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, 2009
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OR
|
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
|
(State or other jurisdiction
of
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|
(I.R.S. Employer
|
incorporation or
organization)
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|
Identification
No.)
|
14 Cambridge Center, Cambridge, MA 02142
(617) 679-2000
(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 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.
|
|
|
|
Large
accelerated
filer þ
|
Accelerated
filer o
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Non-accelerated
filer o
|
Smaller
reporting
company o
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act): Yes o No þ
The number of shares of the registrants Common Stock,
$0.0005 par value, outstanding as of April 13, 2009,
was 288,558,498 shares.
BIOGEN
IDEC INC.
FORM 10-Q
Quarterly Report
For the Quarterly Period Ended March 31, 2009
TABLE OF CONTENTS
2
PART I
FINANCIAL INFORMATION
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For the Three Months
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Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
733,409
|
|
|
$
|
665,070
|
|
Unconsolidated joint business
|
|
|
278,818
|
|
|
|
247,223
|
|
Other revenues
|
|
|
24,257
|
|
|
|
29,893
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,036,484
|
|
|
|
942,186
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales, excluding amortization of acquired intangible
assets
|
|
|
98,197
|
|
|
|
100,934
|
|
Research and development
|
|
|
279,478
|
|
|
|
258,232
|
|
Selling, general and administrative
|
|
|
221,830
|
|
|
|
215,829
|
|
Collaboration profit sharing
|
|
|
42,773
|
|
|
|
21,406
|
|
Amortization of acquired intangible assets
|
|
|
89,248
|
|
|
|
74,781
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
731,526
|
|
|
|
696,182
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
304,958
|
|
|
|
246,004
|
|
Other income (expense), net
|
|
|
6,846
|
|
|
|
3,080
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
311,804
|
|
|
|
249,084
|
|
Income tax expense
|
|
|
65,225
|
|
|
|
83,277
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
246,579
|
|
|
|
165,807
|
|
Net income attributable to noncontrolling interest, net of tax
|
|
|
2,592
|
|
|
|
2,710
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec Inc.
|
|
$
|
243,987
|
|
|
$
|
163,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic earnings per share attributable to Biogen Idec Inc.
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|
$
|
0.85
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|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Biogen Idec Inc.
|
|
$
|
0.84
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in calculating:
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to Biogen Idec Inc.
|
|
|
287,703
|
|
|
|
296,171
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Biogen Idec Inc.
|
|
|
289,744
|
|
|
|
299,500
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these unaudited consolidated financial
statements.
3
|
|
|
|
|
|
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|
|
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|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
764,104
|
|
|
$
|
622,385
|
|
Marketable securities
|
|
|
637,219
|
|
|
|
719,586
|
|
Collateral received for loaned securities
|
|
|
|
|
|
|
29,991
|
|
Accounts receivable, net
|
|
|
481,214
|
|
|
|
446,665
|
|
Due from unconsolidated joint business
|
|
|
180,666
|
|
|
|
206,925
|
|
Loaned securities
|
|
|
|
|
|
|
29,446
|
|
Inventory
|
|
|
268,076
|
|
|
|
263,602
|
|
Other current assets
|
|
|
149,374
|
|
|
|
139,400
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,480,653
|
|
|
|
2,458,000
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
1,060,875
|
|
|
|
891,406
|
|
Property, plant and equipment, net
|
|
|
1,562,174
|
|
|
|
1,594,754
|
|
Intangible assets, net
|
|
|
2,071,809
|
|
|
|
2,161,058
|
|
Goodwill
|
|
|
1,138,621
|
|
|
|
1,138,621
|
|
Investments and other assets
|
|
|
261,074
|
|
|
|
235,152
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,575,206
|
|
|
$
|
8,478,991
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Collateral payable on loaned securities
|
|
$
|
|
|
|
$
|
29,991
|
|
Accounts payable
|
|
|
104,271
|
|
|
|
107,417
|
|
Taxes payable
|
|
|
247,319
|
|
|
|
223,260
|
|
Accrued expenses and other
|
|
|
429,689
|
|
|
|
534,887
|
|
Current portion of notes payable and line of credit
|
|
|
26,488
|
|
|
|
27,667
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
807,767
|
|
|
|
923,222
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
1,082,909
|
|
|
|
1,085,431
|
|
Long-term deferred tax liability
|
|
|
345,784
|
|
|
|
356,017
|
|
Other long-term liabilities
|
|
|
318,492
|
|
|
|
280,369
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,554,952
|
|
|
|
2,645,039
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 10 and 13)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.001 per share
|
|
|
|
|
|
|
|
|
Common stock, par value $0.0005 per share
|
|
|
149
|
|
|
|
149
|
|
Additional paid-in capital
|
|
|
6,109,917
|
|
|
|
6,073,957
|
|
Accumulated other comprehensive income
|
|
|
(32,346
|
)
|
|
|
(11,106
|
)
|
Retained earnings
|
|
|
388,019
|
|
|
|
270,180
|
|
Treasury stock, at cost
|
|
|
(478,045
|
)
|
|
|
(527,097
|
)
|
Noncontrolling interest
|
|
|
32,560
|
|
|
|
27,869
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
6,020,254
|
|
|
|
5,833,952
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
8,575,206
|
|
|
$
|
8,478,991
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these unaudited consolidated financial
statements.
4
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec Inc.
|
|
$
|
243,987
|
|
|
$
|
163,097
|
|
Adjustments to reconcile net income to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of fixed and intangible assets
|
|
|
122,146
|
|
|
|
106,932
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
25,000
|
|
Noncontrolling interest in subsidiaries
|
|
|
2,592
|
|
|
|
2,710
|
|
Share-based compensation
|
|
|
37,889
|
|
|
|
34,529
|
|
Non-cash interest (income) expense and foreign exchange
remeasurement loss (gain), net
|
|
|
(10,412
|
)
|
|
|
8,142
|
|
Deferred income taxes
|
|
|
(6,973
|
)
|
|
|
7,183
|
|
Realized loss (gain) on sale of marketable securities and
strategic investments
|
|
|
(4,313
|
)
|
|
|
(5,267
|
)
|
Write-down of inventory to net realizable value
|
|
|
9,386
|
|
|
|
4,386
|
|
Impairment of investments and other assets
|
|
|
6,021
|
|
|
|
8,892
|
|
Excess tax benefit from stock options
|
|
|
(2,282
|
)
|
|
|
(7,626
|
)
|
Changes in assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(37,935
|
)
|
|
|
(54,703
|
)
|
Due from unconsolidated joint business
|
|
|
26,259
|
|
|
|
7,126
|
|
Inventory
|
|
|
(12,720
|
)
|
|
|
(6,344
|
)
|
Other assets
|
|
|
(14,264
|
)
|
|
|
(2,711
|
)
|
Accrued expenses and other current liabilities
|
|
|
(120,007
|
)
|
|
|
11,119
|
|
Other liabilities and taxes payable
|
|
|
61,376
|
|
|
|
64,520
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) operating activities
|
|
|
300,750
|
|
|
|
366,985
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(1,110,368
|
)
|
|
|
(431,659
|
)
|
Proceeds from sales and maturities of marketable securities
|
|
|
1,057,671
|
|
|
|
917,972
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(25,000
|
)
|
Purchases of property, plant and equipment
|
|
|
(37,041
|
)
|
|
|
(86,031
|
)
|
Purchases of other investments
|
|
|
(31,959
|
)
|
|
|
(9,221
|
)
|
Collateral received under securities lending
|
|
|
29,991
|
|
|
|
83,516
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities
|
|
|
(91,706
|
)
|
|
|
449,577
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(57,631
|
)
|
|
|
(240,219
|
)
|
Proceeds from issuance of stock for share-based compensation
arrangements
|
|
|
17,043
|
|
|
|
28,311
|
|
Change in cash overdraft
|
|
|
1,369
|
|
|
|
13,390
|
|
Excess tax benefit from stock options
|
|
|
2,282
|
|
|
|
7,626
|
|
Proceeds from borrowings
|
|
|
|
|
|
|
986,876
|
|
Repayment of borrowings
|
|
|
|
|
|
|
(1,500,000
|
)
|
Obligation under securities lending
|
|
|
(29,991
|
)
|
|
|
(83,516
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
(66,928
|
)
|
|
|
(787,532
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
142,116
|
|
|
|
29,030
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(397
|
)
|
|
|
(193
|
)
|
Cash and cash equivalents, beginning of the period
|
|
|
622,385
|
|
|
|
659,662
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
764,104
|
|
|
$
|
688,499
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these unaudited consolidated financial
statements.
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Noncontrolling
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Interest
|
|
|
Equity
|
|
|
Balance, December 31, 2007
|
|
|
8
|
|
|
$
|
-
|
|
|
|
295,698
|
|
|
$
|
147
|
|
|
$
|
5,807,071
|
|
|
$
|
79,246
|
|
|
$
|
(352,169
|
)
|
|
|
-
|
|
|
$
|
|
|
|
$
|
19,726
|
|
|
$
|
5,554,021
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
783,167
|
|
|
|
|
|
|
|
|
|
|
|
6,940
|
|
|
|
790,107
|
|
Unrealized gains on securities available for sale, net of tax of
$(1,123)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67
|
)
|
Unrealized loss on foreign currency forward contracts, net of
tax of $(1,523)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,140
|
)
|
Unrealized gains on pension benefit obligation, net of tax of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(844
|
)
|
|
|
(54,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,817
|
)
|
|
|
(2,817
|
)
|
Capital contribution from noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,864
|
|
|
|
4,864
|
|
Repurchase of common stock for Treasury, at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,778
|
)
|
|
|
(738,938
|
)
|
|
|
|
|
|
|
(738,938
|
)
|
Issuance of common stock from conversion of subordinated notes
payable
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227
|
|
Issuance of common stock under stock option and stock purchase
plans
|
|
|
|
|
|
|
|
|
|
|
852
|
|
|
|
1
|
|
|
|
34,297
|
|
|
|
|
|
|
|
(56,223
|
)
|
|
|
3,380
|
|
|
|
200,411
|
|
|
|
|
|
|
|
178,486
|
|
Issuance of common stock under stock award plans
|
|
|
|
|
|
|
|
|
|
|
688
|
|
|
|
1
|
|
|
|
(29,800
|
)
|
|
|
|
|
|
|
(26,026
|
)
|
|
|
191
|
|
|
|
11,430
|
|
|
|
|
|
|
|
(44,395
|
)
|
Forfeiture of common stock under restricted stock plan
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,748
|
|
Tax benefit from share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,845
|
|
Treasury stock reclassification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,569
|
|
|
|
|
|
|
|
(78,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
8
|
|
|
$
|
|
|
|
|
297,253
|
|
|
$
|
149
|
|
|
$
|
6,073,957
|
|
|
$
|
(11,106
|
)
|
|
$
|
270,180
|
|
|
|
(9,207
|
)
|
|
$
|
(527,097
|
)
|
|
$
|
27,869
|
|
|
$
|
5,833,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243,987
|
|
|
|
|
|
|
|
|
|
|
|
2,592
|
|
|
|
246,579
|
|
Unrealized gain on securities available for sale, net of tax of
$(1,205)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,056
|
|
Unrealized gain on foreign currency forward contracts, net of
tax of $(3,141)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,136
|
|
Unrealized gain on pension benefit obligation, net of tax of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,099
|
|
|
|
(49,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock for Treasury, at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,223
|
)
|
|
|
(57,631
|
)
|
|
|
|
|
|
|
(57,631
|
)
|
Issuance of common stock under stock option and stock purchase
plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,296
|
)
|
|
|
402
|
|
|
|
25,339
|
|
|
|
|
|
|
|
17,043
|
|
Issuance of common stock under stock award plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,852
|
)
|
|
|
1,302
|
|
|
|
81,344
|
|
|
|
|
|
|
|
(36,508
|
)
|
Compensation expense related to share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,537
|
|
Tax benefit from share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009
|
|
|
8
|
|
|
$
|
|
|
|
|
297,253
|
|
|
$
|
149
|
|
|
$
|
6,109,917
|
|
|
$
|
(32,346
|
)
|
|
$
|
388,019
|
|
|
|
(8,726
|
)
|
|
$
|
(478,045
|
)
|
|
$
|
32,560
|
|
|
$
|
6,020,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these unaudited consolidated financial
statements.
6
BIOGEN
IDEC INC. AND SUBSIDIARES
(unaudited)
Overview
Biogen Idec Inc. is a global biotechnology company that creates
new standards of care in therapeutic areas with high unmet
medical needs. We currently market four products:
AVONEX®,
RITUXAN®,
TYSABRI®
and
FUMADERM®.
Basis
of Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments,
consisting of only normal recurring accruals, necessary for a
fair statement of our financial position, results of operations,
and cash flows. 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, 2008. Our accounting
policies are described in the Notes to the Consolidated
Financial Statements in our 2008 Annual Report on
Form 10-K
and updated, as necessary, in this
Form 10-Q.
The year-end consolidated balance sheet data presented for
comparative purposes was derived from audited financial
statements, but does not include all disclosures required by
accounting principles generally accepted in the United States.
The results of operations for the three months ended
March 31, 2009 are not necessarily indicative of the
operating results for the full year or for any other subsequent
interim period.
Effective January 1, 2009, we implemented Statement of
Financial Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment
to ARB No. 51, or SFAS 160. This standard changed the
accounting for and reporting of minority interest (now called
noncontrolling interest) in our consolidated financial
statements. Upon adoption, certain prior period amounts have
been reclassified to conform to the current period financial
statement presentation. These reclassifications have no effect
on our previously reported financial position or results of
operations. Refer to Note 7, Comprehensive Income,
and Note 11, Other Income (Expense), Net, of
this
Form 10-Q
for additional information on the adoption of SFAS 160.
Principles
of Consolidation
The consolidated financial statements reflect our financial
statements, those of our wholly-owned subsidiaries and of our
joint ventures in Italy and Switzerland, Biogen Dompe SRL and
Biogen Dompe Switzerland Gmbh, respectively. In accordance with
the Financial Accounting Standards Board, or FASB,
Interpretation No. 46 (Revised 2003), Consolidation of
Variable Interest Entities, or FIN 46(R), we
consolidate 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 attributable
to noncontrolling interest (minority interest) in our
consolidated statement of income equal to the percentage of
ownership of the respective noncontrolling owners. All material
intercompany balances and transactions have been eliminated in
consolidation.
Use of
Estimates
The preparation of consolidated financial statements in
accordance with accounting principles generally accepted in the
United States requires our management to make estimates and
judgments that may affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to revenue
recognition and related allowances, marketable securities,
derivatives and hedging activities, inventory, impairments of
long-lived assets, including intangible assets, impairments of
goodwill, income taxes including the valuation allowance for
deferred tax assets, valuation of long-lived assets and
investments, research and development,
7
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
contingencies and litigation, and share-based payments. We base
our estimates on historical experience and on various other
assumptions that are believed to be reasonable, the results of
which form the basis for making judgments about the carrying
values of assets and liabilities. Actual results may differ from
these estimates under different assumptions or conditions.
Inventories are stated at the lower of cost or market with cost
determined under the
first-in,
first-out, or FIFO, method. Included in inventory are raw
materials used in the production of pre-clinical and clinical
products, which are charged to research and development expense
when consumed.
The components of inventories are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
41.0
|
|
|
$
|
29.8
|
|
Work in process
|
|
|
182.6
|
|
|
|
180.0
|
|
Finished goods
|
|
|
44.5
|
|
|
|
53.8
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
268.1
|
|
|
$
|
263.6
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2009 and 2008, we
have written down $9.4 million and $4.4 million,
respectively, in unmarketable inventory, which was charged to
cost of sales.
Product
Revenues
We recognize revenue when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has
occurred or services have been rendered; the sellers price
to the buyer is fixed or determinable; and collectibility is
reasonably assured.
Revenues from product sales are recognized when title and risk
of loss have passed to the customer, which is typically upon
delivery. However, under the terms of a development and
marketing collaboration agreement with Elan Pharma
International, Ltd., or Elan, an affiliate of Elan Corporation,
plc, we manufacture TYSABRI and collaborate with Elan on the
products marketing, commercial distribution and on-going
development activities. Therefore, sales of TYSABRI in the
U.S. are recognized on the sell-through model,
that is, upon shipment of the product by Elan to its third party
distributor rather than upon shipment to Elan. For sales of
TYSABRI outside the U.S., we are responsible for distributing
TYSABRI to customers and are primarily responsible for all
operating activities. Generally, revenue on sales of TYSABRI
outside the U.S. is recognized at the time of product
delivery to our customers and distributors, as all revenue
recognition criteria have been met.
Reserves
for Discounts and Allowances
Revenues are recorded net of applicable allowances for trade
term discounts, wholesaler incentives, Medicaid rebates,
Veterans Administration rebates, managed care rebates,
product returns and other applicable allowances. Reserves
established for these discounts and allowances are classified as
reductions of accounts receivable (if the amount is payable to
our customer) or a liability (if the amount is payable to a
party other than our customer).
8
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
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, statutory requirements,
specific known market events and trends and forecasted customer
buying patterns. If actual results vary, we may need to adjust
these estimates, which could have an effect on earnings in the
period of the adjustment.
An analysis of the amount of, and change in, reserves is as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
Discounts
|
|
|
Adjustments
|
|
|
Returns
|
|
|
Total
|
|
|
Beginning balance, as of January 1, 2009
|
|
$
|
9.2
|
|
|
$
|
48.1
|
|
|
$
|
18.1
|
|
|
$
|
75.4
|
|
Current provisions relating to sales in current period
|
|
|
17.2
|
|
|
|
41.3
|
|
|
|
5.9
|
|
|
|
64.4
|
|
Adjustments relating to prior periods
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
Payments/returns relating to sales in current period
|
|
|
(7.0
|
)
|
|
|
(9.3
|
)
|
|
|
|
|
|
|
(16.3
|
)
|
Payments/returns relating to sales in prior periods
|
|
|
(8.1
|
)
|
|
|
(25.9
|
)
|
|
|
(4.4
|
)
|
|
|
(38.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, as of March 31, 2009
|
|
$
|
11.3
|
|
|
$
|
54.7
|
|
|
$
|
19.6
|
|
|
$
|
85.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total reserves above were included in the consolidated
balance sheets as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Reduction of accounts receivable
|
|
$
|
36.5
|
|
|
$
|
31.6
|
|
Current liability
|
|
|
49.1
|
|
|
|
43.8
|
|
|
|
|
|
|
|
|
|
|
Total reserves
|
|
$
|
85.6
|
|
|
$
|
75.4
|
|
|
|
|
|
|
|
|
|
|
Reserves for discounts, contractual adjustments and returns
reduced gross product revenues as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Discounts
|
|
$
|
17.2
|
|
|
$
|
14.4
|
|
Contractual adjustments
|
|
|
41.8
|
|
|
|
36.4
|
|
Returns
|
|
|
5.9
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
Total allowances
|
|
$
|
64.9
|
|
|
$
|
53.8
|
|
|
|
|
|
|
|
|
|
|
Gross product revenues
|
|
$
|
798.3
|
|
|
$
|
718.9
|
|
|
|
|
|
|
|
|
|
|
Percent of gross product revenues
|
|
|
8.1
|
%
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
The 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. If
actual future results vary, we may need to adjust these
estimates, which could have an effect on earnings in the period
of the adjustment.
