e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31,
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 April 18, 2011,
was 241,632,189 shares.
BIOGEN
IDEC INC.
FORM 10-Q
Quarterly Report
For the Quarterly Period Ended March 31, 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, mix and timing of future product sales,
joint business revenues, accounts receivable, foreign earnings,
royalty revenues or obligations, milestone payments, expenses,
investments, currency hedges, and amortization of intangible
assets;
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the growth trends for TYSABRI and our ability to improve the
benefit-risk profile of TYSABRI;
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the development of and milestone payments resulting from the
commercialization of BG-12;
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the incidence, timing, outcome and impact of litigation,
proceedings related to patents and other intellectual property
rights, tax audits and assessments and other legal proceedings;
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the timing and impact of accounting standards;
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the design, costs, development and timing of, and therapeutic
area and indications targeted by, programs in our clinical
pipeline;
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the timing and outcome of regulatory filings and communications
with regulatory authorities;
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the impact and interpretation of U.S. healthcare reform,
including the annual fee on prescription drug manufacturers, and
other measures designed to reduce healthcare costs;
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the impact of the global macroeconomic environment and the
deterioration of the credit and economic conditions in certain
countries in Europe;
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our ability to finance our operations and business initiatives
and obtain funding for such activities;
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the opportunistic return of cash to shareholders and use of
shares from our repurchase programs;
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the structure, strategy, financial and operational impact, and
timing of our framework for growth;
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the status, use, location, quality of and financial impact of
our manufacturing facilities and other properties; and
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the drivers for growing our business, including our plans to
pursue external business development and research opportunities,
and the impact of competition.
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These forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those
reflected in such forward-looking statements, including those
discussed in the Risk Factors section of this
report and elsewhere 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®
and
BETAFERON®
Bayer Schering Pharma AG;
EXTAVIA®
Novartis AG; and
REBIF®
Ares Trading S.A.
3
PART I
FINANCIAL INFORMATION
(unaudited,
in thousands, except per share amounts)
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For the Three Months
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Ended March 31,
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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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907,102
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$
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824,220
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Unconsolidated joint business
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256,124
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254,928
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Other
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40,116
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29,712
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Total revenues
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1,203,342
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1,108,860
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Cost and expenses:
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Cost of sales, excluding amortization of acquired intangible
assets
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103,113
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97,055
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Research and development
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293,633
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307,030
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Selling, general and administrative
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244,516
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248,664
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Collaboration profit sharing
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74,794
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63,557
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Amortization of acquired intangible assets
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53,216
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48,889
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Restructuring charge
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16,587
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Acquired in-process research and development
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39,976
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Fair value adjustment of contingent consideration
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1,200
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Total cost and expenses
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787,059
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805,171
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Income from operations
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416,283
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303,689
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Other income (expense), net
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9,951
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(8,386
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)
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Income before income tax expense
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426,234
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295,303
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Income tax expense
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117,468
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75,310
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Net income
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308,766
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219,993
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Net income attributable to noncontrolling interests, net of tax
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14,435
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2,551
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Net income attributable to Biogen Idec Inc.
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$
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294,331
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$
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217,442
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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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1.22
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$
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0.80
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Diluted earnings per share attributable to Biogen Idec Inc.
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$
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1.20
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$
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0.80
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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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241,536
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269,922
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Diluted earnings per share attributable to Biogen Idec Inc.
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244,551
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272,703
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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 March 31,
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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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790,675
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$
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759,598
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Marketable securities
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437,870
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448,146
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Accounts receivable, net
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687,609
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605,329
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Due from unconsolidated joint business
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230,610
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222,459
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Inventory
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295,260
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289,066
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Other current assets
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186,291
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215,822
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Total current assets
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2,628,315
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2,540,420
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Marketable securities
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885,444
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743,101
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Property, plant and equipment, net
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1,673,502
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1,641,634
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Intangible assets, net
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1,731,844
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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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228,105
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248,198
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Total assets
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$
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8,293,524
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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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134,779
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$
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137,153
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Taxes payable
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93,483
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84,517
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Accounts payable
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159,136
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162,529
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Accrued expenses and other
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591,448
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665,923
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|
|
|
|
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Total current liabilities
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978,846
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|
|
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1,050,122
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Notes payable and line of credit
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1,065,613
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1,066,379
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Long-term deferred tax liability
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218,504
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200,950
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Other long-term liabilities
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356,261
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325,599
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|
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Total liabilities
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2,619,224
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|
|
|
2,643,050
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Commitments and contingencies (Notes 2, 16, 18 and 19)
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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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125
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124
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Additional paid-in capital
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3,975,428
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3,895,103
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Accumulated other comprehensive income (loss)
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(992
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)
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(21,610
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)
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Retained earnings
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|
2,166,813
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1,872,481
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Treasury stock, at cost
|
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(537,215
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)
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(349,592
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)
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|
|
|
|
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|
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Total Biogen Idec Inc. shareholders equity
|
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|
5,604,159
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|
|
5,396,506
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|
Noncontrolling interests
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70,141
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52,937
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|
|
|
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Total equity
|
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5,674,300
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5,449,443
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Total liabilities and equity
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$
|
8,293,524
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$
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8,092,493
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|
|
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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 Three Months
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Ended March 31,
|
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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
|
|
$
|
308,766
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|
|
$
|
219,993
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Adjustments to reconcile net income to net cash flows from
operating activities:
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|
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|
|
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Depreciation and amortization of property, plant and equipment
and intangible assets
|
|
|
92,545
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|
82,510
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|
Acquired in-process research and development
|
|
|
|
|
|
|
39,976
|
|
Share-based compensation
|
|
|
33,119
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|
|
|
51,006
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Fair value adjustment of contingent consideration
|
|
|
1,200
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|
|
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Excess tax benefit from share-based compensation
|
|
|
(10,060
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)
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|
|
(4,379
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)
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Deferred income taxes
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|
|
71,974
|
|
|
|
8,042
|
|
Write-down of inventory to net realizable value
|
|
|
1,170
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|
|
|
2,289
|
|
Impairment of marketable securities, investments and other assets
|
|
|
1,210
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|
|
|
16,111
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|
Non-cash interest (income) expense and foreign exchange
remeasurement loss (gain), net
|
|
|
2,688
|
|
|
|
3,982
|
|
Realized gain on sale of marketable securities and strategic
investments
|
|
|
(15,897
|
)
|
|
|
(4,985
|
)
|
Changes in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(90,712
|
)
|
|
|
(20,201
|
)
|
Due from unconsolidated joint business
|
|
|
(8,151
|
)
|
|
|
(11,439
|
)
|
Inventory
|
|
|
(6,498
|
)
|
|
|
12,264
|
|
Other assets
|
|
|
(17,154
|
)
|
|
|
(13,463
|
)
|
Accrued expenses and other current liabilities
|
|
|
(149,063
|
)
|
|
|
(82,854
|
)
|
Other liabilities and taxes payable
|
|
|
38,441
|
|
|
|
38,043
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
253,578
|
|
|
|
336,895
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sales and maturities of marketable securities
|
|
|
788,083
|
|
|
|
1,029,307
|
|
Purchases of marketable securities
|
|
|
(908,730
|
)
|
|
|
(699,677
|
)
|
Acquisitions
|
|
|
|
|
|
|
(39,976
|
)
|
Purchases of property, plant and equipment
|
|
|
(32,143
|
)
|
|
|
(38,209
|
)
|
Purchases of intangible assets
|
|
|
(10,962
|
)
|
|
|
|
|
Purchases of other investments
|
|
|
(2,878
|
)
|
|
|
(1,708
|
)
|
Proceeds from the sale of strategic investments
|
|
|
39,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows (used in) provided by investing activities
|
|
|
(126,795
|
)
|
|
|
249,737
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(195,287
|
)
|
|
|
(577,580
|
)
|
Proceeds from issuance of stock for share-based compensation
arrangements
|
|
|
91,155
|
|
|
|
52,818
|
|
Excess tax benefit from share-based compensation
|
|
|
10,060
|
|
|
|
4,379
|
|
Change in cash overdraft
|
|
|
(2,466
|
)
|
|
|
(1,826
|
)
|
Net contributions from noncontrolling interests
|
|
|
|
|
|
|
760
|
|
Repayments of borrowings
|
|
|
(2,113
|
)
|
|
|
(2,011
|
)
|
Repayments on financing arrangement for the sale of the
San Diego facility
|
|
|
(1,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
|
(99,832
|
)
|
|
|
(523,460
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
26,951
|
|
|
|
63,172
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
4,126
|
|
|
|
(5,502
|
)
|
Cash and cash equivalents, beginning of the period
|
|
|
759,598
|
|
|
|
581,889
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
790,675
|
|
|
$
|
639,559
|
|
|
|
|
|
|
|
|
|
|
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 products
for the treatment of serious diseases with a focus on
neurological disorders. We currently have four marketed
products: AVONEX, RITUXAN, TYSABRI, and FUMADERM. Our marketed
products are used for the treatment of multiple sclerosis (MS),
non-Hodgkins lymphoma (NHL), rheumatoid arthritis (RA),
Crohns disease, chronic lymphocytic leukemia (CLL), and
psoriasis.
Basis
of Presentation
In the opinion of management, the accompanying unaudited
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 months
ended March 31, 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 such consolidated entities in which we
own less than a 100% interest, we record net income (loss)
attributable to noncontrolling interests in our consolidated
statement of income equal to the percentage of the economic or
ownership interest retained in the collaborative arrangement or
joint venture by the respective noncontrolling parties. All
material intercompany balances and transactions have been
eliminated in consolidation.
In determining whether we are the primary beneficiary of an
entity, we 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 and joint venture relationships and determine the
consolidation of 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.
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
7
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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
We did not have any material recognizable subsequent events.
However, we did have the following unrecognizable subsequent
event:
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 will return 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
effective date and have no other remaining development
obligations after that date. Development expense incurred by
this collaboration in 2011 was insignificant.
Acquisition
of Panima Pharmaceuticals AG
On December 17, 2010, we completed our acquisition of 100%
of the stock of Panima Pharmaceuticals AG (Panima), 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. Panima 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. As of March 31, 2011, the fair value of the
total contingent consideration obligation reflected within our
condensed consolidated balance sheet was $82.4 million, of
which $4.9 million was reflected as a component of accrued
expenses and other and $77.5 million was reflected as a
component of other long-term liabilities. The change in fair
value of this obligation was recognized as a fair value
adjustment of contingent consideration within our condensed
consolidated statement of income for the three months ended
March 31, 2011. For additional information related to this
transaction, please read Note 2, Acquisitions to our
consolidated financial statements included within our 2010
Form 10-K.
Acquisition
of 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 future
consideration payments based upon the achievement of certain
milestone events associated with the development of BIHs
lead product, long-lasting recombinant Factor IX, a product for
the treatment of hemophilia B. One of these milestones was
achieved when, in January 2010, we initiated patient enrollment
in a registrational trial of Factor IX. As a
8
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
result of the achievement of this milestone, we paid
approximately $40.0 million 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 three months ended
March 31, 2010, in accordance with the accounting standard
applicable to business combinations when we acquired BIH.
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 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 our Company.
|
|
|
|
We have substantially completed a 13% reduction in workforce
spanning our sales, research and development, and administrative
functions.
|
|
|
|
We are in the process of vacating the San Diego, California
facility and consolidating our Massachusetts facilities. In
October 2010, we sold the San Diego facility and agreed to
lease back the facility for a period of 15 months. In
January 2011, we entered into an agreement to terminate this
lease effective August 31, 2011. For a more detailed
description of these transactions, please read Note 11,
Property, Plant and Equipment to these condensed
consolidated financial statements.
|
We expect to incur total restructuring charges of approximately
$110.0 million associated with the implementation of these
initiatives. Costs associated with our workforce reduction
primarily relate to employee severance and benefits. Facility
consolidation costs are primarily comprised of charges
associated with the closing of 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.
For the three months ended March 31, 2011, we recognized
restructuring charges totaling $16.6 million within our
condensed consolidated statement of income, comprised of
approximately $12.1 million for workforce reduction and
$4.5 million for facility consolidation, of which
$3.5 million relates to additional depreciation. We
previously recognized $75.2 million of restructuring
charges within our consolidated statement of income during the
fourth quarter of 2010. We expect that our restructuring efforts
will be substantially completed, and that substantially all of
the remaining restructuring charges will be incurred and paid by
the end of 2011.
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
|
|
|
10.5
|
|
|
|
0.9
|
|
|
|
11.4
|
|
(Payments) receipts, net
|
|
|
(64.0
|
)
|
|
|
(0.4
|
)
|
|
|
(64.4
|
)
|
Adjustments to previous estimates, net
|
|
|
1.7
|
|
|
|
|
|
|
|
1.7
|
|
Other adjustments
|
|
|
8.6
|
|
|
|
(3.2
|
)
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve as of March 31, 2011
|
|
$
|
17.4
|
|
|
$
|
3.1
|
|
|
$
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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.
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. Our product revenue reserves are based on
estimates of the amounts earned or to be claimed on the related
sales. These estimates take into consideration our historical
experience, current contractual requirements and statutory
requirements, specific known market events and trends and
forecasted customer buying patterns.
Reserves
for Discounts and Allowances
We establish reserves for trade term discounts, wholesaler
incentives, Medicaid rebates, Veterans Administration (VA) and
Public Health Service (PHS) discounts, managed care rebates,
product returns and other 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 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. 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.
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
|
|
|
23.8
|
|
|
|
91.5
|
|
|
|
3.8
|
|
|
|
119.1
|
|
Adjustments relating to prior years
|
|
|
|
|
|
|
(5.4
|
)
|
|
|
(1.0
|
)
|
|
|
(6.4
|
)
|
Payments/returns relating to sales in current year
|
|
|
(10.4
|
)
|
|
|
(22.3
|
)
|
|
|
(0.2
|
)
|
|
|
(32.9
|
)
|
Payments/returns relating to sales in prior years
|
|
|
(12.4
|
)
|
|
|
(46.6
|
)
|
|
|
(1.4
|
)
|
|
|
(60.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of March 31, 2011
|
|
$
|
14.9
|
|
|
$
|
124.2
|
|
|
$
|
22.3
|
|
|
$
|
161.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
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
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Reduction of accounts receivable
|
|
$
|
38.5
|
|
|
$
|
36.7
|
|
Current liability
|
|
|
122.9
|
|
|
|
105.3
|
|
|
|
|
|
|
|
|
|
|
Total reserves
|
|
$
|
161.4
|
|
|
$
|
142.0
|
|
|
|
|
|
|
|
|
|
|
Revenues
from Unconsolidated Joint Business
We collaborate with Genentech on the development and
commercialization of RITUXAN. Revenues from unconsolidated joint
business consist of (1) our share of pre-tax co-promotion
profits in the U.S.; (2) reimbursement of our selling and
development expense in the U.S.; and (3) revenue on sales
of RITUXAN in the rest of world, which consists of our share of
pretax co-promotion profits in Canada and royalty revenue on
sales of RITUXAN outside the U.S. and Canada by F.
Hoffmann-La Roche Ltd. (Roche) and its sublicensees.
Pre-tax co-promotion profits are calculated and paid to us by
Genentech in the U.S. and by Roche in Canada. Pre-tax
co-promotion profits consist of U.S. and Canadian sales of
RITUXAN to third-party customers net of discounts and allowances
less the cost to manufacture RITUXAN, third-party royalty
expenses, distribution, selling and marketing, and development
expenses incurred by Genentech, Roche and us. We record our
share of the pretax 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 pretax 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. There are no future
performance obligations on our part under these license
arrangements. We record these revenues based on estimates of the
sales that occurred during the relevant period. The relevant
period estimates of sales are based on interim data provided by
licensees and analysis of historical royalties that have been
paid to us, adjusted for any changes in facts and circumstances,
as appropriate. We maintain regular communication with our
licensees in order to assess the reasonableness of our
estimates. Differences between actual royalty revenues and
estimated royalty revenues are adjusted 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 geographic areas. We continue
to monitor economic conditions, including volatility associated
with
11
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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 throughout 2010. These
conditions have resulted in, and may continue to result in, an
increase in the average length of time that it takes to collect
on our accounts receivable outstanding in these countries. As of
March 31, 2011, our accounts receivable balances in Italy,
Spain and Portugal were $141.3 million,
$113.9 million, and $28.7 million, respectively,
totaling approximately $283.9 million. Approximately
$70.0 million of this amount was outstanding for greater
than one year. As of March 31, 2011, we had $69.6 million
of receivables that are expected to be collected beyond one
year, which are included as a component of investments and other
assets within our condensed consolidated balance sheets.
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 March 31, 2011, our accounts receivable
balances due from our distributor in Greece totaled
$7.1 million. These receivables remain current and
substantially in compliance with their contractual due dates.
To date, we have not experienced any significant losses or
write-offs with respect to the collection of our accounts
receivable in these countries.
The components of inventory are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Raw materials
|
|
$
|
62.1
|
|
|
$
|
59.0
|
|
Work in process
|
|
|
147.4
|
|
|
|
142.2
|
|
Finished goods
|
|
|
85.8
|
|
|
|
87.9
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
295.3
|
|
|
$
|
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 March 31, 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
|
|
|
$
|
(360.5
|
)
|
|
$
|
217.5
|
|
|
$
|
578.0
|
|
|
$
|
(350.2
|
)
|
|
$
|
227.8
|
|
Core developed technology
|
|
|
15-23 years
|
|
|
|
3,005.3
|
|
|
|
(1,679.6
|
)
|
|
|
1,325.7
|
|
|
|
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 patents
|
|
|
Up to 14 years
|
|
|
|
15.3
|
|
|
|
(1.6
|
)
|
|
|
13.7
|
|
|
|
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
|
|
|
|
|
|
$
|
3,788.3
|
|
|
$
|
(2,056.5
|
)
|
|
$
|
1,731.8
|
|
|
$
|
3,776.0
|
|
|
$
|
(2,003.2
|
)
|
|
$
|
1,772.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Our most significant intangible asset is the core technology
related to our AVONEX product. The net book value of this asset
as of March 31, 2011 was $1,312.1 million. For the
three months ended March 31, 2011 and 2010, amortization
for acquired intangible assets totaled $53.3 million and
$48.9 million, respectively, and is expected to be in the
range of approximately $180.0 million to
$220.0 million annually through 2015.
