e10vq
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30,
2011
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 0-19311
BIOGEN IDEC INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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33-0112644
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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133 Boston Post Road, Weston, MA 02493
(781) 464-2000
(Address, including zip code,
and telephone number, including
area code, of registrants principal executive
offices)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days: Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files): Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act): Yes o No þ
The number of shares of the issuers Common Stock,
$0.0005 par value, outstanding as of October 25, 2011,
was 242,917,349 shares.
BIOGEN
IDEC INC.
FORM 10-Q
Quarterly Report
For the Quarterly Period Ended September 30, 2011
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 may be
accompanied by such words as anticipate,
believe, estimate, expect,
forecast, intend, may,
plan, project, target,
will and other words and terms of similar meaning.
Reference is made in particular to forward-looking statements
regarding:
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the anticipated amount, timing and accounting of joint business
revenues, royalty revenues, milestone and other payments under
licensing, collaboration or acquisition agreements, income tax
contingencies, doubtful accounts, currency hedges, and
amortization of intangible assets;
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the impact of risk stratification protocols for TYSABRI;
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the expected lifetime revenue of AVONEX and amortization
recorded in relation to its core technology;
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the development of BG-12 as well as the data and market
exclusivity rights associated with the commercialization of
BG-12;
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the incidence, timing, outcome and impact of proceedings related
to patents and other intellectual property rights, tax audits
and assessments, product liability claims, and other legal
proceedings;
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the impact of accounting standards;
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the costs, timing and regulatory actions related to the
development and commercialization of our pipeline products and
services;
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the impact of U.S. healthcare reform, including the annual
fee on prescription drug manufacturers, and other measures
worldwide designed to reduce healthcare costs;
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the impact that the deterioration of the credit and economic
conditions in certain countries in Europe may have on the
collection of outstanding receivables in such countries;
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our ability to finance our operations and business initiatives
and obtain funding for such activities;
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share repurchase activity, use of cash and availability of our
unrepatriated foreign earnings;
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the financial and operational impact and timing of our
restructuring initiatives;
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the impact of centralizing the RITUXAN sales force with
Genentech;
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patent terms, patent term extensions and patent office actions;
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the use, location, plans for, and financial impact of our
manufacturing facilities, corporate headquarters and other
properties; and
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the drivers for growing our business, including our plans to
pursue business development and research opportunities, and the
impact of competition.
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These forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those
reflected in such forward-looking statements, including those
discussed in the Risk Factors section of this
report and elsewhere within this report. You should not place
undue reliance on these statements. Forward-looking statements
speak only as of the date of this report. We do not undertake
any obligation to publicly update any forward-looking statements.
NOTE REGARDING
COMPANY AND PRODUCT 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).
NOTE REGARDING
TRADEMARKS
AVONEX®
and
RITUXAN®
are registered trademarks of Biogen Idec.
FUMADERMtm
and AVONEX
PENtm
are trademarks 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;
FAMPYRA®
Acorda Therapeutics, Inc.; and
REBIF®
Ares Trading S.A.
3
PART I
FINANCIAL INFORMATION
(unaudited,
in thousands, except per share amounts)
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For the Three Months
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For the Nine Months
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Ended September 30,
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Ended September 30,
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2011
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2010
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2011
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2010
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Revenues:
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Product
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$
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975,757
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$
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876,850
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$
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2,839,562
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$
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2,560,305
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Unconsolidated joint business
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266,471
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257,981
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739,054
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819,281
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Other
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67,706
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40,958
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143,308
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117,765
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Total revenues
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1,309,934
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1,175,789
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3,721,924
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3,497,351
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Cost and expenses:
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Cost of sales, excluding amortization of acquired intangible
assets
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123,527
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95,918
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327,143
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299,958
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Research and development
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301,391
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319,054
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880,668
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957,759
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Selling, general and administrative
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261,398
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244,160
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772,217
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755,147
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Collaboration profit sharing
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81,475
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63,991
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244,319
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190,240
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Amortization of acquired intangible assets
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49,347
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53,531
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157,699
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155,568
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Acquired in-process research and development
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205,000
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244,976
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Restructuring charge
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1,803
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18,390
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Fair value adjustment of contingent consideration
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2,500
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5,900
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Total cost and expenses
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821,441
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981,654
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2,406,336
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2,603,648
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Income from operations
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488,493
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194,135
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1,315,588
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893,703
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Other income (expense), net
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(7,727
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(6,945
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(9,504
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(14,318
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)
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Income before income tax expense
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480,766
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187,190
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1,306,084
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879,385
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Income tax expense
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127,104
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75,011
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339,608
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252,564
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Net income
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353,662
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112,179
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966,476
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626,821
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Net income (loss) attributable to noncontrolling interests, net
of tax
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1,836
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(141,936
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32,286
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(138,174
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Net income attributable to Biogen Idec Inc.
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$
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351,826
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$
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254,115
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$
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934,190
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$
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764,995
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Net income per share:
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Basic earnings per share attributable to Biogen Idec Inc.
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$
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1.45
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$
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1.06
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$
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3.85
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$
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2.98
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Diluted earnings per share attributable to Biogen Idec Inc.
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$
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1.43
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$
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1.05
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$
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3.81
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$
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2.95
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Weighted-average shares used in calculating:
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Basic earnings per share attributable to Biogen Idec Inc.
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242,883
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239,864
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242,266
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256,586
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Diluted earnings per share attributable to Biogen Idec Inc.
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245,366
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242,313
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245,140
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258,906
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See accompanying notes to these unaudited condensed consolidated
financial statements
4
(unaudited,
in thousands, except per share amounts)
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As of September 30,
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As of December 31,
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2011
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2010
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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575,140
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$
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759,598
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Marketable securities
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944,381
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448,146
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Accounts receivable, net
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581,052
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605,329
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Due from unconsolidated joint business
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231,582
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222,459
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Inventory
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310,934
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289,066
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Other current assets
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194,199
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215,822
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Total current assets
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2,837,288
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2,540,420
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Marketable securities
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1,349,359
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743,101
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Property, plant and equipment, net
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1,572,259
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1,641,634
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Intangible assets, net
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1,659,114
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1,772,826
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Goodwill
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1,146,314
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1,146,314
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Investments and other assets
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237,870
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248,198
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Total assets
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$
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8,802,204
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$
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8,092,493
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LIABILITIES AND EQUITY
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Current liabilities:
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Current portion of notes payable, line of credit and other
financing arrangements
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$
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3,422
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$
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137,153
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Taxes payable
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47,984
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84,517
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Accounts payable
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159,197
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162,529
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Accrued expenses and other
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674,743
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665,923
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Total current liabilities
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885,346
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1,050,122
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Notes payable and line of credit
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1,060,639
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1,066,379
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Long-term deferred tax liability
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238,175
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200,950
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Other long-term liabilities
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384,450
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325,599
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Total liabilities
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2,568,610
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2,643,050
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Commitments and contingencies (Notes 2, 11, 16, 18 and 20)
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Equity:
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Biogen Idec Inc. shareholders equity:
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Preferred stock, par value $0.001 per share
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Common stock, par value $0.0005 per share
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|
128
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|
124
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Additional paid-in capital
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|
4,143,429
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|
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3,895,103
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Accumulated other comprehensive income (loss)
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|
7,571
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|
|
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(21,610
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)
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Retained earnings
|
|
|
2,806,523
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|
|
|
1,872,481
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Treasury stock, at cost
|
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(728,503
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)
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|
|
(349,592
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)
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|
|
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Total Biogen Idec Inc. shareholders equity
|
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|
6,229,148
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|
|
5,396,506
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Noncontrolling interests
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|
4,446
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|
|
52,937
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|
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Total equity
|
|
|
6,233,594
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|
|
|
5,449,443
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|
|
|
|
|
|
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Total liabilities and equity
|
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$
|
8,802,204
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|
$
|
8,092,493
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|
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|
See accompanying notes to these unaudited condensed consolidated
financial statements
5
(unaudited, in thousands)
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For the Nine Months
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Ended September 30,
|
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2011
|
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|
2010
|
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Cash flows from operating activities:
|
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|
|
|
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Net income
|
|
$
|
966,476
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|
|
$
|
626,821
|
|
Adjustments to reconcile net income to net cash flows from
operating activities:
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|
|
|
|
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Depreciation and amortization of property, plant and equipment
and intangible assets
|
|
|
270,212
|
|
|
|
260,089
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Acquired in-process research and development
|
|
|
|
|
|
|
271,376
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|
Share-based compensation
|
|
|
86,625
|
|
|
|
134,594
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Fair value adjustment of contingent consideration
|
|
|
5,900
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|
|
|
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Excess tax benefit from share-based compensation
|
|
|
(43,545
|
)
|
|
|
(6,284
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)
|
Deferred income taxes
|
|
|
115,698
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|
|
|
(61,244
|
)
|
Write-down of inventory to net realizable value
|
|
|
16,863
|
|
|
|
9,918
|
|
Impairment of marketable securities, investments and other assets
|
|
|
5,292
|
|
|
|
19,319
|
|
Non-cash interest (income) expense, foreign exchange
remeasurement loss (gain), net and other
|
|
|
15,377
|
|
|
|
1,124
|
|
Realized gain on sale of marketable securities and strategic
investments
|
|
|
(15,380
|
)
|
|
|
(16,113
|
)
|
(Gain) loss on disposal of property, plant and equipment, net
|
|
|
|
|
|
|
1,748
|
|
Changes in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(17,334
|
)
|
|
|
(72,719
|
)
|
Due from unconsolidated joint business
|
|
|
(9,123
|
)
|
|
|
(27,829
|
)
|
Inventory
|
|
|
(35,767
|
)
|
|
|
16,311
|
|
Other assets
|
|
|
(31,115
|
)
|
|
|
(22,435
|
)
|
Accrued expenses and other current liabilities
|
|
|
(56,737
|
)
|
|
|
17,377
|
|
Other liabilities and taxes payable
|
|
|
(19,675
|
)
|
|
|
41,564
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
1,253,767
|
|
|
|
1,193,617
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sales and maturities of marketable securities
|
|
|
1,476,052
|
|
|
|
2,490,363
|
|
Purchases of marketable securities
|
|
|
(2,590,971
|
)
|
|
|
(1,371,769
|
)
|
Acquisitions
|
|
|
|
|
|
|
(39,976
|
)
|
Acquisition of a variable interest entity, net
|
|
|
|
|
|
|
(84,952
|
)
|
Purchases of property, plant and equipment
|
|
|
(137,578
|
)
|
|
|
(124,220
|
)
|
Proceeds from the sale of property, plant and equipment
|
|
|
2,155
|
|
|
|
|
|
Purchases of intangible assets
|
|
|
(44,153
|
)
|
|
|
|
|
Purchases of other investments
|
|
|
(6,514
|
)
|
|
|
(5,499
|
)
|
Proceeds from the sale of strategic investments
|
|
|
40,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows (used in) provided by investing activities
|
|
|
(1,260,762
|
)
|
|
|
863,947
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(386,575
|
)
|
|
|
(2,077,579
|
)
|
Proceeds from issuance of stock for share-based compensation
arrangements
|
|
|
299,466
|
|
|
|
80,447
|
|
Excess tax benefit from share-based compensation
|
|
|
43,545
|
|
|
|
6,284
|
|
Change in cash overdraft
|
|
|
(3,032
|
)
|
|
|
2,586
|
|
Acquisition of noncontrolling interest
|
|
|
(91,724
|
)
|
|
|
|
|
Net distributions to noncontrolling interests
|
|
|
(24,112
|
)
|
|
|
(6,401
|
)
|
Repayments of borrowings
|
|
|
(11,460
|
)
|
|
|
(16,182
|
)
|
Repayments on financing arrangement for the sale of the
San Diego facility
|
|
|
(3,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
|
(177,053
|
)
|
|
|
(2,010,845
|
)
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(184,048
|
)
|
|
|
46,719
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(410
|
)
|
|
|
(1,851
|
)
|
Cash and cash equivalents, beginning of the period
|
|
|
759,598
|
|
|
|
581,889
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
575,140
|
|
|
$
|
626,757
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these unaudited condensed consolidated
financial statements
6
BIOGEN
IDEC INC. AND SUBSIDIARIES
(unaudited)
Overview
Biogen Idec is a global biotechnology company focused on
discovering, developing, manufacturing and marketing therapies
for serious diseases with a focus on neurology, immunology and
hemophilia. We currently have five marketed products: AVONEX,
TYSABRI, RITUXAN, FAMPYRA, 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
condensed consolidated financial statements include all
adjustments, consisting of normal recurring accruals, necessary
for a fair presentation of our financial statements for interim
periods in accordance with accounting principles generally
accepted in the United States (U.S. GAAP). The information
included in this quarterly report on
Form 10-Q
should be read in conjunction with our consolidated financial
statements and the accompanying notes included in our Annual
Report on
Form 10-K
for the year ended December 31, 2010 (2010
Form 10-K).
Our accounting policies are described in the Notes to
Consolidated Financial Statements in our 2010
Form 10-K
and updated, as necessary, in this
Form 10-Q.
The year-end condensed consolidated balance sheet data presented
for comparative purposes was derived from 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, 2011 are not necessarily
indicative of the operating results for the full year or for any
other subsequent interim period.
Consolidation
Our condensed 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 consolidated entities in which we own
less than a 100% interest, we record net income (loss)
attributable to noncontrolling interests in our consolidated
statements of income equal to the percentage of the economic or
ownership interest retained in such entities by the respective
noncontrolling parties. All material intercompany balances and
transactions have been eliminated in consolidation.
In determining whether we are the primary beneficiary of an
entity, we apply a qualitative approach that determines whether
we have both (1) the power to direct the economically
significant activities of the entity and (2) the obligation
to absorb losses of, or the right to receive benefits from, the
entity that could potentially be significant to that entity.
These considerations impact the way we account for our existing
collaborative relationships and determine whether we consolidate
companies or entities with which we have collaborative or other
arrangements. 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.
On September 6, 2011, we completed the purchase of the
noncontrolling interest in our joint venture investments in
Biogen Dompé SRL and Biogen Dompé Switzerland GmbH,
our respective sales affiliates in Italy and Switzerland, from
our joint venture partners, Dompé Farmaceutici SpA and
Dompé International SA, respectively. Prior to this
transaction, our consolidated financial statements reflected
100% of the operations of these joint venture investments and we
recorded net income (loss) attributable to noncontrolling
interests in our consolidated statements of income based on the
percentage of ownership interest retained by our joint venture
partners as we retained the power to direct the activities which
most significantly and directly impacted their economic
performance. We have continued to consolidate the operations of
these entities
7
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
following our purchase of the noncontrolling interest; however,
as of September 6, 2011, we no longer allocate 50% of the
earnings of these affiliates to net income (loss) attributable
to noncontrolling interests as Biogen Dompé SRL and Biogen
Dompé Switzerland GmbH became wholly-owned subsidiaries of
the Company. For additional information related to this
transaction, please read Note 2, Acquisitions to
these condensed consolidated financial statements.
Use of
Estimates
The preparation of our condensed consolidated financial
statements in accordance with U.S. GAAP requires management
to make estimates, judgments, and assumptions 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 and methodologies, including those related to revenue
recognition and related allowances, our collaborative
relationships, clinical trial expenses, the consolidation of
variable interest entities, the valuation of contingent
consideration resulting from a business combination, the
valuation of acquired intangible assets including in-process
research and development, inventory, impairment and amortization
of long-lived assets including intangible assets, impairments of
goodwill, share-based compensation, income taxes including the
valuation allowance for deferred tax assets, valuation of
investments, derivatives and hedging activities, contingencies,
litigation, and restructuring charges. 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.
Subsequent
Events
On October 26, 2011, we entered into an exclusive,
worldwide collaboration and license agreement with Portola
Pharmaceuticals, Inc. (Portola) under which both companies will
develop and commercialize highly selective, novel oral Syk
inhibitors for the treatment of various autoimmune and
inflammatory diseases, including RA and systemic lupus
erythematosus. The collaborations lead molecule,
PRT062607, is currently in Phase 1 studies.
Under the terms of the agreement, we will provide Portola with
an upfront payment of $36.0 million in cash and purchase
$9.0 million in Portola equity, with additional payments of
up to $508.5 million based on the achievement of certain
development and regulatory milestones. We will lead the global
development and commercialization efforts for the Syk inhibitor
program in major indications such as RA and lupus, while Portola
will lead U.S. development and commercialization efforts
for select smaller indications as well as discovery efforts for
follow-on Syk inhibitors. Portola retains an option to
co-promote alongside us in the U.S. in major indications.
Worldwide costs and profits will be split by us and Portola 75%
and 25%, respectively.
Completion of the transaction is subject to customary closing
conditions, including antitrust clearance by the U.S. government
under the Hart-Scott-Rodino Act.
Noncontrolling
Interest in Joint Ventures
On September 6, 2011, we completed the purchase of the
noncontrolling interest in our joint venture investments in
Biogen Dompé SRL and Biogen Dompé Switzerland GmbH,
our respective sales affiliates in Italy and Switzerland, from
our joint venture partners, Dompé Farmaceutici SpA and
Dompé International SA, respectively. This transaction was
funded from our existing cash on hand and has been accounted for
as the acquisition of a noncontrolling interest. The purchase
price of these shares is comprised of cash payments
8
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
totaling $152.9 million plus up to $42.5 million in
contingent consideration payable upon the achievement of
commercial and regulatory milestones. As these amounts reflect
payments to acquire a noncontrolling interest, these payments
and the accrual of a liability related to the contingent
consideration were recorded as a reduction in the noncontrolling
interest for these entities with the remainder to additional
paid in capital.
Upon acquisition, we recorded a liability of $38.8 million
representing the acquisition date fair value of the contingent
consideration. This amount was estimated through a valuation
model that incorporates probability weighted assumptions
relating to the achievement of these milestones and thus the
likelihood of us making payments. Subsequent changes in the fair
value of this obligation will be recognized as adjustments to
contingent consideration within our consolidated statements of
income. For a more detailed discussion of our valuation of this
obligation, please read Note 8, Fair Value Measurements
to these condensed consolidated financial statements.
In connection with our purchase of the noncontrolling interest
in our joint venture investment in Biogen Dompé SRL, we
entered into a credit assignment agreement with Dompé
Farmaceutici SpA. Under the terms of this agreement, Dompé
Farmaceutici SpA purchased all of Biogen Dompé SRLs
outstanding receivables as of June 30, 2011, adjusted for
cash received through September 5, 2011, for
$104.6 million. We have no retained interests in the
receivables and have accounted for this transaction as a sale.
The carrying value of these receivables exceeded their fair
value, which was determined by management using significant
inputs not observable in the market and thus represents a
Level 3 fair value measurement, and accordingly we
recognized a loss of $1.8 million upon their disposition.
In addition, balances outstanding under Biogen Dompé
SRLs credit line from Dompé Farmaceutici SpA, as
described in Note 11, Indebtedness to our
consolidated financial statements included within our 2010
Form 10-K,
were repaid in September 2011.