9
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Bad debt reserves are based on our estimated uncollectible
accounts receivable. Given our historical experiences with bad
debts, combined with our credit management policies and
practices, we do not presently maintain significant bad debt
reserves.
|
|
4.
|
Intangible
Assets and Goodwill
|
Intangible assets and goodwill, net of accumulated amortization,
impairment charges and adjustments, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Out-licensed patents
|
|
|
12 years
|
|
|
$
|
578.0
|
|
|
$
|
(262.3
|
)
|
|
$
|
315.7
|
|
|
$
|
578.0
|
|
|
$
|
(250.3
|
)
|
|
$
|
327.7
|
|
Core/developed technology
|
|
|
15-20 years
|
|
|
|
3,005.3
|
|
|
|
(1,316.5
|
)
|
|
|
1,688.8
|
|
|
|
3,005.3
|
|
|
|
(1,241.0
|
)
|
|
|
1,764.3
|
|
Trademarks and tradenames
|
|
|
Indefinite
|
|
|
|
64.0
|
|
|
|
|
|
|
|
64.0
|
|
|
|
64.0
|
|
|
|
|
|
|
|
64.0
|
|
In-licensed patents
|
|
|
14 years
|
|
|
|
3.0
|
|
|
|
(1.0
|
)
|
|
|
2.0
|
|
|
|
3.0
|
|
|
|
(0.9
|
)
|
|
|
2.1
|
|
Assembled workforce
|
|
|
4 years
|
|
|
|
2.1
|
|
|
|
(1.4
|
)
|
|
|
0.7
|
|
|
|
2.1
|
|
|
|
(1.2
|
)
|
|
|
0.9
|
|
Distribution rights
|
|
|
2 years
|
|
|
|
12.7
|
|
|
|
(12.1
|
)
|
|
|
0.6
|
|
|
|
12.7
|
|
|
|
(10.6
|
)
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
3,665.1
|
|
|
$
|
(1,593.3
|
)
|
|
$
|
2,071.8
|
|
|
$
|
3,665.1
|
|
|
$
|
(1,504.0
|
)
|
|
$
|
2,161.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Indefinite
|
|
|
$
|
1,138.6
|
|
|
$
|
|
|
|
$
|
1,138.6
|
|
|
$
|
1,138.6
|
|
|
$
|
|
|
|
$
|
1,138.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets
Our intangible assets consist of patents, licenses,
core/developed technology, trademarks and tradenames, assembled
workforce and distribution rights, the majority of which arose
in connection with the merger of Biogen Inc. and Idec
Pharmaceuticals Corporation, or the Merger. These intangible
assets were recorded at fair value and are stated net of
accumulated amortization and impairments.
Intangible assets related to patents, licenses, core/developed
technology, assembled workforce and distribution rights are
amortized over their remaining estimated useful lives, ranging
from 2 to 20 years. The useful lives of our assets are
primarily based on the legal or contractual life of the
underlying patent or contract, which does not include additional
years for the extension or renewal of the contract or patent.
Our amortization policy for intangible assets is based on the
principles in Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets, or
SFAS 142, which requires that the amortization of
intangible assets reflect the pattern that the economic benefits
of the intangible assets are consumed.
Effective January 1, 2009, we implemented FASB Staff
Position
FAS 142-3,
Determination of the Useful Life of Intangible Assets, or
FSP
FAS 142-3.
FSP
FAS 142-3
amends SFAS 142 and provides guidance for determining the
useful life of a recognized intangible asset and requires
enhanced disclosures so that users of financial statements are
able to assess the extent to which the expected future cash
flows associated with the asset are affected by our intent
and/or
ability to renew or extend the arrangement. The adoption of this
FSP did not impact the presentation of our financial position or
results of operations as this standard was required to be
implemented prospectively; however, this standard may impact us
in subsequent periods.
Our most significant intangible asset is the core technology
related to our AVONEX product. We believe the economic benefit
of our core technology is consumed as revenue is generated from
our AVONEX product. An analysis of the anticipated product sales
of AVONEX is performed annually during our long range
10
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
planning cycle. The results of this forecast serve as the basis
for our assumptions used in the economic consumption
amortization model for our core technology intangible assets.
Although we believe our process has allowed us to reliably
determine our best estimate of the pattern in which we will
consume the economic benefits of the core technology intangible
assets, the model results in deferring amortization charges to
future periods in certain instances, including the impact of
continued sales of the product at a nominal level after patent
expiration. Consequently, in establishing our methodology, we
considered models that would prevent deferring amortization
charges to future periods such as the model described in
paragraph 8 of Statement of Financial Accounting Standards
No. 86, Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed, or SFAS 86. In
order to ensure amortization charges are not unreasonably
deferred to future periods, we use the straight-line method to
determine the minimum annual amount of amortization expense, or
the minimum amount. At the time of the Merger we estimated a
useful life of 15 years (2018) based on the patent lives of
AVONEX across various countries. The minimum amount is
recalculated each year based on the remaining unamortized
balance of the intangible asset and the years remaining to 2018.
The results of the long range planning process determine whether
amortization will be based on an economic consumption model or
the minimum amount and, thus, the amount of amortization for the
next four quarters. Amortization is currently based upon the
economic consumption model.
Intangible assets related to trademarks and tradenames have
indefinite lives, and as a result are not amortized, but are
subject to review for impairment. We review our intangible
assets with indefinite lives for impairment annually, as of
October 31, and whenever events or changes in circumstances
indicate that the carrying value of an asset may not be
recoverable.
Amortization expense was $89.2 million and
$74.8 million for the three months ended March 31,
2009 and 2008, respectively. We did not record a charge related
to in-process research and development, or IPR&D, during
the three months ended March 31, 2009. In the first quarter
of 2008, we recorded $25.0 million of IPR&D charges
related to an HSP-90 related milestone payment made to the
former shareholders of Conforma Therapeutics, Inc., or Conforma,
pursuant to our acquisition of Conforma in 2006.
|
|
5.
|
Fair
Value Measurements
|
The following tables present information about our assets and
liabilities that are measured at fair value on a recurring basis
as of March 31, 2009 and December 31, 2008 and
indicate the fair value hierarchy of the valuation techniques we
utilized to determine such fair value. In general, fair values
determined by Level 1 inputs utilize quoted prices
(unadjusted) in active markets for identical assets or
liabilities. Fair values determined by Level 2 inputs
utilize data points that are observable such as quoted prices,
interest rates and yield curves. Fair values determined by
Level 3 inputs utilize unobservable data points for the
asset or liability.
A majority of our financial assets and liabilities have been
classified as Level 2. These assets and liabilities have
been initially valued at the transaction price and subsequently
valued typically utilizing third party pricing services. The
pricing services use many inputs to determine value, including
reportable trades, benchmark yields, credit spreads,
broker/dealer quotes, bids, offers, current spot rates, 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, and analyzing pricing data in certain instances. The
fair values of our cash equivalents, derivative contracts,
marketable debt securities, and plan assets for deferred
compensation are determined through market and observable
sources and have been classified as Level 2. After
completing our validation procedures, we did not adjust or
override any fair value measurements provided by our pricing
services as of March 31, 2009 and December 31, 2008.
11
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The following is a summary of our fair value measurements (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Balance as of
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
March 31,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
679.0
|
|
|
$
|
|
|
|
$
|
679.0
|
|
|
$
|
|
|
Marketable debt securities
|
|
|
1,698.1
|
|
|
|
|
|
|
|
1,698.1
|
|
|
|
|
|
Strategic investments
|
|
|
4.4
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
Venture capital investments
|
|
|
24.3
|
|
|
|
|
|
|
|
|
|
|
|
24.3
|
|
Derivative contracts
|
|
|
2.1
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
Plan assets for deferred compensation
|
|
|
9.8
|
|
|
|
|
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,417.7
|
|
|
$
|
4.4
|
|
|
$
|
2,389.0
|
|
|
$
|
24.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
15.0
|
|
|
$
|
|
|
|
$
|
15.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15.0
|
|
|
$
|
|
|
|
$
|
15.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Balance as of
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
500.9
|
|
|
$
|
|
|
|
$
|
500.9
|
|
|
$
|
|
|
Marketable debt securities
|
|
|
1,640.4
|
|
|
|
|
|
|
|
1,640.4
|
|
|
|
|
|
Strategic investments
|
|
|
4.6
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
Venture capital investments
|
|
|
23.9
|
|
|
|
|
|
|
|
|
|
|
|
23.9
|
|
Derivative contracts
|
|
|
1.9
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
Plan assets for deferred compensation
|
|
|
13.3
|
|
|
|
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,185.0
|
|
|
$
|
4.6
|
|
|
$
|
2,156.5
|
|
|
$
|
23.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
46.0
|
|
|
$
|
|
|
|
$
|
46.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46.0
|
|
|
$
|
|
|
|
$
|
46.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our strategic investments are investments in publicly traded
equity securities where fair value is readily determinable.
12
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The following table is a roll forward of the fair value of our
venture capital investments, where fair value is determined by
Level 3 inputs (in millions):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
Description
|
|
2009
|
|
|
2008
|
|
|
Beginning Balance, January 1
|
|
$
|
23.9
|
|
|
$
|
28.1
|
|
Total net unrealized gains (losses) included in earnings
|
|
|
(0.3
|
)
|
|
|
(3.6
|
)
|
Purchases, issuances, and settlements
|
|
|
0.7
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Ending Balance, March 31
|
|
$
|
24.3
|
|
|
$
|
24.9
|
|
|
|
|
|
|
|
|
|
|
Our venture capital investments are the only assets where we
used Level 3 inputs to determine the fair value. Venture
capital investments represented approximately 0.3% of total
assets as of March 31, 2009 and December 31, 2008. The
underlying assets in these funds are initially measured at
transaction prices and subsequently valued using the pricing of
recent financing
and/or by
reviewing the underlying economic fundamentals and liquidation
value of the companies. Gains and losses (realized and
unrealized) included in earnings for the period are reported in
other income (expense), net.
The carrying amounts reflected in the consolidated balance
sheets for cash, accounts receivable, due from unconsolidated
joint business, other current assets, accounts payable and
accrued expenses and other approximate fair value due to their
short-term maturities.
Effective this quarter, we implemented Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements, or SFAS 157, for our nonfinancial assets
and liabilities that are remeasured at fair value on a
non-recurring basis. The adoption of SFAS 157 for our
nonfinancial assets and liabilities that are remeasured at fair
value on a non-recurring basis did not impact our financial
position or results of operations; however, could have an impact
in future periods. In addition, we may have additional
disclosure requirements in the event we complete an acquisition
or incur impairment of our assets in future periods.
Financial instruments that potentially subject us to
concentrations of credit risk are accounts receivable and
marketable securities. Wholesale distributors and large
pharmaceutical companies account for the majority of our
accounts receivable and collateral is generally not required
from these customers. To mitigate credit risk, we monitor the
financial performance and credit worthiness of our customers. We
also maintain a well diversified portfolio of marketable
securities that limits our credit exposure through concentration
limits set within our investment policy.
13
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Marketable
Securities, including Strategic Investments
The following is a summary of marketable securities and
strategic investments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
As of March 31, 2009:
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
119.7
|
|
|
$
|
1.1
|
|
|
$
|
|
|
|
$
|
118.6
|
|
Non-current
|
|
|
207.1
|
|
|
|
3.7
|
|
|
|
(0.1
|
)
|
|
|
203.5
|
|
Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
445.9
|
|
|
|
1.4
|
|
|
|
|
|
|
|
444.5
|
|
Non-current
|
|
|
650.6
|
|
|
|
7.5
|
|
|
|
|
|
|
|
643.1
|
|
Other interest bearing securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
71.6
|
|
|
|
|
|
|
|
|
|
|
|
71.6
|
|
Non-current
|
|
|
203.2
|
|
|
|
5.8
|
|
|
|
|
|
|
|
197.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
1,698.1
|
|
|
$
|
19.5
|
|
|
$
|
(0.1
|
)
|
|
$
|
1,678.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic investments, non-current
|
|
$
|
4.4
|
|
|
$
|
0.6
|
|
|
$
|
(0.1
|
)
|
|
$
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
As of December 31, 2008:
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
84.8
|
|
|
$
|
0.4
|
|
|
$
|
|
|
|
$
|
84.4
|
|
Non-current
|
|
|
200.3
|
|
|
|
2.6
|
|
|
|
|
|
|
|
197.7
|
|
Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
582.8
|
|
|
|
1.5
|
|
|
|
|
|
|
|
581.3
|
|
Non-current
|
|
|
422.2
|
|
|
|
8.7
|
|
|
|
|
|
|
|
413.5
|
|
Other interest bearing securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
57.3
|
|
|
|
|
|
|
|
|
|
|
|
57.3
|
|
Non-current
|
|
|
293.0
|
|
|
|
3.3
|
|
|
|
(0.3
|
)
|
|
|
290.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
1,640.4
|
|
|
$
|
16.5
|
|
|
$
|
(0.3
|
)
|
|
$
|
1,624.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic investments, non-current
|
|
$
|
4.6
|
|
|
$
|
0.5
|
|
|
$
|
(0.1
|
)
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the tables above, as of March 31, 2009 and
December 31, 2008, U.S. Government securities included
$278.1 million and $139.1 million, respectively, of
FDIC guaranteed senior notes issued by financial institutions
under the Temporary Liquidity Guarantee Program (TLGP). In
addition, the balances as of December 31, 2008 include amounts
related to our loaned securities.
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 balance sheet and
are not included in the tables above. The commercial paper,
including accrued interest, has a fair and carrying value of
$49.5 million and
14
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
$42.7 million and short-term debt securities has a fair and
carrying value of $629.5 million and $458.2 million as
of March 31, 2009 and December 31, 2008, respectively.
For the three months ended March 31, 2009 and 2008, we
recognized $3.6 million and $2.3 million,
respectively, in charges for the impairment of
available-for-sale
securities primarily related to mortgage and asset backed
securities that were determined to be
other-than-temporary
following a decline in value primarily related to adverse market
conditions, including less active trading markets, and a change
in our investment strategy regarding these assets which no
longer provided us with the ability and intent to hold the
securities to maturity or until we recovered the cost of our
investment.
The proceeds from maturities and sales of marketable securities,
excluding strategic investments, which were primarily
reinvested, and resulting realized gains and losses were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Proceeds from maturities and sales
|
|
$
|
1,057.7
|
|
|
$
|
918.0
|
|
Realized gains
|
|
$
|
5.7
|
|
|
$
|
9.6
|
|
Realized losses
|
|
$
|
1.4
|
|
|
$
|
4.3
|
|
The realized losses for the three months ended March 31,
2009 and 2008, primarily relate to losses on the sale of
corporate debt securities and non-agency mortgage-backed
securities.
The estimated fair value and amortized cost of securities,
excluding strategic investments, available-for-sale by
contractual maturity as of March 31, 2009 and
December 31, 2008 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009
|
|
|
|
Estimated
|
|
|
Amortized
|
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Due in one year or less
|
|
$
|
637.2
|
|
|
$
|
634.7
|
|
Due after one year through five years
|
|
|
939.1
|
|
|
|
925.7
|
|
Due after five years
|
|
|
121.8
|
|
|
|
118.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,698.1
|
|
|
$
|
1,678.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
Estimated
|
|
|
Amortized
|
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Due in one year or less
|
|
$
|
714.9
|
|
|
$
|
713.0
|
|
Due after one year through five years
|
|
|
733.7
|
|
|
|
722.0
|
|
Due after five years
|
|
|
191.8
|
|
|
|
189.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,640.4
|
|
|
$
|
1,624.2
|
|
|
|
|
|
|
|
|
|
|
Mortgage and other asset backed securities totaled
$205.1 million and include $21.9 million of non-agency
mortgage backed securities as of March 31, 2009 as compared
to total mortgage and other asset backed securities of
$306.8 million, which included $66.5 million of
non-agency mortgage backed securities as of December 31,
2008. The average maturity of our marketable securities as of
March 31, 2009 and December 31, 2008, was
14 months and 13 months, respectively.
15
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Strategic
Investments
We hold investments in equity securities of certain publicly
traded companies. For the three months ended March 31, 2009
and 2008, we recognized $0.4 million and $2.7 million,
respectively, in charges for the impairment of strategic
investments that were deemed to be
other-than-temporary.
Strategic investments are included in investments and other
assets on the accompanying consolidated balance sheet.
Non-Marketable
Securities
We hold investments in equity securities of certain privately
held biotechnology companies and biotechnology oriented venture
capital funds. The cost basis of these securities as of
March 31, 2009 and December 31, 2008, was
$95.0 million and $64.7 million, respectively. These
securities are included in investments and other assets on the
accompanying consolidated balance sheet.
For the three months ended March 31, 2009, we recorded
$0.4 million in unrealized gains due to increases in the
fair value of the investments in venture capital funds and
$2.1 million in charges for the impairment of investments
in privately held companies or funds that were determined to be
other-than-temporary.
For the three months ended March 31, 2008, we recognized
$3.7 million in impairment losses that were determined to
be
other-than-temporary.
No unrealized gains were recognized during the three months
ended March 31, 2008.
Securities
Lending
We loaned certain securities from our portfolio to other
institutions. Such securities are classified as loaned
securities on the accompanying consolidated balance sheet.
Collateral for the loaned securities, consisting of cash or
other securities is maintained at a rate of approximately 102%
of the market value of each loaned security. We held collateral
in the amount of $30.0 million as of December 31,
2008. No such loans were outstanding as of March 31, 2009
and accordingly no collateral was held as of March 31, 2009.
The cash collateral was recorded as collateral received for
loaned securities on the accompanying consolidated balance sheet.
Forward
Contracts and Interest Rate Swaps
Effective January 1, 2009, we implemented Statement of
Financial Accounting Standards No. 161, Disclosures
About Derivative Instruments and Hedging Activities, or
SFAS 161. As a result of adopting this standard we enhanced
our disclosures for derivative instruments and hedging
activities by providing additional information about our
objectives for using derivative instruments, the level of
derivative activity we engage in, as well as how derivative
instruments and related hedged items affect our financial
position and performance. Since SFAS 161 requires only
additional disclosures concerning derivatives and hedging
activities, the adoption of SFAS 161 did not affect the
presentation of our financial position or results of operations.
Forward
Contracts
Due to the global nature of our operations, a portion of our
revenues are in currencies other than the U.S. dollar. The
value of these revenues measured in U.S. dollars is subject
to changes in currency exchange rates. In order to mitigate
these changes we use forward contracts to lock in exchange
rates. We do not engage in currency speculation.
All foreign currency forward contracts in effect as of
March 31, 2009 and December 31, 2008 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
16
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
accumulated other comprehensive income (loss). Realized gains
and losses for the effective portion of such contracts are
recognized in revenue with the completion of the underlying
hedged transaction. To the extent ineffective, hedge transaction
gains and losses are reported in other income (expense) at each
reporting date.
Foreign currency forward contracts that were entered into to
hedge forecasted revenue were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
|
As of March 31,
|
|
|
As of December 31,
|
|
Foreign Currency
|
|
2009
|
|
|
2008
|
|
|
Euro
|
|
$
|
368.4
|
|
|
$
|
489.4
|
|
Canadian Dollar
|
|
|
27.3
|
|
|
|
34.1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
395.7
|
|
|
$
|
523.5
|
|
|
|
|
|
|
|
|
|
|
The notional settlement amount of the foreign currency forward
contracts outstanding as of March 31, 2009 was
approximately $395.7 million. The portion of the fair value
of these contracts that was included in accumulated other
comprehensive income within shareholders equity was a
$12.8 million loss as of March 31, 2009. 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, 2009, credit risk did not materially change the
fair value of our foreign currency forward contracts. The
notional settlement amount of the foreign currency forward
contracts outstanding as of December 31, 2008 was
approximately $523.5 million and the fair value of these
contracts was a net unrealized loss of $44.1 million and
was included in accumulated other comprehensive income within
shareholders equity.
During the three months ended March 31, 2009 and 2008, we
recognized $2.5 million and $0.7 million in earnings
as a loss due to hedge ineffectiveness, respectively in relation
to foreign currency forward contracts. We recognized
$3.1 million of losses in product revenue for the
settlement of certain effective cash flow hedge instruments for
the three months ended March 31, 2009 as compared to
$7.6 million of losses in product revenue for the three
months ended March 31, 2008. These settlements were
recorded in the same period as the related forecasted revenue.
Interest
Rate Swaps
In connection with the issuance of our Senior Notes in March
2008, we entered into interest rate swaps for an aggregate
notional amount of $550.0 million, which were subsequently
settled in December 2008. Under the settlement we received
$53.9 million. As the interest rate swaps were settled in
2008, no hedge ineffectiveness was recognized for the three
months ended March 31, 2009. A net loss of
$1.3 million in earnings was recognized for the three
months ended March 31, 2008 due to hedge ineffectiveness.
Additionally, upon termination of the swaps, the carrying amount
of the 6.875% Senior Notes due in 2018 increased
$62.8 million. This amount will be recognized as a
reduction of interest expense and amortized using the effective
interest rate method over the remaining life of the Senior
Notes. During the three months ended March 31, 2009,
approximately $1.3 million was recorded as a reduction of
interest expense.