In the first quarter of 2011, we entered into a license
agreement granting us exclusive patent rights for the diagnostic
and therapeutic application of recombinant virus-like particles,
known as VP1 proteins. These VP1 proteins are used to detect
antibodies of the JC virus (JCV) in serum or blood. Under the
terms of this agreement, we expect to make payments totaling
approximately $46.2 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
March 31, 2011, we recognized an intangible asset in the
amount of $12.3 million, reflecting the total of upfront
and other time-based milestone payments expected to be made. We
will further capitalize additional payments due under this
arrangement as an intangible asset as they become payable. We
will amortize the intangible asset resulting from these payments
utilizing an economic consumption amortization model with the
amount of amortization determined by the ratio of actual JCV
assay tests performed in the current period to the total number
of JCV assay tests expected to be performed through 2016.
Other than the amounts recorded in connection with the license
agreement described above, intangible assets were unchanged as
of March 31, 2011 compared to December 31, 2010,
excluding the impact of the amortization.
Goodwill
Our goodwill balance remained unchanged as of March 31,
2011 compared to December 31, 2010. As of March 31,
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. 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 March 31, 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 certain 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. Our venture capital investments are the
only investments for which we used Level 3 inputs to
determine the fair value and represented approximately 0.2% and
0.3% of our total assets as of March 31, 2011 and
December 31, 2010, respectively. These investments
13
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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.
In addition, during the fourth quarter of 2010, we recognized an
in-process research and development asset and recorded a
contingent consideration obligation related to our acquisition
of Panima. The amount allocated to in-process research and
development represents the fair value of the three programs
acquired and was based on comparable transactions and a
risk-adjusted estimate of future cash flows determined by
estimating the costs to develop the acquired technology into
commercially viable products, estimating the resulting revenue
from the projects, and discounting the net cash flows to present
value. We determined 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 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 and assess
the in-process research and development asset for impairment at
least annually until commercialization of the underlying
programs after which time the asset will be amortized over its
estimated useful life.
Our Level 3 contingent consideration obligation as of
March 31, 2011 and December 31, 2010 was
$82.4 million and $81.2 million, respectively. These
valuations were determined based upon net cash outflow
projections of $395.0 million, discounted using a rate of
6.0% and 6.1%, respectively, which is the cost of debt
financing for market participants. The change in fair value of
this obligation, of $1.2 million, was primarily due to changes
in the expected timing related to the achievement of certain
developmental milestones and was recognized as a fair value
adjustment of contingent consideration within our condensed
consolidated statement of income for the three months ended
March 31, 2011.
There were no transfers between fair value measurement levels
during the three months ended March 31, 2011.
The tables below present information about our financial assets
and liabilities that are measured at fair value on a recurring
basis as of March 31, 2011 and December 31, 2010, and
indicate the fair value hierarchy of the valuation techniques we
utilized to determine such fair value:
14
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Balance as of
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
March 31,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
(In millions)
|
|
2011
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
679.4
|
|
|
$
|
|
|
|
$
|
679.4
|
|
|
$
|
|
|
Marketable debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
343.4
|
|
|
|
|
|
|
|
343.4
|
|
|
|
|
|
Government securities
|
|
|
865.1
|
|
|
|
|
|
|
|
865.1
|
|
|
|
|
|
Mortgage and other asset backed securities
|
|
|
114.8
|
|
|
|
|
|
|
|
114.8
|
|
|
|
|
|
Strategic investments
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
Venture capital investments
|
|
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
20.5
|
|
Derivative contracts
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
Plan assets for deferred compensation
|
|
|
14.6
|
|
|
|
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,040.0
|
|
|
$
|
2.0
|
|
|
$
|
2,017.5
|
|
|
$
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
32.1
|
|
|
$
|
|
|
|
$
|
32.1
|
|
|
$
|
|
|
Acquisition-related contingent consideration
|
|
|
82.4
|
|
|
|
|
|
|
|
|
|
|
|
82.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
114.5
|
|
|
$
|
|
|
|
$
|
32.1
|
|
|
$
|
82.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
|
|
Acquisition-related contingent consideration
|
|
|
81.2
|
|
|
|
|
|
|
|
|
|
|
|
81.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
93.4
|
|
|
$
|
|
|
|
$
|
12.2
|
|
|
$
|
81.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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
|
|
|
|
Ended March 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Beginning balance, January 1
|
|
$
|
20.8
|
|
|
$
|
21.9
|
|
Unrealized gains included in earnings
|
|
|
0.6
|
|
|
|
|
|
Unrealized losses included in earnings
|
|
|
(1.0
|
)
|
|
|
(1.5
|
)
|
Purchases
|
|
|
0.1
|
|
|
|
0.4
|
|
Issuances
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, March 31
|
|
$
|
20.5
|
|
|
$
|
20.8
|
|
|
|
|
|
|
|
|
|
|
The fair and carrying values of our debt instruments, which are
all Level 2 liabilities, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011
|
|
|
As of December 31, 2010
|
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
(In millions)
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Credit line from Dompé
|
|
$
|
6.4
|
|
|
$
|
6.3
|
|
|
$
|
8.1
|
|
|
$
|
8.0
|
|
Notes payable to Fumedica
|
|
|
24.7
|
|
|
|
22.7
|
|
|
|
24.2
|
|
|
|
22.0
|
|
6.0% Senior Notes due 2013
|
|
|
482.1
|
|
|
|
449.8
|
|
|
|
485.5
|
|
|
|
449.8
|
|
6.875% Senior Notes due 2018
|
|
|
623.3
|
|
|
|
596.5
|
|
|
|
618.0
|
|
|
|
597.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,136.5
|
|
|
$
|
1,075.3
|
|
|
$
|
1,135.8
|
|
|
$
|
1,077.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of our credit line from Dompé 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.
16
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Marketable
Securities, including Strategic Investments
The following tables summarize our marketable securities and
strategic investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
As of March 31, 2011 (In millions):
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
117.8
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
117.6
|
|
Non-current
|
|
|
225.6
|
|
|
|
0.7
|
|
|
|
(0.5
|
)
|
|
|
225.4
|
|
Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
317.8
|
|
|
|
0.2
|
|
|
|
|
|
|
|
317.6
|
|
Non-current
|
|
|
547.3
|
|
|
|
0.2
|
|
|
|
(0.6
|
)
|
|
|
547.7
|
|
Mortgage and other asset backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
2.2
|
|
Non-current
|
|
|
112.6
|
|
|
|
0.5
|
|
|
|
(0.3
|
)
|
|
|
112.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
1,323.3
|
|
|
$
|
1.8
|
|
|
$
|
(1.4
|
)
|
|
$
|
1,322.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic investments, non-current
|
|
$
|
2.0
|
|
|
$
|
0.5
|
|
|
$
|
|
|
|
$
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2011 and
December 31, 2010, government securities included
$198.8 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.
Certain commercial paper and short-term debt securities with
original maturities of less than 90 days are included in
cash and cash equivalents on the accompanying condensed
consolidated balance sheets and are not
17
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
included in the tables above. As of March 31, 2011 and
December 31, 2010, the carrying value of our commercial
paper, including accrued interest, was $89.8 million and
$30.0 million, respectively. As of March 31, 2011 and
December 31, 2010, the carrying value of our short-term
debt securities was $589.6 million and
$621.8 million, respectively. The carrying values of our
commercial paper, including accrued interest, 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 March 31, 2011
|
|
|
As of December 31, 2010
|
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
(In millions)
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Due in one year or less
|
|
$
|
437.8
|
|
|
$
|
437.4
|
|
|
$
|
448.1
|
|
|
$
|
447.8
|
|
Due after one year through five years
|
|
|
774.7
|
|
|
|
774.7
|
|
|
|
664.1
|
|
|
|
662.4
|
|
Due after five years
|
|
|
110.8
|
|
|
|
110.8
|
|
|
|
79.0
|
|
|
|
78.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,323.3
|
|
|
$
|
1,322.9
|
|
|
$
|
1,191.2
|
|
|
$
|
1,189.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average maturity of our marketable securities as of
March 31, 2011 and December 31, 2010 was
12 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
|
|
|
Ended March 31,
|
(In millions)
|
|
2011
|
|
2010
|
|
Proceeds from maturities and sales
|
|
$
|
788.1
|
|
|
$
|
1,029.3
|
|
Realized gains
|
|
$
|
2.4
|
|
|
$
|
5.7
|
|
Realized losses
|
|
$
|
(0.8
|
)
|
|
$
|
0.7
|
|
During the first quarter of 2011, we also recognized within
other income (expense), net a gain of $13.8 million on the
sale of stock from 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 months ended March 31, 2011, we recognized
$1.2 million 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 months ended March 31, 2010, we recognized
$15.8 million in charges for the impairment of our
publicly-held strategic investments, investments in venture
capital funds and investments in privately-held companies, which
was primarily due to one of our strategic investments executing
an equity offering at a price below our cost basis during the
first quarter of 2010.
18
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
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
March 31, 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.
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
|
|
|
|
March 31,
|
|
|
December 31,
|
|
Foreign Currency: (In millions)
|
|
2011
|
|
|
2010
|
|
|
Euro
|
|
$
|
564.0
|
|
|
$
|
460.3
|
|
Canadian dollar
|
|
|
17.2
|
|
|
|
24.0
|
|
Swedish krona
|
|
|
7.3
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
Total foreign currency forward contracts
|
|
$
|
588.5
|
|
|
$
|
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 losses of
$30.4 million and $11.0 million as of March 31,
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 March 31, 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 gains of
$0.8 million and $0.1 million for the three months
ended March 31, 2011 and 2010, respectively, due to hedge
ineffectiveness.
In addition, we recognized in product revenue a net loss of
$8.3 million and a net gain of $0.2 million for the
three months ended March 31, 2011 and 2010, respectively,
for the settlement of certain effective cash flow hedge
instruments. These settlements were recorded in the same period
as the related forecasted revenue.
19
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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 March 31,
|
(In millions)
|
|
Balance Sheet Location
|
|
2011
|
|
Foreign Currency Contracts
|
|
|
|
|
|
|
Asset derivatives
|
|
Other current assets
|
|
$
|
|
|
Liability derivatives
|
|
Accrued expenses and other
|
|
$
|
29.6
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(30.4
|
)
|
|
Revenue
|
|
$
|
(8.3
|
)
|
|
(expense)
|
|
$
|
0.8
|
|
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
Foreign currency contracts
|
|
$
|
32.0
|
|
|
Revenue
|
|
$
|
0.2
|
|
|
(expense)
|
|
$
|
0.1
|
|
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 $176.5 million as of March 31,
2011. The fair value of these contracts was a net liability of
$2.3 million. Net losses of $4.9 million related to
these contracts were recognized as a component of other income
(expense), net, for the three months ended March 31, 2011.
|
|
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 $789.9 million and
$767.2 million as of March 31, 2011 and
December 31, 2010, respectively.
20
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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 are accounting for this transaction as a
financing arrangement as we have determined that the transaction
does 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 and the facility
assets remain classified as held for use and the carrying value
of the facility remains reflected as a component of property,
plant and equipment, net within our condensed consolidated
balance sheets as of March 31, 2011 and December 31,
2010. Our remaining obligation, which is reflected as a
component of current portion of notes payable, line of credit
and other financing arrangements within our condensed
consolidated balance sheets, was $125.0 million and
$125.9 million as of March 31, 2011 and
December 31, 2010, respectively. We have not recognized a
loss or impairment charge related to the San Diego facility.
In January 2011, we entered into an agreement to terminate our
15 month lease of the San Diego facility on
August 31, 2011 and will have no continuing involvement or
remaining obligation after that date. Once the lease arrangement
has concluded we will account for the San Diego facility as
a sale of property.
Preferred
Stock
In March 2011, 8,221 shares of our Series A Preferred
Stock, which represented all preferred shares outstanding, were
converted into shares of common stock by the holder pursuant to
the conversion terms of the Series A Preferred Stock. As a
result we issued 493,260 shares of common stock and no
other shares of Preferred Stock remain issued and outstanding as
of March 31, 2011.
Share
Repurchases
In February 2011, our Board of Directors authorized the
repurchase of up to 20 million shares of our common stock.
We expect to use this repurchase program principally to offset
common stock issuance under our share-based compensation plans.
This repurchase program does not have an expiration date. Under
this authorization, we repurchased approximately
2.8 million shares of our common stock at a cost of
$195.3 million during the first quarter of 2011. From
April 1, 2011 through April 21, 2011, we repurchased
an additional 1.0 million shares under this program at a
total cost of $75.7 million. Approximately
16.2 million shares remain available for repurchase under
the 2011 repurchase program.
For the three months ended March 31, 2010, we repurchased
approximately 10.5 million shares at a cost of
approximately $557.6 million under our 2009 stock
repurchase authorization. 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.
21
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The following tables reflect the activity in comprehensive
income included within equity attributable to the shareholders
of Biogen Idec, equity attributable to noncontrolling interests,
and total equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
|
|
Ended March 31, 2011
|
|
|
Ended March 31, 2010
|
|
|
|
Biogen Idec
|
|
|
|
|
|
|
|
|
Biogen Idec
|
|
|
|
|
|
|
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
(In millions)
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
294.3
|
|
|
$
|
14.4
|
|
|
$
|
308.7
|
|
|
$
|
217.4
|
|
|
$
|
2.6
|
|
|
$
|
220.0
|
|
Unrealized gains (losses) on securities available for sale
|
|
|
(11.8
|
)
|
|
|
|
|
|
|
(11.8
|
)
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
(2.9
|
)
|
Unrealized gains (losses) on foreign currency forward contracts
|
|
|
(17.4
|
)
|
|
|
|
|
|
|
(17.4
|
)
|
|
|
27.9
|
|
|
|
|
|
|
|
27.9
|
|
Unrealized gains (losses) on pension benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
Currency translation adjustment
|
|
|
49.8
|
|
|
|
2.8
|
|
|
|
52.6
|
|
|
|
(52.4
|
)
|
|
|
(2.6
|
)
|
|
|
(55.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
314.9
|
|
|
$
|
17.2
|
|
|
$
|
332.1
|
|
|
$
|
189.9
|
|
|
$
|
|
|
|
$
|
189.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on securities available for
sale are shown net of tax of $6.9 million for the three
months ended March 31, 2011, compared to $1.7 million
in the prior year comparative period.
Unrealized gains (losses) on foreign currency forward contracts
are shown net of tax of $2.0 million for the three months
ended March 31, 2011, compared to $3.0 million in the
prior year comparative period.
Unrealized gains (losses) on pension benefit obligations are
shown net of tax as of March 31, 2011 and 2010. The effect
of income taxes was negligible for both periods.
The following table reconciles equity attributable to
noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Noncontrolling interests, beginning of period
|
|
$
|
52.9
|
|
|
$
|
40.4
|
|
Net income (loss) attributable to noncontrolling interests
|
|
|
14.4
|
|
|
|
2.6
|
|
Currency translation adjustment
|
|
|
2.8
|
|
|
|
(2.6
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
Capital contributions from noncontrolling interests
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests, end of period
|
|
$
|
70.1
|
|
|
$
|
41.2
|
|
|
|
|
|
|
|
|
|
|
Total distributions to us from our joint ventures were
negligible for the three months ended March 31, 2011 and
2010.
22
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Basic and diluted earnings per share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec Inc
|
|
$
|
294.3
|
|
|
$
|
217.4
|
|
Adjustment for net income allocable to preferred stock
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
Net income used in calculating basic and diluted earnings per
share
|
|
$
|
293.8
|
|
|
$
|
217.0
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
241.5
|
|
|
|
269.9
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options and employee stock purchase plan
|
|
|
1.2
|
|
|
|
1.1
|
|
Time-vested restricted stock units
|
|
|
1.6
|
|
|
|
1.7
|
|
Market stock units
|
|
|
0.2
|
|
|
|
|
|
Performance-vested restricted stock units settled in shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
3.0
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculating diluted earnings per share
|
|
|
244.5
|
|
|
|
272.7
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Ended March 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income allocable to preferred stock
|
|
$
|
0.5
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
0.6
|
|
|
|
5.0
|
|
Time-vested restricted stock units
|
|
|
|
|
|
|
0.7
|
|
Market stock units
|
|
|
|
|
|
|
|
|
Performance-vested restricted stock units settled in shares
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
0.4
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1.0
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
23
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
We grant stock options and restricted stock units to employees,
officers, and directors under our current stock plan. The
following table presents grants of stock options and restricted
stock units:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Stock options
|
|
|
|
|
|
|
120,000
|
|
Market stock units(a)
|
|
|
363,000
|
|
|
|
333,000
|
|
Cash settled performance shares(b)
|
|
|
467,000
|
|
|
|
370,000
|
|
Time-vested restricted stock units
|
|
|
1,220,000
|
|
|
|
1,600,000
|
|
Performance-vested restricted stock units(c)
|
|
|
1,000
|
|
|
|
4,000
|
|
|
|
|
(a)
|
|
Market stock units (MSUs) granted
for the three months ended March 31, 2010, represents
target number of shares eligible to be earned at the time of
grant.
|
|
|
|
MSUs granted for the three months
ended March 31, 2011, includes approximately 347,000 MSUs
granted in connection with our annual awards made in February
2011, representing the target number of shares eligible to be
earned at the time of grant, and 16,000 additional MSUs issued
in 2011 based upon the attainment of performance criteria set
for 2010 in relation to shares granted in 2010.
|
|
(b)
|
|
Cash settled performance shares
(CSPSs) granted for the three months ended March 31, 2010,
represents target number of shares eligible to be earned at the
time of grant.
|
|
|
|
CSPSs granted for the three months
ended March 31, 2011, includes approximately 379,000 CSPSs
granted in connection with our annual awards made in February
2011, representing the target number of shares eligible to be
earned at the time of grant, and approximately 88,000 additional
CSPSs issued in 2011 based upon the attainment of performance
criteria set for 2010 in relation to shares granted in 2010.
|
|
(c)
|
|
Performance-vested restricted stock
units (PVRSUs) granted for the three months ended March 31,
2010, represents 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.
|
In addition, for the three months ended March 31, 2011,
approximately 185,000 shares were issued under the ESPP
compared to approximately 200,000 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
|
|
|
|
Ended March 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Research and development
|
|
$
|
19.1
|
|
|
$
|
16.7
|
|
Selling, general and administrative
|
|
|
20.7
|
|
|
|
36.2
|
|
Restructuring charges
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
39.2
|
|
|
|
52.9
|
|
Capitalized share-based compensation costs
|
|
|
(1.0
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in total costs and
expenses
|
|
|
38.2
|
|
|
|
52.0
|
|
Income tax effect
|
|
|
(12.0
|
)
|
|
|
(16.7
|
)
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in net income
attributable to
Biogen Idec Inc
|
|
$
|
26.2
|
|
|
$
|
35.3
|
|
|
|
|
|
|
|
|
|
|
24
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The following table summarizes share-based compensation expense
associated with each of our share-based compensation programs:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Stock options
|
|
$
|
1.1
|
|
|
$
|
10.8
|
|
Market stock units
|
|
|
3.5
|
|
|
|
3.6
|
|
Time-vested restricted stock units
|
|
|
27.9
|
|
|
|
33.5
|
|
Performance-vested restricted stock units settled in shares
|
|
|
0.4
|
|
|
|
2.4
|
|
Cash settled performance shares
|
|
|
4.8
|
|
|
|
1.0
|
|
Employee stock purchase plan
|
|
|
1.5
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
39.2
|
|
|
$
|
52.9
|
|
Capitalized share-based compensation costs
|
|
|
(1.0
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in total costs and
expenses
|
|
$
|
38.2
|
|
|
$
|
52.0
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2011, our effective
tax rate was 27.6%, compared to 25.5% in the prior year
comparative period.