Biogen
Idec International Neuroscience GmbH
In December 2010, we acquired 100% of the stock of Biogen Idec
International Neuroscience GmbH (BIN), formerly Panima
Pharmaceuticals AG, an affiliate of Neurimmune AG. The purchase
price was comprised of a $32.5 million cash payment plus up
to $395.0 million in contingent consideration payable upon
the achievement of development milestones. BIN is a business
involved in the discovery of antibodies designed to treat
neurological disorders. Upon acquisition, we recorded a
liability of $81.2 million representing the acquisition
date fair value of the contingent consideration. Subsequent
changes in the fair value of this obligation are recognized as
adjustments to contingent consideration within our consolidated
statements of income. For a more detailed discussion of our
valuation of this obligation, please read Note 8, Fair
Value Measurements to these condensed consolidated financial
statements. For additional information related to this
transaction, please read Note 2, Acquisitions to our
consolidated financial statements included within our 2010
Form 10-K.
Biogen
Idec Hemophilia 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 milestone payments
associated with the development of long-lasting recombinant
Factor IX, a product for the treatment of hemophilia B. In
January 2010, we initiated patient enrollment in a
registrational trial of Factor IX, which triggered an
approximately $40.0 million milestone payment to the former
shareholders of Syntonix. We recorded this payment as a charge
to acquired in-process research and development within our
condensed consolidated statement of income for the nine months
ended September 30, 2010, in accordance with the accounting
standards applicable to business combinations when we acquired
BIH.
9
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
In November 2010, we announced a number of strategic,
operational, and organizational initiatives designed to provide
a framework for the future growth of our business and realign
our overall structure to become a more efficient and cost
effective organization. As part of this initiative:
|
|
|
|
|
We have out-licensed, terminated or are in the process of
discontinuing certain research and development programs,
including those in oncology and cardiovascular medicine, that
are no longer a strategic fit for us.
|
|
|
|
We have completed a 13% reduction in workforce spanning our
sales, research and development, and administrative functions.
|
|
|
|
We have vacated and recognized the sale of the San Diego,
California facility as well as consolidated certain of our
Massachusetts facilities. For a more detailed description of
transactions affecting our facilities, please read Note 11,
Property, Plant and Equipment to these condensed
consolidated financial statements.
|
Costs associated with our workforce reduction are primarily
related to employee severance and benefits. Facility
consolidation costs are primarily comprised of charges
associated with closing these facilities, related lease
obligations and additional depreciation recognized when the
expected useful lives of certain assets have been shortened due
to the consolidation and closing of related facilities and the
discontinuation of certain research and development programs. We
expect that the total restructuring charges associated with
these initiatives will not exceed $100.0 million and that
substantially all of the remaining charges will be incurred and
paid by the end of 2011. We incurred $18.4 million of these
charges in the nine months ended September 30, 2011 and
$75.2 million of these charges in the fourth quarter of
2010.
For the nine months ended September 30, 2011, we recognized
restructuring charges totaling $6.1 million, in relation to
the consolidation of our facilities, inclusive of amounts
related to additional depreciation. Charges recognized in
relation to the consolidation of our facilities for the three
months ended September 30, 2011 were not significant. For
the three and nine months ended September 30, 2011, we
recognized net restructuring charges of $1.8 million and
$12.3 million, respectively, in relation to our workforce
reduction initiatives.
The following table summarizes the activity of our restructuring
liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
Facility
|
|
|
|
|
(In millions)
|
|
Reduction
|
|
|
Consolidation
|
|
|
Total
|
|
|
Restructuring reserve as of December 31, 2010
|
|
$
|
60.6
|
|
|
$
|
5.8
|
|
|
$
|
66.4
|
|
Expense
|
|
|
15.2
|
|
|
|
2.4
|
|
|
|
17.6
|
|
Payments
|
|
|
(80.8
|
)
|
|
|
(3.1
|
)
|
|
|
(83.9
|
)
|
Adjustments to previous estimates, net
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
(2.9
|
)
|
Other adjustments
|
|
|
8.6
|
|
|
|
(3.2
|
)
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve as of September 30, 2011
|
|
$
|
0.7
|
|
|
$
|
1.9
|
|
|
$
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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; our price to the
customer is fixed or determinable; and collectability is
reasonably assured.
10
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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 discounts
and allowances.
Reserves
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 governmental rebates or applicable allowances.
Reserves established for these discounts and allowances are
classified as reductions of accounts receivable (if the amount
is payable to our direct 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 to qualifying patients from its
own inventory received 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, 2010
|
|
$
|
13.9
|
|
|
$
|
107.0
|
|
|
$
|
21.1
|
|
|
$
|
142.0
|
|
Current provisions relating to sales in current year
|
|
|
71.7
|
|
|
|
267.4
|
|
|
|
11.0
|
|
|
|
350.1
|
|
Adjustments relating to prior years
|
|
|
|
|
|
|
(9.4
|
)
|
|
|
(0.7
|
)
|
|
|
(10.1
|
)
|
Payments/returns relating to sales in current year
|
|
|
(57.4
|
)
|
|
|
(178.3
|
)
|
|
|
(0.3
|
)
|
|
|
(236.0
|
)
|
Payments/returns relating to sales in prior years
|
|
|
(12.3
|
)
|
|
|
(65.3
|
)
|
|
|
(8.9
|
)
|
|
|
(86.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of September 30, 2011
|
|
$
|
15.9
|
|
|
$
|
121.4
|
|
|
$
|
22.2
|
|
|
$
|
159.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our product revenue reserves are based on estimates of the
amounts earned or to be claimed on the related sales. Our
estimates take into consideration our historical experience,
current contractual and statutory requirements, specific known
market events and trends, and forecasted customer buying
patterns. Actual amounts may ultimately differ from our
estimates. If actual results vary, we will need to adjust these
estimates, which could have an effect on earnings in the period
of adjustment.
During the nine months ended September 30, 2011, we reduced
our reserves for contractual adjustments by $9.9 million,
due to a revision of our previous estimates associated with the
impact of healthcare reform in the U.S.
11
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The total reserves above, included in our condensed consolidated
balance sheets, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Reduction of accounts receivable
|
|
$
|
40.3
|
|
|
$
|
36.7
|
|
Current liability
|
|
|
119.2
|
|
|
|
105.3
|
|
|
|
|
|
|
|
|
|
|
Total reserves
|
|
$
|
159.5
|
|
|
$
|
142.0
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
Joint Business Revenues
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
pre-tax 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 development
expenses incurred by Genentech, Roche and us. We record our
share of the pre-tax co-promotion profits in Canada and royalty
revenues on sales of RITUXAN outside the U.S. on a cash
basis. Additionally, our share of the pre-tax co-promotion
profits in the U.S. includes estimates supplied by
Genentech.
Royalty
Revenues
We receive royalty revenues on sales by our licensees of other
products covered under patents that we own. We do not have
future performance obligations under these license arrangements.
We record these revenues based on estimates of the sales that
occurred during the relevant period. 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 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 ever unable to
accurately estimate revenue, then we record revenues on a cash
basis.
Our accounts receivable primarily arise from product sales in
the U.S. and Europe and primarily represent amounts due
from our wholesale distributors, large pharmaceutical companies,
public hospitals and other government entities. The majority of
our accounts receivable have standard payment terms which are
generally between 30 and 90 days. 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 provide reserves against trade receivables for
estimated losses that may result from a customers
inability to pay. Amounts determined to be uncollectible are
charged or written-off against the reserve. To date, such losses
have not exceeded managements estimates.
Concentrations of credit risk with respect to receivables, which
are typically unsecured, are limited due to the wide variety of
customers and markets using our products, as well as their
dispersion across many different
12
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
geographic areas. We monitor economic conditions, including
volatility associated with international economies, and related
impacts on the relevant financial markets and our business,
especially in light of sovereign credit issues. The credit and
economic conditions within Italy, Spain, Portugal and Greece,
among other members of the European Union, have deteriorated.
These conditions have increased, and may continue to increase,
the average length of time that it takes to collect on our
accounts receivable outstanding in these countries.
Our net accounts receivable balances from product sales in these
countries are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2011
|
|
|
Current
|
|
Non-Current
|
|
|
|
|
Balance Included
|
|
Balance Included
|
|
|
|
|
within Accounts
|
|
within Investments
|
|
|
(In millions)
|
|
Receivable, net
|
|
and Other Assets
|
|
Total
|
|
Spain
|
|
$
|
58.5
|
|
|
$
|
66.0
|
|
|
$
|
124.5
|
|
Italy
|
|
|
40.2
|
|
|
|
|
|
|
|
40.2
|
|
Portugal
|
|
|
21.0
|
|
|
|
11.7
|
|
|
|
32.7
|
|
Greece
|
|
|
4.2
|
|
|
|
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
Current
|
|
Non-Current
|
|
|
|
|
Balance Included
|
|
Balance Included
|
|
|
|
|
within Accounts
|
|
within Investments
|
|
|
(In millions)
|
|
Receivable, net
|
|
and Other Assets
|
|
Total
|
|
Spain
|
|
$
|
70.8
|
|
|
$
|
29.8
|
|
|
$
|
100.6
|
|
Italy
|
|
|
103.2
|
|
|
|
14.8
|
|
|
|
118.0
|
|
Portugal
|
|
|
17.8
|
|
|
|
5.5
|
|
|
|
23.3
|
|
Greece
|
|
|
3.9
|
|
|
|
|
|
|
|
3.9
|
|
Approximately $65.0 million and $45.0 million of the
aggregate balances for these countries were outstanding for more
than one year as of September 30, 2011 and
December 31, 2010, respectively. Amounts included as a
component of investments and other assets within our condensed
consolidated balance sheets represent amounts that are expected
to be collected beyond one year.
In connection with our purchase of the noncontrolling interest
in our joint venture investments in Biogen Dompé SRL, we
entered into a credit assignment agreement with Dompé
Farmaceutici SpA. Under the terms of this agreement, Dompé
Farmaceutici SpA purchased all of Biogen Dompé SRLs
outstanding receivables as of June 30, 2011, adjusted for
cash received through September 5, 2011, for
$104.6 million. We have no retained interests in these
receivables and have accounted for this transaction as a sale
recognizing a loss of $1.8 million upon their disposition.
For additional information related to these transactions, please
read Note 2, Acquisitions to these condensed
consolidated financial statements. As of September 30,
2011, our accounts receivable balances in Italy totaled
$40.2 million, all of which resulted from sales of product
subsequent to June 30, 2011.
13
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The components of inventory are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Raw materials
|
|
$
|
63.6
|
|
|
$
|
59.0
|
|
Work in process
|
|
|
169.0
|
|
|
|
142.2
|
|
Finished goods
|
|
|
78.3
|
|
|
|
87.9
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
310.9
|
|
|
$
|
289.1
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Intangible
Assets and Goodwill
|
Intangible
Assets
Intangible assets, net of accumulated amortization, impairment
charges and adjustments, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2011
|
|
|
As of December 31, 2010
|
|
|
|
Estimated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
(In millions)
|
|
Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Out-licensed patents
|
|
|
12 years
|
|
|
$
|
578.0
|
|
|
$
|
(381.1
|
)
|
|
$
|
196.9
|
|
|
$
|
578.0
|
|
|
$
|
(350.2
|
)
|
|
$
|
227.8
|
|
Core developed technology
|
|
|
15-23 years
|
|
|
|
3,005.3
|
|
|
|
(1,761.8
|
)
|
|
|
1,243.5
|
|
|
|
3,005.3
|
|
|
|
(1,636.9
|
)
|
|
|
1,368.4
|
|
In process research and development
|
|
|
Up to 15 years upon
commercialization
|
|
|
|
110.9
|
|
|
|
|
|
|
|
110.9
|
|
|
|
110.9
|
|
|
|
|
|
|
|
110.9
|
|
Trademarks and tradenames
|
|
|
Indefinite
|
|
|
|
64.0
|
|
|
|
|
|
|
|
64.0
|
|
|
|
64.0
|
|
|
|
|
|
|
|
64.0
|
|
In-licensed rights and patents
|
|
|
Up to 14 years
|
|
|
|
47.1
|
|
|
|
(3.3
|
)
|
|
|
43.8
|
|
|
|
3.0
|
|
|
|
(1.3
|
)
|
|
|
1.7
|
|
Assembled workforce
|
|
|
4 years
|
|
|
|
2.1
|
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
2.1
|
|
|
|
(2.1
|
)
|
|
|
|
|
Distribution rights
|
|
|
2 years
|
|
|
|
12.7
|
|
|
|
(12.7
|
)
|
|
|
|
|
|
|
12.7
|
|
|
|
(12.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
3,820.1
|
|
|
$
|
(2,161.0
|
)
|
|
$
|
1,659.1
|
|
|
$
|
3,776.0
|
|
|
$
|
(2,003.2
|
)
|
|
$
|
1,772.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets was unchanged as of September 30,
2011 compared to December 31, 2010, excluding the impact of
amortization and amounts recorded in connection with the licence
agreements for FAMPYRA and the JC virus assay described below.
For the three and nine months ended September 30, 2011,
amortization for acquired intangible assets totaled
$49.3 million and $157.7 million, respectively, as
compared to $53.5 million and $155.6 million,
respectively, in the prior year comparative periods.
Amortization for acquired intangible assets is expected to be in
the range of approximately $150.0 million to
$200.0 million annually through 2016.
AVONEX
Core Technology Asset
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, 2011 was $1,230.9 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. An analysis
of the anticipated lifetime revenue of AVONEX is performed
annually during our long range planning cycle each year. This
analysis serves as the basis for the calculation of economic
consumption for the core technology asset.
We completed our most recent long range planning cycle in the
third quarter of 2011. This analysis is based upon certain
assumptions that we evaluate on a periodic basis, such as the
anticipated product sales of
14
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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, amortization of our core acquired intangible asset
related to AVONEX is expected to be in the range of
approximately $105.0 million to $155.0 million annually through
2016.
FAMPYRA
On July 20, 2011, the European Commission (EC) granted a
conditional marketing authorization for FAMPYRA in the E.U.,
which triggered a $25.0 million milestone payment, which
was paid to Acorda Therapeutics, Inc. (Acorda) in the third
quarter of 2011. A conditional marketing authorization is
renewable annually and is granted to a medicinal product with a
positive benefit/risk assessment that fulfills an unmet medical
need when the benefit to public health of immediate availability
outweighs the risk inherent in the fact that additional data are
still required.
Under our 2009 collaboration and license agreement with Acorda,
we have commercialization rights for FAMPYRA and have
responsibility for regulatory activities and future clinical
development of FAMPYRA outside the U.S. and will pay Acorda
royalties based on ex-U.S. net sales, and milestones based
on new indications and ex-U.S. net sales. These milestones
include the $25.0 million payment made for obtaining the
conditional marketing authorization for FAMPYRA in the E.U. The
next expected milestone would be $15.0 million, due when
ex-U.S. net sales reach $100.0 million over four
consecutive quarters. We will capitalize these milestones as
they become payable as an intangible asset. Amortization will
utilize an economic consumption model that will be based on a
forecast of all of the probable payments we expect to make as
contingent consideration, such as sales-based milestones, for
entering into the license agreement. Royalty payments are
recognized as a component of cost of goods sold. For additional
information related to our collaboration with Acorda, please
read Note 19, Collaborations to our consolidated
financial statements included within our 2010
Form 10-K.
JC Virus
Assay
In the first quarter of 2011, we licensed rights for the
diagnostic and therapeutic application of recombinant virus-like
particles, known as VP1 proteins, to detect antibodies of the JC
virus (JCV) in serum or blood. Under the terms of this license,
we expect to make payments totaling approximately
$53.3 million through 2016. These payments include upfront
and milestone payments as well as the greater of an annual
maintenance fee or usage-based royalty payment. As of
September 30, 2011, we recognized an intangible asset in
the amount of $19.2 million, reflecting the total of
upfront payments made and other time-based milestone payments.
We will further capitalize additional payments due under this
arrangement as an intangible asset as they become payable.
Amortization will utilize an economic consumption model that
will be based on a forecast of all of the probable payments we
expect to make in relation to the total number of JCV assay
tests performed through 2016.
Goodwill
Our goodwill balance remained unchanged as of September 30,
2011 compared to December 31, 2010. As of
September 30, 2011, we had no accumulated impairment losses.
|
|
8.
|
Fair
Value Measurements
|
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.
15
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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, 2011 and December 31,
2010.
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.
We also maintain venture capital investments classified as
Level 3 whose fair value is initially measured at
transaction prices and subsequently valued using the pricing of
recent financing or by reviewing the underlying economic
fundamentals and liquidation value of the companies. These
investments are the only investments for which we used
Level 3 inputs to determine the fair value and represented
approximately 0.3% of our total assets as of September 30,
2011 and December 31, 2010, respectively. These investments
include investments in certain biotechnology oriented venture
capital funds which primarily invest in small privately-owned,
venture-backed biotechnology companies. The fair value of our
investments in these venture capital funds has been estimated
using the net asset value of the fund. The investments cannot be
redeemed within the funds. Distributions from each 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. We apply judgments and estimates when we
validate the prices provided by third parties. While we believe
the valuation methodologies are appropriate, the use of
valuation methodologies is highly judgmental and changes in
methodologies can have a material impact on our results of
operations. Gains and losses (realized and unrealized) included
in earnings for the period are reported in other income
(expense), net.
The consideration for certain of our acquisitions includes
future payments that are contingent upon the occurrence of a
particular factor or factors. For acquisitions completed after
January 1, 2009, we record a contingent consideration
obligation for such contingent consideration payments at its
fair value on the acquisition date. We determine the fair value
of the contingent consideration obligation based upon
probability-weighted assumptions related to the achievement of
certain milestone events and thus the likelihood of us making
payments. These fair value measurements are based on significant
inputs not observable in the market and therefore represent
Level 3 measurements. We revalue the acquisition-related
contingent consideration obligation on a recurring basis each
reporting period. Changes in the fair value of our contingent
consideration obligations are recognized as a fair value
adjustment of contingent consideration within our consolidated
statements of income.
Upon completion of our purchase of the noncontrolling interest
in our joint venture investments in Biogen Dompé SRL and
Biogen Dompé Switzerland GmbH in September 2011, we
recorded a contingent consideration obligation of
$38.8 million. There has been no significant change in the
valuation of this liability from the acquisition date through
September 30, 2011, of which $4.0 million was
reflected as a component of accrued expenses and other, and
$34.8 million was reflected as a component of other
long-term liabilities within our condensed consolidated balance
sheet. These valuations were determined based upon probability
weighted net cash outflow projections of $42.5 million,
discounted using a rate of 3.2%, which is the cost of debt
financing for market participants.
16
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
In addition, we also recorded a contingent consideration
obligation of $81.2 million in the fourth quarter of 2010
related to our acquisition of BIN. As of September 30,
2011, the fair value of this contingent consideration obligation
was $87.1 million, of which $5.0 million was reflected
as a component of accrued expenses and other, and
$82.1 million was reflected as a component of other
long-term liabilities within our consolidated balance sheet.
These valuations were determined based upon probability weighted
net cash outflow projections of $395.0 million, discounted
using a rate of 5.3%, which is the cost of debt financing for
market participants. The changes in the fair value of this
obligation, of $2.5 million and $5.9 million for the
three and nine months ended September 30, 2011,
respectively, were primarily due to changes in the discount rate
and in the expected timing related to the achievement of certain
developmental milestones.
There were no transfers between fair value measurement levels
during the nine months ended September 30, 2011.