The following table summarizes the fair value and presentation
in the consolidated balance sheets for derivatives designated as
hedging instruments under Statement of Financial Accounting
Standards No. 133,
17
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Accounting for Derivative Instruments and Hedging
Activities, or SFAS 133, as of March 31, 2009 and
December 31, 2008, respectively (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Contracts
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
Period
|
|
Location
|
|
|
Fair Value
|
|
|
Location
|
|
|
Fair Value
|
|
|
March 31, 2009
|
|
|
Other assets
|
|
|
$
|
2.1
|
|
|
|
Other liabilities
|
|
|
$
|
15.0
|
|
December 31, 2008
|
|
|
Other assets
|
|
|
$
|
1.9
|
|
|
|
Other liabilities
|
|
|
$
|
46.0
|
|
As noted above, the interest rate swaps were settled in December
2008.
The following table summarizes the effect of derivative
instruments on the consolidated statements of income for the
three months ended March 31, 2009 and 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2009
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
Reclassified from
|
|
|
|
|
|
|
|
|
Income on
|
|
|
Income
|
|
Accumulated OCI
|
|
|
Income
|
|
Amount of
|
|
|
|
Derivative
|
|
|
Statement
|
|
into Income
|
|
|
Statement
|
|
Gain/(Loss)
|
|
|
|
Gain/(Loss)
|
|
|
Location
|
|
Gain/(Loss)
|
|
|
Location
|
|
Recorded
|
|
Instrument
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
(Effective Portion)
|
|
|
(Ineffective Portion)
|
|
(Ineffective Portion)
|
|
|
Foreign currency contracts
|
|
$
|
(12.8
|
)
|
|
Revenue
|
|
$
|
(3.1
|
)
|
|
Other income (expense)
|
|
$
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2008
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
Reclassified from
|
|
|
|
|
|
|
|
|
Income on
|
|
|
Income
|
|
Accumulated OCI
|
|
|
Income
|
|
Amount of
|
|
|
|
Derivative
|
|
|
Statement
|
|
into Income
|
|
|
Statement
|
|
Gain/(Loss)
|
|
|
|
Gain/(Loss)
|
|
|
Location
|
|
Gain/(Loss)
|
|
|
Location
|
|
Recorded
|
|
Instrument
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
(Effective Portion)
|
|
|
(Ineffective Portion)
|
|
(Ineffective Portion)
|
|
|
Foreign currency contracts
|
|
$
|
(25.1
|
)
|
|
Revenue
|
|
$
|
(7.6
|
)
|
|
Other income (expense)
|
|
$
|
(0.7
|
)
|
Interest rate swaps
|
|
$
|
|
|
|
Interest expense
|
|
$
|
|
|
|
Interest expense
|
|
$
|
(1.3
|
)
|
18
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The activity in comprehensive income, net of income taxes, was
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net income
|
|
$
|
246.6
|
|
|
$
|
165.8
|
|
Translation adjustments
|
|
|
(49.2
|
)
|
|
|
59.1
|
|
Unfunded status of pension and post retirement benefit plans
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
Unrealized holding gains (losses) on investments, net of tax of
$(1.2) million and $(0.2) million, respectively
|
|
|
2.0
|
|
|
|
(1.5
|
)
|
Unrealized gains (losses) on derivative instruments, net of tax
of $(3.1) million and $6.9 million, respectively
|
|
|
28.1
|
|
|
|
(11.8
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
227.4
|
|
|
$
|
211.8
|
|
Comprehensive income attributable to noncontrolling interest
|
|
|
(4.7
|
)
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Biogen Idec Inc.
|
|
$
|
222.7
|
|
|
$
|
207.3
|
|
|
|
|
|
|
|
|
|
|
The adoption of SFAS 160 has resulted in the
reclassification of amounts previously attributable to minority
interest (now referred to as noncontrolling interest) to a
separate component of Shareholders Equity on the
accompanying consolidated balance sheet. Additionally, net
income attributable to noncontrolling interests is shown
separately from net income in the consolidated statements of
income. This reclassification had no effect on our previously
reported financial position or results of operations. Refer to
Note 1, Business Overview, and Note 11,
Other Income (Expense), Net, of this
Form 10-Q
for additional information on the adoption of SFAS 160.
Prior year amounts related to noncontrolling interest
(previously referred to as minority interest) have been
reclassified to conform to the current year presentation as
required by SFAS 160.
The following table reconciles equity attributable to
noncontrolling interest (in millions):
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Noncontrolling interest, January 1
|
|
$
|
27.9
|
|
|
$
|
19.7
|
|
Net income attributable to noncontrolling interest
|
|
|
2.6
|
|
|
|
2.7
|
|
Translation adjustments
|
|
|
2.1
|
|
|
|
1.8
|
|
Capital contribution
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest, March 31
|
|
$
|
32.6
|
|
|
$
|
24.7
|
|
|
|
|
|
|
|
|
|
|
19
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Basic and diluted earnings per share are calculated as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec Inc.
|
|
$
|
244.0
|
|
|
$
|
163.1
|
|
Adjustment for net income allocable to preferred stock
|
|
|
(0.4
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
Net income used in calculating basic and diluted earnings per
share
|
|
$
|
243.6
|
|
|
$
|
162.8
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
287.7
|
|
|
|
296.2
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options and ESPP
|
|
|
0.7
|
|
|
|
1.9
|
|
Time-vested restricted stock units
|
|
|
1.3
|
|
|
|
1.2
|
|
Performance-vested restricted stock units
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
|
|
|
|
|
0.2
|
|
Convertible promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
2.0
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculating diluted earnings per share
|
|
|
289.7
|
|
|
|
299.5
|
|
|
|
|
|
|
|
|
|
|
The following amounts were not included in the calculation of
net income per share because their effects were anti-dilutive
(in millions):
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income allocable to preferred stock
|
|
$
|
0.4
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
7.3
|
|
|
|
6.1
|
|
Time-vested restricted stock units
|
|
|
2.4
|
|
|
|
1.0
|
|
Performance-vested restricted stock units
|
|
|
0.1
|
|
|
|
|
|
Convertible preferred stock
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10.3
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
Effective January 1, 2009, we implemented FASB Staff
Position (FSP)
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities, or FSP
EITF 03-6-1.
FSP
EITF 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting, and
therefore need to be included in the earnings allocation in
computing earnings per share under the two-class method as
described in Statement of Financial Accounting Standards
No. 128, Earnings per Share. Under the guidance of
FSP
EITF 03-6-1,
unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents, whether paid or
20
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
unpaid, are participating securities and shall be included in
the computation of
earnings-per-share
pursuant to the two-class method. Our awards do not have
nonforfeitable rights to dividends or dividend equivalents and
therefore the adoption of this FSP did not have any impact on
the presentation of our financial position or results of
operations.
Our share-based compensation programs consist of share-based
awards granted to employees including stock options, restricted
stock, performance-vested restricted stock units as well as our
employee stock purchase plan. The fair value of
performance-vested restricted stock units is based on the market
price of our stock on the date of grant and assumes that the
performance criteria will be met and the targeted payout level
will be achieved. Compensation expense is adjusted for
subsequent changes in the outcome of performance-related
conditions until the date results are determined.
Shared-based
compensation expense
For the three months ended March 31, 2009 and 2008,
share-based compensation expense recorded in accordance with
Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payments, or
SFAS 123(R), reduced our results of operations as follows
(in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Effect on
|
|
|
|
Net Income
|
|
|
Income before income taxes
|
|
$
|
(37.9
|
)
|
|
$
|
(34.5
|
)
|
Tax effect
|
|
|
11.6
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec, Inc
|
|
$
|
(26.3
|
)
|
|
$
|
(23.7
|
)
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
Diluted earnings per share
|
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
Share-based compensation expense and capitalized share-based
costs for the three months ended March 31, 2009 and 2008
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
Stock
|
|
|
Restricted Stock
|
|
|
|
|
|
Stock
|
|
|
Restricted Stock
|
|
|
|
|
|
|
Options
|
|
|
and Restricted
|
|
|
|
|
|
Options
|
|
|
and Restricted
|
|
|
|
|
|
|
& ESPP
|
|
|
Stock Units
|
|
|
Total
|
|
|
& ESPP
|
|
|
Stock Units
|
|
|
Total
|
|
|
Research and development
|
|
$
|
2.2
|
|
|
$
|
14.1
|
|
|
$
|
16.3
|
|
|
$
|
2.4
|
|
|
$
|
15.2
|
|
|
$
|
17.6
|
|
Selling, general and administrative
|
|
|
4.6
|
|
|
|
18.6
|
|
|
|
23.2
|
|
|
|
3.4
|
|
|
|
15.3
|
|
|
|
18.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6.8
|
|
|
$
|
32.7
|
|
|
$
|
39.5
|
|
|
$
|
5.8
|
|
|
$
|
30.5
|
|
|
$
|
36.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized share-based payment costs
|
|
|
|
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
$
|
37.9
|
|
|
|
|
|
|
|
|
|
|
$
|
34.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Stock
Options
During the three months ended March 31, 2009, approximately
825,000 stock options were granted, of which approximately
775,000 were in connection with our annual awards made in
February; the remainder were granted in conjunction with
promotions or hiring of employees. During the three months ended
March 31, 2008, approximately 1.2 million stock
options were granted of which approximately 1.1 million
were in connection with our annual awards made in February; the
remainder were granted in conjunction with the promotion or
hiring of employees and the election of a new non-employee
Director. Stock options awarded as part of the annual award in
each of February 2009 and 2008 were granted with exercise prices
of $49.65 per share and $60.56 per share, respectively, except
the grants to our Chief Executive Officer, which were granted
with exercise prices of $50.55 per share and $63.24 per share,
respectively. For the three months ended March 31, 2009 and
2008, we recorded $5.2 million and $4.8 million,
respectively, of share-based compensation expense related to
stock options awarded.
The fair values of the stock option grants awarded for the three
months ended March 31, 2009 and 2008 were estimated as of
the date of grant using a Black-Scholes option valuation model.
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected stock price volatility
|
|
|
39.3
|
%
|
|
|
34.4
|
%
|
Risk-free interest rate
|
|
|
1.8
|
%
|
|
|
2.4
|
%
|
Expected option life in years
|
|
|
4.7
|
|
|
|
5.1
|
|
Weighted average per share grant date fair value
|
|
$
|
17.72
|
|
|
$
|
20.99
|
|
Time-Vested
Restricted Stock Units
During the three months ended March 31, 2009, approximately
2.3 million time-vested restricted stock units, or RSUs,
were granted, of which approximately 2.1 million were in
connection with our annual awards made in February; the
remainder were granted in conjunction with promotions or hiring
of employees. During the three months ended March 31, 2008,
approximately 2.5 million RSUs were granted of which
approximately 2.4 million were in connection with our
annual awards made in February; the remainder were granted in
conjunction with the promotion or hiring of employees and the
election of a new non-employee Director. RSUs awarded as part of
the annual grant in each of February 2009 and 2008 had grant
date fair values of $49.65 per share and $60.56 per share,
respectively, except the grants to our Chief Executive Officer,
which had grant date fair values of $50.55 per share and $63.24
per share, respectively. For the three months ended
March 31, 2009 and 2008, we recorded $31.5 million and
$29.2 million, respectively of share-based compensation
expense related to these RSUs.
Performance-Vested
Restricted Stock Units
During 2007, our Board of Directors awarded a total of 120,000
performance-vested restricted stock units, or PVRSUs, to our
President, Research and Development. Vesting of these PVRSUs is
subject to certain performance criteria set at the beginning of
each of four performance periods, beginning January 1 on each of
2007, 2008, 2009 and 2010. Up to 30,000 PVRSUs are eligible to
vest in part or full each year and convert into shares of our
common stock subject to attainment of certain performance
criteria and Dr. Picketts continued employment
through the end of the respective performance period; the
performance periods end on December 31, 2007,
December 31, 2008, December 31, 2009 and
September 30, 2010. We apply graded
22
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
vesting when accounting for the PVRSUs awarded to
Dr. Pickett and the fair value will be based on the market
price on the date of vesting. As of March 31, 2008, a total
of 27,000 shares were issued based upon the attainment of
performance criteria set for 2007. As of March 31, 2009, an
additional 30,000 shares were issued based on the
attainment of performance criteria set for 2008.
During the three months ended March 31, 2009, we granted
approximately 307,000 PVRSUs, of which approximately 291,000
were in connection with our annual awards made in February; the
remainder were granted in conjunction with promotions or hiring
of employees. These PVRSUs are eligible to vest in full or in
part and are earned subject to the attainment of certain
performance criteria established at the beginning of the
performance period; the performance period ends
December 31, 2009. Once the earned number of
performance-vested awards has been determined, the earned PVRSUs
will then vest in three equal increments on (1) the later
of the first anniversary of grant or the date of results
determination; (2) the second anniversary of grant; and
(3) the third anniversary of grant. The vesting of these
awards is also subject to the respective employees
continued employment. We apply graded vesting when accounting
for these PVRSUs. Compensation cost is adjusted quarterly for
subsequent changes in the outcome of performance-related
conditions until the date results are determined.
We account for our awards of PVRSUs in accordance with FASB
Interpretation No. 28, Accounting for Stock Appreciation
Rights and Other Variable Stock Options or Award Plans, or
FIN 28. For the three months ended March 31, 2009 and
2008, we recorded $1.2 million and $0.6 million,
respectively, of share-based compensation expense related to
PVRSUs.
Employee
Stock Purchase Plan
For the three months ended March 31, 2009 and 2008,
approximately 0.2 million and 0.1 million shares,
respectively, were issued under the employee stock purchase
plan, or ESPP. For the three months ended March 31, 2009
and 2008, we recorded approximately $1.6 million and
$1.1 million, respectively, of share-based compensation
expense related to the ESPP.
Our effective tax rate was 21.0% for the three months ended
March 31, 2009, compared to 33.4% for the comparable period
in 2008. The effective tax rate for the three months ended
March 31, 2009 was favorably impacted by recently enacted
changes in tax law in certain state jurisdictions in which we
operate. These changes required us to establish assets for
certain tax credits and adjust certain deferred tax liabilities
and reserves for uncertain tax positions. The total effect of
these changes was a $30.2 million reduction to our income
tax expense in the three months ended March 31, 2009.
23
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Reconciliation between the U.S. federal statutory tax rate
and our effective tax rate for the three months ended
March 31, 2009 and 2008, respectively, is as follows:
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes
|
|
|
(1.1
|
)
|
|
|
2.9
|
|
Taxes on foreign earnings
|
|
|
(5.8
|
)
|
|
|
(8.9
|
)
|
Credits and net operating loss utilization
|
|
|
(9.4
|
)
|
|
|
(1.8
|
)
|
Fair value adjustment
|
|
|
1.6
|
|
|
|
3.4
|
|
IPR&D
|
|
|
1.1
|
|
|
|
3.5
|
|
Non-deductible items
|
|
|
(1.1
|
)
|
|
|
(0.8
|
)
|
Other
|
|
|
0.7
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
21.0
|
%
|
|
|
33.4
|
%
|
|
|
|
|
|
|
|
|
|
On September 12, 2006, we received a Notice of Assessment
from the Massachusetts Department of Revenue for
$38.9 million, including penalties and interest, with
respect to the 2002 tax year. Subsequently, we filed a petition
with the Massachusetts Appellate Tax Board, seeking among other
items, abatements of corporate excise tax for the 2001, 2002 and
2003 tax years. We believe that we have meritorious defenses to
the proposed adjustment and are vigorously opposing the
assessment. We believe that the assessment does not impact the
level of liabilities for income tax contingencies. However,
there is a possibility that we may not prevail in all of our
assertions. If this is resolved unfavorably in the future, it
could have a material impact on our results of operations in the
period the resolution occurs. We are subject to examinations by
the Massachusetts Department of Revenue for additional tax years
and, therefore, may be assessed for a similar proposed
adjustment to those additional tax years. Refer to Note 13,
Litigation, of this
Form 10-Q
for additional information.
We file income tax returns in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. With
few exceptions, we are no longer subject to U.S. federal,
state and local, or
non-U.S. income
tax examinations by tax authorities for years before 2001.
During the second quarter of 2007, the Internal Revenue Service,
or IRS, completed its examination of our consolidated federal
income tax returns for the fiscal years 2003 and 2004 and issued
an assessment. During the first quarter of 2009 the IRS
completed an examination of our consolidated federal income tax
returns for fiscal years 2005 and 2006 and issued an assessment.
Our level of liabilities for income tax contingencies
approximate those amounts for items agreed to with the IRS; we
are appealing several other items. If this is resolved
unfavorably in the future, the outcome could have an impact on
our results of operations in the period the resolution occurs.
24
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
11.
|
Other
Income (Expense), Net
|
Total other income (expense), net, consists of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Interest income
|
|
$
|
14.8
|
|
|
$
|
22.9
|
|
Interest expense
|
|
|
(9.9
|
)
|
|
|
(15.7
|
)
|
Impairments of investments
|
|
|
(6.1
|
)
|
|
|
(8.7
|
)
|
Other, net
|
|
|
8.0
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
6.8
|
|
|
$
|
3.1
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, the principal
components of other, net included a net gain on foreign currency
of $3.0 million and $4.3 million in net realized gains
on marketable securities.
For the three months ended March 31, 2008, the principal
components of other, net included losses on foreign currency of
$1.7 million and the write down of a loan of
$1.1 million, offset by a net realized gain on marketable
securities of $3.0 million and a VAT refund of
$3.8 million.
Prior year amounts related to noncontrolling interest (minority
interest), historically reflected as a component of other income
(expense), net, have been reclassified to conform to current
year presentation as required by SFAS 160. The adoption of
SFAS 160 has resulted in the reclassification of amounts
previously reported as minority interest, totaling
$2.7 million, being shown separately from net income in the
accompanying consolidated statement of income. This
reclassification did not impact our previously reported
financial position or results of operations. Refer to
Note 1, Business Overview, and Note 7,
Comprehensive Income, of this
Form 10-Q
for additional information on the adoption of SFAS 160.
In connection with our business strategy, we have entered into
various collaboration agreements which provide us with rights to
develop, produce and market products using certain know-how,
technology and patent rights maintained by our collaborative
partners. Terms of the various collaboration agreements may
require us to make milestone payments upon the achievement of
certain product research and development objectives and pay
royalties on future sales, if any, of commercial products
resulting from the collaboration.
Effective this quarter, we implemented EITF
No. 07-01,
Accounting for Collaborative Arrangements, or
EITF 07-01,
which prescribes that certain transactions between collaborators
be recorded in the income statement on either a gross or net
basis, depending on the characteristics of the collaboration
relationship, and provides for enhanced disclosure of
collaborative relationships. In accordance with
EITF 07-01,
we evaluated our collaborative agreements for proper income
statement classification based on the nature of the underlying
activity. If payments to and from our collaborative partners are
not within the scope of other authoritative accounting
literature, the income statement classification for the payments
is based on a reasonable, rational analogy to authoritative
accounting literature that is applied in a consistent manner.
Amounts due from our collaborative partners related to
development activities are generally reflected as a reduction of
research and development expense because the performance of
contract development services is not central to our operations.
For collaborations with commercialized products, if we are the
principal, as defined in EITF
No. 99-19,
Reporting Revenue as a Principal versus Net as an Agent,
or
EITF 99-19,
we record revenue and the corresponding operating costs in their
respective line items within our statement of income. If we are
not the principal, we record operating costs as a reduction of
revenue.
EITF 99-19
describes the principal as the
25
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
party who is responsible for delivering the product or service
to the customer, has latitude with establishing price, and has
the risks and rewards of providing product or service to the
customer, including inventory and credit risk. The adoption of
EITF 07-01
did not affect our financial position or results of operations,
however it resulted in enhanced disclosures for our
collaboration activities.