The increase in our tax rate for the three months ended
March 31, 2011, compared to the same period in 2010, was
primarily a result of an increased percentage of our 2011
profits being earned in higher tax rate jurisdictions,
principally the U.S., due in part to our 2010 restructuring
initiative. In addition, a 2010 reorganization of certain of our
international operations also resulted in a benefit in the first
quarter of 2010, the period of reorganization. These factors
were partially offset by the 2011 settlement of an outstanding
IRS audit matter and an increase in research and development
expenses eligible for orphan drug credit.
Reconciliation between the U.S. federal statutory tax rate
and our effective tax rate is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes
|
|
|
2.4
|
|
|
|
1.9
|
|
Taxes on foreign earnings
|
|
|
(5.5
|
)
|
|
|
(9.8
|
)
|
Credits and net operating loss utilization
|
|
|
(2.1
|
)
|
|
|
(1.6
|
)
|
Purchased intangible assets
|
|
|
1.4
|
|
|
|
1.5
|
|
IPR&D
|
|
|
|
|
|
|
0.8
|
|
Permanent items
|
|
|
(1.3
|
)
|
|
|
(1.6
|
)
|
Other
|
|
|
(2.3
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
27.6
|
%
|
|
|
25.5
|
%
|
|
|
|
|
|
|
|
|
|
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
25
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
longer subject to U.S. federal tax examination for years
before 2007 or state, local, or
non-U.S. income
tax examinations by tax authorities for years before 2001.
Contingency
In 2006, the Massachusetts Department of Revenue (DOR) issued a
Notice of Assessment against Biogen Idec MA Inc. (BIMA), one of
our wholly-owned subsidiaries, for $38.9 million of
corporate excise tax for 2002, which includes associated
interest and penalties. The assessment asserts that the portion
of sales attributable to Massachusetts (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. In December 2006, we filed
an abatement application with the DOR seeking abatement for
2001, 2002 and 2003, which was denied. In July 2007, we filed a
petition with the Massachusetts Appellate Tax Board (the
Massachusetts ATB) seeking, among other items, abatements of
corporate excise tax for 2001, 2002 and 2003 and adjustments in
certain credits and credit carryforwards for 2001, 2002 and
2003. Issues before the Board include the computation of
BIMAs sales factor for 2001, 2002 and 2003, computation of
BIMAs research credits for those same years, and the
availability of deductions for certain expenses and partnership
flow-through items. The Massachusetts ATB has ordered the
hearing on our petition to begin on June 14, 2011.
On June 8, 2010, we received Notices of Assessment from the
DOR against BIMA for $103.5 million of corporate excise
tax, including associated interest and penalties, related to our
2004, 2005 and 2006 tax filings. The asserted basis for these
assessments is consistent with that for 2002. Including
associated interest and penalties, assessments related to
periods under dispute total $142.4 million. In August 2010,
we filed an abatement application with the DOR seeking abatement
for 2004, 2005 and 2006, which the DOR denied in December 2010.
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.
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.
26
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
17.
|
Other
Consolidated Financial Statement Detail
|
Other
Income (Expense), Net
Components of other income (expense), net, are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Interest income
|
|
$
|
3.7
|
|
|
$
|
8.9
|
|
Interest expense
|
|
|
(9.2
|
)
|
|
|
(8.3
|
)
|
Impairments of investments
|
|
|
(1.2
|
)
|
|
|
(15.8
|
)
|
Foreign exchange gains (losses), net
|
|
|
(0.4
|
)
|
|
|
1.0
|
|
Gain (loss) on sales of investments, net
|
|
|
15.3
|
|
|
|
5.0
|
|
Other, net
|
|
|
1.8
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
10.0
|
|
|
$
|
(8.4
|
)
|
|
|
|
|
|
|
|
|
|
Other
Current Assets
Other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Deferred tax assets
|
|
$
|
66.8
|
|
|
$
|
112.2
|
|
Prepaid taxes
|
|
|
22.9
|
|
|
|
31.4
|
|
Receivable from collaborations
|
|
|
7.7
|
|
|
|
7.3
|
|
Interest receivable
|
|
|
4.3
|
|
|
|
4.9
|
|
Other prepaid expenses
|
|
|
60.1
|
|
|
|
47.9
|
|
Other
|
|
|
24.5
|
|
|
|
12.1
|
|
|
|
|
|
|
|
|
|
|
Total other current assets
|
|
$
|
186.3
|
|
|
$
|
215.8
|
|
|
|
|
|
|
|
|
|
|
27
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Accrued
Expenses and Other
Accrued expenses and other consists of the following:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
Employee compensation and benefits
|
|
$
|
110.4
|
|
|
$
|
159.7
|
|
Revenue-related rebates
|
|
|
122.9
|
|
|
|
105.3
|
|
Restructuring charges
|
|
|
20.5
|
|
|
|
66.4
|
|
Royalties and licensing fees
|
|
|
42.6
|
|
|
|
45.1
|
|
Deferred revenue
|
|
|
47.4
|
|
|
|
41.3
|
|
Collaboration expenses
|
|
|
45.2
|
|
|
|
31.6
|
|
Clinical development expenses
|
|
|
24.3
|
|
|
|
24.4
|
|
Interest payable
|
|
|
5.5
|
|
|
|
21.6
|
|
Construction in progress accrual
|
|
|
9.1
|
|
|
|
16.4
|
|
Current portion of contingent consideration
|
|
|
4.9
|
|
|
|
11.9
|
|
Other
|
|
|
158.6
|
|
|
|
142.2
|
|
|
|
|
|
|
|
|
|
|
Total accrued expense and other
|
|
$
|
591.4
|
|
|
$
|
665.9
|
|
|
|
|
|
|
|
|
|
|
For a discussion of restructuring charges accrued as of
March 31, 2011 and December 31, 2010, please read
Note 3, Restructuring, to our consolidated financial
statements included in this report.
|
|
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
We consolidate the operations of Biogen Dompé SRL and
Biogen Dompé Switzerland GmbH, our respective sales
affiliates in Italy and Switzerland, as we retain the
contractual power to direct the activities of these entities
which most significantly and directly impact their economic
performance. The activity of each of these joint ventures is
significant to our overall operations. The assets of these joint
ventures are restricted, from the standpoint of Biogen Idec, in
that they are not available for our general business use outside
the context of each joint venture. The holders of the
liabilities of each joint venture, including the credit line
from Dompé described in our 2010
Form 10-K,
have no recourse to Biogen Idec.
The following table summarizes total joint venture assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
March 31,
|
|
December 31,
|
(In millions)
|
|
2011
|
|
2010
|
|
Assets
|
|
$
|
184.8
|
|
|
$
|
159.2
|
|
Liabilities
|
|
$
|
74.5
|
|
|
$
|
63.3
|
|
The joint ventures most significant assets are accounts
receivable from the ordinary course of business. As of
March 31, 2011, accounts receivable held by our joint
ventures totaled $146.4 million, of which
$141.3 million were related to Biogen Dompé SRL,
compared to total accounts receivable of $124.2 million
28
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
as of December 31, 2010, of which $118.0 million were
related to Biogen Dompé SRL. For additional information
related to our accounts receivable balances in Italy, please
read Note 5, Accounts Receivable to these condensed
consolidated financial statements.
Other than the line of credit from us and Dompé
Farmaceutici SpA to Biogen-Dompé SRL, as described in
Note 11, Indebtedness to our consolidated financial
statements included within our 2010
Form 10-K,
we have provided no financing to these joint ventures. In
addition, Biogen-Dompé SRL has an operating lease for
office space as well as a contract for the provision of
administrative services with Dompé Farmaceutici SpA.
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. Although we have assumed
responsibility for the development of dexpramipexole, we may
also be required to reimburse certain Knopp expenses directly
attributable to the license agreement. Any additional amounts
incurred by Knopp that we reimburse will be reflected within
total costs and expenses in our consolidated statements of
income. Future development and sales-based milestone payments
will be reflected within our consolidated income statement as
charges to noncontrolling interests when such milestones are
achieved.
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.
For the three months ended March 31, 2011, the
collaboration incurred $5.7 million of expense related to
the development of dexpramipexole, which is reflected as
research and development expense within our condensed
consolidated statement of income. 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
$360.0 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 SubOnes
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 expenses in support of
29
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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 months ended March 31, 2011 and 2010, the
collaboration incurred development expense totaling
$1.8 million and $5.1 million, respectively, which is
reflected as research and development expense within our
condensed consolidated statements of income. The assets and
liabilities of Neurimmune are not significant as it is a
research and development organization. We have provided no
financing to Neurimmune other than previously contractually
required amounts disclosed above.
In April 2011, we submitted an Investigational New Drug (IND)
application for
beta-amyloid
removal therapy (BART), which triggered a $15.0 million
milestone payment due to Neurimmune. BART is being developed for
the treatment of Alzheimers disease. As we consolidate
Neurimmune, we will recognize this payment as a charge to
noncontrolling interests in the second quarter of 2011.
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 March 31, 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 were $24.0 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 entered into research collaborations with certain
variable interest entities where we are required to fund certain
development activities. These development activities are
included in research and development expense within our
consolidated statements of income as they are incurred.
Depending on the collaborative arrangement, we may record
funding receivables or payable balances with our partners, based
on the nature of the cost-sharing mechanism and activity within
the collaboration. As of March 31, 2011 and
December 31, 2010, we had no significant receivables or
payables related to cost sharing arrangements with
unconsolidated variable interest entities.
We have provided no financing to these variable interest
entities other than previously contractually required amounts.
Massachusetts
Department of Revenue
In 2006, the Massachusetts Department of Revenue (DOR) issued a
Notice of Assessment against BIMA for $38.9 million of
corporate excise tax for 2002, which includes associated
interest and penalties. The assessment asserts that the portion
of sales attributable to Massachusetts (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. On December 6, 2006, we
filed an abatement application with the DOR seeking abatements
for 2001, 2002 and 2003. The abatement application was denied on
July 24, 2007. On July 25, 2007, we filed a petition
with the Massachusetts Appellate Tax Board (the Massachusetts
ATB) seeking, among other items, abatements of corporate excise
tax for 2001, 2002 and 2003 and adjustments in
30
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
certain credits and credit carry forwards for 2001, 2002 and
2003. Issues before the Board include the computation of
BIMAs sales factor for 2001, 2002 and 2003, computation of
BIMAs research credits for those same years, and the
availability of deductions for certain expenses and partnership
flow-through items. The Massachusetts ATB has ordered the
hearing on our petition to begin on June 14, 2011.
On June 8, 2010, we received Notices of Assessment from the
DOR against BIMA for $103.5 million of corporate excise
tax, including associated interest and penalties, related to our
2004, 2005 and 2006 tax filings. The asserted basis for these
assessments is consistent with that for 2002. On August 5,
2010, we filed an abatement application with the DOR seeking
abatements for 2004, 2005, and 2006, which the DOR denied on
December 15, 2010. 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 filed with the ICC
International Court of Arbitration (Paris) a request for
arbitration against Genentech, relating to a terminated license
agreement (the Hoechst License) between
Hoechsts predecessor and Genentech granting Genentech
certain rights with respect to U.S. Patents 5,849,522
(522 patent) and 6,218,140 (140 patent) and related
patents outside the U.S. Although we are not a party to the
arbitration, any damages awarded to Hoechst based on
U.S. net sales of RITUXAN may be a cost charged to our
collaboration with Genentech. The license was entered as of
January 1, 1991 and was terminated by Genentech on
October 27, 2008. We understand that Hoechst seeks payment
of royalties on sales of Genentech products, including RITUXAN,
damages for breach of contract, and other relief. We estimate,
based solely on our understanding of Hoechsts claims and
not on any evaluation of the merits of the claims, that
royalties and interest, if awarded in connection with
U.S. net sales of RITUXAN, could total $100 million
based on the 0.5% royalty rate set forth in the agreement and
historical RITUXAN net sales. Although we are not a party to the
arbitration, any damages awarded to Hoechst based on U.S. sales
of RITUXAN may be a cost charged to our collaboration with
Genentech.
Sanofi
522 and 140 Patent Litigation
On October 27, 2008, Sanofi-Aventis Deutschland GmbH
(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. On March 7, 2011,
the court granted Biogen Idecs and Genentechs motion
for summary judgment in the Consolidated Sanofi Patent Actions
on the grounds that RITUXAN does not infringe the 522
patent or the 140 patent. The court has ordered a trial to
begin on June 13, 2011 on the remaining claims, including
Biogen Idecs and Genentechs invalidity claims. We
have not formed an opinion that an unfavorable outcome on the
invalidity claims in the Consolidated Sanofi Patent Actions or
in any appeal by Sanofi of non-infringement ruling is either
probable or remote. We believe that we
have good and valid defenses and are vigorously defending
against the 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
31
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
substantially higher royalty rate, and we will continue to
vigorously oppose its claims and position. One of the issues to
be resolved in the Consolidated Sanofi Patent Actions is whether
any award of reasonable royalty damages would begin running from
October 27, 2008, when Genentech terminated the Hoechst
License, or from October 27, 2002, six years before Sanofi
filed the Texas Action, the statutory limitations period for
damages in patent cases. In the event that Genentech is ordered
in the arbitration described above to pay royalties on RITUXAN
sales under the Hoechst License up to the date of the
termination of the Hoechst License (October 27, 2008), we
do not anticipate that either we or Genentech would be subject
to any damages award in the Consolidated Sanofi Patent Actions
for any period before October 27, 2008. Any damages awarded
to Sanofi based on U.S. net sales of RITUXAN may be a cost
charged to our collaboration with Genentech.
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 federal court in the District of New Jersey
seeking a declaratory judgment of patent invalidity and
noninfringement and seeking monetary relief in the form of
attorneys fees, costs and expenses. On May 28, 2010,
BIMA filed a lawsuit in federal court in the District of New
Jersey alleging infringement of the 755 Patent by EMD
Serono, Inc. (manufacturer, marketer and seller of REBIF),
Pfizer, Inc. (co-marketer of REBIF), Bayer (manufacturer,
marketer and seller of BETASERON and manufacturer of EXTAVIA),
and Novartis Pharmaceuticals Corp. (marketer and seller of
EXTAVIA) and seeking monetary damages, including lost profits
and royalties. The court has consolidated the two lawsuits, and
we refer to the two actions as the Consolidated 755 Patent
Actions. On August 16, 2010, BIMA amended its complaint to
add Ares Trading S.A. (Ares), an affiliate of EMD Serono, as a
defendant, and to seek a declaratory judgment that a purported
nonsuit and option agreement between Ares and BIMA
dated October 12, 2000, that purports to provide that Ares
will have an option to obtain a license to the 755 Patent,
is not a valid and enforceable agreement or, alternatively, has
been revoked
and/or
terminated by the actions of Ares or its affiliates. Ares has
answered the amended complaint and has moved to compel
arbitration of the claims against it, which we have opposed, and
Ares motion is pending. Ares has also filed a Notice of
Arbitration, which we have opposed. 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 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.
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.
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
32
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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.
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 conditions.
We operate as one business segment, which is the business of
discovering, developing, manufacturing and marketing products
for the treatment of serious diseases with a focus on
neurological disorders and therefore, our chief operating
decision-maker manages the operations of our Company as a single
operating segment.
|
|
21.
|
New
Accounting Pronouncements
|
From time to time, new accounting pronouncements are issued by
the Financial Accounting Standards Board (FASB) or other
standard setting bodies that are adopted by the Company as of
the specified effective date. Unless otherwise discussed, we
believe that the impact of recently issued standards that are
not yet effective will not have a material impact on our
financial position or results of operations upon adoption.
In 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. In addition, effective for
interim and annual periods beginning after December 15,
2010, which for us is 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 accounting
standard only requires enhanced disclosure, the adoption of this
newly issued accounting standard did not impact our financial
position or results of operations.
33
|
|
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).
Executive
Summary
Introduction
Biogen Idec is a global biotechnology company focused on
discovering, developing, manufacturing and marketing products
for the treatment of serious diseases with a focus on
neurological disorders. We currently have four marketed
products: AVONEX, RITUXAN, TYSABRI, and FUMADERM. Our marketed
products are used for the treatment of multiple sclerosis (MS),
non-Hodgkins lymphoma (NHL), rheumatoid arthritis (RA),
Crohns disease, chronic lymphocytic leukemia (CLL), and
psoriasis.
