United States Patent and Trademark Office (PTO) rejected
TMCs application because in its view the application was
not timely filed. TMC sued the PTO in federal district court
seeking to extend to December 2014, the term of the principal
U.S. patent. On August 3, 2010, the federal district
court ordered the PTO to deem the application as timely filed.
The PTO did not appeal the order, but a generic manufacturer is
seeking the right to intervene and file an appeal. The PTO has
granted an interim extension of the patent term until
August 13, 2011. In the event that TMC is unsuccessful in
obtaining a patent term extension thereafter and third parties
sell products comparable to ANGIOMAX, we would expect a
significant decrease in royalty revenues due to increased
competition, which may impact sales and result in lower royalty
tiered rates.
Corporate
Partner Revenues
For the nine months ended September 30, 2010, compared to
the same period in 2009, the increase in corporate partner
revenues was primarily due to amounts earned upon delivery of
product in the second quarter of 2010 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
45
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 Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Discounts
|
|
$
|
16.2
|
|
|
$
|
18.7
|
|
|
$
|
55.6
|
|
|
$
|
54.9
|
|
Contractual adjustments
|
|
|
80.2
|
|
|
|
50.6
|
|
|
|
202.5
|
|
|
|
143.4
|
|
Returns
|
|
|
4.0
|
|
|
|
4.4
|
|
|
|
10.5
|
|
|
|
14.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reserves
|
|
$
|
100.4
|
|
|
$
|
73.7
|
|
|
$
|
268.6
|
|
|
$
|
212.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross product revenues
|
|
$
|
977.3
|
|
|
$
|
875.4
|
|
|
$
|
2,828.9
|
|
|
$
|
2,538.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of gross product revenues
|
|
|
10.3
|
%
|
|
|
8.4
|
%
|
|
|
9.5
|
%
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount reserves include trade term discounts and wholesaler
incentives. For the three months ended September 30, 2010,
compared to the same period in 2009, the decrease in discounts
was primarily driven by decreased sales volume offset by price
increases. The increase in discounts for the nine month
comparative periods 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 nine months ended
September 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 higher prices in the U.S.
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 nine months ended
September 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.
Although many provisions of the new legislation did 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, in 2011, a new fee will be payable by branded prescription
drug manufacturers and importers. This fee will be calculated
based upon each organizations percentage share of total
branded prescription drug sales to qualifying
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, of which $2.5 billion is
payable in 2011.
This new legislation contains a number of provisions that affect
existing government programs and has required the creation of
new programs, policies and processes, many of which remain under
development and have not been fully implemented. For example, we
do not yet fully know the extent of additional entities eligible
to participate under the 340(B) program or when and how
discounts will be provided to these entities. In addition, the
operation of the Medicare Part D coverage gap remains
uncertain, though, as noted above, this
46
program and others 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.
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,
the reduction in revenues when these provisions become
effective. In future years, these other provisions could
potentially result in higher revenues due to an expected
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, we expect the
favorable operating results experienced due to an increase in
patients will be offset by the impact of the branded
prescription drug manufacturers fee, which becomes
effective in 2011.
In addition, we anticipate that many countries outside the
U.S. will continue to implement austerity measures
including efforts aimed at reducing healthcare costs as these
countries attempt to manage increasing healthcare expenditures,
especially in light of the global economic downturn and the
deterioration of the credit and economic conditions in Europe.
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 and
rebates or seek recoveries of past price increases. Certain
measures already implemented have negatively impacted our
revenues. Our revenues
and/or
results of operations will be further negatively impacted if
these, similar or more extensive measures continue to be
implemented.
