e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number: 0-19311
Biogen Idec Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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33-0112644
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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14 Cambridge Center,
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02142
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Cambridge, Massachusetts
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(Zip code)
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(Address of principal executive
offices)
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(617) 679-2000
(Registrants
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.0005 par value
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The Nasdaq Global Select Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Securities Exchange Act of
1934). Yes o No þ
The aggregate market value of the Registrants Common Stock
held by non-affiliates of the Registrant (without admitting that
any person whose shares are not included in such calculation is
an affiliate) computed by reference to the price at which the
common stock was last sold as of the last business day of the
Registrants most recently completed second fiscal quarter
was $16,179,698,132.
As of February 2, 2009, the Registrant had
297,252,825 shares of Common Stock, $0.0005 par value,
issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for our 2009 Annual
Meeting of Stockholders are incorporated by reference into
Part III of this Report.
BIOGEN
IDEC INC.
ANNUAL
REPORT ON
FORM 10-K
For the
Year Ended December 31, 2008
TABLE OF
CONTENTS
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Page
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Business
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1
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Overview
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1
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Marketed Products
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2
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Other Sources of Revenue
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6
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Late-Stage Product Candidates
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7
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Other Research and Development Programs
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9
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Research and Development Costs
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9
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Patents and Other Proprietary Rights
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10
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Sales, Marketing and Distribution
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12
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Competition
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13
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Regulatory
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15
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Manufacturing and Raw Materials
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19
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Our Employees
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20
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Our Executive Officers
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20
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Risk Factors
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23
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Unresolved Staff Comments
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33
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Properties
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34
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Legal Proceedings
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34
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Submission of Matters to a Vote of Security
Holders
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34
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PART II
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Market for Registrants Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
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35
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Selected Consolidated Financial Data
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37
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Managements Discussion and Analysis of
Financial Condition and Results of Operations
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38
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Quantitative and Qualitative Disclosures About
Market Risk
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63
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Consolidated Financial Statements and
Supplementary Data
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64
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Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
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64
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Controls and Procedures
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64
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Other Information
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65
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PART III
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Directors, Executive Officers and Corporate
Governance
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66
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Executive Compensation
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66
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Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
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66
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Certain Relationships and Related Transactions,
and Director Independence
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66
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Principal Accountant Fees and Services
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66
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PART IV
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Exhibits, Financial Statement Schedules
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67
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68
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F-1
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Ex-4.4 Amendment No. 2 to Amended and Restated Rights Agreement between Biogen Idec and Mellon Investor Services LLC dated as of January 22, 2009. |
Ex-10.19 Amendment to Biogen Idec Inc. 2008 Omnibus Equity Plan dated October 13, 2008 |
Ex-10.25 Amendment to Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan dated October 13, 2008 |
Ex-10.30 Amendment to Biogen Idec Inc. 2005 Omnibus Equity Plan dated October 13, 2008 |
Ex-10.34 Amendment to Biogen Idec Inc. 2003 Omnibus Equity Plan dated October 13, 2008 |
Ex-10.45 Amendment to Biogen, Inc. 1985 Non-Qualified Stock Option Plan dated October 13, 2008 |
Ex-10.51 Biogen Idec Inc. Executive Severance Policy - U.S. Executive Vice President, as amended effective October 13, 2008. |
Ex-10.52 Biogen Idec Inc. Executive Severance Policy - International Executive Vice President, as amended effective October 13, 2008. |
Ex-10.53 Biogen Idec Inc. Executive Severance Policy - U.S. Senior Vice President, as amended effective October 13, 2008. |
Ex-10.54 Biogen Idec Inc. Executive severance Policy - International Senior Vice President, as amended effective October 13, 2008. |
Ex-10.59 Second Amendment to Employment Agreement between Biogen Idec and James C. Mullen dated as of December 4, 2008 |
Ex-10.61 Employment Agreement between Biogen Idec Management Services GmbH and Hans Peter Hasler dated October 15, 2008. |
Ex-10.63 First Amendment to Employment Agreement between Biogen Idec and Cecil B. Pickett dated as of October 28, 2008 |
Ex-10.66 First Amendment to Employment Agreement between Biogen Idec and Craig E. Schneier dated October 8, 2008 |
Ex-21.1 Subsidiaries |
Ex-23.1 Consent of PricewaterhouseCoopers LLP - an Independent Registered Public Accounting Firm |
Ex-31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Ex-31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Ex-32.1 Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
PART I
Overview
Biogen Idec Inc. (we or Biogen Idec)
creates new standards of care in therapeutic areas with high
unmet medical needs. Our business strategy is focused on
discovering and developing first-in-class or best-in-class
products that we can deliver to specialty markets globally.
Patients in more than 90 countries benefit from Biogen
Idecs significant products that address medical needs in
the areas of neurology, oncology and immunology.
Marketed
Products
We currently have four therapeutic products on the market, which
are summarized in the table below.
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Product
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Product Indications
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Revenues to Biogen Idec (in millions)
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2008
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2007
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2006
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AVONEX®
(interferon beta-1a)
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Relapsing multiple sclerosis
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$
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2,202.6
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$
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1,867.8
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$
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1,706.7
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RITUXAN®*
(rituximab)
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Certain B-cell non-Hodgkins lymphoma
Rheumatoid arthritis
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1,128.2
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926.1
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810.9
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TYSABRI®
(natalizumab)
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Relapsing multiple sclerosis
Crohns disease
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588.6
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229.9
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35.8
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FUMADERM®
(dimethylfumarate and monoethylfumarate salts)
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Severe psoriasis
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43.4
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21.5
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9.5
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Outside the United States, Canada and Japan, MabThera is the
trade name for rituximab. We refer to rituximab, RITUXAN and
MabThera collectively as RITUXAN. |
Other
Sources of Revenue
We receive royalty revenues on sales by our licensees of other
products covered under patents that we control. In 2008, 2007
and 2006, our royalty revenues were $116.2 million,
$102.1 million and $86.2 million, respectively.
Additional financial information about our product revenues,
other revenues and geographic areas is set forth in
Note 22, Segment Information in Notes to Consolidated
Financial Statements.
Research
and Development
We devote significant resources to research and development
programs and external business and corporate development
efforts. We intend to focus our research and development efforts
on finding novel therapeutics in areas of high unmet medical
need, both within our current focus areas of neurology,
oncology, immunology and cardiology as well as in new
therapeutic areas. We have 22 pipeline products in Phase 2
trials or beyond. In 2008, 2007 and 2006, our research and
development costs were $1,072.1 million,
$925.2 million and $718.4 million, respectively.
Available
Information
We were formed as a California corporation in 1985 and became a
Delaware corporation in 1997. Our principal executive offices
are located at 14 Cambridge Center, Cambridge, Massachusetts
02142 and our telephone number is
(617) 679-2000.
Our website address is www.biogenidec.com. We make available
free of charge through the Investor Relations section of our
website our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or
furnished to the Securities and Exchange Commission, or the SEC.
We include our website address in this Annual Report on
Form 10-K
only as an inactive textual reference and do not intend it to be
an active link to our website. The contents of our website are
not incorporated into this filing.
1
Marketed
Products
Our marketed products address multiple sclerosis (MS),
non-Hodgkins lymphoma (NHL), rheumatoid arthritis (RA),
Crohns disease (CD) and psoriasis. As part of our
ongoing development efforts, we are also seeking to expand our
marketed products into other diseases, such as chronic
lymphocytic leukemia (CLL), lupus nephritis, ANCA-associated
vasculitis, multiple myeloma and ulcerative colitis. The
approved indications for, and ongoing development of, our
marketed products are summarized in the table below.
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Development and/or
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Product
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Product Indications
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Status
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Marketing Collaborators
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AVONEX
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Relapsing MS
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Approved numerous countries worldwide
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None
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Ulcerative colitis
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Phase 2
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None
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RITUXAN
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Certain B-cell NHL
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Approved numerous countries worldwide
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All RITUXAN Indications:
U.S. Genentech
Japan Zenyaku and Chugai
Outside U.S. and Japan Roche
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RA, anti-TNF-inadequate responders
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Approved U.S.
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See above
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RA, DMARD naïve and inadequate responders (IR)
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Phase 3 complete (DMARD naïve) Filed with regulators
(DMARD-IR)
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See above
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CLL
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Phase 3 complete and regulatory filings planned
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See above
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Lupus nephritis
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Phase 3
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U.S. Genentech
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ANCA-associated vasculitis
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Phase 2/3
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U.S. Genentech
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TYSABRI
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Relapsing MS
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Approved numerous countries worldwide
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Elan
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CD
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Approved U.S.
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Elan
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Multiple myeloma
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Phase 1/2
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Elan
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FUMADERM
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Severe psoriasis
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Approved Germany
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Almirall
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AVONEX
We currently market and sell AVONEX worldwide for the treatment
of relapsing MS. MS is a progressive neurological disease in
which the body loses the ability to transmit messages along
nerve cells, leading to a loss of muscle control, paralysis and,
in some cases, death. Patients with active relapsing MS
experience an uneven pattern of disease progression
characterized by periods of stability that are interrupted by
flare-ups of
the disease after which the patient returns to a new baseline of
functioning. AVONEX is a recombinant form of a protein produced
in the body by fibroblast cells in response to viral infection.
AVONEX has been shown in clinical trials in relapsing MS both to
slow the accumulation of disability and to reduce the frequency
of
flare-ups.
AVONEX is approved to treat relapsing MS, including patients
with a first clinical episode and MRI features consistent with
MS.
AVONEX is on the market in over 70 countries. Based on data from
an independent third party research organization, information
from our distributors and internal analysis, we believe that
AVONEX is the most prescribed therapeutic product for the
treatment of MS worldwide. Globally over 135,000 patients
use AVONEX.
2008
Developments
We continue to work to expand the clinical data available about
AVONEX and MS treatments, invest in AVONEX lifecycle development
and focus on projects that will help patients adhere to therapy.
In September 2008, we announced that data from the follow-up
study known as ASSURANCE showed the long-term benefits of AVONEX
therapy in patients with relapsing MS for up to 15 years.
The ASSURANCE study represents the long-term
follow-up of
patients who participated in the Multiple Sclerosis
Collaborative Research Group (MSCRG) trial, the original Phase 3
pivotal trial from which AVONEX was approved. Specifically, the
ASSURANCE study showed that patients currently taking AVONEX for
up to 15 years versus those not on AVONEX therapy reported:
(1) significantly lower disability progression as measured
by a mean change in Expanded Disability Scale Scores (EDSS) of
2.3 vs. 3.3 from the MSCRG baseline; (2) lower disability
progression
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to EDSS milestones four, six and seven; (3) greater quality
of life as measured by the physical component score of the SF-36
health survey; (4) significantly greater sense of
independence in self care; and (5) significantly more
independent living.
We have also extended the five-year study known as CHAMPIONS for
an additional five years. CHAMPIONS was originally designed to
determine whether the effect of early treatment with AVONEX in
delaying relapses and reducing the accumulation of MS brain
lesions could be sustained for up to five years. The study
results showed that AVONEX altered the long-term course of MS in
patients who began treatment immediately after their initial MS
attack compared to initiation of treatment more than two years
after onset of symptoms. The five-year study extension is
intended to determine if the effects of early treatment with
AVONEX can be sustained for up to ten years. We also continue to
support Phase 4 investigator-run studies evaluating AVONEX in
combination with other therapies.
Outside of MS, we are conducting a Phase 2 trial of AVONEX in
ulcerative colitis, a form of inflammatory bowel disease.
RITUXAN
RITUXAN is one of the highest selling oncology therapeutics in
the world and has had approximately 1.5 million patient
exposures worldwide across all indications. In the United
States, RITUXAN is approved for NHL with the following label
indications:
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The treatment of patients with relapsed or refractory, low-grade
or follicular, CD20-positive, B-cell NHL as a single agent;
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The treatment of patients with previously untreated diffuse
large B-cell, CD20-positive, NHL, or DLBCL, in combination with
CHOP (cyclophosphamide, doxorubicin, vincristine and prednisone)
or other anthracycline-based chemotherapy regimens;
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The treatment of patients with previously untreated follicular,
CD20-positive, B-cell NHL in combination with CVP
(cyclophosphamide, vincristine and prednisone)
chemotherapy; and
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The treatment of patients with non-progressing (including stable
disease), low grade CD20-positive, B-cell NHL, as a single
agent, after first line CVP chemotherapy.
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NHL is a cancer that affects lymphocytes, which are a type of
white blood cell that help to fight infection. RITUXAN is an
immunotherapy that targets CD20-positive B-cell lymphocytes
involved in certain types of NHL and helps the immune system to
eliminate them.
RITUXAN, in combination with methotrexate, is also approved for
reducing signs and symptoms and to slow the progression of
structural damage in adult patients with moderately-to-severely
active RA who have had an inadequate response to one or more
tumor necrosis factor, or TNF, inhibitor therapies. RA is a
chronic disease that occurs when the immune system mistakenly
attacks the bodys joints, resulting in inflammation, pain
and joint damage. RITUXAN targets CD20-positive B-cell
lymphocytes believed to be involved in RA and helps the immune
system to eliminate them.
Our revenues from RITUXAN include three components:
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U.S. Co-Promotion Profits. In the
United States, we co-promote RITUXAN in collaboration with
Genentech, Inc. All U.S. sales of RITUXAN are recognized by
Genentech, and we record our share of the pre-tax co-promotion
profits on a quarterly basis. Genentech provides the primary
support functions for the commercialization of RITUXAN in the
United States and has worldwide manufacturing responsibilities.
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Rest of World Revenues. Outside the
United States, F. Hoffman-La Roche Ltd., or Roche, markets
and sells RITUXAN, 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. In Canada, we
receive our share of pre-tax co-promotion profits from Roche.
Outside of the U.S. and Canada, we receive royalties through
Genentech on sales of RITUXAN for a period of 11 years from
the date of first commercial sale in each country. For the
majority of European countries, the first commercial sale of
RITUXAN occurred in the second half of 1998.
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Therefore, we expect a significant decrease in royalty revenues
on sales of RITUXAN outside the United States 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. 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.
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Expense Reimbursement. We receive
reimbursement from Genentech for our selling and development
expenses incurred in the United States.
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In the United States, we share responsibility with Genentech for
continued development of RITUXAN. Such continued development
includes conducting supportive research and post-approval
clinical studies and seeking potential approval for additional
indications. Under the terms of our collaboration agreement with
Genentech, we also 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.
We have the right to co-promote with Genentech any New Anti-CD20
Products resulting from such development in the United States.
We are currently in arbitration with Genentech as to whether
Genentech has the right to develop collaboration products
without our approval. See Note 19, Litigation, in Notes to
Consolidated Financial Statements for a description of
that arbitration. 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. Ocrelizumab is in Phase 3 trials
for rheumatoid arthritis and lupus nephritis and is also in a
Phase 2 trial for relapsing MS.
2008
Developments
In April 2008, we and Genentech announced that a Phase 2/3
study of RITUXAN in primary-progressive multiple sclerosis
(PPMS) did not meet its primary endpoint, as measured by the
time to confirmed disease progression during the 96-week
treatment period.
In April 2008, we and Genentech also announced that a
Phase 2/3 study of RITUXAN in systemic lupus erythematosus
(SLE) did not meet its primary endpoint, defined as the
proportion of RIXUTAN treated patients who achieved a major
clinical response or partial clinical response compared to
placebo at 52 weeks. The study also did not meet any of the
six secondary endpoints.
In December 2008, we and Genentech announced the results of two
global Phase 3 registrational studies of RITUXAN in CLL, a
cancer affecting B-cell lymphocytes. These studies, known as the
CLL8 and REACH studies, showed that RITUXAN plus chemotherapy
significantly increased the time patients lived without their
disease advancing, as defined by the primary endpoint of
progression-free survival, when compared to chemotherapy alone.
Specifically, in the CLL8 study, 817 patients newly
diagnosed with CLL were given RITUXAN combined with
chemotherapy, with 41% of such patients experiencing a reduction
in the risk of death or cancer progression when compared with
those treated with chemotherapy alone. In addition, the REACH
study, involving 552 participants, found RITUXAN reduced the
risk of cancer progression or death by 35 percent for
patients who had a relapse of CLL symptoms after chemotherapy.
We and Genentech anticipate submitting an application to the FDA
for potential new indications for RITUXAN in first- and
second-line treatment of CLL in 2009.
In December 2008, we and Genentech announced that a Phase 3
clinical study of RITUXAN in patients with early RA who have not
previously been treated with methotrexate met its primary
endpoint. In this study, known as IMAGE, patients received two
infusions of either 500 mg or 1000 mg of RITUXAN or
placebo for up to two treatment courses in combination with a
stable dose of methotrexate. At week 52, only patients in the
1000 mg treatment group met the primary endpoint and showed
significantly less progression of joint damage compared to
patients who received placebo in combination with methotrexate.
4
We, along with Genentech and Roche, initiated a Phase 3 clinical
trial of RITUXAN in RA patients who are inadequate responders to
disease-modifying anti-rheumatic drugs, or DMARDs, in 2006. In
January 2008, we announced that the trial, known as SERENE, met
its primary endpoint of a significantly greater proportion of
RITUXAN-treated patients achieving an American College of
Rheumatology (ACR) 20 response (the proportion of patients who
achieve at least 20% improvement) at week 24, compared to
placebo. In this trial, patients who received either 500 mg
or 1000 mg of RITUXAN as a single treatment course of two
infusions in combination with a stable dose of methotrexate
displayed a statistically significant improvement in symptoms
compared to patients who received placebo in combination with
methotrexate. In September 2008, we and Genentech filed for an
expansion of the RITUXAN label to include treatment of RA
patients who have had an inadequate response to DMARDs.
We, along with Genentech, are conducting a Phase 3 clinical
trial of RITUXAN in lupus nephritis, an inflammation of the
kidney caused by systemic lupus erythematosus, a disease of the
immune system. We anticipate reporting results from this trial
in the first half of 2009.
The National Institutes of Health is conducting a Phase 2/3
clinical trial of RITUXAN in ANCA-associated vasculitis, a type
of inflammation of the blood vessels. We anticipate that data
from this trial will be available in 2009.
TYSABRI
TYSABRI was initially approved by the FDA in November 2004 to
treat relapsing MS to reduce the frequency of clinical relapses.
In February 2005, in consultation with the FDA, we and our
collaborator Elan Corporation plc, or Elan, voluntarily
suspended the marketing and commercial distribution of TYSABRI
based on reports of cases of PML in patients treated with
TYSABRI in clinical studies. In July 2006, TYSABRI was
reintroduced in the United States, and introduced in the
European Union, as a monotherapy treatment for relapsing MS to
slow the progression of disability and reduce the frequency of
clinical relapses.
TYSABRI is marketed under risk management or minimization plans
as agreed to with local regulatory authorities. In the United
States, TYSABRI was reintroduced with a risk minimization action
plan known as the TOUCH Prescribing Program, a rigorous system
intended to educate physicians and patients about the risks
involved and assure appropriate use of the product. TYSABRI is
currently approved for the treatment of MS in 39 countries.
In January 2008, we and Elan announced the FDAs approval
of a supplemental biologics license application, or sBLA, for
use of TYSABRI for inducing and maintaining clinical response
and remission in adult patients with moderately to severely
active CD with evidence of inflammation who have had an
inadequate response to, or are unable to tolerate, conventional
CD therapies and inhibitors of TNF-alpha. TYSABRI became
available for the treatment of CD in the United States in the
first quarter of 2008.
As of the end of 2008, approximately 37,000 patients were
on commercial TYSABRI therapy worldwide. Cumulatively,
approximately 48,300 patients have been treated with
TYSABRI in the post-marketing setting.
Under the terms of our collaboration with Elan, we are solely
responsible for the manufacture of TYSABRI worldwide, and we
collaborate with Elan on the products marketing,
commercial distribution and ongoing development activities. The
collaboration agreement 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 our agreement with
Elan, however, if sales of TYSABRI exceed specified thresholds,
Elan is required to make milestone payments to us in order to
continue sharing equally in the collaborations results.
During 2008, Elan paid us $75 million to maintain the
current profit sharing under our collaboration agreement. In
January 2009, Elan paid us an additional $50 million
milestone payment to maintain this profit sharing split.
In the United States, we sell TYSABRI to Elan who sells the
product to third party distributors. Elan and we co-market the
product. The sales price to Elan in the United States is set at
the beginning of each quarterly period to effect an approximate
equal sharing of the gross margin between Elan and us. In
addition, in the United States both parties share equally in the
operating costs, which include research and development,
selling, general and administrative expenses and other similar
costs. For sales outside of the United States, we are
responsible for
5
distributing TYSABRI to customers and are primarily responsible
for all operating activities. We and Elan share equally in the
operating results of TYSABRI outside the United States.
2008
Developments
The FDAs approval of TYSABRI to treat relapsing MS was
based on one-year data from two Phase 3 clinical studies. In
September 2008, we and Elan announced that a post hoc analysis
of one of these studies showed TYSABRI treatment increases the
probability of achieving sustained improvement in physical
disability over two years when compared to placebo. This
post-hoc analysis provides the first evidence that TYSABRI is
associated with a significant improvement in functional outcome,
rather than only slowing or preventing progression of
disability, in those living with relapsing MS. These findings
were presented as a poster presentation at the World Congress on
Treatment and Research in Multiple Sclerosis in September 2008.
We initiated the first clinical trial of TYSABRI in oncology in
2008. The objectives of this Phase 1/2 study are to evaluate the
safety and potential anti-tumor activity of TYSABRI in patients
with relapsed or refractory multiple myeloma.
Since the reintroduction of TYSABRI in the United States and the
introduction of TYSABRI outside the United States in July 2006,
we have disclosed five cases of progressive multifocal
leukoencephalopathy, or PML, a known side effect, in patients
taking TYSABRI. These patients are the only confirmed cases of
PML reported to us during this period.
FUMADERM
We acquired FUMADERM as part of our purchase of Fumapharm AG in
June 2006 and subsequently acquired the right to distribute
FUMADERM in Germany from Fumedica GmbH effective May 1,
2007. FUMADERM acts as an immunomodulator and is approved in
Germany for the treatment of severe psoriasis. The product has
been in commercial use in Germany since 1994 and is the most
prescribed oral systemic treatment for severe psoriasis in
Germany.
Other
Sources of Revenue
Our product line previously included ZEVALIN (ibritumomab
tiuxetan), which is part of a treatment regimen for certain
B-cell non-Hodgkins lymphoma, and AMEVIVE (alefacept), a
treatment for certain psoriasis. We have sold or exclusively
licensed the rights to these products to third parties and
continue to receive royalty or supply agreement revenues based
on those products.
We also receive royalties on sales by our licensees of a number
of other products covered under patents that we control. For
example:
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We receive royalties from Schering-Plough Corporation, or
Schering-Plough, on sales of its alpha interferon products in
the United States pursuant to an interference settlement
covering our alpha interferon patents and patent applications.
Schering-Plough sells its
INTRON®
A (interferon alfa-2b) brand of alpha interferon in the United
States for a number of indications, including the treatment of
chronic hepatitis B and hepatitis C. Schering-Plough also
sells other alpha interferon products for the treatment of
hepatitis C, including
REBETRON®
Combination Therapy containing INTRON A and
REBETOL®
(ribavirin, USP),
PEG-INTRON®
(peginterferon alfa-2b), a pegylated form of alpha interferon,
and PEG-INTRON in combination with REBETOL. See Patents
and Other Proprietary Rights Recombinant Alpha
Interferon.
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We hold several patents related to hepatitis B antigens produced
by genetic engineering techniques. These antigens are used in
recombinant hepatitis B vaccines and in diagnostic test kits
used to detect hepatitis B infection. We receive royalties from
sales of hepatitis B vaccines in several countries, including
the United States, from GlaxoSmithKline plc and Merck and
Co. Inc.. We have also licensed our proprietary hepatitis B
rights, on an
antigen-by-antigen
and nonexclusive basis, to several diagnostic kit manufacturers,
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including Abbott Laboratories, the major worldwide marketer of
hepatitis B diagnostic kits. See Patents and Other
Proprietary Rights Recombinant Hepatitis B
Antigens.
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We also receive ongoing royalties on sales of
ANGIOMAX®
(bivalirudin) by The Medicines Company. The Medicines Company
sells ANGIOMAX in the United States, Europe, Canada and Latin
America for use as an anticoagulant in combination with aspirin
in patients with unstable angina undergoing percutaneous
transluminal coronary angioplasty.
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Our royalty revenues are dependent upon our licensees
sales of licensed products which could vary significantly due to
competition, manufacturing difficulties and other factors. In
addition, the expiration or invalidation of any underlying
patents could reduce or eliminate the royalty revenues derived
from such patents.
Late-Stage
Product Candidates
In addition to the ongoing development of our marketed products,
we are currently developing the late stage product candidates
that are set forth in the table below.
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Development and/or
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Marketing
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Product
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Product Indications
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Status
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Collaborators
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BG-12
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Relapsing MS
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Phase 3
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None
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Anti-CD80 MAb (galiximab)
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Relapsed NHL
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Phase 3
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None
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Anti-CD23 MAb (lumiliximab)
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Relapsed CLL
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Phase 2/3
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None
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Humanized Anti-CD20 MAb (ocrelizumab)
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RA
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Phase 3
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U.S. Genentech
Japan Chugai and Zenyaku
Outside U.S. and Japan Roche
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Lupus nephritis
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Phase 3
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See above
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Lixivaptan
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Hyponatremia, commonly seen in acute decompensated heart failure
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Phase 3
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Cardiokine
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ADENTRI®
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Acute decompensated heart failure with renal insufficiency
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Phase 3
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None
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BG-12
BG-12 is an oral fumarate derivative that is being tested in
relapsing MS and appears to have neuroprotective and
anti-inflammatory properties. We acquired BG-12 with the
purchase of Fumapharm in June 2006. Two Phase 3 trials, known as
DEFINE and CONFIRM, for relapsing MS are currently underway
evaluating the effect of BG-12 on measurements of clinical
relapse, the progression of disability and various MRI measures,
with the CONFIRM trial including a glatiramer acetate
(Copaxone®)
reference comparator arm.
Anti-CD80
MAb (galiximab)
Galiximab is a monoclonal antibody (MAb) directed against the
CD80 surface antigen on human B-cells that we developed using
our
Primatized®
antibody technology. Anti-CD80 antibodies work by binding to a
particular protein (the CD80 antigen) on the surface of normal
and malignant B-cells. From there, they recruit the bodys
natural defenses to attack and kill the marked B-cells. A Phase
3 trial is currently underway that is designed to compare
treatment with galiximab in combination with RITUXAN to
treatment with RITUXAN in combination with placebo in patients
with follicular NHL that have relapsed or failed to respond to
initial therapy.
Anti-CD23
MAb (lumiliximab)
Lumiliximab is a monoclonal antibody directed against the CD23
surface antigen on human B-cells that we developed using our
Primatized®
antibody technology. Anti-CD23 antibodies work by binding to a
particular protein (the CD23 antigen) on the surface of normal
and malignant B-cells. From there, they recruit the bodys
natural defenses to attack and kill the marked B-cells. A Phase
2/3 study is currently underway that is designed to
7
compare treatment with lumiliximab in combination with
fludarabine, cyclophosphamide and RITUXAN, a standard
chemotherapy regimen, to treatment with FCR alone in patients
with relapsed or refractory CLL.
Humanized
Anti-CD20 MAb (ocrelizumab)
This second generation anti-CD20 antibody is a humanized
monoclonal antibody directed against the CD20 surface antigen on
human B-cells, the same antigen that RITUXAN targets. Anti-CD20
antibodies work by binding to a particular protein (the CD20
antigen) on the surface of normal and malignant B-cells. From
there, they recruit the bodys natural defenses to attack
and kill the marked B-cells. During 2008, our collaborator
Genentech initiated a fourth Phase 3 study of ocrelizumab for
rheumatoid arthritis to study the administration of anti-CD20 as
a single infusion and a Phase 3 study of ocrelizumab for lupus
nephritis. We are currently in arbitration with Genentech as to
whether Genentech has the right to develop collaboration
products, including ocrelizumab, without our approval. See
Note 19, Litigation, in Notes to Consolidated
Financial Statements for a description of that arbitration.
Lixivaptan
Lixivaptan, an oral compound for the potential treatment of
hyponatremia and chronic heart failure, is being developed in
conjunction with our collaborator Cardiokine Biopharma LLC, or
Cardiokine. Lixivaptan is a highly potent, non-peptide,
selective V2 vasopressin receptor antagonist. It antagonizes the
action of vasopressin (also known as antidiuretic hormone) on
the V2 receptors in the kidney collecting duct, causing water to
be excreted from the kidney, without affecting sodium or other
electrolytes. Based on this mechanism of action, lixivaptan
shows promise in the treatment of disease states associated with
water retention and electrolyte imbalance, including
hyponatremia, which is the most common electrolyte disorder in
clinical practice. Hyponatremia is recognized as an independent
contributor to negative patient outcomes in many chronic
diseases, most notably congestive heart failure, as well as
cirrhosis and syndrome of inappropriate anti-diuretic hormone.
Two Phase 3 studies of lixivaptan for hyponatremia are currently
underway.
Pursuant to our collaboration agreement with Cardiokine, we paid
$50.0 million upfront to Cardiokine and will pay them up to
$170.0 million in milestone payments for successful
development and global commercialization of lixivaptan, as well
as royalties on commercial sales. We will be responsible for the
global commercialization of lixivaptan, and Cardiokine has an
option for limited copromotion in the United States.
ADENTRI
ADENTRI, an adenosine A1 receptor antagonist, is being developed
under a licensing agreement with CV Therapeutics, Inc. A Phase 3
study is currently underway that is designed to evaluate the
efficacy and safety of intravenous ADENTRI for acute
decompensated heart failure patients with renal insufficiency.
8
Other
Research and Development Programs
We intend to continue to commit significant resources to
research and development opportunities. We intend to focus our
research and development efforts on finding novel therapeutics
in areas of high unmet medical need. Our core focus areas are in
neurology, oncology, immunology and cardiology, but our research
and development efforts extend to additional therapeutic areas.
We dedicate resources to the development of new product
candidates and, in some cases, to new applications of existing
marketed products and late-stage product candidates. Several of
our preclinical and early stage product candidates are
highlighted in the table below.
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Development and/or
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Marketing
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Therapeutic Area
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Product Candidate
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Indication
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Status
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Collaborators
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Neurology
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BIIB014
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Parkinsons disease early and late stage
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Phase 2
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Vernalis plc
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Daclizumab
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Relapsing MS
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Phase 2
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Facet Biotech Corporation (formerly part of PDL BioPharma, Inc.)
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CDP323
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Relapsing MS
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Phase 2
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UCB S.A.
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Humanized Anti-CD20 MAb(ocrelizumab)
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Relapsing MS
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Phase 2
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U.S.Genentech JapanChugai and Zenyaku Outside U.S.
and JapanRoche
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PEG-IFN beta 1a
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MS
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Phase 1
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Neublastin
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Neuropathic pain
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Preclinical
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NsGene A/S
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LINGO
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MS
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Preclincal
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Oncology
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Volociximab (M200)
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Solid tumors non-small cell lung cancer
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Phase 2
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Facet Biotech
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Hsp90 Inhibitor (CNF2024)
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Solid tumors gastrointestinal stromal tumors
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Phase 2
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GA101
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NHL
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Phase 2
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U.S. Genentech
(U.S. rights only)
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GA101
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CLL
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Phase 1
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U.S. Genentech
(U.S. rights only)
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Anti-IGF-1R (BIIB022)
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Solid tumors
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Phase 1
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Anti-CRIPTO
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Solid tumors
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Phase 1
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RAF Inhibitor (BIIB024)
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Solid tumors
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Preclinical
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Sunesis Pharmaceuticals
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Anti-Fn14
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Solid tumors
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Preclinical
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Autoimmune and Inflammatory Diseases
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BG-12
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RA
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Phase 2
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Anti-TWEAK
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RA
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Phase 1
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Anti-CD40L Fab
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Systemic lupus erythematosus
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Preclinical
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UCB
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Anti-FcRn
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Pemphigus
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Preclinical
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Cardiovascular
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ADENTRI (BG9928)
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Chronic congestive heart failure
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Phase 2
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Aviptadil
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Pulmonary arterial hypertension
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Phase 2
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mondoBiotech AG
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Emerging Therapeutic Areas
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Long acting rFactor IX
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Hemophilia B
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Phase 1/2a
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Biovitrum
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Long acting rFactor VIII
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Hemophilia A
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Preclinical
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Biovitrum
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Research
and Development Costs
For the years ended December 31, 2008, 2007 and 2006, our
research and development costs were $1,072.1 million,
$925.2 million and $718.4 million, respectively.
Additionally, for 2008, 2007 and 2006, we incurred charges
associated with acquired in-process research and development of
$25.0 million, $84.2 million and $330.5 million,
respectively.
9
Patents
and Other Proprietary Rights
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. There is no certainty that our existing patents or
others, if obtained, will afford us substantial protection or
commercial benefit. Similarly, there is no assurance that our
pending patent applications or patent applications licensed from
third parties will ultimately be granted as patents or that
those patents that have been issued or are issued in the future
will stand if they are challenged in court.
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 try to 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 to or may 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
market our products.
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. We expect that litigation
may be necessary in some instances to determine the validity and
scope of certain of our proprietary rights. Conversely,
litigation may be necessary in some instances to determine the
validity, scope
and/or
noninfringement of certain patent rights claimed by third
parties to be pertinent to the manufacture, use or sale of our
products. Intellectual property litigation could therefore
create business uncertainty and consume substantial financial
and human resources. 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
market our products. See Item 3 Legal
Proceedings for a description of our patent litigation.
Our trademarks RITUXAN and AVONEX are important to us and are
generally covered by trademark applications or registrations
owned or controlled by us in the U.S. Patent and Trademark
Office and in other countries. We employ other trademarks in the
conduct of our business under license by third parties, for
example, we utilize the mark TYSABRI under license from Elan. In
addition, AMEVIVE is a registered trademark of Astellas US LLC,
and ZEVALIN is a registered trademark of Cell Therapeutics, Inc.
Recombinant
Beta Interferon
Third parties have pending patent applications or issued patents
in the United States, Europe and other countries with claims to
key intermediates in the production of beta interferon. These
are known as the Taniguchi patents.
10
Third parties also have pending patent applications or issued
patents with claims to beta interferon itself. These are known
as the Roche patents and the Rentschler patents, respectively.
We have obtained non-exclusive rights in various countries of
the world, including the United States, Japan and Europe, to
manufacture, use and sell AVONEX, our brand of recombinant beta
interferon, under the Taniguchi, Roche and Rentschler issued
patents. The last of the Taniguchi patents expire in the United
States in May 2013 and have expired already in other countries
of the world. The Roche patents expired in the United States in
May 2008, which ended our obligation to pay Roche royalties on
sales of AVONEX in the United States. The Roche patents also
have generally expired elsewhere in the world. The Rentschler EU
patent expires in July 2012.
RITUXAN
and Anti-CD20 Antibodies
We have several issued U.S. patents and U.S. patent
applications, and numerous corresponding foreign counterparts
directed to anti-CD20 antibody technology, including RITUXAN. We
have also been granted patents covering RITUXAN by the European
and Japanese Patent Offices. In the United States our principal
patents covering the drugs or their uses expire between 2015 and
2018. With regard to the rest of the world, our principal
patents covering the drug products expire in 2013 subject to
potential patent term extensions in countries where such
extensions are available. Our recently-granted patent in certain
European countries claiming the treatment with anti-CD20
antibodies of certain auto-immune indications, including
rheumatoid arthritis, has been revoked by the European Patent
Office. We are appealing the decision. In addition, after
revocation actions were filed against the same patent in the UK,
we and Genentech agreed that the corresponding patent claims
would cover only RITUXAN and not other CD20 antagonist drugs.
In addition Genentech, our collaborative partner for RITUXAN,
has secured an exclusive license to five U.S. patents and
counterpart U.S. and foreign patent applications assigned
to Xoma Corporation that relate to chimeric antibodies against
the CD20 antigen. These patents expire between 2007 and 2014.
Genentech has granted us a non-exclusive sublicense to make,
have made, use and sell RITUXAN under these patents and patent
applications. We, along with Genentech, share the cost of any
royalties due to Xoma in the Genentech/Biogen Idec copromotion
territory on sales of RITUXAN. In addition, we and our
collaborator, Genentech, have filed numerous patent applications
directed to anti-CD20 antibodies and their uses to treat various
diseases. These pending patent applications have the potential
of issuing as patents in the United States and abroad covering
anti-CD20 antibody molecules for periods beyond that stated
above for RITUXAN.
Recombinant
Alpha Interferon
In 1979, we granted an exclusive worldwide license to
Schering-Plough under our alpha interferon patents. Most of our
alpha interferon patents have since expired, including
expiration of patents in the United States, Japan and all
European countries. Schering-Plough pays us royalty payments on
U.S. sales of alpha interferon products under an
interference settlement entered into in 1998. Under the terms of
the interference settlement,
Schering-Plough
agreed to pay us royalties under certain patents to be issued to
Roche and Genentech in consideration of our assignment to
Schering-Plough of the alpha interferon patent application that
had been the subject of a settled interference with respect to a
Roche/Genentech patent. Schering-Plough entered into an
agreement with Roche as part of settlement of the interference.
The first of the Roche/Genentech patents was issued on
November 19, 2002 and has a seventeen-year term. In March
2008, we were issued an alpha interferon patent in Canada which
triggered Schering-Ploughs obligation to pay us additional
royalties on sales of alpha interferon products in Canada until
expiration of the patent in 2025.
Recombinant
Hepatitis B Antigens
We have obtained numerous patents in countries around the world,
including in the U.S. and in Europe, covering the
recombinant production of hepatitis B surface, core and
e antigens. We have licensed our recombinant
hepatitis B antigen patent rights to manufacturers and marketers
of hepatitis B vaccines and diagnostic test kits, and receive
royalties on sales of the vaccines and test kits by our
licensees, as described above under Principal Licensed
Products. The obligation of GlaxoSmithKline and Merck to
pay royalties on sales of hepatitis
11
B vaccines and the obligation of our other licensees under our
hepatitis B patents to pay royalties on sales of diagnostic
products will terminate upon expiration of our hepatitis B
patents in each licensed country. Following the conclusion of a
successful interference proceeding in the United States, we were
granted patents in the United States expiring in 2018. These
patents claim hepatitis B virus polypeptides and vaccines and
diagnostics containing such polypeptides. Our European hepatitis
B patents expired at the end of 1999 and have also since expired
in those countries in which we have obtained supplementary
protection certificates. See Item 3 Legal
Proceedings for a description of our litigation with
Classen Immunotherapies, Inc.
TYSABRI
We are developing TYSABRI in collaboration with Elan. TYSABRI is
presently claimed in a number of pending patent applications and
issued patents held by both companies in the United States and
abroad. These patent applications and patents cover the protein,
DNA encoding the protein, manufacturing methods and
pharmaceutical compositions, as well as various methods of
treatment using the product. In the United States the principal
patents covering the product and methods of manufacturing the
product generally expire between 2014 and 2020, subject to any
available patent term extensions. In the remainder of the world
patents on the product and methods of manufacturing the product
generally expire between 2014 and 2016, subject to any
supplemental protection certificates that may be obtained. Both
companies have method of treatment patents for a variety of
indications including the treatment of MS and Crohns
disease and treatments of inflammation. These patents expire in
the United States generally between 2012 and 2020 and outside
the United States generally between 2012 and 2016, subject to
any available patent term extensions
and/or
supplemental protection certificates extending such terms.
Trade
Secrets and Confidential Know-How
We also rely upon unpatented trade secrets, and we cannot assure
that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise
gain access to our trade secrets or disclose such technology, or
that we can meaningfully protect such rights. We require our
employees, consultants, outside scientific collaborators,
scientists whose research we sponsor and other advisers to
execute confidentiality agreements upon the commencement of
employment or consulting relationships with us. These agreements
provide that all confidential information developed or made
known to the individual during the course of the
individuals relationship with us is to be kept
confidential and not disclosed to third parties except in
specific circumstances. In the case of our employees, the
agreement provides that all inventions conceived by such
employees shall be our exclusive property. These agreements may
not provide meaningful protection or adequate remedies for our
trade secrets in the event of use or disclosure of such
information.
Sales,
Marketing and Distribution
Our sales and marketing efforts are generally focused on
specialist physicians in private practice or at major medical
centers. We utilize common pharmaceutical company practices to
market our products and to educate physicians, including sales
representatives calling on individual physicians,
advertisements, professional symposia, direct mail, selling
initiatives, public relations and other methods. We provide
customer service and other related programs for our products,
such as disease and product-specific websites, insurance
research services and order, delivery and fulfillment services.