In the near term, our current and future revenues are dependent
upon continued sales of our three principal products, AVONEX,
RITUXAN and TYSABRI. In the longer term, our revenue growth will
be dependent upon the successful pursuit of external business
development opportunities and clinical development, regulatory
approval and launch of new commercial products as well as upon
our ability to protect our patents related to our marketed
products and assets originating from our research and
development efforts. 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.
In November 2010, we announced a number of strategic,
operational and organizational initiatives, which are described
below under the heading Restructuring Charge.
We expect to incur charges totaling approximately
$110.0 million associated with the implementation of these
initiatives of which $75.2 million was incurred in 2010 and
the remainder is anticipated to be substantially incurred by the
end of 2011.
Financial
Highlights
The following table is a summary of financial results achieved:
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For the Three Months
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Ended March 31,
|
|
(In millions, except per share amounts and percentages)
|
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2011(1)
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2010(2)
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Change %
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Total revenues
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$
|
1,203.3
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|
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$
|
1,108.9
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|
|
8.5
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%
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Income from operations
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$
|
416.3
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$
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303.7
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37.1
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%
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Net income attributable to Biogen Idec Inc.
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$
|
294.3
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$
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217.4
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35.4
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%
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Diluted earnings per share attributable to Biogen Idec Inc
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$
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1.20
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$
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0.80
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50.4
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%
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(1)
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Income from operations, as well as
net income attributable to Biogen Idec Inc. for the three months
ended March 31, 2011, was reduced by the $16.6 million
restructuring charge recognized during the first quarter of 2011.
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(2)
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Income from operations, as well as
net income attributable to Biogen Idec Inc. for the three months
ended March 31, 2010, were reduced by an approximately
$40.0 million charge to acquired in-process research and
development (IPR&D) related to the achievement of a
milestone by Biogen Idec Hemophilia, Inc. (formerly Syntonix
Pharmaceuticals, Inc.).
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34
As described below under Results of Operations,
our operating results for the three months ended
March 31, 2011 reflect the following:
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Worldwide AVONEX revenues totaled $642.5 million in the
first quarter of 2011, representing an increase of 8.4% over the
same period in 2010.
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Our share of TYSABRI revenues totaled $251.4 million in the
first quarter of 2011, representing an increase of 15.0% over
the same period in 2010.
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Our share of RITUXAN revenues totaled $256.1 million in the
first quarter of 2011, remaining essentially flat in comparison
to the same period in 2010. Our share of co-promotion profits in
the U.S. totaled $221.9 million representing an
increase of 10.8% 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.
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Total cost and expenses decreased 2.2% in the first quarter of
2011, compared to the same period in 2010, reflecting our
efforts to become a more efficient and cost-effective
organization. Research and development expense and selling,
general and administrative costs decreased 4.4% and 1.7%,
respectively, for the three months ended March 31, 2011,
from the same period in 2010. These decreases were offset by the
$16.6 million restructuring charge recognized during the
first quarter of 2011 as well as a 17.7% increase in
collaboration profit sharing expense due to TYSABRI revenue
growth. In addition, total cost and expenses for the three
months ended March 31, 2010 included an IPR&D charge
of $40.0 million related to the achievement of a milestone
by Biogen Idec Hemophilia, Inc.
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We generated $272.6 million of net cash flow from
operations for the three months ended March 31, 2011, which
was primarily driven by earnings. Cash and cash equivalents and
marketable securities totaled approximately
$2,114.0 million as of March 31, 2011.
In February 2011, our Board of Directors authorized the
repurchase of up to 20 million shares of our common stock.
We expect to use this repurchase program principally to offset
common stock issuance under our share-based compensation plans.
This repurchase program does not have an expiration date. Under
this authorization, we repurchased approximately
2.8 million shares of our common stock at a cost of
$195.3 million during the first quarter of 2011. From
April 1, 2011 through April 21, 2011, we repurchased
an additional 1.0 million shares under this program at a
total cost of $75.7 million. Approximately
16.2 million shares remain available for repurchase under
the 2011 repurchase program.
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 products similar to those
we are developing or already market. For example, along with us,
a number of companies are working to develop additional
treatments for MS that may compete with AVONEX and TYSABRI,
including oral and other alternative formulations. In addition,
the commercialization of certain of our own pipeline product
candidates, such as BG-12 (dimethyl fumarate), may also
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, RITUXAN and
TYSABRI 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 U.S. healthcare reform legislation enacted
in 2010 contained new cost containment measures. We have
encountered similar efforts to reform health care coverage and
costs in other countries in which we operate. Moreover, the
economic environment in Europe has become increasingly
challenging. Many of the countries in which we operate are also
seeking to reduce their public expenditures in light of the
recent global economic downturn. 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
35
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 Development
BG-12
In April 2011, we announced positive top-line results from
DEFINE, the first of two pivotal Phase 3 clinical trials
designed to evaluate our investigational oral compound BG-12 as
a monotherapy in relapsing-remitting multiple sclerosis (RRMS).
Results showed that 240 mg of BG-12, administered either
twice or three times a day, met the primary and secondary study
endpoints. Initial data from the trial also showed that BG-12
demonstrated a favorable safety and tolerability profile,
consistent with what was seen in the published Phase 2 study of
BG-12. A second Phase 3 RRMS clinical trial, CONFIRM, is
currently underway, with results expected in the second half of
2011. The FDA recently rescinded the fast track designation for
BG-12 due to the availability of another oral MS treatment on
the market.
We have several patents and other rights applicable to BG-12. In
the U.S. we are entitled to the 5 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. There is some
uncertainty around achieving data protection in the E.U.
Specifically, we believe that we are entitled to 8 years of
data exclusivity and 2 years of market exclusivity because
we believe BG-12 is a New Active Substance under
E.U. law. The European Medicines Agencys Committee for
Medicinal Products for Human Use (CHMP) has recently taken the
position that a single active substance may not qualify for
New Active Substance status if it was one component
of a previously approved multi-component product. Other
companies have challenged this position in litigation that is
still ongoing. FUMADERM is approved for psoriasis in Germany and
contains DMF, the active ingredient in BG-12, as well as
additional monoethyl fumarate salts. We believe we will be
entitled to data exclusivity and we will continue to pursue this
as we move the compound forward.
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 the
following milestone payments based on sales of Fumapharm
Products in any indication less customary returns, discounts and
allowances and charges for transportation, taxes and customs
duties:
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Cumulative Sales Level
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Each additional
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$1.0B
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Prior 12 Month Sales
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$500M
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$1.0B
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$2.0B
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$3.0B
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up to $20.0B
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Payment Amount (In millions)
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<$500 million
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$
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$
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$
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$
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$
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$500 million $1.0 billion
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22.0
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25.0
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|
|
50.0
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$
|
50M
|
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|
|
50.0
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|
$1.0 billion $1.5 billion
|
|
|
|
|
|
|
50.0
|
|
|
|
100.0
|
|
|
$
|
100M
|
|
|
|
100.0
|
|
$1.5 billion $2.0 billion
|
|
|
|
|
|
|
|
|
|
|
150.0
|
|
|
$
|
150M
|
|
|
|
150.0
|
|
$2.0 billion $2.5 billion
|
|
|
|
|
|
|
|
|
|
|
200.0
|
|
|
$
|
200M
|
|
|
|
200.0
|
|
$2.5 billion $3.0 billion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250M
|
|
|
|
250.0
|
|
>$3.0 billion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300.0
|
|
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.
36
Results
of Operations
Revenues
Revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Product revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
460.4
|
|
|
|
38.3
|
%
|
|
$
|
410.3
|
|
|
|
37.0
|
%
|
Rest of world
|
|
|
446.7
|
|
|
|
37.1
|
%
|
|
|
413.9
|
|
|
|
37.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
907.1
|
|
|
|
75.4
|
%
|
|
$
|
824.2
|
|
|
|
74.3
|
%
|
Unconsolidated joint business
|
|
|
256.1
|
|
|
|
21.3
|
%
|
|
|
254.9
|
|
|
|
23.0
|
%
|
Other
|
|
|
40.1
|
|
|
|
3.3
|
%
|
|
|
29.7
|
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,203.3
|
|
|
|
100.0
|
%
|
|
$
|
1,108.9
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Revenues
Product revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
AVONEX
|
|
$
|
642.5
|
|
|
|
70.8
|
%
|
|
$
|
592.5
|
|
|
|
71.9
|
%
|
TYSABRI
|
|
|
251.4
|
|
|
|
27.7
|
%
|
|
|
218.6
|
|
|
|
26.5
|
%
|
Other
|
|
|
13.2
|
|
|
|
1.5
|
%
|
|
|
13.1
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
907.1
|
|
|
|
100.0
|
%
|
|
$
|
824.2
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVONEX
Revenues from AVONEX are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
United States
|
|
$
|
387.3
|
|
|
$
|
349.9
|
|
|
|
10.7
|
%
|
Rest of world
|
|
|
255.2
|
|
|
|
242.6
|
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AVONEX revenues
|
|
$
|
642.5
|
|
|
$
|
592.5
|
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2011, compared to the
same period in 2010, the increase in U.S. AVONEX revenue
was due to price increases. Sales volume for the three months
comparative periods remained essentially unchanged.
U.S. AVONEX revenues for the first quarter of 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.
For the three months ended March 31, 2011, compared to the
same period in 2010, the increase in rest of world AVONEX
revenue was due to increased commercial demand offset by price
decreases in some countries. Increased commercial demand
resulted in increases of approximately 14.4% in rest of world
AVONEX unit sales volume for the three months ended
March 31, 2011, over the prior year comparative period.
AVONEX rest of world revenues for the three months ended
March 31, 2011 also includes losses recognized in relation
to the settlement of certain cash flow hedge instruments under
our foreign currency hedging program totaling $7.1 million,
compared to losses recognized of $1.3 million in the prior
year comparative period.
In April the CHMP recommended approval of AVONEX PEN for
patients with relapsing MS and patients with a single
demyelinating event. AVONEX PEN is designed to be the first
single-use,
once-a-week,
fully integrated intramuscular autoinjector available for use
with AVONEX treatment and may improve the
37
convenience of AVONEX administration. The CHMP recommendation
provides the basis for a European Commission licensing decision,
which is expected within 75 days from the opinion. AVONEX
PEN has already received authorization from Health Canada.
We expect AVONEX to face increasing competition in the MS
marketplace in both the U.S. and rest of world. A number of
companies, including us, are working to develop products to
treat MS that may compete with AVONEX now and in the future,
including oral and other alternative formulations. In addition,
the continued growth of TYSABRI and the commercialization of our
other pipeline product candidates may negatively impact future
sales of AVONEX. Increased competition may 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.
Revenues from TYSABRI are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
United States
|
|
$
|
73.2
|
|
|
$
|
60.4
|
|
|
|
21.1
|
%
|
Rest of world
|
|
|
178.2
|
|
|
|
158.2
|
|
|
|
12.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TYSABRI revenues
|
|
$
|
251.4
|
|
|
$
|
218.6
|
|
|
|
15.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2011, compared to the
same period 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 11.4% in U.S. TYSABRI unit sales volume for
the three months ended March 31, 2011, over the prior year
comparative period. Net sales of TYSABRI from our collaboration
partner, Elan, to third-party customers in the U.S. for the
three months ended March 31, 2011 totaled
$169.9 million, compared to $135.2 million in the
prior year comparative period.
For the three months ended March 31, 2011, compared to the
same period in 2010, the increase in rest of world TYSABRI
revenue was due to increased commercial demand offset by price
decreases in some countries. Increased commercial demand
resulted in increases of approximately 18.5% in rest of world
TYSABRI unit sales volume for the three months ended
March 31, 2011, over the prior year comparative period.
TYSABRI rest of world revenues for the three months ended
March 31, 2011 also includes losses recognized in relation
to the settlement of certain cash flow hedge instruments under
our foreign currency hedging program totaling $1.2 million,
compared to gains recognized of $1.5 million in the prior
year comparative period.
In April 2011, the U.S. Food and Drug Administration (FDA)
approved changes to the U.S. TYSABRI label detailing the
updated incidence of progressive multifocal leukoencephalopathy
(PML), a serious brain infection, and clarifying that the risk
of PML in patients who have been treated with an
immunosuppressant before receiving TYSABRI is not increased by
prior treatment with short courses of corticosteroids. In April
2011, the CHMP recommended renewing TYSABRIs marketing
authorization in the E.U. Formal approval is expected in late
June. 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 for TYSABRI. Safety
warnings included with 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
38
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. In April 2011, the CHMP
recommended that the product label for TYSABRI in the E.U. be
updated to include anti-JC virus antibody status as a third risk
factor to help stratify the risk of PML, with formal approval
expected in June 2011. Prior immunosuppressant therapy and
TYSABRI treatment duration are two established risk factors
already included in the product labeling. In addition, our JC
virus assay has recently been CE marked for commercial access in
the E.U. and we anticipate it will become commercially available
broadly in the E.U. by May 2011. We are pursuing regulatory
approval of our JC virus assay in the U.S. and expect it will be
available broadly in the U.S. later this year.
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. A number of companies,
including us, are working to develop products to treat MS that
may compete with TYSABRI now and in the future, including oral
and other alternative formulations. In addition, the
commercialization of our other pipeline product candidates 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 pretax 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
|
|
|
|
Ended March 31,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Biogen Idecs share of co-promotion profits in the
U.S.
|
|
$
|
221.9
|
|
|
$
|
200.3
|
|
|
|
10.8
|
%
|
Reimbursement of selling and development expenses in the U.S.
|
|
|
2.7
|
|
|
|
16.2
|
|
|
|
(83.3
|
)%
|
Revenue on sales of RITUXAN in the rest of world
|
|
|
31.5
|
|
|
|
38.4
|
|
|
|
(18.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated joint business revenues
|
|
$
|
256.1
|
|
|
$
|
254.9
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Biogen
Idecs Share of Co-Promotion Profits in the
U.S.
The following table provides a summary of amounts comprising our
share of co-promotion profits in the U.S.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Product revenues, net
|
|
$
|
721.9
|
|
|
$
|
686.7
|
|
|
|
5.1
|
%
|
Costs and expenses
|
|
|
154.7
|
|
|
|
173.5
|
|
|
|
(10.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-promotion profits in the U.S.
|
|
$
|
567.2
|
|
|
$
|
513.2
|
|
|
|
10.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biogen Idecs share of co-promotion profits in the
U.S.
|
|
$
|
221.9
|
|
|
$
|
200.3
|
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2011, compared to the
same period 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 3.9% in U.S. RITUXAN unit sales
volume for the three months ended March 31, 2011, over the
prior year comparative period. U.S. RITUXAN product
revenues for the first quarter of 2011 were also negatively
impacted by an increase in reserves established for rebates and
allowances related to the U.S. healthcare reform
legislation enacted in March 2010. The decrease in collaboration
costs and expenses for the three month comparative period was
primarily related to Genentech assuming responsibility for the
U.S. sales and marketing efforts for RITUXAN in the fourth
quarter of 2010.
Under our collaboration agreement, our current pretax
co-promotion profit-sharing formula, which resets annually,
provides for a 40% share of co-promotion profits if co-promotion
operating profits exceed $50.0 million. For 2011 and 2010,
the 40% threshold was met during the first quarter.
In addition, in 2011 a new fee became payable by all branded
prescription drug manufacturers and importers. This fee will be
calculated based upon each organizations percentage share
of total branded prescription drug sales to 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 result in a
reduction of our share of pre-tax co-promotion profits in the
U.S. by approximately $15.0 million in 2011.
Reimbursement
of Selling and Development Expenses 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 months ended March 31, 2011, in comparison to the
same period in 2010. We expect that the amount of reimbursement
for selling and development expense in the U.S. will
decrease in future periods to a negligible amount.
Revenue
on Sales of RITUXAN in the Rest of the World
Revenue on sales of RITUXAN in the rest of world consists of our
share of pretax co-promotion profits in Canada and royalty
revenue on sales of RITUXAN outside the U.S. and Canada.
For the three months ended March 31, 2011, compared to the
same period in 2010, revenues on sales of RITUXAN in the rest of
world continue to decline due to the expiration of royalties on
a
country-by-country
basis in certain of our rest of world markets. The royalty
period for sales in the rest of world with respect to all
products is 11 years from the first commercial sale of such
product on a
country-by-country
basis. The royalty periods for substantially all of the
remaining royalty-bearing sales of RITUXAN in the rest of the
world will expire by 2012. As a result of these expirations, we
expect royalty revenues derived from sales of RITUXAN in the
rest of world to continue to decline in future periods.
40
Other
Revenues
Other revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Royalty revenues
|
|
$
|
25.6
|
|
|
$
|
26.0
|
|
|
|
(1.5
|
)%
|
Corporate partner revenues
|
|
|
14.5
|
|
|
|
3.7
|
|
|
|
291.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenues
|
|
$
|
40.1
|
|
|
$
|
29.7
|
|
|
|
35.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
Revenues
We receive royalties on sales by our licensees of a number of
products covered under patents we own. For the three months
ended March 31, 2011, compared to the same period in 2010,
royalty revenues remained relatively unchanged.
Our most significant source of royalty revenue is derived from
worldwide sales of ANGIOMAX by The Medicines Company (TMC).
Royalty revenues related to the sales of ANGIOMAX are recognized
in an amount equal to the level of net sales achieved during a
calendar year multiplied by the royalty rate in effect for that
tier under our agreement with TMC. The royalty rate increases
based upon which tier of total net sales are earned in any
calendar year. The increased royalty rate is applied
retroactively to the first dollar of net sales achieved during
the year. This formula has the effect of increasing the amount
of royalty revenue to be recognized in later quarters and, as a
result, an adjustment is recorded in the period in which an
increase in royalty rate has been achieved.
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 patent in such country. The annual royalty rate is reduced by
a specified percentage in any country where the product is no
longer covered by a patent and where sales have been reduced to
a certain volume-based market share. TMC began selling ANGIOMAX
in the U.S. in January 2001. The principal U.S. patent
that covers ANGIOMAX was due to expire in March 2010 and TMC
applied for an extension of the term of this patent. Initially,
the 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 principal U.S. patent to
December 2014. On August 3, 2010, the federal district
court ordered the PTO to deem the application as timely filed.