Costs and
Expenses
Total costs and expenses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Cost of sales, excluding amortization of acquired intangible
assets
|
|
$
|
95.9
|
|
|
$
|
93.5
|
|
|
|
2.6
|
%
|
|
$
|
300.0
|
|
|
$
|
282.4
|
|
|
|
6.2
|
%
|
Research and development
|
|
|
319.1
|
|
|
|
304.1
|
|
|
|
4.9
|
|
|
|
957.8
|
|
|
|
1,000.0
|
|
|
|
(4.2
|
)
|
Selling, general and administrative
|
|
|
244.2
|
|
|
|
226.8
|
|
|
|
7.7
|
|
|
|
755.1
|
|
|
|
669.4
|
|
|
|
12.8
|
|
Collaboration profit sharing
|
|
|
64.0
|
|
|
|
60.7
|
|
|
|
5.4
|
|
|
|
190.2
|
|
|
|
152.6
|
|
|
|
24.7
|
|
Amortization of acquired intangible assets
|
|
|
53.5
|
|
|
|
51.3
|
|
|
|
4.3
|
|
|
|
155.6
|
|
|
|
233.8
|
|
|
|
(33.5
|
)
|
Acquired in-process research and development
|
|
|
205.0
|
|
|
|
|
|
|
|
|
|
|
|
245.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
$
|
981.7
|
|
|
$
|
736.3
|
|
|
|
33.3
|
%
|
|
$
|
2,603.6
|
|
|
$
|
2,338.2
|
|
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Sales, Excluding Amortization of Acquired Intangible Assets
(Cost of Sales)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Cost of sales
|
|
$
|
95.9
|
|
|
$
|
93.5
|
|
|
|
2.6
|
%
|
|
$
|
300.0
|
|
|
$
|
282.4
|
|
|
|
6.2
|
%
|
For the three and nine months ended September 30, 2010,
compared to the same periods in 2009, the increase in cost of
sales was primarily due to higher sales volume. The increase for
the comparative nine month periods was also driven by a
$5.7 million increase in costs associated with contract
manufacturing activity for the supply of AMEVIVE as well as
$6.7 million of period expense incurred related to the
shutdown of our manufacturing facility in Research Triangle
Park, North Carolina, for capital upgrades. These
47
increases were offset by the sale of previously written-down
TYSABRI inventory, which became saleable following approval of
our new higher-yielding manufacturing process. The distribution
of this inventory, which was substantially depleted during the
third quarter of 2010, reduced our cost of sales by
$6.1 million and $10.6 million, respectively, for the
three and nine month comparative periods.
Amounts written down related to unmarketable inventory are also
charged to cost of sales, and totaled $4.3 million and
$9.9 million for the three and nine months ended
September 30, 2010, respectively, compared to
$2.0 million and $13.4 million in the prior year
comparative periods.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Research and development
|
|
$
|
319.1
|
|
|
$
|
304.1
|
|
|
|
4.9
|
%
|
|
$
|
957.8
|
|
|
$
|
1,000.0
|
|
|
|
(4.2
|
)%
|
Excluding the $110.0 million upfront payment made to Acorda
Therapeutics, Inc. in 2009, the increase in research and
development expense for the three and nine month comparative
periods, was primarily due to the $26.4 million in upfront
payments made to Knopp under our recent license agreement and
increased clinical activity related to our Factor VIII and
Factor IX programs. During the first quarter of 2010, we
restructured our collaboration agreement with Swedish Orphan
Biovitrum, whereby we assumed full development and manufacturing
responsibilities for the Factor VIII and Factor IX programs and
as a result have incurred increased costs. Our research and
development spend also increased as a result of increasing
clinical trial activity for several programs including
Daclizumab and PEGylated interferon beta-1a as well as our
efforts to research and develop protocols that may reduce risk
and improve outcomes of PML in patients treated with TYSABRI.
These increases were offset by a reduction in spending in
certain deprioritized programs.
For the three and nine months ended September 30, 2010,
milestone and upfront payments to our collaboration partners,
included within research and development expense, totaled
$32.9 million and $68.9 million, respectively,
compared to $22.0 million and $151.0 million in the
prior year comparative periods. The decrease for the nine month
comparative periods was primarily the result of the
$110.0 million upfront payment made to Acorda in 2009. The
timing of upfront fees and milestone payments in the future may
continue to cause variability in future research and development
expense.
Selling,
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Selling, general and administrative
|
|
$
|
244.2
|
|
|
$
|
226.8
|
|
|
|
7.7
|
%
|
|
$
|
755.1
|
|
|
$
|
669.4
|
|
|
|
12.8
|
%
|
For the three and nine months ended September 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
and increased grant and sponsorship activity. The increase for
the nine month comparative periods includes the 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.