The tables below present information about our financial assets
and liabilities that are measured at fair value on a recurring
basis as of September 30, 2011 and December 31, 2010,
and indicate the fair value hierarchy of the valuation
techniques we utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Balance as of
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
September 30,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
(In millions)
|
|
2011
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
241.3
|
|
|
$
|
|
|
|
$
|
241.3
|
|
|
$
|
|
|
Marketable debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
542.6
|
|
|
|
|
|
|
|
542.6
|
|
|
|
|
|
Government securities
|
|
|
1,482.0
|
|
|
|
|
|
|
|
1,482.0
|
|
|
|
|
|
Mortgage and other asset backed securities
|
|
|
269.1
|
|
|
|
|
|
|
|
269.1
|
|
|
|
|
|
Strategic investments
|
|
|
1.2
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
Venture capital investments
|
|
|
23.1
|
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
Derivative contracts
|
|
|
18.9
|
|
|
|
|
|
|
|
18.9
|
|
|
|
|
|
Plan assets for deferred compensation
|
|
|
12.6
|
|
|
|
|
|
|
|
12.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,590.8
|
|
|
$
|
1.2
|
|
|
$
|
2,566.5
|
|
|
$
|
23.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
2.0
|
|
|
$
|
|
|
|
$
|
2.0
|
|
|
$
|
|
|
Contingent consideration
|
|
|
125.9
|
|
|
|
|
|
|
|
|
|
|
|
125.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
127.9
|
|
|
$
|
|
|
|
$
|
2.0
|
|
|
$
|
125.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Balance as of
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
(In millions)
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
651.8
|
|
|
$
|
|
|
|
$
|
651.8
|
|
|
$
|
|
|
Marketable debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
313.0
|
|
|
|
|
|
|
|
313.0
|
|
|
|
|
|
Government securities
|
|
|
785.3
|
|
|
|
|
|
|
|
785.3
|
|
|
|
|
|
Mortgage and other asset backed securities
|
|
|
92.9
|
|
|
|
|
|
|
|
92.9
|
|
|
|
|
|
Strategic investments
|
|
|
44.8
|
|
|
|
44.8
|
|
|
|
|
|
|
|
|
|
Venture capital investments
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
20.8
|
|
Derivative contracts
|
|
|
1.3
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
Plan assets for deferred compensation
|
|
|
13.0
|
|
|
|
|
|
|
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,922.9
|
|
|
$
|
44.8
|
|
|
$
|
1,857.3
|
|
|
$
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
12.2
|
|
|
$
|
|
|
|
$
|
12.2
|
|
|
$
|
|
|
Contingent consideration
|
|
|
81.2
|
|
|
|
|
|
|
|
|
|
|
|
81.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
93.4
|
|
|
$
|
|
|
|
$
|
12.2
|
|
|
$
|
81.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a roll forward of the fair value of
our venture capital investments, which are all Level 3
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Beginning balance
|
|
$
|
20.6
|
|
|
$
|
20.4
|
|
|
$
|
20.8
|
|
|
$
|
21.9
|
|
Unrealized gains included in earnings
|
|
|
1.8
|
|
|
|
0.5
|
|
|
|
2.5
|
|
|
|
0.5
|
|
Unrealized losses included in earnings
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(1.5
|
)
|
|
|
(1.6
|
)
|
Purchases
|
|
|
0.9
|
|
|
|
1.5
|
|
|
|
1.3
|
|
|
|
1.6
|
|
Issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
23.1
|
|
|
$
|
21.8
|
|
|
$
|
23.1
|
|
|
$
|
21.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The fair and carrying values of our debt instruments, which have
fair values based on all Level 2 inputs, are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2011
|
|
|
As of December 31, 2010
|
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
(In millions)
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Credit line from Dompé
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8.1
|
|
|
$
|
8.0
|
|
Note payable to Fumedica
|
|
|
23.4
|
|
|
|
20.5
|
|
|
|
24.2
|
|
|
|
22.0
|
|
6.0% Senior Notes due 2013
|
|
|
479.5
|
|
|
|
449.8
|
|
|
|
485.5
|
|
|
|
449.8
|
|
6.875% Senior Notes due 2018
|
|
|
670.5
|
|
|
|
593.7
|
|
|
|
618.0
|
|
|
|
597.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,173.4
|
|
|
$
|
1,064.0
|
|
|
$
|
1,135.8
|
|
|
$
|
1,077.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of Biogen Dompé SRLs credit line from
us and Dompé Farmaceutici SpA and our note payable to
Fumedica were estimated using market observable inputs,
including current interest and foreign currency exchange rates.
The fair value of our Senior Notes was determined through
market, observable, and corroborated sources.
Balances outstanding under Biogen Dompé SRLs credit
line were repaid in connection with our recent purchase of the
noncontrolling interest in our joint venture investment in
Biogen Dompé SRL. For additional information related to
this transaction, please read Note 2, Acquisitions
to these condensed consolidated financial statements.
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, 2011 (In millions)
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
141.8
|
|
|
$
|
0.2
|
|
|
$
|
(0.1
|
)
|
|
$
|
141.7
|
|
Non-current
|
|
|
400.8
|
|
|
|
1.2
|
|
|
|
(1.2
|
)
|
|
|
400.8
|
|
Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
800.5
|
|
|
|
0.2
|
|
|
|
(0.1
|
)
|
|
|
800.4
|
|
Non-current
|
|
|
681.5
|
|
|
|
1.1
|
|
|
|
(0.3
|
)
|
|
|
680.7
|
|
Mortgage and other asset backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Non-current
|
|
|
267.0
|
|
|
|
0.5
|
|
|
|
(0.9
|
)
|
|
|
267.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
2,293.7
|
|
|
$
|
3.2
|
|
|
$
|
(2.6
|
)
|
|
$
|
2,293.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic investments, non-current
|
|
$
|
1.2
|
|
|
$
|
|
|
|
$
|
(0.1
|
)
|
|
$
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
As of December 31, 2010 (In millions)
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
93.2
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
93.1
|
|
Non-current
|
|
|
219.8
|
|
|
|
2.1
|
|
|
|
(0.5
|
)
|
|
|
218.2
|
|
Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
352.8
|
|
|
|
0.2
|
|
|
|
|
|
|
|
352.6
|
|
Non-current
|
|
|
432.5
|
|
|
|
0.6
|
|
|
|
(0.6
|
)
|
|
|
432.5
|
|
Mortgage and other asset backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Non-current
|
|
|
90.8
|
|
|
|
0.5
|
|
|
|
(0.2
|
)
|
|
|
90.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
1,191.2
|
|
|
$
|
3.5
|
|
|
$
|
(1.3
|
)
|
|
$
|
1,189.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic investments, non-current
|
|
$
|
44.8
|
|
|
$
|
17.5
|
|
|
$
|
|
|
|
$
|
27.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the tables above, as of September 30, 2011 and
December 31, 2010, government securities included
$214.2 million and $163.5 million, respectively, of
Federal Deposit Insurance Corporation (FDIC) guaranteed senior
notes issued by financial institutions under the Temporary
Liquidity Guarantee Program.
The following table summarizes our financial assets with
original maturities of less than 90 days included within
cash and cash equivalents on the accompanying condensed
consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Commercial paper
|
|
$
|
22.1
|
|
|
$
|
4.0
|
|
Repurchase agreements
|
|
|
35.4
|
|
|
|
26.0
|
|
Short-term debt securities
|
|
|
183.8
|
|
|
|
621.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
241.3
|
|
|
$
|
651.8
|
|
|
|
|
|
|
|
|
|
|
The carrying values of our commercial paper, including accrued
interest, repurchase agreements, and our short-term debt
securities approximate fair value.
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, 2011
|
|
|
As of December 31, 2010
|
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
(In millions)
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Due in one year or less
|
|
$
|
944.4
|
|
|
$
|
944.1
|
|
|
$
|
448.1
|
|
|
$
|
447.8
|
|
Due after one year through five years
|
|
|
1,196.9
|
|
|
|
1,196.3
|
|
|
|
664.1
|
|
|
|
662.4
|
|
Due after five years
|
|
|
152.4
|
|
|
|
152.7
|
|
|
|
79.0
|
|
|
|
78.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,293.7
|
|
|
$
|
2,293.1
|
|
|
$
|
1,191.2
|
|
|
$
|
1,189.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The average maturity of our marketable securities as of
September 30, 2011 and December 31, 2010 was
13 months and 11 months, respectively.
Proceeds
from Marketable Securities
The proceeds from maturities and sales of marketable securities,
excluding strategic investments and resulting realized gains and
losses, are generally reinvested, and are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions)
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
Proceeds from maturities and sales
|
|
$
|
306.2
|
|
|
$
|
487.8
|
|
|
$
|
1,476.1
|
|
|
$
|
2,490.4
|
|
Realized gains
|
|
$
|
0.3
|
|
|
$
|
5.0
|
|
|
$
|
3.4
|
|
|
$
|
18.1
|
|
Realized losses
|
|
$
|
0.4
|
|
|
$
|
0.2
|
|
|
$
|
1.7
|
|
|
$
|
2.0
|
|
In the first quarter of 2011, we also recognized within other
income (expense), a net gain of $13.8 million on the sale
of stock within our strategic investment portfolio.
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.
For the three and nine months ended September 30, 2011, we
recognized $0.8 million and $7.6 million,
respectively, in charges for the impairment of our investments
in venture capital funds and investments in privately-held
companies. No impairments were recognized in relation to our
publicly-held strategic 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 impairment of our publicly-held
strategic investments, investments in venture capital funds and
investments in privately-held companies.
|
|
10.
|
Derivative
Instruments
|
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 associated
with a portion of our forecasted international revenues.
Foreign currency forward contracts in effect as of
September 30, 2011 and December 31, 2010 had durations
of 1 to 12 months. These contracts have been designated as
cash flow hedges and accordingly, to the extent effective, any
unrealized gains or losses on these foreign currency forward
contracts are reported in accumulated other comprehensive income
(loss). 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.
21
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The notional value of foreign currency forward contracts that
were entered into to hedge forecasted revenue is summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
Foreign Currency (In millions)
|
|
2011
|
|
|
2010
|
|
|
Euro
|
|
$
|
503.2
|
|
|
$
|
460.3
|
|
Canadian dollar
|
|
|
5.8
|
|
|
|
24.0
|
|
Swedish krona
|
|
|
2.4
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
Total foreign currency forward contracts
|
|
$
|
511.4
|
|
|
$
|
494.2
|
|
|
|
|
|
|
|
|
|
|
The portion of the fair value of these foreign currency forward
contracts that was included in accumulated other comprehensive
income (loss) within total equity reflected net gains of
$13.5 million and net losses of $11.0 million as of
September 30, 2011 and December 31, 2010,
respectively. We expect all contracts to be settled over the
next 12 months and any amounts in accumulated other
comprehensive income (loss) 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, 2011
and December 31, 2010, credit risk did not materially
change the fair value of our foreign currency forward contracts.
In relation to our foreign currency forward contracts, we
recognized in other income (expense), net losses of
$2.8 million and $3.2 million due to hedge
ineffectiveness for the three and nine months ended
September 30, 2011, respectively, as compared to net gains
of $1.4 million and $0.9 million, respectively, in the
prior year comparable periods.
In addition, we recognized in product revenue net losses of
$10.8 million and $37.6 million for the settlement of
certain effective cash flow hedge instruments for the three and
nine months ended September 30, 2011, respectively, as
compared to net gains of $20.7 million and
$40.6 million, respectively, in the prior year comparable
periods. These settlements were recorded in the same period as
the related forecasted revenue.
Summary
of Derivatives Designated as Hedging Instruments
The following table summarizes the fair value and presentation
in our condensed consolidated balance sheets for derivatives
designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
As of September 30,
|
|
(In millions)
|
|
Balance Sheet Location
|
|
2011
|
|
|
Foreign Currency Contracts
|
|
|
|
|
|
|
Asset derivatives
|
|
Other current assets
|
|
$
|
10.6
|
|
Liability derivatives
|
|
Accrued expenses and other
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
As of December 31,
|
|
(In millions)
|
|
Balance Sheet Location
|
|
2010
|
|
|
Foreign Currency Contracts
|
|
|
|
|
|
|
Asset derivatives
|
|
Other current assets
|
|
$
|
|
|
Liability derivatives
|
|
Accrued expenses and other
|
|
$
|
11.0
|
|
22
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The following table summarizes the effect of derivatives
designated as hedging instruments within our condensed
consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
Amount
|
|
|
|
|
|
|
Recognized in
|
|
|
|
Reclassified from
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Other
|
|
|
|
Other
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
Income (Loss)
|
|
Income
|
|
Income (Loss)
|
|
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, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
Foreign currency contracts
|
|
$
|
13.5
|
|
|
Revenue
|
|
$
|
(10.8
|
)
|
|
(expense)
|
|
$
|
(2.8
|
)
|
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(17.1
|
)
|
|
Revenue
|
|
$
|
20.7
|
|
|
(expense)
|
|
$
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
Foreign currency contracts
|
|
$
|
13.5
|
|
|
Revenue
|
|
$
|
(37.6
|
)
|
|
(expense)
|
|
$
|
(3.2
|
)
|
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(17.1
|
)
|
|
Revenue
|
|
$
|
40.6
|
|
|
(expense)
|
|
$
|
0.9
|
|
Other
Derivatives
We also enter into other foreign currency forward contracts,
usually 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.
The aggregate notional amount of our outstanding foreign
currency contracts was $342.1 million as of
September 30, 2011. The fair value of these contracts was a
net asset of $6.5 million. Net gains of $6.1 million
and $1.8 million related to these contracts were recognized
as a component of other income (expense), net, for the three and
nine months ended September 30, 2011, respectively, as
compared to net losses of $10.1 million and net gains of
$3.0 million in the prior year comparative periods.
|
|
11.
|
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 $749.1 million and
$767.2 million as of September 30, 2011 and
December 31, 2010, respectively.
San Diego
Facility
On October 1, 2010, we sold the San Diego facility for
cash proceeds, net of transaction costs, of approximately
$127.0 million. As part of this transaction, we agreed to
lease back the San Diego facility for a period of
15 months. We accounted for this transaction as a financing
arrangement as we determined that the transaction did not
qualify as a sale due to our continuing involvement under the
leaseback terms. Accordingly, we recorded an obligation for the
proceeds received in October 2010 and the facility assets
remained classified as held for use with the carrying value of
the facility continued to be reflected as a component of
property, plant and equipment, net within our condensed
consolidated balance sheets.
In the first quarter of 2011, we entered into an agreement to
terminate our 15 month lease of the San Diego facility
effective August 31, 2011. We have had no continuing
involvement or remaining obligation after August 31, 2011
and have accounted for this transaction as a sale of property as
of that date. No
23
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
significant gain on sale was recognized and we did not recognize
any impairment charges related to the San Diego facility.
Hillerød,
Denmark Facility
As of September 30, 2011 and December 31, 2010, the
construction in progress balance related to the construction of
our large-scale biologic manufacturing facility in
Hillerød, Denmark totaled $481.7 million and
$440.2 million, respectively. This facility is intended to
manufacture large molecule products, including TYSABRI. In
connection with our construction of this facility, we
capitalized interest costs totaling approximately
$7.3 million and $21.7 million for the three and nine
months ended September 30, 2011, respectively.
New
Cambridge Leases
In July 2011, we executed leases for two office buildings to be
built in Cambridge, Massachusetts. We expect construction to
begin in late 2011, with a planned occupancy during the second
half of 2013. These buildings, totaling approximately
500,000 square feet, will serve as the future location of
our corporate headquarters and commercial operations. These
buildings will also provide additional general and
administrative and research and development office space. The
leases both have 15 year terms and we have options to
extend the term of each lease for two additional five-year
terms. Future minimum rental commitments under these leases will
total approximately $340.0 million over the initial
15 year lease terms. In addition to rent, the leases
require us to pay additional amounts for taxes, insurance,
maintenance and other operating expenses.
In accordance with accounting guidance applicable to entities
involved with the construction of an asset that will be leased
when the construction is completed, we are considered the owner,
for accounting purposes, of these properties during the
construction period. Accordingly, we will record an asset along
with a corresponding financing obligation on our consolidated
balance sheet for the amount of total project costs incurred
related to the
construction-in-progress
for these buildings through completion of the construction
period. Upon completion of the buildings, we will assess and
determine if the assets and corresponding liabilities should be
derecognized. As of September 30, 2011, cost incurred in
relation to the construction of these buildings was
insignificant.
Total equity as of September 30, 2011 increased
$784.2 million compared to December 31, 2010. This
increase was primarily driven by net income attributable to
Biogen Idec Inc. of $934.2 million and the increase in
additional paid in capital resulting from the issuance of stock
under our share based compensation arrangements totaling
$299.5 million. These increases were offset by repurchases
of our common stock totaling $386.6 million and a
$187.3 million reduction in additional paid in capital and
noncontrolling interests resulting from our purchase of the
noncontrolling interest in the Dompé joint ventures, as
described in Note 2, Acquisitions to these condensed
consolidated financial statements.
Preferred
Stock
In March 2011, the remaining 8,221 shares of our
Series A Preferred Stock were converted into
493,260 shares of common stock by the holder pursuant to
the conversion terms of the Series A Preferred Stock. As of
September 30, 2011, there are no shares of preferred stock
issued and outstanding.
Share
Repurchase Activity
In February 2011, our Board of Directors authorized the
repurchase of up to 20.0 million shares of our common
stock. We expect to use this repurchase program principally to
offset common stock issued under our
24
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
share-based compensation plans. This repurchase program does not
have an expiration date. Under this authorization, we
repurchased approximately 5.0 million shares of our common
stock at a cost of $386.6 million during the nine months
ended September 30, 2011
During the nine months ended September 30, 2010, we
repurchased approximately 40.3 million shares of our common
stock 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.