The PTO did not appeal the order, but a generic manufacturer is
challenging the order in an appellate proceeding. The PTO has
granted an interim extension of the patent term until
August 13, 2011. In the event that TMC is unsuccessful in
obtaining a patent term extension thereafter and third parties
sell products comparable to ANGIOMAX, we would expect a
significant decrease in royalty revenues due to increased
competition, which may impact sales and result in lower royalty
tiered rates.
Corporate
Partner Revenues
For the three months ended March 31, 2011, compared to the
same period in 2010, the increase in corporate partner revenue
was primarily due to 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 Framework for Growth restructuring
initiative.
Provision
for Discounts and Allowances
Revenues from product sales are recorded net of applicable
allowances for trade term discounts, wholesaler incentives,
Medicaid rebates, Veterans Administration (VA) and Public Health
Service (PHS) discounts, managed care rebates, product returns,
and other 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 customer) or a liability (if the amount is
payable to a party other than our
41
customer). These reserves are based on estimates of the amounts
earned or 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
may need to adjust these estimates, which could have an effect
on earnings in the period of the 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
|
|
|
|
Ended March 31,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Discounts
|
|
$
|
23.8
|
|
|
$
|
19.3
|
|
|
|
23.3
|
%
|
Contractual adjustments
|
|
|
86.1
|
|
|
|
55.9
|
|
|
|
54.0
|
%
|
Returns
|
|
|
2.8
|
|
|
|
4.6
|
|
|
|
(39.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowances
|
|
$
|
112.7
|
|
|
$
|
79.8
|
|
|
|
41.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross product revenues
|
|
$
|
1,019.8
|
|
|
$
|
904.0
|
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of gross product revenues
|
|
|
11.1
|
%
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount reserves include trade term discounts and wholesaler
incentives. For the three months ended March 31, 2011,
compared to the same period in 2010, the increase in discounts
was primarily driven by increases in trade term discounts and
wholesaler incentives as a result of price increases and
increased sales.
Contractual adjustment reserves relate to Medicaid and managed
care rebates, VA and PHS discounts and other governmental
rebates or applicable allowances. For the three months ended
March 31, 2011, compared to the same period in 2010, the
increase in contractual adjustments was primarily due to the
impact of higher contractual rebates and discounts resulting
from U.S. healthcare reform legislation enacted in March
2010, including an increase in reserves associated with the
implementation of additional discounts to Medicare beneficiaries
in the first quarter of 2011 whose prescription drug costs cause
them to be subject to the Medicare Part D coverage gap. In
addition, the increase in contractual adjustments was also due
to higher reserves for managed care and Medicaid and VA programs
primarily associated with price increases in the U.S. 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 months ended
March 31, 2011, compared to the same period in 2010, return
reserves decreased due to a reduction of returns made by
wholesalers.
42
Cost and
Expenses
A summary of total cost and expenses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Cost of sales, excluding amortization of acquired intangible
assets
|
|
$
|
103.1
|
|
|
$
|
97.1
|
|
|
|
6.2
|
%
|
Research and development
|
|
|
293.6
|
|
|
|
307.0
|
|
|
|
(4.4
|
)%
|
Selling, general and administrative
|
|
|
244.5
|
|
|
|
248.7
|
|
|
|
(1.7
|
)%
|
Collaboration profit sharing
|
|
|
74.8
|
|
|
|
63.6
|
|
|
|
17.7
|
%
|
Amortization of acquired intangible assets
|
|
|
53.2
|
|
|
|
48.9
|
|
|
|
8.9
|
%
|
Restructuring charge
|
|
|
16.6
|
|
|
|
|
|
|
|
**
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
40.0
|
|
|
|
(100.0
|
)%
|
Fair value adjustment of contingent consideration
|
|
|
1.2
|
|
|
|
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses
|
|
$
|
787.1
|
|
|
$
|
805.2
|
|
|
|
(2.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales, Excluding Amortization of Acquired Intangible
Assets (Cost of Sales)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended March 31,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
Cost of sales
|
|
$
|
103.1
|
|
|
$
|
97.1
|
|
|
|
6.2
|
%
|
For the three months ended March 31, 2011, compared to the
same period in 2010, the increase in cost of sales was primarily
due to higher unit sales volume. We expect an increase in cost
of sales for the full year 2011, relative to prior year
comparative periods, as a result of an increase in expected
contract manufacturing activity and increased production costs,
beginning in the second half of 2011.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended March 31,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
Research and development
|
|
$
|
293.6
|
|
|
$
|
307.0
|
|
|
|
(4.4
|
)%
|
For the three months ended March 31, 2011, compared to the
same period in 2010, the decrease in research and development
expense reflects our efforts to reallocate resources within our
research and development organization consistent with our
restructuring initiative. The savings expected to be achieved in
2011 upon comparison to 2010, will be offset to some degree by
research and development costs associated with initiatives to
grow our business.
The decrease for the three month comparative period is primarily
attributable to a reduction in spending related to certain
programs which were terminated or are in the process of being
discontinued as well as a reduction in workforce. This decrease
is offset by an increase in R&D spend resulting from
increased clinical trial activity for certain of our product
candidates in or near registrational stage development,
including among others, the
BG-12,
dexpramipexole, Factor VIII, and PEGylated interferon beta-1a
programs as well as an increase in spending associated with our
efforts to research and develop protocols that may reduce the
risk and improve outcomes of PML in patients treated with
TYSABRI.
We intend to continue committing significant resources on
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 make significant investments during 2011 in the advancement
of BG-12 and
our Factor VIII and Factor IX hemophilia programs. We also
intend in 2011 to invest in bringing
43
forward our MS pipeline and in pursuing life-saving and
life-changing therapies for other neurodegenerative diseases,
such as amyotrophic lateral sclerosis (ALS).
Milestone
Payments
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
Neurosciences, Inc. (Knopp). As we consolidate Knopp, we have
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
beta-amyloid
removal therapy (BART), which triggered a $15.0 million
milestone payment due to Neurimmune SubOne AG (Neurimmune). BART
is being developed for the treatment of Alzheimers
disease. As we consolidate Neurimmune, we will recognize this
payment as a charge to noncontrolling interests in the second
quarter of 2011.
Selling,
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended March 31,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
Selling, general and administrative
|
|
$
|
244.5
|
|
|
$
|
248.7
|
|
|
|
(1.7
|
)%
|
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 three months ended March 31, 2011 compared to the same
period in 2010, the decrease in selling, general and
administrative expenses reflects the impact of our restructuring
initiatives, which is described below under the heading
Restructuring Charge. The savings expected to
be achieved upon comparison to 2010, will be offset to some
degree by costs associated with initiatives to grow our
business. The decrease for the three month comparative period
was offset by increased sales and marketing activities in
support of AVONEX and TYSABRI. Included within selling, general
and administrative expenses for the three months ended
March 31, 2010, is an incremental charge of approximately
$10.6 million recognized related to the modification of
equity based compensation in accordance with the transition
agreement entered into with James C. Mullen, who retired as our
President and Chief Executive Officer on June 8, 2010.
Collaboration
Profit Sharing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended March 31,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
Collaboration profit sharing
|
|
$
|
74.8
|
|
|
$
|
63.6
|
|
|
|
17.7
|
%
|
For the three months ended March 31, 2011, compared to the
same period 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 months ended March 31, 2011
and 2010, our collaboration profit sharing expense included
$13.0 million and $11.4 million, respectively, related
to the reimbursement of third-party royalty payments made by
Elan. 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
|
|
|
Ended March 31,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
Amortization of acquired intangible assets
|
|
$
|
53.2
|
|
|
$
|
48.9
|
|
|
|
8.9
|
%
|
44
Our most significant intangible asset is the core technology
related to our AVONEX product. Our amortization policy reflects
our belief that the economic benefit of our core technology is
consumed as revenue is generated from our AVONEX product. We
refer to this amortization methodology as the economic
consumption model, which involves calculating a ratio of actual
current period sales to total anticipated sales for the life of
the product and applying this ratio to the carrying amount of
the intangible asset. An analysis of the anticipated lifetime
revenue of AVONEX is performed at least annually during our long
range planning cycle, and this analysis serves as the basis for
the calculation of our economic consumption amortization model.
Although we believe this process has allowed us to reliably
determine the best estimate of the pattern in which we will
consume the economic benefits of our core technology intangible
asset, the model could result in deferring amortization charges
to future periods in certain instances, due to continued sales
of the product at a nominal level after patent expiration or
otherwise. In order to ensure that amortization charges are not
unreasonably deferred to future periods, we compare the amount
of amortization determined under the economic consumption model
against the minimum amount of amortization recalculated each
year under the straight-line method and record the higher amount.
We completed our most recent long range planning cycle in the
third quarter of 2010. This analysis is based upon certain
assumptions that we evaluate on a periodic basis, such as the
anticipated product sales of AVONEX and expected impact of
competitor products and our own pipeline product candidates, as
well as the issuance of new patents or the extension of existing
patents. Based upon this analysis, we have continued to amortize
this asset on the economic consumption model.
Based upon our most recent analysis, amortization for acquired
intangible assets is expected to be in the range of
approximately $180.0 million to $220.0 million
annually through 2015.
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.
Restructuring
Charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended March 31,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
Restructuring charge
|
|
$
|
16.6
|
|
|
$
|
|
|
|
|
**
|
|
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 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 our Company.
|
|
|
|
We have substantially completed a 13% reduction in workforce
spanning our sales, research and development, and administrative
functions.
|
|
|
|
We are in the process of vacating the San Diego, California
facility and consolidating our Massachusetts facilities. In
October 2010, we sold the San Diego facility and agreed to lease
back the facility for a period of 15 months. In January
2011, we entered into an agreement to terminate this lease
effective August 31, 2011. For a more detailed description
of these transactions, please read Note 11, Property,
Plant and Equipment to our condensed consolidated financial
statements included within this report.
|
45
We expect to fully realize annual operating expense savings of
approximately $300.0 million beginning in the second half
of 2011 as result of these initiatives. The substantial majority
of the savings will be realized within research and development
and selling, general and administrative expense. These expected
savings may be offset to some degree by costs associated with
initiatives to grow our business.
We expect to incur restructuring charges totaling approximately
$110.0 million associated with the implementation of these
initiatives. Costs associated with our workforce reduction
primarily relate to employee severance and benefits. Facility
consolidation costs are primarily comprised of charges
associated with the closing of 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.
For the three months ended March 31, 2011, we recognized
restructuring charges totaling $16.6 million within our
condensed consolidated statement of income, comprised of
approximately $12.1 million for workforce reduction and
$4.5 million for facility consolidation, of which
$3.5 million relates to additional depreciation. We
previously recognized $75.2 million of restructuring
charges within our consolidated statement of income during the
fourth quarter of 2010. We expect that our restructuring efforts
will be substantially completed, and that substantially all of
the remaining restructuring charges will be incurred and paid by
the end of 2011.
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
|
|
|
10.5
|
|
|
|
0.9
|
|
|
|
11.4
|
|
(Payments) receipts, net
|
|
|
(64.0
|
)
|
|
|
(0.4
|
)
|
|
|
(64.4
|
)
|
Adjustments to previous estimates, net
|
|
|
1.7
|
|
|
|
|
|
|
|
1.7
|
|
Other adjustments
|
|
|
8.6
|
|
|
|
(3.2
|
)
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve as of March 31, 2011
|
|
$
|
17.4
|
|
|
$
|
3.1
|
|
|
$
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
In-Process Research and Development (IPR&D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended March 31,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
Acquired in-process research and development
|
|
$
|
|
|
|
$
|
40.0
|
|
|
|
(100.0
|
)%
|
In connection with our acquisition of Biogen Idec Hemophilia
Inc., formerly Syntonix Pharmaceuticals, Inc. (Syntonix), in
January 2007, we agreed to make additional future consideration
payments based upon the achievement of certain milestone events.
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 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 three months ended March 31, 2010.
Fair
Value Adjustment of Contingent Consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended March 31,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
Fair value adjustment of contingent consideration
|
|
$
|
1.2
|
|
|
$
|
|
|
|
|
|
**
|
In December 2010, we completed our acquisition of 100% of the
stock of Panima Pharmaceuticals AG (Panima), 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 cash consideration payable upon the achievement of
development
46
milestones. 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. As of March 31, 2011, the fair value of the total
contingent consideration obligation was $82.4 million. The
change in fair value of this obligation was primarily due to
changes in the expected timing related to the achievement of
certain developmental milestones and was recognized as a fair
value adjustment of contingent consideration within our
condensed consolidated statement of income for the three months
ended March 31, 2011.
Other
Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Interest income
|
|
$
|
3.7
|
|
|
$
|
8.9
|
|
|
|
(58.4
|
)%
|
Interest expense
|
|
|
(9.2
|
)
|
|
|
(8.3
|
)
|
|
|
10.8
|
%
|
Impairments of investments
|
|
|
(1.2
|
)
|
|
|
(15.8
|
)
|
|
|
(92.4
|
)%
|
Foreign exhange gains (losses), net
|
|
|
(0.4
|
)
|
|
|
1.0
|
|
|
|
(140.0
|
)%
|
Gain on sale of investments, net
|
|
|
15.3
|
|
|
|
5.0
|
|
|
|
206.0
|
%
|
Other, net
|
|
|
1.8
|
|
|
|
0.8
|
|
|
|
125.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
10.0
|
|
|
$
|
(8.4
|
)
|
|
|
219.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
For the three months ended March 31, 2011, compared to the
same period in 2010, interest income decreased primarily due to
lower yields on cash, cash equivalents, and marketable
securities and lower average cash balances.
Interest
Expense
For the three months ended March 31, 2011, compared to the
same period in 2010, interest expense remained relatively
unchanged.
We capitalized interest costs related to construction in
progress totaling approximately $7.5 million, and
$7.8 million for the three months ended March 31, 2011
and 2010, respectively, which reduced our interest expense by
the same amount. Capitalized interest costs are primarily
related to the development of our large-scale biologic
manufacturing facility in Hillerød, Denmark. We plan to
stop further validation on the facility in the near term as we
continue to evaluate our current manufacturing strategy. Upon
completion of the facilitys operational qualification
activities, we plan to cease capitalizing interest expense in
relation to this project unless we move forward to process
validation activities. Recent manufacturing improvements have
resulted in favorable production yields on TYSABRI, that along
with slower than expected TYSABRI growth, have reduced our
expected capacity requirements. As a result, we have decided to
delay the start of manufacturing activities at this site until
additional capacity is required by the business.
Impairment
on Investments
For the three months ended March 31, 2011, we recognized
$1.2 million 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 months ended March 31, 2010, we recognized
$15.8 million in charges for the impairment of our
publicly-held strategic investments, investments in venture
capital funds and investments in privately-held companies, which
was primarily due to one of our strategic investments executing
an equity offering at a price below our cost basis during the
first quarter of 2010.
47
Gain
on Sale of Investments, net
For the three months ended March 31, 2011 and 2010, we
realized net gains of $15.3 million and $5.0 million,
respectively, on the sale of investments. The gains for the
three months ended March 31, 2011 include a gain of
$13.8 million on the sale of stock from our strategic
investment portfolio that was deemed to be no longer strategic.
The gains for the three months ended March 31, 2010 were
due to sales of marketable securities.
Income
Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended March 31,
|
(In millions, except percentages)
|
|
2011
|
|
2010
|
|
Change %
|
|
Effective tax rate on pre-tax income
|
|
|
27.6
|
%
|
|
|
25.5
|
%
|
|
|
8.2
|
%
|
Income tax expense
|
|
$
|
117.5
|
|
|
$
|
75.3
|
|
|
|
56.0
|
%
|
Our effective tax rate fluctuates from year to year due to the
nature of our global 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 increase in our tax rate for the three months ended
March 31, 2011, compared to the same period in 2010, was
primarily a result of an increased percentage of our 2011
profits being earned in higher tax rate jurisdictions,
principally the U.S., due in part to our 2010 restructuring
initiative. In addition, a 2010 reorganization of certain of our
international operations also resulted in a benefit in the first
quarter of 2010, the period of reorganization. These factors
were partially offset by the 2011 settlement of an outstanding
IRS audit matter and an increase in research and development
expenses eligible for orphan drug credit.
For a detailed income tax rate reconciliation for the three
months ended March 31, 2011 and 2010, please read
Note 16, Income Taxes to our condensed consolidated
financial statements included within this report.
Noncontrolling
Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
Ended March 31,
|
(In millions)
|
|
2011
|
|
2010
|
|
Change %
|
|
Net income attributable to noncontrolling interests, net of tax
|
|
$
|
14.4
|
|
|
$
|
2.6
|
|
|
|
453.9
|
%
|
For the three months ended March 31 2011, compared to the same
period in 2010, the change in net income attributable to
noncontrolling interests primarily resulted from the attribution
of a $10.0 million milestone payment due to Knopp, offset
by the attribution of earnings from our foreign joint ventures,
which were relatively consistent in each period.
In April 2011, we submitted an Investigational New Drug
application for
beta-amyloid
removal therapy (BART), which triggered a $15.0 million
milestone payment due to Neurimmune. As we consolidate
Neurimmune, we will recognize this payment as a charge to
noncontrolling interests in the second quarter of 2011.
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
currencies. 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.
48
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. Many countries are
reducing their public expenditures in light of the global
economic downturn and the deterioration of the credit and
economic conditions in certain countries in Europe. As a result,
we expect to see continued efforts to reduce healthcare costs,
particularly in certain of the international markets in which we
operate. 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. 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.
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 generally limited due to the
wide variety of customers and markets using our products, as
well as their dispersion across many different geographic areas.
Our accounts receivable are primarily due from wholesale
distributors, large pharmaceutical companies and public
hospitals. We monitor the financial performance and credit
worthiness of our large customers so that we can properly assess
and respond to changes in their credit profile. We operate in
certain countries where the economic conditions continue to
present significant challenges. We continue to monitor these
conditions, including the volatility associated with
international economies and associated impacts on the relevant
financial markets and our business. Our historical write-offs of
accounts receivable have not been significant.