Genentech
We have a collaboration agreement with Genentech Inc., or
Genentech, a wholly-owned subsidiary of Roche Holdings, Inc. Our
collaboration with Genentech was created and operates by
agreement rather than through a joint venture or other legal
entity. Our rights under the terms of our amended and restated
collaboration agreement with Genentech include co-exclusive
rights to develop, commercialize and market RITUXAN in the
U.S. and Canada with Genentech. Genentech has the exclusive
right to develop, commercialize and market RITUXAN in the rest
of the world. We have assigned our rights to develop,
commercialize and market RITUXAN in Canada to
F. Hoffman-La Roche Ltd., or Roche. Genentech shares a
portion of the pretax U.S. co-promotion profits with us and
Roche shares a portion of the pretax Canadian co-promotion
profits of RITUXAN with us.
Under the terms of separate sublicense agreements between
Genentech and Roche, Roche is responsible for commercialization
of RITUXAN outside the U.S., except in Japan where RITUXAN is
co-promoted by Zenyaku Kogyo Co. Ltd., or Zenyaku, and Chugai
Pharmaceuticals Co. Ltd., or Chugai, an affiliate of Roche.
There is no direct contractual arrangement between us, Zenyaku
or Chugai.
Under the collaboration, Genentech is responsible for the
primary support functions for the commercialization of RITUXAN
in the U.S. including selling and marketing, customer
service, order entry, distribution, shipping, billing and other
administrative support. Genentech is also responsible for
worldwide manufacturing of RITUXAN and incurs the majority of
continuing development costs for RITUXAN. In the U.S., we
contribute limited resources to selling and the continued
development of RITUXAN. Our collaboration agreement with
Genentech provides Genentech with the right to present an offer
to buy the rights to RITUXAN in the event that we undergo a
change of control as defined.
Revenues from unconsolidated joint business consists of
(1) our share of pretax co-promotion profits in the U.S.;
(2) reimbursement of selling and development expenses in
the U.S.; and (3) revenue on sales of RITUXAN outside the
U.S., which consist of our share of pretax co-promotion profits
in Canada and royalty revenue on sales of RITUXAN outside the
U.S. and Canada by Roche, Zenyaku and Chugai. 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 expenses, and joint
development expenses incurred by Genentech, Roche and us. We
record our royalty and co-promotion profits revenue on sales of
RITUXAN outside the U.S. on a cash basis.
Revenues from unconsolidated joint business consist of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Co-promotion profits in the U.S.
|
|
$
|
179.5
|
|
|
$
|
158.0
|
|
Reimbursement of selling and development expenses in the U.S.
|
|
|
15.0
|
|
|
|
12.7
|
|
Revenue on sales of RITUXAN outside the U.S.
|
|
|
84.3
|
|
|
|
76.5
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated joint business
|
|
$
|
278.8
|
|
|
$
|
247.2
|
|
|
|
|
|
|
|
|
|
|
26
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Under the collaboration agreement, our current pretax
co-promotion profit-sharing formula, which resets annually, is
as follows:
|
|
|
|
|
|
|
Biogen Idecs
|
|
|
|
Share of
|
|
|
|
Co-promotion
|
|
Co-promotion Operating Profits
|
|
Profits
|
|
|
First $50 million
|
|
|
30
|
%
|
Greater than $50 million
|
|
|
40
|
%
|
In 2009 and 2008, the 40% threshold was met during the first
quarter.
Under the collaboration agreement, we have the right to
participate with Genentech in the development and
commercialization of any anti-CD20 product acquired or developed
by Genentech, which we refer to as a New Anti-CD20 Product, as
well as the right to participate with Genentech in the
development and commercialization of any anti-CD20 product that
Genentech licenses from a third party, which we refer to as a
Third Party Anti-CD20 Product. Under the terms of the
collaboration agreement there are different rights and
obligations that apply depending on whether an anti-CD20 product
is a New
Anti-CD20
Product or a Third Party
Anti-CD20
Product. Currently, there is only one New Anti-CD20 Product,
ocrelizumab, and only one Third Party Anti-CD20 Product, GA101.
Our agreement with Genentech provides that the successful
development and commercialization of the first New
Anti-CD20
Product will decrease our percentage of co-promotion profits of
the collaboration and that we will participate in Third Party
Anti-CD20
Products on similar financial terms as for ocrelizumab.
For each calendar year or portion thereof following the approval
date of the first New Anti-CD20 Product, the pretax co-promotion
profit-sharing formula for RITUXAN and New Anti-CD20 Products
sold by us and Genentech will change as follows.
|
|
|
|
|
|
|
|
|
|
|
Biogen Idecs
|
|
|
|
|
|
Share of
|
|
|
|
First New Anti-CD20 Product U.S.
|
|
Co-promotion
|
|
Co-promotion Operating Profits
|
|
Gross Product Sates
|
|
Profits
|
|
|
First $50 million(1)
|
|
N/A
|
|
|
30
|
%
|
Greater than $50 million
|
|
Until such sales exceed $150 million
in any calendar year(2)
|
|
|
38
|
%
|
|
|
Or
|
|
|
|
|
|
|
After such sales exceed $150 million in
any calendar year until such sales
exceed $350 million in any calendar year(3)
|
|
|
35
|
%
|
|
|
Or
|
|
|
|
|
|
|
After such sales exceed $350 million in
any calendar year(4)
|
|
|
30
|
%
|
|
|
|
(1) |
|
not applicable in the calendar year the first New Anti-CD20
Product is approved if $50 million in
co-promotion
operating profits has already been achieved in such calendar
year through sales of RITUXAN. |
|
(2) |
|
if we are recording our share of RITUXAN co-promotion profits at
40%, upon the approval date of the first New Anti-CD20 Product,
our share of co-promotion profits for RITUXAN and the New
Anti-CD20 Product will be immediately reduced to 38% following
the approval dale of the first New Anti-CD20 Product until the
$150 million in first New Anti-CD20 Product sales level is
achieved. |
|
(3) |
|
if $150 million in first New Anti-CD20 Product sales is
achieved in the same calendar year the first New Anti-CD20
Product receives approval, then the 35% co-promotion
profit-sharing rate will not be effective until January 1
of the following calendar year. Once the $150 million in
first New Anti-CD20 Product |
27
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
|
|
|
sales level is achieved then our share of co-promotion profits
for the balance of the year and all subsequent years (after the
first $50 million in co-promotion operating profits in such
years) will be 35% until the $350 million in first New
Anti-CD20 Product sales level is achieved. |
|
(4) |
|
if $350 million in first New Anti-CD20 Product sales is
achieved in the same calendar year that $150 million in new
product sales is achieved, then the 30% co-promotion
profit-sharing rate will not be effective until January 1
of the following calendar year (or January 1 of the second
following calendar year if the first New Anti-CD20 Product
receives approval and, in the same calendar year, the
$150 million and $350 million in first New Anti-CD20
Product sales levels are achieved). Once the $350 million
in first New Anti-CD20 Product sales level is achieved then our
share of co-promotion profits for the balance of the year and
all subsequent years will be 30%. |
Currently, we record our share of 30% of the expenses incurred
by the collaboration for the development of New Anti-CD20
Products in research and development expense in our consolidated
statement of income until such time as a New Anti-CD20 Product
is approved, at which time we will record future such expenses
as a reduction of our share of pretax co-promotion profits
related to the New Anti-CD20 Product in revenues from
unconsolidated joint business. For the three months ended
March 31, 2009 and 2008, we incurred $15.0 and
$11.9 million, respectively, in selling and development
expense related to new Anti-CD20 products. Reimbursement to
Genentech for our share of these costs occurs through the net
amount of U.S. co-promotion profit remitted to us.
Elan
We have a collaboration agreement with Elan to collaborate in
the development, manufacture and commercialization of TYSABRI.
Under the terms of the agreement, we manufacture TYSABRI and
collaborate with Elan on the products marketing,
commercial distribution and on-going development activities. The
collaboration with Elan is designed to effect an equal sharing
of profits and losses generated by the activities of the
collaboration between Elan and us. Under the agreement, however,
once sales of TYSABRI exceeded specific thresholds, Elan was
required to make milestone payments to us in order to continue
sharing equally in the collaborations results. In order to
maintain the current collaboration profit sharing split, Elan
paid us $75.0 million in the third quarter of 2008 and
$50.0 million in the first quarter of 2009, respectively.
We have recorded these amounts as deferred revenue upon receipt
and are recognizing the entire $125.0 million as product
revenue in our consolidated statement of income over the term of
the collaboration agreement based on a units of revenue method
whereby the revenue recognized is based on the ratio of units
shipped in the current period over the total units expected to
be shipped over the remaining term of the collaboration. No
additional milestone payments are required under the agreement
to maintain the current profit sharing split. Our collaboration
agreement with Elan provides Elan or us with the option to buy
the rights to TYSABRI in the event that the other company were
to undergo a change of control as defined.
In the U.S., Elan and we co-market TYSABRI, with us primarily
responsible for marketing TYSABRI for multiple sclerosis, or MS,
and Elan primarily responsible for marketing TYSABRI for
Crohns disease. We sell TYSABRI to Elan who sells the
product to third party distributors. In accordance with
EITF 99-19,
we are not the principal for such third party sales. Our sales
price to Elan in the U.S. is set prior to the beginning of
each quarterly period to effect an approximate equal sharing of
the gross margin between Elan and us. We recognize revenue for
U.S. sales of TYSABRI upon Elans shipment of the
product to the third party distributors. We incur manufacturing
and distribution costs, research and development expenses,
commercial expenses and general and administrative expenses. We
record these expenses to their respective line items within our
statement of income when they are incurred. Research and
development and sales and marketing expenses are shared with
Elan and the reimbursement of these expenses is recorded as
reductions of the respective expense categories. For the three
months ended March 31, 2009 and 2008, we recorded
$7.4 million
28
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
and $5.3 million, respectively, as reductions of research
and development expense for reimbursements from Elan. In
addition, we recorded $12.7 million and $9.0 million,
respectively, as reductions of selling, general and
administrative expense for reimbursements from Elan.
Outside the U.S., or rest of world, we are responsible for
distributing TYSABRI to customers and are primarily responsible
for all operating activities. As a result, in accordance with
EITF 99-19
we are the principal for third party sales. Generally, we
recognize revenue for sales of TYSABRI in rest of world at the
time of product delivery to our customers. Payments are made to
Elan for their share of rest of world net operating profits to
effect an equal sharing of collaboration operating profit. These
payments include the reimbursement of our portion of third-party
royalties that Elan pays on behalf of the collaboration,
relating to rest of world sales. These amounts are
reflected in the collaboration profit sharing line in our
consolidated statement of income. For the three months ended
March 31, 2009 and 2008, $42.8 million and
$21.4 million was reflected in the collaboration profit
sharing line for our collaboration with Elan. As sales of
TYSABRI outside the U.S. increase, our collaboration profit
sharing expense is expected to increase.
Neurimmune
We have a collaboration agreement with Neurimmune SubOne AG, or
Neurimmune, a subsidiary of Neurimmune Therapeutics AG, for the
development and commercialization of antibodies for the
treatment of Alzheimers disease. The royalty term under
the agreement for sales in each country will be no less than
12 years from the first commercial sale of product using
such compound in such country. Neurimmune will conduct research
to identify potential therapeutic antibodies and we will be
responsible for the development, manufacturing and
commercialization of all products. Under the terms of the
agreement, we may pay up to an additional $362.5 million in
milestone payments, as well as a royalty on sales of any
resulting commercial products.
We have determined that we are the primary beneficiary of
Neurimmune under FIN 46(R). As such, we consolidate the
results of Neurimmune. The assets and liabilities of Neurimmune
are not significant as it is a research and development
organization.
We incurred research and development expense of
$5.0 million and $8.0 million for the three months
ended March 31, 2009 and 2008, respectively, related to
milestone payments. We reimburse Neurimmune for all research and
development costs incurred in support of the collaboration. For
the three months ended March 31, 2009 and 2008, the
collaboration incurred $1.8 million and $1.2 million,
respectively, which was reflected in research and development
expense in our statement of income.
Since inception of the collaboration excluding an upfront
payment of $2.0 million and milestone payments of $15.5
million, we have spent an additional $8.1 million to
develop the lead compound. We may incur up to an additional
$300.0 million to develop the lead compound.
Cardiokine
We have a collaboration agreement with Cardiokine Biopharma LLC,
or Cardiokine, a subsidiary of Cardiokine Inc., for the joint
development of Lixivaptan, an oral compound for the potential
treatment of hyponatremia in patients with congestive heart
failure. The royalty term under the agreement for sales in each
country will be no less than 10 years from the first
commercial sale of a Lixivaptan product in such country. If
successful, we will be responsible for certain development
activities, manufacturing and global commercialization of
Lixivaptan, and Cardiokine has an option for limited
co-promotion in the U.S. Under the terms of the agreement,
we may pay up to an additional $170.0 million in
development milestone payments as well as royalties on
commercial sales.
29
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
We have determined that we are the primary beneficiary under
FIN 46(R). As such, we consolidate the results of
Cardiokine. The assets and liabilities of Cardiokine are not
significant as it is a research and development organization.
We reimburse Cardiokine for 90% of research and development
costs in support of the collaboration. For the three months
ended March 31, 2009 and 2008, the collaboration incurred
$13.7 million and $8.7 million, respectively, which
was reflected in research and development expense in our
consolidated statement of income. We have allocated
$1.4 million and $0.9 million to net income
attributable to noncontrolling interest, net of tax, for the
amount of research and development expense retained by the
noncontrolling interest holders.
Since inception of the agreement excluding an upfront payment of
$50.0 million, we have incurred $74.7 million to
develop Lixivaptan. We may incur up to an additional
$400.0 million to develop Lixivaptan for all indications
under development.
Biovitrum
We have a collaboration agreement with Biovitrum AB, or
Biovitrum, to jointly develop and commercialize Factor VIII and
Factor IX for the treatment of hemophilia. Under the agreement,
development and commercialization costs and profits are shared
equally. We have commercial rights to North America and
Biovitrum has commercial rights to Europe. All other territories
are to be managed by a third party with us and Biovitrum sharing
equally in the operating results. Under the agreement, Biovitrum
may pay us up to an additional $19.5 million in milestone
payments.
For the three months ended March 31, 2009 and 2008, in
total, the Factor VIII and Factor IX programs incurred
$12.9 million and $9.7 million, respectively. Amounts
due from Biovitrum have been recorded as a reduction of research
and development expense. As such, we reflected $6.4 million
and $4.9 million in research and development expense in our
consolidated statement of income for the three months ended
March 31, 2009 and 2008, respectively.
Since inception of the agreement, we have incurred
$34.6 million to develop Factor VIII and Factor IX for the
treatment of hemophilia. We may incur up to an additional
$60.0 million to develop Factor VIII and Factor IX for this
indication.
Mondo
We have a collaboration agreement with MondoGen, or Mondo, a
subsidiary of MondoBiotech AG, to develop and commercialize
Aviptadil, a clinical compound for the treatment of pulmonary
arterial hypertension, or PAH. Under the agreement, we are
responsible for manufacturing, development, and
commercialization of the compound and could incur up to
$30.0 million in milestones payments for successful
development and commercialization of the program in the
U.S. and Europe, as well as royalty payments on commercial
sales. In February 2009, the parties revised the agreement to
clarify that our development funding obligation should not
exceed $13.3 million, inclusive of amounts incurred for the
three months ended March 31, 2009 and December 31,
2008, if we decide not to pursue the collaboration beyond 2009.
We have determined that we are the primary beneficiary under
FIN 46(R). As such, we consolidate the results of Mondo.
The assets and liabilities of Mondo are not significant as it is
a research and development organization.
For the three months ended March 31, 2009 and 2008, the
collaboration incurred $3.1 million and $5.5 million,
respectively, which was reflected in research and development
expense in our consolidated statement of income. Since inception
of the agreement excluding an upfront payment of $7.5 million,
we have incurred $33.0 million to develop Aviptadil in PAH.
30
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
UCB
We have a collaboration agreement with UCB, S.A., or UCB, aimed
at advancing the development and commercialization of an oral
alpha4 integrin, or VLA-4, antagonist for MS. Under the
agreement, we will lead commercialization in the United States
and Canada and UCB will lead commercialization in Europe and
Japan. Under the terms of the agreement, we may pay up to an
additional $239.3 million in milestone payments upon
achievement of development and commercial milestone. We share
development expenses with UCB based on the development phase.
For Phase II development, we are responsible for 80% of the
expenses. For the first half of expected Phase III
development expenses, we will be responsible for 60% of the
expenses. Expenses for the second half of Phase III
development will be split equally between us and UCB. All
commercialization costs and profits will be shared equally.
For the three months ended March 31, 2009 and 2008, the
collaboration incurred $8.8 million and $7.0 million,
respectively. Our share of the collaboration expenses were
$5.8 million and $4.6 million, respectively, which is
reflected in research and development expense in our
consolidated statement of income.
Since inception of the agreement excluding an upfront payment of
$30.0 million, we have incurred $55.9 million to
develop an oral VLA-4 inhibitor for MS. We may incur up to an
additional $450.0 million to develop the compound for this
indication.
Facet
Biotech
We have a collaboration agreement with Facet Biotech, or Facet,
aimed at advancing the development and commercialization of
Daclizumab in MS and Volociximab in solid tumors. Daclizumab is
a humanized monoclonal antibody that binds to the IL-2 receptor
on activated T cells. Volociximab is an anti-angiogenic chimeric
antibody directed against alpha5 beta1 integrin, or VLA5. Under
the agreement, development and commercialization costs and
profits are shared equally. We may incur up to an additional
$660.0 million of payments upon achievement of development
and commercial milestones. For the three months ended
March 31, 2009 and 2008, the collaboration incurred
approximately $8.2 million and $19.3 million,
respectively. As a result, we reflected $4.1 million and
$9.7 million, respectively, in research and development
expense in our consolidated statement of income.
Since inception of the collaboration excluding an upfront
payment of $40.0 million and milestone payments
of $10.0 million, we have incurred $45.3 million
and $59.1 million to develop Daclizumab and Volociximab,
respectively. We may incur up to an additional
$400.0 million and $250.0 million, respectively, to
develop Daclizumab and Volociximab in these indications.
Vernalis
We have a collaboration agreement with Vernalis plc, or
Vernalis, aimed at advancing the development and
commercialization of an adenosine A2a receptor antagonist for
treatment of Parkinsons disease. Under the agreement, we
received exclusive worldwide rights to develop and commercialize
the compound. We are responsible for funding all development
costs and may incur up to an additional $85.0 million of
milestone payments upon achievement of certain objectives, as
well as royalties on commercial sales.
For the three months ended March 31, 2009 and 2008, we
incurred $4.3 million and $3.5 million, respectively,
which is reflected in research and development expense in our
consolidated statement of income. Since inception of the
collaboration excluding an upfront payment of $10.0 million
and a milestone payment of $3.0 million, we have
incurred $59.1 million to develop a compound for treatment
of Parkinsons disease. We may incur up to an additional
$350.0 million to develop the compound in this indication.
Along with several other major pharmaceutical and biotechnology
companies, Biogen, Inc. (now Biogen Idec MA, Inc., one of our
wholly-owned subsidiaries) or, in some cases, Biogen Idec Inc.,
was named as a defendant in lawsuits filed by the City of New
York and numerous Counties of the State of New York. All of the
cases
31
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
except for cases filed by the County of Erie, County of Oswego
and County of Schenectady, or the Three County
Actions are the subject of a Consolidated Complaint,
first filed on June 15, 2005 in the U.S. District
Court for the District of Massachusetts in Multi-District
Litigation No. 1456, or the MDL proceedings. The complaints
allege that the defendants (i) fraudulently reported the
Average Wholesale Price for certain drugs for which Medicaid
provides reimbursement, or the Covered Drugs; (ii) marketed
and promoted the sale of Covered Drugs to providers based on the
providers ability to collect inflated payments from the
government and Medicaid beneficiaries that exceeded payments
possible for competing drugs; (iii) provided financing
incentives to providers to over-prescribe Covered Drugs or to
prescribe Covered Drugs in place of competing drugs; and
(iv) overcharged Medicaid for illegally inflated Covered
Drugs reimbursements. Among other things, the complaints allege
violations of New York state law and advance common law claims
for unfair trade practices, fraud, and unjust enrichment. In
addition, the amended Consolidated Complaint alleges that the
defendants failed to accurately report the best
price on the Covered Drugs to the Secretary of Health and
Human Services pursuant to rebate agreements, and excluded from
their reporting certain discounts and other rebates that would
have reduced the best price. With respect to the MDL
proceedings, some of the plaintiffs claims were dismissed,
and the parties, including Biogen Idec, began a mediation of the
outstanding claims on July 1, 2008. We have not formed an
opinion that an unfavorable outcome is either
probable or remote in any of these
cases, and do not express an opinion at this time as to their
likely outcome or as to the magnitude or range of any potential
loss. We believe that we have good and valid defenses to each of
these complaints and are vigorously defending against them.