We have also established programs in the United States which
provide qualified uninsured or underinsured patients with
commercial products at no charge. Additional information about
our sales, marketing and distribution efforts for each of our
commercialized products is set forth below.
AVONEX
We continue to focus our marketing and sales activities on
maximizing the potential of AVONEX in the United States and
the rest of world in the face of increased competition. In the
United States, Canada, Brazil, Argentina, Australia, Japan and
most of the major countries of the EU, we market and sell AVONEX
through our own sales forces and marketing groups and distribute
AVONEX principally through wholesale distributors of
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pharmaceutical products, mail order specialty distributors or
shipping service providers. In other countries, we sell AVONEX
to distribution partners who are then responsible for most
marketing and distribution activities.
RITUXAN
In the United States, we market and sell RITUXAN in
collaboration with Genentech through dedicated sales and
marketing staffs. RITUXAN is generally sold to wholesalers,
specialty distributors and directly to hospital pharmacies.
Sales efforts are focused on hematologists, medical oncologists
and rheumatologists in private practice, at community hospitals
and at major medical centers in the United States. Genentech
provides marketing support services for RITUXAN including
customer service, order entry, shipping, billing, insurance
verification assistance, managed care sales support, medical
information and sales training.
Outside the United States, Roche markets and sells RITUXAN,
except in Japan where RITUXAN is co-marketed by Zenyaku and
Chugai, and we do not participate in these activities.
TYSABRI
In the United States, we are principally responsible for
marketing TYSABRI for MS and Elan is principally responsible for
marketing TYSABRI for Crohns disease. We and Elan use our
own respective sales force and marketing group for these
marketing activities. In addition, Elan is responsible for
TYSABRI distribution in the United States.
Outside the United States, we are responsible for TYSABRI
marketing and distribution. We use a combination of our own
sales force and marketing group and third party service
providers for these activities.
FUMADERM
Since May 2007, we have marketed and distributed FUMADERM
through Almirall Hermal, GmbH, a third party service provider,
and we will assume marketing and distribution activities from
Almirall Hermal at the end of February 2009.
Competition
Competition in the biotechnology and pharmaceutical industries
is intense and comes from many and varied sources. We do not
believe that any of the industry leaders can be considered
dominant in view of the rapid technological change in the
industry. We experience significant competition from specialized
biotechnology firms in the United States, the European Union and
elsewhere in the world and from many large pharmaceutical,
chemical and other companies. Many of our competitors are
working to develop products similar to those we are developing
or already market. Certain of these companies have substantially
greater financial, marketing, research and development and human
resources than we do. Most large pharmaceutical and
biotechnology companies have considerable experience in
undertaking clinical trials and in obtaining regulatory approval
to market pharmaceutical products.
We believe that competition and leadership in the industry will
be based on managerial and technological superiority and
establishing proprietary positions through research and
development. Leadership in the industry may also be influenced
significantly by patents and other forms of protection of
proprietary information. A key aspect of such competition is
recruiting and retaining qualified scientists and technicians.
We believe that we have been successful in attracting skilled
and experienced scientific personnel. The achievement of a
leadership position also depends largely upon our ability to
identify and exploit commercially the products resulting from
research and the availability of adequate financial resources to
fund facilities, equipment, personnel, clinical testing,
manufacturing and marketing.
Competition among products approved for sale may be based, among
other things, on patent position, product efficacy, safety,
convenience, reliability, availability and price. In addition,
early entry of a new pharmaceutical
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product into the market may have important advantages in gaining
product acceptance and market share. Accordingly, the relative
speed with which we can develop products, complete the testing
and approval process and supply commercial quantities of the
product to the market will have an important impact on our
competitive position.
We may face increased competitive pressures as a result of the
emergence of biosimilars. Most of our marketed products,
including AVONEX, RITUXAN and TYSABRI, are licensed under the
Public Health Service Act as biological products. Unlike small
molecule drugs, which are subject to the generic drug provisions
(Hatch-Waxman Act) of the U.S. Food, Drug, and Cosmetic
Act, there currently is no process in the United States for the
submission or approval of biological products based upon
abbreviated data packages or a showing of sameness to another
approved product. There is public dialogue at FDA and in the
Congress, however, regarding the scientific and statutory basis
upon which such products, known as biosimilars or follow-on
biologics, could be approved and marketed in the United States.
We cannot be certain when, or if, Congress will create a
statutory pathway for the approval of biosimilars. In Europe,
the European Medicines Agency, or EMEA, has issued guidelines
for approval of biological products through an abbreviated
pathway, and the first biosimilars have been approved. If a
biosimilar version of one of our products were approved, it
could have a negative effect on sales of that product.
AVONEX
AND TYSABRI
AVONEX and TYSABRI both compete primarily with three other
products:
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REBIF®
(interferon-beta-1a), which is co-promoted by EMD
Serono (a subsidiary of Merck Serono) and Pfizer in the United
States and sold by Merck Serono in Europe. REBIF generated
worldwide revenues of approximately $1.7 billion in 2007.
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BETASERON®
(interferon-beta-1b), sold by Bayer Healthcare
Pharmaceuticals (the U.S. pharmaceuticals affiliate of
Bayer Schering Pharma AG) in the United States and sold under
the name
BETAFERON®
by Bayer Schering Pharma AG in the EU.
EXTAVIA®,
a branded version of interferon beta-1b from Novartis AG, has
been approved in the European Union. BETASERON and BETAFERON
together generated worldwide revenues of approximately
$1.4 billion in 2007.
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COPAXONE®
(glatiramer acetate), sold by Teva Neuroscience,
Inc., or Teva, in the United States and copromoted by Teva and
Sanofi-Aventis in Europe. COPAXONE generated worldwide revenues
of approximately $1.7 billion in 2007.
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Along with us, a number of companies are working to develop
products to treat MS that may in the future compete with AVONEX
and TYSABRI. For example, alemtuzumab (marketed by Bayer
HealthCare Pharmaceuticals Inc.) is in late-stage development
for MS. Some of our current competitors are also working to
develop alternative formulations for delivery of their products,
which may in the future compete with AVONEX and TYSABRI. For
example, FTY720 (fingolimod) (developed by Novartis AG) and
cladribine (developed by Merck Serono) are in late-stage
development as oral therapies for MS.
AVONEX and TYSABRI also face competition from off-label uses of
drugs approved for other indications.
RITUXAN
IN ONCOLOGY
A number of companies are working to develop products to treat
B-cell NHLs and other forms of NHL that may ultimately compete
with RITUXAN. Other potential competitive products include
CAMPATH®
(marketed by Bayer HealthCare Pharmaceuticals Inc.), which is
indicated for B-cell CLL (an unapproved use of RITUXAN),
VELCADE®
(marketed by Millennium Pharmaceuticals, Inc.) which is
indicated for multiple myeloma (an unapproved use of RITUXAN),
TREANDA®
(marketed by Cephalon), and ARZERRA (marketed by GenMab), for
which a BLA has been submitted to treat patients with refractory
CLL. In addition to the foregoing products, we are aware of
other anti-CD20 molecules in development that, if successfully
developed and registered, may compete with RITUXAN.
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RITUXAN
IN RA
RITUXAN competes with several different types of therapies in
the RA market, including:
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traditional therapies for RA, including disease-modifying
anti-rheumatic drugs, such as steroids, methotrexate and
cyclosporine, and pain relievers such as acetaminophen;
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TNF inhibitors, such as
REMICADE®
(infliximab), a drug sold worldwide by Centocor, Inc., a
subsidiary of Johnson & Johnson,
HUMIRA®
(adalimumab), a drug sold by Abbott Laboratories, and
ENBREL®
(etanercept), a drug sold by Amgen, Inc. and Wyeth
Pharmaceuticals, Inc.;
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ORENCIA®
(abatacept), a drug developed by Bristol-Myers Squibb
Company; and
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drugs approved for other indications that are used to treat RA.
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In addition, a number of companies are working to develop
products to treat RA that may ultimately compete with RITUXAN in
the RA marketplace. For example, Roche has submitted a BLA for
ACTEMRA®
(tocilizumab) for the treatment of RA.
FUMADERM
FUMADERM competes with several different types of therapies in
the psoriasis market, including oral systemics such as
methotrexate and cyclosporine and biologic agents such as
RAPTIVA®
(efalizumab), a drug sold by Genentech.
Regulatory
Our current and contemplated activities and the products and
processes that will result from such activities are subject to
substantial government regulation.
Regulation
of Pharmaceuticals
Before new pharmaceutical products may be sold in the United
States and other countries, clinical trials of the products must
be conducted and the results submitted to appropriate regulatory
agencies for approval. Clinical trial programs must establish
efficacy, determine an appropriate dose and regimen, and define
the conditions for safe use, a high-risk process that requires
stepwise clinical studies in which the candidate product must
successfully meet predetermined endpoints. In the United States,
the results of the preclinical and clinical testing of a product
are then submitted to the FDA in the form of a Biologics License
Application, or BLA, or a New Drug Application, or NDA. In
response to a BLA or NDA, the FDA may grant marketing approval,
request additional information or deny the application if it
determines the application does not provide an adequate basis
for approval. Similar submissions are required by authorities in
other jurisdictions who independently assess the product and may
reach the same or different conclusions. Our initial focus for
obtaining marketing approval outside the United States is
typically the European Union. There are currently three
potential tracks for marketing approval in EU countries: mutual
recognition, decentralized procedures, and centralized
procedures. These review mechanisms may ultimately lead to
approval in all EU countries, but each method grants all
participating countries some decision-making authority in
product approval.
The receipt of regulatory approval often takes a number of
years, involving the expenditure of substantial resources and
depends on a number of factors, including the severity of the
disease in question, the availability of alternative treatments
and the risks and benefits demonstrated in clinical trials. On
occasion, regulatory authorities may require larger or
additional studies, leading to unanticipated delay or expense.
Even after initial FDA approval or approvals from other
regulatory agencies have been obtained, further clinical trials
may be required to provide additional data on safety and
effectiveness and are required to gain clearance for the use of
a product as a treatment for indications other than those
initially approved.
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In the United States, the FDA may grant accelerated
approval status to products that treat serious or
life-threatening illnesses and that provide meaningful
therapeutic benefits to patients over existing treatments, but
accelerated approval status does not ensure that FDA will
ultimately approve the product. Under this pathway, the FDA may
approve a product based on surrogate endpoints, or clinical
endpoints other than survival or irreversible morbidity, or when
the product is shown to be effective but can be safely used only
if access to or distribution of the product is restricted. When
approval is based on surrogate endpoints or clinical endpoints
other than survival or morbidity, the sponsor will be required
to conduct additional clinical studies to verify and describe
clinical benefit. When accelerated approval requires restricted
use or distribution, the sponsor may be required to establish
rigorous systems to assure use of the product under safe
conditions. These systems are usually referred to as Risk
Minimization Action Plans, or RiskMAPs, or Risk Evaluation and
Mitigation Strategies, or REMS. In addition, for all products
approved under accelerated approval, sponsors must submit all
copies of its promotional materials, including advertisements,
to the FDA at least thirty days prior to their initial
dissemination. The FDA may also withdraw approval under
accelerated approval after a hearing if, for instance,
post-marketing studies fail to verify any clinical benefit or it
becomes clear that restrictions on the distribution of the
product are inadequate to ensure its safe use. The BLA for
TYSABRI in MS was initially approved under the accelerated
approval pathway based on surrogate endpoints. A stringent
restricted distribution program was also imposed. The
supplemental BLA for TYSABRI for second-line treatment of
Crohns disease was approved by FDA on January 14,
2008. This indication is subject to the same stringent
distribution restrictions as TYSABRI for MS. We cannot be
certain that the FDA will approve any products for the proposed
indications whether under accelerated approval or another
pathway.
If the FDA or other regulatory agency approves products or new
indications, the agency may require us to conduct additional
post-marketing studies. If we fail to conduct the required
studies or otherwise fail to comply with the conditions of
accelerated approval, the agency may take action to seek to
withdraw that approval. Legislation has been passed in the
United States to also provide the FDA with additional powers of
sanction regarding non-completion of or non-compliance with
certain post-marketing commitments, including RiskMAPs/REMS. In
Europe, the EMEA has new powers of sanction for non-completion
of post-marketing commitments. These sanctions range from a fine
of 10% of global product revenue to removal of the product from
the market.
Regulatory authorities track information on side effects and
adverse events reported during clinical studies and after
marketing approval. Non-compliance with FDA safety reporting
requirements may result in FDA regulatory action that may
include civil action or criminal penalties. Side effects or
adverse events that are reported during clinical trials can
delay, impede, or prevent marketing approval. Similarly, adverse
events that are reported after marketing approval can result in
additional limitations being placed on the products use
and, potentially, withdrawal or suspension of the product from
the market. For example, in February 2005, in consultation with
the FDA, we and Elan voluntarily suspended the marketing and
commercial distribution of TYSABRI, and informed physicians that
they should suspend dosing of TYSABRI until further
notification. These decisions were based on reports of cases of
PML that occurred in patients treated with TYSABRI in clinical
studies. PML is a rare and frequently fatal demyelinating
disease of the central nervous system. In July 2006, TYSABRI was
reintroduced in the United States, and introduced in the
European Union, as a monotherapy for relapsing MS.
The FDA also has authority over drug products after approval.
The FDA may conduct post-marketing safety surveillance and may
require additional post-approval studies or clinical trials and
mandate label changes as a result of safety findings. These
requirements may affect our ability to maintain marketing
approval of our products or require us to make significant
expenditures to obtain or maintain such approvals.
If we seek to make certain changes to an approved product, such
as adding a new indication, making certain manufacturing
changes, or changing manufacturers or suppliers of certain
ingredients or components, we will need review and approval of
regulatory authorities, including the FDA and EMEA, before the
changes can be implemented.
In addition, the FDA regulates all advertising and promotion
activities for products under its jurisdiction both prior to and
after approval. A company can make only those claims relating to
safety and efficacy that are approved by the FDA. However,
physicians may prescribe legally available drugs for uses that
are not described in the drugs labeling and that differ
from those tested by us and approved by the FDA. Such off-label
uses are common across medical specialties, and often reflect a
physicians belief that the off-label use is the best
treatment for patients. The
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FDA does not regulate the behavior of physicians in their choice
of treatments, but the FDA regulations do impose stringent
restrictions on manufacturers communications regarding
off-label uses. Failure to comply with applicable FDA
requirements may subject a company to adverse publicity,
enforcement action by the FDA, corrective advertising, and the
full range of civil and criminal penalties available to the FDA.
Good manufacturing practices. The FDA, the
EMEA and other regulatory agencies regulate and inspect
equipment, facilities, and processes used in the manufacturing
of pharmaceutical and biologic products prior to approving a
product. If, after receiving clearance from regulatory agencies,
a company makes a material change in manufacturing equipment,
location, or process, additional regulatory review and approval
may be required. We also must adhere to current Good
Manufacturing Practices, or cGMP, and product-specific
regulations enforced by the FDA following product approval. The
FDA, the EMEA and other regulatory agencies also conduct
regular, periodic visits to re-inspect equipment, facilities,
and processes following the initial approval of a product. If,
as a result of these inspections, it is determined that our
equipment, facilities, or processes do not comply with
applicable regulations and conditions of product approval,
regulatory agencies may seek civil, criminal, or administrative
sanctions
and/or
remedies against us, including the suspension of our
manufacturing operations.
Orphan Drug Act. Under the U.S. Orphan
Drug Act, the FDA may grant orphan drug designation to drugs
intended to treat a rare disease or condition, which
generally is a disease or condition that affects fewer than
200,000 individuals in the U.S. If a product which has an orphan
drug designation subsequently receives the first FDA approval
for the indication for which it has such designation, the
product is entitled to orphan exclusivity, i.e., the FDA may not
approve any other applications to market the same drug for the
same indication for a period of seven years following marketing
approval, except in certain very limited circumstances, such as
if the later product is shown to be clinically superior to the
orphan product. Legislation similar to the Orphan Drug Act has
been enacted in other countries outside of the United States,
including the European Union.
Regulation Pertaining
to Sales, Marketing and Product Pricing
In the United States, the federal government regularly considers
reforming health care coverage and costs. For example, reforms
to Medicare have reduced the reimbursement rates for many of our
products. Effective January 1, 2005, Medicare pays
physicians and suppliers that furnish our products under a
payment methodology using average sales price, or ASP,
information. Manufacturers, including us, are required to
provide ASP information to the Centers for Medicare and Medicaid
Services on a quarterly basis. The manufacturer-submitted
information is used to compute Medicare payment rates, which are
set at ASP plus 6 percent and updated quarterly. There is a
mechanism for comparison of such payment rates to widely
available market prices, which could cause further decreases in
Medicare payment rates, although this mechanism has yet to be
utilized. Effective January 1, 2006, Medicare began to use
the same ASP plus 6 percent payment methodology to
determine Medicare rates paid for products furnished by hospital
outpatient departments. As of January 1, 2009, the
reimbursement rate in the hospital outpatient setting is ASP
plus 4 percent. If a manufacturer is found to have made a
misrepresentation in the reporting of ASP, the statute provides
for civil monetary penalties of up to $10,000 for each
misrepresentation and for each day in which the
misrepresentation was applied.
Another payment reform is the addition of an expanded
prescription drug benefit for all Medicare beneficiaries known
as Medicare Part D. This is a voluntary benefit that is
being implemented through private plans under contractual
arrangements with the federal government. Like pharmaceutical
coverage through private health insurance, Part D plans
establish formularies that govern the drugs and biologicals that
will be offered and the out- of-pocket obligations for such
products. In addition, plans negotiate discounts from drug
manufacturers and pass on some of those savings to Medicare
beneficiaries.
Future legislation or regulatory actions implementing recent or
future legislation may have a significant effect on our
business. Our ability to successfully commercialize products may
depend in part on the extent to which reimbursement for the
costs of our products and related treatments will be available
in the United States and worldwide from government health
administration authorities, private health insurers and other
organizations. Substantial uncertainty exists as to the
reimbursement status of newly approved health care products by
third party payors.
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We also participate in the Medicaid rebate program established
by the Omnibus Budget Reconciliation Act of 1990, and under
multiple subsequent amendments of that law. Sections 6001,
6002, and 6003 of the Deficit Reduction Act of 2005, or DRA,
made significant changes to the Medicaid prescription drug
provisions of the Social Security Act. These changes include,
but are not limited to, revising the definition of average
manufacturer price, or AMP, establishing an obligation to report
AMP on a monthly basis, in addition to a quarterly basis,
establishing a new formula for calculating Federal upper limits,
or FULs, requiring rebates for certain physician-administered
drugs, and clarifying rebate liability for authorized generic
drugs. Under the Medicaid rebate program, we pay a rebate for
each unit of product reimbursed by Medicaid. The amount of the
rebate for each product is set by law as the larger of 15.1% of
AMP or the difference between AMP and the best price available
from us to any commercial or non-governmental customer. The
rebate amount must be adjusted upward where the AMP for a
products first full quarter of sales, when adjusted for
increases in the CPI-U, or Consumer Price Index
Urban, exceeds the AMP for the current quarter with the upward
adjustment equal to the excess amount. The rebate amount is
required to be recomputed each quarter based on our report of
current AMP and best price for each of our products to the
Centers for Medicare and Medicaid Services. The terms of our
participation in the program imposes a requirement for us to
report revisions to AMP or best price within a period not to
exceed 12 quarters from the quarter in which the data was
originally due. Any such revisions could have the impact of
increasing or decreasing our rebate liability for prior
quarters, depending on the direction of the revision. In
addition, if we were found to have knowingly submitted false
information to the government, the statute provides for civil
monetary penalties in the amount not to exceed $100,000 per item
of false information in addition to other penalties available to
the government.
The availability of federal funds to pay for our products under
the Medicaid and Medicare Part B programs requires that we
extend discounts under the 340B/PHS drug pricing program. The
340B/PHS drug pricing program extends discounts to a variety of
community health clinics and other entities that receive health
services grants from the PHS, as well as hospitals that serve a
disproportionate share of poor Medicare beneficiaries.
We also make our products available for purchase by authorized
users of the Federal Supply Schedule, or FSS, of the General
Services Administration pursuant to our FSS contract with the
Department of Veterans Affairs. Under the Veterans Health Care
Act of 1992, or the VHC Act, we are required to offer deeply
discounted FSS contract pricing to four Federal
agencies the Department of Veterans Affairs, the
Department of Defense, the Coast Guard and the Public Health
Service (including the Indian Health Service) for
federal funding to be made available for reimbursement of any of
our products under the Medicaid program and for our products to
be eligible to be purchased by those four Federal agencies and
certain Federal grantees. FSS pricing to those four Federal
agencies must be equal to or less than the Federal Ceiling
Price, which is, at a minimum, 24% off the Non-Federal
Average Manufacturer Price, or Non-FAMP, for the
prior fiscal year. In addition, if we are found to have
knowingly submitted false information to the government, the VHC
provides for civil monetary penalties of not to exceed $100,000
per false item of information in addition to other penalties
available to the government.
We are also subject to various federal and state laws pertaining
to health care fraud and abuse, including
anti-kickback laws and false claims laws. Anti-kickback laws
make it illegal for a prescription drug manufacturer to solicit,
offer, receive, or pay any remuneration in exchange for, or to
induce, the referral of business, including the purchase or
prescription of a particular drug. Due to the breadth of the
statutory provisions and the absence of guidance in the form of
regulations and very few court decisions addressing industry
practices, it is possible that our practices might be challenged
under anti-kickback or similar laws. False claims laws prohibit
anyone from knowingly and willingly presenting, or causing to be
presented for payment to third party payors (including Medicare
and Medicaid) claims for reimbursed drugs or services that are
false or fraudulent, claims for items or services not provided
as claimed, or claims for medically unnecessary items or
services. Our activities relating to the sale and marketing of
our products may be subject to scrutiny under these laws.
Violations of fraud and abuse laws may be punishable by criminal
and/or civil
sanctions, including fines and civil monetary penalties, as well
as the possibility of exclusion from federal health care
programs (including Medicare and Medicaid). If the government
were to allege or convict us of violating these laws, our
business could be harmed. In addition, there is an ability for
private individuals to bring similar actions. For a description
of litigation in this area in which we are currently involved,
see Note 19, Litigation, in Notes to Consolidated
Financial Statements.
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Our activities could be subject to challenge for the reasons
discussed above and due to the broad scope of these laws and the
increasing attention being given to them by law enforcement
authorities. Further, there are an increasing number of state
laws that require manufacturers to make reports to states on
pricing and marketing information. Many of these laws contain
ambiguities as to what is required to comply with the laws.
Given the lack of clarity in laws and their implementation, our
reporting actions could be subject to the penalty provisions of
the pertinent state authorities.
Other
Regulations
Foreign Corrupt Practices Act. We are also
subject to the U.S. Foreign Corrupt Practices Act, which
prohibits corporations and individuals from paying, offering to
pay, or authorizing the payment of anything of value to any
foreign government official, government staff member, political
party, or political candidate in an attempt to obtain or retain
business or to otherwise influence a person working in an
official capacity.
NIH Guidelines. We conduct relevant research
at all of our research facilities in the United States in
compliance with the current U.S. National Institutes of
Health Guidelines for Research Involving Recombinant DNA
Molecules, or the NIH Guidelines, and all other applicable
federal and state regulations. By local ordinance, we are
required to, among other things, comply with the NIH Guidelines
in relation to our facilities in Cambridge, Massachusetts,
San Diego, California, and Research Triangle Park, North
Carolina, and are required to operate pursuant to certain
permits.
Other Laws. Our present and future business
has been and will continue to be subject to various other laws
and regulations. Various laws, regulations and recommendations
relating to safe working conditions, laboratory practices, the
experimental use of animals, and the purchase, storage,
movement, import and export and use and disposal of hazardous or
potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with
our research work are or may be applicable to our activities.
Certain agreements entered into by us involving exclusive
license rights may be subject to national or supranational
antitrust regulatory control, the effect of which also cannot be
predicted. The extent of government regulation, which might
result from future legislation or administrative action, cannot
accurately be predicted.
Manufacturing
and Raw Materials
We are focused on the manufacture of biologics. We currently
produce all of our bulk AVONEX, as well as AMEVIVE on a contract
basis for Astellas, at our manufacturing facilities located in
Research Triangle Park, North Carolina and Cambridge,
Massachusetts. We currently produce TYSABRI at our Research
Triangle Park facility. We supply the commercial requirements of
the antibody for ZEVALIN on a contract basis for Cell
Therapeutics, Inc. We manufacture ZEVALIN at our manufacturing
facilities in Cambridge, Massachusetts. Genentech is responsible
for all worldwide manufacturing activities for bulk RITUXAN and
has sourced the manufacturing of certain bulk RITUXAN
requirements to an independent third party. We manufacture
clinical products in Research Triangle Park, North Carolina and
Cambridge, Massachusetts. Our existing licensed manufacturing
facilities operate under multiple licenses from the FDA,
regulatory authorities in the EU and other regulatory
authorities. We use a third party to manufacture the active
pharmaceutical ingredient of FUMADERM and another third party to
further process that to produce the FUMADERM pill. The chart
below outlines the location of our primary manufacturing
locations and products manufactured therein:
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Research
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Triangle
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Product
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Park
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Cambridge
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Third Party
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AVONEX
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X
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X
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TYSABRI
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X
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AMEVIVEX
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ZEVALIN
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X
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FUMADERM
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X
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CLINICAL PRODUCTS
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X
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X
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X
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19
We are constructing a large-scale biologic manufacturing
facility in Hillerød, Denmark to be used to manufacture
TYSABRI and other products in our pipeline. The first phase is
complete, which included construction of a labeling and
packaging facility, administrative building and lab facility;
installation of major equipment; and partial completion of a
bulk manufacturing facility. The second phase of the project,
which we commenced in January 2007, involves the completion and
fit out of the bulk manufacturing facility and construction of a
warehouse. The large scale manufacturing facility is expected to
be ready for commercial production in 2010. See the section of
Item 1A Risk Factors entitled
We have made a significant investment in constructing a
manufacturing facility the success of which depends upon the
completion and licensing of the facility and continued demand
for our products.
We source all of our fill-finish and the majority of final
product storage operations for our products, along with a
substantial part of our packaging operations, to a concentrated
group of third party contractors. Many of the raw materials and
supplies required for the production of AVONEX, TYSABRI,
FUMADERM, ZEVALIN and AMEVIVE are available from various
suppliers in quantities adequate to meet our needs. However, due
to the unique nature of the production of our products, we do
have single source providers of several raw materials. We make
efforts to qualify new vendors and to develop contingency plans
so that production is not impacted by short-term issues
associated with single source providers. Each of our third party
service providers, suppliers and manufacturers are subject to
continuing inspection by the FDA or comparable agencies in other
jurisdictions. Any delay, interruption or other issues that
arise in the manufacture, fill-finish, packaging, or storage of
our products, including 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 sell our products.
While we believe that our existing manufacturing facilities and
outside sources will allow us to meet our near-term and
long-term manufacturing needs for our current commercial
products and our other products currently in clinical trials,
additional manufacturing facilities and outside sources may be
required to meet our long-term research, development and
commercial production needs. See the sections of
Item 1A Risk Factors entitled
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 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, and
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.
Our
Employees
As of December 31, 2008, we had approximately
4,700 employees.
Our
Executive Officers
The following is a list of our executive officers, their ages as
of February 6, 2009 and their principal positions.
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Name
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Age
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Position
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James C. Mullen
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Chief Executive Officer and President
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Cecil B. Pickett, Ph.D.
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63
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President, Research and Development
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Hans Peter Hasler
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Chief Operating Officer
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Susan H. Alexander, Esq.
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Executive Vice President, General Counsel and Corporate Secretary
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Paul J. Clancy
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Executive Vice President, Finance and Chief Financial Officer
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Robert A. Hamm
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Executive Vice President, Pharmaceutical Operations &
Technology
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Michael F. MacLean
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Senior Vice President and Chief Accounting Officer
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Craig Eric Schneier, Ph.D.
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61
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Executive Vice President, Human Resources, Public Affairs and
Communications
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20
Reference to our or us in the following
descriptions of the background of our executive officers include
Biogen Idec and IDEC Pharmaceuticals Corporation.
James C. Mullen is our Chief Executive Officer and
President and is a director, and has served in these positions
since the merger of Biogen, Inc. and IDEC Pharmaceuticals
Corporation, or the merger, in November 2003.
Mr. Mullen was formerly Chairman of the Board and Chief
Executive Officer of Biogen, Inc. He was named Chairman of the
Board of Directors of Biogen, Inc. in July 2002, after being
named Chief Executive Officer and President of Biogen, Inc. in
June 2000. Mr. Mullen joined Biogen, Inc. in 1989 as
Director, Facilities and Engineering. He was named Biogen,
Inc.s Vice President, Operations in 1992. From 1996 to
1999, Mr. Mullen served as Vice President, International,
with responsibility for building all Biogen, Inc. operations
outside North America. From 1984 to 1988, Mr. Mullen held
various positions at SmithKline Beckman Corporation (now
GlaxoSmithKline plc). Mr. Mullen is a member of the board
of directors and executive committee of the Biotechnology
Industry Organization, or BIO, and is a former chairman of the
board of BIO. Mr. Mullen is also a director of PerkinElmer,
Inc.
Cecil B. Pickett Ph.D. is our President, Research and
Development and has served in that position since September 2006
and has served as one of our directors since September 2006.
Prior to joining Biogen Idec, he was Corporate Senior Vice
President and President, Schering-Plough Research Institute from
March 2002 to September 2006, and before that he was Executive
VP of Discovery Research at Schering-Plough Corporation from
September 1993 to March 2002. Mr. Pickett is a member of
the Institute of Medicine of the National Academy of Sciences.
Mr. Pickett is a director of Zimmer Holdings, Inc.
Hans Peter Hasler has served as our Chief Operating
Officer since May 2008, served as our Executive Vice President,
Global Neurology, Head of International from October 2007 to May
2008, and has managed our international business since the
merger. He previously served as Senior Vice President, Head of
International from November 2003 to October 2007. He served as
Executive Vice President International of Biogen,
Inc. from July 2003 until the merger, and joined Biogen, Inc as
Executive Vice President Commercial Operations in
August 2001. Mr. Hasler joined Biogen, Inc. from
Wyeth-Ayerst Pharmaceuticals, Inc., an affiliate of American
Home Products, Inc. (AHP), where he served as Senior Vice
President, Head of Global Strategic Marketing from 1998 to 2001.
Mr. Hasler was a member of the Wyeth/AHP Executive
Committee and was chairman of the Commercial Council. From 1993
to 1998, Mr. Hasler served in a variety of senior
management capacities for Wyeth-Ayerst Pharmaceuticals,
including Managing Director of Wyeth Group, Germany, and General
Manager of Wyeth/AHP in Switzerland and Central Eastern Europe.
Prior to joining Wyeth-Ayerst Pharmaceuticals, Mr. Hasler
served as the Head of Pharma Division at Abbott AG.
Mr. Hasler is a director of Acino Holding AG and Santhera
Pharmaceuticals Holding AG.
Susan H. Alexander is our Executive Vice President,
General Counsel and Corporate Secretary and has served in these
positions since January 2006. Prior to that, Ms. Alexander
served as the Senior Vice President, General Counsel and
Corporate Secretary of PAREXEL International Corporation since
September 2003. From June 2001 to September 2003,
Ms. Alexander served as General Counsel of IONA
Technologies. Prior to that, Ms. Alexander served as
Counsel at Cabot Corporation from January 1995 to May 2001.
Prior to that, Ms. Alexander was a partner at the law firms
of Hinckley, Allen & Snyder and Fine &
Ambrogne.
Paul J. Clancy is our Executive Vice President, Finance
and Chief Financial Officer and has served in that position
since August 2007. Mr. Clancy joined Biogen Idec in 2001,
and has held several senior executive positions, including Vice
President of Business Planning, Portfolio Management and
U.S. Marketing, and Senior Vice President of Finance with
responsibilities for leading the Treasury, Tax, Investor
Relations and Business Planning groups. Prior to joining Biogen
Idec, he spent 13 years at PepsiCo, serving in a range of
financial and general management positions.
Robert A. Hamm is our Executive Vice President,
Pharmaceutical Operations & Technology, and has served
in that position since October 2007. Previously, Mr. Hamm
served as Senior Vice President, Neurology Strategic Business
Unit from January 2006 to October 2007; Senior Vice President,
Immunology Business Unit from the merger in November 2003 until
January 2006; and in the same capacity with Biogen, Inc. from
November 2002 to November 2003. Before that, he served as Senior
Vice President Europe, Africa, Canada and Middle
East from October 2001 to November 2002. Prior to that,
Mr. Hamm served as Vice President Sales and
Marketing of
21
Biogen, Inc. from October 2000 to October 2001. Mr. Hamm
previously served as Vice President Manufacturing
from June 1999 to October 2000, Director, Northern Europe and
Distributors from November 1996 until June 1999 and Associate
Director, Logistics from April 1994 until November 1996. From
1987 until April 1994, Mr. Hamm held a variety of
management positions at Syntex Laboratories Corporation,
including Director of Operations and New Product Planning, and
Manager of Materials, Logistics and Contract Manufacturing.
Mr. Hamm is a director of Inhibitex, Inc. and Progenitor
Cell Therapy, LLC.
Michael F. MacLean is our Senior Vice President and Chief
Accounting Officer and has served in that position since
December 2006. Mr. MacLean joined us in October 2006 as
Senior Vice President. Prior to joining us, Mr. MacLean was
a managing director of Huron Consulting, where he provided
support regarding financial reporting to management and boards
of directors of Fortune 500 companies. From June 2002 to
October 2005, Mr. MacLean was a partner at KPMG and he was
a partner of Arthur Andersen LLP from September 1999 to
May 2002.
Craig Eric Schneier, Ph.D. is our Executive Vice
President, Human Resources, Public Affairs and Communications
and has served in that position since October 2007. Prior to
that he was Executive Vice President, Human Resources from
November 2003 to October 2007. Mr. Schneier served as
Executive Vice President, Human Resources of Biogen, Inc., a
position he held from January 2003 until the merger. He joined
Biogen, Inc. in 2001 as Senior Vice President, Strategic
Organization Design and Effectiveness, after having served as an
external consultant to us for eight years. Prior to joining
Biogen, Inc., Mr. Schneier was president of his own
management consulting firm in Princeton, NJ, where he provided
consulting services to over 70 of the Fortune
100 companies, as well as several of the largest European
and Asian firms. Mr. Schneier held a tenured professorship
at the University of Marylands Smith School of Business
and has held teaching positions at the business schools of the
University of Michigan, Columbia University, and at the Tuck
School of Business, Dartmouth College.
22
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 in 2008. 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 in July 2006, we have
disclosed five confirmed cases of PML, a known side effect, in
patients taking TYSABRI. The occurrence 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 reports
of 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 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
23
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 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, 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, including, but not limited to,
the Medicare Prescription Drug Improvement and Modernization Act
of 2003 and the Deficit Reduction Act of 2005. The Deficit
Reduction Act 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.
24
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 EU 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 EU and other countries, some third party trade in our
products occurs from markets with lower prices thereby
undermining our sales in some markets with higher prices.
Additionally, certain countries reference 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 copromote 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
25
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 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 United States of the Medicare Prescription
Drug Improvement and Modernization Act of 2003, 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. We have applied to the FDA and the EMEA for approval of
a production process, known as a second generation high-titer
process, which has higher yields of TYSABRI than the process we
currently use. Approval has been granted by the EMEA, but is
still pending from the FDA. If we do not obtain approval for
that process, we may need to increase our capital spending to
add capacity at our RTP manufacturing facility and at the
Hillerød, Denmark facility we are completing to meet demand
for TYSABRI. Such an increase in capital spending would affect
our business, cash position and results of operations.
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 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
27
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 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 securities and continuously monitoring
the overall risk profile of our portfolio, the value of our
investments may nevertheless decline.
We
have made a significant investment in constructing a
manufacturing facility the success of which depends upon the
completion and licensing of the facility and continued demand
for our products.
We are building a large-scale biologic manufacturing facility in
Hillerød, Denmark. We anticipate that the facility will be
ready for commercial production in 2010. If we fail to manage
the project, or unforeseen events occur, we may incur additional
costs to complete the project. Depending on the timing of the
completion and licensing of the facility, and our other
estimates and assumptions regarding future product sales, the
carrying value of all or part of the manufacturing facility or
other assets may not be fully recoverable and could result in
the recognition of an impairment in the carrying value at the
time that such effects are identified. The recognition of
impairment in the carrying value, if any, could have a material
and adverse affect on our results of operations. For example, if
the anticipated demand for TYSABRI does not materialize, the
carrying values of our Hillerød, Denmark facility could be
impaired, which would negatively impact our results of
operations.
28
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.
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.
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
could also reduce our ability to enforce our patents. We do not
know when, or if, changes to the U.S. patent system will
become law. If we are unable to protect our intellectual
property rights and prevent others from exploiting our
inventions, we will not derive the benefit from them that we
currently expect.
30
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
noninfringement of certain patent rights claimed by third
parties to be pertinent to the manufacture, use or sale of our
products. Ultimately, the outcome of such litigation could
adversely affect the validity and scope of our patent or other
proprietary rights, or, 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. 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.
31
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 December 31, 2008, we had $1,113.1 million of
outstanding indebtedness, and we may incur additional debt in
the future. Our level of indebtedness could have significant
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 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
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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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Item 1B.
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Unresolved
Staff Comments
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None.
33
Cambridge,
Massachusetts and Surrounding Area
Our principal executive offices are located in Cambridge,
Massachusetts. In Cambridge, we own approximately
510,000 square feet of real estate space, consisting of a
250,000 square foot building that houses a research
laboratory, office spaces and a cogeneration plant, and an
approximately 260,000 square foot building that contains
research, development and quality laboratories. We lease a total
of approximately 440,000 square feet, consisting of
additional office and manufacturing space, in all or part of
four other buildings in Cambridge. In addition, we lease
approximately 36,000 square feet of warehouse space in
Somerville, Massachusetts, approximately 105,000 square
feet of office space in Wellesley, Massachusetts, and
approximately 25,000 square feet of office and lab space in
Waltham, Massachusetts. The lease expiration dates for our
leased sites in Massachusetts range from 2009 to 2015. We
recently executed a fifteen year lease on a 356,000 square
foot office building in Weston, Massachusetts, which will serve
as the future location of our executive offices with a planned
occupancy during the third quarter of 2010. We anticipate that
the Weston facility will decrease our overall occupancy cost per
employee.
San Diego
and Oceanside, California
In San Diego, California, we own approximately
43 acres of land upon which we have our oncology research
and development campus. The campus consists of five
interconnected buildings, which primarily contain laboratory and
office space, totaling approximately 350,000 square feet.
In July 2007, we sold two parcels of undeveloped property in
Oceanside, California, totaling approximately 28 acres of
land.
Research
Triangle Park, North Carolina
In Research Triangle Park, North Carolina, we own approximately
530,000 square feet of real estate space. This includes a
108,000 square foot biologics manufacturing facility, a
232,000 square foot large scale manufacturing plant, a
second large-scale purification facility of 42,000 square
feet, and a 150,000 square foot laboratory office building.
We manufacture bulk AVONEX and TYSABRI at this facility. We plan
to use this facility to manufacture other products in our
pipeline and to meet any obligation to manufacture AMEVIVE
resulting from our sale of that product to Astellas. We are
continuing further upgrades in Research Triangle Park with
ongoing construction of several projects to increase our
manufacturing flexibility. In addition, we lease approximately
44,000 square feet of office space in Durham, North
Carolina.
Hillerød,
Denmark
We own approximately 60 acres of property in Hillerød,
Denmark. We are constructing a large-scale biologics
manufacturing facility in Hillerød, Denmark to be used to
manufacture TYSABRI and other products in our pipeline. An
administrative building, label and packaging facility and lab
facility are currently in use. For a discussion of our plans for
the Hillerød, Denmark large-scale manufacturing facility,
see Manufacturing and Raw Materials.
Other
International
We lease space in Zug, Switzerland, our international
headquarters, the United Kingdom, Germany, Austria, Argentina,
France, Belgium, Netherlands, Spain, Portugal, Czech Republic,
Slovenia, Slovak Republic, Denmark, Sweden, Finland, Norway,
Japan, India, China, Australia, New Zealand, Brazil, Hungary and
Canada.
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Item 3.
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Legal
Proceedings
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Please refer to Note 19, Litigation, in Notes to
Consolidated Financial Statements of this annual report on
Form 10-K,
which is incorporated into this item by reference.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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None.