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 equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
|
|
Ended September 30, 2011
|
|
|
Ended September 30, 2010
|
|
|
|
Biogen Idec
|
|
|
|
|
|
Total
|
|
|
Biogen Idec
|
|
|
|
|
|
Total
|
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
Shareholders
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
Shareholders
|
|
(In millions)
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
351.8
|
|
|
$
|
1.9
|
|
|
$
|
353.7
|
|
|
$
|
254.1
|
|
|
$
|
(141.9
|
)
|
|
$
|
112.2
|
|
Unrealized gains (losses) on securities available for sale, net
of tax of $0.8 and $3.4
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
5.8
|
|
|
|
|
|
|
|
5.8
|
|
Unrealized gains (losses) on foreign currency forward contracts,
net of tax of $3.8 and $8.0
|
|
|
32.9
|
|
|
|
|
|
|
|
32.9
|
|
|
|
(71.1
|
)
|
|
|
|
|
|
|
(71.1
|
)
|
Unrealized gains (losses) on pension benefit obligation, net of
tax of $0 and $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
Currency translation adjustment
|
|
|
(49.7
|
)
|
|
|
(0.8
|
)
|
|
|
(50.5
|
)
|
|
|
84.4
|
|
|
|
4.5
|
|
|
|
88.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
333.6
|
|
|
$
|
1.1
|
|
|
$
|
334.7
|
|
|
$
|
273.4
|
|
|
$
|
(137.4
|
)
|
|
$
|
136.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30, 2011
|
|
|
Ended September 30, 2010
|
|
|
|
Biogen Idec
|
|
|
|
|
|
Total
|
|
|
Biogen Idec
|
|
|
|
|
|
Total
|
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
Shareholders
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
Shareholders
|
|
(In millions)
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
934.2
|
|
|
$
|
32.3
|
|
|
$
|
966.5
|
|
|
$
|
765.0
|
|
|
$
|
(138.2
|
)
|
|
$
|
626.8
|
|
Unrealized gains (losses) on securities available for sale, net
of tax of $7.1 and $2.1
|
|
|
(12.1
|
)
|
|
|
|
|
|
|
(12.1
|
)
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
(3.6
|
)
|
Unrealized gains (losses) on foreign currency forward contracts,
net of tax of $2.6 and $1.5
|
|
|
21.9
|
|
|
|
|
|
|
|
21.9
|
|
|
|
(16.8
|
)
|
|
|
|
|
|
|
(16.8
|
)
|
Unrealized gains (losses) on pension benefit obligation, net of
tax of $0 and $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
Currency translation adjustment
|
|
|
19.3
|
|
|
|
4.9
|
|
|
|
24.2
|
|
|
|
(39.2
|
)
|
|
|
(1.3
|
)
|
|
|
(40.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
963.3
|
|
|
$
|
37.2
|
|
|
$
|
1,000.5
|
|
|
$
|
705.3
|
|
|
$
|
(139.5
|
)
|
|
$
|
565.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The following table reconciles equity attributable to
noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Noncontrolling interests, beginning of period
|
|
$
|
79.1
|
|
|
$
|
40.5
|
|
|
$
|
52.9
|
|
|
$
|
40.4
|
|
Fair value of assets and liabilities acquired and assigned to
noncontrolling interest (Note 18)
|
|
|
|
|
|
|
145.0
|
|
|
|
|
|
|
|
145.0
|
|
Net income (loss) attributable to noncontrolling interests
|
|
|
1.9
|
|
|
|
(141.9
|
)
|
|
|
32.3
|
|
|
|
(138.2
|
)
|
Translation adjustments
|
|
|
(0.8
|
)
|
|
|
4.5
|
|
|
|
4.9
|
|
|
|
(1.3
|
)
|
Distributions to noncontrolling interests
|
|
|
(14.1
|
)
|
|
|
(8.9
|
)
|
|
|
(24.0
|
)
|
|
|
(8.9
|
)
|
Capital contributions from noncontrolling interests
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
2.5
|
|
Acquisition of noncontrolling interests (Note 2)
|
|
|
(61.7
|
)
|
|
|
|
|
|
|
(61.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests, end of period
|
|
$
|
4.4
|
|
|
$
|
39.5
|
|
|
$
|
4.4
|
|
|
$
|
39.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to us from our joint ventures were
negligible for the three and nine months ended
September 30, 2011 and 2010.
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)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec Inc.
|
|
$
|
351.8
|
|
|
$
|
254.1
|
|
|
$
|
934.2
|
|
|
$
|
765.0
|
|
Adjustment for net income allocable to preferred stock
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
(0.6
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income used in calculating basic and diluted earnings per
share
|
|
$
|
351.8
|
|
|
$
|
253.6
|
|
|
$
|
933.6
|
|
|
$
|
763.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
242.9
|
|
|
|
239.9
|
|
|
|
242.3
|
|
|
|
256.6
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and employee stock purchase plan
|
|
|
0.7
|
|
|
|
0.9
|
|
|
|
1.1
|
|
|
|
0.9
|
|
Time-vested restricted stock units
|
|
|
1.6
|
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
1.4
|
|
Market stock units
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
Performance-vested restricted stock units settled in shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
2.5
|
|
|
|
2.4
|
|
|
|
2.8
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculating diluted earnings per share
|
|
|
245.4
|
|
|
|
242.3
|
|
|
|
245.1
|
|
|
|
258.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED 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)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to preferred stock
|
|
$
|
|
|
|
$
|
0.5
|
|
|
$
|
0.6
|
|
|
$
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
4.5
|
|
|
|
|
|
|
|
4.9
|
|
Time-vested restricted stock units
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
1.0
|
|
Market stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-vested restricted stock units settled in shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
|
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
6.2
|
|
|
|
0.1
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes our equity grants to employees,
officers and directors under our current stock plans:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Stock options
|
|
|
|
|
|
|
124,000
|
|
Market stock units(a)
|
|
|
393,000
|
|
|
|
400,000
|
|
Cash settled performance shares(b)
|
|
|
490,000
|
|
|
|
378,000
|
|
Time-vested restricted stock units(c)
|
|
|
1,352,000
|
|
|
|
2,000,000
|
|
Performance-vested restricted stock units(d)
|
|
|
1,000
|
|
|
|
4,000
|
|
|
|
|
(a)
|
|
Market stock units (MSUs) granted
for the nine months ended September 30, 2010, represents
the target number of shares eligible to be earned at the time of
grant.
|
|
|
|
MSUs granted for the nine months
ended September 30, 2011, includes approximately 26,000
additional MSUs issued in 2011 based upon the attainment of
performance criteria set for 2010 in relation to shares granted
in 2010. The remainder of the MSUs granted in 2011 represents
the target number of shares eligible to be earned at the time of
grant. These grants were made in conjunction with the hiring of
employees and our annual awards made in February 2011.
|
|
(b)
|
|
Cash settled performance shares
(CSPSs) granted for the nine months ended September 30,
2010, represents the target number of shares eligible to be
earned at the time of grant.
|
|
|
|
CSPSs granted for the nine months
ended September 30, 2011, includes approximately 95,000
additional CSPSs issued in 2011 based upon the attainment of
performance criteria set for 2010 in relation to shares granted
in 2010. The remainder of the CSPSs granted in 2011 represents
the target number of shares eligible to be earned at the time of
grant. These grants were made in conjunction with the hiring of
employees and our annual awards made in February 2011.
|
|
(c)
|
|
Time-vested restricted stock units
(RSUs) granted for the nine months ended September 30,
2011, includes approximately 1.2 million RSUs granted in
connection with our annual awards made in February 2011, and
184,000 RSUs granted in conjunction with the hiring of employees
and grants made to our Board of Directors.
|
|
(d)
|
|
Performance-vested restricted stock
units (PVRSUs) granted for the nine months ended
September 30, 2010, represents the target number of shares
eligible to be earned at the time of grant; approximately 1,000
additional PVRSUs were issued in 2011 based upon the attainment
of performance criteria set for 2010 in relation to shares
granted in 2010.
|
27
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
In addition, for the nine months ended September 30, 2011,
approximately 382,000 shares were issued under our employee
stock purchase plan compared to approximately
457,000 shares issued in the prior year comparative period.
The following table summarizes share-based compensation expense
included within our condensed consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Research and development
|
|
$
|
14.2
|
|
|
$
|
15.9
|
|
|
$
|
46.4
|
|
|
$
|
48.0
|
|
Selling, general and administrative
|
|
|
22.4
|
|
|
|
26.9
|
|
|
|
65.2
|
|
|
|
97.1
|
|
Restructuring charge
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
36.6
|
|
|
|
42.8
|
|
|
|
111.0
|
|
|
|
145.1
|
|
Capitalized share-based compensation costs
|
|
|
(1.3
|
)
|
|
|
(0.9
|
)
|
|
|
(3.3
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in total cost and
expenses
|
|
|
35.3
|
|
|
|
41.9
|
|
|
|
107.7
|
|
|
|
142.6
|
|
Income tax effect
|
|
|
(10.0
|
)
|
|
|
(13.0
|
)
|
|
|
(33.0
|
)
|
|
|
(45.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in net income
attributable to Biogen Idec Inc.
|
|
$
|
25.3
|
|
|
$
|
28.9
|
|
|
$
|
74.7
|
|
|
$
|
97.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Stock options
|
|
$
|
1.8
|
|
|
$
|
3.0
|
|
|
$
|
4.5
|
|
|
$
|
23.1
|
|
Market stock units
|
|
|
3.5
|
|
|
|
2.3
|
|
|
|
11.2
|
|
|
|
7.8
|
|
Time-vested restricted stock units
|
|
|
22.0
|
|
|
|
30.8
|
|
|
|
68.2
|
|
|
|
96.5
|
|
Performance-vested restricted stock units settled in shares
|
|
|
0.2
|
|
|
|
0.7
|
|
|
|
0.9
|
|
|
|
4.4
|
|
Cash settled performance shares
|
|
|
6.2
|
|
|
|
2.7
|
|
|
|
21.7
|
|
|
|
8.0
|
|
Employee stock purchase plan
|
|
|
2.9
|
|
|
|
3.3
|
|
|
|
4.5
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
36.6
|
|
|
|
42.8
|
|
|
|
111.0
|
|
|
|
145.1
|
|
Capitalized share-based compensation costs
|
|
|
(1.3
|
)
|
|
|
(0.9
|
)
|
|
|
(3.3
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in total cost and
expenses
|
|
$
|
35.3
|
|
|
$
|
41.9
|
|
|
$
|
107.7
|
|
|
$
|
142.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2011, our
effective tax rate was 26.4% and 26.0%, respectively, compared
to 40.1% and 28.7%, respectively, in the prior year comparative
periods.
The decrease in our tax rate for the three and nine months ended
September 30, 2011, compared to the same periods in 2010,
was primarily due to our 2010 license and collaboration
agreement with Knopp Neurosciences, Inc., which negatively
impacted our effective tax rate for the three and nine months
ended September 30, 2010, due to the attribution to
noncontrolling interest of $145.0 million of the associated
IPR&D charge. As such, the attributed amount did not
generate a tax deduction, causing our tax rate to be unfavorably
impacted by 13.5% and 2.7%, respectively. In addition, during
2011, we experienced an increase in research and development
expenditures eligible for the orphan drug credit and a lower
effective state tax rate resulting from a change in state law
and the settlement of outstanding IRS audit matters in the first
and third quarters of 2011, offset by a higher percentage of our
2011 profits being earned in higher tax rate jurisdictions,
principally the U.S.
28
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Reconciliation between the U.S. federal statutory tax rate
and our effective tax rate is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes
|
|
|
1.3
|
|
|
|
2.4
|
|
|
|
1.4
|
|
|
|
2.0
|
|
Taxes on foreign earnings
|
|
|
(3.8
|
)
|
|
|
(13.6
|
)
|
|
|
(5.4
|
)
|
|
|
(10.8
|
)
|
Credits and net operating loss utilization
|
|
|
(5.1
|
)
|
|
|
(4.3
|
)
|
|
|
(3.8
|
)
|
|
|
(2.2
|
)
|
Purchased intangible assets
|
|
|
1.1
|
|
|
|
2.9
|
|
|
|
1.3
|
|
|
|
1.8
|
|
IPR&D
|
|
|
|
|
|
|
21.6
|
|
|
|
|
|
|
|
5.2
|
|
Permanent items
|
|
|
(1.2
|
)
|
|
|
(3.8
|
)
|
|
|
(1.2
|
)
|
|
|
(2.1
|
)
|
Other
|
|
|
(0.9
|
)
|
|
|
(0.1
|
)
|
|
|
(1.3
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
26.4
|
%
|
|
|
40.1
|
%
|
|
|
26.0
|
%
|
|
|
28.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting for Uncertainty in Income Taxes
|
We and our subsidiaries are routinely examined by various taxing
authorities. We file income tax returns in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. With
few exceptions, we are no longer subject to U.S. federal
tax examination for years before 2007 or state, local, or
non-U.S. income
tax examinations by tax authorities for years before 2004.
During the year, we adjusted our unrecognized tax benefits to
reflect new information arising during our ongoing audit
examinations.
In October 2011, in conjunction with our examination, the
IRS has proposed a disallowance of approximately
$130.0 million in deductions for tax years 2007, 2008 and
2009 related to payments for services from our Danish contract
manufacturing affiliate. We believe that these deductions
represent valid deductible business expenses and will vigorously
defend our position.
Contingencies
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 asserted that the portion
of sales attributable to Massachusetts (sales factor), the
computation of BIMAs research and development credits and
certain deductions claimed by BIMA were not appropriate,
resulting in unpaid taxes for 2002. We filed an abatement
application with the DOR seeking abatements for 2001, 2002 and
2003. Our abatement application was denied and on July 25,
2007, we filed a petition with the Massachusetts Appellate Tax
Board (the Massachusetts ATB) 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. On August 18, 2011, we reached a
settlement with the DOR under which we agreed to pay
$7.0 million in taxes, plus $5.0 million of interest,
and agreed on the nature and amount of tax credits carried
forward into 2004. This resolution did not have a significant
impact on our results of operations, is related only to the
2001, 2002 and 2003 tax years, and does not resolve matters in
dispute for subsequent periods.
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. We believe the asserted basis
for these assessments is consistent with that for 2002.
Assessments related to periods under dispute, including
associated interest and penalties, total $142.4 million. We
filed an abatement application with the DOR seeking abatement
for 2004, 2005 and 2006. Our abatement application was denied
29
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
in December 2010, and we filed a petition appealing the denial
with the ATB on February 3, 2011. 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 are contesting 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 have
not been 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 the effective tax rate and our results of
operations.
|
|
17.
|
Other
Consolidated Financial Statement Detail
|
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)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Interest income
|
|
$
|
5.3
|
|
|
$
|
3.1
|
|
|
$
|
13.3
|
|
|
$
|
18.6
|
|
Interest expense
|
|
|
(7.9
|
)
|
|
|
(9.3
|
)
|
|
|
(25.5
|
)
|
|
|
(26.6
|
)
|
Impairments of investments
|
|
|
(0.8
|
)
|
|
|
(2.8
|
)
|
|
|
(7.6
|
)
|
|
|
(19.8
|
)
|
Foreign exchange losses, net
|
|
|
(4.8
|
)
|
|
|
(3.5
|
)
|
|
|
(5.8
|
)
|
|
|
(3.2
|
)
|
Gain (loss) on sales of investments, net
|
|
|
(0.1
|
)
|
|
|
4.8
|
|
|
|
15.4
|
|
|
|
16.1
|
|
Other, net
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
0.7
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
(7.7
|
)
|
|
$
|
(6.9
|
)
|
|
$
|
(9.5
|
)
|
|
$
|
(14.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Current Assets
Other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Deferred tax assets
|
|
$
|
38.2
|
|
|
$
|
112.2
|
|
Prepaid taxes
|
|
|
29.4
|
|
|
|
31.4
|
|
Receivable from collaborations
|
|
|
12.9
|
|
|
|
7.3
|
|
Interest receivable
|
|
|
7.6
|
|
|
|
4.9
|
|
Derivative assets
|
|
|
18.9
|
|
|
|
1.3
|
|
Other prepaid expenses
|
|
|
60.8
|
|
|
|
47.9
|
|
Other
|
|
|
26.4
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
Total other current assets
|
|
$
|
194.2
|
|
|
$
|
215.8
|
|
|
|
|
|
|
|
|
|
|
Included as a component of the amounts comprising Other in the
table above, which totaled $26.4 million as of
September 30, 2011, is a receivable from Dompé
Farmaceutici SpA of $13.3 million related to the sale of
30
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
outstanding trade receivables of Biogen Dompé SRL. For
additional information related to this transaction, please read
Note 2, Acquisitions to these condensed consolidated
financial statements.
Accrued
Expenses and Other
Accrued expenses and other consists of the following:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Employee compensation and benefits
|
|
$
|
144.3
|
|
|
$
|
159.7
|
|
Revenue-related rebates
|
|
|
119.2
|
|
|
|
105.3
|
|
Restructuring reserve
|
|
|
2.6
|
|
|
|
66.4
|
|
Royalties and licensing fees
|
|
|
42.9
|
|
|
|
45.1
|
|
Deferred revenue
|
|
|
59.9
|
|
|
|
41.3
|
|
Collaboration expenses
|
|
|
51.7
|
|
|
|
31.6
|
|
Clinical development expenses
|
|
|
42.6
|
|
|
|
24.4
|
|
Interest payable
|
|
|
5.4
|
|
|
|
21.6
|
|
Construction in progress accrual
|
|
|
16.3
|
|
|
|
16.4
|
|
Current portion of contingent consideration
|
|
|
9.0
|
|
|
|
11.9
|
|
Derivative liabilities
|
|
|
2.0
|
|
|
|
12.2
|
|
Other
|
|
|
178.8
|
|
|
|
130.0
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other
|
|
$
|
674.7
|
|
|
$
|
665.9
|
|
|
|
|
|
|
|
|
|
|
For additional information related to restructuring charges
accrued as of September 30, 2011 and December 31,
2010, please read Note 3, Restructuring to these
condensed consolidated financial statements.
Included as a component of the amounts comprising Other in the
table above, which totaled $178.8 million as of
September 30, 2011, is a payable of $57.7 million
related to the final upfront payment for the purchase of the
noncontrolling interest in our joint venture investments in
Biogen Dompé SRL and Biogen Dompé Switzerland GmbH.
For additional information related to this transaction, please
read Note 2, Acquisitions to these condensed
consolidated financial statements.
|
|
18.
|
Investments
in Variable Interest Entities
|
Consolidated
Variable Interest Entities
Our condensed consolidated financial statements include the
financial results of variable interest entities in which we are
the primary beneficiary.
Investments
in Joint Ventures
On September 6, 2011, we completed the purchase of the
noncontrolling interest in our joint venture investments in
Biogen Dompé SRL and Biogen Dompé Switzerland GmbH,
our respective sales affiliates in Italy and Switzerland, from
our joint venture partners, Dompé Farmaceutici SpA and
Dompé International SA, respectively. Prior to this
transaction, our consolidated financial statements reflected
100% of the operations of these joint venture investments and we
recorded net income (loss) attributable to noncontrolling
interests in our consolidated statements of income based on the
percentage of ownership interest retained by our joint venture
partners as we retained the power to direct the activities which
most significantly and directly impacted their economic
performance. We have continued to consolidate the operations of
these entities
31
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
following our purchase of the noncontrolling interest; however,
as of September 6, 2011, we no longer allocate 50% of the
earnings of these affiliates to net income (loss) attributable
to noncontrolling interests as Biogen Dompé SRL and Biogen
Dompé Switzerland GmbH became wholly-owned subsidiaries of
the Company.
The assets of these joint ventures were restricted, from the
standpoint of Biogen Idec, in that they were not available for
our general business use outside the context of each joint
venture. The joint ventures most significant assets were
accounts receivable from the ordinary course of business. The
holders of the liabilities of each joint venture, including the
credit line from Dompé Farmaceutici SpA to Biogen
Dompé SRL, had no recourse to Biogen Idec. Balances
outstanding under Biogen Dompé SRLs credit line were
repaid in connection with this transaction. In addition,
Dompé Farmaceutici SpA purchased all of Biogen Dompé
SRLs outstanding receivables as of June 30, 2011,
adjusted for cash received through September 5, 2011. For
additional information related to this transaction, please read
Note 2, Acquisitions to these condensed consolidated
financial statements.
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
dexpramipexole, an orally administered small molecule in
clinical development for the treatment of amyotrophic lateral
sclerosis (ALS). We are responsible for all development
activities and, if successful, we will also be responsible for
the manufacture and global commercialization of dexpramipexole.