Within the European Union, our product sales in Italy, Spain 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 throughout 2010. These conditions have resulted in,
and may continue to result in, an increase in the average length
of time that it takes to collect on our accounts receivable
outstanding in these countries. As of March 31, 2011, our
accounts receivable balances in Italy, Spain and Portugal
totaled $141.3 million, $113.9 million and
$28.7 million, respectively, totaling approximately
$283.9 million. Approximately $70.0 million of this
amount was outstanding for greater than one year. As of
March 31, 2011, we had $69.6 million of receivables
that are expected to be collected beyond one year, which are
included as a component of investments and other assets within
our condensed consolidated balance sheet.
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 March 31, 2011, our accounts receivable
balances due from our distributor in Greece totaled
$7.1 million. 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.
49
We believe that our allowance for doubtful accounts was adequate
as of March 31, 2011; however, if significant changes occur
in the availability of government funding or the reimbursement
practices of these or other governments, we may not be able to
collect on amounts due to us from customers in such countries
and our results of operations could be adversely affected.
Financial
Condition and Liquidity
Our financial condition is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
790.7
|
|
|
$
|
759.6
|
|
|
|
4.1
|
%
|
Marketable securities current
|
|
|
437.9
|
|
|
|
448.1
|
|
|
|
(2.3
|
)%
|
Marketable securities non-current
|
|
|
885.4
|
|
|
|
743.1
|
|
|
|
19.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
2,114.0
|
|
|
$
|
1,950.8
|
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of notes payable, line of credit and other
financing arrangements
|
|
$
|
134.8
|
|
|
$
|
137.2
|
|
|
|
(1.7
|
)%
|
Notes payable and line of credit
|
|
|
1,065.6
|
|
|
|
1,066.4
|
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
1,200.4
|
|
|
$
|
1,203.5
|
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
2,628.3
|
|
|
$
|
2,540.4
|
|
|
|
3.5
|
%
|
Current liabilities
|
|
|
(978.8
|
)
|
|
|
(1,050.1
|
)
|
|
|
(6.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
1,649.5
|
|
|
$
|
1,490.3
|
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2011, certain
significant cash flows were as follows:
|
|
|
|
|
$195.3 million used for share repurchases;
|
|
|
|
$120.6 million in net proceeds used for the purchase of
marketable securities;
|
|
|
|
$91.2 million in proceeds from the issuance of stock for
share-based compensation arrangements;
|
|
|
|
$39.8 million in proceeds received on the sale of a
strategic investment; and
|
|
|
|
$32.1 million used for purchases of property, plant and
equipment.
|
For the three months ended March 31, 2010, certain
significant cash flows were as follows:
|
|
|
|
|
$577.6 million used for share repurchases;
|
|
|
|
$329.6 million in net proceeds received on sales and
maturities of marketable securities;
|
|
|
|
$52.8 million in proceeds from the issuance of stock for
share-based compensation arrangements;
|
|
|
|
$40.0 million payment made to the former shareholders of
Syntonix recognized as IPR&D expense; and
|
|
|
|
$38.2 million used for purchases of property, plant and
equipment.
|
We have historically financed our operating and capital
expenditures primarily through positive cash flows earned
through our operations. We expect to continue funding our
current and planned operating requirements principally through
our cash flows from operations, as well as our existing cash
resources. We believe that existing funds, when combined with
cash generated from operations and our access to additional
financing resources, if needed, are sufficient to satisfy our
operating, working capital, strategic alliance,
50
milestone payment, capital expenditure and debt service
requirements for the foreseeable future. In addition, we may
choose to opportunistically return cash to shareholders and
pursue other business initiatives, including acquisition and
licensing activities. We may, from time to time, also seek
additional funding through a combination of new collaborative
agreements, strategic alliances and additional equity and debt
financings or from other sources should we identify a
significant new opportunity.
We consider the unrepatriated cumulative earnings of certain of
our foreign subsidiaries to be invested indefinitely outside the
U.S. Of the total cash, cash equivalents and marketable
securities at March 31, 2011, approximately
$0.9 billion was generated from operations in foreign
jurisdictions and is intended for use in our foreign operations.
In managing our
day-to-day
liquidity in the U.S., we do not rely on the unrepatriated
earnings as a source of funds and we have not provided for
U.S. federal or state income taxes on these undistributed
foreign earnings.
For additional information related to certain risks that could
negatively impact our financial position or future results of
operations, please read the Risk Factors and
Quantitative and Qualitative Disclosures About Market
Risk sections of this report.
Preferred
Stock
In March 2011, 8,221 shares of our Series A Preferred
Stock, which represented all preferred shares outstanding, were
converted into shares of common stock by the holder pursuant to
the conversion terms of the Series A Preferred Stock. As a
result we issued 493,260 shares of common stock and no
other shares of Preferred Stock remain issued and outstanding as
of March 31, 2011.
Share
Repurchase Programs
In February 2011, our Board of Directors authorized the
repurchase of up to 20 million shares of our common stock.
We expect to use this repurchase program principally to offset
common stock issuance under our share-based compensation plans.
This repurchase program does not have an expiration date. Under
this authorization, we repurchased approximately
2.8 million shares of our common stock at a cost of
$195.3 million during the first quarter of 2011. From
April 1, 2011 through April 21, 2011, we repurchased
an additional 1.0 million shares under this program at a
total cost of $75.7 million. Approximately
16.2 million shares remain available for repurchase under
the 2011 repurchase program.
In October 2009, our Board of Directors authorized the
repurchase of up to $1.0 billion of our common stock with
the objective of reducing shares outstanding. This repurchase
program was completed in the first quarter of 2010. For the
three months ended March 31, 2010, we repurchased
approximately 10.5 million shares of our common stock at a
cost of $577.6 million under our 2009 authorization. We
retired these shares as they were acquired.
Cash,
Cash Equivalents and Marketable Securities
Until required for another use in our business, we invest our
cash reserves in bank deposits, certificates of deposit,
commercial paper, corporate notes, U.S. and foreign
government instruments and other interest bearing marketable
debt instruments in accordance with our investment policy. We
mitigate credit risk in our cash reserves and marketable
securities by maintaining a well diversified portfolio that
limits the amount of investment exposure as to institution,
maturity, and investment type. The value of our investments,
however, may be adversely affected by increases in interest
rates, downgrades in the credit rating of the corporate bonds
included in our portfolio, instability in the global financial
markets that reduces the liquidity of securities included in our
portfolio, and by other factors which may result in declines in
the value of the investments. Each of these events may cause us
to record charges to reduce the carrying value of our investment
portfolio if the declines are
other-than-temporary
or sell investments for less than our acquisition cost which
could adversely impact our financial position and our overall
liquidity. For a summary of the fair value and valuation methods
of our marketable securities please read Note 8, Fair
Value Measurements to our condensed consolidated financial
statements included within this report.
51
The increase in cash, cash equivalents and marketable securities
from December 31, 2010, is primarily due to cash flows
provided by operations, proceeds from the issuance of stock for
share-based compensation arrangements, and proceeds received
from the sale of a strategic investment offset by share
repurchases and purchases of property, plant and equipment.
Borrowings
There have been no significant changes in our borrowings since
December 31, 2010.
We have a $360.0 million senior unsecured revolving credit
facility, which we may choose to use for future working capital
and general corporate purposes. The terms of this revolving
credit facility include various covenants, including financial
covenants that require us to not exceed a maximum leverage ratio
and, under certain circumstances, an interest coverage ratio.
This facility terminates in June 2012. No borrowings have ever
been made under this credit facility and as of March 31,
2011 and December 31, 2010 we were in compliance with all
applicable covenants.
For a summary of the fair and carrying value of our outstanding
borrowings as of March 31, 2011 and December 31, 2010,
please read Note 8, Fair Value Measurements to our
condensed consolidated financial statements included within this
report.
Working
Capital
We define working capital as current assets less current
liabilities. The increase in working capital from
December 31, 2010, primarily reflects the overall net
increase in total current assets of $87.9 million and
overall net decrease in total current liabilities of
$71.3 million.
The increase in total current assets was primarily due to the
increase in accounts receivable, net. The reduction in total
current liabilities primarily reflects the net decrease in
amounts included within accrued expenses and other. This
decrease was primarily related to the payment of 2010 annual
bonus amounts due to employees, a reduction in accrued
restructuring costs payable and the payment of interest on our
Senior Notes, which is payable March 1 and September 1 of each
year, offset by an increase in reserves established for rebates
and allowances related to the U.S. healthcare reform
legislation.
Cash
Flows
The following table summarizes our cash flow activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
(In millions, except percentages)
|
|
2011
|
|
|
2010
|
|
|
Change %
|
|
|
Net cash flows provided by operating activities
|
|
$
|
253.6
|
|
|
$
|
336.9
|
|
|
|
(24.7
|
)%
|
Net cash flows (used in) provided by investing activities
|
|
$
|
(126.8
|
)
|
|
$
|
249.7
|
|
|
|
(150.8
|
)%
|
Net cash flows used in financing activities
|
|
$
|
(99.8
|
)
|
|
$
|
(523.5
|
)
|
|
|
80.9
|
%
|
Operating
Activities
Cash flows from operating activities represent the cash receipts
and disbursements related to all of our activities other than
investing and financing activities. Cash provided by operating
activities is primarily driven by our earnings and changes in
working capital. We expect cash provided from operating
activities will continue to be our primary source of funds to
finance operating needs and capital expenditures for the
foreseeable future.
Operating cash flow is derived by adjusting our net income for:
|
|
|
|
|
Non-cash operating items such as depreciation and amortization,
impairment charges and share-based compensation charges;
|
|
|
|
Changes in operating assets and liabilities which reflect timing
differences between the receipt and payment of cash associated
with transactions and when they are recognized in results of
operations; and
|
52
|
|
|
|
|
Changes associated with the payment of contingent milestones
associated with our prior acquisitions of businesses.
|
The decrease in cash provided by operating activities for the
three months ended March 31, 2011, compared to the same
period in 2010, was primarily driven by an increase in accounts
receivable and receivables due from unconsolidated joint
business offset by increased revenues.
Investing
Activities
For the three months ended March 31, 2011, compared to the
same period in the prior year, the decrease in net cash flows
provided by investing activities is primarily due to net
purchases of marketable securities totaling $120.6 million
during the first quarter of 2011 compared to net proceeds
received from sales and maturities of marketable securities of
$329.6 million in the prior year comparative period.
Financing
Activities
The decrease in net cash flows used in financing activities is
due principally to decreases in the amounts of our common stock
we repurchased compared to the same period in 2010. For the
three months ended March 31, 2011, we repurchased
approximately 2.8 million shares of our common stock for
approximately $195.3 million compared to 10.5 million
shares for approximately $577.6 million for the three
months ended March 31, 2010.
Cash used in financing activities also includes activity under
our employee stock plans. We received $91.2 million during
the first three months of 2011 and $52.8 million during the
first three months of 2010 related to stock option exercises and
stock issuances under our employee stock purchase plan.
Contractual
Obligations and Off-Balance Sheet Arrangements
Contractual
Obligations
Our contractual obligations primarily consist of our obligations
under non-cancellable operating leases, our notes payable and
line of credit and other purchase obligations, excluding amounts
related to uncertain tax positions, amounts payable to tax
authorities, funding commitments, contingent milestone payments,
contingent consideration, our financing arrangement related to
the San Diego facility and other off-balance sheet
arrangements as described below.
There have been no other significant changes in our contractual
obligations since December 31, 2010.
Financing
Arrangement
As described in Note 11 Property, Plant &
Equipment to our condensed consolidated financial statements
included within this report, on October 1, 2010, we sold
the San Diego facility and agreed to lease back the
facility for a period of 15 months. We have accounted for
these transactions as a financing arrangement and recorded an
obligation of $127.0 million on that date. As of
March 31, 2011, our remaining obligation was
$125.0 million, which is reflected as a component of
current portion of notes payable, line of credit and other
financing arrangements within our condensed consolidated balance
sheet.
In January 2011, we entered into an agreement to terminate our
15 month lease of the San Diego facility in
August 31, 2011 and will have no continuing involvement or
remaining obligation after that date. Once the lease arrangement
has concluded we will account for the San Diego facility as
a sale of property and we do not expect to recognize a
significant gain or loss on the sale at that time. We are
scheduled to incur debt service payments and interest totaling
approximately $6.9 million over the term of the revised
leaseback period.
Tax
Related Obligations
We exclude liabilities pertaining to uncertain tax positions
from our summary of contractual obligations as we cannot make a
reliable estimate of the period of cash settlement with the
respective taxing authorities. As of March 31, 2011, we
have approximately $87.0 million of liabilities associated
with uncertain tax positions.
53
Included in these liabilities are amounts related to the
settlement of our federal audit in the fourth quarter of 2009.
As of March 31, 2011, we expect to pay approximately
$30.1 million within the next six months.
Other
Funding Commitments
As of March 31, 2011, we have funding commitments of up to
approximately $18.6 million as part of our investment in
biotechnology oriented venture capital investments.
As of March 31, 2011, we have several ongoing clinical
studies in various clinical trial stages. Our most significant
clinical trial expenditures are to clinical research
organizations (CROs). The contracts with CROs are generally
cancellable, with notice, at our option. We have recorded
accrued expenses of $18.3 million on our condensed
consolidated balance sheet for expenditures incurred by CROs as
of March 31, 2011. We have approximately
$287.3 million in cancellable future commitments based on
existing CRO contracts as of March 31, 2011, which are not
included in the contractual obligations table above because of
our termination rights.
Contingent
Milestone Payments
Based on our development plans as of March 31, 2011, we
have committed to make potential future milestone payments to
third parties of up to approximately $1.4 billion as part
of our various collaborations, including licensing and
development programs. Payments under these agreements generally
become due and payable only upon achievement of certain
development, regulatory or commercial milestones. Because the
achievement of these milestones had not occurred as of
March 31, 2011, such contingencies have not been recorded
in our financial statements.
We anticipate that we may pay approximately $25.0 million
of additional milestone payments during the remainder of 2011,
provided various development, regulatory or commercial
milestones are achieved. Amounts related to contingent milestone
payments are not considered contractual obligations as they are
contingent on the successful achievement of certain development,
regulatory approval and commercial milestones. These milestones
may not be achieved.
Contingent
Consideration
In connection with our acquisitions of Panima Pharmaceuticals
AG, Biogen Idec Hemophilia, Inc., and Fumapharm AG, we agreed to
make additional consideration payments based upon the
achievement of certain milestone events. Amounts related to
contingent consideration obligations are not considered
contractual obligations as they generally become due and payable
only when a contingency is satisfied. These milestones may not
be achieved.
We completed our acquisition of Panima Pharmaceuticals AG
(Panima) in the fourth quarter of 2010. The purchase price for
Panima included contingent consideration in the form of
developmental milestones up to $395.0 million in cash. For
additional information related to our acquisition of Panima,
please read Note 2, Acquisitions to our condensed
consolidated financial statements included within this report.
In connection with our acquisition of Biogen Idec Hemophilia
Inc. (BIH), formerly Syntonix Pharmaceuticals, Inc. (Syntonix),
in January 2007, we agreed to make additional future
consideration payments in the total amount of
$80.0 million, $40.0 million each, respectively, based
upon the achievement of certain milestone events associated with
the development of BIHs lead product, long-lasting
recombinant Factor IX. The first $40.0 million contingent
payment was achieved in the first quarter of 2010.
$20.0 million of the second contingent payment will occur
if prior to the tenth anniversary of the closing date the FDA
grants approval of a Biologic License Application for Factor IX.
An additional $20.0 million second contingent payment will
occur if prior to the tenth anniversary of the closing date, a
marketing authorization is granted by EMA for Factor IX.
In 2006, we acquired Fumapharm AG. As part of this acquisition
we acquired FUMADERM and BG-12 (Fumapharm Products). 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 based on sales of Fumapharm
Products in any indication. These milestone payments are
considered contingent consideration. For additional discussion
regarding the amount of potential additional
54
consideration payments, please read the subsection entitled
Key Pipeline Development BG-12 in
the Managements Discussion and Analysis of
Financial Condition and Results of Operations section
of this report.
Other
Off-Balance Sheet Arrangements
We do not have any relationships with entities often referred to
as structured finance or special purpose entities which would
have been established for the purpose of facilitating
off-balance sheet arrangements. As such, we are not exposed to
any financing, liquidity, market or credit risk that could arise
if we had engaged in such relationships. We consolidate variable
interest entities if we are the primary beneficiary.
Legal
Matters
For a discussion of legal matters as of March 31, 2011,
please read Note 19, Litigation to our condensed
consolidated financial statements included within this report.
New
Accounting Standards
For a discussion of new accounting standards please read
Note 21, New Accounting Pronouncements to our
condensed consolidated financial statements included within this
report.
Critical
Accounting Estimates
The preparation of our condensed consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the
U.S. (U.S. GAAP), requires us 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. We believe the
most complex judgments result primarily from the need to make
estimates about the effects of matters that are inherently
uncertain and are significant to our condensed consolidated
financial statements. We base our estimates on historical
experience and on various other assumptions that we believe are
reasonable, the results of which form the basis for making
judgments about the carrying values of assets and liabilities.
We evaluate our estimates, judgments and assumptions on an
ongoing basis. Actual results may differ from these estimates
under different assumptions or conditions.
For a discussion of our critical accounting estimates, please
read Part II, Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations of our 2010
Form 10-K.
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Item 3.
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Quantitative
and Qualitative Disclosures About Market Risk
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Our market risks, and the ways we manage them, are summarized in
Part II, Item 7A, Quantitative and
Qualitative Disclosures About Market Risk of our 2010
Form 10-K.
There have been no material changes in the first three months of
2011 to our market risks or to our management of such risks.
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Item 4.
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Controls
and Procedures
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Disclosure
Controls and Procedures and Internal Control over Financial
Reporting
Controls
and Procedures
We have carried out an evaluation, under the supervision and
with the participation of our management, including our
principal executive officer and principal financial officer, of
the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended), as of
March 31, 2011. Based upon that evaluation, our principal
executive officer and principal financial officer concluded
that, as of the end of the period covered by this report, our
disclosure controls and procedures are effective in ensuring
that (a) the information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange
Act is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms, and
(b) such information is accumulated and communicated to our
management, including our principal executive officer and
principal financial officer, as appropriate to allow
55
timely decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, our
management recognized that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the quarter ended March 31, 2011 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Part II
OTHER INFORMATION
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Item 1.