34
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Market
Information
Our common stock trades on The NASDAQ Global Select Market under
the symbol BIIB. The following table shows the high
and low sales price for our common stock as reported by The
NASDAQ Global Select Market for each quarter in the years ended
December 31, 2008 and 2007.
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Common Stock Price
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2008
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2007
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High
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Low
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High
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Low
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First Quarter
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$
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64.49
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$
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54.50
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$
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52.45
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$
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42.86
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Second Quarter
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67.45
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55.68
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53.96
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43.43
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Third Quarter
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73.59
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45.37
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69.00
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53.24
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Fourth Quarter
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52.36
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37.21
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84.75
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53.65
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Holders
As of February 2, 2009, there were approximately
1,121 stockholders of record of our common stock. In
addition, as of February 2, 2009, 406 stockholders of
record of Biogen, Inc. common stock have yet to exchange their
shares of Biogen, Inc. common stock for our common stock as
contemplated by the merger of Biogen, Inc. and Idec
Pharmaceuticals Corporation, or the Merger.
Dividends
We have not paid cash dividends since our inception. We
currently intend to retain all earnings, if any, for use in the
expansion of our business and, therefore, do not anticipate
paying any cash dividends in the foreseeable future.
Equity
Compensation Plan Information
We incorporate information regarding the securities authorized
for issuance under our equity compensation plans into this
section by reference from the section entitled Disclosure
With Respect To Our Equity Compensation Plans in the proxy
statement for our 2009 Annual Meeting of Stockholders.
Recent
Sales of Unregistered Securities
None.
Issuer
Purchases of Equity Securities
A summary of issuer repurchase activity for 2008 is as follows:
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Number of Shares
|
|
|
|
Total Number of
|
|
|
Average Price Paid
|
|
|
Part of Publicly
|
|
|
That May Yet Be
|
|
|
|
Shares Purchased
|
|
|
Per Share
|
|
|
Announced Program
|
|
|
Purchased Under Our
|
|
Period
|
|
(#)
|
|
|
($)
|
|
|
(#)(a)
|
|
|
Program (#)
|
|
|
March 2008
|
|
|
4,028,196
|
|
|
$
|
59.61
|
|
|
|
4,028,196
|
|
|
|
15,971,804
|
|
April 2008
|
|
|
4,971,804
|
|
|
$
|
64.27
|
|
|
|
4,971,804
|
|
|
|
11,000,000
|
|
December 2008
|
|
|
3,777,500
|
|
|
$
|
47.41
|
|
|
|
3,777,500
|
|
|
|
7,222,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(a)(b)
|
|
|
12,777,500
|
|
|
$
|
57.82
|
|
|
|
12,777,500
|
|
|
|
7,222,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
(a) |
|
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 to our current report on
Form 8-K
filed on October 31, 2006. |
|
(b) |
|
After December 31, 2008, we repurchased approximately
1.2 million additional shares at a total cost of
$57.6 million. |
Stock
Performance Graph
The graph below compares the five-year cumulative total
stockholder return on our common stock, the S&P 500
Index and the Nasdaq Pharmaceutical Index, assuming the
investment of $100.00 on December 31, 2003 with dividends
being reinvested. The stock price performance in the graph below
is not necessarily indicative of future price performance.
36
|
|
Item 6.
|
Selected
Financial Data
|
The following financial data should be read in conjunction with
our consolidated financial statements and related notes
appearing elsewhere in this report on
Form 10-K,
beginning on
page F-1.
BIOGEN
IDEC INC. AND SUBSIDIARIES
SELECTED
FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008 (6)
|
|
|
2007 (4),(5)
|
|
|
2006 (2),(3)
|
|
|
2005 (1)
|
|
|
2004
|
|
|
|
|
|
|
(In millions, except per share amounts)
|
|
|
|
|
|
Product revenues
|
|
$
|
2,839.7
|
|
|
$
|
2,136.8
|
|
|
$
|
1,781.3
|
|
|
$
|
1,617.0
|
|
|
$
|
1,486.4
|
|
Revenue from unconsolidated joint business
|
|
|
1,128.2
|
|
|
|
926.1
|
|
|
|
810.9
|
|
|
|
708.9
|
|
|
|
615.7
|
|
Other revenues
|
|
|
129.6
|
|
|
|
108.7
|
|
|
|
90.8
|
|
|
|
96.6
|
|
|
|
109.5
|
|
Total revenues
|
|
|
4,097.5
|
|
|
|
3,171.6
|
|
|
|
2,683.0
|
|
|
|
2,422.5
|
|
|
|
2,211.6
|
|
Total costs and expenses
|
|
|
2,883.9
|
|
|
|
2,391.8
|
|
|
|
2,243.0
|
|
|
|
2,186.5
|
|
|
|
2,168.1
|
|
Income before income tax expense and cumulative effect of
accounting change
|
|
|
1,148.9
|
|
|
|
910.6
|
|
|
|
492.2
|
|
|
|
256.2
|
|
|
|
64.1
|
|
Income before cumulative effect of accounting change
|
|
|
783.2
|
|
|
|
638.2
|
|
|
|
213.7
|
|
|
|
160.7
|
|
|
|
25.1
|
|
Cumulative effect of accounting change, net of income tax
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
783.2
|
|
|
|
638.2
|
|
|
|
217.5
|
|
|
|
160.7
|
|
|
|
25.1
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change
|
|
|
2.65
|
|
|
|
1.99
|
|
|
|
0.62
|
|
|
|
0.47
|
|
|
|
0.07
|
|
Cumulative effect of accounting change, net of income tax
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
2.65
|
|
|
$
|
1.99
|
|
|
$
|
0.63
|
|
|
$
|
0.47
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculating diluted earnings per share
|
|
|
295.0
|
|
|
|
320.2
|
|
|
|
345.3
|
|
|
|
346.2
|
|
|
|
343.5
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
2,262.8
|
|
|
$
|
2,115.8
|
|
|
$
|
2,314.9
|
|
|
$
|
2,055.1
|
|
|
$
|
2,167.6
|
|
Total assets
|
|
|
8,479.0
|
|
|
|
8,628.8
|
|
|
|
8,552.8
|
|
|
|
8,381.7
|
|
|
|
9,165.8
|
|
Notes payable, less current portion
|
|
|
1,085.4
|
|
|
|
51.8
|
|
|
|
96.7
|
|
|
|
43.4
|
|
|
|
101.9
|
|
Shareholders equity
|
|
|
5,806.1
|
|
|
|
5,534.3
|
|
|
|
7,149.8
|
|
|
|
6,905.9
|
|
|
|
6,826.4
|
|
|
|
|
(1) |
|
Included in costs and expenses in 2005 is a charge of
$118.1 million related to facility impairment charges. |
|
(2) |
|
Included in costs and expenses in 2006 is a charge of
$207.4 million for in-process research and development and
a net gain of $6.1 million on the settlement of license
agreements associated with Fumapharm AG, or Fumapharm, and
Fumedica GmbH, or Fumedica and a charge of $123.1 million
for in process research and development related to the
acquisition of Conforma Therapeutics, Inc. or Conforma. |
|
(3) |
|
In connection with the adoption of Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-based
Payments, or SFAS 123(R), we recorded the cumulative
effect of an accounting change of $3.8 million, net, as of
January 1, 2006. |
|
(4) |
|
Included in costs and expenses in 2007 is a charge of
$18.4 million for in-process research and development
related to the acquisition of Syntonix Pharmaceuticals Inc., or
Syntonix, and $64.3 million related to our collaborations
with Cardiokine Biopharma LLC and Neurimmune SubOne AG, which we
consolidated under FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, or
FIN 46(R). The $64.3 million was offset by an equal
amount of minority interest, resulting in no net impact to the
results of our operations. |
37
|
|
|
(5) |
|
In July 2007, we purchased 56,424,155 shares of our common
stock pursuant to a tender offer. We funded the transaction
through existing cash and cash equivalents of
$1,490.5 million and a short term loan of
$1,500.0 million. |
|
(6) |
|
Included in cost and expenses in 2008 is $25.0 million for
in process research and development related to a milestone
payment made to the former shareholders of Conforma pursuant to
the terms of our acquisition of Conforma in 2006. |
|
|
Item 7.
|
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 of future product sales, royalty
revenues, expenses, contractual obligations, regulatory
submissions and approvals, clinical trial results, our long-term
growth, 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 ability to finance
our operations and meet our manufacturing needs, the completion
of our manufacturing facility in Hillerød, Denmark,
liquidity, 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 appearing
elsewhere in this
Form 10-K,
beginning on
page F-1.
Executive
Summary
Biogen Idec Inc. was formed in 2003 upon the acquisition of
Biogen, Inc. by IDEC Pharmaceuticals Corporation in a merger
transaction, or the Merger. We are a global biotechnology
company that creates new standards of care in therapeutic areas
of high unmet medical needs. We have two licensed biological
bulk-manufacturing facilities, including our large-scale
manufacturing plant in Research Triangle Park, NC, which is one
of the worlds largest cell culture facilities. An
additional large-scale manufacturing plant is under construction
in Hillerød, Denmark. We conduct research in
San Diego, CA and Cambridge, MA. In 2008, we entered into
an agreement with a real estate developer for the construction
and leasing of a corporate headquarters in Weston, MA. We
anticipate occupancy in 2010. We have additional offices in
Canada, Brazil, Argentina, Australia, New Zealand, Japan, China,
India and throughout Europe, including our international
headquarters in Zug, Switzerland and operate a global
distribution network, which covers over 70 countries. We
currently employ approximately 4,700 people worldwide.
Results for the year ended December 31, 2008 included total
revenue of $4,097.5 million, net income of
$783.2 million and diluted net income per share of $2.65.
These results reflect continued growth in unit sales of TYSABRI,
an increase in revenues from an unconsolidated joint business
arrangement due to increased sales of RITUXAN, as well as the
impact of price increases in the United States and the favorable
impact of exchange rates in rest of world on our AVONEX product.
The effect of the increase in revenue was partially offset by an
increase in research and development expense due to increased
level of Phase 3 clinical trials and other projects, and an
increase in selling, general and administrative expense related
to a higher level of personnel to sustain AVONEX sales and drive
TYSABRI growth. In the fourth quarter of 2008, we completed a
reorganization of our domestic and
38
international operations, which included the movement of certain
personnel and operational functions between Biogen Idec
subsidiaries, as well as a restructuring of our supply chain.
Marketed
Products
We currently have four marketed products:
|
|
|
|
|
AVONEX®
(interferon beta-1a);
|
|
|
|
RITUXAN®
(rituximab);
|
|
|
|
TYSABRI®
(natalizumab);
|
|
|
|
FUMADERM®
(dimethylfumarate and monoethylfumarate salts)
|
Through December 2007 we recorded product revenue from sales of
ZEVALIN (ibritumomab tiuxetan) in the U.S. In December 2007, we
sold the U.S. marketing, sales, manufacturing and
development rights of ZEVALIN to Cell Therapeutics, Inc., or
CTI, for an upfront purchase price of $10.0 million. In
December 2008, pursuant to an amendment of the agreement, we
received an additional $2.2 million milestone payment. We
may receive up to an additional $20.0 million in milestone
payments. In addition, we will receive royalty payments on
future sales of ZEVALIN. As part of the overall agreement, we
entered into a supply agreement with CTI to sell ZEVALIN product
through 2014. Our sales of ZEVALIN to Bayer Schering Pharma AG,
or Schering AG, for distribution in the EU will be recognized as
product revenue and our supply of ZEVALIN to CTI is recognized
as corporate partner revenue. We will continue to receive
royalty revenues from Schering AG on their sales of ZEVALIN in
the EU. The $10.0 million upfront and $2.2 million
milestone payment have been deferred and are being recognized in
our results of operations over the term of the supply agreement.
Through April 2006, we recorded product revenues from sales of
AMEVIVE (alefacept). In April 2006, we sold the worldwide rights
to this product to Astellas Pharma US, Inc., or Astellas. We
will continue to manufacture and supply this product to Astellas
for a period of up to 11 years. Under the terms of the
supply agreement, we charge Astellas fixed amounts based on
volume. Such amounts will be recognized as corporate partner
revenue and are not significant.
Most of our revenues are currently dependent on sales of AVONEX,
RITUXAN and TYSABRI. In the near term, we are dependent on the
continued sales growth of TYSABRI to grow our overall revenues.
In the longer term, our revenue growth is dependent on the
successful clinical development, regulatory approval and launch
of new commercial products currently being developed in our
pipeline or products or programs that will be in-licensed or
acquired.
Continued growth of global AVONEX unit sales is primarily
dependent on maintaining AVONEXs position as the most
prescribed multiple sclerosis, or MS, therapy in the world. In
both the U.S. and rest of world, we face increasing
competition in the MS market from currently marketed products
and future products in late stage development, as well as
increasing pricing pressure. We continue to generate data
showing AVONEX to be an effective and safe choice for MS
patients and physicians.
The majority of RITUXAN unit sales are currently from use in the
oncology setting. We believe there is additional room for
RITUXAN unit sales growth in the immunology setting, where
RITUXAN is currently approved for patients with Rheumatoid
Arthritis, or RA, with inadequate response to anti-tumor
necrosis factor therapies, or TNF-IR. Additional immunology
indications for RITUXAN that we are investigating include
earlier stage RA patients with inadequate response to
disease-modifying anti-rheumatic drugs, or DMARD-IR patients,
DMARD-naïve RA patients and lupus nephritis and
ANCA-associated vaculitis.
In July 2006, we reintroduced TYSABRI in the U.S. and began
to ship internationally for the first time. TYSABRI sales are
currently for use in relapsing remitting MS and, following the
FDAs approval in January 2008, Crohns disease.
Growth in TYSABRI revenue will be dependent on the generation of
a larger and longer term safety database, as well as continued
acceptance by physicians and MS patients. Since the
reintroduction of TYSABRI in the U.S. and the introduction of
TYSABRI in the rest of world, we have disclosed five cases of
progressive multifocal leukoencephalopathy, or PML, a known side
effect, in patients taking TYSABRI in the post
39
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 this news and we
continue to develop protocols to potentially mitigate the risk
and outcome of PML in patients being treated with TYSABRI.
Clinical
Studies
Over the past few years, we have incurred significant
expenditures related to conducting clinical studies to develop
new pharmaceutical products and explore the utility of our
existing products in treating disorders beyond those currently
approved in their labels. For 2009, we expect to continue to
incur significant levels of research and development
expenditures. We have a number of pipeline products in late
stage clinical trials, including over 13 pipeline products in
Phase 2 or Phase 3 clinical trials. We are currently developing
the late stage product candidates that are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Development and/or
|
|
|
|
|
|
|
Marketing
|
Product
|
|
Product Indications
|
|
Status
|
|
Collaborators
|
|
BG-12
|
|
Relapsing MS
|
|
Phase 3
|
|
None
|
|
|
|
Anti-CD80 MAb (galiximab)
|
|
Relapsed NHL
|
|
Phase 3
|
|
None
|
|
|
|
Anti-CD23 MAb (lumiliximab)
|
|
Relapsed CLL
|
|
Phase 2/3
|
|
None
|
|
|
|
Humanized Anti-CD20 MAb (ocrelizumab)
|
|
RA
|
|
Phase 3
|
|
U.S. Genentech Japan Chugai and
Zenyaku
Outside U.S. and Japan Roche
|
|
|
|
|
|
Lupus nephritis
|
|
Phase 3
|
|
See above
|
|
|
|
Lixivaptan
|
|
Hyponatremia, commonly seen in acute decompensated heart failure
|
|
Phase 3
|
|
Cardiokine Biopharma LLC
|
|
|
|
ADENTRI®
|
|
Acute decompensated heart failure with renal insufficiency
|
|
Phase 3
|
|
None
|
In addition to the expense associated with these late stage
trials, other pipeline products are in ongoing or are expected
to enter proof of concept trials in 2009.
Business
Development
As part of our business strategy, we have made acquisitions of
other businesses, products, product rights or technologies and
may continue to make acquisitions in the future. Our cash
reserves and other liquid assets are substantial, but these
sources of capital may be inadequate to consummate larger
acquisitions and it may be necessary for us to raise substantial
additional funds in the future to complete transactions. Due to
the recent tightening of global credit and the disruption in the
financial markets, it may be more difficult to secure such
additional financing. In addition, as a result of our
acquisition efforts, we may experience significant charges to
earnings for merger and related expenses that may include
transaction costs, closure costs or acquired in-process research
and development charges.
40
Results
of Operations
Revenues
Revenues were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Product Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,472.9
|
|
|
|
35.9
|
%
|
|
$
|
1,203.6
|
|
|
|
37.9
|
%
|
|
$
|
1,069.5
|
|
|
|
40.0
|
%
|
Rest of world
|
|
|
1,366.8
|
|
|
|
33.4
|
%
|
|
|
933.2
|
|
|
|
29.5
|
%
|
|
|
711.8
|
|
|
|
26.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
|
2,839.7
|
|
|
|
69.3
|
%
|
|
|
2,136.8
|
|
|
|
67.4
|
%
|
|
|
1,781.3
|
|
|
|
66.5
|
%
|
Unconsolidated Joint Business
|
|
|
1,128.2
|
|
|
|
27.5
|
%
|
|
|
926.1
|
|
|
|
29.2
|
%
|
|
|
810.9
|
|
|
|
30.2
|
%
|
Other Revenues
|
|
|
129.6
|
|
|
|
3.2
|
%
|
|
|
108.7
|
|
|
|
3.4
|
%
|
|
|
90.8
|
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
4,097.5
|
|
|
|
100.0
|
%
|
|
$
|
3,171.6
|
|
|
|
100.0
|
%
|
|
$
|
2,683.0
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Revenues
Product revenues were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
AVONEX
|
|
$
|
2,202.6
|
|
|
|
77.6
|
%
|
|
$
|
1,867.8
|
|
|
|
87.4
|
%
|
|
$
|
1,706.7
|
|
|
|
95.9
|
%
|
TYSABRI
|
|
|
588.6
|
|
|
|
20.7
|
%
|
|
|
229.9
|
|
|
|
10.8
|
%
|
|
|
35.8
|
|
|
|
2.0
|
%
|
FUMADERM
|
|
|
43.4
|
|
|
|
1.5
|
%
|
|
|
21.5
|
|
|
|
1.0
|
%
|
|
|
9.5
|
|
|
|
0.5
|
%
|
ZEVALIN
|
|
|
4.8
|
|
|
|
0.2
|
%
|
|
|
16.9
|
|
|
|
0.8
|
%
|
|
|
17.8
|
|
|
|
1.0
|
%
|
AMEVIVE
|
|
|
0.3
|
|
|
|
|
%
|
|
|
0.7
|
|
|
|
|
|
|
|
11.5
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
2,839.7
|
|
|
|
100.0
|
%
|
|
$
|
2,136.8
|
|
|
|
100.0
|
%
|
|
$
|
1,781.3
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Sales
Cost of sales includes the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cost of product revenues
|
|
$
|
397.0
|
|
|
|
98.8
|
%
|
|
$
|
330.5
|
|
|
|
98.6
|
%
|
|
$
|
270.0
|
|
|
|
98.4
|
%
|
Cost of royalty revenues
|
|
|
5.0
|
|
|
|
1.2
|
%
|
|
|
4.7
|
|
|
|
1.4
|
%
|
|
|
4.4
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
402.0
|
|
|
|
100.0
|
%
|
|
$
|
335.2
|
|
|
|
100.0
|
%
|
|
$
|
274.4
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2008, 2007, and 2006,
we wrote down approximately $29.8 million,
$21.6 million, and $13.0 million, respectively, of
inventory which was charged to cost of sales.
41
Cost
of Product Revenues
Cost of product revenues, included in cost of sales, by product
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
AVONEX
|
|
$
|
272.0
|
|
|
|
68.5
|
%
|
|
$
|
258.3
|
|
|
|
78.2
|
%
|
|
$
|
234.7
|
|
|
|
86.9
|
%
|
TYSABRI
|
|
|
68.5
|
|
|
|
17.3
|
%
|
|
|
10.4
|
|
|
|
3.1
|
%
|
|
|
5.3
|
|
|
|
2.0
|
%
|
FUMADERM
|
|
|
3.9
|
|
|
|
1.0
|
%
|
|
|
1.6
|
|
|
|
0.5
|
%
|
|
|
3.1
|
|
|
|
1.2
|
%
|
ZEVALIN
|
|
|
5.6
|
|
|
|
1.4
|
%
|
|
|
14.0
|
|
|
|
4.2
|
%
|
|
|
16.2
|
|
|
|
6.0
|
%
|
AMEVIVE
|
|
|
8.0
|
|
|
|
2.0
|
%
|
|
|
3.1
|
|
|
|
0.9
|
%
|
|
|
10.0
|
|
|
|
3.7
|
%
|
Other
|
|
|
39.0
|
|
|
|
9.8
|
%
|
|
|
43.1
|
|
|
|
13.1
|
%
|
|
|
0.7
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenues
|
|
$
|
397.0
|
|
|
|
100.0
|
%
|
|
$
|
330.5
|
|
|
|
100.0
|
%
|
|
$
|
270.0
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVONEX
Revenues from AVONEX were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
AVONEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
1,276.5
|
|
|
|
58.0
|
%
|
|
$
|
1,085.0
|
|
|
|
58.1
|
%
|
|
$
|
1,022.2
|
|
|
|
59.9
|
%
|
Rest of world
|
|
|
926.1
|
|
|
|
42.0
|
%
|
|
|
782.8
|
|
|
|
41.9
|
%
|
|
|
684.5
|
|
|
|
40.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AVONEX revenues
|
|
$
|
2,202.6
|
|
|
|
100.0
|
%
|
|
$
|
1,867.8
|
|
|
|
100.0
|
%
|
|
$
|
1,706.7
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For 2008 compared to 2007, U.S. sales of AVONEX increased
$191.5 million, or 17.6%, due to price increases, partially
offset by decreased product demand. For 2008 compared to 2007,
rest of world sales of AVONEX increased $143.3 million, or
18.3%, due to increased unit shipments, the impact of exchange
rates and the establishment of additional direct market
affiliates.
For 2007 compared to 2006, U.S. sales of AVONEX increased
$62.8 million, or 6.1%, primarily due to the impact of
price increases. These increases were offset by lower demand.
For 2007 compared to 2006, rest of world sales of AVONEX
increased $98.3 million, or 14.4%, primarily due to the
impact of exchange rates and higher sales volume.
We expect to face increasing competition in the 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 negative impact to 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
TYSABRI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
196.4
|
|
|
|
33.4
|
%
|
|
$
|
104.4
|
|
|
|
45.4
|
%
|
|
$
|
25.8
|
|
|
|
72.1
|
%
|
Rest of world
|
|
|
392.2
|
|
|
|
66.6
|
%
|
|
|
125.5
|
|
|
|
54.6
|
%
|
|
|
10.0
|
|
|
|
27.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TYSABRI revenues
|
|
$
|
588.6
|
|
|
|
100.0
|
%
|
|
$
|
229.9
|
|
|
|
100.0
|
%
|
|
$
|
35.8
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under the terms of a collaboration agreement with Elan, we
manufacture TYSABRI and collaborate with Elan on the
products marketing, commercial distribution and on-going
development activities. We recognize revenue
42
for sales of TYSABRI in the U.S. upon Elans shipment
of the product to third party distributors. We recognize revenue
for sales of TYSABRI in rest of world at the time of product
delivery to our customers and distributors.
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 five cases of 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.
For 2008 and 2007, we recorded revenue on sales of TYSABRI of
$588.6 million and $229.9 million, respectively. The
increase in 2008 sales as compared to 2007 sales is primarily
due to increased unit shipments due to the growth in the number
of patients using TYSABRI.
For 2007 and 2006, we have recorded revenue on sales of TYSABRI
of $229.9 million and $35.8 million, respectively. The
increase in 2007 sales as compared to 2006 sales is primarily
due to increased unit shipments due to the growth in the number
of patients using TYSABRI and due to the product being shipped
for the entire 12 months during 2007 versus being shipped
for only six months in 2006.
During 2007 and 2006, we had product on hand that had been fully
written-off in 2005 due to the uncertainties surrounding the
TYSABRI suspension but which was available to fill future
orders. As we sold TYSABRI in 2007 and 2006, we realized lower
than normal cost of sales and, therefore, higher margins, as we
shipped the inventory that had been previously written-off. For
2007 and 2006, cost of sales was approximately
$12.6 million and $2.6 million, respectively, lower
due to the sale of TYSABRI that had been previously written-off.
All TYSABRI inventory that had been previously written-off had
been shipped by December 31, 2007.
During the year ended December 31, 2008, pursuant to our
collaboration agreement with Elan, Elan paid us a
$75.0 million milestone payment in order to maintain the
current collaboration profit sharing split. We recorded this
amount as deferred revenue upon receipt and are recognizing this
$75.0 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. We recognized
$1.5 million of this milestone as revenue for the year
ended December 31, 2008. Based on the TYSABRI sales levels
achieved through the fourth quarter of 2008, in
January 2009, Elan paid us an additional milestone payment
of $50.0 million in order to maintain the current
collaboration profit sharing split. Revenue from this milestone
payment will also be deferred and recognized on a units of
revenue model.
FUMADERM
In connection with our June 2006 acquisition of Fumapharm, we
began recognizing revenue on sales of FUMADERM to our
distributor, Fumedica, in July 2006. In December 2006, we
acquired the right to distribute FUMADERM in Germany from
Fumedica effective May 1, 2007. In connection with the
acquisition of the FUMADERM distribution rights in Germany, we
committed to the repurchase of any inventory Fumedica did not
sell by May 1, 2007. As a result of this provision, we
deferred the recognition of revenue on shipments made to
Fumedica through April 30, 2007. We resumed recognizing
revenue on sales of FUMADERM into the German market in May 2007.
Sales of FUMADERM for 2008, 2007, and 2006 were
$43.4 million, $21.5 million, and $9.5 million,
respectively. These increases in sales were primarily due to
increased volumes.
ZEVALIN
In 2008, 2007, and 2006 sales of ZEVALIN were $4.8 million,
$16.9 million, and $17.8 million, respectively. The
decrease in total ZEVALIN sales in 2008 as compared to 2007 is
primarily due to the sale of the rights to market, sell,
manufacture, and develop ZEVALIN in the U.S. to CTI during
the fourth quarter of 2007. Beginning in 2008, ZEVALIN product
revenue consists only of ZEVALIN sales to Schering AG.
43
AMEVIVE
In 2008, 2007, and 2006, sales of AMEVIVE were
$0.3 million, $0.7 million, and $11.5 million,
respectively. The decrease in total AMEVIVE sales is due to the
sale, in April 2006, of our worldwide rights and infrastructure
related to sales, production, and marketing of AMEVIVE to
Astellas.
Although we sold the rights to this product, we continue to
report a small amount of product revenues related to shipments
made by certain of our overseas joint ventures, which we
consolidate.
Provisions
for Discounts and Allowances
Revenues from product sales are recognized 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
are recorded net of applicable allowances for trade term
discounts, wholesaler incentives, Medicaid rebates,
Veterans Administration, or VA, rebates, managed care
rebates, product returns, other applicable allowances and, in
2006, patient assistance and patient replacement goods. The
estimates we make with respect to these allowances represent
significant judgments.
Effective January 1, 2007, we changed the manner in which
we administer our patient assistance and patient replacement
goods programs. Prior to January 1, 2007, AVONEX product
shipped for these programs was invoiced and recorded as gross
product revenue and an offsetting provision for discount and
returns was recorded for expected credit requests from the
distributor that administers these programs on our behalf (as
such, no net revenue was recorded for these shipments).
Effective January 1, 2007, we entered into a new
arrangement with a distributor. Under the new sales model, gross
revenue is not recorded for product shipped to satisfy these
programs, and cost of sales is recorded when the product is
shipped.
Provisions for discounts and allowances reduced gross product
revenues as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Discounts
|
|
$
|
67.1
|
|
|
$
|
45.7
|
|
|
$
|
102.9
|
|
Contractual adjustments
|
|
|
149.0
|
|
|
|
105.2
|
|
|
|
93.3
|
|
Returns
|
|
|
12.2
|
|
|
|
22.1
|
|
|
|
38.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowances
|
|
$
|
228.3
|
|
|
$
|
173.0
|
|
|
$
|
234.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross product revenues
|
|
$
|
3,068.0
|
|
|
$
|
2,309.8
|
|
|
$
|
2,016.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of gross product revenues
|
|
|
7.4
|
%
|
|
|
7.5
|
%
|
|
|
11.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
An analysis of the amount of, and change in, reserves is as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
Discounts
|
|
|
Adjustments
|
|
|
Returns
|
|
|
Total
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
6.4
|
|
|
$
|
33.1
|
|
|
$
|
20.4
|
|
|
$
|
59.9
|
|
Current provisions relating to sales in current year
|
|
|
67.1
|
|
|
|
150.6
|
|
|
|
14.7
|
|
|
|
232.4
|
|
Adjustments relating to prior years
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
(2.5
|
)
|
|
|
(4.1
|
)
|
Payments/returns relating to sales in current year
|
|
|
(57.8
|
)
|
|
|
(101.2
|
)
|
|
|
(0.1
|
)
|
|
|
(159.1
|
)
|
Payments/returns relating to sales in prior years
|
|
|
(6.5
|
)
|
|
|
(32.8
|
)
|
|
|
(14.4
|
)
|
|
|
(53.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
9.2
|
|
|
$
|
48.1
|
|
|
$
|
18.1
|
|
|
$
|
75.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
12.7
|
|
|
$
|
30.5
|
|
|
$
|
17.8
|
|
|
$
|
61.0
|
|
Current provisions relating to sales in current year
|
|
|
45.7
|
|
|
|
113.1
|
|
|
|
17.1
|
|
|
|
175.9
|
|
Adjustments relating to prior years
|
|
|
|
|
|
|
(7.9
|
)
|
|
|
5.0
|
|
|
|
(2.9
|
)
|
Payments/returns relating to sales in current year
|
|
|
(39.4
|
)
|
|
|
(72.3
|
)
|
|
|
(0.4
|
)
|
|
|
(112.1
|
)
|
Payments/returns relating to sales in prior years
|
|
|
(12.6
|
)
|
|
|
(30.3
|
)
|
|
|
(19.1
|
)
|
|
|
(62.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
6.4
|
|
|
$
|
33.1
|
|
|
$
|
20.4
|
|
|
$
|
59.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
11.6
|
|
|
$
|
35.7
|
|
|
$
|
2.3
|
|
|
$
|
49.6
|
|
Current provisions relating to sales in current year
|
|
|
102.9
|
|
|
|
96.4
|
|
|
|
31.6
|
|
|
|
230.9
|
|
Adjustments relating to prior years
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
7.1
|
|
|
|
4.0
|
|
Payments/returns relating to sales in current year
|
|
|
(90.2
|
)
|
|
|
(63.1
|
)
|
|
|
(16.1
|
)
|
|
|
(169.4
|
)
|
Payments/returns relating to sales in prior years
|
|
|
(11.6
|
)
|
|
|
(35.4
|
)
|
|
|
(12.5
|
)
|
|
|
(59.5
|
)
|
Other adjustments
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
12.7
|
|
|
$
|
30.5
|
|
|
$
|
17.8
|
|
|
$
|
61.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Product revenue reserves are categorized as follows: discounts,
contractual adjustments and returns.
Discount reserves include trade term discounts, wholesaler
incentives and, in 2006, patient assistance. For 2008 compared
to 2007, discounts increased $21.4 million, or 46.8%,
primarily resulting from increases in trade term discounts and
wholesaler incentives as a result of price increases. For 2007
compared to 2006, discounts decreased $57.2 million, or
55.6%, resulting from a $67.5 million reduction related to
the change of patient assistance to a consignment model, offset
by increases in trade term discounts and wholesaler incentives.
Contractual adjustment reserves relate to Medicaid, VA and
managed care rebates and other applicable allowances. For 2008
compared to 2007, contractual adjustments increased
$43.8 million, or 41.6%, primarily due to the impact of
higher reserves for managed care (associated with higher level
of activity with respect to rebates and 2008 price increases in
the U.S.) and Medicaid and VA programs (associated with 2007
price increases in the U.S.). For 2007 compared to 2006,
contractual adjustments increased $11.9 million, or 12.8%,
primarily due to the impact of higher reserves for managed care
(associated with higher level of activity with respect to
rebates and associated with 2007 price increases in the U.S.)
and Medicaid and VA programs (associated with 2007 price
increases in the U.S.).
Product return reserves are established for returns made by
wholesalers and our patient replacement goods program in 2006.
In accordance with contractual terms, wholesalers are permitted
to return product for reasons such as damaged or expired
product. We also accept returns from our patients for various
reasons. For 2008 compared to
45
2007, return reserves decreased $9.9 million, or 44.8%,
primarily due to a decrease in estimated product returns. For
2007 compared to 2006, return reserves decreased
$16.6 million, or 42.9%, primarily due to a
$15.0 million decrease related to patient replacement goods
under the new sales model.
Reserves for product returns are recorded in the period the
related revenue is recognized, resulting in a reduction to
product sales. The majority of wholesaler returns are due to
product expiration. Expired product return reserves are
estimated through a comparison of historical return data, as
adjusted, to their related sales on a production lot basis.
Historical rates of return are determined for each product and
are adjusted for known or expected changes in the marketplace
specific to each product.
Unconsolidated
Joint Business Revenues
We have a collaboration with Genentech Inc., or Genentech, 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 United States 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.
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. and Canada and (2) royalty revenue from 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Co-promotion profits in the U.S.
|
|
$
|
733.5
|
|
|
$
|
616.8
|
|
|
$
|
555.8
|
|
Reimbursement of selling and development expenses in the U.S.
|
|
|
59.7
|
|
|
|
58.5
|
|
|
|
61.1
|
|
Revenue on sales of RITUXAN outside the U.S.
|
|
|
335.0
|
|
|
|
250.8
|
|
|
|
194.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,128.2
|
|
|
$
|
926.1
|
|
|
$
|
810.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Co-promotion profits in the U.S. consist of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Product revenues, net
|
|
$
|
2,587.4
|
|
|
$
|
2,284.8
|
|
|
$
|
2,071.2
|
|
Costs and expenses
|
|
|
741.0
|
|
|
|
730.2
|
|
|
|
669.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-promotion profits in the U.S.
|
|
$
|
1,846.4
|
|
|
$
|
1,554.6
|
|
|
$
|
1,401.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biogen Idecs share of co-promotion profits in the
U.S.
|
|
$
|
733.5
|
|
|
$
|
616.8
|
|
|
$
|
555.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales of RITUXAN to third-party customers in the
U.S. recorded by Genentech for 2008 were
$2,587.4 million compared to $2,284.8 million in 2007,
and $2,071.2 million in 2006. These increases were
primarily due to increased unit sales in treatments of B-cell
NHL and chronic lymphocytic leukemia (an unapproved use of
RITUXAN), increased utilization for RA and increases in the
wholesale price of RITUXAN.
In 2008, 2007, and 2006, reimbursements of selling and
development expenses in the U.S. were $59.7 million,
$58.5 million and $61.1 million, respectively. The
increase in 2008 from 2007 was primarily due to development
costs we incurred related to the development of RITUXAN in RA.
The decrease in 2007 from 2006 was primarily due to the
reimbursement of development costs when Roche exercised its
option to participate in the relapsing remitting multiple
sclerosis development program.
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 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. in 2008, 2007, and 2006 were
$335.0 million, $250.8 million, and
$194.0 million, respectively. These increases were 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 US 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
|
|
Co-promotion Operating Profits
|
|
of Co-promotion Profits
|
|
|
First $50 million
|
|
|
30
|
%
|
Greater than $50 million
|
|
|
40
|
%
|
In 2008, 2007, and 2006, the 40% threshold was met during the
first quarter.
47
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.
|
|
|
|
|
|
|
|
|
|
|
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.
In 2008, under the terms of our collaboration agreement, we paid
Genentech $31.5 million to participate in a license
agreement with Roche for the development of a Third Party
Anti-CD20 Product. This was recorded as research and development
cost in our consolidated statement of operations as the product
had no alternative future use. In addition, in 2008 we received
$12.4 million from Genentech pursuant to Roche choosing to
participate in a study of RITUXAN in primary-progressive
multiple sclerosis. This was recorded as revenue from
unconsolidated joint business in our consolidated statement of
operations.
48
Other
Revenue
Other revenues consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Royalties
|
|
$
|
116.2
|
|
|
|
89.7
|
%
|
|
$
|
102.1
|
|
|
|
93.9
|
%
|
|
$
|
86.2
|
|
|
|
94.9
|
%
|
Corporate partner
|
|
|
13.4
|
|
|
|
10.3
|
%
|
|
|
6.6
|
|
|
|
6.1
|
%
|
|
|
4.6
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129.6
|
|
|
|
100.0
|
%
|
|
$
|
108.7
|
|
|
|
100.0
|
%
|
|
$
|
90.8
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
Revenues
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.
For 2008 compared to 2007, royalty revenue increased
$14.1 million, or 13.8%, primarily due to an increase in
sales levels of certain products under license partially offset
by the expiration of certain contracts and decreased sales level
of certain products under license. For 2007 compared to 2006,
royalty revenues increased $15.9 million, or 18.4%,
primarily due to an increase in sales levels of products under
license partially offset by the expiration of royalties under
certain contracts.
Royalty revenues may fluctuate as a result of fluctuations in
sales levels of products sold by our licensees from quarter to
quarter due to the timing and extent of major events such as new
indication approvals or government-sponsored programs.
Corporate
Partner Revenues
Corporate partner revenues represent contract revenues such as
ZEVALIN and AMEVIVE and license fees.
Costs and
Expenses
Costs and expenses are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cost of sales, excluding amortization of acquired intangible
assets
|
|
$
|
402.0
|
|
|
|
13.9
|
%
|
|
$
|
335.2
|
|
|
|
14.0
|
%
|
|
$
|
274.4
|
|
|
|
12.3
|
%
|
Research and development
|
|
|
1,072.1
|
|
|
|
37.2
|
%
|
|
|
925.2
|
|
|
|
38.7
|
%
|
|
|
718.4
|
|
|
|
32.0
|
%
|
Selling, general, and administrative
|
|
|
925.3
|
|
|
|
32.1
|
%
|
|
|
776.1
|
|
|
|
32.4
|
%
|
|
|
685.0
|
|
|
|
30.5
|
%
|
Collaboration profit (loss) sharing
|
|
|
136.0
|
|
|
|
4.7
|
%
|
|
|
14.0
|
|
|
|
0.6
|
%
|
|
|
(9.7
|
)
|
|
|
(0.4
|
)%
|
Acquired in-process research and development
|
|
|
25.0
|
|
|
|
0.9
|
%
|
|
|
84.2
|
|
|
|
3.5
|
%
|
|
|
330.5
|
|
|
|
14.7
|
%
|
Amortization of acquired intangible assets
|
|
|
332.7
|
|
|
|
11.5
|
%
|
|
|
257.5
|
|
|
|
10.8
|
%
|
|
|
267.0
|
|
|
|
11.9
|
%
|
Facility impairments and (gain) loss on disposition, net
|
|
|
(9.2
|
)
|
|
|
(0.3
|
)%
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(16.5
|
)
|
|
|
(0.7
|
)%
|
Gain on termination of license agreements, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.1
|
)
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
$
|
2,883.9
|
|
|
|
100.0
|
%
|
|
$
|
2,391.8
|
|
|
|
100.0
|
%
|
|
$
|
2,243.0
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
Write-Offs
We periodically review our inventories for excess or obsolete
inventory and write-down obsolete or otherwise unmarketable
inventory to its estimated net realizable value. If the actual
net realizable value is less than that
49
estimated by us, or if it is determined that inventory
utilization will further diminish based on estimates of demand,
additional inventory write-downs may be required. Additionally,
our products are subject to strict quality control and
monitoring which we perform throughout the manufacturing
process. Periodically, certain batches or units of product may
no longer meet quality specifications or may expire. As a
result, included in product cost of revenues were write-downs of
commercial inventory that did not meet quality specifications or
that became obsolete due to expiration. In all cases product
inventory was written-down to its estimated net realizable value.
The shelf life associated with our products is generally between
3 and 48 months, depending on the product. Obsolescence due
to dating expiration has not been a historical concern, given
the rapidity in which our products move through the channel.
Changes due to our competitors price movements have not
adversely affected us. We do not provide incentives to our
distributors to assume additional inventory levels beyond what
is customary in their ordinary course of business.