48
Collaboration
Profit Sharing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Collaboration profit sharing
|
|
$
|
64.0
|
|
|
$
|
60.7
|
|
|
|
5.4
|
%
|
|
$
|
190.2
|
|
|
$
|
152.6
|
|
|
|
24.7
|
%
|
For the three and nine months ended September 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 nine months ended
September 30, 2010, our collaboration profit sharing
expense included $11.3 million and $33.8 million,
respectively, related to the reimbursement of third-party
royalty payments made by Elan compared to $10.7 million and
$28.5 million, respectively, for the prior year comparative
periods. For a more detailed description of this collaboration,
please read Note 17, Collaborations to our
consolidated financial statements included within our 2009
Form 10-K.
Amortization
of Acquired Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Amortization of acquired intangible assets
|
|
$
|
53.5
|
|
|
$
|
51.3
|
|
|
|
4.3
|
%
|
|
$
|
155.6
|
|
|
$
|
233.8
|
|
|
|
(33.5
|
)%
|
Our most significant intangible asset is the core technology
related to our AVONEX product. 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, which involves calculating a ratio of actual
current period sales to total anticipated sales for the life of
the product and applying this ratio to the carrying amount of
the intangible asset. An analysis of the anticipated lifetime
revenue of AVONEX is performed at least annually during our long
range planning cycle, and this analysis serves as the basis for
the calculation of our economic consumption amortization model.
Although we believe this process has allowed us to reliably
determine the best estimate of the pattern in which we will
consume the economic benefits of our core technology intangible
asset, the model could result in deferring amortization charges
to future periods in certain instances, due to continued sales
of the product at a nominal level after patent expiration or
otherwise. In order to ensure that amortization charges are not
unreasonably deferred to future periods, we compare the amount
of amortization determined under the economic consumption model
against the minimum amount of amortization recalculated each
year under the straight-line method. Amortization is then
recorded based upon the higher of the amount of amortization
determined under the economic consumption model or the minimum
amortization amount determined under the straight-line method.
We completed our most recent long range planning cycle in the
third quarter of 2010. 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
competitor products and our own pipeline product candidates, as
well as the issuance of new patents or the extension of existing
patents. Based upon this analysis, we have continued to amortize
this asset on the economic consumption model for the third
quarter of 2010, and expect to apply the same model for the
subsequent three quarters. In addition, since we do not
currently expect a significant change in the expected lifetime
revenue of AVONEX, amortization recorded in relation to our core
intangible asset for the current and three subsequent quarters
is anticipated to be comparable to amounts recorded during the
prior four quarters.
We monitor events and expectations on product performance. If
there are any indications that the assumptions underlying our
most recent analysis would be different than those utilized
within our current estimates, our analysis would be updated and
may result in a significant change in the anticipated lifetime
revenue of AVONEX determined during our most recent annual
review. For example, the occurrence of an adverse event, such as
the invalidation of our AVONEX 755 Patent issued in
September 2009, could
49
substantially increase the amount of amortization expense
associated with our acquired intangible assets as compared to
previous periods or our current expectations, which may result
in a significant negative impact on our future results of
operations.
Based upon our most recent analysis, amortization for acquired
intangible assets is expected to be in the range of
approximately $170.0 million to $210.0 million
annually through 2015.
Acquired
In-Process Research and Development (IPR&D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Acquired in-process research and development
|
|
$
|
205.0
|
|
|
$
|
|
|
|
|
|
|
|
$
|
245.0
|
|
|
$
|
|
|
|
|
|
|
In August 2010, we entered into a license agreement with Knopp
Neurosciences, Inc. (Knopp) for the development, manufacture and
commercialization of KNS-760704 (dexpramipexole), an orally
administered small molecule in clinical development for the
treatment of amyotrophic lateral sclerosis (ALS). As we
determined that we are the primary beneficiary of this
relationship, we consolidate the results of Knopp and recorded
an IPR&D charge of approximately $205.0 million upon
initial consolidation. We have attributed approximately
$145.0 million of the total IPR&D charge to the
noncontrolling interest. For a more detailed description of this
transaction and our valuation of the related charge, please read
Note 16, Investments in Variable Interest Entities
to our consolidated financial statements included in this
report.