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Legal
Proceedings
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Please refer to Note 19, Litigation to our condensed
consolidated financial statements included within this report,
which is incorporated into this item by reference.
We are
substantially dependent on revenues from our three principal
products.
Our current and future revenues depend upon continued sales of
our three principal products, AVONEX, RITUXAN and TYSABRI, which
represented substantially all of our total revenues during the
first quarter of 2011. Although we have developed and continue
to develop additional products for commercial introduction, we
may be substantially dependent on sales from these three
products for many years. Any negative developments relating to
any of these products, such as safety or efficacy issues, the
introduction or greater acceptance of competing products,
including biosimilars, or adverse regulatory or legislative
developments, may reduce our revenues and adversely affect our
results of operations. New competing products for use in
multiple sclerosis are beginning to enter the market and if they
have a similar or more attractive profile in terms of efficacy,
convenience or safety, future sales of AVONEX and TYSABRI could
be limited, which would reduce our revenues.
TYSABRIs
sales growth is important to our success.
We expect that our revenue growth over the next several years
will be dependent in part upon sales of TYSABRI. If we are not
successful in growing sales of TYSABRI, our future business
plans, revenue growth and results of operations may be adversely
affected.
TYSABRIs sales growth cannot be certain given the
significant restrictions on use and the significant safety
warnings in the label, including the risk of developing
progressive multifocal leukoencephalopathy (PML), a serious
brain infection. The risk of developing PML increases with prior
immunosuppressant use, which may cause patients who have
previously received immunosuppressants or their physicians to
refrain from using or prescribing TYSABRI. The risk of
developing PML also increases with longer treatment duration,
with limited experience beyond four years. This may cause
prescribing physicians or patients to suspend treatment with
TYSABRI. Increased incidences of PML could limit sales growth,
prompt regulatory review, require significant changes to the
label or result in market withdrawal. Additional regulatory
restrictions on the use of TYSABRI or safety-related label
changes, including enhanced risk management programs, whether as
a result of additional cases of PML or otherwise, may
significantly reduce expected revenues and require significant
expense and management time to address the associated legal and
regulatory issues. In addition, ongoing or future clinical
trials involving TYSABRI and efforts at stratifying patients
into groups with lower or higher risk for developing PML,
including evaluating the potential clinical utility of a JC
virus antibody assay, may have an adverse impact on prescribing
behavior and reduce sales of TYSABRI.
56
If we
fail to compete effectively, our business and market position
would suffer.
The biotechnology and pharmaceutical industry is intensely
competitive. We compete in the marketing and sale of our
products, the development of new products and processes, the
acquisition of rights to new products with commercial potential
and the hiring and retention of personnel. We compete with
biotechnology and pharmaceutical companies that have a greater
number of products on the market and in the product pipeline,
greater financial and other resources and other technological or
competitive advantages. One or more of our competitors may
benefit from significantly greater sales and marketing
capabilities, may develop products that are accepted more widely
than ours and may receive patent protection that dominates,
blocks or adversely affects our product development or business.
In addition, healthcare reform legislation enacted in the
U.S. in 2010 has created a pathway for the U.S. Food
and Drug Administration (FDA) to approve biosimilars, which
could compete on price and differentiation with products that we
now or could in the future market. The introduction of more
efficacious, safer, cheaper, or more convenient alternatives to
our products could reduce our revenues and the value of our
product development efforts.
Our
long-term success depends upon the successful development and
commercialization of other product candidates.
Our long-term viability and growth will depend upon the
successful development and commercialization of new products
from our research and development activities, including products
licensed from third parties. We have several late-stage clinical
programs expected to have near-term data readouts that could
impact our prospects for additional revenue growth. Product
development and commercialization are very expensive and involve
a high degree of risk. Only a small number of research and
development programs result in the commercialization of a
product. Success in preclinical work or early stage clinical
trials does not ensure that later stage or larger scale clinical
trials will be successful. Even if later stage clinical trials
are successful, product candidates may not receive marketing
approval if regulatory authorities disagree with our view of the
data or require additional studies.
Conducting clinical trials is a complex, time-consuming and
expensive process. Our ability to complete our clinical trials
in a timely fashion depends in large part on a number of key
factors including protocol design, regulatory and institutional
review board approval, the rate of patient enrollment in
clinical trials, and compliance with extensive current good
clinical practice requirements. We have opened clinical sites
and are enrolling patients in a number of new countries where
our experience is more limited, and we are in many cases using
the services of third-party clinical trial providers. If we fail
to adequately manage the design, execution and regulatory
aspects of our large, complex and diverse clinical trials, our
studies and ultimately our regulatory approvals may be delayed
or we may fail to gain approval for our product candidates
altogether.
Our product pipeline includes several small molecule drug
candidates. Our small molecule drug discovery platform is not as
well developed as our biologics platform and we expect to rely
on third party manufacturers to supply substantially all of our
clinical requirements for small molecules. If these
manufacturers fail to deliver sufficient quantities of such drug
candidates in a timely and cost-effective manner, it could
adversely affect our small molecule drug discovery efforts.
Adverse
safety events can negatively affect our business and stock
price.
Adverse safety events involving our marketed products may have a
negative impact on our commercialization efforts. Later
discovery of safety issues with our products that were not known
at the time of their approval by the FDA or other regulatory
agencies worldwide could cause product liability events,
additional regulatory scrutiny and requirements for additional
labeling, withdrawal of products from the market and the
imposition of fines or criminal penalties. Any of these actions
could result in, among other things, material write-offs of
inventory and impairments of intangible assets, goodwill and
fixed assets and material restructuring charges. In addition,
the reporting of adverse safety events involving our products
and public rumors about such events could cause our stock price
to decline or experience periods of volatility.
57
We
depend, to a significant extent, on reimbursement from third
party payors and a reduction in the extent of reimbursement
could reduce our product sales and revenue.
Sales of our products are dependent, in large part, on the
availability and extent of reimbursement from government health
administration authorities, private health insurers and other
organizations. Changes in government regulations or private
third-party payors reimbursement policies may reduce
reimbursement for our products and adversely affect our future
results. In addition, when a new medical product is approved,
the availability of government and private reimbursement for
that product is uncertain, as is the amount for which that
product will be reimbursed. We cannot predict the availability
or amount of reimbursement for our product candidates.
The U.S. Congress enacted legislation in 2010 to reform the
health care system. This legislation imposes cost containment
measures that have adversely affected the amount of
reimbursement for our products and may negatively affect our
revenues and prospects for profitability in the future. For a
more detailed description of this legislations impact on
our business, please read Managements Discussion and
Analysis of Financial Condition and Results of Operations
within this report.
Economic pressure on state budgets may result in states
increasingly seeking to achieve budget savings through
mechanisms that limit coverage or payment for our drugs. In
recent years, some states have considered legislation that would
control the prices of drugs. State Medicaid programs are
increasingly requesting manufacturers to pay supplemental
rebates and requiring prior authorization by the state program
for use of any drug for which supplemental rebates are not being
paid. Managed care organizations continue to seek price
discounts and, in some cases, to impose restrictions on the
coverage of particular drugs. Government efforts to reduce
Medicaid expenses may lead to increased use of managed care
organizations by Medicaid programs. This may result in managed
care organizations influencing prescription decisions for a
larger segment of the population and a corresponding constraint
on prices and reimbursement for our products. It is likely that
federal and state legislatures and health agencies will continue
to focus on additional health care reform in the future.
We encounter similar regulatory and legislative issues in most
other countries. In the European Union and some other
international markets, the government provides health care at
low cost to consumers and regulates pharmaceutical prices,
patient eligibility or reimbursement levels to control costs for
the government-sponsored health care system. Many countries are
reducing their public expenditures and we expect to see strong
efforts to reduce healthcare costs in our international markets,
including patient access restrictions, suspensions on price
increases, prospective and possibly retroactive price reductions
and increased mandatory discounts or rebates, recoveries of past
price increases, and greater importation of drugs from
lower-cost countries to higher-cost countries. We expect that
our revenues would be negatively impacted if similar measures
are or continued to be implemented in other countries in which
we operate. In addition, certain countries set prices by
reference to the prices in other countries where our products
are marketed. Thus, our inability to secure adequate prices in a
particular country may also adversely affect our ability to
obtain acceptable prices in both existing and potential new
markets. This may create the opportunity for third party cross
border trade or influence our decision to sell or not to sell a
product, thus adversely affecting our geographic expansion plans
and revenues.
Adverse
market and economic conditions may exacerbate certain risks
affecting our business.
Sales of our products are dependent on reimbursement from
government health administration authorities, private health
insurers, distribution partners and other organizations. As a
result of adverse conditions affecting the U.S. and global
economies and credit and financial markets, including the
current sovereign debt crisis in certain countries in Europe and
disruptions due to natural disasters, political instability or
otherwise, these organizations may be unable to satisfy their
reimbursement obligations or may delay payment. In addition,
governmental health authorities may reduce the extent of
reimbursements, and private insurers may increase their scrutiny
of claims. A reduction in the availability or extent of
reimbursement could reduce our product sales and revenue, or
result in additional allowances or significant bad debts, which
may adversely affect our results of operations.
58
We
depend on collaborators and other third-parties for both product
and royalty revenue and the clinical development of future
products, which are outside of our full control.
Collaborations between companies on products or programs are a
common business practice in the biotechnology industry.
Out-licensing typically allows a partner to collect up front
payments and future milestone payments, share the costs of
clinical development and risk of failure at various points, and
access sales and marketing infrastructure and expertise in
exchange for certain financial rights to the product or program
going to the in-licensing partner. In addition, the obligation
of in-licensees to pay royalties or share profits generally
terminates upon expiration of the related patents. We have a
number of collaborators and partners, and have both in-licensed
and out-licensed several products and programs. These
collaborations are subject to several risks:
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Our RITUXAN revenues are dependent on the efforts of Genentech
and the Roche Group. Their interests may not always be aligned
with our interests and they may not market RITUXAN in the same
manner or to the same extent that we would, which could
adversely affect our RITUXAN revenues.
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Under our collaboration agreement with Genentech, the successful
development and commercialization of GA101 and certain other
anti-CD20 products will decrease our percentage of the
collaborations co-promotion profits.
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We are not fully in control of the royalty or profit sharing
revenues we receive from collaborators, which may be adversely
affected by patent expirations, pricing or health care reforms,
other legal and regulatory developments, and the introduction of
competitive products, and new indication approvals which may
affect the sales of collaboration products.
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Any failure on the part of our collaboration partners to comply
with applicable laws and regulatory requirements in the sale and
marketing of our products could have an adverse effect on our
revenues as well as involve us in possible legal proceedings.
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Collaborations often require the parties to cooperate, and
failure to do so effectively could have an adverse impact on
product sales by our collaborators and partners, and could
adversely affect the clinical development or regulatory
approvals of products under joint control.
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In addition, we rely on third parties for several other aspects
of our business. As a sponsor of clinical trials of our
products, we rely on third party contract research organizations
to carry out many of our clinical trial related activities.
These activities include initiating the conduct of studies at
clinical trial sites, regularly monitoring the conduct of the
study at study sites, and identifying instances of noncompliance
with the study protocol or current Good Clinical Practices. The
failure of a contract research organization to conduct these
activities with proper vigilance and competence and in
accordance with Good Clinical Practices can result in regulatory
authorities rejecting our clinical trial data or, in some
circumstances, the imposition of civil or criminal sanctions
against us.
If we
do not successfully execute our growth initiatives through the
acquisition, partnering and in-licensing of products,
technologies or companies, our future performance could be
adversely affected.
We anticipate growing through both internal development projects
as well as external opportunities, which include the
acquisition, partnering and in-licensing of products,
technologies and companies or the entry into strategic alliances
and collaborations. The availability of high quality
opportunities is limited and we are not certain that we will be
able to identify candidates that we and our shareholders
consider suitable or complete transactions on terms that are
acceptable to us and our shareholders. In order to pursue such
opportunities, we may require significant additional financing,
which may not be available to us on favorable terms, if at all.
Even if we are able to successfully identify and complete
acquisitions, we may not be able to integrate them or take full
advantage of them and therefore may not realize the benefits
that we expect. If we are unsuccessful in our external growth
program, we may not be able to grow our business significantly
and we may incur asset impairment or restructuring charges as a
result of unsuccessful transactions.
59
If we
fail to comply with the extensive legal and regulatory
requirements affecting the health care industry, we could face
increased costs, penalties and a loss of business.
Our activities, and the activities of our collaborators and
third party providers, are subject to extensive government
regulation and oversight both in the U.S. and in foreign
jurisdictions. The FDA and comparable agencies in other
jurisdictions directly regulate many of our most critical
business activities, including the conduct of preclinical and
clinical studies, product manufacturing, advertising and
promotion, product distribution, adverse event reporting and
product risk management. Our interactions in the U.S. or
abroad with physicians and other health care providers that
prescribe or purchase our products are also subject to
government regulation designed to prevent fraud and abuse in the
sale and use of the products. In the U.S., states increasingly
have been placing greater restrictions on the marketing
practices of health care companies. In addition, pharmaceutical
and biotechnology companies have been the target of lawsuits and
investigations alleging violations of government regulation,
including claims asserting submission of incorrect pricing
information, impermissible off-label promotion of pharmaceutical
products, payments intended to influence the referral of federal
or state health care business, submission of false claims for
government reimbursement, antitrust violations, or violations
related to environmental matters. Violations of governmental
regulation may be punishable by criminal and civil sanctions
against us, including fines and civil monetary penalties and
exclusion from participation in government programs, including
Medicare and Medicaid, as well as against executives overseeing
our business. In addition to penalties for violation of laws and
regulations, we could be required to repay amounts we received
from government payors, or pay additional rebates and interest
if we are found to have miscalculated the pricing information we
have submitted to the government. Whether or not we have
complied with the law, an investigation into alleged unlawful
conduct could increase our expenses, damage our reputation,
divert management time and attention and adversely affect our
business. Recent changes in U.S. fraud and abuse laws have
strengthened government regulation, increased the investigative
powers of government enforcement agencies, and enhanced
penalties for non-compliance.
If we
fail to meet the stringent requirements of governmental
regulation in the manufacture of our products, we could incur
substantial costs and a reduction in sales.
We and our third party providers are generally required to
maintain compliance with current Good Manufacturing Practice and
are subject to inspections by the FDA and comparable agencies in
other jurisdictions to confirm such compliance. In addition, the
FDA must approve any significant changes to our suppliers or
manufacturing methods. If we or our third party service
providers cannot demonstrate ongoing current Good Manufacturing
Practice compliance, we may be required to withdraw or recall
product, interrupt commercial supply of our products, undertake
costly remediation efforts or seek more costly manufacturing
alternatives. Any delay, interruption or other issues that arise
in the manufacture, fill-finish, packaging, or storage of our
products as a result of a failure of our facilities or the
facilities or operations of third parties to pass any regulatory
agency inspection could significantly impair our ability to
develop and commercialize our products. Significant
noncompliance could also result in the imposition of monetary
penalties or other civil or criminal sanctions. This
non-compliance could increase our costs, cause us to lose
revenue or market share and damage our reputation.
Our
investments in properties, including our manufacturing
facilities, may not be fully realizable.
We own or lease real estate primarily consisting of buildings
that contain research laboratories, office space, and biologic
manufacturing operations, some of which are located in markets
that are experiencing high vacancy rates and decreasing property
values. If we decide to consolidate or co-locate certain aspects
of our business operations, for strategic or other operational
reasons, we may dispose of one or more of our properties.
Due to reduced expectations of product demand, improved yields
on production and other factors, we may not fully utilize our
manufacturing facilities at normal levels resulting in idle time
at facilities or substantial excess manufacturing capacity. We
regularly evaluate our current manufacturing strategy, and may
pursue alternatives that include disposing of manufacturing
facilities.
60
If we determine that the fair value of any of our owned
properties, including any properties we may classify as held for
sale, is lower than their book value we may not realize the full
investment in these properties and incur significant impairment
charges. In addition, if we decide to fully or partially vacate
a leased property, we may incur significant cost, including
lease termination fees, rent expense in excess of sublease
income and impairment of leasehold improvements.
Problems
with manufacturing or with inventory planning could result in
inventory shortages, product recalls and increased
costs.
Biologics manufacturing is extremely susceptible to product loss
due to contamination, equipment failure, or vendor or operator
error. In addition, we may need to close a manufacturing
facility for an extended period of time due to microbial, viral
or other contamination. Any of these events could result in
shipment delays or product recalls, impairing our ability to
supply products in existing markets or expand into new markets.
In the past, we have taken inventory write-offs and incurred
other charges and expenses for products that failed to meet
specifications, and we may incur similar charges in the future.
We rely solely on our manufacturing facility in Research
Triangle Park, North Carolina for the production of TYSABRI. Our
global bulk supply of TYSABRI depends on the uninterrupted and
efficient operation of this facility, which could be adversely
affected by equipment failures, labor shortages, natural
disasters, power failures and numerous other factors. If we are
unable to meet demand for TYSABRI for any reason, we would need
to rely on a limited number of qualified third party contract
manufacturers. We cannot be certain that we could reach
agreement on reasonable terms, if at all, with those
manufacturers or that the FDA or other regulatory authorities
would approve our use of such manufacturers on a timely basis,
if at all. Moreover, the transition of our manufacturing process
to a third party could take a significant amount of time,
involve significant expense and increase our manufacturing costs.
We
rely on third parties to provide services in connection with the
manufacture of our products and, in some instances, manufacture
the product itself.
We rely on Genentech for all RITUXAN manufacturing. Genentech
relies on a third party to manufacture certain bulk RITUXAN
requirements. If Genentech or any third party upon which it
relies does not manufacture or fill- finish RITUXAN in
sufficient quantities and on a timely and cost-effective basis,
or if Genentech or any third party does not obtain and maintain
all required manufacturing approvals, our business could be
harmed.