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 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 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. As the license agreement
with Knopp only gives us access to the underlying intellectual
property of dexpramipexole and we did not acquire any employees
or other processes, we determined that this transaction was an
acquisition of an asset rather than a business. Therefore, we
recorded an IPR&D charge of approximately
$205.0 million upon the initial consolidation of Knopp,
which is included within our consolidated statement of income
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. We attributed approximately $145.0 million of the
IPR&D charge to the noncontrolling interest.
In March 2011, we dosed the first patient in a registrational
study for dexpramipexole. The achievement of this milestone
resulted in a $10.0 million payment due to Knopp. As we
consolidate Knopp, we recognized this payment as a charge to
noncontrolling interests in the first quarter of 2011.
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 cost and expenses in our consolidated
statements of income. Future development and sales-based
milestone payments will also be reflected within our
consolidated statements of income as a charge to noncontrolling
interests, when such milestones are achieved.
32
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
For the three and nine months ended September 30, 2011, the
collaboration incurred $21.8 million and
$36.5 million, respectively, of expense related to the
development of dexpramipexole, which is reflected as research
and development expense within our condensed consolidated
statements of income. Research and development expense for the
three and nine months ended September 30, 2010 included the
$26.4 million upfront payment made to Knopp as well as
$1.0 million incurred in development of dexpramipexole.
The assets and liabilities of Knopp are not significant to our
financial position or results of operations. We have provided no
financing to Knopp other than previously contractually required
amounts disclosed above.
Neurimmune
SubOne AG
In 2007, we entered into a collaboration agreement with
Neurimmune SubOne AG (Neurimmune), a subsidiary of Neurimmune
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
$345.0 million in remaining milestone payments, as well as
royalties on sales of any resulting commercial products.
We determined that we are the primary beneficiary of Neurimmune
because we have the power through the collaboration to direct
the activities that most significantly impact the entitys
economic performance and are required to fund 100% of the
research and development costs incurred in support of the
collaboration agreement. Amounts that are incurred by Neurimmune
for research and development expense in support of the
collaboration that we reimburse are reflected in research and
development expense in our consolidated statements of income.
Future milestone payments will be reflected within our
consolidated statements of income as a charge to the
noncontrolling interest when such milestones are achieved.
For the three and nine months ended September 30, 2011, the
collaboration incurred development expense totaling
$1.5 million and $6.3 million, respectively, which is
reflected as research and development expense within our
condensed consolidated statements of income, compared to
$2.4 million and $12.8 million, respectively, in the
prior year comparative periods.
In April 2011, we submitted an Investigational New Drug (IND)
application for BIIB037 (human
anti-Amyloid
β mAb), a
beta-amyloid
removal therapy. BIIB037 is being developed for the treatment of
Alzheimers disease. The achievement of this milestone
resulted in a $15.0 milestone payment made to Neurimmune.
As we consolidate Neurimmune, we have recognized this payment as
a charge to noncontrolling interests in the second quarter of
2011.
The assets and liabilities of Neurimmune are not significant to
our financial position or results of operations as it is a
research and development organization. We have provided no
financing to Neurimmune other than previously contractually
required amounts disclosed above.
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. For additional information related to our
significant collaboration arrangements, please read
Note 19, Collaborations to our consolidated
financial statements included within our 2010
Form 10-K.
As of September 30, 2011 and December 31, 2010, the
total carrying value of our investments in biotechnology
companies that we determined to be variable interest entities
and which are not consolidated
33
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
were $18.1 million and $22.9 million, respectively.
Our maximum exposure to loss related to these variable interest
entities is limited to the carrying value of our investments.
We have provided no financing to these variable interest
entities other than previously contractually required amounts.
In April 2011, we agreed to terminate our collaboration with
Vernalis plc (Vernalis) for the development and
commercialization of an adenosine A2a receptor antagonist for
treatment of Parkinsons disease effective April 11,
2011. Under the terms of the agreement, we have returned the
program to Vernalis and have no further license to or continuing
involvement in the development of, this compound and its related
intellectual property. In exchange, we will receive a royalty on
future net sales if this compound is ultimately commercialized.
We funded development costs through the termination date and
have no other remaining development obligations after that date.
Development expense incurred by this collaboration in 2011 was
insignificant.
For additional information related to this and our other
collaborative arrangements, please read Note 19,
Collaborations to our consolidated financial statements
included within our 2010
Form 10-K.
Massachusetts
Department of Revenue
In 2006, the Massachusetts Department of Revenue (DOR) issued a
Notice of Assessment against Biogen Idec MA, Inc. (BIMA) for
$38.9 million of corporate excise tax for 2002, which
includes associated interest and penalties. The assessment
asserted that the portion of sales attributable to Massachusetts
(sales factor), the computation of BIMAs research and
development credits and certain deductions claimed by BIMA were
not appropriate, resulting in unpaid taxes for 2002. We filed an
abatement application with the DOR seeking abatements for 2001,
2002 and 2003. Our abatement application was denied and on
July 25, 2007, we filed a petition with the Massachusetts
Appellate Tax Board (the Massachusetts ATB) 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. On August 18, 2011, we
reached a settlement with the DOR, which is further discussed in
Note 16, Income Taxes to these condensed
consolidated financial statements.
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. We believe the asserted basis
for these assessments is consistent with that for 2002. We filed
an abatement application with the DOR seeking abatements for
2004, 2005, and 2006. Our abatement application was denied on
December 15, 2010 and we filed a petition appealing the
denial with the Massachusetts ATB on February 3, 2011. 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 are contesting these matters
vigorously.
Hoechst
Genentech Arbitration
On October 24, 2008, Hoechst GmbH (Hoechst), predecessor to
Sanofi-Aventis Deutschland GmbH (Sanofi), filed with the ICC
International Court of Arbitration (Paris) a request for
arbitration against Genentech, relating to a license agreement
(the Hoechst License) between Hoechsts predecessor and
Genentech that was entered as of January 1, 1991 and
terminated by Genentech effective October 27, 2008. The
Hoechst License granted Genentech certain rights with respect to
later-issued U.S. Patents 5,849,522 (522 patent) and
6,218,140 (140 patent) and related patents outside the
U.S. The Hoechst License provided for potential royalty
payments of 0.5% on net sales of certain products defined by the
agreement. Although we are not a party to the arbitration,
34
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
we expect that any damages that may be awarded to Hoechst may be
a cost charged to our collaboration with Genentech.
In June 2011, the arbitrator issued an intermediate
decision indicating that RITUXAN is covered by the Hoechst
License and ordered Genentech to provide certain RITUXAN sales
information for the period from December 15, 1998 to
October 27, 2008. Based on our understanding of the
arbitrators intermediate decision, in the second quarter
of 2011 our share of RITUXAN revenues from unconsolidated joint
business was reduced by approximately $50.0 million to reflect
our share of the approximately $125.0 million compensatory
damages and interest that Genentech estimated might be awarded
to Hoechst. Sanofi has since claimed it is due damages of
approximately $224.0 million for this period as well as
additional royalties in an amount to be determined at a future
hearing.
In July 2011, Genentech filed a Declaration of Appeal with the
Court of Appeal in Paris to vacate the arbitrators
intermediate decision. The arbitrator declined to stay further
proceedings until the Declaration of Appeal is decided and has
since informed the parties that the underlying issue of
liability with respect to RITUXAN under the Hoechst License has
not yet been decided. In October 2011, the arbitrator scheduled
a hearing on liability and damages for spring 2012, and a
decision could follow in late summer 2012.
In light of the arbitrators most recent ruling, the
$50.0 million reduction of our share of RITUXAN revenues
from unconsolidated joint business made in the second quarter of
2011 reflects our current estimate of the loss that we may incur
as a result of a final arbitration award unfavorable to
Genentech. The actual amount of our share of any damages may
vary from this estimate depending on the nature or amount of any
damages awarded to Hoechst, or if the arbitrators final
decision is successfully challenged by Genentech.
Sanofi
522 and 140 Patent Litigation
On October 27, 2008, Sanofi, successor to Hoechst, 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 the 522 patent and the
140 patent. The patents are due to expire in December
2015. 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
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. 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 Sanofi Patent Actions.
Certain damages that may be awarded to Sanofi in the
Consolidated Sanofi Patent Actions may be a cost charged to our
collaboration with Genentech.
On April 21, 2011, the court entered a separate and final
judgment that the manufacture and sale of RITUXAN do not
infringe the 522 patent or the 140 patent and stayed
the trial of the remaining claims, including Biogen Idecs
and Genentechs invalidity claims. Sanofi has appealed from
the courts non-infringement ruling to the U.S. Court
of Appeals for the Federal Circuit and the appeal is pending. We
have not formed an opinion that a decision in favor of Sanofi in
its appeal of the non-infringement ruling, or an unfavorable
outcome on the now stayed invalidity claims in the Consolidated
Sanofi Patent Actions, is either probable or
remote. We believe that we have good and valid
defenses and are vigorously defending against Sanofis
allegations.
In the event that we and Genentech are found liable we estimate
that the range of any potential loss could extend to a royalty
of up to 0.5% of net sales of RITUXAN, based on, among other
things, the royalty rate set forth in the terminated Hoechst
License and an analysis of royalty rates charged for comparable
technologies. We believe that Sanofi would seek a substantially
higher royalty rate, and we will continue to vigorously oppose
its claims and position.
35
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
We expect any damage award in the Consolidated Sanofi Patent
Actions for damages incurred prior to the filing of litigation
to be limited to the period running from October 27, 2002
to October 27, 2008 (six years before Sanofi filed the
Texas Action). In addition, in the event that Genentech is
ordered to pay royalties on RITUXAN sales under the Hoechst
License described above, we do not anticipate that we or
Genentech would be subject to any damages award in the
Consolidated Sanofi Patent Actions for any period as to which
Genentech is ordered to pay royalties in the arbitration.
755
Patent Litigation
On September 15, 2009, we were issued U.S. Patent
No. 7,588,755 (755 Patent), which claims the use of
interferon beta for immunomodulation or treating a viral
condition, viral disease, cancers or tumors. 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 the U.S. District Court for the District of
New Jersey seeking a declaratory judgment of patent invalidity
and
non-infringement
and seeking monetary relief in the form of attorneys fees,
costs and expenses. On May 28, 2010, BIMA filed a lawsuit
in the U.S. District Court for 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, and we refer to the
two actions as the Consolidated 755 Patent
Actions.
Bayer, Pfizer, Novartis and EMD Serono have all filed
counterclaims in the Consolidated 755 Patent Actions
seeking declaratory judgments of patent invalidity and
noninfringement, and seeking monetary relief in the form of
costs and attorneys fees, and EMD Serono and Bayer have
each filed a counterclaim seeking a declaratory judgment that
the 755 Patent is unenforceable based on alleged
inequitable conduct. Bayer has also amended its complaint to
seek such a declaration. No trial date has yet been ordered, but
we expect that the trial of the Consolidated 755 Patent
Actions will take place in 2013.
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 moved
to compel arbitration of the claims against it, and on
June 7, 2011, a United States Magistrate Judge recommended
allowance of Ares motion. On June 21, 2011, we filed
objections to the recommendation. Pending a decision on our
objections by the U.S. District Court Judge, an arbitration
hearing was held in October, 2011.
GSK
612 Patent Litigation
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, offer to sell, and importation 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,
unenforceability, and inequitable conduct, and seeking monetary
relief in the form of costs and attorneys fees.
36
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Novartis
V&D 688 Patent Litigation
On January 26, 2011, Novartis Vaccines and Diagnostics,
Inc. (Novartis V&D) filed suit against us in federal
district court in Delaware, alleging that TYSABRI infringes
U.S. Patent No. 5,688,688 Vector for
Expression of a Polypeptide in a Mammalian Cell
(688 Patent), which was granted in November 1997 and
expires in November 2014. Novartis V&D seeks a declaration
of infringement, a finding of willful infringement, compensatory
damages, treble damages, interest, costs and attorneys
fees. We have not formed an opinion that an unfavorable outcome
is either probable or remote, and are
unable to estimate the magnitude or range of any potential loss.
We believe that we have good and valid defenses to the complaint
and will vigorously defend against it.
Average
Manufacturer Price Litigation
On September 6, 2011, we and several other pharmaceutical
companies were served with a complaint originally filed under
seal on October 28, 2008 in the United States District Court for
the Eastern District of Pennsylvania by Ronald Streck (the
relator) on behalf of himself and the United States, and the
states of New Jersey, California, Rhode Island, Michigan,
Montana, Wisconsin, Massachusetts, Tennessee, Oklahoma, Texas,
Indiana, New Hampshire, North Carolina, Florida, Georgia, New
Mexico, Illinois, New York, Virginia, Delaware, Hawaii,
Louisiana, Connecticut, and Nevada, (collectively the
States), and the District of Columbia, alleging violations
of the False Claims Act, 31 U.S.C. § 3729 et seq.
and state and District of Columbia statutory counterparts. In
May 2011, the United States notified the court that it was
not intervening at that time as to one defendant, and was
declining to intervene as to all other defendants, including
Biogen Idec; the District of Columbia notified the court that it
was not intervening at that time; and the states notified the
court that they were declining to intervene as to all
defendants. The complaint was subsequently unsealed and served,
and then amended. The amended complaint alleges that Biogen Idec
and other defendants underreport Average Manufacturer Price
information to the Centers for Medicare and Medicaid Services,
thereby causing Biogen Idec and other defendants to underpay
rebates under the Medicaid Drug Rebate Program. The relator
alleges that the underreporting has occurred because Biogen Idec
and other defendants improperly consider various payments or
price concessions that they made to drug wholesalers to be
discounts under applicable federal law. We have not formed an
opinion that an unfavorable outcome is either
probable or remote, or as to the
magnitude or range of any potential loss. We believe that we
have good and valid defenses and intend vigorously to defend
against the allegations.
Product
Liability and Other Legal Proceedings
We are also involved in product liability claims and other legal
proceedings generally incidental to our normal business
activities. While the outcome of any of these proceedings cannot
be accurately predicted, we do not believe the ultimate
resolution of any of these existing matters would have a
material adverse effect on our business or financial condition.
We operate as one business segment, which is the business of
discovering, developing, manufacturing and marketing therapies
for serious diseases with a focus on neurology, immunology and
hemophilia and therefore, our chief operating decision-maker
manages the operations of our Company as a single operating
segment.
|
|
22.
|
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
37
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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 September 2011, the FASB issued Accounting Standards Update
(ASU)
No. 2011-08,
Intangibles Goodwill and Other (Topic 350):
Testing Goodwill for Impairment (ASU
2011-08).
This newly issued accounting standard allows an entity the
option to first assess qualitative factors to determine whether
it is necessary to perform the current two-step impairment test.
If an entity believes, as a result of its qualitative
assessment, that it is more-likely-than-not that the fair value
of a reporting unit is less than its carrying amount, the
quantitative two-step impairment test is required; otherwise, no
further testing is required. These amendments do not change the
current guidance for testing other indefinite-lived intangible
assets for impairment. This ASU is effective for annual and
interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011, which for Biogen Idec
means January 1, 2012. Early adoption is permitted. We are
currently evaluating the potential impact the early adoption of
this statement may have on our financial position and results of
operations.
In June 2011, the FASB issued ASU
No. 2011-05,
Comprehensive Income (Topic 220): Presentation of
Comprehensive Income (ASU
2011-05).
This newly issued accounting standard (1) eliminates the
option to present the components of other comprehensive income
as part of the statement of changes in stockholders
equity; (2) requires the consecutive presentation of the
statement of net income and other comprehensive income; and
(3) requires an entity to present reclassification
adjustments on the face of the financial statements from other
comprehensive income to net income. The amendments in this ASU
do not change the items that must be reported in other
comprehensive income or when an item of other comprehensive
income must be reclassified to net income nor do the amendments
affect how earnings per share is calculated or presented. This
ASU is required to be applied retrospectively and is effective
for fiscal years and interim periods within those years
beginning after December 15, 2011, which for Biogen Idec
means January 1, 2012. As this accounting standard only
requires enhanced disclosure, the adoption of this standard will
not impact our financial position or results of operations.
In May 2011, the FASB issued ASU
No. 2011-04,
Fair Value Measurement (Topic 820): Amendments to
Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs
(ASU 2011-04).
This newly issued accounting standard clarifies the application
of certain existing fair value measurement guidance and expands
the disclosures for fair value measurements that are estimated
using significant unobservable (Level 3) inputs. This
ASU is effective on a prospective basis for annual and interim
reporting periods beginning on or after December 15, 2011,
which for Biogen Idec means January 1, 2012. We do not
expect that adoption of this standard will have a material
impact on our financial position or results of operations.
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
clarified existing disclosure requirements related to the level
of disaggregation of fair value measurements for each class of
assets and liabilities and requires disclosures about inputs and
valuation techniques used to measure fair value for both
recurring and nonrecurring Level 2 and Level 3
measurements. In addition, effective for interim and annual
periods beginning after December 15, 2010, which for Biogen
Idec was January 1, 2011; this standard further requires an
entity to present disaggregated information about activity in
Level 3 fair value measurements on a gross basis, rather
than as one net amount. 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.
38
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read in conjunction with our
condensed consolidated financial statements and accompanying
notes beginning on page 4 of this quarterly report on
Form 10-Q
and our audited consolidated financial statements and related
notes included in our Annual Report on
Form 10-K
for the year ended December 31, 2010 (2010
Form 10-K).
Certain totals may not sum due to rounding.
Executive
Summary
Introduction
Biogen Idec is a global biotechnology company focused on
discovering, developing, manufacturing and marketing therapies
for serious diseases with a focus on neurology, immunology and
hemophilia. We currently have five marketed products: AVONEX,
TYSABRI, RITUXAN, FAMPYRA, 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.
In the near term, our current and future revenues are dependent
upon continued sales of our three principal products, AVONEX,
TYSABRI, and RITUXAN. In the longer term, our revenue growth
will be dependent upon the successful clinical development,
regulatory approval and launch of new commercial products, our
ability to obtain and maintain patents and other rights related
to our marketed products and assets originating from our
research and development efforts, and successful execution of
external business development opportunities. As part of our
ongoing research and development efforts, we have devoted
significant resources to conducting clinical studies to advance
the development of new pharmaceutical products and to explore
the utility of our existing products in treating disorders
beyond those currently approved in their labels.
Financial
Highlights
The following table is a summary of financial results achieved:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended September 30,
|
(In millions, except per share amounts and percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
Total revenues
|
|
$
|
1,309.9
|
|
|
$
|
1,175.8
|
|
|
|
11.4
|
%
|
Income from operations(1)
|
|
$
|
488.5
|
|
|
$
|
194.1
|
|
|
|
151.6
|
%
|
Net income attributable to Biogen Idec Inc.
|
|
$
|
351.8
|
|
|
$
|
254.1
|
|
|
|
38.5
|
%
|
Diluted earnings per share attributable to Biogen Idec Inc.
|
|
$
|
1.43
|
|
|
$
|
1.05
|
|
|
|
36.2
|
%
|
|
|
|
(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, 2011 reflect the following:
|
|
|
|
|
Worldwide AVONEX revenues totaled $681.7 million in the
third quarter of 2011, representing an increase of 5.9% over the
same period in 2010.
|
|
|
|
Our share of TYSABRI revenues totaled $277.3 million in the
third quarter of 2011, representing an increase of 25.6% over
the same period in 2010.
|
|
|
|
Our share of RITUXAN revenues totaled $266.5 million in the
third quarter of 2011, representing an increase of approximately
3.3% over the same period in 2010. Our share of pre-tax
co-promotion profits in the U.S. totaled
$234.0 million representing an increase of 14.6% over 2010.