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, requiring us to pay approximately $40.0 million
to the former shareholders of Syntonix.
Impairment
of 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 or vacate 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 regularly evaluate our current
facility utilization strategy and assess 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 our 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.
50
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Interest income
|
|
$
|
3.1
|
|
|
$
|
10.9
|
|
|
|
(71.6
|
)%
|
|
$
|
18.6
|
|
|
$
|
37.8
|
|
|
|
(50.8
|
)%
|
Interest expense
|
|
|
(9.3
|
)
|
|
|
(8.5
|
)
|
|
|
9.4
|
|
|
|
(26.6
|
)
|
|
|
(27.6
|
)
|
|
|
(3.6
|
)
|
Impairments of investments
|
|
|
(2.8
|
)
|
|
|
(0.5
|
)
|
|
|
460.0
|
|
|
|
(19.8
|
)
|
|
|
(10.1
|
)
|
|
|
96.0
|
|
Net gains (losses) on foreign currency transactions
|
|
|
(3.5
|
)
|
|
|
3.2
|
|
|
|
(209.4
|
)
|
|
|
(3.2
|
)
|
|
|
10.6
|
|
|
|
(130.2
|
)
|
Net realized gains on marketable securities
|
|
|
4.8
|
|
|
|
1.8
|
|
|
|
166.7
|
|
|
|
16.1
|
|
|
|
13.7
|
|
|
|
17.5
|
|
Other, net
|
|
|
0.8
|
|
|
|
2.5
|
|
|
|
(68.0
|
)
|
|
|
0.6
|
|
|
|
6.5
|
|
|
|
(90.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
(6.9
|
)
|
|
$
|
9.4
|
|
|
|
(173.4
|
)%
|
|
$
|
(14.3
|
)
|
|
$
|
30.9
|
|
|
|
(146.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
For the three and nine months ended September 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 nine months ended September 30, 2010, we
capitalized interest costs related to construction in progress
totaling approximately $6.6 million, and
$21.3 million, respectively, which reduced our interest
expense by the same amount. We capitalized $7.4 million and
$20.4 million, respectively, in the prior year comparative
periods.
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 plan to 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 nine months ended September 30, 2010, we
recognized $2.8 million and $19.8 million,
respectively, in charges for the
other-than-temporary
impairment of our publicly held strategic investments,
investments in venture capital funds and investments in
privately held companies compared to $0.5 million and
$6.5 million in the prior year comparative periods. The
increase for the nine month comparative periods was primarily
due to 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 nine months
ended September 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 September 30, 2009 or
for the three and nine months ended September 30, 2010,
respectively.
Income
Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
Change %
|
|
2010
|
|
2009
|
|
Change %
|
|
Effective tax rate
|
|
|
40.1
|
%
|
|
|
29.0
|
%
|
|
|
38.3
|
%
|
|
|
28.7
|
%
|
|
|
28.8
|
%
|
|
|
(0.3
|
)%
|
Income tax expense
|
|
$
|
75.0
|
|
|
$
|
113.9
|
|
|
|
(34.2
|
)%
|
|
$
|
252.6
|
|
|
$
|
271.9
|
|
|
|
(7.1
|
)%
|
51
Our effective worldwide tax rate will fluctuate from period to
period due to several factors related to 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 effective tax rate for the three and nine months ended
September 30, 2010, was negatively impacted due to the
attribution to noncontrolling interest of $145.0 million of the
IPR&D charge related to our collaboration and license
agreement with Knopp Neurosciences, Inc. As such, the attributed
amount will not generate a tax deduction, causing our tax rate
to be unfavorably impacted by 13.5% and 2.7%, respectively. The
impact of the Knopp transaction was partially offset by a higher
percentage of our profits being earned in lower rate
international jurisdictions in 2010. This change in the location
of our relative profits was caused by the growth of our
international operations and lower 2010 domestic earnings as a
proportion of total consolidated earnings due, in part, to the
U.S. healthcare reform legislation enacted in March 2010.