We have written-down the following inventory, which was charged
to cost of sales (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
AVONEX
|
|
$
|
14.9
|
|
|
$
|
11.1
|
|
|
$
|
4.4
|
|
TYSABRI
|
|
|
7.6
|
|
|
|
4.0
|
|
|
|
2.9
|
|
FUMADERM
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
AMEVIVE
|
|
|
6.0
|
|
|
|
0.1
|
|
|
|
2.4
|
|
ZEVALIN
|
|
|
1.3
|
|
|
|
6.3
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29.8
|
|
|
$
|
21.6
|
|
|
$
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The write-downs were the result of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Failed quality specifications
|
|
$
|
16.0
|
|
|
$
|
12.0
|
|
|
$
|
11.2
|
|
Excess and/or obsolescence
|
|
|
13.8
|
|
|
|
9.6
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29.8
|
|
|
$
|
21.6
|
|
|
$
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and Development Expenses
Research and development expenses totaled $1,072.1 million
in 2008 compared to $925.2 million in 2007, and
$718.4 million in 2006.
For 2008 compared to 2007, research and development expenses
increased $146.9 million, driven by an increase of
$56.4 million related to the continued advancement of our
pipeline into Phase 3 clinical trials. In 2008, we initiated
registrational trials in the Lixivaptan and Adentri programs and
continued to execute development plans of our BG-12, Anti-CD23,
and Anti-CD80 programs. Costs associated with Phase 3 clinical
trials are, in most cases, more significant than those incurred
in earlier stages of our pipeline. In 2008, we had
8 programs in Phase 3 clinical trials as compared to
5 in 2007. We also increased spend in our Anti-CD20
programs, which is being developed in both Phase 2 and Phase 3
clinical trials by $46.2 million primarily due to a
$31.5 million opt-in payment to participate in the
Roche-led GA101 program. The balance of the increase of
$44.3 million is due to other research and development
investments, primarily in our pre clinical and early stage
pipeline programs including HSP90, BIIB014, BART and LINGO
programs.
For 2007 compared to 2006, research and development expenses
increased $206.8 million, primarily due to an increase of
$129.1 million related to the continued advancement of our
late stage pipeline which includes a $50.0 million upfront
payment to Cardiokine Biopharma LLC for the Lixivaptan
collaboration entered into in August of 2007. In addition, in
2007, we initiated registrational trials for the Anti-CD23 and
BG-12 programs. In 2007, we had 5 programs in Phase 3
clinical trials as compared to 3 in 2006. The balance of the
$77.7 million is due to other research and development
investments, primarily in pre clinical and early stage pipeline
programs driven by
50
our business development deals with Syntonix and Conforma, as
well as increased spend for the Baminercept-alpha (LTBR-Fc)
program in anticipation of the 2007 and 2008 data read outs.
We expect that research and development expenses will increase
in 2009 primarily due to the greater number of product
candidates in late stage clinical trials.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses totaled
$925.3 million in 2008 compared to $776.1 million in
2007, and $685.1 million in 2006.
For 2008 compared to 2007, selling, general and administrative
expenses increased $149.2 million, or 19.2%, primarily due
to a $90.0 million increase in sales and marketing, of
which $55.3 million related to international sales and
marketing activities primarily for AVONEX and TYSABRI and a
$43.6 million increase in salaries and benefits related to
general and administrative personnel as well as increases in
fees and services.
For 2007 compared to 2006, selling, general and administrative
expenses increased $91.0 million, or 13.3%, primarily due
to a $65.0 million increase in sales and marketing
activities for TYSABRI, primarily in international sales and
marketing, a $25.5 million net increase in salaries and
benefits related to increased headcount in general and
administrative personnel, a $19.0 million increase in fees
and services related to general and administrative matters
offset by a $12.1 million decrease in sales and marketing
activities for ZEVALIN due to decreased commercial efforts due
to the planned divestiture of this product line.
We do not anticipate a significant increase in total selling,
general, and administrative expenses in 2009 as compared to the
amount incurred in 2008.
Severance
and Other Restructuring Costs
Severance and other restructuring costs totaled
$5.0 million in 2008 as compared to $1.8 million in
2007 and $3.6 million in 2006. These costs are included in
research and development expense and selling, general and
administrative expense in our consolidated statements of income.
At December 31, 2008, there are no remaining material
severance or restructuring accruals on our consolidated balance
sheet.
Amortization
of Intangible Assets
For 2008, 2007, and 2006, amortization expense was
$332.7 million, $257.5 million, and
$267.0 million, respectively.
Our most significant intangible asset is the core technology
related to our AVONEX product. Our amortization policy for our
core technology intangible asset is based on the principles of
Statement of Financial Standards No. 142, Goodwill and
Other Intangible Assets, or SFAS 142, which requires
the amortization of intangible assets to reflect the pattern in
which the economic benefits of the intangible asset are
consumed. Every year during the third quarter we complete our
long range planning cycle, which includes an analysis of the
anticipated product sales of AVONEX. The results of this
forecast serve as the basis for our assumptions used in the
economic consumption amortization model for our core technology
intangible asset. We also establish minimum annual amortization
amounts to ensure amortization charges are not unreasonably
deferred to future periods. See Note 1, Business Overview
and Summary of Significant Accounting Policies, for a detailed
description of our accounting policy for amortization of
intangible assets.
For 2008 compared to 2007, amortization expense increased
$75.2 million, or 29.2%, 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 that occurred as part of our annual reassessment of
amortization expense in the third quarters of 2008 and 2007. The
change in the estimate of the future revenue of AVONEX is
attributable to the expected impact of competitor products,
including commercialization of our own pipeline product
candidates.
For 2007 compared to 2006, amortization expense decreased
$9.5 million, or 3.6%, primarily due to the changes in
estimate of the future revenue of AVONEX, which serves as the
basis in our calculation of economic consumption for core
technology.
51
We review our intangible assets for impairment when events or
changes in circumstances indicate that the carrying value of an
asset may not be recoverable. No such events or changes in
circumstances occurred in 2008. If future events or
circumstances indicate that the carrying value of these assets
may not be recoverable, we may be required to record additional
charges to our results of operations.
In-Process
Research and Development (IPR&D)
For 2008, 2007, and 2006, IPR&D charges were
$25.0 million, $84.2 million, and $330.5 million,
respectively.
In 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 the terms of our
acquisition of Conforma in 2006.
During the year ended December 31, 2007, we recorded
IPR&D charges of $84.2 million. The principal
components of this amount are as follows: $18.4 million
related to the acquisition of Syntonix, approximately
$30 million related to the collaboration with Cardiokine
Biopharma LLC, or Cardiokine and $34.3 million related to
the collaboration with Neurimmune. Cardiokine and Neurimmune are
variable interest entities, as defined in FIN 46(R). The
consolidation of these entities resulted in IPR&D charges.
The IPR&D charges have been recorded as a component of
operating income. However, because the IPR&D charges relate
to the fair value of the underlying technology retained by the
parent companies of Cardiokine and Neurimmune, these amounts
were allocated to the respective minority interests.
Consequently, minority interest of $64.3 million was
recorded as a component of non-operating income. In 2006, we
recorded $207.4 million and $123.1 million in
IPR&D related to the acquisitions of Fumapharm and
Conforma, respectively.
Through December 31, 2008, research and development
expenditures related to in-process research and development
projects acquired in prior years are $42.9 million,
$36.3 million, and $129.3 million related to Syntonix,
Conforma, and Fumapharm, respectively.
See Note 2, Acquisitions and Dispositions, and
Note 16, Research Collaborations of the Consolidated
Financial Statements.
Facility
Impairments and (Gain) Loss on Disposition, net
In 2008, as part of the lease agreement described in
Note 18, Commitments and Contingencies, we sold the
development rights on a parcel of land in Cambridge, MA in a
non-monetary transaction for $11.4 million. We recorded a
pre-tax gain of approximately $9.2 million on the sale. In
2006, we completed the sale of one of the buildings in our
Cambridge, Massachusetts facility, known as Bio 1. Proceeds
from the sale were approximately $39.5 million. We recorded
a pre-tax gain of approximately $15.6 million on the sale.
We continued to occupy a minor portion of the building under a
leasing arrangement. In 2006, we also sold our clinical
manufacturing facility in Oceanside, California, known as NICO
for total consideration of $29.0 million. We recorded an
immaterial net gain pursuant to this transaction.
Gain
on Settlement of License Agreements, net
In 2006, we recorded a net gain on settlement of license
agreements, net of $6.1 million as discussed below.
Fumapharm
During 2006, we recorded a gain of $34.2 million coincident
with the acquisition of Fumapharm in accordance with
EITF 04-1,
Accounting for Preexisting Relationships between the Parties
to a Business Combination, or
EITF 04-1.
The gain related to the settlement of a preexisting
collaboration agreement between Fumapharm and us. The
collaboration agreement was entered into in October 2003 and
required payments to Fumapharm of certain royalty amounts. The
market rate for such payments was higher at the acquisition
date, primarily due to the increased technical feasibility of
BG-12. The gain relates to the difference between the royalty
rates at the time the agreement was entered into as compared to
the rates at the time the agreement was effectively settled by
virtue of our acquisition of Fumapharm.
52
Fumedica
During 2006, we recorded a charge of $28.1 million in
connection with a settlement agreement with Fumedica
Arzneimittel AG and Fumedica Arzneimittel GmbH, collectively
Fumedica. The charge related to the settlement of the agreement
with Fumedica under which we were contingently obligated to make
royalty payments with respect to a successful launch of BG-12
for psoriasis in Germany. Under the terms of the settlement
agreement, we will not be required to make any royalty payments
to Fumedica if BG-12 is successfully launched for psoriasis in
Germany. The $28.1 million was expensed in 2006, as it
related to a product that had not reached technological
feasibility.
Share-based
Compensation Expense
In the year ended December 31, 2008 and 2007, we recorded
share-based compensation expense of $146.2 million, and
$123.1 million, respectively, associated with
SFAS 123(R). In the year ended December 31, 2006, we
recorded share-based compensation expense of $126.8 million
associated with SFAS 123(R), which is net of a cumulative
effect pre-tax adjustment of $5.6 million, or
$3.8 million after-tax. The cumulative effect results from
the application of an estimated forfeiture rate for current and
prior period unvested restricted stock awards.
Our share-based compensation programs consist of share-based
awards granted to employees including stock options, restricted
stock, performance-based restricted stock units, and restricted
stock units, or RSUs, as well as our employee stock purchase
plan, or ESPP. The fair value of performance based 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
target payout level will be achieved. Compensation expense is
adjusted for subsequent changes in the outcome of
performance-related conditions until the vesting date.
Other
Income (Expense), Net
Other income (expense), net, is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Interest income
|
|
$
|
72.1
|
|
|
$
|
103.6
|
|
|
$
|
101.2
|
|
Interest expense
|
|
|
(52.0
|
)
|
|
|
(40.5
|
)
|
|
|
(0.9
|
)
|
Impairments of investments
|
|
|
(60.3
|
)
|
|
|
(24.4
|
)
|
|
|
(34.4
|
)
|
Gain (loss) on sales of investments, net
|
|
|
(1.1
|
)
|
|
|
16.7
|
|
|
|
(2.8
|
)
|
Minority interest income (expense)
|
|
|
(6.9
|
)
|
|
|
58.4
|
|
|
|
(6.8
|
)
|
Foreign exchange gains (losses), net
|
|
|
(9.8
|
)
|
|
|
3.0
|
|
|
|
4.9
|
|
Settlement of litigation and claims
|
|
|
|
|
|
|
0.1
|
|
|
|
(4.6
|
)
|
Gain on sale of property
|
|
|
|
|
|
|
7.1
|
|
|
|
|
|
Other, net
|
|
|
(6.7
|
)
|
|
|
6.8
|
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
(64.7
|
)
|
|
$
|
130.8
|
|
|
$
|
52.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
For 2008 compared to 2007, interest income decreased
$31.5 million, or 30.4%, primarily due to a reduction in
cash and cash equivalents due to the funding of our tender offer
in July 2007, a net payment of $525.5 million for our term
loan facility and other debt, and lower investment yields. For
2007 compared to 2006, interest income increased
$2.4 million, or 2.4%, primarily due to higher yields
offset by a reduction in cash and cash equivalents due to the
funding of our tender offer in July 2007. We expect that further
reductions in yields may impact our interest income in 2009.
Interest
Expense
For 2008 compared to 2007, interest expense increased
$11.5 million, or 28.4%, primarily due to an increased
average debt balance in 2008 as compared to 2007 as well as
$8.9 million due to the impact of hedge ineffectiveness
53
as discussed in Note 4, Financial Instruments. For 2007
compared to 2006, interest expense increased $39.6 million,
primarily due to the increased debt levels relating to our
tender offer funded in July 2007 (see Note 21, Tender
Offer). As discussed in Note 4, Financial Instruments, in
2008 we terminated certain interest rate swaps. Upon termination
of the swaps, the carrying amount of the 6.875% Senior
Notes due in 2018 increased by $62.8 million as it was
accounted for as a fair value hedge. 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.
Impairment
on Investments
In 2008, the impairment on investments was due to an other than
temporary decline in the fair value of marketable debt
securities of $41.7 million related primarily to non agency
mortgage and asset backed securities and corporate securities
classified as available for sale as well as other than temporary
declines in the fair values of our strategic investments of
$18.6 million. In 2007 and 2006, the impairment of
investments is primarily due to the other than temporary decline
in value in our strategic investments portfolio. We may incur
additional impairment charges on these investments in the future.
Minority
Interest
For 2008 compared to 2007, minority interest decreased
$65.3 million, primarily due to the recording in 2007 of
$64.3 million in minority interest pursuant to the initial
consolidation of Cardiokine in August 2007 and Neurimmune in
November 2007. For 2007 compared to 2006, minority interest
increased $65.2 million, also primarily due to the initial
consolidation of Cardiokine and Neurimmune in 2007. The minority
interest related to Cardiokine and Neurimmune recorded in 2007
offset an equal charge to IPR&D, which resulted in no net
impact to our results of operations for these IPR&D and
minority interest charges. Excluding the impact of these
consolidations, minority interest expense was $6.9 million,
$5.9 million and $6.8 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
Gain
on Sale of Property
In 2007, we sold approximately 28 acres of land in
Oceanside, California for $16.5 million. We recorded a
pre-tax gain of approximately $7.1 million on the sale.
Income
Tax Provision
Due to tax law changes in certain jurisdictions, during 2008 we
completed a reorganization of our domestic and international
corporate structure and moved certain personnel and operational
functions between affiliates. We anticipate the restructuring
will impact amounts subject to future taxation in the
U.S. and foreign jurisdictions. We anticipate the changes
in our international structure will have a slight unfavorable
impact on our effective tax rate for 2009 and beyond, as
compared to our tax rate in 2008. We do not anticipate that the
domestic reorganization will have a significant impact on our
tax rate in 2009 and beyond as compared to our 2008 tax rate.
Our effective tax rate was 31.8%, 29.9% and 56.6% on pre-tax
income for the years ended December 31, 2008, 2007 and
2006, respectively. The effective tax rate in 2008 was higher
than that in 2007, primarily due to an increased percentage of
our foreign earnings being subject to U.S. income tax and
the effects of our reorganization of our international
operations during 2008, partially offset by certain tax credits
and deferred tax assets which will be realized, as a result of
our domestic reorganization.
Our effective rate for 2006 was higher than the rate for 2007
primarily due to the write-off of non-deductible IPR&D in
connection with the acquisitions of Conforma and Fumapharm,
offset by a non-deductible gain on settlement of the Fumapharm
license agreement, and the impact of acquisition-related
intangible amortization related to foreign jurisdictions and
state taxes, offset by the effect of lower income tax in certain
non-U.S. jurisdictions.
Refer to Note 15, Income Taxes, in Notes to
Consolidated Financial Statements, for full income tax
rate reconciliations for 2008, 2007 and 2006.
54
Financial
Condition and Liquidity
Our financial condition is summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash and cash equivalents
|
|
$
|
622.4
|
|
|
$
|
659.7
|
|
Marketable securities and loaned securities current
and non-current
|
|
|
1,640.4
|
|
|
|
1,456.1
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and marketable securities
(including loaned securities)
|
|
$
|
2,262.8
|
|
|
$
|
2,115.8
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
1,534.8
|
|
|
$
|
179.2
|
|
Outstanding borrowings current and non-current
|
|
$
|
1,113.1
|
|
|
$
|
1,563.0
|
|
Our cash, cash equivalents, and marketable securities at
December 31, 2008, are relatively consistent with the
balances at December 31, 2007. However, there were several
significant cash flow activities including the net repayment of
approximately $513.0 million of indebtedness,
$738.9 million used to fund share repurchases, as well as
$276.0 used to purchase property plant and equipment offset by
cash generated from operations of $1,566.5 million and cash
received from the termination of our interest rate swaps of
$53.9 million. During the year ended December 31,
2008, we paid approximately $72.5 million in milestone and
other payments pursuant to our research and development
programs, including $31.5 million pursuant to our Genentech
agreement, $25.0 million of contingent purchase price in
connection with our Conforma acquisition and $10.5 million
related to the development of the
Beta-Amyloid
antibody under our arrangement with Neurimmune Therapeutics AG.
We also received $75.0 million pursuant to our Elan
collaboration. All of these milestone payments are included in
cash from operations except the conforma payment which is
included in investing activities on the consolidated statement
of cash flows.
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. The value
of these securities may be adversely affected which could impact
our financial position and our overall liquidity. In particular,
the value of our investments may be adversely affected by
increases in interest rates, downgrades in the corporate bonds
included in our portfolio, instability in the global financial
markets that reduces the liquidity of securities included in our
portfolio, declines in the value of collateral underlying the
mortgage, auto and credit card 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. We attempt to mitigate these
risks with the assistance of our investment advisors by
investing in high quality securities and continuously monitoring
the overall risk profile of our portfolio. We also maintain a
well diversified portfolio that limits our credit exposure
through concentration limits set within our investment policy.
As noted in Note 3, Fair Value Measurements, in Notes
to Consolidated Financial Statements, 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
utilizing third party pricing services. The pricing services use
many observable market 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 understanding the models
used, obtaining market values from other pricing sources, and
analyzing pricing data in certain instances. 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.
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. Refer to Item 7A of this Form 10-K,
Quantitative and Qualitative Disclosure About Market
Risk, for further discussion of the impact of changes in
interest rates on these investments.
55
We have financed our operating and capital expenditures through
cash flows from our operations. We financed our common stock
tender offer in July 2007 through the use of debt and existing
cash. 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, additional equity and debt
financings or from other sources.
On December 4, 2008, Standard & Poors
upgraded our credit rating from BBB to BBB+. According to public
records, the rating action reflects the prospects for continued
growth of our multiple sclerosis (MS) franchise and our
conservative financial policies. Specifically,
Standard & Poors stated that our liquidity is
more than adequate and that no significant debt is maturing in
the near term, which for us is 2013. We have sufficient liquid
funds in cash and marketable securities and have access to a
$360.0 million credit facility.
See Part I, Item 1A, Risk Factors of this
Form 10-K
for risk factors that could negatively impact our cash position
and ability to fund future operations.
Operating
activities
Cash provided by operations is primarily driven by our net
income and adjusted for non-cash items. On an ongoing basis, we
expect cash provided from operating activities will continue to
be our primary source of funds to finance operating needs and
capital expenditures. In 2008, 2007, and 2006, net cash provided
by operating activities was $1,566.5 million,
$1,020.6 million, and $841.3 million, respectively.
The increase in cash from operating activities for 2008 as
compared to 2007, was primarily due to higher earnings net of a
higher investment in working capital and the proceeds received
from the termination of the interest rate swap.
The increase in cash from operating activities in 2007 as
compared to 2006 was primarily due to higher earnings. Movements
in working capital accounts, which were a use of funds of
$77.9 million in 2007 as compared to a use of funds of
$103.3 million in 2006, also contributed to this increase.
Investing
activities
In 2008, 2007, and 2006, net cash used in investing activities
was $365.9 million, $286.6 million, and
$599.8 million, respectively.
In 2008, our sources of cash from investing activities consisted
primarily of the net proceeds from sales and purchases of
marketable securities. Our primary use of cash in investing
activities consisted primarily of the purchases of property
plant and equipment of $275.9 million. Payments pursuant to
acquisitions and licenses were $25.0 million, which related
to our 2006 acquisition of Conforma. The change in balance of
collateral received under securities lending is reflected as a
source of cash in investing activities offset by a use of cash
from financing activities.
In 2007, net proceeds from sales of marketable securities of
$209.0 million, were used to partially fund the tender
offer described in Note 21, Tender Offer. Purchases of
property, plant and equipment totaled $284.1 million in
2007. Payments made for acquisitions were $95.8 million in
2007, which primarily related to our acquisition of Syntonix for
$42.3 million, and our collaboration payments to Cardiokine
Biopharma LLC for $50.0 million and Neurimmune of
$2.0 million. The change in balance of collateral received
under securities lending is reflected as a use of cash in
investing activities offset by a source of cash from financing
activities. Additionally, in 2007 we sold our position in a
strategic investment for $99.5 million.
In 2006, net cash used to purchase marketable securities was
$162.8 million. Purchases of property, plant and equipment
totaled $198.3 million for 2006. Payments made for
acquisitions were $363.3 million in 2006, which related to
our acquisitions of Fumapharm and Conforma. Proceeds from the
sale of product lines were $59.8 million in 2006, which
related to the sale of AMEVIVE.
56
Financing
activities
In 2008, 2007, and 2006, net cash used in financing activities
was $1,236.7 million, $735.2 million, and
$148.4 million, respectively.
The primary increase in use of cash in 2008 was the repayment of
our term loan facility of $1,500.0 million, and the
purchase of our common stock of $738.9 million, offset in
part by the issuance of long-term debt, net, of
$987.0 million, and proceeds of $178.5 million
relating to the exercise of stock options and purchases of our
stock under our share based compensation arrangements.
In 2007, the primary use of cash related to the repurchase of
treasury stock via the tender offer of $2,990.5 million.
This repurchase was partially funded with cash proceeds from a
short-term note of $1,500.0 million. This transaction is
described in Note 21, Tender Offer. Additionally, cash
proceeds from issuance of stock for our share based compensation
arrangements were $489.2 million, which was primarily
attributable to the exercise of stock options and participation
in our ESPP plan. The change in balance of collateral received
under securities lending is reflected as a use of cash in
investing activities offset by a source of cash from financing
activities.
In 2006, the primary use of cash was $320.3 million for the
purchase of treasury stock, offset by $147.0 million in
proceeds from issuance of stock for our share based compensation
arrangements.
Borrowings
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
$987.0 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 4, Financial Instruments.
We used the proceeds of this offering, along with cash and the
proceeds from the liquidation of marketable securities, to repay
the $1,500.0 million term loan facility we had entered into
in July 2007 in connection with the funding of our June 2007
tender offer.
In June 2007, we also entered into a five-year
$400.0 million Senior Unsecured Revolving Credit Facility,
which we may use for working capital and general corporate
purposes. The bankruptcy of Lehman Brothers Holdings Inc. in
September 2008 has eliminated their $40.0 million
commitment, thereby reducing the availability of the credit
facility to $360.0 million. The terms of this revolving
credit facility include various covenants, including financial
covenants that require us to not exceed a maximum leverage ratio
and under certain circumstance, an interest coverage ratio. As
of December 31, 2008, we were in compliance with these
covenants and there were no borrowings outstanding under this
credit facility.
Tender
Offer
On June 27, 2007, pursuant to the terms of a modified
Dutch Auction tender offer, we accepted for payment
56,424,155 shares of our common stock at a price of $53.00
per share for a purchase price of $2,990.5 million. We
funded the tender offer through existing cash and cash
equivalents of $1,490.5 million and a $1,500.0 million
term loan facility as described in Note 8, Indebtedness.
All of the shares repurchased were retired in July 2007.
Commitments
As of December 31, 2008, we have completed the first phase
of construction of our large-scale biologic manufacturing
facility in Hillerød, Denmark, which included partial
completion of a bulk manufacturing component, a labeling and
packaging component, 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 and
construction of a warehouse. As of December 31, 2008, we
had contractual commitments of approximately $14.5 million
for the second phase. This second phase of the project is
expected to be ready for commercial production in 2010.
57
The timing of the completion and anticipated licensing of the
bulk manufacturing facility is in part dependent upon market
acceptance of TYSABRI. See Risk Factors Our
near-term success depends on the market acceptance and
successful sales growth of TYSABRI. We continue to
evaluate our requirements for TYSABRI inventory and additional
manufacturing capacity in light of the approved label and our
judgment of the potential market acceptance of TYSABRI in MS,
and additional approved indications in the U.S., EU and other
jurisdictions.
Share
Repurchase Programs
In October 2004, our Board of Directors authorized the
repurchase of up to 20.0 million shares of our common stock
that expired October 4, 2006, under this program we
repurchased 7.5 million shares at a cost of
$320.3 million in 2006. In October 2006, our Board of
Directors authorized the repurchase of up to an additional
20.0 million shares of our common stock. This repurchase
program does not have an expiration date. We have repurchased
approximately 12.8 million shares of our common stock for
$738.9 million under the share repurchase program as of
December 31, 2008. Subsequent to December 31, 2008, we
repurchased approximately 1.2 million additional shares
under this program at a total cost of $57.6 million and
have approximately 6.0 million shares remaining for
repurchase available under this program.
Contractual
Obligations and Off-Balance Sheet Arrangements
At December 31, 2008, we have funding commitments of up to
approximately $25.5 million as part of our investment in
biotechnology oriented venture capital funds. In addition, we
have committed to make potential future milestone payments to
third parties of up to approximately $1,237.7 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 December 31, 2008, such
contingencies have not been recorded in our financial
statements. We expect to make approximately $29.0 million
of milestone payments in 2009.
At December 31, 2008, 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
$25.4 million recorded in accrued expenses on our
consolidated balance sheet for work done by CROs at
December 31, 2008. We have approximately
$221.7 million in cancellable future commitments based on
existing CRO contracts at December 31, 2008.
We do not have any significant relationships with entities often
referred to as structured finance or special purpose entities,
which would have been established for the purpose of
facilitating off-balance sheet arrangements. As such, we are not
exposed to any financing, liquidity, market or credit risk that
could arise if we had engaged in such relationships. We
consolidate entities within the scope of FIN 46(R) if we
are the primary beneficiary.
The following summarizes our contractual obligations (excluding
funding and contingent milestone payments as described above and
construction commitments disclosed above under
Commitments) at December 31, 2008, and the
effects such obligations are expected to have on our liquidity
and cash flows in future periods (in millions):
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Payments Due by Period
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Less than
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1-3
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4-5
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After
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Total
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1 Year
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Years
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|
Years
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5 Years
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|
Non-cancellable operating leases
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$
|
399.2
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|
$
|
31.4
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$
|
67.2
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$
|
54.0
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$
|
246.6
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Notes payable, including interest
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1,515.0
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|
|
|
92.9
|
|
|
|
142.6
|
|
|
|
562.0
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|
|
|
717.5
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Other long-term obligations
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24.1
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9.8
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8.9
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5.4
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Total contractual cash obligations
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$
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1,938.3
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|
$
|
134.1
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$
|
218.7
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$
|
616.0
|
|
|
$
|
969.5
|
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This table includes our obligation of approximately
$12.8 million pursuant to a dedicated resource agreement
whereby a laboratory will provide us with dedicated services
through 2010. This table excludes any liabilities pertaining to
uncertain tax positions as we cannot make a reliable estimate of
the period of cash settlement with the respective taxing
authorities. In connection with the adoption of FASB
Interpretation No. 48 Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement
No. 109, or FIN 48, we reclassified
58
approximately $113.0 million in reserves for uncertain tax
positions from current taxes payable to long term liabilities.
At December 31, 2008, we have approximately
$145.2 million of long term liabilities associated with
uncertain tax positions.
Legal
Matters
See Note 19, Litigation, to the consolidated financial
statements for a discussion of legal matters as of
December 31, 2008.
Critical
Accounting Estimates
The discussion and analysis of our financial condition and
results of operations is based on our financial statements,
which have been prepared in accordance with accounting
principles generally accepted in the United States of
America. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, management
evaluates its critical estimates and judgments, including, among
others, those related to revenue recognition, investments,
inventory, research and development expenses, purchase
accounting, goodwill impairment, stock-based compensation, and
income taxes. Those critical estimates and assumptions are based
on our historical experience, our observance of trends in the
industry, and various other factors that are believed to be
reasonable under the circumstances and form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting estimates affect
our more significant judgments and estimates used in the
preparation of our consolidated financial statements:
Revenue
Recognition and Accounts Receivable
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 are recorded net of applicable reserves for trade term
discounts, wholesaler incentives, Medicaid rebates, VA rebates,
managed care rebates, product returns and other applicable
allowances. Our product revenue reserves are based on estimates
of the amounts earned or to be claimed on the related sales.
These estimates take into consideration our historical
experience, current contractual and 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. These estimates we make with respect
to these allowances represent the most significant judgments
that we make with regard to revenue recognition.
Royalties
We receive royalty revenues under license agreements with a
number of third parties that sell products based on technology
developed by us or to which we have rights. The license
agreements provide for the payment of royalties to us based on
sales of the licensed product. We record these revenues based on
estimates of the sales that occurred during the relevant period.
The relevant period estimates of sales are based on interim data
provided by licensees and analysis of historical royalties paid
to us, adjusted for any changes in facts and circumstances, as
appropriate. We maintain regular communication with our
licensees in order to gauge the reasonableness of our estimates.
Differences between actual royalty revenues and estimated
royalty revenues are reconciled and adjusted for in the period
which they become known, typically the following quarter.
Historically, adjustments have not been material based on actual
amounts paid by licensees.
59
Investments
We invest in various types of securities, including:
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short-term and long-term marketable securities, principally
corporate notes, government securities and other asset backed
securities, in which our excess cash balances are invested.
Restrictions that limit the amount of investment exposure by
institution, maturity and type are detailed in our Investment
Policy. The objectives of this policy are safety of principal,
liquidity and lastly yield.
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equity securities in certain publicly-traded biotechnology
companies some of which we have collaborative agreements
with; and
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equity securities of certain companies whose securities are not
publicly traded and where fair value is not readily available.
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These investments are accounted for in accordance with Statement
of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities, or
SFAS 115, or APB No. 18, The Equity Method of
Accounting for Investments in Common, or APB 18, as
appropriate.
In accordance with Statement of Financial Accounting Standards
No. 157, Fair Value Measurement, or SFAS 157,
we have classified our financial assets and liabilities as
Level 1, 2 or 3 within the fair value hierarchy. Fair
values determined by Level 1 inputs utilize quoted prices
(unadjusted) in active markets for identical assets or
liabilities that we have the ability to access. 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.
As noted in Note 3, Fair Value Measurements, 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
utilizing third party pricing services. The pricing services use
many observable market 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 understanding the models
used, obtaining market values from other pricing sources, and
analyzing pricing data in certain instances.
We also have some investments classified as Level 3 whose
fair value is 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. We apply judgments and estimates when we
validate the prices provided by third parties. While we believe
the valuation methodologies are appropriate, the use of
valuation methodologies is highly judgmental and changes in
methodologies can have a material impact on our results of
operations.
Impairment
In accounting for investments, we evaluate if a decline in the
fair value of a marketable security below our cost basis is
other-than-temporary, and if so, we record an impairment charge
in our consolidated statement of income. The factors that we
consider in our assessments for our investments in debt
securities include the fair market value of the security, the
duration of the securitys decline, and our ability and
intent to hold to maturity. For our investments in equity
securities, we consider the fair market value of the security,
the duration of the securitys decline as well as prospects
for the investee, including favorable clinical trial results,
new product initiatives, new collaborative agreements and our
intent and ability to hold to recovery. The determination of
whether a loss is other than temporary is highly judgmental and
can have a material impact on our financial results.
Inventory
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 expensed as research and development costs
when consumed.
60
Our policy is to capitalize inventory costs associated with our
products prior to regulatory approval, when, based on
managements judgment, future commercialization is
considered probable and the future economic benefit is expected
to be realized. Our accounting policy addresses the attributes
that should be considered in evaluating whether the costs to
manufacture a product have met the definition of an asset as
stipulated in FASB Concepts Statement No. 6, Elements of
Financial Statements A Replacement of FASB Concepts
No. 3, or FASB Concepts Statement No. 6. We assess
the regulatory approval process and where the particular product
stands in relation to that approval process including any known
constraints and impediments to approval, including safety,
efficacy and potential labeling restrictions. We evaluate our
anticipated research and development initiatives and constraints
relating to the product and the indication in which it will be
used. We consider our manufacturing environment including our
supply chain in determining logistical constraints that could
possibly hamper approval or commercialization. We consider the
shelf life of the product in relation to the expected timeline
for approval and we consider patent related or contract issues
that may prevent or cause delay in commercialization. We are
sensitive to the significant commitment of capital to scale up
production and to launch commercialization strategies. We also
base our judgment on the viability of commercialization, trends
in the marketplace and market acceptance criteria. Finally, we
consider the reimbursement strategies that may prevail with
respect to the product and assess the economic benefit that we
are likely to realize.
There is a risk inherent in these judgments and any changes we
make in these judgments may have a material impact on our
results in future periods.
We periodically review our inventories for excess or obsolete
inventory and write-down obsolete or otherwise unmarketable
inventory to its estimated net realizable value. If the actual
net realizable value is less than that estimated by us, or if
there are any further determinations that inventory will not be
marketable based on estimates of demand, additional inventory
write-downs will be required. Additionally, our products are
subject to strict quality control and monitoring throughout the
manufacturing process. Periodically, certain batches or units of
product may no longer meet quality specifications or may expire.
As a result, included in costs of goods sold are write-downs of
commercial inventory that do not meet quality specifications or
became obsolete due to expiration.
Research
and Development Expenses
Research and development expenses consist of upfront fees and
milestones paid to collaborators and expenses incurred in
performing research and development activities including
salaries and benefits, facilities expenses, overhead expenses,
clinical trial and related clinical manufacturing expenses,
contract services and other outside expenses. Research and
development expenses are expensed as incurred. The timing of
upfront fees and milestone payments in the future may cause
variability in future research and development expense. Clinical
trial expenses include expenses associated with contract
research organizations, or CROs. The invoicing from CROs for
services rendered can lag several months. We accrue the cost of
services rendered in connection with CRO activities based on our
estimate of site management, monitoring costs, and project
management costs. We maintain regular communication with our CRO
vendors to gauge the reasonableness of our estimates.
Differences between actual clinical trial expenses and estimated
clinical trial expenses recorded have not been material and are
adjusted for in the period in which they become known.
Valuation
of Acquired Intangible Assets and In-process Research and
Development Expenses
We have acquired, and expect to continue to acquire, intangible
assets primarily through the acquisition of biotechnology
companies. These intangible assets primarily consist of
technology associated with human therapeutic products and
in-process product candidates. When significant identifiable
intangible assets are acquired, an independent third-party
valuation firm is generally engaged to assist in determining the
fair values of these assets as of the acquisition date.
Management will determine the fair value of less significant
identifiable intangible assets acquired. Discounted cash flow
models are typically used in these valuations, and these models
require the use of significant estimates and assumptions
including but not limited to:
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estimating the timing of and expected costs to complete the
in-process projects;
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projecting regulatory approvals;
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61
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estimating future cash flows from product sales resulting from
completed products and in-process projects; and
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developing appropriate discount rates and probability rates by
project.
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We believe the fair values assigned to the intangible assets
acquired are based upon reasonable estimates and assumptions
given available facts and circumstances as of the acquisition
dates.
FIN 46(R)
Under FIN 46(R), we consolidate variable interest
entities for which we are the primary beneficiary. In
determining whether we are the primary beneficiary, we consider
a number of factors, including determining the expected losses
and residual returns of the technologies being developed
pursuant to collaborations and other economic risk and reward of
such collaborations. Discounted cash flow models are typically
used in these analyses and these models require the use of
significant estimates and assumptions including but not limited
to:
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assuming that the research and development efforts will result
in an approved commercial product;
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estimating the timing of and expected costs to complete the
in-process projects;
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projecting timing of regulatory approvals;
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estimating future cash inflows from product sales or funding
from partners resulting from completed products and in-process
projects; and
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developing appropriate discount rates and probability rates by
project.
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For such consolidated entities that we own less than a 100%
interest, we record minority interest in our statement of income
for the current results allocated to the outside equity
interests. FIN 46(R) impacts the way we account for certain
collaborations and future events may result in our consolidation
of companies or related entities with which we have a
collaborative arrangement. The consolidation of variable
interest entities may have a material effect on our financial
condition
and/or
results of operation in future periods.
Goodwill
We annually assess our goodwill balance to determine whether any
impairment in this asset may exist and, if so, the extent of
such impairment. To do this, in the case of goodwill we estimate
the fair value of each of our reporting units and compare it to
the book value of their net assets. Calculating fair value
involves identifying future cash flows, which requires that we
make a number of critical legal, economic, market and business
assumptions that reflect our best estimates as of the testing
date. We believe the methods we use to determine these
underlying assumptions and estimates are reasonable.
Notwithstanding this, our assumptions and estimates may differ
significantly from actual results, or circumstances could change
that would cause us to conclude that an impairment now exists or
that we previously understated the extent of impairment.
Share-based
Compensation
We make certain assumptions in order to value and expense our
share-based compensation. In connection with valuing stock
options and our employee stock purchase plan, we use the
Black-Scholes model, which requires us to estimate certain
subjective assumptions. The key assumptions we make are: the
expected volatility of our stock; the expected term of the
award; and the expected forfeiture rate. In connection with our
restricted stock programs, we make assumptions principally
related to the forfeiture rate.
We review our valuation assumptions periodically and, as a
result, we may change our valuation assumptions used to value
share-based awards granted in future periods. Such changes may
lead to a significant change in the expense we recognize in
connection with share-based payments.
62
Income
Taxes
In preparing our consolidated financial statements, we estimate
our income tax liability in each of the jurisdictions in which
we operate by estimating our actual current tax expense together
with assessing temporary differences resulting from differing
treatment of items for tax and financial reporting purposes.
These differences result in deferred tax assets and liabilities,
which are included in our consolidated balance sheets.
Significant management judgment is required in assessing the
realizability of our deferred tax assets. In performing this
assessment, we consider whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. In making this determination, under the applicable
financial accounting standards, we are allowed to consider the
scheduled reversal of deferred tax liabilities, projected future
taxable income, and the effects of viable tax planning
strategies. Our estimates of future taxable income include,
among other items, our estimates of future income tax deductions
related to the exercise of stock options. In the event that
actual results differ from our estimates, we adjust our
estimates in future periods and we may need to establish a
valuation allowance, which could materially impact our financial
position and results of operations.
FASB
Interpretation No. 48
Effective January 1, 2007, we adopted FIN 48.
FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting for
Income Taxes, or SFAS 109. FIN 48 also prescribes
a recognition threshold and measurement attribute for the
financial statement recognition and measurement of each tax
position taken or expected to be taken in a tax return. As a
result of the adoption of FIN 48, we recognized a reduction
in the liability for unrecognized tax benefits of
$14.2 million, which was recorded as a $1.8 million
reduction to the January 1, 2007 balance of our accumulated
deficit, a $9.1 million reduction in goodwill and a
$3.3 million increase in our deferred tax liability.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in millions):
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2008
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2007
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Balance at January 1
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$
|
221.1
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$
|
196.8
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Additions based on tax positions related to the current period
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21.8
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29.7
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Additions for tax positions of prior periods
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20.4
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83.5
|
|
Reductions for tax positions of prior periods
|
|
|
(13.7
|
)
|
|
|
(70.2
|
)
|
Settlements
|
|
|
|
|
|
|
(18.7
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
249.6
|
|
|
$
|
221.1
|
|
|
|
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at
December 31, 2008, December 31, 2007, and
January 1, 2007, are $155.1 million,
$110.5 million, and $98.2 million (net of the federal
benefit on state issues), respectively, of unrecognized tax
benefits that, if recognized, would affect the effective income
tax rate in any future periods. We do not anticipate any
significant changes in our positions in the next twelve months.
New
Accounting Standards
See Note 27, New Accounting Pronouncements, for a
discussion of new accounting standards.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We have operations in Canada, Brazil, Argentina, Australia, New
Zealand, Japan, China, India and throughout Europe in connection
with the sale of AVONEX, TYSABRI and FUMADERM. We also receive
royalty revenues based on worldwide product sales by our
licensees and through Genentech on sales of RITUXAN outside of
the U.S. As a result, our financial position, results of
operations and cash flows can be affected by market fluctuations
in foreign currency exchange rates (primarily Euro, Danish
kroner, Swedish krona, British pound, Japanese yen, Canadian
dollar and Swiss franc).