Along with several other major pharmaceutical and biotechnology
companies, we were also named as a defendant in a lawsuit filed
by the Attorney General of Arizona in the Superior Court of the
State of Arizona and transferred to the MDL proceedings. The
complaint, as amended on March 13, 2007, was brought on
behalf of Arizona consumers and other payors for drugs, and
alleges that the defendants violated the state consumer fraud
statute by fraudulently reporting the Average Wholesale Price
for certain drugs covered by various private and public
insurance mechanisms and by marketing these drugs to providers
based on the providers ability to collect inflated
payments from third-party payors. On February 11, 2009, the
Attorney General of Arizona voluntarily dismissed all claims
against Biogen Idec.
On June 17, 2006, Biogen Idec filed a Demand for
Arbitration against Genentech, Inc. with the American
Arbitration Association, or the AAA, which Demand was amended on
December 5, 2006 and on January 29, 2008. In the
Demand, Biogen Idec alleged that Genentech breached the
parties Amended and Restated Collaboration Agreement dated
June 19, 2003, or the Collaboration Agreement, by failing
to honor Biogen Idecs contractual right to participate in
strategic decisions affecting the parties joint
development and commercialization of certain pharmaceutical
products, including humanized anti-CD20 antibodies. Genentech
filed an Answering Statement in response to Biogen Idecs
Demand in which Genentech denied that it had breached the
Collaboration Agreement and alleged that Biogen Idec had
breached the Collaboration Agreement. In its Answering
Statement, filed in 2006, Genentech also asserted for the first
time that the November 2003 transaction in which Idec
Pharmaceuticals acquired Biogen and became Biogen Idec was a
change of control under the Collaboration Agreement, a position
with which we disagree strongly. It is our position that the
Biogen Idec merger did not constitute a change of control under
the Collaboration Agreement and that, even if it did,
Genentechs rights under the change of control provision,
which must be asserted within ninety (90) days of the
change of control event, have long since expired. The hearing
has concluded and we anticipate a decision in mid-2009. We have
not formed an opinion that an unfavorable outcome is either
probable or remote, and do not express
an opinion at this time as to the likely outcome of the matter
or as to the magnitude or range of any potential loss. We
believe that we have good and valid defenses to Genentechs
allegations.
On September 12, 2006, the Massachusetts Department of
Revenue, or the DOR, issued a notice of assessment against
Biogen Idec MA, Inc. for $38.9 million of corporate excise
tax with respect to the 2002 tax year, which includes associated
interest and penalties. On December 6, 2006, we filed an
abatement
32
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
application with the DOR, seeking abatements for 2001, 2002 and
2003 tax years. The abatement application was denied on
July 24, 2007. On July 25, 2007, we filed a petition
with the Massachusetts Appellate Tax Board, seeking, among other
items, abatements of corporate excise tax for 2001, 2002 and
2003 tax years and adjustments in certain credits and credit
carryforwards for 2001, 2002 and 2003 tax years. Issues before
the Board include the computation of Biogen Idec MAs sales
factor for 2001, 2002 and 2003 tax years, computation of Biogen
Idec MAs research credits for those same years, and the
availability of deductions for certain expenses and partnership
flow-through items. We anticipate that the trial will take place
in 2010. We intend to contest this matter vigorously.
On October 4, 2004, Genentech, Inc. received a subpoena
from the U.S. Department of Justice requesting documents
related to the promotion of RITUXAN. We market RITUXAN in the
U.S. in collaboration with Genentech. Genentech has
disclosed that it is cooperating with the associated
investigation, and that it has been advised the investigation is
civil in nature. We are cooperating with the
U.S. Department of Justice in its investigation of
Genentech. The potential outcome of this matter and its impact
on us cannot be determined at this time.
In January 2008, the European Commission, or the EC, began an
industry-wide antitrust inquiry into competitive conditions
within the pharmaceutical sector. As part of the inquiry, the EC
requested information from approximately 100 companies,
including Biogen Idec. The EC published a preliminary report in
November 2008 and has announced that it expects to publish a
final report in the spring of 2009. The potential outcome of
this matter and its impact on us cannot be determined at this
time.
On October 27, 2008, Sanofi-Aventis Deutschland GmbH, or
Sanofi, filed suit against Genentech and Biogen Idec in federal
court in Texas (E.D. Tex.) claiming that Rituxan and certain
other Genentech products infringe U.S. Patents 5,849,522,
or the 522 patent, and 6,218,140, or the 140 patent.
Sanofi seeks preliminary and permanent injunctions, compensatory
and exemplary damages, and other relief. On October 27,
2008, Genentech and Biogen Idec filed a complaint against
Sanofi, Sanofi-Aventis U.S. LLC, and Sanofi-Aventis
U.S. Inc. in federal court in California (N.D. Cal.)
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. In addition, 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 agreement between Hoechsts predecessor and
Genentech that pertained to the above-referenced patents and
related patents outside the U.S. Hoechst is seeking payment
of royalties on sales of Genentech products, damages for breach
of contract, and other relief. We have not formed an opinion
that an unfavorable outcome is either probable or
remote, and do not express an opinion at this time
as to the likely outcome of the matters or as to the magnitude
or range of any potential loss. We believe that we have good and
valid defenses and intend vigorously to defend against the
allegations against us.
In addition, we are involved in product liability claims and
other legal proceedings generally incidental to our normal
business activities. While the outcome of any of these
proceedings cannot be accurately predicted, we do not believe
the ultimate resolution of any of these existing matters would
have a material adverse effect on our business or financial
conditions.
We operate in one business segment, which is the business of
development, manufacturing and commercialization of novel
therapeutics for human health care and therefore, our chief
operating decision-maker manages the operation of the Company as
a single operating segment.
33
BIOGEN
IDEC INC. AND SUBSIDIARES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
15.
|
New
Accounting Pronouncements
|
Effective January 1, 2009, we implemented Statement of
Financial Accounting Standards No. 141(R), Business
Combination, SFAS 141(R). This standard requires an
acquiring company to measure all assets acquired and liabilities
assumed, including contingent considerations and all contractual
contingencies, at fair value as of the acquisition date. In
addition, an acquiring company is required to capitalize
IPR&D and either amortize it over the life of the product,
or write it off if the project is abandoned or impaired. Due to
the fact that SFAS 141(R) is applicable to future
acquisitions completed after January 1, 2009 and we did not
have any business combinations this quarter, the adoption of
SFAS 141(R) did not have an impact on our consolidated
financial statements. SFAS 141(R) amended Statement of
Financial Accounting Standards No. 109, Accounting for
Income Taxes, or SFAS 109, and FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes,
or FIN 48. Previously, SFAS 109 and FIN 48,
respectively, generally required post-acquisition adjustments
related to business combination deferred tax asset valuation
allowances and liabilities for uncertain tax positions to be
recorded as an increase or decrease to goodwill.
SFAS 141(R) does not permit this accounting and, generally,
requires any such changes to be recorded in current period
income tax expense. Thus, all changes to valuation allowances
and liabilities for uncertain tax positions established in
acquisition accounting, whether the business combination was
accounted for under SFAS 141 or SFAS 141(R), will be
recognized in current period income tax expense.
On May 5, 2008, Statement of Financial Accounting Standards
No. 162, The Hierarchy of Generally Accepted Accounting
Principles, or SFAS 162, was issued. This standard
identifies the sources of accounting principles and the
framework for selecting the principles to be used in the
preparation of financial statements that are presented in
conformity with generally accepted accounting principles in the
U.S. The adoption of this standard will not impact the
presentation of our financial position or results of operations.
Recently
Issued Accounting Standards
In April 2009, the FASB issued the following new accounting
standards:
|
|
|
|
i.)
|
FASB Staff Position
FAS 157-4,
Determining Whether a Market Is Not Active and a Transaction
Is Not Distressed, or FSP
FAS 157-4;
FSP
FAS 157-4
provides guidelines for making fair value measurements more
consistent with the principles presented in SFAS 157. FSP
FAS 157-4
provides additional authoritative guidance in determining
whether a market is active or inactive, and whether a
transaction is distressed, is applicable to all assets and
liabilities (i.e. financial and nonfinancial) and will require
enhanced disclosures.
|
|
|
|
|
ii.)
|
FASB Staff Position
FAS 115-2,
FAS 124-2,
and
EITF 99-20-2,
Recognition and Presentation of Other-Than-Temporary
Impairments, or FSP
FAS 115-2,
FAS 124-2,
and
EITF 99-20-2;
and FSP
FAS 115-2,
FAS 124-2,
and
EITF 99-20-2
provides additional guidance to provide greater clarity about
the credit and noncredit component of an other-than-temporary
impairment event and to more effectively communicate when an
other-than-temporary impairment event has occurred. This FSP
applies to debt securities.
|
|
|
|
|
iii.)
|
FASB Staff Position
FAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments, or FSP
FAS 107-1
and APB
28-1. FSP
FAS 107-1
and APB
28-1, amends
FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair
value of financial instruments in interim as well as in annual
financial statements. This FSP also amends APB Opinion
No. 28, Interim Financial Reporting, to require
those disclosures in all interim financial statements.
|
These standards are effective for periods ending after
June 15, 2009. We are evaluating the impact that these
standards will have on our financial statements.
34
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Forward-Looking
Information
In addition to historical information, this report contains
forward-looking statements that are based on our current beliefs
and expectations. These statements involve risks and
uncertainties that could cause actual results to differ
materially from those reflected in such forward-looking
statements. These forward-looking statements do not relate
strictly to historical or current facts and they may be
accompanied by such words as anticipate,
believe, estimate, expect,
forecast, intend, plan,
project, target, may,
will and other words and terms of similar meaning.
Reference is made in particular to forward-looking statements
regarding the anticipated level and mix of future product sales,
royalty revenues, milestone payments, expenses, contractual
obligations, the value of our portfolio of marketable
securities, the development and marketing of additional
products, the impact of competitive products, the incidence or
anticipated outcome of pending or anticipated litigation,
patent-related proceedings, tax assessments and other legal
proceedings, our effective tax rate for future periods, our
collaborations, our ability to finance our operations and meet
our manufacturing needs and the source of funding for such
activities, the completion and use of our manufacturing facility
in Hillerød, Denmark, our share repurchase program, and our
plans to spend additional capital on external business
development and research opportunities. Risk factors which could
cause actual results to differ from our expectations and which
could negatively impact our financial condition and results of
operations are discussed in the section entitled Risk
Factors in Part II of this report and elsewhere in
this report. Forward-looking statements, like all statements in
this report, speak only as of the date of this report (unless
another date is indicated). Unless required by law, we do not
undertake any obligation to publicly update any forward-looking
statements.
The following discussion should be read in conjunction with our
consolidated financial statements and related notes beginning on
page 3 of this quarterly report on
Form 10-Q.
Executive
Summary
Biogen Idec Inc. (Biogen Idec, we,
us or the Company) is a global
biotechnology company that creates new standards of care in
therapeutic areas with high unmet medical needs.
We currently have four marketed products:
|
|
|
|
|
AVONEX®
(interferon beta-1a);
|
|
|
|
RITUXAN®
(rituximab);
|
|
|
|
TYSABRI®
(natalizumab); and,
|
|
|
|
FUMADERM®
(dimethylfumarate and monoethylfumarate salts).
|
Results for the first three months of 2009 included total
revenue of $1,036.5 million, net income attributable to
Biogen Idec Inc. of $244.0 million and diluted net income
per share of $0.84. The 2009 first quarter revenues increased
10.0% over the same period in 2008. The diluted net income per
share represents a 55.6% increase over the same period in 2008.
These results were primarily driven by the continued growth of
TYSABRI revenue to $165.2 million in the quarter, a 3.6%
increase in AVONEX revenues to $555.3 million, a 12.8%
increase in RITUXAN revenues from our unconsolidated joint
business arrangement totaling $278.8 million, and a 21.7%
decrease in income tax expense, partially offset by a 5.1%
increase in total costs and expenses.
During the first quarter of 2009, Biogen Idec recognized revenue
of $165.2 million related to TYSABRI. This amount
represents an increase of 44.0% as compared to the same period
in 2008 and is comprised of $53.0 million related to
product sold through Elan in the U.S. and
$112.2 million related to product sold outside the U.S., or
the rest of world. This growth is primarily due to an overall
increase in the number of patients using TYSABRI in both the
United States and in our rest of world markets. Pursuant to our
collaboration agreement with Elan, Elan paid us a
$50.0 million milestone payment during the first quarter of
35
2009 in order to maintain the current collaboration profit
sharing split, which is further discussed below under Results of
Operations.
U.S. Sales of AVONEX increased 10.2% to $340.0 million
during the three months ended March 31, 2009 as compared to
the same period in 2008. This increase was primarily due to
price increases partially offset by a decrease in patient
demand. The increase in U.S. sales was partially offset by a
5.4% decrease in international sales, primarily resulting from
the negative impact of exchange rates.
As described below under Results of Operations, we record our
share of the pretax co-promotion profits from our joint business
arrangement related to sales of RITUXAN. Net sales of RITUXAN to
third-party customers in the U.S. for the three months
ended March 31, 2009 totaled $641.6 million, which
resulted in $179.5 million of co-promotion profits
recognized as unconsolidated joint business revenue. In
addition, we achieved a 10.2% increase in royalty revenues on
sales of RITUXAN outside of the U.S. These increases were
primarily due to increased unit sales resulting from continued
growth for treatment of B-cell NHL and chronic lymphocytic
leukemia (an unapproved and unpromoted use of RITUXAN) and
increased unit sales for the treatment of rheumatoid arthritis.
The effect of the 10.0% increase in total revenue was partially
offset by a 5.1% increase in total costs and expenses. Research
and development expense increased $21.3, million or 8.2,%
primarily due to the continued advancement of several of our
late stage programs. Selling, general and administrative expense
increased $6.0 million, or 2.8,% as a result of increased
census costs and personnel to support the AVONEX business and
support TYSABRI growth. The increases in research and
development and selling, general and administrative expenses
were partially offset by a 2.7% decrease in cost of sales and
10.6% reduction in costs associated with amortization of
acquired intangible assets and acquired in-process research and
development. The reduction in income tax expense is more fully
described within Note 10, Income Taxes, in
Notes to Consolidated Financial Statements of this
Form 10-Q.
Results
of Operations
Revenues
Revenues were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Product revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
393.0
|
|
|
|
38.0
|
%
|
|
$
|
350.0
|
|
|
|
37.2
|
%
|
Rest of world
|
|
|
340.4
|
|
|
|
32.8
|
%
|
|
|
315.1
|
|
|
|
33.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
733.4
|
|
|
|
70.8
|
%
|
|
$
|
665.1
|
|
|
|
70.6
|
%
|
Unconsolidated joint business
|
|
|
278.8
|
|
|
|
26.9
|
%
|
|
|
247.2
|
|
|
|
26.2
|
%
|
Other revenues
|
|
|
24.3
|
|
|
|
2.3
|
%
|
|
|
29.9
|
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,036.5
|
|
|
|
100.0
|
%
|
|
$
|
942.2
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Revenues
Product revenues were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
AVONEX
|
|
$
|
555.3
|
|
|
|
75.8
|
%
|
|
$
|
536.1
|
|
|
|
80.6
|
%
|
TYSABRI
|
|
|
165.2
|
|
|
|
22.5
|
%
|
|
|
114.7
|
|
|
|
17.2
|
%
|
FUMADERM
|
|
|
10.6
|
|
|
|
1.4
|
%
|
|
|
11.7
|
|
|
|
1.8
|
%
|
Other
|
|
|
2.3
|
|
|
|
0.3
|
%
|
|
|
2.6
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
733.4
|
|
|
|
100.0
|
%
|
|
$
|
665.1
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Cost
of Sales, excluding Amortization of Intangible Assets
Costs of sales, excluding amortization of intangible assets were
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cost of product revenues
|
|
$
|
97.0
|
|
|
|
98.8
|
%
|
|
$
|
99.7
|
|
|
|
98.8
|
%
|
Cost of other revenues
|
|
|
1.2
|
|
|
|
1.2
|
%
|
|
|
1.2
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding amortization of intangible assets
|
|
$
|
98.2
|
|
|
|
100
|
%
|
|
$
|
100.9
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenues decreased $2.7 million to
$97.0 million for the three months ended March 31,
2009 as compared to the same period in 2008. This decrease was
primarily the result of a decrease in royalty payments partially
offset by higher sales volume resulting in an increase in cost
of product revenues and an increase in write-offs relative to
unmarketable inventory.
During the three months ended March 31, 2009 and 2008, we
have written-down $9.4 million and $4.4 million,
respectively, in unmarketable inventory, which was charged to
cost of sales.
AVONEX
Revenues from AVONEX were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
AVONEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
340.0
|
|
|
|
61.2
|
%
|
|
$
|
308.4
|
|
|
|
57.5
|
%
|
Rest of world
|
|
|
215.3
|
|
|
|
38.8
|
%
|
|
|
227.7
|
|
|
|
42.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AVONEX revenues
|
|
$
|
555.3
|
|
|
|
100.0
|
%
|
|
$
|
536.1
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, compared to the
three months ended March 31, 2008, U.S. sales of
AVONEX increased $31.6 million, or 10.2%, due primarily to
price increases partially offset by a decrease in patient demand.
For the three months ended March 31, 2009, compared to the
three months ended March 31, 2008, rest of world sales of
AVONEX decreased $12.4 million, or 5.4%, primarily due to
the negative impact of exchange rates offset by price increases.
We expect to face increasing competition in the multiple
sclerosis, or MS, marketplace in both the U.S. and rest of
world from existing and new MS treatments, including TYSABRI and
our other pipeline products, which may have a continued negative
impact on the unit sales of AVONEX. We expect future unit sales
of AVONEX to be dependent to a large extent on our ability to
compete successfully with the products of our competitors.
TYSABRI
Revenues from TYSABRI were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
TYSABRI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
53.0
|
|
|
|
32.1
|
%
|
|
$
|
41.3
|
|
|
|
36.0
|
%
|
Rest of world
|
|
|
112.2
|
|
|
|
67.9
|
%
|
|
|
73.4
|
|
|
|
64.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TYSABRI revenues
|
|
$
|
165.2
|
|
|
|
100.0
|
%
|
|
$
|
114.7
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In August 2000, we entered into a collaboration agreement with
Elan Pharma International, Ltd, or Elan, an affiliate of Elan
Corporation, plc, to collaborate in the development, manufacture
and commercialization of
37
ANTEGREN®
(natalizumab), a humanized monoclonal antibody. The drug has
since been renamed TYSABRI. Under the terms of the agreement
with Elan, we manufacture TYSABRI and collaborate with Elan on
the products marketing, commercial distribution and
on-going development activities.
In the U.S., Elan and we co-market TYSABRI, with us primarily
responsible for marketing TYSABRI for MS and Elan primarily
responsible for marketing TYSABRI for Crohns disease. We
sell TYSABRI to Elan who sells the product to third party
distributors. Our sales price to Elan in the U.S. is set prior
to the beginning of each quarterly period to effect an
approximate equal sharing of the gross margin between Elan and
us. We recognize revenue for U.S. sales of TYSABRI upon
Elans shipment of the product to the third party
distributors. We incur manufacturing and distribution costs,
research and development expenses, commercial expenses and
general and administrative expenses. We record these expenses to
their respective line items within our consolidated statement of
income when they are incurred. Research and development and
sales and marketing expenses are shared with Elan and the
reimbursement of these expenses is recorded as reductions of the
respective expense categories.