For a more detailed description of our transaction with Knopp,
please read Note 16, Investments in Variable Interest
Entities.
During 2010, we also experienced a favorable impact on our
effective tax rates due to a statutory increase in the
U.S. manufacturers tax deduction and an increase in
expenditures eligible for our orphan drug credit. The favorable
impact of these items were offset by the expiration of the
federal research and development tax credit which has not been
in effect for the nine months ended September 30, 2010. In
addition, our 2009 effective tax rate for the three and nine
months ended September 30, 2009 was increased by 2.4% 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 nine months ended September 30, 2009 was also
favorably impacted by 3.2% for changes in tax law which became
effective during the first quarter of 2009 in certain state
jurisdictions in which we operate.
We expect our full-year 2010 effective tax rate to be between
28% and 30%. This rate does not consider the impact of a
potential renewal of the U.S. federal research and
development tax credit. If this credit is reinstated during the
fourth quarter of 2010, we will recognize the full years
expected benefit in the fourth quarter. Based on our current
estimates of eligible research expenditures, the reinstatement
of this credit would result in a benefit currently expected to
be in the range of approximately $14.0 million to
$16.0 million or a 1.2% and 1.4% decrease in our rate for
the three and twelve months ended December 31, 2010.
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 nine
months ended September 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
52
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.
Pricing
Pressure
We operate in certain countries where the economic conditions
continue to present significant challenges. Many countries are
reducing their public expenditures in light of the global
economic downturn and the deterioration of the credit and
economic conditions in Europe. As a result, we expect to see
continued efforts to reduce healthcare costs, particularly in
certain of the international markets in which we operate.
Certain measures already implemented, which include among other
things, mandatory price reductions and suspensions on pricing
increases on pharmaceuticals, have negatively impacted our
revenues. 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. We
expect that our revenues
and/or
results of operations will be further negatively impacted if
these, similar or more extensive measures are, or continue to
be, implemented in other countries in which we operate.
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 operate in
certain countries where the economic conditions continue to
present significant challenges. We continue to monitor these
conditions, including the volatility associated with
international economies and associated impacts on the relevant
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,
Portugal and Ireland continue to be subject to significant
payment delays due to government funding and reimbursement
practices. The credit and economic conditions within these
countries have continued to deteriorate throughout 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, Portugal and Ireland
totaled approximately $241.0 million as of
September 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.
Our concentrations of credit risk related to our accounts
receivable from 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 September 30, 2010, remain current and
substantially in compliance with their contractual due dates. As
of September 30, 2010, our accounts receivable balances due
from our distributor in Greece totaled $9.4 million.
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 of Greece. 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
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. The
government of Greece may also require pharmaceutical creditors
to accept mandatory, retroactive, price deductions in settlement
of outstanding receivables and we could be required to repay our
distributor a portion of the amounts they have previously
remitted to us. The potential impact resulting from such
mandatory actions remains uncertain, although delays or changes
in the availability of government funding may adversely impact
the operations of our distributor. 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.
53
We believe that our allowance for doubtful accounts was adequate
as of September 30, 2010; however, if significant changes
occur in the availability of government funding or the
reimbursement practices of these or other governments, we may
not be able to collect on amounts due to us from customers in
such countries and our results of operations could be adversely
affected.