We also source all of our fill-finish and the majority of our
final product storage operations, along with a substantial
portion of our packaging operations, to a concentrated group of
third party contractors. Any third party we use to fill-finish,
package or store our products to be sold in the U.S. must
be licensed by the FDA. As a result, alternative third party
providers may not be readily available on a timely basis or, if
available, may be more costly than current providers. The
manufacture of products and product components, fill-finish,
packaging and storage of our products require successful
coordination among us and multiple third party providers. Our
inability to coordinate these efforts, the lack of capacity
available at a third party contractor or any other problems with
the operations of these third party contractors could require us
to delay shipment of products or recall products previously
shipped or impair our ability to supply products at all. This
could increase our costs, cause us to lose revenue or market
share, diminish our profitability or damage our reputation.
Due to the unique manner in which our products are manufactured,
we rely on single source providers of several raw materials. We
make efforts to qualify new vendors and to develop contingency
plans so that production is not impacted by short-term issues
associated with single source providers. Nonetheless, our
business could be materially impacted by long-term or chronic
issues associated with single source providers.
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Changes
in laws affecting the health care industry could adversely
affect our revenues and profitability.
We and our collaborators and third party providers operate in a
highly regulated industry. As a result, governmental actions may
adversely affect our business, operations or financial
condition, including:
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new laws, regulations or judicial decisions, or new
interpretations of existing laws, regulations or decisions,
related to health care availability, pricing or marketing
practices, compliance with wage and hour laws and other
employment practices, method of delivery and payment for health
care products and services;
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changes in the FDA and foreign regulatory approval processes
that may delay or prevent the approval of new products and
result in lost market opportunity;
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changes in FDA and foreign regulations that may require
additional safety monitoring, labeling changes, restrictions on
product distribution or use, or other measures after the
introduction of our products to market, which could increase our
costs of doing business, adversely affect the future permitted
uses of approved products, or otherwise adversely affect the
market for our products; and
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changes in the tax laws relating to our operations.
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The enactment in the U.S. of health care reform, potential
regulations easing the entry of competing follow-on biologics in
the marketplace, new legislation or implementation of existing
statutory provisions on importation of lower-cost competing
drugs from other jurisdictions, and legislation on comparative
effectiveness research are examples of previously enacted and
possible future changes in laws that could adversely affect our
business.
Our
effective tax rate may fluctuate and we may incur obligations in
tax jurisdictions in excess of accrued amounts.
As a global biotechnology company, we are subject to taxation in
numerous countries, states and other jurisdictions. As a result,
our effective tax rate is derived from a combination of
applicable tax rates in the various places that we operate. In
preparing our financial statements, we estimate the amount of
tax that will become payable in each of such places. Our
effective tax rate, however, may be different than experienced
in the past due to numerous factors, including changes in the
mix of our profitability from country to country, the results of
audits of our tax filings, changes in accounting for income
taxes and changes in tax laws. Any of these factors could cause
us to experience an effective tax rate significantly different
from previous periods or our current expectations.
In addition, our inability to secure or sustain acceptable
arrangements with tax authorities and previously enacted or
future changes in the tax laws, among other things, may result
in tax obligations in excess of amounts accrued in our financial
statements.
In the U.S., there are several proposals under consideration to
reform tax law, including proposals that may reduce or eliminate
the deferral of U.S. income tax on our unrepatriated
earnings, scrutinize certain transfer pricing structures, and
reduce or eliminate certain foreign tax credits. Our future
reported financial results may be adversely affected by tax law
changes which restrict or eliminate certain foreign tax credits
or our ability to deduct expenses attributable to foreign
earnings, or otherwise affect the treatment of our unrepatriated
earnings.
The
growth of our business depends on our ability to attract and
retain qualified personnel and key relationships.
The achievement of our commercial, research and development and
external growth objectives depends upon our ability to attract
and retain qualified scientific, manufacturing, sales and
marketing and executive personnel and to develop and maintain
relationships with qualified clinical researchers and key
distributors. Competition for these people and relationships is
intense and comes from a variety of sources, including
pharmaceutical and biotechnology companies, universities and
non-profit research organizations.
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Our
sales and operations are subject to the risks of doing business
internationally.
We are increasing our presence in international markets, which
subjects us to many risks, such as:
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the inability to obtain necessary foreign regulatory or pricing
approvals of products in a timely manner;
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fluctuations in currency exchange rates;
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difficulties in staffing and managing international operations;
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the imposition of governmental controls;
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less favorable intellectual property or other applicable laws;
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restrictions on direct investments by foreign entities and trade
restrictions;
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greater political or economic instability; and
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changes in tax laws and tariffs.
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In addition, our international operations are subject to
regulation under U.S. law. For example, the Foreign Corrupt
Practices Act prohibits U.S. companies and their
representatives from offering, promising, authorizing or making
payments to foreign officials for the purpose of obtaining or
retaining business abroad. In many countries, the health care
professionals we regularly interact with may meet the definition
of a foreign government official for purposes of the Foreign
Corrupt Practices Act. Failure to comply with domestic or
foreign laws could result in various adverse consequences,
including possible delay in approval or refusal to approve a
product, recalls, seizures, withdrawal of an approved product
from the market, the imposition of civil or criminal sanctions
and the prosecution of executives overseeing our international
operations.
Uncertainty
over intellectual property in the biotechnology industry has
been the source of litigation, which is inherently costly and
unpredictable.
We are aware that others, including various universities and
companies working in the biotechnology field, have filed patent
applications and have been granted patents in the U.S. and
in other countries claiming subject matter potentially useful to
our business. Some of those patents and patent applications
claim only specific products or methods of making such products,
while others claim more general processes or techniques useful
or now used in the biotechnology industry. There is considerable
uncertainty within the biotechnology industry about the
validity, scope and enforceability of many issued patents in the
U.S. and elsewhere in the world, and, to date, there is no
consistent policy regarding the breadth of claims allowed in
biotechnology patents. We cannot currently determine the
ultimate scope and validity of patents which may be granted to
third parties in the future or which patents might be asserted
to be infringed by the manufacture, use and sale of our products.
There has been, and we expect that there may continue to be,
significant litigation in the industry regarding patents and
other intellectual property rights. Litigation and
administrative proceedings concerning patents and other
intellectual property rights may be protracted, expensive and
distracting to management. Competitors may sue us as a way of
delaying the introduction of our products. Any litigation,
including any interference proceedings to determine priority of
inventions, oppositions to patents in foreign countries or
litigation against our partners may be costly and time consuming
and could harm our business. We expect that litigation may be
necessary in some instances to determine the validity and scope
of certain of our proprietary rights. Litigation may be
necessary in other instances to determine the validity, scope or
non-infringement of certain patent rights claimed by third
parties to be pertinent to the manufacture, use or sale of our
products. Ultimately, the outcome of such litigation could
adversely affect the validity and scope of our patent or other
proprietary rights or hinder our ability to manufacture and
market our products.
63
If we
are unable to adequately protect and enforce our intellectual
property rights, our competitors may take advantage of our
development efforts or our acquired technology.
We have filed numerous patent applications in the U.S. and
various other countries seeking protection of the processes,
products and other inventions originating from our research and
development. Patents have been issued on many of these
applications. We have also obtained rights to various patents
and patent applications under licenses with third parties, which
provide for the payment of royalties by us. The ultimate degree
of patent protection that will be afforded to biotechnology
products and processes, including ours, in the U.S. and in
other important markets remains uncertain and is dependent upon
the scope of protection decided upon by the patent offices,
courts and lawmakers in these countries. Our patents may not
afford us substantial protection or commercial benefit.
Similarly, our pending patent applications or patent
applications licensed from third parties may not ultimately be
granted as patents and we may not prevail if patents that have
been issued to us are challenged in court. In addition, pending
legislation to reform the patent system and court decisions or
patent office regulations that place additional restrictions on
patent claims or that facilitate patent challenges could also
reduce our ability to protect our intellectual property rights.
If we cannot prevent others from exploiting our inventions, we
will not derive the benefit from them that we currently expect.
We also rely upon unpatented trade secrets and other proprietary
information, and we cannot ensure that others will not
independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade
secrets or disclose such technology, or that we can meaningfully
protect such rights. We require our employees, consultants,
outside scientific collaborators, scientists whose research we
sponsor and other advisers to execute confidentiality agreements
upon the commencement of employment or consulting relationships
with us. These agreements may not provide meaningful protection
or adequate remedies for our unpatented proprietary information
in the event of use or disclosure of such information.
If our
products infringe the intellectual property rights of others, we
may incur damages and be required to incur the expense of
obtaining a license.
A substantial number of patents have already been issued to
other biotechnology and pharmaceutical companies. To the extent
that valid third party patent rights cover our products or
services, we or our strategic collaborators would be required to
seek licenses from the holders of these patents in order to
manufacture, use or sell these products and services, and
payments under them would reduce our profits from these products
and services. We are currently unable to predict the extent to
which we may wish or be required to acquire rights under such
patents and the availability and cost of acquiring such rights,
or whether a license to such patents will be available on
acceptable terms or at all. There may be patents in the
U.S. or in foreign countries or patents issued in the
future that are unavailable to license on acceptable terms. Our
inability to obtain such licenses may hinder our ability to
manufacture and market our products.
Pending
and future product liability claims may adversely affect our
business and our reputation.
The administration of drugs in humans, whether in clinical
studies or commercially, carries the inherent risk of product
liability claims whether or not the drugs are actually the cause
of an injury. Our products or product candidates may cause, or
may appear to have caused, injury or dangerous drug
interactions, and we may not learn about or understand those
effects until the product or product candidate has been
administered to patients for a prolonged period of time.
We are subject from time to time to lawsuits based on product
liability and related claims. We cannot predict with certainty
the eventual outcome of any pending or future litigation. We may
not be successful in defending ourselves in the litigation and,
as a result, our business could be materially harmed. These
lawsuits may result in large judgments or settlements against
us, any of which could have a negative effect on our financial
condition and business if in excess of our insurance coverage.
Additionally, lawsuits can be expensive to defend, whether or
not they have merit, and the defense of these actions may divert
the attention of our management and other resources that would
otherwise be engaged in managing our business.
64
Our
operating results are subject to significant
fluctuations.
Our quarterly revenues, expenses and net income (loss) have
fluctuated in the past and are likely to fluctuate significantly
in the future due to the timing of charges and expenses that we
may take. In recent periods, for instance, we have recorded
charges that include:
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the cost of restructurings;
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impairments that we are required to take with respect to
investments;
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impairments that we are required to take with respect to fixed
assets, including those that are recorded in connection with the
sale of fixed assets;
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inventory write-downs for failed quality specifications, charges
for excess or obsolete inventory and charges for inventory write
downs relating to product suspensions;
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milestone payments under license and collaboration
agreements; and
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payments in connection with acquisitions and other business
development activity.
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Our revenues are also subject to foreign exchange rate
fluctuations due to the global nature of our operations. We
recognize foreign currency gains or losses arising from our
operations in the period in which we incur those gains or
losses. Although we have foreign currency forward contracts to
hedge specific forecasted transactions denominated in foreign
currencies, our efforts to reduce currency exchange losses may
not be successful. As a result, currency fluctuations among our
reporting currency, the U.S. dollar, and the currencies in
which we do business will affect our operating results, often in
unpredictable ways. Our net income may also fluctuate due to the
impact of charges we may be required to take with respect to
foreign currency hedge transactions. In particular, we may incur
higher charges from hedge ineffectiveness than we expect or from
the termination of a hedge relationship.
These examples are only illustrative and other risks, including
those discussed in these Risk Factors, could
also cause fluctuations in our reported earnings. In addition,
our operating results during any one period do not necessarily
suggest the anticipated results of future periods.
Our
portfolio of marketable securities is significant and subject to
market, interest and credit risk that may reduce its
value.
We maintain a significant portfolio of marketable securities.
Changes in the value of this portfolio could adversely affect
our earnings. In particular, the value of our investments may
decline due to increases in interest rates, downgrades in the
corporate bonds and other securities included in our portfolio,
instability in the global financial markets that reduces the
liquidity of securities included in our portfolio, declines in
the value of collateral underlying the mortgage and asset-backed
securities included in our portfolio, and other factors. Each of
these events may cause us to record charges to reduce the
carrying value of our investment portfolio or sell investments
for less than our acquisition cost. Although we attempt to
mitigate these risks by investing in high quality securities and
continuously monitoring our portfolios overall risk
profile, the value of our investments may nevertheless decline.
Our
level of indebtedness could adversely affect our business and
limit our ability to plan for or respond to changes in our
business.
As of March 31, 2011, we had $1.2 billion of
outstanding indebtedness, and we may incur additional debt in
the future. Our level of indebtedness could adversely affect our
business by, among other things:
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requiring us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow for other purposes,
including business development efforts and research and
development;
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65
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limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate,
thereby placing us at a competitive disadvantage compared to our
competitors that may have less debt; and
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increasing our vulnerability to adverse economic and industry
conditions.
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Our
business involves environmental risks, which include the cost of
compliance and the risk of contamination or
injury.
Our business and the business of several of our strategic
partners, including Genentech and Elan, involve the controlled
use of hazardous materials, chemicals, biologics and radioactive
compounds. Although we believe that our safety procedures for
handling and disposing of such materials comply with state and
federal standards, there will always be the risk of accidental
contamination or injury. If we were to become liable for an
accident, or if we were to suffer an extended facility shutdown,
we could incur significant costs, damages and penalties that
could harm our business. Biologics manufacturing also requires
permits from government agencies for water supply and wastewater
discharge. If we do not obtain appropriate permits, or permits
for sufficient quantities of water and wastewater, we could
incur significant costs and limits on our manufacturing volumes
that could harm our business.
Several
aspects of our corporate governance and our collaboration
agreements may discourage a third party from attempting to
acquire us.
Several factors might discourage a takeover attempt that could
be viewed as beneficial to shareholders who wish to receive a
premium for their shares from a potential bidder. For example:
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Our Board of Directors has the authority to issue, without a
vote or action of shareholders, shares of preferred stock and to
fix the price, rights, preferences and privileges of those
shares, which shares could be used to dilute the interest of a
potential bidder.
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Our collaboration agreements with Elan and Genentech
respectively allow Elan to purchase our rights to TYSABRI and
Genentech to purchase our rights to RITUXAN and certain
anti-CD20 products developed under the agreement if we undergo a
change of control and certain other conditions are met, which
may limit our attractiveness to potential acquirers.
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Our directors are elected to staggered terms, which prevent the
entire board from being replaced in any single year. At our 2011
annual meeting, we are proposing that stockholders approve the
declassification of our Board of Directors so that all directors
will be elected annually.
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The
possibility that activist shareholders may gain additional
representation on or control of our Board of Directors could
result in costs and disruption to our operations and cause
uncertainty about the direction of our business.
Entities affiliated with Carl Icahn commenced proxy contests in
2008, 2009 and 2010, resulting in three of their director
nominees being elected to our Board of Directors. In addition,
recent SEC rulemaking gives certain shareholders or groups of
shareholders the ability to include director nominees and
proposals relating to a shareholder nomination process in
company proxy materials. As a result, we may face an increase in
the number of shareholder nominees for election to our Board of
Directors. In addition, the declassification of our Board of
Directors if approved by our stockholders at our
2011 annual meeting may create instability at the
Board and increase our vulnerability to hostile and potentially
abusive takeover tactics.
Future proxy contests could be costly and time-consuming,
disrupt our operations and divert the attention of management
and our employees from executing our strategic plan. If there is
disagreement among our directors, that may create uncertainty
regarding the direction of our business and could impair our
ability to effectively execute our strategic plan.
66
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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Recent
Sales of Unregistered Securities
On March 23, 2011, Genentech, Inc. converted 8,221 shares
of our Series A Preferred Stock into 493,260 shares of common
stock pursuant to the conversion terms of our Series A Preferred
Stock. The shares of common stock were issued in accordance with
the exemption provided by Section 3(a)(9) of the Securities Act
of 1933.
Issuer
Purchases of Equity Securities
The following table summarizes our common stock repurchase
activity during the first quarter of 2011:
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Total Number of
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Approximate Number
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Shares Purchased
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of Shares That
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Total Number of
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Average Price
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as Part of Publicly
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May Yet Be Purchased
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Shares Purchased
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Paid per Share
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Announced Programs
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Under Our Programs
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Period
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(#)
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($)
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(#)
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(#)
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2011 Repurchase Program
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January 2011
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February 2011
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250,000
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67.46
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250,000
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19,750,000
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March 2011
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2,547,600
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70.04
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2,547,600
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17,202,400
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Total
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2,797,600
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69.81
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On February 11, 2011, we announced that our Board of
Directors authorized the repurchase of up to 20 million
shares of our common stock. We expect to use this repurchase
program principally to offset common stock issuance under our
share-based compensation plans. This repurchase program does not
have an expiration date. As of March 31, 2011,
approximately 2.8 million shares of our common stock at a
cost of approximately $195.3 million have been repurchased
under this program. From April 1, 2011 through
April 21, 2011, we repurchased an additional
1.0 million shares under this program at a total cost of
$75.7 million. Approximately 16.2 million shares
remain available for repurchase under the 2011 repurchase
program.
The exhibits listed on the Exhibit Index immediately
preceding such exhibits, which is incorporated herein by
reference, are filed or furnished as part of this Quarterly
Report on
Form 10-Q.
67
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BIOGEN IDEC INC.
Paul J. Clancy
Executive Vice President and
Chief Financial Officer
April 21, 2011
68
EXHIBIT INDEX
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Exhibit
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Number
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Description of Exhibit
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10.1*+
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Severance Plan for EVP, Global Commercial Operations
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31.1+
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Certification of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2+
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Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1++
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Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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101++
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The following materials from Biogen Idec Inc.s Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2011, formatted in XBRL
(Extensible Business Reporting Language): (i) the Condensed
Consolidated Statements of Income, (ii) the Condensed
Consolidated Balance Sheets, (iii) the Condensed
Consolidated Statements of Cash Flows, and (iv) Notes to
Condensed Consolidated Financial Statements.
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* |
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Management contract or compensatory plan or arrangement. |
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Filed herewith |
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Furnished herewith |