In the rest of world, we are responsible for distributing
TYSABRI to customers and are primarily responsible for all
operating activities. We recognize revenue for sales of TYSABRI
in rest of world at the time of product delivery to our
customers. Payments are made to Elan for their share of rest of
world net operating profits to effect an equal sharing of
collaboration operating profit. These payments include the
reimbursement of our portion of third-party royalties that Elan
pays on behalf of the collaboration, relating to rest of world
sales. These amounts are reflected in the collaboration profit
sharing line in our consolidated statement of income. As sales
of TYSABRI outside the U.S. increase, our collaboration profit
sharing expense is expected to increase.
For the three months ended March 31, 2009, compared to the
three months ended March 31, 2008, U.S. sales of
TYSABRI increased $11.7 million, or 28.3%. These increases
are primarily due to an increase in patients using TYSABRI in
the U.S.
For the three months ended March 31, 2009, compared to the
three months ended March 31, 2008, rest of world sales of
TYSABRI increased $38.8 million, or 52.9%. These increases
are primarily due to an increase in the number of patients using
TYSABRI offset by the negative impact of exchange rates.
Net sales of TYSABRI from our collaboration partner, Elan, to
third-party customers in the U.S. for the three months
ended March 31, 2009 and 2008 were $116.0 million and
$86.3 million, respectively.
Since the reintroduction of TYSABRI in the U.S. and the
introduction of TYSABRI in the rest of world in July 2006, we
have disclosed six cases of progressive multifocal
leukoencephalopathy, or PML, a known side effect, in patients
taking TYSABRI in the post marketing setting. These patients
were the only confirmed cases of PML reported to us during this
period. We continue to monitor the growth of TYSABRI unit sales
in light of these results and we continue to develop protocols
to potentially mitigate the risk and outcome of PML in patients
being treated with TYSABRI. We believe that the reported cases
of PML have negatively impacted the growth of TYSABRI in both
the U.S. and rest of world.
Pursuant to our collaboration agreement with Elan, Elan paid us
$75.0 million in 2008 and $50.0 million in 2009,
respectively, representing milestone payments made in order to
maintain the current collaboration profit sharing split. We have
recorded these amounts as deferred revenue upon receipt and are
recognizing the entire $125.0 million as product revenue in
our consolidated statement of income over the term of our
collaboration with Elan based on a units of revenue method
whereby the revenue recognized is based on the ratio of units
shipped in the current period over the total units expected to
be shipped over the remaining term of the collaboration. As of
March 31, 2009, we have recognized $2.9 million of
these milestones as revenue, of which $1.4 million was
recognized during the current period.
Unconsolidated
Joint Business Revenue
We have a collaboration with Genentech Inc., or Genentech, a
wholly-owned subsidiary of Roche Holdings, Inc., that was
created and operates by agreement rather than through a joint
venture or other legal entity. Our rights under the terms of our
amended and restated collaboration agreement with Genentech
include co-exclusive rights to develop, commercialize and market
RITUXAN in the U.S. and Canada with Genentech. Genentech
has the exclusive right to develop, commercialize and market
RITUXAN in the rest of
38
the world. We have assigned our rights to develop, commercialize
and market RITUXAN in Canada to F. Hoffman-La Roche Ltd.,
or Roche. Genentech shares a portion of the pretax
U.S. co-promotion profits with us and Roche shares a
portion of the pretax Canadian co-promotion profits of RITUXAN
with us.
In the U.S., we contribute resources to selling and the
continued development of RITUXAN. Genentech is responsible for
worldwide manufacturing of RITUXAN. Genentech also is
responsible for the primary support functions for the
commercialization of RITUXAN in the U.S. including selling
and marketing, customer service, order entry, distribution,
shipping and billing. Genentech also incurs the majority of
continuing development costs for RITUXAN. Under the arrangement,
we have a limited sales force as well as limited development
activity.
Under the terms of separate sublicense agreements between
Genentech and Roche, Roche is responsible for commercialization
of RITUXAN outside the U.S., except in Japan where RITUXAN is
co-marketed by Zenyaku Kogyo Co. Ltd., or Zenyaku, and Chugai
Pharmaceutical Co. Ltd, or Chugai, an affiliate of Roche. There
is no direct contractual arrangement between us and Roche,
Zenyaku or Chugai.
Revenues from unconsolidated joint business consists of
(1) our share of pretax co-promotion profits in the
U.S.; (2) reimbursement of selling and development
expense in the U.S.; and (3) revenue on sales of RITUXAN
outside the U.S., which consist of our share of pretax
co-promotion profits in Canada and royalty revenue on sales of
RITUXAN outside the U.S. and Canada by Roche, Zenyaku and
Chugai. 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 expenses, and
joint development expenses incurred by Genentech, Roche and us.
Revenues from unconsolidated joint business consist of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Co-promotion profits in the U.S.
|
|
$
|
179.5
|
|
|
$
|
158.0
|
|
Reimbursement of selling and development expenses in the
U.S.
|
|
|
15.0
|
|
|
|
12.7
|
|
Revenue on sales of RITUXAN outside the U.S.
|
|
|
84.3
|
|
|
|
76.5
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated joint business
|
|
$
|
278.8
|
|
|
$
|
247.2
|
|
|
|
|
|
|
|
|
|
|
Co-promotion profits in the U.S. consist of the following
(in millions):
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Product revenues, net
|
|
$
|
641.6
|
|
|
$
|
604.6
|
|
Costs and expenses
|
|
|
180.3
|
|
|
|
197.2
|
|
|
|
|
|
|
|
|
|
|
Co-promotion profits in the U.S.
|
|
$
|
461.3
|
|
|
$
|
407.4
|
|
|
|
|
|
|
|
|
|
|
Biogen Idec Inc.s share of co-promotion profits in the
U.S.
|
|
$
|
179.5
|
|
|
$
|
158.0
|
|
|
|
|
|
|
|
|
|
|
Net sales of RITUXAN to third-party customers in the U.S.
recorded by Genentech for the three months ended March 31,
2009 were $641.6 million compared to $604.6 million in
the three months ended March 31, 2008. The increase in
sales to third-party customers was primarily due to increased
unit sales resulting from continued growth for treatment of
B-cell NHL and chronic lymphocytic leukemia (an unapproved and
unpromoted use of RITUXAN), increased unit sales for the
treatment of rheumatoid arthritis, or RA, and price increases of
RITUXAN.
39
Total collaboration costs and expenses decreased
$16.9 million or approximately 8.6%. This change was
primarily the result of additional costs incurred during the
three months ended March 31, 2008 associated with the
development of RITUXAN in RA.
Selling and development expenses incurred by us in the
U.S. and reimbursed by Genentech were $15.0 million
and $12.7 million for the three months ended March 31,
2009 and 2008, respectively. This increase was primarily due to
increased sales and marketing costs.
Revenue on sales of RITUXAN outside the U.S. consists of
our share of co-promotion profits in Canada and royalty revenue
on sales of RITUXAN outside of the U.S. and Canada. Our
royalty revenue on sales of RITUXAN is based on Roche, Zenyaku
and Chugais net sales to third-party customers. We record
our royalty revenue and co-promotion profit revenue on sales of
RITUXAN outside the U.S. on a cash basis. Revenues on sales
of RITUXAN outside the U.S. for the three months ended
March 31, 2009 and 2008 were $84.3 million and
$76.5 million, respectively. The increase was due to
several factors, including increased market penetration.
The royalty period with respect to all products is 11 years
from the first commercial sale of such product on a
country-by-country
basis. For the majority of European countries, the first
commercial sale of RITUXAN occurred in the second half of 1998.
Therefore, we expect a significant decrease in royalty revenues
on sales of RITUXAN outside the U.S. and Canada beginning
in the latter half of 2009. Specifically, the royalty period
with respect to sales in France, Spain, Germany and the United
Kingdom will expire in 2009. As a result, royalty revenue is
expected to be in the range of $250.0 million to
$290.0 million in 2009. The royalty period with respect to
sales in Italy will expire in 2010. The royalty period with
respect to sales in other countries will expire through 2012.
Under the amended and restated collaboration agreement, our
current pretax co-promotion profit-sharing formula, which resets
annually, is as follows:
|
|
|
|
|
|
|
Biogen Idecs
|
|
|
Share of
|
|
|
Copromotion
|
Co-promotion Operating Profits
|
|
Profits
|
|
First $50 million
|
|
|
30
|
%
|
Greater than $50 million
|
|
|
40
|
%
|
In 2009 and 2008, the 40% threshold was met during the first
quarter.
Under the collaboration agreement, we have the right to
participate with Genentech in the development and
commercialization of any anti-CD20 product acquired or developed
by Genentech, which we refer to as a New Anti-CD20 Product, as
well as the right to participate with Genentech in the
development and commercialization of any anti-CD20 product that
Genentech licenses from a third party, which we refer to as a
Third Party Anti-CD20 Product. Under the terms of the
collaboration agreement there are different rights and
obligations that apply depending on whether an anti-CD20 product
is a New
Anti-CD20
Product or a Third Party
Anti-CD20
Product. Currently, there is only one New Anti-CD20 Product,
ocrelizumab, and only one Third Party Anti-CD20 Product, GA101.
Our agreement with Genentech provides that the successful
development and commercialization of the first New
Anti-CD20
Product will decrease our percentage of co-promotion profits of
the collaboration and that we will participate in Third Party
Anti-CD20
Products on similar financial terms as for ocrelizumab.
40
For each calendar year or portion thereof following the approval
date of the first New Anti-CD20 Product, the pretax co-promotion
profit-sharing formula for RITUXAN and New Anti-CD20 Products
sold by us and Genentech will change to the following:
|
|
|
|
|
|
|
|
|
|
|
Biogen Idecs
|
|
|
|
|
Share of
|
|
|
First New Anti-CD20 Product U.S.
|
|
Co-promotion
|
Co-promotion Operating Profits
|
|
Gross Product Sales
|
|
Profits
|
|
First $50 million(1)
|
|
N/A
|
|
|
30
|
%
|
Greater than $50 million
|
|
Until such sales exceed $150 million in any calendar year(2)
|
|
|
38
|
%
|
|
|
Or
|
|
|
|
|
|
|
After such sales exceed $150 million in any calendar year until
such sales exceed $350 million in any calendar year(3)
|
|
|
35
|
%
|
|
|
Or
|
|
|
|
|
|
|
After such sales exceed $350 million in any calendar year(4)
|
|
|
30
|
%
|
|
|
|
(1) |
|
not applicable in the calendar year the first New Anti-CD20
Product is approved if $50 million in
co-promotion
operating profits has already been achieved in such calendar
year through sales of RITUXAN. |
|
(2) |
|
if we are recording our share of RITUXAN co-promotion profits at
40%, upon the approval date of the first New Anti-CD20 Product,
our share of co-promotion profits for RITUXAN and the New
Anti-CD20 Product will be immediately reduced to 38% following
the approval date of the first New Anti-CD20 Product until the
$150 million in first New Anti-CD20 Product sales level is
achieved. |
|
(3) |
|
if $150 million in first New Anti-CD20 Product sales is
achieved in the same calendar year the first New Anti-CD20
Product receives approval, then the 35% co-promotion
profit-sharing rate will not be effective until January 1 of the
following calendar year. Once the $150 million in first New
Anti-CD20 Product sales level is achieved then our share of
co-promotion profits for the balance of the year and all
subsequent years (after the first $50 million in
co-promotion operating profits in such years) will be 35% until
the $350 million in first New Anti-CD20 Product sales level
is achieved. |
|
(4) |
|
if $350 million in first New Anti-CD20 Product sales is
achieved in the same calendar year that $150 million in new
product sales is achieved, then the 30% co-promotion
profit-sharing rate will not be effective until January 1 of the
following calendar year (or January 1 of the second following
calendar year if the first New Anti-CD20 Product receives
approval and, in the same calendar year, the $150 million
and $350 million in first New Anti-CD20 Product sales
levels are achieved). Once the $350 million in first New
Anti-CD20 Product sales level is achieved then our share of
co-promotion profits for the balance of the year and all
subsequent years will be 30%. |
Currently, we record our share of expenses incurred for the
development of New Anti-CD20 Products in research and
development expense until such time as a New Anti-CD20 Product
is approved, at which time we will record our share of pretax
co-promotion profits related to the New Anti-CD20 Product in
revenues from unconsolidated joint business.
Under our collaboration agreement with Genentech, we will
receive a lower royalty percentage of revenue from Genentech on
sales by Roche and Zenyaku of New Anti-CD20 products, as
compared to the royalty percentage of revenue on sales of
RITUXAN.
41
Other
Revenues
Other revenues for the three months ended March 31, 2009
and 2008 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Royalty revenues
|
|
$
|
24.1
|
|
|
|
99.2
|
%
|
|
$
|
24.0
|
|
|
|
80.3
|
%
|
Corporate partner revenues
|
|
|
0.2
|
|
|
|
0.8
|
%
|
|
|
5.9
|
|
|
|
19.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenues
|
|
$
|
24.3
|
|
|
|
100.0
|
%
|
|
$
|
29.9
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
Revenues
For the three months ended March 31, 2009 compared to 2008,
royalty revenue remained essentially unchanged.
We receive revenues from royalties on sales by our licensees of
a number of products covered under patents that we control. Our
royalty revenues on sales of RITUXAN outside the U.S. are
included in revenues from unconsolidated joint business in the
accompanying consolidated statements of income. Our royalty
revenues are dependent upon sales of licensed products which
could vary significantly due to competition, manufacturing
difficulties and other factors, including the timing and extent
of major events such as new indication approvals or government
sponsored programs. In addition, the expiration or invalidation
of any underlying patents could reduce or eliminate the royalty
revenues derived from such patents.
Our most significant source of royalty revenue is derived from
sales of
ANGIOMAX®
(bivalirudin) by The Medicines Company, or TMC. TMC sells
ANGIOMAX in the U.S., Europe, Canada and Latin America for use
as an anticoagulant in combination with aspirin in patients with
unstable angina undergoing percutaneous transluminal coronary
angioplasty.
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 under our
royalty agreement with TMC. The royalty rate increases based
upon the level of total net sales earned in any calendar year,
and the increased rate is to be 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 periods subsequent to the first period of each
calendar year in which increased royalty revenues were
recognized. Accordingly, an adjustment is recorded in the period
upon which a change in royalty rate has been achieved.
Under the terms of the royalty agreement, TMC is obligated to
pay us royalties earned, on a country-by-country basis, until
the later of (1) twelve years from the date of the first
commercial sale of ANGIOMAX in such country and (2) the date
upon which the product is no longer covered by a patent in such
country. The annual royalty rate is reduced by a specified
percentage in any country where the product is no longer covered
by a patent and has 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 expires in March 2010. We expect a significant decrease
in royalty revenues beginning in 2010.
Corporate
Partner Revenues
Corporate partner revenues consist of contract revenues and
license fees.
Costs and
Expenses
Research
and Development Expenses
Research and development expenses totaled $279.5 million
and $258.2 million for the three months ended
March 31, 2009 and 2008, respectively. As discussed within
Note 12, Collaborations, in Notes to the
Consolidated Financial Statements, Genentech incurs the
majority of continuing development costs for RITUXAN. Expenses
incurred by Genentech in the development of RITUXAN are not
recorded as research
42
and development expense but rather reduce our share of
co-promotion profits recorded as a component of unconsolidated
joint business revenue.
Excluding our RITUXAN product candidates, we had 7 product
candidates in registration stage development as of
March 31, 2009 as compared to 6 product candidates as of
March 31, 2008. Costs associated with registration stage
clinical trials are, in most cases, more significant than those
incurred in earlier stages of our pipeline; accordingly, the
$21.3 million dollar increase in research and development
expense compared to the prior year was primarily related to the
continued advancement of several of our registration stage
programs, as well as the LINGO program which recently
transitioned into development. These increased costs were
partially offset by a reduction in spending associated with the
recent announcement that the trial of baminercept in RA did not
meet its primary endpoint in Phase 2.
We expect that research and development expense will continue to
increase in 2009 primarily due to greater investment in our
registration stage clinical pipeline.
The following table provides a summary of our registrational
trial product candidates as of March 31, 2009 and
March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
Product
|
|
Indication
|
|
March 31, 2009
|
|
March 31, 2008
|
|
BG-12
|
|
Relapsing MS
|
|
ü
|
|
ü
|
|
|
Anti-CD80 MAb(galiximab)
|
|
Relapsed NHL
|
|
ü
|
|
ü
|
|
|
Anti-CD23 MAb (lumiliximab)
|
|
Relapsed CLL
|
|
ü
|
|
ü
|
|
|
RITUXAN
|
|
CLL
|
|
ü
|
|
ü
|
|
|
Lupus nephritis
|
|
|
|
ü
|
|
|
Systemic Lupus Erythematosus
|
|
|
|
ü
|
|
|
Primary-progressive MS
|
|
|
|
ü
|
|
|
Humanized Anti-CD20 MAb (ocrelizumab)
|
|
RA
|
|
ü
|
|
ü
|
|
|
Lupus nephritis
|
|
ü
|
|
ü
|
|
|
Lixivaptan
|
|
Hyponatremia, commonly seen in acute decompensated heart failure
|
|
ü
|
|
ü
|
|
|
ADENTRI®
|
|
Acute decompensated heart failure with renal insufficiency
|
|
ü
|
|
|
|
|
In-Process
Research and Development (IPR&D)
We did not record a charge related to in-process research and
development, or IPR&D, during the three months ended
March 31, 2009. During the three months ended
March 31, 2008, we recorded an IPR&D charge of
$25.0 million related to a HSP90-related milestone payment
made to the former shareholders of Conforma pursuant to our
acquisition of Conforma in 2006.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses totaled
$221.8 million and $215.8 million for the three months
ended March 31, 2009 and 2008, respectively.
For the three months ended March 31, 2009 compared to 2008,
selling, general and administrative expenses increased
$6.0 million or 2.8% primarily as a result of increased
census costs and personnel to support the AVONEX business and
support TYSABRI growth. The increased costs were partially
offset by the positive impact of exchange rates. We do not
anticipate a significant increase in total selling, general, and
administrative expenses during 2009 as compared to the amount
incurred in 2008.
43
Collaboration
Profit Sharing
Payments are made to Elan for their share of rest of world net
operating profits to effect an equal sharing of collaboration
operating profit. These payments include the reimbursement of
our portion of third-party royalties that Elan pays on behalf of
the collaboration, relating to sales outside of the
U.S. These amounts are reflected in the collaboration
profit sharing line in our consolidated statement of income. As
sales of Tysabri outside the U.S. increase, our
collaboration profit sharing expense will increase.
For the three months ended March 31, 2009 and 2008, the
collaboration profit sharing was $42.8 million and
$21.4 million, respectively. The increase for the three
months ended March 31, 2009 as compared to the three months
ended March 31, 2008 was due to the growth in TYSABRI sales
outside the U.S. and the resulting growth in the
third-party royalties Elan paid on behalf of the collaboration.
Included in our collaboration profit sharing expense were
$8.1 million and $5.3 million related to the
reimbursement of Elans royalty payments for the three
months ended March 31, 2009 and 2008, respectively,
Amortization
of Intangible Assets
Amortization of intangible assets totaled $89.2 million and
$74.8 million for the three months ended March 31,
2009 and 2008, respectively. These changes are primarily due to
the changes in the estimate of the future revenue of AVONEX,
which serves as the basis for the calculation of economic
consumption for core technology intangible asset that occurred
as part of our annual reassessment of amortization expense in
the third quarter of 2008. The change in the estimate of the
future revenue of AVONEX is attributable to the expected impact
of competitor products in future periods, including
commercialization of our own internal pipeline product
candidates.
Income
Tax Provision
Tax
Rate
Our effective tax rate was 21.0% for the three months ended
March 31, 2009, compared to 33.4% for the comparable period
in 2008. The effective tax rate for the three months ended
March 31, 2009 was favorably impacted by recently enacted
changes in tax law in certain state jurisdictions in which we
operate. These changes required us to establish assets for
certain tax credits and adjust certain deferred tax liabilities
and reserves for uncertain tax positions. The total effect of
these changes was a $30.2 million reduction to our income
tax expense in the three months ended March 31, 2009.
We expect our effective tax rate for the full-year ending
December 31, 2009 to be in a range of 32% to 34%, which
considers an approximate 1% reduction due to the recently
enacted changes in tax law referred to above. Refer to
Note 10, Income Taxes, in Notes to
Consolidated Financial Statements for a detailed income
tax rate reconciliation for the three months ended
March 31, 2009 and 2008.