Financial
Condition and Liquidity
Our financial condition is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
626.8
|
|
|
$
|
581.9
|
|
|
|
7.7
|
%
|
Marketable securities current
|
|
|
197.8
|
|
|
|
681.8
|
|
|
|
(71.0
|
)%
|
Marketable securities non-current
|
|
|
560.0
|
|
|
|
1,194.1
|
|
|
|
(53.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
1,384.6
|
|
|
$
|
2,457.8
|
|
|
|
(43.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of notes payable and line of credit
|
|
$
|
11.3
|
|
|
$
|
19.8
|
|
|
|
(42.8
|
)%
|
Notes payable and line of credit
|
|
|
1,068.8
|
|
|
|
1,080.2
|
|
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
1,080.1
|
|
|
$
|
1,100.0
|
|
|
|
(1.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
2,131.1
|
|
|
$
|
2,480.6
|
|
|
|
(14.1
|
)%
|
Current liabilities
|
|
$
|
(824.5
|
)
|
|
$
|
(714.9
|
)
|
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total working capital
|
|
$
|
1,306.7
|
|
|
$
|
1,765.7
|
|
|
|
(26.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2010, certain
significant cash flows were as follows:
|
|
|
|
|
$2,077.6 million used for share repurchases;
|
|
|
|
$1,118.6 million in net proceeds received on sales and
maturities of marketable securities;
|
|
|
|
$252.0 million in total payments for domestic income taxes;
|
|
|
|
$124.2 million used for purchases of property, plant and
equipment;
|
|
|
|
$26.4 million in upfront payments to Knopp under our
license agreement dated August 17, 2010 and a
$60.0 million investment in the equity of Knopp;
|
|
|
|
$80.4 million in proceeds from the issuance of stock for
share-based compensation arrangements;
|
|
|
|
$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 nine months ended September 30, 2009, certain
significant cash flows were as follows:
|
|
|
|
|
$667.1 million used for net purchases of marketable
securities;
|
|
|
|
$512.0 million in total payments for domestic income taxes;
|
|
|
|
$110.1 million used for purchases of property, plant and
equipment;
|
|
|
|
$110.0 million upfront payment made to Acorda on
July 1, 2009;
|
|
|
|
$57.6 million used for share repurchases; and
|
|
|
|
$33.2 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
54
through cash from operations, as well as existing cash
resources. We believe that existing funds, cash generated from
operations and sources of, and access to, financing are adequate
to satisfy our operating, working capital, strategic alliance,
acquisition, milestone payment, capital expenditure and debt
service requirements for the foreseeable future. In addition, we
may 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, our Board of Directors authorized the repurchase
of up to $1.5 billion of our common stock, with the
objective of reducing shares outstanding and returning excess
cash to shareholders. This repurchase authorization was
completed during the third quarter of 2010. During the nine
months ended September 30, 2010, we repurchased
approximately 29.8 million shares of our common stock at a
cost of $1.5 billion under this authorization. All shares
repurchased under this program were retired.
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, we repurchased approximately 10.5 million
shares of our common stock at a cost of approximately
$577.6 million under this authorization. During 2009,
approximately 8.8 million shares were repurchased under
this authorization at a cost of approximately
$422.4 million. All shares repurchased under this program
were retired.
As a result of the approximately 40.3 million shares
repurchased during the nine months ended September 30,
2010, common shares outstanding have decreased approximately 15%
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 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. For a summary of the fair
value and valuation methods of our marketable securities as of
September 30, 2010 and December 31, 2009, please read
Note 6, Fair Value Measurements to our consolidated
financial statements included in this report
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, the
$86.4 million in payments made to Knopp under our recent
license and stock purchase agreements, and other milestone
payments offset by cash from operations, net proceeds received
from 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 September 30, 2010 and
55
December 31, 2009, there were no borrowings under this
credit facility and we were in compliance with applicable
covenants.
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 September 30, 2010, our remaining note payable to
Fumedica has a present value of 20.4 million Swiss Francs
($20.9 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. For a summary of the fair and
carrying value of our outstanding borrowings as of
September 30, 2010 and December 31, 2009, please read
Note 6, Fair Value Measurements to our consolidated
financial statements included in this report.
Working
Capital
We define working capital as current assets less current
liabilities. The decrease in working capital from
December 31, 2009, primarily reflects the overall decrease
in total current assets of $349.5 million and increases in
total current liabilities totaling $109.5 million.
The decrease in total current assets was primarily due to the
net decrease in marketable securities primarily resulting from
our return of excess cash to shareholders via our share
repurchase program. The increase in total current liabilities
reflects increases in accounts and taxes payable and accrued
expenses offset by the June 2010 repayment of certain Fumedica
notes payable as described above under Borrowings. The
increase in accrued expenses is inclusive of an increase in the
current portion of our Medicaid and VA accruals and an increase
in our liability related to our foreign currency forward
contracts resulting from the weakening of the U.S. dollar
against relevant foreign currencies, primarily the Euro.