63
We use foreign currency forward contracts to manage foreign
currency risk but do not engage in currency speculation. We use
these forward contracts to hedge certain forecasted transactions
denominated in foreign currencies. A hypothetical adverse 10%
movement in foreign exchange rates compared to the
U.S. dollar across all maturities (for example, a
strengthening of the Euro) would result in a hypothetical
decrease in the fair value of forward contracts of approximately
$52.4 million. Our use of this methodology to quantify the
market risk of such instruments should not be construed as an
endorsement of its accuracy or the accuracy of the related
assumptions. The quantitative information about market risk is
necessarily limited because it does not take into account
operating transactions.
Certain of our debt instruments are variable rate instruments
and our interest expense associated with these instruments is,
therefore, subject to changes in market interest rates. A 100
basis-point adverse movement (increase in LIBOR) would increase
annual interest expense by approximately $0.2 million.
In addition, the fair value of our marketable securities is
subject to change as a result of potential changes in market
interest rates. The potential change in fair value for interest
rate sensitive instruments has been assessed on a hypothetical
100 basis point adverse movement across all maturities. We
estimate that such hypothetical adverse 100 basis point
movement would result in a hypothetical loss in fair value of
approximately $12.2 million to our interest rate sensitive
instruments.
The returns from cash, cash equivalents and marketable
securities will vary as short-term interest rates change. A 100
basis-point adverse movement (decrease) in short-term interest
rates would decrease interest income by approximately
$11.9 million.
We are exposed to equity price risks on the marketable portion
of equity securities included in our portfolio of investments
entered into for the promotion of business and strategic
objectives. These investments are generally in small
capitalization stocks in the biotechnology industry sector. We
regularly review the market prices of these investments for
impairment purposes. A hypothetical adverse 10% movement in
market values would result in a hypothetical loss in fair value
of approximately $0.9 million.
|
|
Item 8.
|
Consolidated
Financial Statements and Supplementary Data
|
The information required by this Item 8 is contained on
pages F-1
through F-64
of this Annual Report on
Form 10-K
and is incorporated herein by reference.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures and Internal Control over Financial
Reporting
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 December 31, 2008. Based
upon that evaluation, our principal executive officer and
principal financial officer concluded that, as of the end of
that period, 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,
64
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
Section 404 of the Sarbanes-Oxley Act of 2002 requires us
to evaluate annually the effectiveness of our internal controls
over financial reporting as of the end of each fiscal year, and
to include a management report assessing the effectiveness of
our internal control over financial reporting in all annual
reports. There were no changes in our internal control over
financial reporting during the quarter ended December 31,
2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act as a process designed by, or
under the supervision of, a companys principal executive
and principal financial officers and effected by a
companys board of directors, management and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Our internal control
over financial reporting includes those policies and procedures
that:
|
|
|
|
|
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of our assets;
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in
accordance with authorizations of our management and
directors; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial
statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2008.
In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control
Integrated Framework.
Based on our assessment, our management has concluded that, as
of December 31, 2008, our internal control over financial
reporting is effective based on those criteria.
The effectiveness of our internal control over financial
reporting as of December 31, 2008 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report, which is included
herein.
|
|
Item 9B.
|
Other
Information
|
Not applicable.
65
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information concerning our executive officers is set forth
in Part I of this
Form 10-K.
The text of our code of business conduct, which includes the
code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or
controller, and persons performing similar functions, is posted
on our website, www.biogenidec.com, under the Corporate
Governance subsection of the Company section
of the site. Disclosure regarding any amendments to, or waivers
from, provisions of our code of business conduct, if required,
will be included in a Current Report on
Form 8-K
within four business days following the date of the amendment or
waiver, unless website posting of such amendments or waivers is
permitted by the rules of The NASDAQ Stock Market, Inc. Our
corporate governance principles (also posted on
www.biogenidec.com) prohibit our Board of Directors from
granting any waiver of the code of ethics for any of our
directors or executive officers. We include our website address
in this Annual Report on
Form 10-K
only as an inactive textual reference and do not intend it to be
an active link to our website.
The response to the remainder of this item is incorporated by
reference from the discussion responsive thereto in the sections
labeled Proposal 1 Election of
Directors Information about our Board of Directors
and its Committees and Stock Ownership
Section 16(a) Beneficial Ownership Reporting
Compliance contained in the proxy statement for our 2009
annual meeting of stockholders.
|
|
Item 11.
|
Executive
Compensation
|
The response to this item is incorporated by reference from the
discussion responsive thereto in the section labeled
Executive Compensation and Related Information
contained in the proxy statement for our 2009 annual meeting of
stockholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The response to this item is incorporated by reference from the
discussion responsive thereto in the sections labeled
Stock Ownership and Disclosure with Respect to
our Equity Compensation Plans contained in the proxy
statement for our 2009 annual meeting of stockholders.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The response to this item is incorporated by reference from the
discussion responsive thereto in the sections labeled
Proposal 1 Election of Directors
Information about our Board of Directors and its
Committees, Executive Compensation and Related
Information Potential Payments Upon Termination or
Change in Control, and Certain Relationships and
Related Person Transactions contained in the proxy
statement for our 2009 annual meeting of stockholders.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The response to this item is incorporated by reference from the
discussion responsive thereto in the section labeled
Proposal 2 Ratification of the Selection
of our Independent Registered Public Accounting Firm
contained in the proxy statement for our 2009 annual meeting of
stockholders.
66
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
a. (1) Consolidated Financial Statements:
The Financial Statements required to be filed by Item 8 of
this Annual Report on
Form 10-K,
and filed in this Item 15, are as follows:
|
|
|
|
|
|
|
Page Number
|
|
|
in This
|
Financial Statements
|
|
Form 10-K
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-7
|
|
|
|
|
F-64
|
|
(2) Financial Statement Schedules
Schedules are omitted because they are not applicable, or are
not required, or because the information is included in the
consolidated financial statements and notes thereto.
(3) Exhibits:
The exhibits which are filed or furnished with this report or
which are incorporated herein by reference are set forth in the
Exhibit Index beginning on
page A-1,
which is incorporated herein by reference.
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
James C. Mullen
Chief Executive Officer and President
Date: February 6, 2009
Pursuant to the requirements the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Name
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ James
C. Mullen
James
C. Mullen
|
|
Director, Chief Executive Officer and President (principal
executive officer)
|
|
February 6, 2009
|
|
|
|
|
|
/s/ Paul
J. Clancy
Paul
J. Clancy
|
|
Executive Vice President, Finance and Chief
Financial Officer (principal
financial officer)
|
|
February 6, 2009
|
|
|
|
|
|
/s/ Michael
F. MacLean
Michael
F. MacLean
|
|
Senior Vice President and Chief Accounting Officer
(principal accounting officer)
|
|
February 6, 2009
|
|
|
|
|
|
/s/ Bruce
R. Ross
Bruce
R. Ross
|
|
Director; Chairman of the Board of Directors
|
|
February 6, 2009
|
|
|
|
|
|
/s/ Lawrence
C. Best
Lawrence
C. Best
|
|
Director
|
|
February 6, 2009
|
|
|
|
|
|
/s/ Marijn
E. Dekkers
Marijn
E. Dekkers
|
|
Director
|
|
February 3, 2009
|
|
|
|
|
|
/s/ Alan
B. Glassberg
Alan
B. Glassberg, M.D.
|
|
Director
|
|
February 6, 2009
|
|
|
|
|
|
/s/ Nancy
L. Leaming
Nancy
L. Leaming
|
|
Director
|
|
February 6, 2009
|
|
|
|
|
|
/s/ Robert
W. Pangia
Robert
W. Pangia
|
|
Director
|
|
February 6, 2009
|
|
|
|
|
|
/s/ Stelios
Papadopoulos
Stelios
Papadopoulos
|
|
Director
|
|
February 6, 2009
|
68
|
|
|
|
|
|
|
Name
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ Cecil
B. Pickett
Cecil
B. Pickett
|
|
Director
|
|
February 6, 2009
|
|
|
|
|
|
/s/ Brian
S. Posner
Brian
S. Posner
|
|
Director
|
|
February 6, 2009
|
|
|
|
|
|
/s/ Lynn
Schenk
Lynn
Schenk
|
|
Director
|
|
February 6, 2009
|
|
|
|
|
|
/s/ Phillip
A. Sharp
Phillip
A. Sharp, Ph.D.
|
|
Director
|
|
February 6, 2009
|
|
|
|
|
|
/s/ William
D. Young
William
D. Young
|
|
Director
|
|
February 6, 2009
|
69
BIOGEN
IDEC INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-7
|
|
|
|
|
F-64
|
|
F-1
BIOGEN
IDEC INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
2,839,651
|
|
|
$
|
2,136,821
|
|
|
$
|
1,781,313
|
|
Unconsolidated joint business
|
|
|
1,128,238
|
|
|
|
926,098
|
|
|
|
810,864
|
|
Other revenues
|
|
|
129,618
|
|
|
|
108,698
|
|
|
|
90,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,097,507
|
|
|
|
3,171,617
|
|
|
|
2,683,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding amortization of acquired intangible
assets
|
|
|
401,989
|
|
|
|
335,192
|
|
|
|
274,383
|
|
Research and development
|
|
|
1,072,058
|
|
|
|
925,164
|
|
|
|
718,390
|
|
Selling, general and administrative
|
|
|
925,305
|
|
|
|
776,103
|
|
|
|
685,067
|
|
Collaboration profit (loss) sharing
|
|
|
136,041
|
|
|
|
14,079
|
|
|
|
(9,682
|
)
|
Amortization of acquired intangible assets
|
|
|
332,745
|
|
|
|
257,495
|
|
|
|
266,998
|
|
Acquired in-process research and development
|
|
|
25,000
|
|
|
|
84,172
|
|
|
|
330,520
|
|
Facility impairments and gain on disposition, net
|
|
|
(9,242
|
)
|
|
|
(360
|
)
|
|
|
(16,507
|
)
|
Gain on settlement of license agreements, net
|
|
|
|
|
|
|
|
|
|
|
(6,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
2,883,896
|
|
|
|
2,391,845
|
|
|
|
2,243,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,213,611
|
|
|
|
779,772
|
|
|
|
440,020
|
|
Other income (expense), net
|
|
|
(64,668
|
)
|
|
|
130,823
|
|
|
|
52,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision and cumulative effect of
accounting change
|
|
|
1,148,943
|
|
|
|
910,595
|
|
|
|
492,163
|
|
Income tax expense
|
|
|
365,776
|
|
|
|
272,423
|
|
|
|
278,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change
|
|
|
783,167
|
|
|
|
638,172
|
|
|
|
213,732
|
|
Cumulative effect of accounting change, net of income tax expense
|
|
|
|
|
|
|
|
|
|
|
3,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
783,167
|
|
|
$
|
638,172
|
|
|
$
|
217,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change
|
|
$
|
2.67
|
|
|
$
|
2.02
|
|
|
$
|
0.63
|
|
Cumulative effect of accounting change, net of income tax
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.67
|
|
|
$
|
2.02
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change
|
|
$
|
2.65
|
|
|
$
|
1.99
|
|
|
$
|
0.62
|
|
Cumulative effect of accounting change, net of income tax
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
2.65
|
|
|
$
|
1.99
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in calculating:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
292,332
|
|
|
|
315,836
|
|
|
|
338,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
294,984
|
|
|
|
320,171
|
|
|
|
345,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
F-2
BIOGEN
IDEC INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
622,385
|
|
|
$
|
659,662
|
|
Marketable securities
|
|
|
719,586
|
|
|
|
319,408
|
|
Collateral received for loaned securities
|
|
|
29,991
|
|
|
|
208,209
|
|
Accounts receivable, net of allowances of $32,047 and $29,341 at
December 31, 2008 and 2007, respectively
|
|
|
446,665
|
|
|
|
392,646
|
|
Due from unconsolidated joint business
|
|
|
206,925
|
|
|
|
166,686
|
|
Loaned securities
|
|
|
29,446
|
|
|
|
204,433
|
|
Inventory
|
|
|
263,602
|
|
|
|
233,987
|
|
Other current assets
|
|
|
139,400
|
|
|
|
183,376
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,458,000
|
|
|
|
2,368,407
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
891,406
|
|
|
|
932,271
|
|
Property, plant and equipment, net
|
|
|
1,594,754
|
|
|
|
1,497,383
|
|
Intangible assets, net
|
|
|
2,161,058
|
|
|
|
2,492,354
|
|
Goodwill
|
|
|
1,138,621
|
|
|
|
1,137,372
|
|
Investments and other assets
|
|
|
235,152
|
|
|
|
201,028
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,478,991
|
|
|
$
|
8,628,815
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Collateral payable on loaned securities
|
|
$
|
29,991
|
|
|
$
|
208,209
|
|
Accounts payable
|
|
|
107,417
|
|
|
|
90,672
|
|
Taxes payable
|
|
|
223,260
|
|
|
|
11,274
|
|
Accrued expenses and other
|
|
|
534,887
|
|
|
|
367,885
|
|
Current portion of notes payable and line of credit
|
|
|
27,667
|
|
|
|
1,511,135
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
923,222
|
|
|
|
2,189,175
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
1,085,431
|
|
|
|
51,843
|
|
Long-term deferred tax liability
|
|
|
356,017
|
|
|
|
521,525
|
|
Other long-term liabilities
|
|
|
308,238
|
|
|
|
331,977
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,672,908
|
|
|
|
3,094,520
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 15, 16, 18 and 19)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.001 per share (8,000 shares
authorized, of which 1,750 are designated Series A and
1,000 are designated Series X Junior Participating;
8 shares of Series A issued and outstanding with a
$551 liquidation value at December 31, 2008 and 2007)
|
|
|
|
|
|
|
|
|
Common stock, par value $0.0005 per share (1,000,000 shares
authorized; 297,253 and 295,698 shares, and 288,046 and
295,698 shares issued and outstanding at December 31,
2008 and 2007, respectively)
|
|
|
149
|
|
|
|
147
|
|
Additional paid-in capital
|
|
|
6,073,957
|
|
|
|
5,807,071
|
|
Accumulated other comprehensive income
|
|
|
(11,106
|
)
|
|
|
79,246
|
|
Retained Earnings (Accumulated deficit)
|
|
|
270,180
|
|
|
|
(352,169
|
)
|
Treasury stock, at cost; 9,207 and 0 shares at
December 31, 2008 and 2007, respectively
|
|
|
(527,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
5,806,083
|
|
|
|
5,534,295
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
8,478,991
|
|
|
$
|
8,628,815
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
F-3
BIOGEN
IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
783,167
|
|
|
$
|
638,172
|
|
|
$
|
217,511
|
|
Adjustments to reconcile net income to net cash flows from
operating activities Depreciation and amortization of fixed and
intangible assets
|
|
|
462,059
|
|
|
|
380,293
|
|
|
|
375,870
|
|
Acquired in process research and development and license
|
|
|
25,000
|
|
|
|
136,172
|
|
|
|
330,520
|
|
Minority interest in subsidiaries
|
|
|
6,940
|
|
|
|
(58,427
|
)
|
|
|
6,770
|
|
Gain on settlement of license agreements, net
|
|
|
|
|
|
|
|
|
|
|
(6,140
|
)
|
Share based compensation
|
|
|
146,207
|
|
|
|
123,129
|
|
|
|
126,783
|
|
Cash received upon termination of interest rate swap
|
|
|
53,873
|
|
|
|
|
|
|
|
|
|
Non-cash interest (income) expense and foreign exchange
translation loss (gain)
|
|
|
(4,934
|
)
|
|
|
1,444
|
|
|
|
1,521
|
|
Deferred income taxes
|
|
|
(139,549
|
)
|
|
|
(81,555
|
)
|
|
|
(106,337
|
)
|
Realized (gain) loss on sale of marketable securities and
strategic investments
|
|
|
1,078
|
|
|
|
(16,732
|
)
|
|
|
(1,169
|
)
|
Write-down of inventory to net realizable value
|
|
|
29,850
|
|
|
|
21,599
|
|
|
|
12,989
|
|
Facility impairments and (gain) loss on disposition, net
|
|
|
(9,242
|
)
|
|
|
(360
|
)
|
|
|
(16,507
|
)
|
Impairment of investments and other assets
|
|
|
61,644
|
|
|
|
24,445
|
|
|
|
34,424
|
|
Excess tax benefit from stock options
|
|
|
(27,990
|
)
|
|
|
(69,666
|
)
|
|
|
(31,682
|
)
|
Changes in assets and liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(57,565
|
)
|
|
|
(70,701
|
)
|
|
|
(37,009
|
)
|
Due from unconsolidated joint business
|
|
|
(40,239
|
)
|
|
|
2,022
|
|
|
|
(27,649
|
)
|
Inventory
|
|
|
(54,204
|
)
|
|
|
(83,192
|
)
|
|
|
(36,637
|
)
|
Other assets
|
|
|
3,711
|
|
|
|
238
|
|
|
|
(20,737
|
)
|
Accrued expenses and other current liabilities
|
|
|
148,467
|
|
|
|
32,460
|
|
|
|
13,812
|
|
Other liabilities and taxes payable
|
|
|
176,219
|
|
|
|
41,294
|
|
|
|
4,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
1,564,492
|
|
|
|
1,020,635
|
|
|
|
841,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(3,163,824
|
)
|
|
|
(2,945,244
|
)
|
|
|
(1,949,907
|
)
|
Proceeds from sales and maturities of marketable securities
|
|
|
2,941,060
|
|
|
|
3,154,290
|
|
|
|
1,787,139
|
|
Proceeds from sale of product line
|
|
|
|
|
|
|
|
|
|
|
59,800
|
|
Acquisitions, net of cash acquired
|
|
|
(25,000
|
)
|
|
|
(95,789
|
)
|
|
|
(363,251
|
)
|
Purchases of property, plant and equipment
|
|
|
(275,954
|
)
|
|
|
(284,106
|
)
|
|
|
(198,312
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
|
|
|
|
16,669
|
|
|
|
74,216
|
|
Purchase of other investments
|
|
|
(20,373
|
)
|
|
|
(23,672
|
)
|
|
|
(9,458
|
)
|
Proceeds from the sale of strategic investments
|
|
|
|
|
|
|
99,489
|
|
|
|
|
|
Collateral received under securities lending
|
|
|
178,218
|
|
|
|
(208,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities
|
|
|
(365,873
|
)
|
|
|
(286,572
|
)
|
|
|
(599,773
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(738,938
|
)
|
|
|
(2,991,184
|
)
|
|
|
(320,268
|
)
|
Proceeds from issuance of stock for share based compensation
arrangements
|
|
|
178,486
|
|
|
|
489,180
|
|
|
|
146,959
|
|
Change in cash overdraft
|
|
|
(498
|
)
|
|
|
(5,399
|
)
|
|
|
(11,860
|
)
|
Excess tax benefit from stock options
|
|
|
27,990
|
|
|
|
69,666
|
|
|
|
31,682
|
|
Proceeds from borrowings
|
|
|
986,980
|
|
|
|
1,512,913
|
|
|
|
17,694
|
|
Repayments of borrowings
|
|
|
(1,512,474
|
)
|
|
|
(12,042
|
)
|
|
|
(12,617
|
)
|
Repayments of long-term debt
|
|
|
|
|
|
|
(6,563
|
)
|
|
|
|
|
Obligation under securities lending
|
|
|
(178,218
|
)
|
|
|
208,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
|
(1,236,672
|
)
|
|
|
(735,220
|
)
|
|
|
(148,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(38,053
|
)
|
|
|
(1,157
|
)
|
|
|
93,085
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
776
|
|
|
|
(558
|
)
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of the year
|
|
|
659,662
|
|
|
|
661,377
|
|
|
|
568,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the year
|
|
$
|
622,385
|
|
|
$
|
659,662
|
|
|
$
|
661,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
40,026
|
|
|
$
|
35,439
|
|
|
$
|
|
|
Income taxes
|
|
$
|
371,978
|
|
|
$
|
251,928
|
|
|
$
|
397,931
|
|
Non-cash financing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of subordinated notes to common and treasury stock
|
|
$
|
|
|
|
$
|
38,986
|
|
|
$
|
|
|
Issuance of notes to Fumedica
|
|
$
|
|
|
|
$
|
|
|
|
$
|
39,196
|
|
See Note 1, Business Overview and Summary of Significant
Accounting Policies, for a discussion of non-cash securities
lending activities that occurred during the period.
See accompanying notes to the consolidated financial statements
F-4
BIOGEN
IDEC INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Stock-Based
|
|
|
Accumulated
|
|
|
Treasury Stock
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Loss) Income
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance, December 31, 2005
|
|
|
8
|
|
|
$
|
|
|
|
|
345,712
|
|
|
$
|
173
|
|
|
$
|
8,206,911
|
|
|
$
|
(13,910
|
)
|
|
$
|
(42,894
|
)
|
|
$
|
(1,021,644
|
)
|
|
|
(5,751
|
)
|
|
$
|
(222,760
|
)
|
|
$
|
6,905,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,511
|
|
|
|
|
|
|
|
|
|
|
|
217,511
|
|
Unrealized gains on securities available for sale, net of tax of
$3,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,793
|
|
Unrealized gains on foreign currency forward contracts, net of
tax of $236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on pension benefit obligation, net of tax of
$437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(743
|
)
|
Repurchase of common stock for treasury, at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,479
|
)
|
|
|
(320,268
|
)
|
|
|
(320,268
|
)
|
Issuance of treasury stock under stock option and stock purchase
plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,360
|
)
|
|
|
|
|
|
|
|
|
|
|
(56,694
|
)
|
|
|
5,767
|
|
|
|
223,373
|
|
|
|
136,319
|
|
Forfeiture of common stock under restricted stock plan
|
|
|
|
|
|
|
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock compensation, net of forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
Deferred stock compensation adjustment for FAS 123R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,665
|
)
|
|
|
|
|
|
|
42,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense related to share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,539
|
|
Tax benefit from share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
8
|
|
|
$
|
|
|
|
|
345,637
|
|
|
$
|
173
|
|
|
$
|
8,308,232
|
|
|
$
|
21,855
|
|
|
$
|
|
|
|
$
|
(860,827
|
)
|
|
|
(7,463
|
)
|
|
$
|
(319,655
|
)
|
|
$
|
7,149,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
638,172
|
|
|
|
|
|
|
|
|
|
|
|
638,172
|
|
Unrealized gains on securities available for sale, net of tax of
$3,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,124
|
|
Unrealized loss on foreign currency forward contracts, net of
tax of $2,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,962
|
)
|
Unrealized gains on pension benefit obligation, net of tax of
$370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,421
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
695,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase and retirement of common stock pursuant to tender
offer (Note 21)
|
|
|
|
|
|
|
|
|
|
|
(56,424
|
)
|
|
|
(29
|
)
|
|
|
(2,991,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,991,184
|
)
|
Issuance of treasury stock from conversion of subordinated notes
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83,682
|
)
|
|
|
2,850
|
|
|
|
119,795
|
|
|
|
36,113
|
|
Issuance of common stock from conversion of subordinated notes
payable
|
|
|
|
|
|
|
|
|
|
|
182
|
|
|
|
|
|
|
|
2,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,371
|
|
Issuance of treasury stock under stock option and stock purchase
plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,824
|
)
|
|
|
2,994
|
|
|
|
135,720
|
|
|
|
101,896
|
|
Issuance of common stock under stock option and stock purchase
plans
|
|
|
|
|
|
|
|
|
|
|
8,017
|
|
|
|
4
|
|
|
|
386,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386,932
|
|
Issuance of treasury stock under stock award plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,292
|
)
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
465
|
|
|
|
18,076
|
|
|
|
(30,081
|
)
|
Issuance of common stock under stock award plans
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
(2,744
|
)
|
|
|
|
|
|
|
|
|
|
|
(676
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,420
|
)
|
Forfeiture of common stock under restricted stock plan
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,378
|
|
|
|
(50
|
)
|
|
|
(2,378
|
)
|
|
|
|
|
Compensation expense related to share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,101
|
|
Tax benefit from share-based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,227
|
|
Cumulative effect adjustment from adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,583
|
)
|
|
|
|
|
|
|
|
|
|
|
1,585
|
|
|
|
|
|
|
|
|
|
|
|
(8,998
|
)
|
Treasury stock reclassifications
|
|
|
|
|
|
|
|
|
|
|
(1,743
|
)
|
|
|
(1
|
)
|
|
|
(33,014
|
)
|
|
|
|
|
|
|
|
|
|
|
(15,430
|
)
|
|
|
1,204
|
|
|
|
48,442
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
8
|
|
|
$
|
|
|
|
|
295,698
|
|
|
$
|
147
|
|
|
$
|
5,807,071
|
|
|
$
|
79,246
|
|
|
$
|
|
|
|
$
|
(352,169
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
5,534,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-5
BIOGEN
IDEC INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS
EQUITY (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Stock-Based
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Loss) Income
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
|
(In thousands, except share amounts)
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
783,167
|
|
|
|
|
|
|
|
|
|
|
|
783,167
|
|
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 $(1,522)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,140
|
)
|
Unrealized gains on pension benefit obligation, net of tax of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
692,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
$
|
5,806,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-6
BIOGEN
IDEC INC. AND SUBSIDIARIES
|
|
1.
|
Business
Overview and Summary of Significant Accounting
Policies
|
Overview
Biogen Idec Inc. is an international 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®.
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
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 minority interest in
our statement of income for the ownership interest of the
minority owner. All material intercompany balances and
transactions have been eliminated in consolidation.
Use of
Estimates
The preparation of consolidated financial statements in
accordance with generally accepted accounting principles
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, 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.
Translation
of Foreign Currencies
The functional currency for most of our foreign subsidiaries is
their local currency. Assets and liabilities are translated at
current rates of exchange at the balance sheet date. Income and
expense items are translated at the average exchange rates for
the period. Adjustments resulting from the translation of the
financial statements of our foreign operations into
U.S. dollars are excluded from the determination of net
income and are recorded in accumulated other comprehensive
income, a separate component of shareholders equity.
Foreign exchange transaction gains and losses are included in
the results of operations in other income (expense), net. We had
net foreign exchange gains (losses) of $(9.8) million,
$3.0 million, and $4.9 million in 2008, 2007, and
2006, respectively.
Cash
and Cash Equivalents
We consider only those investments which are highly liquid,
readily convertible to cash and that mature within three months
from date of purchase to be cash equivalents.
Fair
Value Measurements
Effective January 1, 2008, we implemented Statement of
Financial Accounting Standard No. 157, Fair Value
Measurement, or SFAS 157, for our financial assets and
liabilities that are re-measured and reported at fair value at
each reporting period, and non-financial assets and liabilities
that are re-measured and reported at fair value at least
F-7
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
annually. In accordance with the provisions of FSP
No. FAS 157-2,
Effective Date of FASB Statement No. 157, we have elected
to defer implementation of SFAS 157 as it relates to our
non-financial assets and non-financial liabilities that are
recognized and disclosed at fair value in the financial
statements on a nonrecurring basis until January 1, 2009.
The adoption of SFAS 157 for financial assets and
liabilities and non-financial assets and liabilities that are
re-measured and reported at fair value at least annually did not
have an impact on our financial results.
We have certain financial assets and liabilities recorded at
fair value which have been classified as Level 1, 2 or 3
within the fair value hierarchy as described in SFAS 157.
Fair values determined by Level 1 inputs utilize quoted
prices (unadjusted) in active markets for identical assets or
liabilities that we have the ability to access. 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.
Our publicly traded strategic investments have been classified
as Level 1 because their fair value are based on quoted
market prices. All of our marketable debt securities have been
classified as Level 2. These assets have been initially
valued at the transaction price and subsequently valued
utilizing market-based inputs, including reportable trades,
benchmark yields, credit spreads, broker/dealer quotes, bids,
offers, current spot rates, other industry, and economic events.
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. We also have some investments
classified as Level 3 whose fair value is 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.
The carrying amounts reflected in the consolidated balance
sheets for cash and cash equivalents, 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.
Inventory
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):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
29.8
|
|
|
$
|
46.4
|
|
Work in process
|
|
|
180.0
|
|
|
|
155.4
|
|
Finished goods
|
|
|
53.8
|
|
|
|
32.2
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
263.6
|
|
|
$
|
234.0
|
|
|
|
|
|
|
|
|
|
|
Capitalization
of Inventory Costs
We capitalize inventory costs associated with our products prior
to regulatory approval when, based on managements
judgment, future commercialization is considered probable and
the future economic benefit is expected to be realized. We
consider numerous attributes in evaluating whether the costs to
manufacture a particular product should be capitalized as an
asset. We assess the regulatory approval process and where the
product stands in relation to that approval process including
any known constraints and impediments to approval, including
safety, efficacy and potential labeling restrictions. We
evaluate our anticipated research and development initiatives
and constraints relating to the particular product and the
indication in which it will be used. We consider our
F-8
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
manufacturing environment including our supply chain in
determining logistical constraints that could possibly hamper
approval or commercialization. We consider the shelf life of the
product in relation to the expected timeline for approval and we
consider patent related or contract issues that may prevent or
cause delay in commercialization. We are sensitive to the
significant commitment of capital to scale up production and to
launch commercialization strategies. We also base our judgment
on the viability of commercialization, trends in the marketplace
and market acceptance criteria. Finally, we consider the
reimbursement strategies that may prevail with respect to the
product and assess the economic benefit that we are likely to
realize. We expense previously capitalized costs related to
pre-approval inventory upon a change in such judgment, due to,
among other potential factors, a denial or delay of approval by
necessary regulatory bodies. As of December 31, 2008 and
2007, the carrying value of our inventory did not include any
costs associated with products that had not yet received
regulatory approval.
Inventory
Write-Offs
We periodically review our inventories for excess or obsolete
inventory and write-down obsolete or otherwise unmarketable
inventory to its estimated net realizable value. If the actual
realizable value is less than that estimated by us, or if it is
determined that inventory utilization will further diminish
based on estimates of demand, additional inventory write-downs
may be required.
Our products are subject to strict quality control and
monitoring which we perform throughout the manufacturing
process. Periodically, certain batches or units of product may
no longer meet quality specifications or may expire. As a
result, included in cost of sales were write-downs of commercial
inventory that did not meet quality specifications or that
became obsolete due to dating expiration. In all cases product
inventory is written-down to its estimated net realizable value.
We have written-down the following unmarketable inventory, which
was charged to cost of sales (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
AVONEX
|
|
$
|
14.9
|
|
|
$
|
11.1
|
|
|
$
|
4.4
|
|
TYSABRI
|
|
|
7.6
|
|
|
|
4.0
|
|
|
|
2.9
|
|
FUMADERM
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
AMEVIVE
|
|
|
6.0
|
|
|
|
0.1
|
|
|
|
2.4
|
|
ZEVALIN
|
|
|
1.3
|
|
|
|
6.3
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29.8
|
|
|
$
|
21.6
|
|
|
$
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The write-downs were the result of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Failed quality specifications
|
|
$
|
16.0
|
|
|
$
|
12.0
|
|
|
$
|
11.2
|
|
Excess and/or obsolescence
|
|
|
13.8
|
|
|
|
9.6
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29.8
|
|
|
$
|
21.6
|
|
|
$
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
Securities and Investments
Marketable
Securities, including Strategic Investments
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, asset backed securities and other debt instruments.
We limit the amount of investment exposure as to institution,
maturity and investment type. At December 31, 2008, all of
these securities were classified as
available-for-sale in accordance with Statement of
F-9
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, or
SFAS 115. All available-for-sale securities are recorded at
fair market value and unrealized gains and losses, to the extent
deemed temporary, are included in accumulated other
comprehensive income in shareholders equity, net of
related tax effects. Realized gains and losses are reported in
other income (expense) net. Declines in value determined to be
other than temporary on available for sale securities are
reported in other income (expense) net. This can include losses
due to, among other factors, changes in credit quality, interest
rates, or value declines resulting from the disruption in the
capital markets during the latter half of 2008. Valuation of
available-for-sale securities for purposes of determining the
amount of gains and losses is based on the specific
identification method.
As part of our strategic product development efforts, we invest
in equity securities of certain biotechnology companies some of
which we have collaborative agreements with such investments are
known as strategic investments and are classified as available
for sale and accounted for as marketable securities or as cost
investments under Accounting Principles Board Opinion
No. 18, The Equity Method of Accounting for Investments
in Common Stock, or APB 18 and related interpretations.
When assessing whether a decline in the fair value of a
strategic investment below our cost basis is
other-than-temporary, we consider the fair market value of the
security, the duration of the securitys decline, and
prospects for the underlying business, including favorable
clinical trial results, new product initiatives and new
collaborative agreements.
Non-Marketable
Securities
We also invest in equity securities of companies whose
securities are not publicly traded and where fair value is not
readily available. These investments are recorded using either
the cost method or the equity method of accounting, depending on
our percentage ownership interest and other factors which may
indicate the existence of significant influence, as required by
APB 18 and related interpretations. We monitor these
investments to evaluate whether any decline in their value has
occurred that would be other than temporary, based on the
implied value from any recent rounds of financing completed by
the investee, market prices of comparable public companies, and
general market conditions.
Securities
lending
We loan 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 cash as
collateral in the amount of $30.0 million and
$208.2 million as of December 31, 2008 and 2007,
respectively. The cash collateral is recorded as collateral
received for loaned securities on the consolidated balance
sheet. We have a current obligation to return the collateral
which is reflected as collateral received on loaned securities
on the accompanying consolidated balance sheet. Income received
from lending securities is recorded in other income (expense),
net.
Property,
Plant and Equipment
Property, plant and equipment are carried at cost, subject to
review for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may
not be recoverable. Depreciation is generally calculated on the
straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized over the lesser of
the useful life or the term of the respective lease. Maintenance
costs are expensed as incurred. Buildings and building
components are depreciated over estimated useful lives ranging
from 15 to 40 years, machinery and equipment from 6 to
15 years, furniture and fixtures for 7 years and
computer software and hardware from 3 to 5 years. Interest
costs incurred during the construction of major capital projects
are capitalized in accordance with Statement of Financial
Accounting Standards No. 34, Capitalization of Interest
Costs, or SFAS 34. The interest is capitalized until
the underlying asset is ready for its intended use, at which
point the interest cost is amortized as depreciation expense
over the life of the underlying asset. We capitalize certain
direct
F-10
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and incremental costs associated with the validation effort
required for licensing by regulatory agencies of manufacturing
equipment for the production of a commercially approved drug.
These costs include primarily direct labor and material and are
incurred in preparing the equipment for its intended use. The
validation costs are amortized over the life of the related
equipment.
Intangible
Assets, excluding Goodwill
Our intangible assets consist of patents, trademarks and
tradenames, core technology, licenses, 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, core technology, licenses,
assembled workforce and distribution rights are amortized over
their remaining estimated useful lives, ranging from 2 to
20 years. Our amortization policy for intangible assets is
based on the principles in Statement of Financial Standards
No. 142, Goodwill and Other Intangible Assets, or
SFAS 142, which requires the amortization of intangible
assets reflect the pattern that the economic benefits of the
intangible asset are consumed. We believe the economic benefit
of our core technology is consumed as revenue is generated from
our AVONEX product. Every year during the third quarter we
complete our long range planning cycle, which includes an
analysis of the anticipated product sales of AVONEX. 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 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.
The long range planning process determines whether amortization
will be based on an economic consumption or the minimum and,
thus, the amount of amortization for the next four quarters.
Amortization is currently based on 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.
Impairment
of Long-Lived Assets
Long-lived assets to be held and used, including property plant
and equipment as well as intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable.
Conditions that would necessitate an impairment assessment
include a significant decline in the observable market value of
an asset, a significant change in the extent or manner in which
an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets
is not recoverable. Determination of recoverability is based on
an estimate of undiscounted future cash flows resulting from the
use of the asset and its eventual disposition. In the event that
such cash flows are not expected to be sufficient to recover the
carrying amount of the assets, the assets are written-down to
their estimated fair values. Long-lived assets to be disposed of
are carried at fair value less costs to sell.
F-11
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
Goodwill relates largely to amounts that arose in connection
with the Merger and represents the difference between the
purchase price and the fair value of the identifiable tangible
and intangible net assets when accounted for using the purchase
method of accounting. Goodwill is not amortized, but is subject
to periodic review for impairment. Goodwill is reviewed
annually, as of October 31, and whenever events or changes
in circumstances indicate that the carrying amount of the
goodwill might not be recoverable.
Income
Taxes
The provision for income taxes includes federal, state, local
and foreign taxes. Income taxes are accounted for under the
liability method. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences of
temporary differences between the financial statement carrying
amounts and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which the temporary
differences are expected to be recovered or settled. We evaluate
the realizability of our deferred tax assets and establish a
valuation allowance when it is more likely than not that all or
a portion of deferred tax assets will not be realized.
We account for uncertain tax positions in accordance with FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement
No. 109, or FIN 48. FIN 48 prescribes a
recognition threshold and measurement attribute for financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return and also provides guidance
on various related matters such as derecognition, interest and
penalties, and disclosure. We also accrue for potential interest
and penalties, related to unrecognized tax benefits in income
tax expense.
Derivatives
and Hedging Activities
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities,
or SFAS 133, requires that all derivatives be
recognized on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in
current earnings or accumulated other comprehensive income
(loss), depending on whether a derivative is designated as part
of a hedge transaction and, if it is, the type of hedge
transaction. We assess, both at inception and on an on-going
basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting the changes in
cash flows or fair values of the hedged items. We also assess
hedge ineffectiveness on a quarterly basis and record the gain
or loss related to the ineffective portion to current earnings
to the extent significant. If we determine that a forecasted
transaction is no longer probable of occurring, we discontinue
hedge accounting for the affected portion of the hedge
instrument, and any related unrealized gain or loss on the
contract is recognized in current earnings.
Comprehensive
Income (Loss)
Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, or SFAS 130,
requires us to display comprehensive income (loss) and its
components as part of our financial statements. Comprehensive
income (loss) is comprised of net income and other comprehensive
income (loss). Other comprehensive income (loss) includes
changes in equity that are excluded from net income, such as
foreign currency translation adjustments and unrealized holding
gains and losses on available-for-sale marketable securities and
certain derivative instruments, and effective December 31,
2006, the unfunded amount of our postretirement and pension
plans. All of these changes in equity are reflected net of tax.
Segment
Information
Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related
Information, or SFAS 131, establishes standards for
reporting information on operating segments in interim
F-12
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and annual financial statements. We operate in one segment,
which is the business of development, manufacturing and
commercialization of novel therapeutics for human health care.
Our chief operating decision-maker reviews our operating results
on an aggregate basis and manages our operations as a single
operating segment.
Revenue
Recognition
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, 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. The timing of distributor
orders and shipments can cause variability in earnings.
Revenues are recorded net of applicable allowances for trade
term discounts, wholesaler incentives, Medicaid rebates,
Veterans Administration, or VA, rebates, managed care
rebates, product returns and other applicable allowances.
TYSABRI
In November 2004, TYSABRI was approved by the U.S. Food and
Drug Administration, or FDA, as a treatment for relapsing forms
of MS to reduce the frequency of clinical relapses. In February
2005, in consultation with the FDA, we and Elan voluntarily
suspended the marketing and commercial distribution of TYSABRI,
and we informed physicians that they should suspend dosing of
TYSABRI until further notification. On June 5, 2006, the
FDA approved a supplemental Biologics License Application, or
sBLA, for the reintroduction of TYSABRI as a monotherapy
treatment for relapsing forms of MS to slow the progression of
disability and reduce the frequency of clinical relapses. On
June 29, 2006, we and Elan announced that the European
Medicines Agency, or EMEA, had approved TYSABRI as a similar
treatment. In July 2006, we began to ship TYSABRI in both the
United States and rest of world.
Subsequent to the reintroduction of TYSABRI for sale in the
U.S. and approval for sale in Europe, we began to ship
TYSABRI into both regions in the third quarter of 2006. We
manufacture TYSABRI and collaborate with Elan on the
products marketing, distribution and on-going development
activities. The collaboration agreement with Elan is designed to
effect an equal sharing of profits and losses generated by the
activities of the collaboration between us and Elan. Under our
agreement with Elan, however, in the event that sales of TYSABRI
exceed specified thresholds, Elan is required to make milestone
payments to us in order to continue sharing equally in the
collaborations results. During the year ended
December 31, 2008, pursuant to our collaboration agreement
with Elan, Elan paid us a $75.0 million milestone payment
in order to maintain the current collaboration profit sharing
split. We recorded this amount as deferred revenue upon receipt
and are recognizing this $75.0 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. We have
recognized $1.5 million of this milestone as revenue for
the year ended December 31, 2008. Based on the TYSABRI
sales levels achieved through the fourth quarter of 2008, in
January 2009, Elan paid us an additional milestone payment of
$50.0 million in order to maintain the current
collaboration profit sharing split. Revenue from this milestone
payment will also be deferred and recognized on a units of
revenue model.