Other
Income (Expense), Net
Total other income (expense), net, consists of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Interest income
|
|
$
|
14.8
|
|
|
$
|
22.9
|
|
Interest expense
|
|
|
(9.9
|
)
|
|
|
(15.7
|
)
|
Impairments of investments and other assets
|
|
|
(6.1
|
)
|
|
|
(8.7
|
)
|
Other, net
|
|
|
8.0
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
6.8
|
|
|
$
|
3.1
|
|
|
|
|
|
|
|
|
|
|
44
Interest
Income
For the three months ended March 31, 2009 compared to
March 31, 2008, interest income decreased
$8.1 million, or 35.4%, primarily due to lower yields on
cash, cash equivalents and marketable securities.
Interest
Expense
For the three months ended March 31, 2009 compared to
March 31, 2008, interest expense decreased
$5.8 million, or 36.9%, primarily due to a decreased
average debt balance in 2009 as compared to 2008.
As discussed in Note 6, Financial Instruments, in
the Notes to Consolidated Financial Statements, the
carrying amount of the 6.875% Senior Notes increased
$62.8 million upon the termination of certain interest rate
swaps in December 2008. This amount will be amortized over the
remaining life of the Senior Notes using the effective interest
rate method and is recognized as a reduction of interest
expense. During the three months ended March 31, 2009,
approximately $1.3 million was recorded as a reduction of
interest expense.
Impairment
on Investments
For the three months ended March 31, 2009 compared to the
three months ended March 31, 2008 impairment on investments
decreased $2.6 million or approximately 29.9%.
For the three months ended March 31, 2009 and 2008, we
recognized $3.6 million and $2.3 million,
respectively, in charges for the impairment of
available-for-sale securities primarily related to mortgage and
asset backed securities that were determined to be
other-than-temporary following a decline in value primarily
related to adverse market conditions, including less active
trading markets, and a change in our investment strategy
regarding these assets which no longer provided us with the
ability and intent to hold the securities to maturity or until
we recovered the cost of our investment.
For the three months ended March 31, 2009 and 2008, we
recognized $2.5 million and $6.4 million,
respectively, in charges for the impairment of strategic
investments and investments in privately held companies or funds
that were determined to be other-than-temporary.
Financial
Condition and Liquidity
Our financial condition is summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash and cash equivalents
|
|
$
|
764.1
|
|
|
$
|
622.4
|
|
Marketable securities and loaned securities current
and non-current:
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
(including loaned securities)
|
|
$
|
1,698.1
|
|
|
$
|
1,640.4
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,462.2
|
|
|
$
|
2,262.8
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
1,672.9
|
|
|
$
|
1,534.8
|
|
Outstanding borrowings current and non-current
|
|
$
|
1,109.4
|
|
|
$
|
1,113.1
|
|
Our cash, cash equivalents and marketable securities as of
March 31, 2009, are relatively consistent with the balances
as of December 31, 2008. However, there were several
significant cash flow activities including $57.6 million
used to fund share repurchases and $32.0 million used to
fund strategic investments, offset by cash generated from
operations of $300.8 million.
Until required for use in the business, we invest our cash
reserves in bank deposits, certificates of deposit, commercial
paper, corporate notes, foreign and U.S. government
instruments and other interest bearing marketable debt
instruments in accordance with our investment policy. We
mitigate credit risk in our cash reserves by maintaining a well
diversified portfolio that limits the amount of investment
exposure as to institution, maturity and
45
investment type. However, the value of these securities may be
adversely affected by the instability of the global financial
markets which could adversely impact our financial position and
our overall liquidity.
As noted in Note 5, Fair Value Measurements, in
Notes to Consolidated Financial Statements, a
majority of our financial assets and liabilities have been
classified as Level 2. The fair values of our foreign
currency forward contracts, interest rate swaps, debt
instruments and plan assets for deferred compensation are based
on market inputs and have been classified as Level 2. These
assets and liabilities have been initially valued at the
transaction price and subsequently valued typically utilizing
third party pricing services. The pricing services use many
inputs to determine value, including reportable trades,
benchmark yields, credit spreads,
broker/dealer
quotes, bids, offers, current spot rates, 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,
and analyzing pricing data in certain instances.
Our venture capital investments are the only assets where we
used unobservable, or Level 3, inputs to determine the fair
value. The underlying assets in these investments are initially
measured at transaction prices and subsequently valued using the
pricing of recent financing
and/or by
reviewing the underlying economic fundamentals and liquidation
value of the companies. Venture capital investments represented
approximately 0.3% of total assets as of March 31, 2009 and
December 31, 2008.
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 the
values of these assets, our financial position, and overall
liquidity. After completing our validation procedures, we did
not adjust or override any fair value measurements provided by
our pricing services as of March 31, 2009 or
December 31, 2008, respectively. Refer to Part II,
Item 1A of this
Form 10-Q,
Risk Factors, for further discussion of the impact
of changes in interest rates on these investments.
We have financed our operating and capital expenditures through
cash flows from our operations. We expect to finance our current
and planned operating requirements principally through cash from
operations, as well as existing cash resources. We believe that
these funds will be sufficient to meet our operating
requirements for the foreseeable future. However, we may, from
time to time, seek additional funding through a combination of
new collaborative agreements, strategic alliances and additional
equity and debt financings or from other sources.
Refer to Part II, Item 1A; Risk Factors of
this
Form 10-Q
for risk factors that could negatively impact our cash position
and ability to fund future operations.
Working
capital
As of March 31, 2009, our working capital, which we define
as current assets less current liabilities, was
$1,672.9 million, compared to $1,534.8 million as of
December 31, 2008, an increase of $138.1 million. This
primarily reflects the reduction of current liabilities by
$120.0 million driven by a $105.2 million reduction in
balances attributable to accrued expenses and other.
Operating
activities
Cash provided by operating activities is primarily driven by our
net income, adjusted for non-cash items 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 over the foreseeable future. Cash
provided by operations was $300.8 million and
$367.0 million for the three months ended March 31,
2009 and 2008, respectively. The decrease is primarily due to
the payment of certain items that had been included in accrued
expenses and other current liabilities.
Investing
activities
Cash used in investing activities for the three months ended
March 31, 2009 was $91.7 million, compared to cash
provided by investing activities of $449.6 million for the
three months ended March 31, 2008. This decrease is
primarily due to an increase in purchases of marketable
securities during the first quarter of 2009,
46
as compared to the same period in 2008, partially offset by a
reduction in purchases of property, plant and equipment.
Purchases of property, plant and equipment decreased from
$86.0 million in the three months ended March 31, 2008
to $37.0 million during the three months ended
March 31, 2009. This decrease is primarily attributed to
reduced capital expenditures as our Denmark manufacturing
facility and certain other manufacturing upgrades near
completion.
Financing
activities
Cash used in financing activities for the three months ended
March 31, 2009 was $66.9 million compared to
$787.5 million for the three months ended March 31,
2008. The decrease was due, principally, to the repayment of our
term loan facility of $1.5 billion in 2008, and a reduction
in the amounts of our common stock repurchased as compared to
the same period in 2008.
Borrowings
Notes payable consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Current portion:
|
|
|
|
|
|
|
|
|
Note payable to Fumedica
|
|
$
|
10.6
|
|
|
$
|
10.9
|
|
Credit line from Dompé
|
|
|
15.9
|
|
|
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26.5
|
|
|
$
|
27.7
|
|
|
|
|
|
|
|
|
|
|
Non-current portion:
|
|
|
|
|
|
|
|
|
6.000% Senior Notes due 2013
|
|
$
|
449.6
|
|
|
$
|
449.6
|
|
6.875% Senior Notes due 2018
|
|
|
607.0
|
|
|
|
608.2
|
|
Note payable to Fumedica
|
|
|
26.3
|
|
|
|
27.6
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,082.9
|
|
|
$
|
1,085.4
|
|
|
|
|
|
|
|
|
|
|
On March 4, 2008, we issued $450.0 million aggregate
principal amount of 6.0% Senior Notes due March 1,
2013 and $550.0 million aggregate principal amount of
6.875% Senior Notes due March 1, 2018 for proceeds of
$986.9 million, net of issuance costs.
Additionally, in connection with the note issuance, we entered
into interest rate swaps which were terminated in December 2008
and are further described in Note 6, Financial
Instruments, in Notes to Consolidated Financial
Statements.
In June 2007, we entered into a five-year $400.0 million
Senior Unsecured Revolving Credit Facility, which we may use for
future working capital and general corporate purposes. The
bankruptcy of Lehman Brothers Holdings Inc. has eliminated their
$40.0 million commitment, thereby reducing the availability
of the credit facility to $360.0 million. As of
March 31, 2009 and December 31, 2008 we were in
compliance with these covenants and there were no borrowings
under this credit facility.
Share
Repurchase Program
In October 2006, our Board of Directors authorized the
repurchase of up to 20.0 million shares of our common
stock. We utilize this program to stabilize the number of common
shares outstanding and will from time to time purchase shares on
the open market. During the three months ended March 31,
2009 and 2008, we repurchased approximately 1.2 million and
4.0 million shares of our common stock for
$57.6 million and $240.1 million, respectively. As of
March 31, 2009, we have up to 6.0 million shares
available for repurchase under this program.
47
Contractual
Obligations and Off-Balance Sheet Arrangements
As of March 31, 2009, we have funding commitments of up to
approximately $28.4 million as part of our investment in
biotechnology oriented venture capital investments. In addition,
based on our development plans as of March 31, 2009, we
have committed to make potential future milestone payments to
third-parties of up to $1,425.2 million as part of our
various collaborations including licensing and development
programs. Payments under these agreements generally become due
and payable only upon achievement of certain developmental,
regulatory
and/or
commercial milestones. Because the achievement of these
milestones had not occurred as of March 31, 2009, such
contingencies have not been recorded in our financial
statements. We expect to make approximately $70.0 million
of milestone payments in 2009.
As of March 31, 2009, we have several clinical studies in
various clinical trial stages. Our most significant clinical
trial expenditures are to clinical research organizations, or
CROs. The contracts with CROs are generally cancellable, with
notice, at our option. We have recorded accrued expenses of
$44.1 million recorded in accrued expenses on our
consolidated balance sheet for work done by CROs as of
March 31, 2009. We have approximately $296.3 million
in cancellable future commitments based on existing CRO
contracts as of March 31, 2009.
We do not have any significant relationships with entities often
referred to as structured finance or special purpose entities,
which would have been established for the purpose of
facilitating off-balance sheet arrangements. As such, we are not
exposed to any financing, liquidity, market or credit risk that
could arise if we had engaged in such relationships. We
consolidate entities falling within the scope of FIN 46(R)
if we are the primary beneficiary.
As of March 31, 2009, we have approximately
$131.9 million of long-term liabilities associated with
uncertain tax positions.
Commitments
During 2008, we completed the first phase of our large-scale
biologic manufacturing facility in Hillerød, Denmark, which
included partial completion of a bulk manufacturing component, a
labeling and packaging component, construction of a warehouse
and installation of major equipment. We are proceeding with the
second phase of the project, including the completion of the
large scale bulk manufacturing component. As of March 31,
2009, we had contractual commitments of approximately
$7.3 million related to the second phase. This second phase
of the project is expected to be ready for commercial production
in 2010.
The timing of the completion and anticipated licensing of the
bulk manufacturing facility is in part dependent upon the demand
for our current and future products and the manufacturing
capacity from our other facilities. See Risk
Factors We may not achieve our desired return on our
significant investment in a manufacturing facility currently
under development.
Legal
Matters
Refer to Note 13, Litigation, in Notes to
Consolidated Financial Statements, for a discussion of
legal matters as of March 31, 2009.
New
Accounting Standards
Refer to Note 15, New Accounting Pronouncements, in
Notes to Consolidated Financial Statements, for a
discussion of new accounting standards.
Critical
Accounting Estimates
The discussion and analysis of our financial condition and
results of operations is based on our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements in accordance with
generally accepted accounting principles requires us to make
estimates and judgments that may affect the
48
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, including those
related to revenue recognition and related allowances,
marketable securities, derivatives and hedging activities,
inventory, impairments of long-lived assets, including
intangible assets, impairments of goodwill, income taxes
including the valuation allowance for deferred tax assets,
valuation of long-lived assets and investments, research and
development, contingencies and litigation, and share-based
payments. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable,
the results of which form the basis for making judgments about
the carrying values of assets and liabilities. Actual results
may differ from these estimates under different assumptions or
conditions.
Refer to Part II, Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2008 for a discussion of
the Companys critical accounting estimates.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Our market risks, and the ways we manage them, are summarized in
Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk of our Annual Report on
Form 10-K
for the year ended December 31, 2008. In response to the
instability in the global financial markets, we have regularly
reviewed our marketable securities holdings and reduced
investments deemed to have increased risk. Apart from such
adjustments to our investment portfolio, there have been no
material changes in the first three months of 2009 to our market
risks or to our management of such risks.
|
|
Item 4.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures and Internal Control over Financial
Reporting
Disclosure
Controls and Procedures
We have carried out an evaluation, under the supervision and 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, or the
Securities Exchange Act) as of March 31, 2009. 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 providing reasonable assurance 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 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, 2009 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
49
Part II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
Refer to Note 13, Litigation, in Notes to
Consolidated Financial Statements in Part I of this
quarterly report on
Form 10-Q,
which is incorporated into this item by reference.
We are
substantially dependent on revenues from our two principal
products.
Our current and future revenues depend substantially upon
continued sales of our two principal products, AVONEX and
RITUXAN, which represented approximately 81% of our total
revenues during the first quarter of 2009. Any significant
negative developments relating to these two products, such as
safety or efficacy issues, the introduction or greater
acceptance of competing products or adverse regulatory or
legislative developments, would have a material adverse effect
on our results of operations. Although we have developed and
continue to develop additional products for commercial
introduction, we expect to be substantially dependent on sales
from these two products for many years. A decline in sales from
either of these two products would adversely affect our business.
Our
near-term success depends on the market acceptance and
successful sales growth of TYSABRI.
A substantial portion of our growth in the near-term is
dependent on anticipated sales of TYSABRI. TYSABRI is expected
to diversify our product offerings and revenues, and to drive
additional revenue growth over the next several years. If we are
not successful in growing sales of TYSABRI, it would result in a
significant reduction in diversification and expected revenues
and adversely affect our business.
Achievement of anticipated sales growth of TYSABRI will depend
upon its acceptance by the medical community and patients, which
cannot be certain given the significant restrictions on use and
the significant safety warnings in the label. Since the
reintroduction of TYSABRI in the United States and its
introduction in the European Union, or E.U., in July 2006, we
have disclosed six cases of progressive multifocal
leukoencephalopathy, or PML, a known side effect, in patients
taking TYSABRI. The occurrence of additional cases of PML or the
occurrence of other side effects could harm acceptance and limit
TYSABRI sales or result in a withdrawal of TYSABRI from the
market. Additional regulatory restrictions on the use of TYSABRI
and safety-related labeling changes, 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,
including enhanced risk management programs. A significant
reduction in the acceptance of TYSABRI by the medical community
or patients would materially and adversely affect our growth and
our plans for the future.
As a relatively new entrant to a maturing MS market, TYSABRI
sales may be more sensitive to additional new competing
products. A number of such products are expected to be approved
for use in MS in the coming years. If these products have a
similar or more attractive overall profile in terms of efficacy,
convenience and safety, future sales of TYSABRI could be limited.
Our
long-term success depends upon the successful development and
commercialization of other products from our research and
development activities.
Our long-term viability and growth will depend upon the
successful development and commercialization of other products
from our research and development activities. Product
development and commercialization are very expensive and involve
a high degree of risk. Only a small number of research and
development programs result in the commercialization of a
product. Success in early stage clinical trials or preclinical
work does not ensure that later stage or larger scale clinical
trials will be successful. Even if later stage clinical trials
are successful, the risk remains that unexpected concerns may
arise from additional data or analysis or that obstacles may
arise or issues may be identified in connection with review of
clinical data with regulatory
50
authorities or that regulatory authorities may disagree with our
view of the data or require additional data or information or
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 recently 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 contract 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.
Adverse
safety events can negatively affect our assets, product sales,
operations, products in development and stock
price.
Even after we receive marketing approval for a product, adverse
event reports 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 Food and Drug Administration, or FDA, could cause product
liability events, additional regulatory scrutiny and
requirements for additional labeling, withdrawal of products
from the market and the imposition of fines or criminal
penalties. Any of these actions could result in, among other
things, material write-offs of inventory and impairments of
intangible assets, goodwill and fixed assets. In addition, the
reporting of adverse safety events involving our products and
public rumors about such events could cause our stock price to
decline or experience periods of volatility.
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. We cannot be certain that one or more of
our competitors will not receive patent protection that
dominates, blocks or adversely affects our product development
or business, will not benefit from significantly greater sales
and marketing capabilities, or will not develop products that
are accepted more widely than ours. The introduction of
alternatives to our products that offer advantages in efficacy,
safety or ease of use could negatively affect our revenues and
reduce the value of our product development efforts. In
addition, potential governmental action in the future could
provide a means for competition from developers of follow-on
biologics, which could compete on price and differentiation with
products that we now or could in the future market.
In addition to competing directly with products that are
marketed by substantial pharmaceutical competitors, AVONEX,
RITUXAN and TYSABRI also face competition from off-label uses of
drugs approved for other indications. Some of our current
competitors are also working to develop alternative formulations
for delivery of their products, which may in the future compete
with ours.
We
depend, to a significant extent, on reimbursement from third
party payors and a reduction in the extent of reimbursement
could negatively affect 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 the United States, at both the federal and state levels, the
government regularly proposes legislation to reform healthcare
and its cost, and such proposals have received increasing
political attention. In the last few years, there have been a
number of legislative changes that have affected the
reimbursement for our products.
51
The Deficit Reduction Act of 2005 made significant changes to
the Medicaid prescription drug provisions of the Social Security
Act, including changes that impose the monthly reporting of
price information and that may have an impact on the Medicaid
rebates we pay. In addition, states may more aggressively seek
Medicaid rebates as a result of legislation enacted in 2006,
which rebate activity could adversely affect our results of
operations.
Managed care organizations as well as Medicaid and other
government health administration authorities continue to seek
price discounts. Government efforts to reduce Medicaid expenses
may continue to increase the use of managed care organizations.
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. In addition, some states have implemented and
other states are considering price controls or patient-access
constraints under the Medicaid program and some states are
considering price-control regimes that would apply to broader
segments of their populations that are not Medicaid eligible.
Other matters also could be the subject of U.S. federal or
state legislative or regulatory action that could adversely
affect our business, including the importation of prescription
drugs that are marketed outside the United States and sold at
lower prices as a result of drug price limitations imposed by
the governments of various foreign countries.
We encounter similar regulatory and legislative issues in most
other countries. In the E.U. 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. This international
system of price regulations may lead to inconsistent prices.
Within the E.U. and in other countries, the availability of our
products in some markets at lower prices undermines our sales in
some markets with higher prices. Additionally, certain countries
set prices by reference to the prices in other countries where
our products are marketed. Thus, inability to secure adequate
prices in a particular country may also impair our ability to
obtain acceptable prices in existing and potential new markets.
This may create the opportunity for the third party cross border
trade previously mentioned or influence our decision to sell or
not to sell the product thus affecting our geographic expansion
plans.
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.
We
depend on collaborators for both product and royalty revenue and
the clinical development of future collaboration products, which
are outside of our full control.
Collaborations between companies on products or programs are a
common business practice in the biotechnology industry.