This increase was offset by royalty expirations in our rest of
world markets and a decrease in selling and development expenses
incurred by us and reimbursed by Genentech, which are also
included within our total unconsolidated joint business revenues.
|
39
|
|
|
|
|
Total cost and expenses decreased 16.3% in the third quarter of
2011, compared to the same period in 2010. This decrease was
primarily the result of the $205.0 million IPR&D
charge recognized in the third quarter of 2010 as well as a 5.5%
decrease in research and development expense and a 7.8% decrease
in amortization of acquired intangible assets. These decreases
were offset by a 28.8% increase in cost of sales, a 27.3%
increase in collaboration profit sharing expense due to TYSABRI
revenue growth, as well as a 7.1% increase in selling, general
and administrative costs over the same period in 2010.
|
We generated $1,253.8 million of net cash flow from
operations for the nine months ended September 30, 2011,
which was primarily driven by earnings. Cash and cash
equivalents and marketable securities totaled approximately
$2,868.9 million as of September 30, 2011.
In February 2011, our Board of Directors authorized the
repurchase of up to 20.0 million shares of our common
stock. Under this authorization, we repurchased approximately
5.0 million shares of our common stock at a cost of
$386.6 million during the nine months ended
September 30, 2011.
Business
Environment
We conduct our business primarily within the biotechnology and
pharmaceutical industries, which are highly competitive. Many of
our competitors are working to develop or have already developed
products similar to those we are developing or already market.
For example, along with us, a number of companies are working to
develop or have already developed additional treatments for MS,
including oral and other alternative formulations that may
compete with AVONEX and TYSABRI. In addition, the
commercialization of certain of our own pipeline product
candidates, such as BG-12 (dimethyl fumarate), may negatively
impact future sales of AVONEX and TYSABRI. We may also face
increased competitive pressures as a result of the emergence of
biosimilars. In the U.S., AVONEX, TYSABRI, and RITUXAN are
licensed under the Public Health Service Act (PHSA) as
biological products. In March 2010, U.S. healthcare reform
legislation amended the PHSA to authorize the U.S. Food and
Drug Administration (FDA) to approve biological products, known
as biosimilars or follow-on biologics, that are shown to be
highly similar to previously approved biological products based
upon potentially abbreviated data packages.
In addition, the economic conditions in Europe continue to
present significant challenges. Many of the countries in which
we operate are reducing their public expenditures in light of
the recent global economic downturn and we have encountered
efforts to reform health care coverage and reduce health care
costs. Moreover, the deterioration of the credit and economic
conditions in certain countries in Europe has delayed
reimbursement for our products and led to additional austerity
measures aimed at reducing healthcare costs. Global efforts to
reduce healthcare costs continue to exert pressure on product
pricing and have negatively impacted our revenues and results of
operations. For additional information about certain risks that
could negatively impact our financial position or future results
of operations, please read the Risk Factors
section of this report.
Key
Pipeline Developments
BG-12
On October 26, 2011, we announced positive top-line results
from CONFIRM, the second of two pivotal Phase 3 clinical trials
designed to evaluate the investigational oral compound BG-12
(dimethyl fumarate) in people with relapsing-remitting multiple
sclerosis. Results showed that 240 mg of BG-12,
administered either twice a day or three times a day,
demonstrated significant efficacy and favorable safety and
tolerability profiles.
We have several patents and other rights applicable to BG-12. In
the U.S., we are entitled to the five-year data exclusivity
given to new chemical entities and we own a patent covering the
administration of dimethyl fumarate (DMF), the active ingredient
in BG-12, to treat MS and other autoimmune diseases. This patent
expires in 2020 with a possible term extension to be determined.
In the E.U., we have a patent covering our BG-12 formulation and
the method of treating MS and other autoimmune diseases with our
formulation that expires in 2019 and which may also be eligible
for patent term extension in some countries. In addition, while
there are a number of ways to obtain data exclusivity in the
E.U., we believe that we are entitled to 8 years
40
data exclusivity plus 2 years market exclusivity based on
our submission of a new regulatory package. In August 2011,
we received confirmation from the EMA that BG-12 would, in
principle, be eligible for such data protection through the
European centralized filing pathway.
We acquired BG-12 and FUMADERM (Fumapharm Products) as part of
our acquisition of Fumapharm AG in 2006. We paid
$220.0 million upon closing of the transaction and will pay
an additional $15.0 million if a Fumapharm Product is
approved for MS in the U.S. or E.U. We may also make
additional milestone payments to Fumapharm AG based on
attainment of certain sales levels of Fumapharm Products, less
certain costs as defined in the acquisition agreement. These
milestone payments are considered contingent consideration and
will be accounted for as an increase to goodwill as incurred, in
accordance with the accounting standard applicable to business
combinations when we acquired Fumapharm. Milestone payments are
due within 30 days following the end of the quarter in
which the applicable sales level has been reached and are based
upon the total sales of Fumapharm Products in the prior twelve
month period.
FAMPYRA
On July 20, 2011, the European Commission (EC) granted a
conditional marketing authorization for FAMPYRA in the E.U.,
which triggered a $25.0 million milestone payment, which
was paid to Acorda Therapeutics, Inc. (Acorda) in the third
quarter of 2011. FAMPYRA is an oral compound indicated as a
treatment to improve walking ability in people with MS. As part
of the conditions of the conditional marketing authorization for
FAMPYRA, we will provide additional data from on-going clinical
studies regarding FAMPYRAs benefits and safety in the long
term. A conditional marketing authorization is renewable
annually and is granted to a medicinal product with a positive
benefit/risk assessment that fulfills an unmet medical need when
the benefit to public health of immediate availability outweighs
the risk inherent in the fact that additional data are still
required. FAMPYRA was commercially launched in Germany in
September 2011, as well as in the United Kingdom and Australia
beginning in October 2011.
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)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
495.9
|
|
|
|
37.9
|
%
|
|
$
|
447.6
|
|
|
|
38.1
|
%
|
|
$
|
1,447.0
|
|
|
|
38.9
|
%
|
|
$
|
1,291.1
|
|
|
|
36.9
|
%
|
Rest of world
|
|
|
479.9
|
|
|
|
36.6
|
%
|
|
|
429.2
|
|
|
|
36.5
|
%
|
|
|
1,392.6
|
|
|
|
37.4
|
%
|
|
|
1,269.2
|
|
|
|
36.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
|
975.8
|
|
|
|
74.5
|
%
|
|
|
876.8
|
|
|
|
74.6
|
%
|
|
|
2,839.6
|
|
|
|
76.3
|
%
|
|
|
2,560.3
|
|
|
|
73.2
|
%
|
Unconsolidated joint business
|
|
|
266.5
|
|
|
|
20.3
|
%
|
|
|
258.0
|
|
|
|
21.9
|
%
|
|
|
739.1
|
|
|
|
19.9
|
%
|
|
|
819.3
|
|
|
|
23.4
|
%
|
Other
|
|
|
67.7
|
|
|
|
5.2
|
%
|
|
|
41.0
|
|
|
|
3.5
|
%
|
|
|
143.3
|
|
|
|
3.9
|
%
|
|
|
117.8
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,309.9
|
|
|
|
100.0
|
%
|
|
$
|
1,175.8
|
|
|
|
100.0
|
%
|
|
$
|
3,721.9
|
|
|
|
100.0
|
%
|
|
$
|
3,497.4
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
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)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
AVONEX
|
|
$
|
681.7
|
|
|
|
69.9
|
%
|
|
$
|
643.6
|
|
|
|
73.4
|
%
|
|
$
|
1,983.4
|
|
|
|
69.9
|
%
|
|
$
|
1,864.3
|
|
|
|
72.8
|
%
|
TYSABRI
|
|
|
277.3
|
|
|
|
28.4
|
%
|
|
|
220.7
|
|
|
|
25.2
|
%
|
|
|
810.1
|
|
|
|
28.5
|
%
|
|
|
658.6
|
|
|
|
25.7
|
%
|
Other
|
|
|
16.8
|
|
|
|
1.7
|
%
|
|
|
12.5
|
|
|
|
1.4
|
%
|
|
|
46.1
|
|
|
|
1.6
|
%
|
|
|
37.4
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
975.8
|
|
|
|
100.0
|
%
|
|
$
|
876.8
|
|
|
|
100.0
|
%
|
|
$
|
2,839.6
|
|
|
|
100.0
|
%
|
|
$
|
2,560.3
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
United States
|
|
$
|
410.7
|
|
|
$
|
387.0
|
|
|
|
6.1
|
%
|
|
$
|
1,207.4
|
|
|
$
|
1,107.9
|
|
|
|
9.0
|
%
|
Rest of world
|
|
|
271.0
|
|
|
|
256.6
|
|
|
|
5.6
|
%
|
|
|
776.0
|
|
|
|
756.4
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AVONEX revenues
|
|
$
|
681.7
|
|
|
$
|
643.6
|
|
|
|
5.9
|
%
|
|
$
|
1,983.4
|
|
|
$
|
1,864.3
|
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2011,
compared to the same periods in 2010, the increase in
U.S. AVONEX revenue was due to price increases, offset by
decreased commercial demand. Decreased commercial demand
resulted in declines of approximately 6% and 3%, respectively,
in U.S. AVONEX unit sales volume for the three and nine
months ended September 30, 2011, over the prior year
comparative periods.
For the three and nine months ended September 30, 2011,
compared to the same periods in 2010, the increase in rest of
world AVONEX revenue was due to increased commercial demand and
the favorable impact of foreign currency exchange rates offset
by losses recognized in relation to the settlement of certain
cash flow hedge instruments under our foreign currency hedging
program and price decreases in some countries. Increased
commercial demand resulted in increases of approximately 6% and
7%, respectively, in rest of world AVONEX unit sales volume for
the three and nine months ended September 30, 2011, over
the prior year comparative periods. Losses recognized in
relation to the settlement of certain cash flow hedge
instruments under our foreign currency hedging program for the
three and nine months ended September 30, 2011, totaled
$8.7 million and $30.9 million, respectively, compared
to gains recognized of $16.8 million and
$30.7 million, respectively, in the prior year comparative
periods.
We expect AVONEX to face increasing competition in the MS
marketplace in both the U.S. and rest of world. We and a
number of other companies are working to develop or have already
developed products to treat MS, including oral and other
alternative formulations that may compete with AVONEX now and in
the future. In addition, the continued growth of TYSABRI and the
commercialization of our other pipeline product candidates, such
as BG-12, may negatively impact future sales of AVONEX.
Increased competition may also 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 additional information related
to this collaboration, please read Note 19,
Collaborations to our consolidated financial statements
included within our 2010
Form 10-K.
42
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)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
United States
|
|
$
|
85.2
|
|
|
$
|
60.6
|
|
|
|
40.6
|
%
|
|
$
|
239.6
|
|
|
$
|
183.2
|
|
|
|
30.8
|
%
|
Rest of world
|
|
|
192.1
|
|
|
|
160.1
|
|
|
|
20.0
|
%
|
|
|
570.5
|
|
|
|
475.4
|
|
|
|
20.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TYSABRI revenues
|
|
$
|
277.3
|
|
|
$
|
220.7
|
|
|
|
25.6
|
%
|
|
$
|
810.1
|
|
|
$
|
658.6
|
|
|
|
23.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2011,
compared to the same periods in 2010, the increase in
U.S. TYSABRI revenue was due to increased commercial demand
and price increases. Increased commercial demand resulted in
increases of approximately 15% and 12%, respectively, in
U.S. TYSABRI unit sales volume for the three and nine
months ended September 30, 2011, 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, 2011, totaled
$197.2 million and $550.1 million, respectively,
compared to $150.9 million and $431.0 million,
respectively, in the prior year comparative periods.
For the three and nine months ended September 30, 2011,
compared to the same periods in 2010, the increase in rest of
world TYSABRI revenue was due to increased commercial demand and
the favorable impact of foreign currency exchange rates, offset
by losses recognized in relation to the settlement of certain
cash flow hedge instruments under our foreign currency hedging
program and prices decreases in some countries. Increased
commercial demand resulted in increases of approximately 18% and
19%, respectively, in rest of world TYSABRI unit sales volume
for the three and nine months ended September 30, 2011,
over the prior year comparative periods. Losses recognized in
relation to the settlement of certain cash flow hedge
instruments under our foreign currency hedging program for the
three and nine months ended September 30, 2011, totaled
$2.1 million and $6.7 million, respectively, compared
to gains recognized of $3.8 million and $9.9 million,
respectively, in the prior year comparative periods.
In April 2011, the U.S. Food and Drug Administration (FDA)
approved changes to the U.S. TYSABRI label to include a
table summarizing the estimated incidence of progressive
multifocal leukoencephalopathy (PML), a serious brain infection,
according to the duration of TYSABRI therapy. In June 2011, the
EMA approved the renewal of TYSABRIs marketing
authorization in the E.U. TYSABRI will undergo a second renewal
process in another five years.
E.U. and U.S. regulators continue to monitor and assess on
an ongoing basis the criteria for confirming PML diagnosis, the
number of PML cases, the incidence of PML in TYSABRI patients,
the risk factors for PML, and TYSABRIs benefit-risk
profile, which could result in further modifications to the
respective labels or other restrictions on TYSABRI treatment.
Safety warnings included in the TYSABRI label, and any future
safety-related label changes, may limit the growth of TYSABRI
unit sales. We continue to research and develop protocols and
therapies that may reduce risk and improve outcomes of PML in
patients. For example, we have initiated two clinical studies in
the U.S., known as STRATIFY-1 and STRATIFY-2, that collectively
are intended to define the prevalence of serum JC virus antibody
in patients with relapsing MS receiving or considering treatment
with TYSABRI and the stratification of patients into lower or
higher risk for developing PML based on antibody status. Our JC
virus assay became commercially available broadly in the
U.S. in August 2011 and in the E.U. in May 2011. The cost
of the assay is currently shared by us and Elan.
In December 2010, we and Elan submitted a supplemental Biologics
License Application (sBLA) to the FDA to update the Prescribing
Information for TYSABRI to include anti-JC virus antibody status
as a factor to help stratify the risk of PML in the
TYSABRI-treated population. The FDA has extended the initial
PDUFA date for its review of the sBLA by three months, which is
a standard extension period. The FDA has indicated that the
extension of the PDUFA date is required to allow time for the
review of the changes being incorporated into the Risk
Evaluation and Mitigation Strategies (REMS) program for TYSABRI,
to be consistent with the anticipated Prescribing Information.
We are currently working with the FDA to facilitate a timely
review of the REMS changes and the sBLA. The EMA previously
approved this change to the E.U. product label in June 2011.
43
Our efforts to stratify patients into lower or higher risk for
developing PML, 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. We also expect
TYSABRI to face increasing competition in the MS marketplace in
both the U.S. and rest of world. We and a number of other
companies are working to develop or have already developed
products to treat MS, including oral and other alternative
formulations, that may compete with TYSABRI now and in the
future. In addition, the commercialization of our other pipeline
product candidates, such as BG-12, may negatively impact future
sales of TYSABRI. Increased competition may also lead to reduced
unit sales of TYSABRI, as well as increasing price pressure.
Unconsolidated
Joint Business Revenues
We collaborate with Genentech on the development and
commercialization of RITUXAN. In April 2011, the FDA approved
RITUXAN, in combination with corticosteroids, as a new medicine
for adults with Wegeners Granulomatosis (WG) and
Microscopic Polyangiitis (MPA). WG and MPA are two severe forms
of vasculitis called ANCA-Associated Vasculitis (AAV), a rare
autoimmune disease that largely affects the small blood vessels
of the kidneys, lungs, sinuses, and a variety of other organs.
For additional information related to this collaboration and
additional information regarding the pre-tax co-promotion profit
sharing formula for RITUXAN and its impact on future
unconsolidated joint business revenues, please read
Note 19, Collaborations to our consolidated
financial statements included within our 2010
Form 10-K.
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)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Biogen Idecs share of pre-tax co-promotion profits in the
U.S.
|
|
$
|
234.0
|
|
|
$
|
204.2
|
|
|
|
14.6
|
%
|
|
$
|
645.5
|
|
|
$
|
632.6
|
|
|
|
2.0
|
%
|
Reimbursement of our selling and development expenses in the
U.S.
|
|
|
0.9
|
|
|
|
16.0
|
|
|
|
(94.4
|
)%
|
|
|
5.4
|
|
|
|
49.8
|
|
|
|
(89.2
|
)%
|
Revenue on sales of RITUXAN in the rest of world
|
|
|
31.6
|
|
|
|
37.8
|
|
|
|
(16.4
|
)%
|
|
|
88.2
|
|
|
|
136.9
|
|
|
|
(35.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated joint business revenues
|
|
$
|
266.5
|
|
|
$
|
258.0
|
|
|
|
3.3
|
%
|
|
$
|
739.1
|
|
|
$
|
819.3
|
|
|
|
(9.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biogen
Idecs Share of Pre-tax Co-Promotion Profits in the
U.S.
The following table provides a summary of amounts comprising our
share of pre-tax 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)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Product revenues, net
|
|
$
|
732.6
|
|
|
$
|
674.8
|
|
|
|
8.6
|
%
|
|
$
|
2,203.3
|
|
|
$
|
2,068.6
|
|
|
|
6.5
|
%
|
Cost and expenses
|
|
|
147.6
|
|
|
|
164.3
|
|
|
|
(10.2
|
)%
|
|
|
577.8
|
|
|
|
474.6
|
|
|
|
21.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax co-promotion profits in the U.S.
|
|
|
585.0
|
|
|
|
510.5
|
|
|
|
14.6
|
%
|
|
|
1,625.5
|
|
|
|
1,594.0
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biogen Idecs share of pre-tax co-promotion profits in the
U.S.
|
|
$
|
234.0
|
|
|
$
|
204.2
|
|
|
|
14.6
|
%
|
|
$
|
645.5
|
|
|
$
|
632.6
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2011,
compared to the same periods in 2010, the increase in
U.S. RITUXAN product revenues was primarily due to price
increases and increased commercial demand. Increased commercial
demand resulted in increases of approximately 7% and 5%,
respectively, in U.S. RITUXAN unit sales volume for the
three and nine months ended September 30, 2011, over the
prior year comparative periods. U.S. RITUXAN product
revenues during the three and nine months ended
44
September 30, 2011 were negatively impacted by an increase
in reserves established for rebates and allowances related to
the U.S. healthcare reform legislation enacted in March
2010, compared to the same periods in 2010.
Collaboration cost and expenses for the three and nine month
comparative periods were favorably impacted by Genentech
assuming responsibility for the U.S. sales and marketing
efforts for RITUXAN in the fourth quarter of 2010. For the nine
months ended September 30, 2011, compared to the same
period in 2010, savings realized from the consolidation of the
sales force were offset by a charge of approximately
$125.0 million recorded by the collaboration, representing
an estimate of compensatory damages and interest that might be
awarded to Hoechst GmbH (Hoechst), in relation to an
intermediate decision by the arbitrator in Genentechs
ongoing arbitration with Hoechst. As a result of this charge to
the collaboration, our share of RITUXAN revenues from
unconsolidated joint business was reduced by approximately
$50.0 million in the second quarter of 2011. This
$50.0 million amount reflects our current estimate of the
loss that we may incur as a result of a final arbitration award
unfavorable to Genentech. The actual amount of our share of any
damages may vary from this estimate depending on the nature or
amount of any damages awarded to Hoechst, or if the
arbitrators final decision is successfully challenged by
Genentech. For additional information related to this matter,
please read Note 20, Litigation to our condensed
consolidated financial statements included within this report.