In the U.S., we sell TYSABRI to Elan who sells the product to
third party distributors. We and Elan co-market the product. The
sales price to Elan in the U.S. is set at the beginning of
each quarterly period to effect an equal
F-13
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
sharing of the gross margin between Elan and us. In addition,
both parties share equally in the operating costs, which include
research and development, selling, general and administrative
expenses and other similar costs. Elans reimbursement of
TYSABRI operating costs is reflected as a reduction of the
respective costs within our consolidated statement of income.
Sales of TYSABRI to Elan are reported as revenues and are
recognized upon Elans shipment of the product to third
party distributors, at which time all revenue recognition
criteria have been met. As of December 31, 2008 and 2007,
we had deferred revenue of $6.2 million and
$9.0 million, respectively, for shipments to Elan that
remained in Elans ending inventory.
For sales outside the U.S., we are responsible for distributing
TYSABRI to customers and are primarily responsible for all
operating activities. Both parties share equally in the
operating results of TYSABRI operations outside the
U.S. Sales of TYSABRI are reported as revenue and are
recognized at the time of shipment of product to our customer,
as all revenue recognition criteria have been met. Payments to
or from Elan for their share of collaboration net operating
profits or losses relating to sales outside the U.S. are
reflected in the collaboration profit (loss) sharing line in our
consolidated statement of income. For 2008, 2007, and 2006,
collaboration profit (loss) sharing was $136.0 million,
$14.1 million, and ($9.7) million, respectively, in
connection with this arrangement.
Reserves
for Discounts and Allowances
We establish reserves for trade term discounts, wholesaler
incentives, Medicaid rebates, VA rebates, managed care rebates,
product returns and other applicable allowances and in 2006,
patient assistance and patient replacement goods. Such reserves
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).
Effective January 1, 2007, we changed the manner in which
we administer our patient assistance and patient replacement
goods programs. Prior to January 1, 2007, AVONEX product
shipped for these programs was invoiced and recorded as gross
product revenue and an offsetting provision for discount and
returns was recorded for expected credit requests from the
distributor that administers these programs on our behalf (as
such, no net revenue was recorded for these shipments).
Effective January 1, 2007, we entered into a new
arrangement with the distributor. Under the new arrangement,
gross revenue is not recorded for product shipped to satisfy
these programs, and cost of sales is recorded when the product
is shipped.
F-14
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
An analysis of the amount of, and change in, reserves is as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Contractual
|
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|
|
|
|
|
|
|
|
Discounts
|
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|
Adjustments
|
|
|
Returns
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|
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Total
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|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
6.4
|
|
|
$
|
33.1
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|
|
$
|
20.4
|
|
|
$
|
59.9
|
|
Current provisions relating to sales in current year
|
|
|
67.1
|
|
|
|
150.6
|
|
|
|
14.7
|
|
|
|
232.4
|
|
Adjustments relating to prior years
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
(2.5
|
)
|
|
|
(4.1
|
)
|
Payments/returns relating to sales in current year
|
|
|
(57.8
|
)
|
|
|
(101.2
|
)
|
|
|
(0.1
|
)
|
|
|
(159.1
|
)
|
Payments/returns relating to sales in prior years
|
|
|
(6.5
|
)
|
|
|
(32.8
|
)
|
|
|
(14.4
|
)
|
|
|
(53.7
|
)
|
Other adjustments
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|
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|
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|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
9.2
|
|
|
$
|
48.1
|
|
|
$
|
18.1
|
|
|
$
|
75.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
2007
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|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
Beginning Balance
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|
$
|
12.7
|
|
|
$
|
30.5
|
|
|
$
|
17.8
|
|
|
$
|
61.0
|
|
Current provisions relating to sales in current year
|
|
|
45.7
|
|
|
|
113.1
|
|
|
|
17.1
|
|
|
|
175.9
|
|
Adjustments relating to prior years
|
|
|
|
|
|
|
(7.9
|
)
|
|
|
5.0
|
|
|
|
(2.9
|
)
|
Payments/returns relating to sales in current year
|
|
|
(39.4
|
)
|
|
|
(72.3
|
)
|
|
|
(0.4
|
)
|
|
|
(112.1
|
)
|
Payments/returns relating to sales in prior years
|
|
|
(12.6
|
)
|
|
|
(30.3
|
)
|
|
|
(19.1
|
)
|
|
|
(62.0
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)
|
Other adjustments
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
6.4
|
|
|
$
|
33.1
|
|
|
$
|
20.4
|
|
|
$
|
59.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
11.6
|
|
|
$
|
35.7
|
|
|
$
|
2.3
|
|
|
$
|
49.6
|
|
Current provisions relating to sales in current year
|
|
|
102.9
|
|
|
|
96.4
|
|
|
|
31.6
|
|
|
|
230.9
|
|
Adjustments relating to prior years
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
7.1
|
|
|
|
4.0
|
|
Payments/returns relating to sales in current year
|
|
|
(90.2
|
)
|
|
|
(63.1
|
)
|
|
|
(16.1
|
)
|
|
|
(169.4
|
)
|
Payments/returns relating to sales in prior years
|
|
|
(11.6
|
)
|
|
|
(35.4
|
)
|
|
|
(12.5
|
)
|
|
|
(59.5
|
)
|
Other adjustments
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
12.7
|
|
|
$
|
30.5
|
|
|
$
|
17.8
|
|
|
$
|
61.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total reserves above were included in the consolidated
balance sheet as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of
|
|
|
Current
|
|
|
|
|
As of December 31,
|
|
Accounts Receivable
|
|
|
Liability
|
|
|
Total
|
|
|
2008
|
|
$
|
31.6
|
|
|
$
|
43.8
|
|
|
$
|
75.4
|
|
2007
|
|
$
|
28.5
|
|
|
$
|
31.4
|
|
|
$
|
59.9
|
|
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.
Product revenue reserves are categorized as follows: discounts,
contractual adjustments, and returns.
Discounts
Discount reserves include trade term discounts, wholesaler
incentives and, in 2006, patient assistance.
F-15
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Trade term discounts and wholesaler incentive reserves primarily
relate to estimated obligations for credits to be granted to
wholesalers for remitting payment on their purchases within
established incentive periods and credits to be granted to
wholesalers for compliance with various contractually-defined
inventory management practices, respectively. We determine these
reserves based on our experience, including the timing of
customer payments.
In 2006, patient assistance reserves were established to cover
no-charge product that we distribute to qualifying patients
under our indigent program, Patient Access. The program is
administered through one of our distribution partners, who ship
product for qualifying patients from their own inventory that
was purchased from us. In 2006, the distributor received a
credit at the end of each period for product that was
administered during the period. A reserve was established
through a reduction of product revenues for sales made to the
distributor which we estimated may be used to administer our
patient assistance program. We determined this reserve based on
our experience with the activity under the program. Effective
January 1, 2007, gross revenue and the related reserves are
not recorded on product shipped under this program.
Contractual
Adjustments
Contractual adjustment reserves relate to Medicaid, VA and
managed care rebates and other applicable allowances.
Medicaid rebates reserves relate to our estimated obligations to
states under established reimbursement arrangements. Rebate
accruals are recorded in the same period the related revenue is
recognized resulting in a reduction of product revenue and the
establishment of a liability. Rebate amounts are generally
determined at the time of claim by the state, and we generally
make cash payments for such amounts within a few weeks of
receiving billings from the state.
VA rebates or chargeback reserves represent our estimated
obligations resulting from contractual commitments to sell
products to qualified healthcare providers at prices lower than
the list prices we charge the wholesalers which provide those
products. The wholesaler charges us for the difference between
what the wholesaler pays for the products and the ultimate
selling price to the qualified healthcare providers. Rebate
accruals are established in the same period as the related
revenue is recognized resulting in a reduction in product
revenue. Chargeback amounts are generally determined at the time
of resale to the qualified healthcare provider, and we generally
issue credits for such amounts within a few weeks of receiving
notification from the wholesaler.
Managed care rebates reserves represent our estimated
obligations to third parties, primarily pharmacy benefit
managers. Rebate accruals are recorded in the same period the
related revenue is recognized resulting in a reduction to
product revenue and the establishment of a liability which is
included in other accrued liabilities. These rebates result from
performance-based offers that are primarily based on attaining
contractually specified sales volumes and growth. The
calculation of the accrual for these rebates is based on an
estimate of the customers buying patterns and the
resulting applicable contractual rebate rate(s) to be earned
over a contractual period.
Returns
Allowances for product returns are established for returns made
by wholesalers and patients. In accordance with contractual
terms, wholesalers are permitted to return product for reasons
such as damaged or expired product. We also accept returns from
our patients for various reasons.
Reserves for product returns are recorded in the period the
related revenue is recognized, resulting in a reduction to
product revenue. The majority of wholesaler returns are due to
product expiration. Expired product return reserves are
estimated through a comparison of historical return data to
their related sales on a production lot basis. Historical rates
of return are determined for each product and are adjusted for
known or expected changes in the marketplace specific to each
product. As noted above, in 2007, pursuant to the change in the
way we administered our patient assistance program, revenue is
no longer recorded under this program. The patient return
program is administered by the same distribution partner as the
patient assistance program. As noted above, in
F-16
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2006, revenue related to product sold to this distribution
partner that was used to satisfy patient returns was fully
reserved.
During the second quarter of 2006, we recorded an increase in
our allowance for expired products of $12.3 million to
correct for prior period errors. This increase in the allowance
was recorded through an out of period reduction in net product
revenue of $6.9 million and an increase in goodwill of
$5.4 million. We identified and quantified the errors
through an analysis of the historical rate for returns based on
volumes of returns and the amount of credit granted to the
returning distributors in past periods. At the time of the
Merger with Biogen, Inc. in 2003, Biogen, Inc. had understated
its allowance for expired product by an estimated
$5.4 million due to an incorrect methodology applied in
calculating its reserve balance. Had we identified this error at
the time of the Merger, the recorded goodwill would have been
approximately $5.4 million higher than has been previously
reflected. Biogen, Inc.s methodology was in error because
it did not utilize known information in determining critical
assumptions used in the basis of calculation. Our application of
this incorrect methodology in the post-Merger period resulted in
understating this reserve by an additional $6.9 million. In
all cases, the correctly calculated rate of return is less than
one percent of related gross product revenues. We have
determined that the out of period correction of this error in
2006 is not material to our reported results. Additionally, we
have determined that the error at the merger date is not
material to any prior period balance sheet amounts and the error
in the post-merger period is not material to any prior period
reported results.
Other
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.
We have various contracts with distributors that provide for
discounts and rebates. These discounts and rebates are
classified as a reduction of revenue. We also maintain select
customer service contracts with distributors and other customers
in the distribution channel. We have established the fair value
of these services and classified these customer service
contracts as sales and marketing expense. If we had concluded
that sufficient evidence of the fair value did not exist for
these services, we would have been required to classify these
costs as a reduction of revenue.
Concentration
of Credit Risks
Our primary exposure to credit risk derives from our cash, cash
equivalents, marketable securities and accounts receivable
balances.
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, asset backed securities and other marketable debt
instruments. We mitigate credit risk in our cash reserves by
maintaining a well diversified portfolio by limiting the amount
of investment exposure as to institution, maturity and
investment type.
Concentrations of credit risk with respect to receivables, which
are typically unsecured, are generally limited due to the wide
variety of customers and markets using our products, as well as
their dispersion across many different geographic areas. One
customer accounted for approximately 11% of consolidated
receivables at December 31, 2008.
Revenues
from Unconsolidated Joint Business
Revenues from unconsolidated joint business consist of our share
of the pretax co-promotion profits generated from our
co-promotion arrangement with Genentech, Inc., or Genentech,
reimbursement from Genentech of our RITUXAN-related sales force
and development expenses and royalties from Genentech for sales
of RITUXAN
F-17
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
outside the U.S. by F. Hoffmann-La Roche Ltd., or
Roche, Zenyaku Kogyo Co. Ltd., or Zenyaku and Chugai
Pharmaceutical Co., Ltd, or Chugai, an affiliate of Roche. Under
the co-promotion arrangement, all U.S. sales of RITUXAN and
associated costs and expenses are recognized by Genentech and we
record our share of the pretax co-promotion profits as defined
in our amended and restated collaboration agreement with
Genentech. Pretax co-promotion profits under the co-promotion
arrangement are derived by taking U.S. net sales of RITUXAN
to third-party customers less cost of sales, third-party royalty
expenses, distribution, selling and marketing expenses and joint
development expenses incurred by Genentech and us. We record
royalty revenue on sales of RITUXAN outside the U.S. on a
cash basis.
Royalty
Revenues
We receive royalty revenues under license agreements with a
number of third parties that sell products based on technology
we have developed or to which we have rights. The license
agreements provide for the payment of royalties to us based on
sales of the licensed product. We record these revenues based on
estimates of the sales that occurred during the relevant period.
The relevant period estimates of sales are based on interim data
provided by licensees and analysis of historical royalties we
have been paid (adjusted for any changes in facts and
circumstances, as appropriate). We maintain regular
communication with our licensees in order to gauge the
reasonableness of our estimates. Differences between actual
royalty revenues and estimated royalty revenues are reconciled
and adjusted for in the period in which they become known,
typically the following quarter. Historically, adjustments have
not been material based on actual amounts paid by licensees.
There are no future performance obligations on our part under
these license agreements. To the extent we do not have
sufficient ability to accurately estimate revenue, we record it
on a cash basis.
Research
and Development Expenses
Research and development expenses consist of upfront fees and
milestones paid to collaborators and expenses incurred in
performing research and development activities including
salaries and benefits, facilities expenses, overhead expenses,
clinical trial and related clinical manufacturing expenses,
contract services and other outside expenses. Research and
development expenses are expensed as incurred. Payments we make
for research and development services prior to the services
being rendered are recorded as prepaid assets on our balance
sheet and are expensed as the services are provided. We have
entered into certain research agreements in which we share
expenses with our collaborator. We have entered into other
collaborations where we are reimbursed for work performed on
behalf of our collaborative partners. We record the expenses for
such work as research and development expenses. If the
arrangement is a cost-sharing arrangement and there is a period
during which we receive payments from the collaborator, we
record payments by the collaborator for their share of the
development effort as a reduction of research and development
expense. If the arrangement is a reimbursement of research and
development expenses, we record the reimbursement as corporate
partner revenue.
FIN 46(R)
Under FIN 46(R), we consolidate variable interest
entities for which we are the primary beneficiary. For such
consolidated entities in which we own less than a 100% interest,
we record minority interest in our statement of income for the
current results allocable to the outside equity interests.
FIN 46(R) impacts the way we account for certain
collaborations and future events may result in our consolidation
of companies or related entities with which we have a
collaborative arrangement. The consolidation of variable
interest entities may have a material effect on our financial
condition
and/or
results of operation in future periods.
F-18
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Acquired
In-Process Research and Development
IPR&D represents the fair value assigned to research and
development projects that we acquire that have not been
completed at the date of acquisition and which have no future
alternative use. Accordingly, the fair value of such projects is
recorded as in process research and development expense as of
the acquisition date.
The value assigned to acquired IPR&D is determined by
estimating the costs to develop the acquired technology into
commercially viable products, estimating the resulting net cash
flows from the projects, and discounting the net cash flows to
present value. The revenue and costs projections used to value
IPR&D were, as applicable, reduced based on the probability
of developing a new drug. Additionally, the projections
considered the relevant market sizes and growth factors,
expected trends in technology, and the nature and expected
timing of new product introductions by us and our competitors.
The resulting net cash flows from such projects are based on
managements estimates of cost of sales, operating
expenses, and income taxes from such projects. The rates
utilized to discount the net cash flows to their present value
were commensurate with the stage of development of the projects
and uncertainties in the economic estimates used in the
projections described above.
If these projects are not successfully developed, the sales and
profitability of the company may be adversely affected in future
periods. Additionally, the value of other acquired intangible
assets may become impaired. We believe that the foregoing
assumptions used in the IPR&D analysis were reasonable at
the time of the respective acquisition. No assurance can be
given, however, that the underlying assumptions used to estimate
expected project sales, development costs or profitability, or
the events associated with such projects, will transpire as
estimated.
Earnings
per Share
We calculate earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per
Share, or SFAS 128, and
EITF 03-06,
Participating Securities and the Two
Class Method Under SFAS 128, or
EITF 03-06.
SFAS 128 and
EITF 03-06
together require the presentation of basic earnings
per share and diluted earnings per share.
Basic earnings per share is computed using the two-class method.
Under the two-class method, undistributed net income is
allocated to common stock and participating securities based on
their respective rights to share in dividends. We have
determined that our preferred shares meet the definition of
participating securities, and have allocated a portion of net
income to our preferred shares on a pro rata basis. Net income
allocated to preferred shares is excluded from the calculation
of basic earnings per share. For basic earnings per share, net
income available to holders of common stock is divided by the
weighted average number of shares of common stock outstanding.
For purposes of calculating diluted earnings per share, net
income is adjusted for the after-tax amount of interest
associated with convertible debt and net income allocable to
preferred shares, and the denominator includes both the weighted
average number of shares of common stock outstanding and
potential dilutive shares of common stock from stock options,
unvested restricted stock awards, restricted stock units and
other convertible securities, to the extent they are dilutive.
Accounting
for Share-based Compensation
Our share-based compensation programs consist of share-based
awards granted to employees including stock options, restricted
stock, performance and time-vested restricted stock units, as
well as our employee stock purchase plan, or ESPP and are
accounted for under Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payments, or
SFAS 123(R). Under this methodology, the estimated fair
value of awards is charged against income over the requisite
service period, which is generally the vesting period. Where
awards are made with non-substantive vesting periods (for
instance, where a portion of the award vests upon retirement
eligibility), we estimate and recognize expense based on the
period from the grant date to the date on which the employee is
retirement eligible. For our ESPP, we apply a graded vesting
approach because the ESPP provides for multiple purchase periods
and is, in substance, a series of linked awards.
F-19
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of the stock option grants is based on estimates
as of the date of grant using a Black-Scholes option valuation
model. The fair value of all time vested restricted units and
restricted stock is based on the market value of our stock on
the date of grant. Compensation expense for restricted stock and
restricted stock units, including the effect of forfeitures, is
recognized over the applicable service period. The fair value of
performance based 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 target payout level will be
achieved. Compensation cost is adjusted for subsequent changes
in the outcome of performance-related conditions until the
vesting dates. For certain performance based stock units, we
apply a graded vesting approach and the fair value is based on
the market price on the date of the vesting.
Assets
Held for Sale
We consider certain real property and certain other
miscellaneous assets as held for sale when they meet the
criteria set out in Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, or SFAS 144.
As of December 31, 2008 and 2007, there were no assets held
for sale on the accompanying consolidated balance sheet.
|
|
2.
|
Acquisitions
and Dispositions
|
Syntonix
Pharmaceuticals, Inc.
In January 2007, we acquired 100% of the stock of Syntonix
Pharmaceuticals, Inc., or Syntonix, a privately held
biopharmaceutical company based in Waltham, Massachusetts.
Syntonix focuses on discovering and developing long-acting
therapeutic products to improve treatment regimens for chronic
diseases, and is engaged in multiple pre-clinical programs in
hemophilia. The purchase price was $44.4 million, including
transaction costs, and could increase to as much as
$124.4 million if certain development milestones with
respect to Syntonixs lead product, long acting recombinant
Factor IX, a proprietary long-acting factor IX product for the
treatment of hemophilia B, are achieved. The purpose of the
acquisition was to enhance our pipeline and to expand into
additional specialized markets.
The acquisition was funded from our existing cash on hand and
was accounted for as an asset acquisition as Syntonix is a
development-stage company. As a result of the acquisition we
obtained the rights to the in-process technology of the
Fc-fusion technology platform. Syntonix has two programs in
development using the Fc-fusion platform, long acting
recombinant Factor IX and long acting recombinant Factor VIII.
Syntonixs lead product, long acting recombinant Factor IX,
is a proprietary long-acting factor IX product for the treatment
of hemophilia B. Syntonix filed an investigational new drug
application with the Food and Drug Administration, or FDA, for
long acting recombinant Factor IX in 2007. Long acting
recombinant Factor VIII is a product for the treatment of
hemophilia A and is approximately two years from filing of the
investigational new drug application with the FDA.
The results of operations of Syntonix are included in our
consolidated results of operations from the date of acquisition.
We have completed our purchase price allocation for the
acquisition as set out below (in millions):
|
|
|
|
|
Current assets
|
|
$
|
0.3
|
|
Fixed assets
|
|
|
0.2
|
|
Deferred tax asset
|
|
|
27.8
|
|
Assembled workforce
|
|
|
0.7
|
|
In-process research and development
|
|
|
18.4
|
|
Current liabilities
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
$
|
44.4
|
|
|
|
|
|
|
F-20
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The purchase price included $2.0 million in loan
forgiveness and $0.7 million in transaction fees. In
addition, $0.3 million of severance charges were accrued as
a result of the acquisition.
The amount allocated to IPR&D relates to the development of
long acting recombinant Factor IX and long acting recombinant
Factor VIII, which are in a development stage. Since the
acquisition in January 2007, we have spent approximately
$26.1 million and $5.5 million in research and
development costs related to long acting recombinant Factor IX
and long acting recombinant Factor VIII, respectively. We expect
to incur an additional $29.7 million to complete long
acting recombinant Factor IX and an additional
$30.3 million to complete long acting recombinant Factor
VIII. The estimated revenues from long acting recombinant Factor
IX and long acting recombinant Factor VIII are expected to be
recognized beginning in 2012 and 2013, respectively. A discount
rate of 13% was used to value these projects, which we believe
to be commensurate with the stage of development and the
uncertainties in the economic estimates described above. At the
date of acquisition, these compounds had not reached
technological feasibility and had no alternative future use.
Accordingly, $18.4 million in IPR&D was expensed upon
acquisition.
Upon acquisition, we recognized a deferred tax asset of
$27.8 million. The deferred tax asset included
approximately $12.8 million of net operating loss and
research credit carryovers that will be utilized prior to
applicable expiration dates, as well as approximately
$15.3 million of other deferred tax assets primarily
related to
start-up and
research expenditures that have been capitalized for tax
purposes and are being amortized over the next several years.
Future contingent consideration payments, if any, will be
recorded as IPR&D. The total revenue, operating income
(loss) and net income (loss) pro forma impacts of the
acquisition for the years ended December 31, 2007 and 2006
were not material.
Fumedica
Agreements
In December 2006, we entered into an agreement with Fumedica.
Fumedica is a privately held pharmaceutical company based in
Germany and Switzerland that maintains distribution rights to
FUMADERM and to whom we were contingently obligated to make
royalty payments with respect to a successful launch of BG-12
for psoriasis in Germany. Fumedica had the rights to distribute
FUMADERM in Germany through April 2009. Under the terms of the
agreement, we have obtained all distribution and marketing
rights to FUMADERM effective May 2007. No royalty payments were
due under the agreement and under the terms of the transition
agreement, we will not be required to make any royalty payments
to Fumedica if BG-12 is successfully launched for psoriasis in
Germany.
The fair value of the acquired FUMADERM distribution rights was
approximately $11.1 million. This amount has been
capitalized and included in intangible assets and will be
amortized over approximately two years beginning in May 2007,
based on the remaining term of the distribution agreement. The
fair value of terminating the pre-existing agreement was
approximately $28.1 million. This amount has been expensed
as it relates to a product that has not reached technological
feasibility. In addition, in connection with this transaction,
we committed to total payments of 61.4 million Swiss Francs
or approximately $50.5 million, which will be paid to
Fumedica in varying amounts from June 2008 through June 2018.
Through December 31, 2008, 12 million Swiss Francs or
approximately $11.8 million have been paid and as of
December 31, 2008 the present value of the remaining
obligation is $38.6 million
The present value of the payments due under the agreements will
be accreted to future value at an interest rate of 5.75%, our
incremental borrowing rate at the time of the acquisition.
Fumapharm
In June 2006, we completed the acquisition of 100% of the stock
of Fumapharm, a privately held pharmaceutical company based in
Switzerland that develops therapeutics derived from fumaric acid
esters. As part of the acquisition, we acquired FUMADERM, a
commercial product available in Germany for the treatment of
psoriasis, and BG-12, a clinical-stage compound being studied
for the treatment of MS and psoriasis that was being jointly
F-21
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
developed by Fumapharm and us. The purpose of this acquisition
was to support our goal of developing innovative therapeutic
options for people living with MS.
As part of the acquisition, we agreed to pay
$220.0 million, of which $218.0 million was paid at
closing and $2.0 million was paid in 2008 as partial
coverage for any losses incurred as a result of any breach of
representations and warranties. We agreed to additional payments
of $15.0 million upon achievement of certain regulatory
approvals, and additional payments in the event that annual and
cumulative sales targets, as defined, are achieved.
The acquisition was funded from our existing cash on hand and
has been accounted for as a business combination. Assets and
liabilities assumed have been recorded at their fair values as
of the date of acquisition. The results of operations for
Fumapharm are included from the date of acquisition. Our
purchase price allocation for the acquisition is set forth below
(in millions):
|
|
|
|
|
Current assets
|
|
$
|
6.5
|
|
In process research and development
|
|
|
207.4
|
|
Core technology
|
|
|
16.9
|
|
Developed technology
|
|
|
9.5
|
|
Goodwill
|
|
|
18.5
|
|
Other assets
|
|
|
1.2
|
|
Deferred tax liabilities
|
|
|
(2.8
|
)
|
Other liabilities
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
$
|
254.5
|
|
|
|
|
|
|
Consideration and Gain
|
|
|
|
|
Consideration
|
|
$
|
220.0
|
|
Gain on settlement of pre-existing license agreement
|
|
|
34.2
|
|
Transaction costs
|
|
|
0.3
|
|
|
|
|
|
|
|
|
$
|
254.5
|
|
|
|
|
|
|
The purchase price allocation was completed during the fourth
quarter of 2006.
The amount allocated to IPR&D projects relates to the
development of BG-12. BG-12 has received positive results from a
Phase 2 study of its efficacy and safety for patients with
relapsing-remitting MS and, subsequent to the acquisition, we
initiated Phase 3 clinical trials. Since the acquisition in June
of 2006, we have incurred $129.3 million in research and
development costs. We expect to incur approximately an
additional $169.0 million to complete the development of
BG-12. The estimated revenues from BG-12 are expected to be
recognized beginning in 2012. A discount rate of 12% was used to
value the project, which we believe to be commensurate with the
stage of development and the uncertainties in the economic
estimates described above. At the date of acquisition, the
development of BG-12 had not yet reached technological
feasibility, and the research and development in progress had no
alternative future use. Accordingly, $207.4 million in
IPR&D was expensed in 2006.
The fair value of intangible assets was based on valuations
using an income approach, with estimates and assumptions
determined by management. The core technology asset represents a
combination of Fumapharms processes and procedures related
to the design and development of its application products. The
developed technology relates to processes and procedures related
to products that have reached technological feasibility. Core
technology is being amortized over approximately 12 years
and the developed technology over approximately 3 years.
The excess of purchase price over tangible assets, identifiable
intangible assets and assumed liabilities represents goodwill.
None of the goodwill or intangible assets acquired is deductible
for income tax purposes. As a result, we recorded a deferred tax
liability of $2.8 million, based on the tax effect of the
amount of the acquired intangible assets other than goodwill
with no tax basis.
F-22
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition to the assets acquired, a gain of $34.2 million
was recognized coincident with the acquisition of Fumapharm in
accordance with
EITF 04-1,
Accounting for Preexisting Relationships between the Parties
to a Business Combination. The gain related to the
settlement of a preexisting license agreement between Fumapharm
and us. The license agreement in question had been entered into
in October 2003 and required us to make payments to Fumapharm of
certain royalty amounts. The market rate for such payments was
determined to have increased due, principally, to the increased
technical feasibility of BG-12. The gain primarily relates to
the difference between i) the royalty rates at the
time the agreement was entered into as compared to ii) the
expected higher royalty rates that would result at the time the
agreement was effectively settled by virtue of our acquisition
of Fumapharm.
Future contingent consideration payments, if any, will be
accounted for as increases to goodwill. The total revenue,
operating income (loss) and net income (loss) impacts of the
acquisition for the year ended December 31, 2006 was not
material.
Conforma
In May 2006, we completed the acquisition of 100% of the stock
of Conforma, a privately-held development stage
biopharmaceutical company based in California that focused on
the design and development of drugs for the treatment of cancer.
The goal of this acquisition was to enable us to broaden our
therapeutic opportunities in the field of oncology.
We acquired all of the issued and outstanding shares of the
capital stock of Conforma for $150.0 million, paid at
closing. Of this amount, $15.0 million has been escrowed by
the sellers pending satisfaction of customary representations
and warranties made by Conforma. In 2008, we recorded an
IPR&D charge of $25.0 million related to an HSP90
related milestone payment made to the former shareholders of
Conforma. Up to an additional $75.0 million could be
payable to the sellers upon the achievement of certain future
development milestones. Additionally, $0.5 million in
transaction costs were incurred and loans of approximately
$2.3 million were made to certain non-officer employees of
Conforma, which are included in other assets in the accompanying
consolidated balance sheet. Such loans are fully collateralized
and were made for the purpose of assisting the employees in
meeting their tax liabilities.
The acquisition was funded from our existing cash on hand and
was accounted for as an asset acquisition as Conforma is a
development-stage company. As a result of the acquisition, we
obtained the rights to two compounds in Phase 1 clinical trials:
CNF1010, a proprietary form of the geldanamycin derivative
17-AAG; and
CNF2024, or HSP90, a totally synthetic, orally bioavailable heat
shock protein 90 inhibitor.
The results of operations of Conforma are included in our
results from the date of acquisition. Our completed purchase
price allocation for the acquisition is set forth below (in
millions):
|
|
|
|
|
Current assets
|
|
$
|
2.5
|
|
Fixed assets
|
|
|
0.8
|
|
Deferred tax asset
|
|
|
24.0
|
|
Assembled workforce
|
|
|
1.4
|
|
In process research and development
|
|
|
123.1
|
|
Current liabilities
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
$
|
150.5
|
|
|
|
|
|
|
The amount allocated to IPR&D relates to the development of
HSP90, which is in Phase 1 clinical trials. Since the
acquisition in June of 2006, we have incurred $36.3 million
in research and development costs. We expect to incur
approximately an additional $242 million to complete the
development of HSP90. The estimated revenues from HSP90, if any,
are expected to be recognized beginning in 2013. A discount rate
of 12% was used to value the project, which we believe to be
commensurate with the stage of development and the uncertainties
in the economic
F-23
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
estimates described above. At the date of acquisition, this
compound had not reached technological feasibility and had no
alternative future use. Accordingly, $123.1 million in
IPR&D was expensed in 2006.
Upon acquisition, we recognized a deferred tax asset of
$24.0 million relating to US federal and state net
operating losses and tax credit carryforwards that we acquired
from Conforma. The amount allocated to deferred tax assets does
not include certain tax attributes, such as net operating losses
and research credits, that may not be realized because they are
subject to annual limitations under the Internal Revenue Code
due to a cumulative ownership change of more than 50% which
occurred in connection with our acquisition of Conforma.
Future contingent consideration payments, if any, will be
recorded as IPR&D. The total revenue, operating income
(loss) and net income (loss) impacts of the acquisition for the
year ended December 31, 2006 was not material.
ZEVALIN
In December 2007, we sold the U.S. marketing, sales, and
manufacturing and development rights of
ZEVALIN®
to Cell Therapeutics, Inc., or CTI, for an upfront purchase
price of $10.0 million. In December 2008, we received
an additional $2.2 million milestone payment pursuant to an
amendment to the agreement. We may receive up to an additional
$20.0 million in milestone payments. In addition, we will
receive royalty payments on future sales of ZEVALIN. As part of
the overall agreement, we entered into a supply agreement with
CTI to sell ZEVALIN product through 2014. Our sales of ZEVALIN
to Bayer Schering Pharma AG, or Schering AG, for distribution in
the EU will be recognized as product revenue and our supply of
ZEVALIN to CTI will be recognized as corporate partner revenue.
We will continue to receive royalty revenues from Schering AG on
their sales of ZEVALIN in the EU. The $10.0 million upfront
and $2.2 million milestone payment are being recognized in
our results of operations over the term of the supply agreement.
|
|
3.
|
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 December 31, 2008, and indicates 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 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 obtain an understanding of the
models and validate the prices provided by our third party
pricing services by obtaining market values from other pricing
sources, and analyzing pricing data in certain instances. 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. As of December 31, 2008 and after
completing our
F-24
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
validation procedures, we did not adjust or override any fair
value measurements provided by our pricing services. (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Balance at
|
|
|
Quoted Prices in
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Active Markets
|
|
|
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
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of our cash equivalents, marketable debt
securities, derivative instruments and plan assets for deferred
compensation are determined through market and observable
sources. Our strategic investments are investments in publicly
traded equity securities where fair value is readily
determinable.
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):
|
|
|
|
|
|
|
Year
|
|
|
|
Ended
|
|
|
|
December 31,
|
|
Description
|
|
2008
|
|
|
Beginning Balance
|
|
$
|
28.1
|
|
Total net unrealized gains (losses) included in earnings
|
|
|
(7.6
|
)
|
Purchases, issuances, and settlements
|
|
|
3.4
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
23.9
|
|
|
|
|
|
|
Our venture capital investments, which represent approximately
0.3% of the total assets at December 31, 2008, are the only
assets where we used Level 3 inputs to determine the fair
value. 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.
At December 31, 2008, the fair values of our debt
instruments were as follows (in millions):
|
|
|
|
|
Credit line from Dompé
|
|
$
|
16.4
|
|
Notes payable to Fumedica
|
|
$
|
37.5
|
|
6.0% Senior Notes due 2013
|
|
$
|
429.8
|
|
6.875% Senior Notes due 2018
|
|
$
|
562.4
|
|
F-25
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair values of our credit line from Dompe and our note
payable to Fumedica were estimated using market observable
inputs. The fair value of our Senior Notes was determined
through market, observable and corroborated sources. Within the
hierarchy of fair value measurements, these are Level 2
fair values.
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.
Marketable
Securities, including Strategic Investments
The following is a summary of marketable securities and
investments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
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
|
|
U.S. 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
December 31, 2007:
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
178.3
|
|
|
$
|
0.2
|
|
|
$
|
(0.3
|
)
|
|
$
|
178.4
|
|
Non-current
|
|
|
309.7
|
|
|
|
3.5
|
|
|
|
(0.1
|
)
|
|
|
306.3
|
|
U.S. Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
192.5
|
|
|
|
0.2
|
|
|
|
(0.1
|
)
|
|
|
192.4
|
|
Non-current
|
|
|
232.5
|
|
|
|
4.7
|
|
|
|
|
|
|
|
227.8
|
|
Other interest bearing securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
6.1
|
|
Non-current
|
|
|
537.0
|
|
|
|
5.2
|
|
|
|
(0.5
|
)
|
|
|
532.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
1,456.1
|
|
|
$
|
13.8
|
|
|
$
|
(1.0
|
)
|
|
$
|
1,443.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic investments, non-current
|
|
$
|
16.8
|
|
|
$
|
2.9
|
|
|
$
|
(0.1
|
)
|
|
$
|
14.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the table above, at December 31, 2008,
U.S. Government securities includes $139.1 million of
FDIC guaranteed senior notes issued by financial institutions
under the Temporary Liquidity Guarantee Program (TLGP). 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 table above. The commercial paper, including
accrued interest, has a fair and carrying value of
$42.7 million and $368.2 million and short-term debt
securities has a fair and carrying value of $458.2 million
and $195.1 million at December 31, 2008 and
December 31, 2007, respectively.
The tables above include our loaned securities. In the years
ended December 31, 2008 and 2007, we recognized
$41.7 million and $7.5 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. No
such charges were recognized in 2006.
Unrealized losses relate to various debt securities, including
U.S. Government issues, corporate bonds and asset-backed
securities. The unrealized losses on these securities were
primarily caused by a rise in interest rates
and/or an
increase in credit spreads subsequent to purchase. We believe
that these unrealized losses are temporary, and we have the
intent and ability to hold these securities to recovery, which
may be at maturity.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Proceeds from maturities and sales
|
|
$
|
2,941.1
|
|
|
$
|
3,154.3
|
|
|
$
|
1,787.1
|
|
Realized gains
|
|
$
|
15.9
|
|
|
$
|
4.5
|
|
|
$
|
1.9
|
|
Realized losses
|
|
$
|
17.0
|
|
|
$
|
4.9
|
|
|
$
|
4.7
|
|
F-27
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The estimated fair value and amortized cost of securities,
excluding strategic investments, available-for-sale by
contractual maturity are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Estimated Fair Value
|
|
|
Amortized 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
$306.8 million and include $66.5 million of non-agency
mortgage backed securities at December 31, 2008. The
average maturity of our marketable securities at
December 31, 2008 and 2007 was 13 months and
15 months, respectively.
Strategic
Investments
In 2007, we sold our share in one strategic investment for
$99.5 million, which resulted in a $17.2 million gain.
In 2008 and 2006, we did not sell any portion of strategic
investments. Strategic investments are included in investments
and other assets on the accompanying balance sheet.
In 2008, 2007, and 2006, we recognized $8.6 million,
$16.0 million, and $30.5 million in charges,
respectively, for the impairment of publicly-held strategic
investments for declines in value that were determined to be
other-than-temporary.
We hold other investments in equity securities of certain
privately held biotechnology companies or biotechnology oriented
venture capital funds. The cost basis of these securities at
December 31, 2008 and 2007 is $64.7 million and
$52.9 million, respectively. These securities are included
in investments and other assets on the accompanying consolidated
balance sheet.
In 2008, 2007, and 2006, we recorded $2.3 million,
$2.4 million, and $3.9 million, respectively, in
charges for the impairment for certain investments in privately
held companies or funds that were determined to be other than
temporary.
Forward
Contracts and Interest Rate Swaps
We use foreign currency forward contracts to hedge specific
forecasted transactions denominated in foreign currencies. All
foreign currency forward contracts in effect at
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 accumulated other comprehensive income (loss). Realized gains
and losses for the effective portion are recognized with the
completion of the underlying hedge transaction. To the extent
ineffective, hedge transaction gains and losses are reported in
other income (expense).
The notional settlement amount of the foreign currency forward
contracts outstanding at December 31, 2008 was
approximately $523.5 million. The fair value of these
contracts was a net unrealized loss of $44.1 million and
was included in accumulated other comprehensive income within
the shareholders equity at December 31, 2008. 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 December 31, 2008, 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 at December 31, 2007 was
approximately $409.2 million. The fair value of these
contracts was a loss of $6.4 million and was included in
other current liabilities at December 31, 2007.
F-28
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For our foreign currency forward contracts in 2008, there was
$0.2 million recognized in earnings as a loss due to hedge
ineffectiveness. We recognized an $8.5 million negative
impact on product revenue for the settlement of certain
effective cash flow hedge instruments in 2008. These settlements
were recorded in the same period as the related forecasted
transactions affecting earnings.
For our foreign currency forward contracts in 2007, there was
$2.6 million recognized in earnings as a loss due to hedge
ineffectiveness. We recognized $13.1 million of losses in
product revenue for the settlement of certain effective cash
flow hedge instruments in 2007. These settlements were recorded
in the same period as the related forecasted transactions
affecting earnings.
In 2006, there was $0.6 million recognized in earnings as a
loss due to hedge ineffectiveness and $0.9 million
recognized in earnings as a loss as a result of the
discontinuance of cash flow hedge accounting because it was no
longer probable that the hedge forecasted transaction would
occur. We recognized $11.2 million of losses in product
revenue for the settlement of certain effective cash flow hedge
instruments through December 31, 2006. These settlements
were recorded in the same period as the related forecasted
transactions affecting earnings.
As described in Note 8, Indebtedness, we entered into
interest rate swaps during 2008 for an aggregate notional amount
of $550.0 million, which were due to expire in March 2018.
These interest rate swaps had been designated as fair value
hedges and were being used to manage our exposure to changes in
interest rates. The interest rate swaps had the effect of
changing our fixed interest rate to variable interest rate on
$550.0 million of our Senior Notes balance outstanding.
During 2008, we recognized a net loss of $8.9 million in
earnings due to hedge ineffectiveness. In December 2008, the
interest rate swaps were settled. Under the settlement we
received $53.9 million. The proceeds from this settlement
upon termination are included within the operating section of
the statement of cash flows. Upon termination of the swaps, the
carrying amount of the 6.875% Senior Notes due in 2018
increased $62.8 million as it was accounted for as a fair
value hedge. This 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.