Out-licensing typically allows a partner to collect up front
payments and future milestone payments, share the costs of
clinical development and risk of failure at various points, and
access sales and marketing infrastructure and expertise in
exchange for certain financial rights to the product or program
going to the in-licensing partner. In addition, the obligation
of in-licensees to pay royalties or share profits generally
terminates upon expiration of the related patents. We have a
number of collaborators and partners, and have both in-licensed
and out-licensed several products and programs. These
collaborations include several risks:
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we are not fully in control of the royalty or profit sharing
revenues we receive from collaborators, and we cannot be certain
of the timing or potential impact of factors including patent
expirations, pricing or health care reforms, other legal and
regulatory developments, failure of our partners to comply with
applicable laws and regulatory requirements, the introduction of
competitive products, and new indication approvals which may
affect the sales of collaboration products;
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where we co-promote and co-market products with our
collaboration partners, any failure on their part to comply with
applicable laws in the sale and marketing of our products could
have an adverse effect on our revenues as well as involve us in
possible legal proceedings; and
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collaborations often require the parties to cooperate, and
failure to do so effectively could have an adverse impact on
product sales by our collaborators and partners, and could
adversely affect the clinical development of shared products or
programs under joint control.
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In addition, under our collaboration agreement with Genentech,
the successful development and commercialization of the first
anti-CD20 product acquired or developed by Genentech will
decrease our percentage of co-promotion profits of the
collaboration.
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.
In addition to the expansion of our pipeline through spending on
internal development projects, we anticipate growing through
external growth opportunities, which include the acquisition,
partnering and in-licensing of products, technologies and
companies or the entry into strategic alliances and
collaborations. If we are unable to complete or manage these
external growth opportunities successfully, we may not be able
to grow our business in the way that we currently expect. The
availability of high quality opportunities is limited and we are
not certain that we will be able to identify suitable candidates
or complete transactions on terms that are acceptable to us. 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. The availability of such financing
is limited by the recent tightening of the global credit
markets. In addition, 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 charges
as a result of acquisitions that are not successful.
If we
fail to comply with the extensive legal and regulatory
requirements affecting the healthcare 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 United States and in
foreign jurisdictions. 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
healthcare business, submission of false claims for government
reimbursement, antitrust violations, or violations related to
environmental matters. Violations of governmental regulation may
be punishable by criminal and civil sanctions, including fines
and civil monetary penalties and exclusion from participation in
government programs, including Medicare and Medicaid. In
addition to penalties for violation of laws and regulations, we
could be required to repay amounts we received from government
payors, or pay additional rebates and interest if we are found
to have miscalculated the pricing information we have submitted
to the government. Whether or not we have complied with the law,
an investigation into alleged unlawful conduct could increase
our expenses, damage our reputation, divert management time and
attention and adversely affect our business.
If we
fail to meet the stringent requirements of governmental
regulation in the manufacture of our products, we could incur
substantial remedial costs and a reduction in
sales.
We and our third party providers are generally required to
maintain compliance with current Good Manufacturing Practice, or
cGMP, and are subject to inspections by the FDA or comparable
agencies in other jurisdictions to confirm such compliance. Any
changes of suppliers or modifications of methods of
manufacturing require amending our application to the FDA and
acceptance of the change by the FDA prior to release of product
to the marketplace. Our inability, or the inability of our third
party service providers, to demonstrate ongoing cGMP compliance
could require us to withdraw or recall product and interrupt
commercial supply of our products. 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
53
develop and commercialize our products. This non-compliance
could increase our costs, cause us to lose revenue or market
share and damage our reputation.
Changes
in laws affecting the healthcare industry could adversely affect
our revenues and profitability.
We and our collaborators and third party providers operate in a
highly regulated industry. As a result, governmental actions may
adversely affect our business, operations or financial
condition, including:
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new laws, regulations or judicial decisions, or new
interpretations of existing laws, regulations or decisions,
related to health care availability, method of delivery and
payment for health care products and services;
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changes in the FDA and foreign regulatory approval processes
that may delay or prevent the approval of new products and
result in lost market opportunity;
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changes in FDA and foreign regulations that may require
additional safety monitoring after the introduction of our
products to market, which could increase our costs of doing
business and adversely affect the future permitted uses of
approved products;
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new laws, regulations and judicial decisions affecting pricing
or marketing practices; and
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changes in the tax laws relating to our operations.
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The enactment in the U.S. of the Deficit Reduction Act of
2005, possible legislation which could ease the entry of
competing follow-on biologics in the marketplace, and
importation of lower-cost competing drugs from other
jurisdictions are examples of changes and possible changes in
laws that could adversely affect our business. In addition, the
Food and Drug Administration Amendments Act of 2007 included new
authorization for the FDA to require post-market safety
monitoring, along with a clinical trials registry, and expanded
authority for FDA to impose civil monetary penalties on
companies that fail to meet certain commitments.
Problems
with manufacturing or with inventory planning could result in
our inability to deliver products, inventory shortages or
surpluses, product recalls and increased costs.
We manufacture and expect to continue to manufacture our own
commercial requirements of bulk AVONEX and TYSABRI. Our products
are difficult to manufacture and problems in our manufacturing
processes can occur. Our inability to successfully manufacture
bulk product and to obtain and maintain regulatory approvals of
our manufacturing facilities would harm our ability to produce
timely sufficient quantities of commercial supplies of AVONEX
and TYSABRI to meet demand. Problems with manufacturing
processes could result in product defects or manufacturing
failures that could require us to delay shipment of products or
recall or withdraw products previously shipped, which could
result in inventory write-offs and impair our ability to expand
into new markets or supply products in existing markets. In the
past, we have had to write down and incur other charges and
expenses for products that failed to meet specifications.
Similar charges may occur in the future. In addition, lower than
expected demand for our products, including suspension of sales,
or a change in product mix may result in less than optimal
utilization of our manufacturing facilities and lower inventory
turnover, which could result in abnormal manufacturing variance
charges, facility impairment charges and charges for excess and
obsolete inventory.
We rely solely on our manufacturing facility in Research
Triangle Park, North Carolina, or RTP, for the production of
TYSABRI. If we cannot produce sufficient commercial requirements
of bulk product to meet demand, we would need to rely on third
party contract manufacturers, of which there are only a limited
number capable of manufacturing bulk products of the type we
require. We cannot be certain that we could reach agreement on
reasonable terms, if at all, with those manufacturers. Even if
we were to reach agreement, the transition of the manufacturing
process to a third party could take a significant amount of
time. Our ability to supply products in sufficient capacity to
meet demand is also dependent upon third party contractors to
fill-finish, package and store such products. Any prolonged
interruption in the operations of our existing manufacturing
facilities could result in cancellations of shipments or loss of
product in the process of being
54
manufactured. Because our manufacturing processes are highly
complex and are subject to a lengthy FDA approval process,
alternative qualified production capacity may not be available
on a timely basis or at all.
We
rely on third parties to provide services in connection with the
manufacture of our products and, in some instances, the
manufacture of 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 of the components used with
our products, to a concentrated group of third party
contractors. The manufacture of products and product components,
fill-finish, packaging and storage of our products require
successful coordination among us and multiple third party
providers. Our inability to coordinate these efforts, the lack
of capacity available at a third party contractor or any other
problems with the operations of these third party contractors
could require us to delay shipment of saleable products, 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 and damage
our reputation. Any third party we use to fill-finish, package
or store our products to be sold in the United States must be
licensed by the FDA. As a result, alternative third party
providers may not be readily available on a timely basis.
Due to the unique nature of the production of our products,
there are single source providers of several raw materials. We
make every effort 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.
The
current credit and financial market conditions may exacerbate
certain risks affecting our business.
Sales of our products are dependent, in large part, on
reimbursement from government health administration authorities,
private health insurers, distribution partners and other
organizations. As a result of the current credit and financial
market conditions, these organizations may be unable to satisfy
their reimbursement obligations or may delay payment. In
addition, federal and state health authorities may reduce
Medicare and Medicaid reimbursements, and private insurers may
increase their scrutiny of claims. A reduction in the
availability or extent of reimbursement could negatively affect
our product sales and revenue.
Due to the recent tightening of global credit, there may be a
disruption or delay in the performance of our third-party
contractors, suppliers or collaborators. We rely on third
parties for several important aspects of our business, including
portions of our product manufacturing, royalty revenue, clinical
development of future collaboration products, conduct of
clinical trials, and raw materials. If such third parties are
unable to satisfy their commitments to us, our business would be
adversely affected.
Our
portfolio of marketable securities is significant and is subject
to market, interest and credit risk that may reduce the value of
our investments.
We maintain a significant portfolio of marketable securities.
Our earnings may be adversely affected by changes in the value
of this portfolio. In particular, the value of our investments
may be adversely affected by 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 by other factors which may result in other than temporary
declines in value of the investments. Each of these events may
cause us to record charges to reduce the carrying value of our
investment portfolio or sell investments for less than our
acquisition cost. Although we attempt to mitigate risks within
our marketable securities portfolio with the assistance of our
investment advisors by investing in high quality
55
securities and continuously monitoring the overall risk profile
of our portfolio, the value of our investments may nevertheless
decline.
We may
not achieve our desired return on our significant investment in
a manufacturing facility currently under
development.
We are in the final stages of completing a large-scale biologic
manufacturing facility in Hillerød, Denmark. We have
already made a significant investment in this project and we may
incur substantial additional costs to make this facility ready
for production.
Although the facility may be completed in 2010, we could
experience delays in the completion or licensing of the
facility. In addition, lower than expected demand for our
current or future products or an increase in our manufacturing
capacity from other facilities may result in over capacity. If
any of these events occur, we would likely recognize an
impairment in the value of the facility, which could have a
material adverse effect on our results of operations.
If we
are unable to attract and retain qualified personnel and key
relationships, the growth of our business could be
harmed.
Our success will depend, to a great extent, upon our ability to
attract and retain qualified scientific, manufacturing, sales
and marketing and executive personnel and our ability to develop
and maintain relationships with qualified clinical researchers
and key distributors. Competition for these people and
relationships is intense and we compete with numerous
pharmaceutical and biotechnology companies as well as with
universities and non-profit research organizations. Any
inability we experience to continue to attract and retain
qualified personnel or develop and maintain key relationships
could have an adverse effect on our ability to accomplish our
research, development and external growth objectives.
Our
sales and operations are subject to the risks of doing business
internationally.
We are increasing our presence in international markets, which
subjects us to many risks, such as:
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economic problems that disrupt foreign healthcare payment
systems;
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fluctuations in currency exchange rates;
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the imposition of governmental controls;
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less favorable intellectual property or other applicable laws;
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the inability to obtain any necessary foreign regulatory or
pricing approvals of products in a timely manner;
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restrictions on direct investments by foreign entities and trade
restrictions;
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changes in tax laws and tariffs;
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difficulties in staffing and managing international
operations; and
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longer payment cycles.
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Our operations and marketing practices are also subject to
regulation and scrutiny by the governments of the other
countries in which we operate. In addition, the Foreign Corrupt
Practices Act, or FCPA, 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 healthcare
professionals we regularly interact with meet the definition of
a foreign official for purposes of the FCPA. Additionally, we
are subject to other U.S. laws in our international
operations. Failure to comply with domestic or foreign laws
could result in various adverse consequences, including possible
delay in approval or refusal to approve a product, recalls,
seizures, withdrawal of an approved product from the market, and
the imposition of civil or criminal sanctions.
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A portion of our business is conducted in currencies other than
our reporting currency, the U.S. dollar. We recognize
foreign currency gains or losses arising from our operations in
the period in which we incur those gains or losses. As a result,
currency fluctuations among the U.S. dollar and the
currencies in which we do business will affect our operating
results, often in unpredictable ways.
Our
business could be negatively affected as a result of the actions
of activist shareholders.
During the first half of 2008, we defended against a proxy
contest waged by Icahn Partners and certain of its affiliates
that nominated three individuals for election to our Board of
Directors and proposed amendments to our bylaws at our 2008
Annual Meeting of Stockholders. Although we were successful in
having our Boards nominees elected as directors, the proxy
contest was disruptive to our operations and caused us to incur
substantial costs. Icahn Partners and certain of its affiliates
have commenced a proxy contest relating to our 2009 Annual
Meeting of Stockholders nominating four individuals to our Board
of Directors, proposing amendments to our bylaws and requesting
a change in our jurisdiction of incorporation. Our business
could be adversely affected because:
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Responding to proxy contests and other actions by activist
shareholders can be costly and time-consuming, disrupting our
operations and diverting the attention of management and our
employees;
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Perceived uncertainties as to our future direction may result in
the loss of potential acquisitions, collaborations or
in-licensing opportunities, and may make it more difficult to
attract and retain qualified personnel and business
partners; and
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If individuals are elected to our board of directors with a
specific agenda, it may adversely affect our ability to
effectively and timely implement our strategic plan and create
additional value for our stockholders.
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Our
operating results are subject to significant
fluctuations.
Our quarterly revenues, expenses and net income (loss) have
fluctuated in the past and are likely to fluctuate significantly
in the future due to the timing of charges and expenses that we
may take. In recent periods, for instance, we have recorded
charges that include:
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impairments that we are required to take with respect to
investments;
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impairments that we are required to take with respect to fixed
assets, including those that are recorded in connection with the
sale of fixed assets;
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inventory write-downs for failed quality specifications, charges
for excess
and/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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the cost of restructurings.
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Our revenues are also subject to foreign exchange rate
fluctuations due to the global nature of our operations.
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, changes in currency exchange
rates may have an adverse impact on our future operating results
and financial condition. Additionally, our net income may
fluctuate due to the impact of charges we may be required to
take with respect to foreign currency hedge transactions. In
particular, we may incur higher charges from hedge
ineffectiveness than we expect or from the termination of a
hedge relationship.
These examples are only illustrative and other risks, including
those discussed in these Risk Factors, could also
cause fluctuations in our reported earnings. In addition, our
operating results during any one period do not necessarily
suggest the anticipated results of future periods.
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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 United States
and various other countries seeking protection of inventions
originating from our research and development, including a
number of our processes and products. 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
United States 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.
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 biopharmaceutical companies. Competitors
may have filed applications for, or have been issued patents and
may obtain additional patents and proprietary rights that may
relate to products or processes competitive with or similar to
our products and processes. Moreover, the patent laws of the
United States and foreign countries are distinct and decisions
as to patenting, validity of patents and infringement of patents
may be resolved differently in different countries. In general,
we obtain licenses to third party patents that we deem necessary
or desirable for the manufacture, use and sale of our products.
We are currently unable to assess 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 United States or in foreign
countries or patents issued in the future that are unavailable
to license on acceptable terms. Our inability to obtain such
licenses may hinder our ability to manufacture and market our
products.
Uncertainty
over intellectual property in the biotechnology industry has
been the source of litigation, which is inherently costly and
unpredictable.
We are aware that others, including various universities and
companies working in the biotechnology field, have filed patent
applications and have been granted patents in the United States
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 United States 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
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our products. Ultimately, the outcome of such litigation could
adversely affect the validity and scope of our patent or other
proprietary rights, or, conversely, 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.
Our
effective tax rate may fluctuate and we may incur obligations in
tax jurisdictions in excess of amounts that have been
accrued.
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 countries, states and other
jurisdictions in which we operate. In preparing our financial
statements, we estimate the amount of tax that will become
payable in each of the countries, states and other jurisdictions
in which we operate. Our effective tax rate, however, may be
lower or higher than experienced in the past due to numerous
factors, including a change in the mix of our profitability from
country to country, 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, which could have
an adverse effect on our business and results of operations. In
addition, unfavorable results of audits of our tax filings, our
inability to secure or sustain arrangements with tax
authorities, and recently enacted and future changes in tax laws
in jurisdictions in which we operate, among other things, may
cause us to be obligated to accrue for future tax payments in
excess of amounts accrued in our financial statements.
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, 2009, we had $1,109.4 million of
outstanding indebtedness, and we may incur additional debt in
the future. Our level of indebtedness could have adverse
consequences to our business. For example, it could:
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increase our vulnerability to general adverse economic and
industry conditions;
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require 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 mergers and
acquisitions; and
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limit 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.
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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. Biologics manufacturing is extremely susceptible to
product loss due to contamination, equipment failure, or vendor
or
59
operator error. 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. In addition, microbial or
viral contamination may cause the closure of a manufacturing
facility for an extended period of time. By law, radioactive
materials may only be disposed of at state-approved facilities.
We currently store radioactive materials from our California
laboratory
on-site
because the approval of a disposal site in California for all
California-based companies has been delayed indefinitely. If and
when a disposal site is approved, we may incur substantial costs
related to the disposal of these materials. If we were to become
liable for an accident, or if we were to suffer an extended
facility shutdown, we could incur significant costs, damages and
penalties that could harm our business. Biologics manufacturing
also requires permits from government agencies for water supply
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 stockholders who wish to receive a
premium for their shares from a potential bidder. For example:
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we are subject to Section 203 of the Delaware General
Corporation Law, which provides that we may not enter into a
business combination with an interested stockholder for a period
of three years after the date of the transaction in which the
person became an interested stockholder, unless the business
combination is approved in the manner prescribed in
Section 203;
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our board of directors has the authority to issue, without a
vote or action of stockholders, up to 8,000,000 shares of
preferred stock and to fix the price, rights, preferences and
privileges of those shares, each of which could be superior to
the rights of holders of common stock;
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our collaboration agreement with Elan provides Elan with the
option to buy the rights to TYSABRI in the event that we undergo
a change of control, which may limit our attractiveness to
potential acquirers;
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our amended and restated collaboration agreement with Genentech
provides that, in the event we undergo a change of control,
within 90 days Genentech may present an offer to us to
purchase our rights to RITUXAN. In an arbitration proceeding
brought by Biogen Idec relating to the collaboration agreement,
Genentech alleged that the November 2003 transaction in which
Idec Pharmaceuticals acquired Biogen and became Biogen Idec
constituted such a change of control, an assertion with which we
strongly disagree. It is our position that the Biogen Idec
merger did not constitute a change of control under our
agreement with Genentech and that, even if it did,
Genentechs rights under the change of control provision
have long since expired. If the arbitrators decide this issue in
favor of Genentech, or if a change of control were to occur in
the future and Genentech were to present an offer for the
RITUXAN rights, we must either accept Genentechs offer or
purchase Genentechs rights to RITUXAN on the same terms as
its offer. If Genentech presents such an offer, then they will
be deemed concurrently to have exercised a right, in exchange
for a royalty on net sales in the U.S. of any anti-CD20
product acquired or developed by Genentech or any anti-CD20
product that Genentech licenses from a third party that is
developed under the agreement, to purchase our interest in each
such product;
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our directors are elected to staggered terms, which prevents the
entire board from being replaced in any single year; and
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advance notice is required for nomination of candidates for
election as a director and for proposals to be brought before an
annual meeting of stockholders.
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60
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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A summary of issuer repurchase activity for the three months
ended March 31, 2009 is as follows:
Issuer
Purchases of Equity Securities
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Total Number of
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Number of Shares
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Shares Purchased
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That May Yet Be
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Total Number of
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Average Price Paid
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as Part of Publicly
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Purchased Under Our
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Shares Purchased
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per Share
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Announced Program
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Program
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Period
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(#)
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($)
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(#)(a)
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(#)(a)
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Jan-09
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1,222,500
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$
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47.12
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14,000,000
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6,000,000
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Total(a)
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1,222,500
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$
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47.12
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14,000,000
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6,000,000
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(a) |
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On October 13, 2006 the Board of Directors authorized the
repurchase of up to 20.0 million shares of our common
stock. The repurchased stock will provide us with authorized
shares for general corporate purposes, such as common stock to
be issued under our employee equity and stock purchase plans.
This repurchase program does not have an expiration date. We
publicly announced the repurchase program in our press release
dated October 31, 2006, which was furnished to the SEC as
Exhibit 99.1 of our Current Report on
Form 8-K
filed on October 31, 2006. |
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.
61
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 17, 2009
62
EXHIBIT INDEX
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Exhibit
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Number*
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Description of Exhibit
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4
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.1
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Amendment No. 2 to Amended and Restated Rights Agreement
between Biogen Idec and Mellon Investor Services LLC dated as of
January 22, 2009. Filed as Exhibit 4.4 to our Annual
Report on
Form 10-K
for the year ended December 31, 2008.
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10
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.1+
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Amendment No. 1 to Credit Agreement among Biogen Idec, Bank
of America, N.A. as administrative agent, and the other lenders
party thereto dated as of March 5, 2009.
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31
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.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
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.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
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.1++
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Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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* |
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Unless otherwise indicated, exhibits were previously filed with
the Securities and Exchange Commission under Commission File
Number 0-19311 and are incorporated herein by reference. |
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+ |
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Filed herewith |
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++ |
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Furnished herewith |