Cash
Flows
The following table summarizes our cash flow activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
Change %
|
|
|
Net cash flows provided by operating activities
|
|
$
|
1,193.6
|
|
|
$
|
795.6
|
|
|
|
50.0
|
%
|
Net cash flows provided by (used in) investing activities
|
|
$
|
863.9
|
|
|
$
|
(777.7
|
)
|
|
|
211.1
|
%
|
Net cash flows used in financing activities
|
|
$
|
(2,010.8
|
)
|
|
$
|
(57.4
|
)
|
|
|
3,403.1
|
%
|
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.
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
|
|
|
|
Changes associated with the payment of contingent milestones
associated with our prior acquisitions of businesses.
|
56
The increase in cash provided by operating activities for the
nine months ended September 30, 2010, compared to the same
period in 2009, was primarily driven by increased revenues,
decreased inventory balances and lower payments for
U.S. federal income taxes offset by an increase in accounts
receivable and receivables due from unconsolidated joint
business.
Investing
Activities
The increase in cash provided by investing activities is
primarily due to net proceeds received from sales and maturities
of marketable securities during the nine months ended
September 30, 2010, compared to the same period in 2009,
offset by the $86.4 million in payments made to Knopp under
our recent license and stock purchase agreements, our purchases
of property, plant and equipment and the milestone payment made
to the former shareholders of Syntonix.
For the nine months ended September 30, 2010, net proceeds
received from sales and maturities of marketable securities
totaled $1,118.6 million compared to net purchases of
$667.1 million made in the prior year comparative 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. For the nine
months ended September 30, 2010, we repurchased
approximately 40.3 million shares of our common stock for
approximately $2.1 billion compared to 1.2 million
shares for approximately $57.6 million for the nine months
ended September 30, 2009.
Cash used in financing activities also includes activity under
our employee stock plans. We received $80.4 million during
the first nine months of 2010 and $33.2 million during the
first nine months of 2009 related to stock option exercises and
stock issuances under our employee stock purchase plan.
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.
On October 1, 2010, we sold our San Diego campus and
agreed to leaseback all of the San Diego facilities for a
period of 15 months. We will account for this transaction
as a financing arrangement, incurring debt service payments and
interest totaling approximately $9.4 million over the term
of the leaseback period. For a more detailed description of
these agreements, please read Note 9, Property, Plant
and Equipment.
There have been no other 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 September 30, 2010, we
have approximately $134.2 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 September 30, 2010, we expect to pay
approximately $76.1 million within the next twelve months
in connection with such settlements.
57
Funding
Commitments
As of September 30, 2010, we have funding commitments of up
to approximately $19.9 million as part of our investment in
biotechnology oriented venture capital investments.
As of September 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
$27.6 million of accrued expenses on our consolidated
balance sheet for work done by CROs as of September 30,
2010. We have approximately $340.0 million in cancellable
future commitments based on existing CRO contracts as of
September 30, 2010, which are not included within
contractual obligations as they are cancellable.
Contingent
Milestone Payments
Based on our development plans as of September 30, 2010, we
have committed to make potential future milestone payments to
third parties of up to approximately $1.7 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
September 30, 2010, such contingencies have not been
recorded in our financial statements. As of September 30,
2010, we anticipate that we may make approximately
$1.6 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 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 18, Litigation to our consolidated
financial statements included in this report for a discussion of
legal matters as of September 30, 2010.
New
Accounting Standards
Please read Note 20, 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
58
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 nine months of
2010 to our market risks or to our management of such risks.
|
|
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 September 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 September 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 18, 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 three quarters 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
59
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 and 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.
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 adversely affect
prescribing behavior 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
60
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 our regulatory approvals may be delayed
or we may fail to gain approval for our product candidates
altogether. In addition, we regularly review our research and
development programs and may discontinue programs at any stage
of development, even after significant time and resources have
been expended on such programs.
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
61
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 healthcare 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 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 continue 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.
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, undertake
costly remediation efforts or seek more costly manufacturing
alternatives. Any delay, interruption or other issues that arise
in the manufacture, fill-finish, packaging, or storage of