F-29
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Basic and diluted earnings per share are calculated as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change
|
|
$
|
783.2
|
|
|
$
|
638.2
|
|
|
$
|
213.7
|
|
Cumulative effect of accounting change, net of income tax
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
783.2
|
|
|
|
638.2
|
|
|
|
217.5
|
|
Adjustment for net income allocable to preferred stock
|
|
|
(1.3
|
)
|
|
|
(1.0
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income used in calculating basic earnings per share
|
|
|
781.9
|
|
|
|
637.2
|
|
|
|
217.2
|
|
Adjustment for interest, net of interest capitalized and tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income used in calculating diluted earnings per share
|
|
$
|
781.9
|
|
|
$
|
637.2
|
|
|
$
|
217.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
292.3
|
|
|
|
315.8
|
|
|
|
338.6
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and ESPP
|
|
|
1.3
|
|
|
|
2.6
|
|
|
|
2.0
|
|
Restricted stock awards
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
0.8
|
|
Time-vested restricted stock units
|
|
|
1.3
|
|
|
|
1.1
|
|
|
|
0.4
|
|
Performance-based restricted stock units
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Convertible promissory notes due 2019
|
|
|
|
|
|
|
0.2
|
|
|
|
3.1
|
|
Convertible promissory notes due 2032
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
2.7
|
|
|
|
4.4
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculating diluted earnings per share
|
|
|
295.0
|
|
|
|
320.2
|
|
|
|
345.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following amounts were not included in the calculation of
net income per share because their effects were anti-dilutive
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to preferred stock
|
|
$
|
1.3
|
|
|
$
|
1.0
|
|
|
$
|
0.3
|
|
Adjustment for interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.3
|
|
|
$
|
1.0
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
6.9
|
|
|
|
8.2
|
|
|
|
16.5
|
|
Time-vested restricted stock units
|
|
|
1.5
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Convertible preferred stock
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8.9
|
|
|
|
8.8
|
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the tender offer described in Note 21,
Tender Offer, earnings per share for the year ended
December 31, 2007 reflects on a weighted average basis the
repurchase of 56,424,155 shares as of June 27, 2007,
F-30
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the date the obligation was incurred, in accordance with FASB
Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity, or SFAS 150.
Share-based
compensation expense
In the years ended December 31, 2008 and 2007, we recorded
share-based compensation expense of $146.2 million, and
$123.1 million, respectively, associated with
SFAS 123(R). In the year ended December 31, 2006, we
recorded share-based compensation expense of $126.8 million
associated with SFAS 123(R), which is net of a cumulative
effect pre-tax adjustment of $5.6 million, or
$3.8 million after-tax. The cumulative effect results from
the application of an estimated forfeiture rate for current and
prior period unvested restricted stock awards.
For 2008, 2007, and 2006, share based compensation expense
reduced our results of operations as follows (in millions except
for earnings per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Impact Before
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Cumulative
|
|
|
Cumulative
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Effect of
|
|
|
Effect of
|
|
|
Effect
|
|
|
|
Effect on
|
|
|
Effect on
|
|
|
Accounting
|
|
|
Accounting
|
|
|
on Net
|
|
|
|
Net Income
|
|
|
Net Income
|
|
|
Change
|
|
|
Change
|
|
|
Income
|
|
|
Income before income taxes
|
|
$
|
146.2
|
|
|
$
|
123.1
|
|
|
$
|
132.4
|
|
|
$
|
(5.6
|
)
|
|
$
|
126.8
|
|
Tax effect
|
|
|
45.4
|
|
|
|
37.5
|
|
|
|
42.3
|
|
|
|
(1.8
|
)
|
|
|
40.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
100.8
|
|
|
$
|
85.6
|
|
|
$
|
90.1
|
|
|
$
|
(3.8
|
)
|
|
$
|
86.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.34
|
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.26
|
|
Diluted earnings per share
|
|
$
|
0.34
|
|
|
$
|
0.27
|
|
|
$
|
0.26
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.25
|
|
Share-based compensation expense and cost for 2008, 2007, and
2006 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
Year Ended December 31, 2007
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
Restricted
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
|
|
|
|
Stock
|
|
|
Stock &
|
|
|
|
|
|
Stock
|
|
|
Stock &
|
|
|
|
|
|
Stock
|
|
|
Stock &
|
|
|
|
|
|
|
Options
|
|
|
Restricted
|
|
|
|
|
|
Options
|
|
|
Restricted
|
|
|
|
|
|
Options
|
|
|
Restricted
|
|
|
|
|
|
|
& ESPP
|
|
|
Stock Units
|
|
|
Total
|
|
|
& ESPP
|
|
|
Stock Units
|
|
|
Total
|
|
|
& ESPP
|
|
|
Stock Units
|
|
|
Total
|
|
|
Research and development
|
|
$
|
8.2
|
|
|
$
|
51.7
|
|
|
$
|
59.9
|
|
|
$
|
13.0
|
|
|
$
|
38.7
|
|
|
$
|
51.7
|
|
|
$
|
19.5
|
|
|
$
|
33.4
|
|
|
$
|
52.9
|
|
Selling, general and administrative
|
|
|
18.3
|
|
|
|
75.5
|
|
|
|
93.8
|
|
|
|
22.9
|
|
|
|
53.2
|
|
|
|
76.1
|
|
|
|
29.3
|
|
|
|
53.5
|
|
|
|
82.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26.5
|
|
|
$
|
127.2
|
|
|
$
|
153.7
|
|
|
$
|
35.9
|
|
|
$
|
91.9
|
|
|
$
|
127.8
|
|
|
$
|
48.8
|
|
|
$
|
86.9
|
|
|
$
|
135.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax cumulative effect of
catch-up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
153.7
|
|
|
|
|
|
|
|
|
|
|
$
|
127.8
|
|
|
|
|
|
|
|
|
|
|
$
|
130.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized share-based payment costs
|
|
|
|
|
|
|
|
|
|
|
(7.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
$
|
146.2
|
|
|
|
|
|
|
|
|
|
|
$
|
123.1
|
|
|
|
|
|
|
|
|
|
|
$
|
126.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For 2008, 2007, and 2006, we capitalized total costs of
$7.5 million, $4.7 million, and $3.3 million,
respectively, associated with share-based compensation costs to
inventory and fixed assets.
F-31
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In accordance with SFAS 123(R), windfall tax benefits from
vesting of stock awards, exercises of stock options and ESPP
participation of $28.0 million, $69.7 million, and
$31.7 million were recorded as cash inflows from financing
activities in our consolidated statement of cash flows for 2008,
2007, and 2006, respectively. This amount has been calculated in
accordance with the alternative transition method described in
FSP FAS 123(R) 3, which we adopted effective
the fourth quarter of 2006.
The total amount of tax benefit realized during 2008, 2007, and
2006, was $69.9 million, $103.6 million, and
$42.8 million, respectively. Cash received from the
exercise of stock options in 2008, 2007, and 2006 was
approximately $158.3 million, $471.0 million, and
$131.8 million, respectively.
At December 31, 2008, unrecognized compensation costs
relating to unvested share-based compensation was approximately
$200.0 million.
Share-based
Compensation Plans
We have three share-based compensation plans pursuant to which
awards are currently being made: (i) the Biogen Idec Inc.
2006 Non-Employee Directors Equity Plan, or the
2006 Directors Plan; (ii) the Biogen Idec Inc. 2008
Omnibus Equity Plan, or the 2008 Omnibus Plan; and
(iii) the Biogen Idec Inc. 1995 Employee Stock Purchase
Plan, or ESPP. We have six share-based compensation plans
pursuant to which outstanding awards have been made, but from
which no further awards can or will be made: (i) the Idec
Pharmaceuticals Corporation 1993 Non-Employee Directors Stock
Option Plan, or the 1993 Directors Plan; (ii) the Idec
Pharmaceuticals Corporation 1988 Stock Option Plan;
(iii) the Biogen, Inc. 1985 Non-Qualified Stock Option
Plan; (iv) the Biogen, Inc. 1987 Scientific Board Stock
Option Plan: (v) the Biogen Idec Inc. 2003 Omnibus Equity
Plan, or the 2003 Omnibus Plan: and (vi) the Biogen Idec
Inc. 2005 Omnibus Equity Plan, or the 2005 Omnibus Plan. We have
not made any awards from the 2005 Omnibus Plan since our
stockholders approved the 2008 Omnibus Plan and do not intend to
make any awards from the 2005 Omnibus Plan in the future.
Directors Plan: In May 2006, our stockholders
approved the 2006 Directors Plan for share-based awards to
our directors. Awards granted from the 2006 Directors Plan
may include options, shares of restricted stock, restricted
stock units, stock appreciation rights and other awards in such
amounts and with such terms and conditions as may be determined
by a committee of our Board of Directors, subject to the
provisions of the plan. We have reserved a total of
850,000 shares of common stock for issuance under the
2006 Directors Plan. The 2006 Directors Plan provides
that awards other than stock options and stock appreciation
rights will be counted against the total number of shares
reserved under the plan in a 1.5-to-1 ratio.
Omnibus Plans: In June 2008, our stockholders
approved the 2008 Omnibus Equity Plan for share-based awards to
our employees. Awards granted from the 2008 Omnibus Plan may
include options, shares of restricted stock, restricted stock
units, performance shares, shares of phantom stock, stock
bonuses, stock appreciation rights and other awards in such
amounts and with such terms and conditions as may be determined
by a committee of our Board of Directors, subject to the
provisions of the plan. Shares of common stock available for
issuance under the 2008 Omnibus Equity Plan consist of
15.0 million shares reserved for this purpose, plus shares
of common stock that remained available for issuance under the
2005 Omnibus Plan on the date that our stockholders approved the
2008 Omnibus Equity Plan, plus shares that are subject to awards
under the 2005 Omnibus Plan which remain unissued upon the
cancellation, surrender, exchange or termination of such awards.
The 2008 Omnibus Equity Plan provides that awards other than
stock options and stock appreciation rights will be counted
against the total number of shares available under the plan in a
1.5-to-1 ratio.
Stock
Options
All stock option grants to employees are for a ten-year term and
generally vest one-fourth per year over four years on the
anniversary of the date of grant, provided the employee remains
continuously employed with us. Stock option grants to directors
are for ten-year terms and generally vest as follows:
(i) grants made on the date of a
F-32
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
directors initial election to our Board of Directors vest
one-third per year over three years on the anniversary of the
date of grant, and (ii) grants made for service on our
Board of Directors vest on the first anniversary of the date of
grant, provided in each case that the director continues to
serve on our Board of Directors through the vesting date.
Options granted under all plans are exercisable at a price per
share not less than the fair market value of the underlying
common stock on the date of grant. The estimated fair value of
options, including the effect of estimated forfeitures, is
recognized over the options vesting periods. The fair
value of the stock option grants awarded in 2008, 2007, and 2006
was estimated as of the date of grant using a Black-Scholes
option valuation model that uses the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected stock price volatility
|
|
|
34.4
|
%
|
|
|
33.6
|
%
|
|
|
34.8
|
%
|
Risk-free interest rate
|
|
|
2.4
|
%
|
|
|
4.4
|
%
|
|
|
4.4
|
%
|
Expected option life in years
|
|
|
5.10
|
|
|
|
4.87
|
|
|
|
4.87
|
|
Per share grant-date fair value
|
|
$
|
20.85
|
|
|
$
|
18.78
|
|
|
$
|
16.90
|
|
Expected volatility is based upon implied volatility for our
exchange-traded options and other factors, including historical
volatility. After assessing all available information on either
historical volatility, implied volatility, or both, we have
concluded that a combination of both historical and implied
volatility provides the best estimate of expected volatility.
The expected term of options granted is derived using assumed
exercise rates based on historical exercise patterns and
represents the period of time that options granted are expected
to be outstanding. The risk-free interest rate used is
determined by the market yield curve based upon risk-free
interest rates established by the Federal Reserve, or non-coupon
bonds that have maturities equal to the expected term. The
dividend yield of zero is based upon the fact that we have not
historically granted cash dividends, and do not expect to issue
dividends in the foreseeable future. Stock options granted prior
to January 1, 2006 were valued based on the grant date fair
value of those awards, using the Black-Scholes option pricing
model, as previously calculated for pro-forma disclosures under
SFAS 123. For 2008, 2007 and 2006, we recorded
$20.1 million, $30.7 million and $43.6 million,
respectively, of stock compensation cost related to stock
options.
F-33
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of stock option activity is presented in the following
table (shares are in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at December 31, 2005
|
|
|
31,306
|
|
|
$
|
45.71
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,928
|
|
|
$
|
45.18
|
|
Exercised
|
|
|
(4,725
|
)
|
|
$
|
27.90
|
|
Cancelled
|
|
|
(3,403
|
)
|
|
$
|
53.55
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
25,106
|
|
|
$
|
47.96
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,470
|
|
|
$
|
51.23
|
|
Exercised
|
|
|
(10,524
|
)
|
|
$
|
44.84
|
|
Cancelled
|
|
|
(1,152
|
)
|
|
$
|
53.97
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
14,900
|
|
|
$
|
50.03
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,475
|
|
|
$
|
60.23
|
|
Exercised
|
|
|
(3,769
|
)
|
|
$
|
41.99
|
|
Cancelled
|
|
|
(506
|
)
|
|
$
|
55.70
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
12,100
|
|
|
$
|
53.53
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic values of options exercised in 2008, 2007,
and 2006, were $85.1 million, $226.7 million, and
$92.5 million, respectively. The aggregate intrinsic values
of options outstanding at December 31, 2008 and 2007, were
$71.4 million and $102.7 million, respectively. The
weighted average remaining contractual terms for options
outstanding at December 31, 2008 was 5.2 years.
Of the options outstanding, 9.2 million were exercisable at
December 31, 2008. The exercisable options had a
weighted-average exercise price of $53.48. The aggregate
intrinsic value of options exercisable as of December 31,
2008 and 2007 was $53.7 million and $78.5 million,
respectively. The weighted average remaining contractual term
for options exercisable at December 31, 2008 was
4.2 years.
Time-Vested
Restricted Stock Units
Time-vested restricted stock units, or RSUs, awarded to
employees generally vest no sooner than one-third per year over
three years on the anniversary of the date of grant, or upon the
third anniversary of the date of the grant, provided the
employee remains continuously employed with us except as
otherwise provided in the plan. Shares of our common stock will
be delivered to the employee upon vesting, subject to payment of
applicable withholding taxes. Time-vested RSUs awarded to
directors for service on our Board of Directors vest on the
first anniversary of the date of grant, provided in each case
that the director continues to serve on our Board of Directors
through the vesting date. Shares of our common stock will be
delivered to the director upon vesting. The fair value of all
time-vested RSUs is based on the market value of our stock on
the date of grant. Compensation expense, including the effect of
forfeitures, is recognized over the applicable service period.
For 2008, 2007, and 2006, we recorded $125.6 million,
$75.2 million, and $31.3 million, respectively, of
stock compensation cost related to time-vested RSUs.
F-34
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of time-vested RSU activity is presented in the
following table (shares are in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Unvested at December 31, 2005
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,731
|
|
|
$
|
44.47
|
|
Vested
|
|
|
(5
|
)
|
|
$
|
44.24
|
|
Forfeited
|
|
|
(218
|
)
|
|
$
|
44.36
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2006
|
|
|
2,508
|
|
|
$
|
44.48
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,387
|
|
|
$
|
51.19
|
|
Vested
|
|
|
(845
|
)
|
|
$
|
44.58
|
|
Forfeited
|
|
|
(458
|
)
|
|
$
|
47.38
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2007
|
|
|
4,592
|
|
|
$
|
49.12
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,129
|
|
|
$
|
58.42
|
|
Vested
|
|
|
(1,645
|
)
|
|
$
|
47.93
|
|
Forfeited
|
|
|
(499
|
)
|
|
$
|
53.95
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2008
|
|
|
5,577
|
|
|
$
|
54.26
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining contractual term for the
time-vested RSUs was 1 year at December 31, 2008.
Performance-Based
Restricted Stock Units
In the first quarter of 2007, our Board of Directors awarded
30,000 RSUs to our President, Research and Development, under
the 2005 Omnibus Plan, subject to certain performance criteria
and the employees continued employment through
December 31, 2007. In February 2008, 27,000 of these RSUs
vested and converted into shares of our common stock based on
the determination by our Board of Directors that approximately
90% of these RSUs had been earned. A total of 17,227 shares
were issued, reflecting the fact that certain shares were
withheld for income tax purposes. Additionally, during the
second quarter of 2007, our Board of Directors awarded 90,000
RSUs to our President, Research and Development, under the 2005
Omnibus Plan, subject to certain performance criteria. We apply
graded vesting when accounting for these RSUs and the fair
value will be based on the market price on the date of vesting.
These RSUs will vest annually in equal increments of
30,000 shares over three years and convert into shares of
our common stock, subject to attainment of certain performance
goals and the employees continued employment through the
three performance periods, which end December 31, 2008,
December 31, 2009, and September 30, 2010,
respectively.
In the first quarter of 2006, our Board of Directors awarded
100,000 RSUs to our CEO, under the 2005 Omnibus Plan, subject to
certain 2006 financial performance criteria. In February 2007,
our Board of Directors determined that the performance criteria
had been attained and that 100,000 RSUs would convert into
shares of our common stock. A total of 58,250 shares were
issued, reflecting the fact that certain shares were withheld
for income tax purposes.
During the third quarter of 2005, we granted 1.2 million
performance-based RSUs, to be settled in shares of our common
stock, to a group of approximately 200 senior employees
excluding our CEO. The grants were made under the 2005 Omnibus
Plan as part of an initiative to retain certain key personnel.
On September 14, 2006, 70% of the RSUs for all employees
still in active employment, or 758,262 shares, vested as
the required performance goals had been determined to have been
achieved. A total of 510,859 shares were issued, reflecting
the fact that certain shares were withheld for income tax
purposes.
F-35
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On March 14, 2007, the remaining 30% of the RSUs granted
during the third quarter of 2005 were scheduled to vest and
convert into shares if the performance goals were attained and
the employee was still in active employment. On March 14,
2007, 258,387 shares vested based on the determination by
our Board of Directors that approximately 83% of these RSUs had
been earned. A total of 172,054 shares were issued,
reflecting the fact that certain shares were withheld for income
tax purposes.
For 2008, 2007, and 2006, we recorded compensation charges of
approximately $1.1 million, $5.0 million, and
$33.6 million, respectively, related to performance-based
restricted stock units. Compensation cost is adjusted quarterly
for subsequent changes in the outcome of performance-related
conditions until the vesting date.
A summary of performance-based RSU activity is presented in the
following table (shares are in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Unvested at December 31, 2005
|
|
|
1,154
|
|
|
$
|
40.67
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
100
|
|
|
$
|
44.59
|
|
Vested
|
|
|
(758
|
)
|
|
$
|
40.67
|
|
Forfeited
|
|
|
(85
|
)
|
|
$
|
40.67
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2006
|
|
|
411
|
|
|
$
|
41.62
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
120
|
|
|
$
|
51.55
|
|
Vested
|
|
|
(357
|
)
|
|
$
|
41.76
|
|
Forfeited
|
|
|
(54
|
)
|
|
$
|
40.67
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2007
|
|
|
120
|
|
|
$
|
51.55
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$
|
|
|
Vested
|
|
|
(27
|
)
|
|
$
|
49.33
|
|
Forfeited
|
|
|
(3
|
)
|
|
$
|
49.33
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2008
|
|
|
90
|
|
|
$
|
52.29
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining contractual term for the
performance-based RSUs was 1.8 years at December 31,
2008.
Restricted
Stock Awards
In 2005, we awarded restricted common stock to our employees
under the 2005 Omnibus Plan and the 2003 Omnibus Plan at no cost
to the employees. The restricted stock awards, or RSAs, granted
under the 2003 Omnibus Plan vested in full on the third
anniversary of the date of grant for employees that remained
continuously employed with us through the vesting dates. The
RSAs granted under the 2005 Omnibus Plan vested at a rate of
approximately one-third per year over three years on the
anniversary of the date of grant for employees that remained
continuously employed with us through the vesting dates.
For 2008 and 2007, we recorded $0.5 million and
$11.7 million, respectively, of stock compensation cost
related to restricted stock awards. The fair value of all
time-vested RSAs is based on the market value of our stock on
the date of grant. Compensation expense, including the effect of
forfeitures, is recognized over the applicable service period.
For 2006, we recorded $21.9 million of stock compensation
cost related to restricted stock awards, prior to a first
quarter pre-tax cumulative effect catch up credit of
$5.6 million or $3.8 million after-tax, resulting from
the application of an estimated forfeiture rate for prior period
unvested restricted stock awards.
F-36
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of restricted stock award activity is presented in the
following table (shares are in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Unvested at December 31, 2005
|
|
|
1,440
|
|
|
$
|
53.87
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$
|
|
|
Vested
|
|
|
(13
|
)
|
|
$
|
42.99
|
|
Forfeited
|
|
|
(180
|
)
|
|
$
|
56.25
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2006
|
|
|
1,247
|
|
|
$
|
53.64
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$
|
|
|
Vested
|
|
|
(713
|
)
|
|
$
|
44.10
|
|
Forfeited
|
|
|
(79
|
)
|
|
$
|
59.64
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2007
|
|
|
455
|
|
|
$
|
67.54
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$
|
|
|
Vested
|
|
|
(454
|
)
|
|
$
|
67.54
|
|
Forfeited
|
|
|
(1
|
)
|
|
$
|
67.57
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
ESPP
Under the terms of the ESPP, employees can elect to have up to
ten percent of their annual compensation (subject to certain
dollar limits) withheld to purchase shares of our common stock.
The purchase price of the common stock is equal to 85% of the
lower of the fair market value of the common stock on the
enrollment or purchase date under a look-back provision. In June
2005, our stockholders approved the amendment and restatement of
the ESPP, including an increase in the number of shares
available for issuance under the ESPP from 4.2 million to
6.2 million shares. At December 31, 2008, a total of
4.4 million shares of our common stock were available for
issuance. During 2008, 2007, and 2006, 0.5 million,
0.5 million, and 0.5 million shares, respectively,
were issued under the ESPP. We utilize the Black-Scholes model
to calculate the fair value of these discounted purchases. The
fair value of the look-back provision plus the 15% discount
amount is recognized as compensation expense over the purchase
period. We apply a graded vesting approach because the plan
provides for multiple purchase periods and is, in substance, a
series of linked awards. In 2008, 2007, and 2006, we recorded
stock compensation cost of approximately $6.5 million,
$5.2 million, and $5.2 million, respectively.
Cash received under the ESPP in 2008, 2007, and 2006 was
approximately $21.3 million, $18.2 million, and
$15.2 million, respectively.
F-37
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Accumulated
Other Comprehensive Income (Loss)
|
The accumulated balances in comprehensive income (loss) were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Translation adjustments
|
|
$
|
16.9
|
|
|
$
|
71.0
|
|
|
$
|
21.2
|
|
Unrealized holding gains (losses) on investments, net of tax of
$(6.2) million, $(5.1) million, and
$(1.1) million, respectively
|
|
|
10.5
|
|
|
|
10.5
|
|
|
|
1.4
|
|
Unfunded status of pension and postretirement benefit plans, net
of tax of $0.1 million, $0.1 million, and
$0.4 million, respectively
|
|
|
1.6
|
|
|
|
1.7
|
|
|
|
(0.7
|
)
|
Unrealized losses on derivative instruments, net of tax of
$3.9 million, $2.4 million, and $0.1 million,
respectively
|
|
|
(40.2
|
)
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(11.2
|
)
|
|
$
|
79.2
|
|
|
$
|
21.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 13, Employee Benefit Plans, for discussion of
unfunded status of pension and postretirement benefit plans.
Notes payable consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Current portion:
|
|
|
|
|
|
|
|
|
Term loan facility
|
|
$
|
|
|
|
$
|
1,500.0
|
|
Note payable to Fumedica
|
|
|
10.9
|
|
|
|
10.3
|
|
Credit line from Dompé
|
|
|
16.8
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27.7
|
|
|
$
|
1,511.1
|
|
|
|
|
|
|
|
|
|
|
Non-current portion:
|
|
|
|
|
|
|
|
|
6.0% Senior Notes due 2013
|
|
$
|
449.6
|
|
|
$
|
|
|
6.875% Senior Notes due 2018
|
|
|
608.2
|
|
|
|
|
|
Note payable to Fumedica
|
|
|
27.6
|
|
|
|
34.3
|
|
Credit line from Dompé
|
|
|
|
|
|
|
17.5
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,085.4
|
|
|
$
|
51.8
|
|
|
|
|
|
|
|
|
|
|
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 at 99.886% and
99.184% of par, respectively.
In June and July 2007, in connection with the tender offer
described in Note 21, Tender Offer, we entered into a
$1,500.0 million term loan facility and borrowed the full
$1,500.0 million available under this facility. In
March 2008, we used the proceeds from the Senior Notes,
along with cash and the proceeds from the liquidation of
marketable securities, to repay the $1,500.0 million term
loan facility.
In June 2007, we also entered into a five year
$400.0 million Senior Unsecured Revolving Credit Facility,
which we may use for working capital and general corporate
purposes. The bankruptcy of Lehman Brothers
F-38
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Holdings Inc. has eliminated their $40.0 million
commitment, thereby reducing the availability of the credit
facility to $360.0 million.
The following is a summary description of our principal
indebtedness as of December 31, 2008.
Senior
Notes
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 at 99.886% and
99.184% of par, respectively. The discount will be amortized as
additional interest expense over the period from issuance
through maturity. These notes are senior unsecured obligations.
Interest on the notes is payable March 1 and September 1 of each
year. The notes may be redeemed at our option at any time at
100% of the principal amount plus accrued interest and a
specified make-whole amount. The notes contain a change of
control provision that may require us to purchase the notes
under certain circumstances. There is also an interest rate
adjustment feature that requires us to pay interest at an
increased interest rate on the notes if the credit rating on the
notes declines below investment grade. Offering costs of
approximately $8.0 million have been recorded as debt
issuance costs on our consolidated balance sheet and will be
amortized as additional interest expense using the effective
interest rate method over the period from issuance through
maturity. Additionally, we entered into interest rate swaps
where we received a fixed rate and paid a variable rate, as
further described in Note 4, Financial Instruments that
have been subsequently terminated. Upon termination of the
swaps, the carrying amount of the 6.875% Senior Notes due
in 2018 increased by $62.8 million as it was accounted for
as a fair value hedge. This 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.
We used the proceeds of this borrowing, along with cash and the
proceeds from the liquidation of marketable securities, to repay
the $1,500.0 million term loan facility we had entered into
in July 2007 in connection with the funding of our June 2007
common stock tender offer.
Revolving
credit facility
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. This credit
facility bears interest at a rate of LIBOR plus 45 basis
points. The terms of this revolving credit facility include
various covenants, including financial covenants that require us
to not exceed a maximum leverage ratio and under certain
circumstances, an interest coverage ratio. As of
December 31, 2008, we were in compliance with these
covenants and there were no borrowings under this credit
facility.
Biogen-Dompe
As of December 31, 2008, Biogen-Dompe SRL, a consolidated
joint venture, has a loan balance of 12.0 million Euros
($16.7 million). This balance represents a line of credit
from us and Dompé Farmaceutici SpA of 24 million
Euros, half of which has been eliminated as it is an
intercompany loan for purposes of presenting our consolidated
financial position. Borrowings are to be made equally between
the partners, and any repayments are to be paid in a similar
manner. The interest rate of the line of credit is at a rate of
3 month Euro LIBOR plus 25 basis points, and was
5.535% at December 31, 2008. The interest rate is reset
quarterly and payable quarterly in arrears. Any borrowings on
the line of credit are due, in full, June 1, 2009.
F-39
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Notes
Payable to Fumedica
As of December 31, 2008, the notes payable to Fumedica have
a present value of 41.2 million Swiss Francs
($38.6 million). The notes, which were entered into in
connection with the settlement of various agreements associated
with Fumedica, are non-interest bearing, have been discounted
for financial statement presentation purposes and are being
accreted at a rate of 5.75% and are payable in series of
payments over the period from 2008 to 2018. See Note 2,
Acquisitions and Dispositions.
Debt
Maturity
As of December 31, 2008, our total debt matures as follows
(in millions):
|
|
|
|
|
2009
|
|
$
|
27.9
|
|
2010
|
|
$
|
11.2
|
|
2011
|
|
$
|
3.0
|
|
2012
|
|
$
|
3.0
|
|
2013
|
|
$
|
453.0
|
|
2014 and thereafter
|
|
$
|
565.0
|
|
The fair value of the debt is disclosed in Note 3
Fair Value Measurements.
|
|
9.
|
Intangible
Assets and Goodwill
|
Intangible assets and goodwill, net of accumulated amortization,
impairment charges and adjustments, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Estimated Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Out-licensed patents
|
|
|
12 years
|
|
|
$
|
578.0
|
|
|
$
|
(250.3
|
)
|
|
$
|
327.7
|
|
|
$
|
578.0
|
|
|
$
|
(199.1
|
)
|
|
$
|
378.9
|
|
Core/developed technology
|
|
|
15-20 years
|
|
|
|
3,005.3
|
|
|
|
(1,241.0
|
)
|
|
|
1,764.3
|
|
|
|
3,003.0
|
|
|
|
(965.2
|
)
|
|
|
2,037.8
|
|
Trademarks & tradenames
|
|
|
Indefinite
|
|
|
|
64.0
|
|
|
|
|
|
|
|
64.0
|
|
|
|
64.0
|
|
|
|
|
|
|
|
64.0
|
|
In-licensed patents
|
|
|
14 years
|
|
|
|
3.0
|
|
|
|
(0.9
|
)
|
|
|
2.1
|
|
|
|
3.0
|
|
|
|
(0.7
|
)
|
|
|
2.3
|
|
Assembled workforce
|
|
|
4 years
|
|
|
|
2.1
|
|
|
|
(1.2
|
)
|
|
|
0.9
|
|
|
|
2.1
|
|
|
|
(0.7
|
)
|
|
|
1.4
|
|
Distribution rights
|
|
|
2 years
|
|
|
|
12.7
|
|
|
|
(10.6
|
)
|
|
|
2.1
|
|
|
|
11.8
|
|
|
|
(3.8
|
)
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
3,665.1
|
|
|
$
|
(1,504.0
|
)
|
|
$
|
2,161.1
|
|
|
$
|
3,661.9
|
|
|
$
|
(1,169.5
|
)
|
|
$
|
2,492.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Indefinite
|
|
|
$
|
1,138.6
|
|
|
$
|
|
|
|
$
|
1,138.6
|
|
|
$
|
1,137.4
|
|
|
$
|
|
|
|
$
|
1,137.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles,
other than Goodwill
Intangibles, other than Goodwill, were unchanged at
December 31, 2008 as compared to December 31, 2007
exclusive of the impact of foreign exchange and expected
amortization.
In 2007, assembled workforce increased by $0.7 million as a
result of the acquisition of Syntonix.
In 2006, core/developed technology increased by
$26.4 million as a result of the acquisition of Fumapharm.
The assembled workforce intangible asset increased
$1.4 million as a result of the acquisition of Conforma and
we obtained $11.1 million of distribution rights in
connection with the buy out of an agreement with Fumedica. See
Note 2, Acquisitions and Dispositions, for further
discussion of these transactions.
Amortization expense was $332.7 million,
$257.5 million, and $267.0 million for 2008, 2007, and
2006, respectively.
F-40
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization on intangible assets is expected to be in the range
of approximately $235 million to $352 million for each
of the next five years.
Goodwill
Goodwill was unchanged at December 31, 2008 as compared to
December 31, 2007 exclusive of the impact of foreign
exchange. Goodwill decreased $17.4 million in 2007 as
compared to the balance at December 31, 2006, primarily as
a result of certain tax adjustments. Approximately
$9.1 million of the adjustments relate to the adoption of
FIN 48. (See Note 15, Income Taxes, for discussion on
income tax).
|
|
10.
|
Property,
Plant and Equipment
|
Property, plant and equipment consists of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Land
|
|
$
|
108.8
|
|
|
$
|
104.8
|
|
Buildings
|
|
|
676.1
|
|
|
|
610.1
|
|
Leasehold improvements
|
|
|
80.1
|
|
|
|
75.6
|
|
Furniture and fixtures
|
|
|
48.1
|
|
|
|
46.1
|
|
Machinery and equipment
|
|
|
798.5
|
|
|
|
692.9
|
|
Construction in progress
|
|
|
420.2
|
|
|
|
388.2
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
2,131.8
|
|
|
|
1,917.7
|
|
Less accumulated depreciation
|
|
|
(537.0
|
)
|
|
|
(420.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,594.8
|
|
|
$
|
1,497.4
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $129.1 million,
$122.6 million, and $108.4 million for 2008, 2007, and
2006, respectively.
During 2008 and 2007, we capitalized to construction in progress
approximately $23.2 million and $10.1 million,
respectively, of interest costs primarily related to the
development of our large-scale biologic manufacturing facility
in Hillerød, Denmark.
At December 31, 2008, $388.4 million of the
construction in progress balance was related to construction of
Hillerød, Denmark. The first phase is complete and involved
the partial construction of a bulk manufacturing component, a
labeling and packaging component and installation of major
equipment. The label and packaging component and lab facility
was placed into service in the first quarter of 2007. The second
phase of the project involves the completion of the large-scale
manufacturing component and construction of a warehouse, and is
expected to be ready for commercial production in 2010.
See Note 25, Facility Impairments and Loss (Gain) on
Disposition, of details of impairment charges taken.
F-41
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other current assets consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets
|
|
$
|
70.8
|
|
|
$
|
96.4
|
|
Receivable from collaborations
|
|
|
1.7
|
|
|
|
12.0
|
|
Prepaid expenses
|
|
|
46.4
|
|
|
|
33.6
|
|
Interest receivable
|
|
|
11.8
|
|
|
|
12.8
|
|
Other
|
|
|
8.7
|
|
|
|
28.6
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
139.4
|
|
|
$
|
183.4
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Accrued
expenses and other
|
Accrued expenses and other consists of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Employee compensation and benefits
|
|
$
|
156.0
|
|
|
$
|
86.0
|
|
Royalties and licensing fees
|
|
|
40.6
|
|
|
|
57.6
|
|
Collaboration expenses
|
|
|
29.6
|
|
|
|
5.9
|
|
Clinical development expenses
|
|
|
41.5
|
|
|
|
19.4
|
|
Revenue-related rebates
|
|
|
37.7
|
|
|
|
34.1
|
|
CIP Accrual
|
|
|
18.6
|
|
|
|
32.6
|
|
Other
|
|
|
210.9
|
|
|
|
132.3
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
534.9
|
|
|
$
|
367.9
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Employee
Benefit Plans
|
401(k)
Employee Savings Plan
We maintain a 401(k) Savings Plan, or 401(k) Plan, which is
available to substantially all U.S. regular employees over
the age of 21. Participants may make voluntary contributions. We
make matching contributions according to the 401(k) Plans
matching formula. Beginning in January 2008, all past and
current matching contributions will vest immediately.
Previously, the matching contributions vested over four years of
service by the employee. Participant contributions vest
immediately. The 401(k) Plan also holds certain transition
contributions on behalf of participants who previously
participated in the Biogen, Inc. Retirement Plan. Employer
contributions for 2008, 2007, and 2006 totaled
$20.6 million, $17.8 million, and $12.0 million,
respectively.
Deferred
Compensation Plan
We maintain a non-qualified deferred compensation plan, known as
the Supplemental Savings Plan, or SSP, that allows a select
group of U.S. management employees to defer a portion of
their compensation. The SSP also provides certain credits to
highly compensated U.S. employees, which are paid by the
company. These credits are known as Restoration Match. The
deferred compensation amounts are accrued when earned. Such
deferred compensation is distributable in cash in accordance
with the rules of the SSP. Deferred compensation amounts under
such plan at December 31, 2008 and 2007, totaled
approximately $48.5 million and $50.3 million,
respectively, and are included in other long-term liabilities in
the accompanying consolidated balance sheets.
F-42
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The SSP also holds certain transition contributions on behalf of
participants who previously participated in the Biogen Inc.
Retirement Plan. Beginning in 2008, the Restoration Match vests
immediately. Previously, the Restoration Match and transition
contributions vested over four and seven years of service,
respectively, by the employee. Participant contributions vest
immediately. Distributions to participants can be either in one
lump sum payment or annual installments as elected by the
participants.
Retiree
Medical Plan
In 2003, we began to provide medical plan benefits to retirees
under the age of 65. The plan terms were modified in 2007 and,
accordingly, we recognized no (benefit) cost and no liability
remained at December 31, 2008. Net periodic (benefit) cost
for 2007, 2006, was $(6.7) million, and $1.4 million,
respectively. In 2007, we recognized a benefit, which was
primarily related to a modification of the plan in 2007. In
2006, the majority of the expense was related to service cost.
Pension
Plan
We currently maintain two retiree benefit plans: a Supplemental
Employee Retirement Plan and a defined benefit plan for certain
employees in Germany.
The obligations under the plans totaled $5.4 million and
$5.0 million at December 31, 2008 and 2007,
respectively.
Net periodic pension cost for 2008, 2007, and 2006 was
$1.1 million, $1.3 million, and $1.2 million,
respectively. The majority of the net period pension costs
related to service cost.
14. Other
Income (Expense), Net
Total other income (expense), net, consists of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Interest income
|
|
$
|
72.1
|
|
|
$
|
103.6
|
|
|
$
|
101.2
|
|
Interest expense
|
|
|
(52.0
|
)
|
|
|
(40.5
|
)
|
|
|
(0.9
|
)
|
Impairments of investments
|
|
|
(60.3
|
)
|
|
|
(24.4
|
)
|
|
|
(34.4
|
)
|
Gain (Loss) on sales of investments, net
|
|
|
(1.1
|
)
|
|
|
16.7
|
|
|
|
(2.8
|
)
|
Minority interest
|
|
|
(6.9
|
)
|
|
|
58.4
|
|
|
|
(6.8
|
)
|
Foreign exchange gains (losses), net
|
|
|
(9.8
|
)
|
|
|
3.0
|
|
|
|
4.9
|
|
Settlement of litigation and claims
|
|
|
|
|
|
|
0.1
|
|
|
|
(4.6
|
)
|
Gain on sale of property
|
|
|
|
|
|
|
7.1
|
|
|
|
|
|
Other, net
|
|
|
(6.7
|
)
|
|
|
6.8
|
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
(64.7
|
)
|
|
$
|
130.8
|
|
|
$
|
52.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
For 2008 compared to 2007, interest income decreased
$31.5 million, or 30.4%, primarily due to a reduction in
cash and cash equivalents due to the funding of our tender offer
in July 2007, a net payment of $525.5 million for our term
loan facility and other debt, and lower investment yields. For
2007 compared to 2006, interest income increased
$2.4 million, or 2.4%, primarily due to higher yields
offset by a reduction in cash and cash equivalents due to the
funding of our tender offer in July 2007.
F-43
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Interest
Expense
For 2008 compared to 2007, interest expense increased
$11.5 million, or 28%, primarily due to an increased debt
balance in 2008 as compared to 2007 due to the issuance of debt
in July 2007 as well as $8.9 million due to the impact of
hedge ineffectiveness as discussed in Note 4, Financial
Investments. For 2007 compared to 2006, interest expense
increased $39.6 million, primarily due to the increased
debt levels relating to our tender offer funded in July 2007
(see Note 21, Tender Offer). As discussed in Note 4,
Financial Investments, in 2008 we terminated certain interest
rate swaps. Upon termination of the swaps, the carrying amount
of the 6.875% Senior Notes due in 2018 increased
$62.8 million, which 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.
Impairment
on Investments
In 2008, the impairment on investments was due to an other than
temporary decline in the fair value of marketable securities of
$41.7 million related primarily to non agency mortgage and
asset backed securities and corporate securities classified as
available for sale as well as other than temporary declines in
the fair values of our strategic investments of
$18.6 million. In 2007 and 2006, the impairment of
investments is primarily due to the other than temporary decline
in value in our strategic investments portfolio.
Minority
Interest
For 2008 compared to 2007, minority interest decreased
$65.3 million, primarily due to the recording in 2007 of
$64.3 million in minority interest pursuant to the initial
consolidation of Cardiokine Biopharma LLC or Cardiokine in
August 2007 and Neurimmune in November 2007. For 2007 compared
to 2006, minority interest increased $65.2 million, also
primarily due to the initial consolidation of Cardiokine and
Neurimmune in 2007. The minority interest related to Cardiokine
and Neurimmune recorded in 2007 offset an equal charge to
IPR&D, which resulted in no net impact to our results of
operations for these IPR&D and minority interest charges.