In addition, total collaboration cost and expenses for the three
and nine months ended September 30, 2011, compared to the
same periods in 2010, were negatively impacted by a new fee
which became payable in 2011 by all branded prescription drug
manufacturers and importers. This fee will be calculated based
upon each organizations percentage share of total branded
prescription drug sales to qualifying U.S. government
programs (such as Medicare, Medicaid and VA and PHS discount
programs). We estimate that the fee assessed to Genentech on
qualifying sales of RITUXAN will have resulted in a reduction of
our share of pre-tax co-promotion profits in the U.S. of
approximately $15.0 million in 2011.
Under our collaboration agreement, our current pre-tax
co-promotion profit-sharing formula, which resets annually,
provides for a 40% share of co-promotion profits if co-promotion
operating profits exceed $50.0 million. For 2011 and 2010,
the 40% threshold was met in the first quarter.
Reimbursement
of Our Selling and Development Expense in the U.S.
In the fourth quarter of 2010, as part of our restructuring
initiative, which is described below under the heading
Restructuring Charge, we and Genentech made
an operational decision under which we eliminated our RITUXAN
oncology and rheumatology sales force, with Genentech assuming
responsibility for the U.S. sales and marketing efforts
related to RITUXAN. We believe that centralizing the sales force
will enhance the sales effectiveness and profitability of our
collaboration for the sale of RITUXAN in the U.S. As a
result of this change, selling and development expense incurred
by us in the U.S. and reimbursed by Genentech decreased for
the three and nine months ended September 30, 2011, in
comparison to the same periods in 2010.
Revenue
on Sales of RITUXAN in the Rest of World
Revenue on sales of RITUXAN in the rest of world consists of our
share of pre-tax co-promotion profits in Canada and royalty
revenue on sales of RITUXAN outside the U.S. and Canada.
For the three and nine months ended September 30, 2011,
compared to the same periods in 2010, the decline in revenue on
sales of RITUXAN in the rest of world was due to the expiration
of royalties on a
country-by-country
basis in certain of our rest of world markets. In addition,
revenue on sales of RITUXAN in the rest of world for the nine
months ended September 30, 2010, also reflected a
cumulative underpayment of royalties owed to us on sales of
RITUXAN in the rest of world totaling $21.3 million.
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. The royalty periods for substantially all of the
remaining royalty-bearing sales of RITUXAN in the rest of world
markets will expire through 2012. As a result of these
expirations, we expect royalty revenues on sales of RITUXAN in
the rest of world to continue to decline through 2012. After
2012, we expect revenue on sales of RITUXAN in the rest of world
will primarily be limited to our share of pre-tax co-promotion
profits in Canada.
45
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)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Royalty revenues
|
|
$
|
51.6
|
|
|
$
|
36.0
|
|
|
|
43.3
|
%
|
|
$
|
105.8
|
|
|
$
|
92.1
|
|
|
|
14.9
|
%
|
Corporate partner revenues
|
|
|
16.1
|
|
|
|
5.0
|
|
|
|
222.0
|
%
|
|
|
37.5
|
|
|
|
25.7
|
|
|
|
45.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenues
|
|
$
|
67.7
|
|
|
$
|
41.0
|
|
|
|
65.1
|
%
|
|
$
|
143.3
|
|
|
$
|
117.8
|
|
|
|
21.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
Revenues
For the three and nine months ended September 30, 2011,
compared to the same periods in 2010, the increase in royalty
revenues was primarily due to an increase in the net worldwide
sales of ANGIOMAX, which was licensed to The Medicines Company
(TMC). Royalty revenues from the net worldwide 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 periods in
which an increase in royalty rate has been achieved. The
increase in royalty revenues related to the sale of ANGIOMAX for
the three and nine month comparative periods is primarily due to
a $12.3 million adjustment recorded in the third quarter of
2011, as net sales levels for the nine months ended
September 30, 2011 achieved a royalty tier in the third
quarter of 2011 that was not achieved until the fourth quarter
of 2010.
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 or
(2) the date upon which the product is no longer covered by
a licensed 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 licensed 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 (the
404 Patent) was due to expire in March 2010
and TMC applied for an extension of the term of this patent.
Initially, the U.S. 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 the term of the 404
patent to December 2014. On August 3, 2010, the federal
district court ordered the PTO to deem the application as timely
filed. The PTO has granted an interim extension of the patent
term until August 13, 2012 pending completion of its review
of TMCs application. A generic manufacturer is challenging
the federal district courts order in an appellate
proceeding, which is pending in the U.S. Court of Appeals
for the Federal Circuit (the appellate proceeding).
On September 16, 2011, the America Invents Act (the
Act) was enacted. The Act contains a provision
concerning the calculation of the
60-day
period for applications for patent term extension. In addition
to its other arguments, TMC contends in the appellate proceeding
that its application should be deemed timely filed under the
Act. The appeal is scheduled to be argued on November 15,
2011. In the event that TMC is unsuccessful in obtaining a
patent term extension to December 2014 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 three and nine months ended September 30, 2011,
compared to the same periods in 2010, the increase in corporate
partner revenues was primarily due to an increase in contract
manufacturing activity. Corporate partner revenues for the nine
months ended September 30, 2011, also includes a one-time
cash payment of approximately $11.0 million received in
exchange for entering into an asset transfer agreement in March
2011, related to two research and development programs that were
discontinued in connection with our November 2010 restructuring
initiative.
46
Reserves
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 governmental discounts or applicable allowances.
Reserves established for these discounts and allowances are
classified as reductions of accounts receivable (if the amount
is payable to our direct customer) or a liability (if the amount
is payable to a party other than our customer). These reserves
are based on estimates of the amounts earned or to be claimed on
the related sales. Our estimates take into consideration our
historical experience, current contractual and statutory
requirements, specific known market events and trends, and
forecasted customer buying patterns. Actual amounts may
ultimately differ from our estimates. If actual results vary, we
will need to adjust these estimates, which could have an effect
on earnings in the period of adjustment. The estimates we make
with respect to these allowances represent the most significant
judgments with regard to revenue recognition.
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)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Discounts
|
|
$
|
24.5
|
|
|
$
|
16.2
|
|
|
|
51.2
|
%
|
|
$
|
71.7
|
|
|
$
|
55.6
|
|
|
|
29.0
|
%
|
Contractual adjustments
|
|
|
91.7
|
|
|
|
80.2
|
|
|
|
14.3
|
%
|
|
|
258.0
|
|
|
|
202.5
|
|
|
|
27.4
|
%
|
Returns
|
|
|
3.6
|
|
|
|
4.0
|
|
|
|
(10.0
|
)%
|
|
|
10.3
|
|
|
|
10.5
|
|
|
|
(1.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowances
|
|
$
|
119.8
|
|
|
$
|
100.4
|
|
|
|
19.3
|
%
|
|
$
|
340.0
|
|
|
$
|
268.6
|
|
|
|
26.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross product revenues
|
|
$
|
1,095.6
|
|
|
$
|
977.3
|
|
|
|
12.1
|
%
|
|
$
|
3,179.6
|
|
|
$
|
2,828.9
|
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of gross product revenues
|
|
|
10.9
|
%
|
|
|
10.3
|
%
|
|
|
|
|
|
|
10.7
|
%
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount reserves include trade term discounts and wholesaler
incentives. For the three and nine months ended
September 30, 2011, compared to the same periods in 2010,
the increase in discounts was primarily driven by increases in
trade term and volume discounts and wholesaler incentives as a
result of price increases.
Contractual adjustment reserves relate to Medicaid and managed
care rebates, VA and PHS discounts and other governmental
rebates or applicable allowances. For the three and nine months
ended September 30, 2011, compared to the same periods in
2010, the increase in contractual adjustments was primarily due
to higher reserves for managed care and Medicaid and VA programs
principally associated with price increases in the U.S. and
an increase in contractual rates as well as an increase in
governmental rebates and allowances associated with the
implementation of pricing actions in certain of the
international markets in which we operate.
Product return reserves are established for returns made by
wholesalers. In accordance with contractual terms, wholesalers
are permitted to return product for reasons such as damaged or
expired product. The majority of wholesaler returns are due to
product expiration. We also accept returns from our patients for
various reasons. Reserves for product returns are recorded in
the period the related revenue is recognized, resulting in a
reduction to product sales. For the three and nine months ended
September 30, 2011, compared to the same periods in 2010,
return reserves were similar.
47
Cost and
Expenses
A summary of total cost and expenses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Cost of sales, excluding amortization of acquired intangible
assets
|
|
$
|
123.5
|
|
|
$
|
95.9
|
|
|
|
28.8
|
%
|
|
$
|
327.1
|
|
|
$
|
300.0
|
|
|
|
9.1
|
%
|
Research and development
|
|
|
301.4
|
|
|
|
319.1
|
|
|
|
(5.5
|
)%
|
|
|
880.7
|
|
|
|
957.8
|
|
|
|
(8.0
|
)%
|
Selling, general and administrative
|
|
|
261.4
|
|
|
|
244.2
|
|
|
|
7.1
|
%
|
|
|
772.2
|
|
|
|
755.1
|
|
|
|
2.3
|
%
|
Collaboration profit sharing
|
|
|
81.5
|
|
|
|
64.0
|
|
|
|
27.3
|
%
|
|
|
244.3
|
|
|
|
190.2
|
|
|
|
28.4
|
%
|
Amortization of acquired intangible assets
|
|
|
49.3
|
|
|
|
53.5
|
|
|
|
(7.8
|
)%
|
|
|
157.7
|
|
|
|
155.6
|
|
|
|
1.4
|
%
|
Acquired in-process research and development
|
|
|
|
|
|
|
205.0
|
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
245.0
|
|
|
|
(100.0
|
)%
|
Restructuring charge
|
|
|
1.8
|
|
|
|
|
|
|
|
**
|
|
|
|
18.4
|
|
|
|
|
|
|
|
**
|
|
Fair value adjustment of contingent consideration
|
|
|
2.5
|
|
|
|
|
|
|
|
**
|
|
|
|
5.9
|
|
|
|
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses
|
|
$
|
821.4
|
|
|
$
|
981.7
|
|
|
|
(16.3
|
)%
|
|
$
|
2,406.3
|
|
|
$
|
2,603.6
|
|
|
|
(7.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
2011
|
|
2010
|
|
Change %
|
|
2011
|
|
2010
|
|
Change %
|
|
Cost of sales
|
|
$
|
123.5
|
|
|
$
|
95.9
|
|
|
|
28.8
|
%
|
|
$
|
327.1
|
|
|
$
|
300.0
|
|
|
|
9.1
|
%
|
For the three and nine months ended September 30, 2011,
compared to the same periods in 2010, the increase in cost of
sales was driven by higher unit sales volumes, increased
contract manufacturing activity and an increase in amounts
written down related to unmarketable inventory. Cost of sales
for the three and nine months ended September 30, 2011,
also includes costs associated with AVONEX PEN and the JC virus
antibody assay. Amounts written down related to unmarketable
inventory totaled $9.6 million and $16.9 million for
the three and nine months ended September 30, 2011,
respectively, compared to $4.3 million and
$9.9 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)
|
|
2011
|
|
2010
|
|
Change %
|
|
2011
|
|
2010
|
|
Change %
|
|
Research and development
|
|
$
|
301.4
|
|
|
$
|
319.1
|
|
|
|
(5.5
|
)%
|
|
$
|
880.7
|
|
|
$
|
957.8
|
|
|
|
(8.0
|
)%
|
Research and development expense for the three and nine months
ended September 30, 2011, reflects our efforts to
reallocate resources within our research and development
organization consistent with our restructuring initiative,
offset by research and development costs associated with
initiatives to grow our business.
For the three and nine months ended September 30, 2011,
compared to the same periods in 2010, research and development
expense reflects a reduction in spending related to certain
programs which were terminated or are in the process of being
discontinued and a reduction in milestone and upfront payments
recognized within research and development expense. These
decreases are offset by an increase in research and development
spend resulting from increased clinical trial activity for
certain of our product candidates in or near registrational
stage development, including among others, our dexpramipexole,
Factor VIII, Factor IX, and daclizumab programs as well as an
increase in spending associated with our efforts to further
research and develop TYSABRI.
Research and development expense for the three and nine months
ended September 30, 2010 included the $26.4 million
upfront payment made to Knopp Neurosciences, Inc. (Knopp), which
became payable to Knopp
48
upon our entering a license agreement for dexpramipexole in
August 2010. Research and development expense for the nine
months ended September 30, 2010, also included a
$30.0 milestone paid to Abbott Biotherapeutics Corp,
formerly Facet Biotech, in May 2010 upon initiation of patient
enrollment in a Phase 3 trial of daclizumab in relapsing MS.
Milestone payments recognized as research and development
expense were not significant in the nine months ended
September 30, 2011.
We intend to continue committing significant resources to
targeted research and development opportunities where there is a
significant unmet need and where the drug candidate has the
potential to be highly differentiated. Specifically, we intend
to continue to make significant investments in the advancement
of BG-12 and
our Factor VIII and Factor IX hemophilia programs. We also
intend to continue to invest in bringing forward our MS pipeline
and in pursuing therapies for other neurodegenerative diseases.
Other
Milestone Payments
In March 2011, we dosed the first patient in a registrational
study for dexpramipexole, in development for amyotrophic lateral
sclerosis (ALS). The achievement of this milestone resulted in a
$10.0 million milestone payment due to Knopp Neurosciences,
Inc. (Knopp). As we consolidate Knopp, we recognized this
payment as a charge to noncontrolling interests in the first
quarter of 2011.
In April 2011, we submitted an Investigational New Drug
application for BIIB037 (human
anti-Amyloid
β mAb) a
beta-amyloid
removal therapy, which triggered a $15.0 million milestone
payment due to Neurimmune SubOne AG (Neurimmune). BIIB037 is
being developed for the treatment of Alzheimers disease.
As we consolidate Neurimmune, we recognized this payment as a
charge to noncontrolling interests in the second quarter of 2011.
In July 2011, the European Commission (EC) granted a conditional
marketing authorization for FAMPYRA in the E.U., which triggered
a $25.0 million milestone payment due to Acorda
Therapeutics, Inc. (Acorda). FAMPYRA is an oral compound
indicated as a treatment to improve walking ability in people
with MS. We capitalized this milestone payment as an intangible
asset in the third quarter of 2011.
Selling,
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
2011
|
|
2010
|
|
Change %
|
|
Selling, general and administrative
|
|
$
|
261.4
|
|
|
$
|
244.2
|
|
|
|
7.1
|
%
|
|
$
|
772.2
|
|
|
$
|
755.1
|
|
|
|
2.3
|
%
|
Selling, general and administrative expenses are primarily
comprised of compensation and benefits associated with sales and
marketing, finance, human resources, legal and other
administrative personnel, outside marketing and legal expenses
and other general and administrative costs.
For the three and nine months ended September 30, 2011,
compared to the same periods in 2010, selling, general and
administrative expenses reflect costs associated with
initiatives to grow our business, the negative impact of foreign
currency exchange rates and increased sales and marketing
activities in support of AVONEX and TYSABRI, offset by decreased
grants and sponsorship activities and savings realized through
our restructuring initiatives, which are described below under
the heading Restructuring Charge. Included within
selling, general and administrative expenses for the nine months
ended September 30, 2010, are incremental charges of
$18.6 million, which were recognized in relation to the
modification of equity based compensation in accordance with the
transition agreement entered into with James C. Mullen, who
retired as our President and Chief Executive Officer on
June 8, 2010.
Collaboration
Profit Sharing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
2011
|
|
2010
|
|
Change %
|
|
Collaboration profit sharing
|
|
$
|
81.5
|
|
|
$
|
64.0
|
|
|
|
27.3
|
%
|
|
$
|
244.3
|
|
|
$
|
190.2
|
|
|
|
28.4
|
%
|
49
For the three and nine months ended September 30, 2011,
compared to the same periods in 2010, 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, 2011, our collaboration profit sharing
expense included $14.3 million and $42.5 million,
respectively, related to the reimbursement of third-party
royalty payments made by Elan as compared to $11.3 million
and $33.8 million, respectively, in the prior year
comparative periods. For additional information related to this
collaboration, please read Note 19, Collaborations
to our consolidated financial statements included within our
2010
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)
|
|
2011
|
|
2010
|
|
Change %
|
|
2011
|
|
2010
|
|
Change %
|
|
Amortization of acquired intangible assets
|
|
$
|
49.3
|
|
|
$
|
53.5
|
|
|
|
(7.8
|
)%
|
|
$
|
157.7
|
|
|
$
|
155.6
|
|
|
|
1.4
|
%
|
For the three and nine months ended September 30, 2011, compared
to the same periods in 2010, amortization for acquired
intangible assets totaled $49.3 million and $157.7 million,
respectively, as compared to $53.5 million and $155.6 million.
Amortization for acquired intangible assets is expected to be in
the range of approximately $150.0 million to $200.0 million
annually through 2016.
AVONEX
Core Technology Asset
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.
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. 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.
We completed our most recent long range planning cycle in the
third quarter of 2011. Based upon this analysis, amortization of
our core intangible asset related to AVONEX is expected to be in
the range of approximately $105.0 million to
$155.0 million annually through 2016.
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 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.
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)
|
|
2011
|
|
2010
|
|
Change %
|
|
2011
|
|
2010
|
|
Change %
|
|
Acquired in-process research and development
|
|
$
|
|
|
|
$
|
205.0
|
|
|
|
(100.0
|
)%
|
|
$
|
|
|
|
$
|
245.0
|
|
|
|
(100.0
|
)%
|
50
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 within our condensed consolidated
statements of income for the three and nine months ended
September 30, 2010.
In connection with our acquisition of Biogen Idec Hemophilia
Inc., formerly Syntonix Pharmaceuticals, Inc. (Syntonix), in
January 2007, we agreed to make additional payments based upon
the achievement of certain milestone events. One of these
milestones was achieved when, in January 2010, we initiated
patient enrollment in a registrational trial of Factor IX in
hemophilia B. As a result of the achievement of this milestone
we paid approximately $40.0 million to the former
shareholders of Syntonix, which was reflected as a charge to
acquired IPR&D within our condensed consolidated statement
of income for the nine months ended September 30, 2010.
Restructuring
Charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
2011
|
|
2010
|
|
Change %
|
|
Restructuring charge
|
|
$
|
1.8
|
|
|
$
|
|
|
|
|
**
|
|
|
$
|
18.4
|
|
|
$
|
|
|
|
|
**
|
|
In November 2010, we announced a number of strategic,
operational, and organizational initiatives designed to provide
a framework for the future growth of our business and realign
our overall structure to become a more efficient and cost
effective organization. As part of this initiative:
|
|
|
|
|
We have out-licensed, terminated or are in the process of
discontinuing certain research and development programs,
including those in oncology and cardiovascular medicine that are
no longer a strategic fit for us.
|
|
|
|
We have completed a 13% reduction in workforce spanning our
sales, research and development, and administrative functions.
|
|
|
|
We have vacated and recognized the sale of the San Diego,
California facility as well as consolidated certain of our
Massachusetts facilities. For a more detailed description of
transactions affecting our facilities, please read Note 11,
Property, Plant and Equipment to our condensed
consolidated financial statements included within this report.
|
As a result of these initiatives, we have begun to realize
annual operating expense savings which are expected to
approximate $300.0 million annually. The substantial
majority of these savings will be realized within research and
development and selling, general and administrative expense.
These savings are offset by costs associated with initiatives to
grow our business.
Costs associated with our workforce reduction are primarily
related to employee severance and benefits. Facility
consolidation costs are primarily comprised of charges
associated with closing these facilities, related lease
obligations and additional depreciation recognized when the
expected useful lives of certain assets have been shortened due
to the consolidation and closing of related facilities and the
discontinuation of certain research and development programs. We
expect that the total restructuring charges associated with
these initiatives will not exceed $100.0 million and that
substantially all of the remaining charges will be incurred and
paid by the end of 2011. We incurred $18.4 million of these
charges in the nine months ended September 30, 2011 and
$75.2 million of these charges in the fourth quarter of
2010.
For the nine months ended September 30, 2011, we recognized
restructuring charges totaling $6.1 million, in relation to
the consolidation of our facilities, inclusive of amounts
related to additional depreciation. Charges recognized in
relation to the consolidation of our facilities for the three
months ended September 30, 2011 were not significant. For
the three and nine months ended September 30, 2011, we
recognized net restructuring charges of $1.8 million and
$12.3 million, respectively, in relation to our workforce
reduction initiatives.
51
The following table summarizes the activity of our restructuring
liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
Facility
|
|
|
|
|
(In millions)
|
|
Reduction
|
|
|
Consolidation
|
|
|
Total
|
|
|
Restructuring reserve as of December 31, 2010
|
|
$
|
60.6
|
|
|
$
|
5.8
|
|
|
$
|
66.4
|
|
Expense
|
|
|
15.2
|
|
|
|
2.4
|
|
|
|
17.6
|
|
Payments
|
|
|
(80.8
|
)
|
|
|
(3.1
|
)
|
|
|
(83.9
|
)
|
Adjustments to previous estimates, net
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
(2.9
|
)
|
Other adjustments
|
|
|
8.6
|
|
|
|
(3.2
|
)
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve as of September 30, 2011
|
|
$
|
0.7
|
|
|
$
|
1.9
|
|
|
$
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Adjustment of Contingent Consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
2011
|
|
2010
|
|
Change %
|
|
Fair value adjustment of contingent consideration
|
|
$
|
2.5
|
|
|
$
|
|
|
|
|
**
|
|
|
$
|
5.9
|
|
|
$
|
|
|
|
|
**
|
|
The consideration for certain of our acquisitions includes
future payments that are contingent upon the occurrence of a
particular factor or factors. For acquisitions completed after
January 1, 2009, we record a contingent consideration
obligation for such contingent consideration payments at its
fair value on the acquisition date. We revalue the
acquisition-related contingent consideration obligation on a
recurring basis each reporting period. Changes in the fair value
of our contingent consideration obligations are recognized as a
fair value adjustment of contingent consideration within our
consolidated statements of income.
In connection with our acquisition of Biogen Idec International
Neuroscience GmbH (BIN), formerly Panima Pharmaceuticals AG, in
2010, we recorded a liability of $81.2 million representing
the acquisition date fair value of the contingent consideration.
The fair value of this contingent consideration obligation as of
September 30, 2011 and June 30, 2011 was
$87.1 million and $84.6 million, respectively. The
changes in the fair value of this obligation of
$2.5 million and $5.9 million for the three and nine
months ended September 30, 2011, respectively, were
primarily due to changes in the discount rate and in the
expected timing related to the achievement of certain
developmental milestones. In addition, we also recorded a
contingent consideration obligation of $38.8 million in the
third quarter of 2011 related to our purchase of the
noncontrolling interest in our joint venture investments in
Biogen Dompé SRL and Biogen Dompé Switzerland GmbH,
our respective sales affiliates in Italy and Switzerland. There
has been no significant change in the valuation of this
liability from the acquisition date through September 30,
2011.
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Interest income
|
|
$
|
5.3
|
|
|
$
|
3.1
|
|
|
|
71.0
|
%
|
|
$
|
13.3
|
|
|
$
|
18.6
|
|
|
|
(28.5
|
)%
|
Interest expense
|
|
|
(7.9
|
)
|
|
|
(9.3
|
)
|
|
|
(15.1
|
)%
|
|
|
(25.5
|
)
|
|
|
(26.6
|
)
|
|
|
(4.1
|
)%
|
Impairments of investments
|
|
|
(0.8
|
)
|
|
|
(2.8
|
)
|
|
|
(71.4
|
)%
|
|
|
(7.6
|
)
|
|
|
(19.8
|
)
|
|
|
(61.6
|
)%
|
Foreign exchange losses, net
|
|
|
(4.8
|
)
|
|
|
(3.5
|
)
|
|
|
37.1
|
%
|
|
|
(5.8
|
)
|
|
|
(3.2
|
)
|
|
|
81.3
|
%
|
Gain (loss) on sales of investments, net
|
|
|
(0.1
|
)
|
|
|
4.8
|
|
|
|
(102.1
|
)%
|
|
|
15.4
|
|
|
|
16.1
|
|
|
|
(4.3
|
)%
|
Other, net
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
(25.0
|
)%
|
|
|
0.7
|
|
|
|
0.6
|
|
|
|
16.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
(7.7
|
)
|
|
$
|
(6.9
|
)
|
|
|
11.6
|
%
|
|
$
|
(9.5
|
)
|
|
$
|
(14.3
|
)
|
|
|
(33.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
For the three months ended September 30, 2011, compared to
the same period in 2010, interest income increased due to higher
balances of cash, cash equivalents and marketable securities.
Interest income for the
52
nine month comparative period decreased due to lower interest
yields when compared to the same periods in 2010.
Interest
Expense
For the three and nine months ended September 30, 2011,
compared to the same periods in 2010, interest expense remained
relatively unchanged.
For the three and nine months ended September 30, 2011, we
capitalized interest costs related to construction in progress
totaling approximately $8.4 million, and
$24.3 million, respectively, which reduced our interest
expense by the same amount. We capitalized $6.6 million and
$21.3 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.
Impairment
on Investments
For the three and nine months ended September 30, 2011, we
recognized $0.8 million and $7.6 million,
respectively, in charges for the impairment of our investments
in venture capital funds and investments in privately-held
companies. No impairments were recognized in relation to our
publicly-held strategic 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 impairment of our publicly-held
strategic investments, investments in venture capital funds and
investments in privately-held companies.
Gain
on Sale of Investments, net
For the three and nine months ended September 30, 2011, we
realized net gains of $0.1 million and $15.5 million,
respectively, on the sale of investments. Included within the
net gains realized in the nine months ended September 30,
2011 is a gain of $13.8 million on the sale of stock within
our strategic investment portfolio that was deemed to be no
longer strategic.
Income
Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
2011
|
|
2010
|
|
Change %
|
|
Effective tax rate on pre-tax income
|
|
|
26.4
|
%
|
|
|
40.1
|
%
|
|
|
(34.2
|
)%
|
|
|
26.0
|
%
|
|
|
28.7
|
%
|
|
|
(9.4
|
)%
|
Income tax expense
|
|
$
|
127.1
|
|
|
$
|
75.0
|
|
|
|
69.5
|
%
|
|
$
|
339.6
|
|
|
$
|
252.6
|
|
|
|
34.4
|
%
|
Our effective tax rate fluctuates from year to year due to the
global nature of our operations. The factors that most
significantly impact our effective tax rate include variability
in the allocation of our taxable earnings between multiple
jurisdictions, changes in tax laws, acquisitions and licensing
transactions.
The decrease in our tax rate for the three and nine months ended
September 30, 2011, compared to the same periods in 2010,
was primarily due to our 2010 license and collaboration
agreement with Knopp Neurosciences, Inc., which negatively
impacted our effective tax rate for the three and nine months
ended September 30, 2010 due to the attribution to
noncontrolling interest of $145.0 million of the associated
IPR&D charge. related to our collaboration and license
agreement with Knopp. As such, the attributed amount did not
generate a tax deduction, causing our tax rate to be unfavorably
impacted by 13.5% and 2.7%, respectively. In addition, during
2011, we experienced an increase in research and development
expenditures eligible for the orphan drug credit and a lower
effective state tax rate resulting from a change in state law
and the settlement of an outstanding IRS audit matters in the
first and third quarters of 2011, offset by a higher percentage
of our 2011 profits being earned in higher tax rate
jurisdictions, principally the U.S.
For a detailed income tax rate reconciliation for the three and
nine months ended September 30, 2011 and 2010, please read
Note 16, Income Taxes to our condensed consolidated
financial statements included within this report.
53
Noncontrolling
Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
Ended September 30,
|
|
Ended September 30,
|
(In millions)
|
|
2011
|
|
2010
|
|
Change %
|
|
2011
|
|
2010
|
|
Change %
|
|
Net income (loss) attributable to noncontrolling interests, net
of tax
|
|
$
|
1.8
|
|
|
$
|
(141.9
|
)
|
|
|
101.3
|
%
|
|
$
|
32.3
|
|
|
$
|
(138.2
|
)
|
|
|
123.4
|
%
|
On September 6, 2011, we completed the purchase of the
noncontrolling interest in our joint venture investments in
Biogen Dompé SRL and Biogen Dompé Switzerland GmbH,
our respective sales affiliates in Italy and Switzerland. The
purchase price of these shares is comprised of cash payments
totaling $152.9 million plus up to $42.5 million in
contingent consideration payable upon achievement of commercial
and regulatory milestones. We have accounted for this
transaction as a purchase of a noncontrolling interest. As these
amounts reflect payments to acquire a noncontrolling interest,
these payments and the accrual of a liability related to the
contingent consideration were recorded as a reduction in the
noncontrolling interest for these entities with the remainder to
additional paid in capital.
Prior to this transaction, our consolidated financial statements
reflected 100% of the operations of these joint venture
investments and we recorded net income (loss) attributable to
noncontrolling interests in our consolidated statements of
income based on the percentage of ownership interest retained by
our joint venture partners. We have continued to consolidate the
operations of these entities following our purchase of the
noncontrolling interest; however, as of September 6, 2011,
we no longer allocate 50% of the earnings of these ventures to
net income (loss) attributable to noncontrolling interests as
Biogen Dompé SRL and Biogen Dompé Switzerland GmbH
became wholly-owned subsidiaries of the Company. For additional
information related to this transaction, please read
Note 2, Acquisitions to our condensed consolidated
financial statements included within this report.
Net income attributable to noncontrolling interests, net of tax,
for the three and nine months ended September 30, 2010,
reflects the attribution of $145.0 million of the
$205.0 million IPR&D charge recognized upon
consolidation of the Knopp variable interest entity to the
noncontrolling interest in the third quarter of 2010. Net income
attributable to noncontrolling interests, net of tax, for the
nine months ended September 30, 2011, reflects the
attribution of a $10.0 million milestone payment due Knopp
and a $15.0 million milestone payment due Neurimmune upon
the achievement of milestone events in the first and second
quarters of 2011, respectively. The attribution of net income
(loss) to noncontrolling interests related to our foreign joint
ventures, were relatively consistent in both the three and nine
month comparative periods
New
Cambridge Leases
In July 2011, we executed leases for two office buildings to be
built in Cambridge, Massachusetts. We expect construction to
begin in late 2011, with a planned occupancy during the second
half of 2013. These buildings will serve as the future location
of our corporate headquarters and commercial operations. These
buildings will also provide additional general and
administrative and research and development office space.
As a result of our decision to relocate our corporate
headquarters and centralize our campus in Cambridge,
Massachusetts, we expect to vacate our Weston, Massachusetts
facility upon completion of the new buildings. Based upon our
most recent estimates, we expect to incur a charge of
approximately $35.0 million upon vacating this facility.
This amount represents our remaining Weston lease obligation,
net of our estimate of sublease income expected to be recovered.
In addition, this decision has also resulted in a change in the
expected useful lives of certain leasehold improvements and
other assets, which have been shortened due to our anticipated
departure from this facility and will result in approximately
$25.0 million of additional depreciation that will be
realized ratably from the third quarter of 2011 through the date
upon which we expect to vacate the Weston facility.
Approximately $1.9 million of this additional depreciation
was recognized in the third quarter of 2011.
54
Sale of
San Diego Facility
On October 1, 2010, we sold the San Diego facility for
cash proceeds, net of transaction costs, of approximately
$127.0 million. As part of this transaction, we agreed to
lease back the San Diego facility for a period of
15 months. We accounted for this transaction as a financing
arrangement as we determined that the transaction did not
qualify as a sale due to our continuing involvement under the
leaseback terms. Accordingly, we recorded an obligation for the
proceeds received in October 2010 and the facility assets
remained classified as held for use with the carrying value of
the facility continued to be reflected as a component of
property, plant and equipment, net within our condensed
consolidated balance sheets.
In the first quarter of 2011, we entered into an agreement to
terminate our 15 month lease of the San Diego facility
effective August 31, 2011. We have had no continuing
involvement or remaining obligation after August 31, 2011
and have accounted for this transaction as a sale of property as
of that date. No significant gain on sale was recognized and we
did not recognize any impairment charges related to the
San Diego facility.
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 markets in which we operate.
Foreign
Currency Exchange Risk
Our results of operations are subject to foreign currency
exchange rate fluctuations due to the global nature of our
operations. 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 respective local
currency. Fluctuations in the foreign currency exchange rates of
the countries in which we do business will affect our operating
results, often in ways that are difficult to predict. 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, which is designed to mitigate,
over time, a portion of the impact resulting from volatility in
exchange rate changes on net income and earnings per share. We
use foreign currency forward contracts to manage foreign
currency risk with the majority of our forward contracts used to
hedge certain forecasted revenue transactions denominated in
foreign currencies. Foreign currency gains or losses arising
from our operations are recognized in the period in which we
incur those gains or losses.
Pricing
Pressure
We operate in certain countries where the economic conditions
continue to present significant challenges for our industry.
Many countries, particularly within the European Union, are
reducing their public expenditures in light of the global
economic downturn and the deterioration of the credit and
economic conditions. As a result, we expect to see continued
efforts to reduce healthcare costs, particularly in certain of
the international markets in which we operate. The
implementation of pricing actions varies by country and certain
measures already implemented, which include among other things,
mandatory price reductions and suspensions on pricing increases
on pharmaceuticals, have negatively impacted our revenues. For
example, in June 2010, Spain imposed an incremental discount on
all branded drugs and in August 2010, Germany increased the
rebate on prescription pharmaceuticals.
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 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.
55
Credit
Risk
We are subject to credit risk from our accounts receivable
related to our product sales. The majority of our accounts
receivable arise from product sales in the U.S. and Europe
with concentrations of credit risk limited due to the wide
variety of customers and markets using our products, as well as
their dispersion across many different geographic areas. Our
accounts receivable are primarily due from wholesale
distributors, large pharmaceutical companies, public hospitals
and other government entities. 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,
and Portugal continue to be subject to significant payment
delays due to government funding and reimbursement practices.
The credit and economic conditions within these countries have
deteriorated. These conditions have increased, and may continue
to increase, the average length of time that it takes to collect
on our accounts receivable outstanding in these countries.
Our net accounts receivable balances from product sales in these
countries are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2011
|
|
|
Current
|
|
Non-Current
|
|
|
|
|
Balance Included
|
|
Balance Included
|
|
|
|
|
within Accounts
|
|
within Investments
|
|
|
(In millions)
|
|
Receivable, net
|
|
and Other Assets
|
|
Total
|
|
Spain
|
|
$
|
58.5
|
|
|
$
|
66.0
|
|
|
$
|
124.5
|
|
Italy
|
|
|
40.2
|
|
|
|
|
|
|
|
40.2
|
|
Portugal
|
|
|
21.0
|
|
|
|
11.7
|
|
|
|
32.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
Current
|
|
Non-Current
|
|
|
|
|
Balance Included
|
|
Balance Included
|
|
|
|
|
within Accounts
|
|
within Investments
|
|
|
(In millions)
|
|
Receivable, net
|
|
and Other Assets
|
|
Total
|
|
Spain
|
|
$
|
70.8
|
|
|
$
|
29.8
|
|
|
$
|
100.6
|
|
Italy
|
|
|
103.2
|
|
|
|
14.8
|
|
|
|
118.0
|
|
Portugal
|
|
|
17.8
|
|
|
|
5.5
|
|
|
|
23.3
|
|
Approximately $65.0 million and $45.0 million of the
aggregate balances for these countries were outstanding for more
than one year as of September 30, 2011 and
December 31, 2010, respectively. Amounts included as a
component of investments and other assets within our condensed
consolidated balance sheets represent amounts that are expected
to be collected beyond one year.
In connection with our purchase of the noncontrolling interest
in our joint venture investments in Biogen Dompé SRL, we
entered into a credit assignment agreement with Dompé
Farmaceutici SpA. Under the terms of this agreement, Dompé
Farmaceutici SpA purchased all of Biogen Dompé SRLs
outstanding receivables as of June 30, 2011, adjusted for
cash received through September 5, 2011, for
$104.6 million. We have no retained interests in these
receivables and have accounted for this transaction as a sale
recognizing a loss of $1.8 million upon their disposition.
For additional information related to these transactions, please
read Note 2, Acquisitions to our condensed
consolidated financial statements included within this report.
As of September 30, 2011, our accounts receivable balances
in Italy totaled $40.2 million, all of which resulted from
sales of product subsequent to June 30, 2011.
In May 2011, European Union finance ministers approved a
three-year EUR78 billion rescue package for Portugal. Under
the terms of the package, Portugal is required to correct its
excessive deficit by 2013 and improve the efficiency and
effectiveness of its health care system, including through
austerity measures aimed at reducing healthcare costs. These
measures include plans to standardize control procedures to
reduce outstanding balances payable to drug suppliers. In
September 2011, the International Monetary Fund (IMF) reviewed
Portugals progress under the rescue program, noting that
Portugal was meeting the program targets.
56
We will continue to monitor Portugals progress against
program targets and assess the collectability of our outstanding
receivables within this market.
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
distributor. As of September 30, 2011 and December 31,
2010, our accounts receivable balances due from this distributor
totaled $4.2 million and $3.9 million, respectively.
These receivables remain current and substantially in compliance
with their contractual due dates. However, the majority of the
sales by our distributor are to government funded hospitals and
as a result our distributor maintains significant outstanding
receivables with the government of Greece. In the event that
Greece defaults on its debt and is unable to pay our
distributor, we may be unable to collect some or all of our
remaining amounts due from the distributor. In addition, the
government of Greece may also require pharmaceutical creditors
to accept mandatory, retroactive, price deductions in settlement
of outstanding receivables and in this event we could be
required to repay our distributor a portion of the amounts they
have previously remitted to us. To date, we have not been
required to repay such amounts to our distributor or take a
discount in settlement of any outstanding receivables.