Excluding the impact of these consolidations, minority interest
expense was $6.9 million, $5.9 million and
$6.8 million for the years ended December 31, 2008,
2007 and 2006, respectively.
Gain
on Sale of Property
In 2007, we sold approximately 28 acres of land in
Oceanside, California for $16.5 million. We recorded a
pre-tax gain of approximately $7.1 million on the sale in
other income (expense) as this land was not utilized in our
operations.
F-44
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
tax expense
Income before income tax provision and the income tax expense
consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Income before income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
838.3
|
|
|
$
|
693.9
|
|
|
$
|
525.2
|
|
Foreign
|
|
|
310.6
|
|
|
|
216.7
|
|
|
|
(33.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,148.9
|
|
|
$
|
910.6
|
|
|
$
|
492.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
431.2
|
|
|
$
|
305.9
|
|
|
$
|
355.0
|
|
State
|
|
|
24.3
|
|
|
|
25.8
|
|
|
|
15.8
|
|
Foreign
|
|
|
49.8
|
|
|
|
22.3
|
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
505.3
|
|
|
$
|
354.0
|
|
|
$
|
384.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(119.2
|
)
|
|
$
|
(76.7
|
)
|
|
$
|
(105.3
|
)
|
State
|
|
|
(20.0
|
)
|
|
|
(4.4
|
)
|
|
|
(0.7
|
)
|
Foreign
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(139.5
|
)
|
|
$
|
(81.6
|
)
|
|
$
|
(106.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
365.8
|
|
|
$
|
272.4
|
|
|
$
|
278.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets and liabilities
Significant components of our deferred tax assets and
liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Tax credits
|
|
$
|
11.0
|
|
|
$
|
5.5
|
|
Inventory and other reserves
|
|
|
90.4
|
|
|
|
32.2
|
|
Capitalized costs
|
|
|
36.6
|
|
|
|
84.9
|
|
Intangibles, net
|
|
|
89.6
|
|
|
|
77.2
|
|
Net operating loss
|
|
|
33.1
|
|
|
|
29.6
|
|
Share-based compensation
|
|
|
59.9
|
|
|
|
70.5
|
|
Other
|
|
|
57.9
|
|
|
|
40.5
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
378.5
|
|
|
$
|
340.4
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustment
|
|
$
|
(552.7
|
)
|
|
$
|
(632.7
|
)
|
Interest expense on notes payable
|
|
|
|
|
|
|
(0.3
|
)
|
Unrealized gain on investments and cumulative translation
adjustment
|
|
|
(2.3
|
)
|
|
|
(2.7
|
)
|
Depreciation, amortization and other
|
|
|
(108.7
|
)
|
|
|
(129.8
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
$
|
(663.7
|
)
|
|
$
|
(765.5
|
)
|
|
|
|
|
|
|
|
|
|
F-45
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Tax
Rate
A reconciliation between the U.S. federal statutory tax
rate and our effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes
|
|
|
1.6
|
|
|
|
3.0
|
|
|
|
3.0
|
|
Taxes on foreign earnings
|
|
|
(5.8
|
)
|
|
|
(7.6
|
)
|
|
|
(16.3
|
)
|
Credits and net operating loss utilization
|
|
|
(2.9
|
)
|
|
|
(3.1
|
)
|
|
|
(0.6
|
)
|
Fair value adjustment
|
|
|
3.7
|
|
|
|
3.5
|
|
|
|
6.2
|
|
IPR&D
|
|
|
0.8
|
|
|
|
0.7
|
|
|
|
27.9
|
|
Non-deductible items
|
|
|
(0.8
|
)
|
|
|
(0.6
|
)
|
|
|
0.8
|
|
Other
|
|
|
0.2
|
|
|
|
(1.0
|
)
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
31.8
|
%
|
|
|
29.9
|
%
|
|
|
56.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, we had net operating losses and
general business credit carryforwards for federal income tax
purposes of approximately $64.7 million and
$3.2 million, respectively, which begin to expire in 2020.
Additionally, for state income tax purposes, we had net
operating loss carryforwards of approximately
$197.1 million, which begin to expire in 2009. For state
income tax purposes, we also had research and investment credit
carryforwards of approximately $12.0 million, of which
approximately $9.7 million begin to expire in 2009, with
the remainder having no prescribed expiration date.
In assessing the realizability of our deferred tax assets, we
have considered whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible. In
making this determination, under the applicable financial
reporting standards, we are allowed to consider the scheduled
reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies. Our estimates of future
taxable income take into consideration, among other items, our
estimates of future income tax deductions related to the
exercise of stock options. Based upon the level of historical
taxable income and income tax liability and projections for
future taxable income over the periods in which the deferred tax
assets are utilizable, we believe it is more likely than not
that we will realize the benefits of our entire deferred tax
assets. In the event that actual results differ from our
estimates or we adjust our estimates in future periods, we may
need to establish a valuation allowance, which could materially
impact our financial position and results of operations.
As of December 31, 2008, undistributed foreign earnings of
non-U.S. subsidiaries
included in consolidated retained earnings aggregated
approximately $2,071.3 million. We intend to reinvest these
earnings indefinitely in operations outside the U.S. It is
not practicable to estimate the amount of additional tax that
might be payable if such earnings were remitted to the U.S.
IRS
Settlement
During 2007, the IRS completed its examination of Biogen Idec
Inc.s consolidated federal income tax returns for the
fiscal years 2003 and 2004 and issued an assessment. We
subsequently paid amounts related to issues agreed to with the
IRS and are appealing several issues. As a result of this
examination activity, we reassessed our liability for income tax
contingencies to reflect the IRS findings and recorded a
$14.7 million reduction in our liabilities for income tax
contingencies during the second quarter of 2007.
F-46
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During 2005, the Internal Revenue Service, or IRS, completed its
examination of legacy Biogen, Inc.s, now Biogen Idec MA,
Inc.s, consolidated federal income tax returns for the
fiscal years 2001 and 2002 and issued an assessment. We
subsequently paid the majority of the amounts assessed and are
appealing one issue.
Contingency
On September 12, 2006, we received a Notice of Assessment
from the Massachusetts Department of Revenue for
$38.9 million, which includes penalties and interest, with
respect to the 2001, 2002, and 2003 tax years. We believe that
we have meritorious defenses to the proposed adjustment and will
vigorously oppose the assessment. We believe that the assessment
does not impact the level of liabilities for our 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, this could have a material impact on
our future effective tax rate and our results of operations in
the period in which an event would occur.
Adoption
of FASB Interpretation No. 48
Effective January 1, 2007, we adopted the provisions of
FIN 48. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises
financial statements in accordance with SFAS 109.
FIN 48 also prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of each tax position taken or expected to be
taken in a tax return. As a result of the adoption of
FIN 48, we recognized a reduction in the liability for
unrecognized tax benefits of $14.2 million, which was
recorded as a $1.8 million reduction to the January 1,
2007 balance of our accumulated deficit, a $9.1 million
reduction in goodwill and a $3.3 million increase in our
deferred tax liability.
A reconciliation of the beginning and ending amount of our
unrecognized tax benefits is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance at January 1
|
|
$
|
221.1
|
|
|
$
|
196.8
|
|
Additions based on tax positions related to the current period
|
|
|
21.8
|
|
|
|
29.7
|
|
Additions for tax positions of prior periods
|
|
|
20.4
|
|
|
|
83.5
|
|
Reductions for tax positions of prior periods
|
|
|
(13.7
|
)
|
|
|
(70.2
|
)
|
Settlements
|
|
|
|
|
|
|
(18.7
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
249.6
|
|
|
$
|
221.1
|
|
|
|
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at
December 31, 2008, December 31, 2007, and
January 1, 2007, are $155.1 million,
$110.5 million, and $98.2 million (net of the federal
benefit on state issues), respectively, of unrecognized tax
benefits that, if recognized, would affect the effective income
tax rate in any future periods. We do not anticipate any
significant changes in our positions in the next twelve months
other than expected settlements which have been classified as
current liabilities within the accompanying balance sheet.
We recognize potential interest and penalties accrued related to
unrecognized tax benefits in income tax expense. During 2008 and
2007, we recognized approximately $16.1 million and
$14.5 million in interest expense, respectively.
Additionally, during 2007, we reduced our interest accrual by
$3.3 million due to the completion of an IRS examination as
described above. We have accrued approximately
$47.7 million and $31.6 million for the payment of
interest at December 31, 2008 and December 31, 2007,
respectively.
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.
F-47
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
Research
Collaborations
|
In connection with our research and development efforts, we have
entered into various collaboration arrangements which provide us
with rights to develop, produce and market products using
certain know-how, technology and patent rights maintained by the
parties. Terms of the various license agreements may require us
to make milestone payments upon the achievement of certain
product development objectives and pay royalties on future
sales, if any, of commercial products resulting from the
collaboration.
Neurimmune
In November 2007, we entered into a collaboration agreement with
Neurimmune SubOne AG, or Neurimmune, for the worldwide
development and commercialization of human antibodies for the
treatment of Alzheimers disease, or AD. The collaboration
agreement is effective for 12 years from the first
commercial sale of product using such compound. Neurimmune will
conduct research to identify potential therapeutic antibodies
and we will be responsible for the development and
commercialization of all products. Under the terms of the
agreement, we paid a $2.0 million upfront payment and may
pay up to $367.5 million in milestone payments, as well as
a royalty on net sales of any resulting commercial products. In
2008, we paid $10.5 million in milestone payments. We also
will reimburse Neurimmune for certain research and development
costs incurred. We have determined that we are the primary
beneficiary under FIN 46(R), because we are required to
absorb the variability (increases or decreases) in development
cost under the collaboration agreement. As a result, we have
consolidated the results of Neurimmune and recorded an
IPR&D charge of $34.3 million. The amount allocated to
IPR&D relates to the development of the
Beta-Amyloid
antibody. At the effective date of the agreement, this compound
had not reached technological feasibility and had no alternative
future use. We have allocated the $34.3 million to the
minority interest, as charge represents the fair value of the
Beta-Amyloid
antibody retained by the minority interest holders. As a result,
we have recorded a credit in minority interest, which is
recorded in other income (expense). The assets and liabilities
of Neurimmune are not significant as it is a research and
development organization. Through December 31, 2008, we
have spent an additional $6.5 million to develop the
Beta-Amyloid
antibody. We expect to incur approximately an additional
$291.7 million to develop the
Beta-Amyloid
antibody for all indications under development. The estimated
revenues from the
Beta-Amyloid
antibody are expected to be recognized beginning in 2018. A
discount rate of 15% was used to value this project, which we
believe to be commensurate with the stage of development of the
Beta-Amyloid
antibody and the uncertainties in the economic estimates
described above.
Cardiokine
In August 2007, our collaboration agreement with Cardiokine
became effective. The agreement is for the joint development of
lixivaptan, an oral compound for the potential treatment of
hyponatremia in patients with congestive heart failure. The
collaboration agreement is effective for 10 years from the
first commercial sale of a product using such compound. We will
be responsible for the global commercialization of lixivaptan
and Cardiokine has an option for limited co-promotion in the U.S.
Under the terms of the agreement, we paid a $50.0 million
upfront payment and will pay up to $170.0 million in
milestone payments for successful development and global
commercialization of lixivaptan, as well as royalties on
commercial sales. The $50.0 million is reflected as
research and development expense in the accompanying
consolidated statement of income. We have determined that we are
the primary beneficiary under FIN 46(R), because we are
required to absorb the variability (increases or decreases) in
development costs under the collaboration agreement. As a
result, we have consolidated the results of Cardiokine and
recorded an IPR&D charge of approximately
$30.0 million. The amount allocated to IPR&D relates
to the development of lixivaptan. At the effective date of the
agreement, this compound had not reached technological
feasibility and had no alternative future use. We have allocated
the approximately $30.0 million to the minority interest,
as the charge represents the fair value of the lixivaptan
compound retained by the minority interest holders. As a result,
we recorded a credit in
F-48
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
minority interest, which is recorded in other income (expense).
The assets and liabilities of Cardiokine are not significant as
it is a research and development organization. Through
December 31, 2008, we have spent an additional
$61.0 million to develop lixivaptan since the agreement
became effective. We expect to incur approximately an additional
$367.0 million to develop lixivaptan for all indications
under development. The estimated revenues from lixivaptan are
expected to be recognized beginning in 2012. A discount rate of
11% was used to value this project, which we believe to be
commensurate with the stage of development of lixivaptan and the
uncertainties in the economic estimates described above.
mondo
On September 14, 2006, we entered into an exclusive
collaboration and license agreement with mondoBIOTECH, AG, a
private Swiss biotechnology company In June 2007, we entered
into a collaboration with a subsidiary of MondoBiotech AG,
mondoGen, or mondo, to develop, manufacture and commercialize
Aviptadil, a clinical compound for the treatment of pulmonary
arterial hypertension, or PAH. In accordance with the agreement,
we will be responsible for the global manufacturing, clinical
development, regulatory approval and commercialization of
Aviptadil. We finalized the development plan for Aviptadil and
had mondo initiate additional clinical work in 2007.
Under the terms of the agreement, we paid mondo a
$7.5 million upfront payment and will pay up to
$30.0 million in milestones payments for successful
development and commercialization of Aviptadil in PAH in the
U.S. and Europe, as well as royalty payments on commercial
sales. The $7.5 million upfront amount was recorded as
research and development expense in 2006. We have determined
that we are the primary beneficiary under FIN 46(R),
because we are required to absorb the variability (increases or
decreases) in development costs under the collaboration
agreement. As a result, we have consolidated the results of
mondo. The assets and liabilities of mondo are not significant
as it is a research and development organization. Through
December 31, 2008, we have spent an additional
$29.9 million on the development of Aviptadil and could
incur an additional $134.1 million to develop Aviptadil. We
have determined that we are the primary beneficiary under
FIN 46(R) and as a result, we consolidate the results of
mondo.
Additionally, we have indicated our intention to make a minority
equity investment of $5.0 million in mondo in the event
that it undertakes an initial public offering.
Alnylam
In September 2006, we entered into a collaboration agreement
with Alnylam Pharmaceuticals, Inc., or Alnylam, related to
discovery and development of RNAi therapeutics for the potential
treatment of PML.
Under the terms of the collaboration, we and Alnylam will
initially conduct investigative research into the potential of
using RNAi technology to develop up to three therapeutics to
treat PML. Of the therapeutics presented, we will select one
development candidate and one back up candidate and will be
responsible for the development and commercialization of the
selected candidate. We would also have the option to develop and
commercialize the backup candidate at our discretion. We will
fund all research and development activities.
We paid Alnylam an upfront payment of $5.0 million and
agreed to additional payments of up to $51.3 million in
milestone payments, plus royalties in the event of successful
development and utilization of any product resulting from the
collaboration. The $5.0 million upfront payment was
recorded as research and development expense in 2006.
UCB
In September 2006, we entered into a global collaboration with
UCB, S.A., or UCB, to jointly develop and commercialize CDP323
for the treatment of relapsing-remitting MS and other potential
indications. CDP323 is an orally active small molecule alpha-4
integrin inhibitor in Phase 2 clinical trials.
F-49
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under terms of the agreement, we paid UCB an upfront payment of
$30.0 million and agreed to make development milestone
payments to UCB for the first indication of up to
$93.0 million, with total milestone payments of up to
$71.3 million payable for any additional indications. We
will also pay UCB up to $75.0 million in commercialization
milestones and will contribute significantly to clinical costs
for Phase 2 and Phase 3 studies. All commercialization costs and
profits will be shared equally. The $30.0 million upfront
payment was recorded as research and development expense in 2006.
Facet
Biotech (Formerly PDL BioPharma, Inc.)
In August 2005, we entered in a collaborative agreement with PDL
BioPharma, Inc., or PDL, for the joint development, manufacture
and commercialization of three Phase 2 antibody products. In
2008, PDL spun off the research and development component of its
business into a newly created public entity called Facet
Biotech. Our collaboration agreement now resides with Facet
Biotech (Facet). Under this agreement, we and Facet will share
in the development and commercialization of Daclizumab in MS and
indications other than transplant and respiratory diseases, and
the development and commercialization of M200, or volociximab,
and HuZAF, or fontolizumab, in all indications. Fontolizumab was
discontinued during 2006. Both companies will share equally the
costs of all development activities and all operating profits
from each collaboration product within the U.S. and Europe.
We paid Facet a non-refundable upfront licensing fee of
$40.0 million for these product candidates, which we
concluded had no alternative future uses and was therefore
included in research and development expenses in 2005. We also
accrued $10.0 million in research and development expense
in 2005 for future payments that were determined to be
unavoidable. The terms of the collaborative agreement require us
to make certain development and commercialization milestone
payments upon the achievement of certain program objectives
totaling up to $660.0 million over the life of the
agreement, of which $560.0 million relates to development,
and $100.0 million relates to the commercialization of
collaboration products.
In addition to the collaborative agreement, we purchased
approximately $100.0 million of common stock, or 3.5% of
its common stock, from Facet. We recorded an impairment charge
of $18.3 million during 2006 to reflect an other than
temporary impairment in the value of the stock we own. In 2007,
we sold our entire investment in Facet for $99.5 million,
resulting in a gain of $17.2 million.
Sunesis
In December 2002, we entered into a collaboration agreement with
Sunesis Pharmaceuticals, Inc., or Sunesis, related to the
discovery and development of oral therapeutics for the treatment
of inflammatory and autoimmune diseases. In August 2004, we
entered into a collaborative agreement with Sunesis to discover
and develop small molecule cancer therapeutics targeting
primarily kinases. Under the agreement, we acquired exclusive
licenses to develop and commercialize certain compounds
resulting from the collaboration. Upon signing the agreement, we
paid Sunesis a non-refundable upfront license fee of
$7.0 million, which was recorded in research and
development expenses in 2004. During 2005, we recorded
$1.0 million to research and development expense for
milestones achieved through the collaboration with Sunesis, of
which $0.5 million was paid to Sunesis in 2005. We have
committed to paying Sunesis additional amounts upon the
completion of certain future research milestones and first and
second indication development milestones. If all the milestones
were to be achieved based on our plan of research, we would be
required to pay up to an additional $302.0 million to
Sunesis, excluding royalties.
Under the terms of the agreements, we purchased approximately
4.2 million shares of preferred stock of Sunesis for
$20.0 million and, in September 2005, we purchased
$5.0 million of common stock of Sunesis as part of their
initial public offering, or IPO. At the time of the IPO, our
preferred stock was converted into shares of Sunesis common
stock and, based on the IPO valuation, we wrote-down the value
of our investment in Sunesis by $4.6 million as we had
determined that the impairment was other than temporary.
Following the IPO, we owned approximately 2.9 million
shares, or 9.9% of the common stock. We recorded impairment
charges of $4.9 million, $7.4 million and
$7.2 million during 2008, 2007, and 2006, respectively, to
reflect an other than temporary
F-50
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
impairments in the value of the stock we own. We now hold a
total of 2.9 million shares of Sunesis, representing 8% of
total shares outstanding. Our investment in Sunesis is included
in investments and other assets and has a fair value of
$0.9 million at December 31, 2008.
Vernalis
In June 2004, we entered into a collaborative research and
development agreement with Vernalis plc, or Vernalis, aimed at
advancing research into Vernalis adenosine A2A receptor
antagonist program, which targets Parkinsons disease and
other central nervous system disorders. Under the agreement, we
received exclusive worldwide rights to develop and commercialize
Vernalis lead compound, BIIB014, formerly V2006. We paid
Vernalis an initial license fee of $10.0 million in July
2004, which was recorded in research and development expenses in
2004. Terms of the collaborative agreement may require us to
make milestone payments upon the achievement of certain program
objectives and pay royalties on future sales, if any, of
commercial products resulting from the collaboration. In June
2004, we made an investment of $5.5 million through
subscription for approximately 6.2 million new Vernalis
common shares, representing 4.19% of Vernalis
post-financing issued share capital, and committed to purchase
an additional $4.0 million in the event of future Vernalis
financing. In March 2005, we purchased approximately
1.4 million additional shares under a qualified offering
for $1.8 million, which fully satisfies our investment
obligation to Vernalis. We paid development milestones of
$3.0 million in 2006. If all the milestones were to be
achieved, we would be required to pay up to an additional
$85.0 million, excluding royalties, over the remaining life
of the agreement. We account for our investment in Vernalis
using the cost method of accounting, subject to periodic review
of impairment. In 2008 and 2007, we recorded an impairment
charge of $0.5 million and $6.3 million, respectively,
representing an other than temporary impairment in the stock we
own. We now hold a total of approximately 7.6 million
shares of Vernalis, representing 2% of total shares outstanding.
Our investment in Vernalis is included in investments and other
assets and has a fair value of $0.3 million at
December 31, 2008.
MPM
In May 2006, we became a limited partner in MPM Bioventures IV-
Strategic Fund, LP, a limited partnership that invests in
entities that are engaged in the research, development,
manufacture, marketing
and/or sale
of novel biological products or technologies. Due to our
percentage of ownership, we account for our investment in this
fund under the equity method of accounting. We have committed to
contribute up to $10.0 million to the LP and made an
initial contribution of $1.1 million to the LP. Through
December 31, 2008, we have contributed $3.7 million
into the LP, which is included in investments and other assets
in our consolidated balance sheets.
In February 2006, we became a limited partner in MPM Bioventures
IV-QP, LP, a limited partnership that invests in entities that
are engaged in the research, development, manufacture, marketing
and/or sale
of novel biological products or technologies. Due to our
percentage of ownership, we account for our investment in this
fund under the cost method of accounting. We have committed to
contribute up to $10.0 million to the LP and made an
initial contribution of $1.0 million to the LP. Through
December 31, 2008, we have contributed $5.2 million
into the LP, which is included in investments and other assets
in our consolidated balance sheets.
In May 2004, we entered into a limited partnership agreement as
a limited partner with MPM Bioventures III GP, LP, to
create MPM Bioventures Strategic Fund, LP, or the Strategic
Fund. The purpose of the Strategic Fund is to make, manage, and
supervise investments in biotechnology companies with novel
products or technologies that fit strategically with Biogen
Idec. Due to our percentage of ownership, we account for our
investment in this fund under the equity method of accounting.
The Strategic Fund takes only minority positions in the equity
of its investments, and does not seek to engage in
day-to-day
management of the entities. In February 2006, we adjusted our
commitment to the Strategic Fund to approximately
$32.0 million over a three-year period. Through
December 31, 2008, we contributed $25.4 million to the
Strategic Fund.
F-51
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In April 2004, we became a limited partner in MPM Bioventures
III-QP, LP, a limited partnership that invests in entities that
are engaged in the research, development, manufacture, marketing
and/or sale
of novel biological products or technologies. Due to our
percentage of ownership, we account for our investment in this
fund under the cost method of accounting. We have committed to
contribute $4.0 million to the LP. Through
December 31, 2008, we have contributed $3.9 million
into the LP, which is included in investments and other assets
in our consolidated balance sheets.
Vetter
In August 2003, Biogen, Inc. entered into a collaboration
agreement with Vetter Pharma-Fertigung GmbH & Co.
KG, or Vetter, for the fill-finish of our products, including
liquid AVONEX and TYSABRI. As of December 31, 2007, we have
made milestone payments to Vetter of 35.0 million euros in
return for its reserving certain manufacturing capacity for us
at its fill-finish facility. Under the terms of the agreement,
these payments will reduce payments due on our future purchases
of inventory from Vetter over a seven-year period, which
commenced in 2007. During 2008 and 2007, we consumed
approximately $6.5 million and $5.6 million,
respectively, of this asset. Accordingly, as of
December 31, 2008, we have recorded $8.4 million and
$21.9 million of these payments in other current assets and
in investments and other assets, respectively, in our
consolidated balance sheets. The related portion of the asset
will be reclassified to inventory when purchases from Vetter are
made.
Schering
In June 1999, we entered into a collaboration and license
agreement with Schering AG, aimed at the development and
commercialization of ZEVALIN. Under the terms of the agreement,
we may receive milestone and research and development support
payments totaling up to $47.5 million, subject to the
attainment of product development objectives. Schering AG
received exclusive marketing and distribution rights to ZEVALIN
outside the U.S., and we will continue to receive royalties on
product sales by Schering AG. Under the terms of a separate
supply agreement, we are obligated to meet Schering AGs
clinical and commercial requirements for ZEVALIN. Schering AG
may terminate these agreements for any reason. Under the above
agreement, amounts earned by us and recognized as revenue for
contract research and development approximate the research and
development expenses incurred under the related agreement.
Although in December 2007, we sold our rights to market, sell,
manufacture and develop ZEVALIN in the U.S., we still
participate in this agreement and we are reimbursed by CTI for
our costs incurred in fulfilling our obligation.
Targeted
We had previous agreements that have expired with Targeted
Genetics Corporation, or Targeted, for gene therapy and
research. We have no ongoing commitments with respect to
Targeted. In connection with the expired agreements, however, we
acquired shares of Targeted. In 2005, we recognized
$9.2 million for impairments of our Targeted investment
that was determined to be
other-than-temporary.
In 2006, we received one million shares of Targeted and
$0.5 million in cash in exchange for forgiveness of
$5.7 million of debt owed by Targeted to us. We recorded a
gain of $3.4 million upon receipt of the shares and the
cash payment. As a result of the transactions, as of
December 31, 2006, we owned 19.9% of the outstanding shares
of Targeted. We account for our investment in Targeted using the
cost method. During 2008, we recorded an impairment charge of
$2.9 million related to Targeted and at December 31,
2008, we held 2.2 million shares, representing 11% of the
outstanding shares, with a fair market value of
$0.5 million. This amount is included in investments and
other assets on our consolidated balance sheet.
|
|
17.
|
Unconsolidated
Joint Business Arrangement
|
We have a collaboration with Genentech Inc., or Genentech, 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
F-52
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
collaboration agreement with Genentech include co-exclusive
rights to develop, commercialize and market RITUXAN in the
United States 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.
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-promoted
by Zenyaku and Chugai. There is no direct contractual
arrangement between us, Roche, Zenyaku or Chugai.
Revenues from unconsolidated joint business consists of
(1) our share of pretax co-promotion profits in the
U.S. and Canada and (2) royalty revenue from 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.
Under the amended and restated collaboration agreement, our
current pretax co-promotion profit-sharing formula, which resets
annually, is as follows:
|
|
|
|
|
Co-promotion Operating Profits
|
|
Biogen Idecs Share of Co-promotion Profits
|
|
|
First $50 million
|
|
|
30
|
%
|
Greater than $50 million
|
|
|
40
|
%
|
In 2008, 2007 and 2006, the 40% threshold was met during the
first quarter. 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:
|
|
|
|
|
|
|
|
|
First New Anti-CD20 Product U.S.
|
|
Biogen Idecs Share
|
|
Co-promotion Operating Profits
|
|
Gross Product Sales
|
|
of Co-promotion Profits
|
|
|
First $50 million(1)
|
|
N/A
|
|
|
30
|
%
|
Greater than $50 million
|
|
Until such sales exceed $150 million
|
|
|
38
|
%
|
|
|
in any calendar
year(2)
|
|
|
|
|
|
|
Or
|
|
|
|
|
|
|
After such sales exceed $150 million
|
|
|
35
|
%
|
|
|
in any calendar year and until such sales exceed $350 million in
any calendar
year(3)
|
|
|
|
|
|
|
Or
|
|
|
|
|
|
|
After such sales exceed $350 million
|
|
|
30
|
%
|
|
|
in any calendar
year(4)
|
|
|
|
|
F-53
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(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 new 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. We record our
royalty and co-promotion profits revenue on sales of RITUXAN
outside the U.S. on a cash basis. Under the amended and
restated collaboration agreement, we will receive lower royalty
revenue from Genentech on sales by Roche and Zenyaku of New
Anti-CD20 Products, as compared to royalty revenue received on
sales of RITUXAN. 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.
The amended and restated collaboration agreement provides that,
upon the occurrence of a Biogen Idec
change-in-control
as described in the agreement, within 90 days of that
change-in-control,
Genentech may present an offer to us to purchase our rights to
RITUXAN. We must then accept Genentechs offer or purchase
Genentechs rights to RITUXAN for an amount proportioned
(using the profit sharing ratio between us) to Genentechs
offer. If Genentech presents such an offer in such a situation,
then Genentech will be deemed concurrently to have exercised a
right, in exchange for a royalty on net sales in the
U.S. of any New Anti-CD20 Products or Third Party Anti-CD20
Products developed under the agreement, to purchase our interest
in each such product. As discussed in Note 19, Litigation,
Genentech asserted for the first time in 2006 that the November
2003 transaction in which Idec acquired Biogen and became Biogen
Idec was a change of control under the Collaboration Agreement.
We strongly disagree that the Merger was a change of control,
but if it was, our position is that Genentechs rights
under the
change-in-control
provision in the Collaboration Agreement have long since expired.
Concurrent with the original collaboration agreement, we also
entered into an expression technology license agreement with
Genentech (for a proprietary gene expression technology
developed by us) and a preferred stock purchase agreement
providing for certain equity investments in us by Genentech (see
Note 20, Shareholders Equity).
Under the terms of separate agreements with Genentech,
commercialization of RITUXAN outside the U.S. is the
responsibility of Roche, except in Japan where RITUXAN is
co-promoted
by Zenyaku and Chugai. We receive royalties from Genentech on
sales by Roche, Zenyaku and Chugai of RITUXAN outside the U.S.,
and Canada. Revenue on sales of RITUXAN in Canada are received
directly from Roche. Under our amended and restated
collaborative agreement with Genentech, we will receive lower
royalty revenue from Genentech on sales by Roche
F-54
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and Zenyaku of New Anti-CD20 Products and only for the first
11 years from the date of first commercial sale of such New
Anti-CD20 Products.
Total revenues from unconsolidated joint business consist of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Co-promotion profits in the U.S.
|
|
$
|
733.5
|
|
|
$
|
616.8
|
|
|
$
|
555.8
|
|
Reimbursement of selling and development expenses in the
U.S.
|
|
|
59.7
|
|
|
|
58.5
|
|
|
|
61.1
|
|
Revenue on sales of RITUXAN outside the U.S.
|
|
|
335.0
|
|
|
|
250.8
|
|
|
|
194.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,128.2
|
|
|
$
|
926.1
|
|
|
$
|
810.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 the U.S. and Canada. 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. RITUXAN was launched
in 1998 in most European countries and in 2001 in Japan.
Therefore, we expect a significant decrease in royalty revenues
on sales of RITUXAN outside the US 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.
In 2008, under the terms of our collaboration agreement, we paid
Genentech $31.5 million to participate in a license
agreement with Roche for the development of a Third Party
Anti-CD20 Product. This was recorded as research and development
cost in our consolidated statement of operations as the product
had no alternative future use. In addition, in 2008 we received
$12.4 million from Genentech pursuant to Roche choosing to
participate in a study of RITUXAN in primary-progressive
multiple sclerosis. This was recorded as revenue from
unconsolidated joint business in our consolidated statement of
operations.
|
|
18.
|
Commitments
and Contingencies
|
Leases
In November 2008, we entered into an agreement with a real
estate developer for the construction and leasing of a
356,000 square foot office building in Weston, MA. The
construction of the building is to commence in 2009, and the
completion of the building is slated for 2010. The lease term is
from 2010 through 2025, and we have options to extend the term
of the lease through 2035. We will account for this lease as an
operating lease.
We rent laboratory and office space and certain equipment under
noncancellable operating leases. The rental expense under these
leases, which terminate at various dates through 2015, amounted
to $36.0 million in 2008, $33.1 million in 2007, and
$26.2 million in 2006. The lease agreements contain various
clauses for renewal at our option and, in certain cases,
escalation clauses typically linked to rates of inflation.
At December 31, 2008, minimum rental commitments under
noncancellable leases for each of the next five years and total
thereafter were as follows (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Minimum lease payments
|
|
$
|
36.4
|
|
|
$
|
36.2
|
|
|
$
|
33.2
|
|
|
$
|
26.9
|
|
|
$
|
27.1
|
|
|
$
|
246.6
|
|
|
$
|
406.4
|
|
Income from subleases
|
|
|
5.0
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net minimum lease payments
|
|
$
|
31.4
|
|
|
$
|
34.0
|
|
|
$
|
33.2
|
|
|
$
|
26.9
|
|
|
$
|
27.1
|
|
|
$
|
246.6
|
|
|
$
|
399.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-55
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Construction
Commitments
As of December 31, 2008, we have completed the first phase
of construction of our large-scale biologic manufacturing
facility in Hillerød, Denmark, which included partial
completion of a bulk manufacturing component, a labeling and
packaging component, 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 and
construction of a warehouse. As of December 31, 2008, we
had contractual commitments of approximately $14.5 million
for the second phase. This second phase of the project is
expected to be ready for commercial production in 2010.
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 except for cases filed by the County of Erie,
County of Oswego and County of Schenectady (the Three
County Actions) are the subject of a
Consolidated Complaint (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 (the MDL proceedings). The
complaints allege that the defendants (i) fraudulently
reported the Average Wholesale Price for certain drugs for which
Medicaid provides reimbursement (Covered Drugs);
(ii) marketed and promoted the sale of Covered Drugs to
providers based on the providers ability to collect
inflated payments from the government and Medicaid beneficiaries
that exceeded payments possible for competing drugs;
(iii) provided financing incentives to providers to
over-prescribe Covered Drugs or to prescribe Covered Drugs in
place of competing drugs; and (iv) overcharged Medicaid for
illegally inflated Covered Drugs reimbursements. Among other
things, the complaints allege violations of New York state law
and advance common law claims for unfair trade practices, fraud,
and unjust enrichment. In addition, the amended Consolidated
Complaint alleges that the defendants failed to accurately
report the best price on the Covered Drugs to the
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, is 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. Biogen Idec and other
defendants have filed a motion to dismiss the complaint, which
is pending. On December 26, 2007, Biogen Idec and other
defendants agreed to a mediation, which is now underway. 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 the complaint
and intend vigorously to defend the case.
On June 17, 2006, Biogen Idec filed a Demand for
Arbitration against Genentech, Inc. with the American
Arbitration Association (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 (the Collaboration Agreement), by
failing to honor Biogen Idecs contractual
F-56
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. We intend to
vigorously assert that position if Genentech persists in making
this claim. 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 in the
arbitration and intend vigorously to defend against these
allegations.
On September 12, 2006, the Massachusetts Department of
Revenue (DOR) issued a notice of assessment against
Biogen Idec MA, Inc. for $38.9 million of corporate excise
tax for 2002, which includes associated interest and penalties.
On December 6, 2006, we filed an abatement application with
the DOR, seeking abatements for
2001-2003.
The abatement application was denied on July 24, 2007. On
July 25, 2007, we filed a petition with the Massachusetts
Appellate Tax Board, seeking abatements of corporate excise tax
for
2001-2003
and adjustments in certain credits and credit carryforwards for
2001-2003.
Issues before the Board include the computation of Biogen Idec
MAs sales factor for
2001-2003,
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 intend to
contest this matter vigorously. We believe that the assessment
does not impact the level of liabilities for income tax
contingencies.
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
both civil and criminal 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.
On August 10, 2004, Classen Immunotherapies, Inc. filed
suit against us, GlaxoSmithKline, Chiron Corporation,
Merck & Co., Inc., and Kaiser-Permanente, Inc. in the
U.S. District Court for the District of Maryland contending that
we induced infringement of U.S. Patent Nos, 6,420,139,
6,638,739, 5,728,383, and 5,723,283, all of which are directed
to various methods of immunization or determination of
immunization schedules. All counts asserted against us by
Classen were dismissed by the District Court, and the judgment
in our favor was affirmed by the U.S. Court of Appeals for the
Federal Circuit on December 19, 2008. The plaintiff has
filed a petition for rehearing en banc, which is pending. 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 the
plaintiffs allegations and intend to continue to
vigorously defend against these allegations.
In January 2008, the European Commission (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.
F-57
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On October 27, 2008, Sanofi-Aventis Deutschland GmbH
(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 (the 522 patent) and 6,218,140
(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.
Preferred
Stock
Preferred stock was comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Authorized
|
|
|
Issued
|
|
|
Outstanding
|
|
|
Authorized
|
|
|
Issued
|
|
|
Outstanding
|
|
|
Series A Preferred Stock
|
|
|
1,750
|
|
|
|
8
|
|
|
|
8
|
|
|
|
1,750
|
|
|
|
8
|
|
|
|
8
|
|
Series X Junior Participating Preferred Stock
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
Undesignated
|
|
|
5,250
|
|
|
|
|
|
|
|
|
|
|
|
5,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8,000
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have 8,000,000 shares of Preferred Stock authorized, of
which 1,750,000 shares have been designated as
Series A Preferred Stock and 1,000,000 shares have
been designated as Series X Junior Participating Preferred
Stock. The balance may be issued without a vote or action of
stockholders from time to time in classes or series with the
designations, powers, preferences, and the relative,
participating, optional or other special rights of the shares of
each such class or series and any qualifications, limitations or
restrictions thereon as set forth in the stock certificate. Any
such Preferred Stock may rank prior to common stock as to
dividend rights, liquidation preference or both, and may have
full or limited voting rights and may be convertible into shares
of common stock. As of December 31, 2008 and 2007, there
were 8,221 shares of Series A Preferred Stock issued
and outstanding. These shares carry a liquidation preference of
$67 and are convertible into 60 shares of common stock per
share of Preferred Stock. No other shares of Preferred Stock are
issued and outstanding as of December 31, 2008 and 2007.
Stockholder
Rights Plan
In January 2009, our Board of Directors voted to terminate our
stockholders rights plan effective as of January 30, 2009.
The plan was scheduled to expire on July 26, 2011 and was
originally adopted by the Board of Directors in 1997. Under the
rights plan, each share of our common stock had one
right attached to it that entitled
F-58
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the holder to purchase our Series X Junior Participating
Preferred Stock under the circumstances specified in the rights
plan. As a result of our Board of Directors action, no
rights are outstanding or exercisable.
Stock
Repurchase Programs
In October 2004, our Board of Directors authorized the
repurchase of up to 20.0 million shares of our common
stock. The repurchased stock will provide us with treasury
shares for general corporate purposes, such as common stock to
be issued under our employee equity and stock purchase plans.
This repurchase program expired October 4, 2006. During
2006, we repurchased 7.5 million shares at a cost of
$320.3 million. During 2005, we repurchased
7.5 million shares at a cost of $324.3 million.
In October 2006, our Board of Directors authorized the
repurchase of up to an additional 20.0 million shares of
our common stock. The repurchased stock will provide us with
treasury 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 repurchased approximately 12.8 million shares of our
common stock for $738.9 million under the share repurchase
program as of December 31, 2008. Subsequent to
December 31, 2008, we repurchased an additional
1.2 million shares for a cost of $57.6 million and
have approximately 6.0 million shares remaining available
for repurchase under this program.
Reclassification
In the year ended December 31, 2008, we reclassified
amounts within the statement of shareholders equity,
resulting in an approximately $78.6 million correction in
Additional Paid-in Capital and Retained Earnings (Accumulated
Deficit) balances in connection with the re-issuance of treasury
stock at a loss. In the year ended December 31, 2007 we
reclassified amounts within the statements of stockholders
equity, resulting in an approximately $48.0 million
correction in the treasury stock and common stock balances.
On June 27, 2007, pursuant to the terms of a tender offer,
we accepted for payment 56,424,155 shares of our common
stock at a price of $53.00 per share for a purchase price of
$2,990.5 million. As the obligation of
$2,990.5 million was incurred on June 27, 2007 and
funded on July 2, 2007, pursuant to Statement of Financial
Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity, or SFAS 150, we recorded the present value
of the obligation of $2,988.2 million on June 27,
2007, and the $2.3 million difference between the present
value of the obligation and funded amount was recognized as
interest expense. We funded the tender offer through existing
cash and cash equivalents of $1,490.5 million and
$1,500.0 million borrowed under our short-term loan
facility as described in Note 8, Indebtedness. We retired
all of these shares in July 2007. In connection with this
retirement, in accordance with our policy, we recorded an
approximately $2,991 million reduction in treasury stock
and additional
paid-in-capital.
F-59
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We operate in one business segment, which is the business of
development, manufacturing and commercialization of novel
therapeutics for human healthcare and, therefore, our chief
operating decision-maker manages the operations of our Company
as a single operating segment. Enterprise-wide disclosures about
product revenues, other revenues and long-lived assets by
geographic area and information relating to major customers are
presented below. Revenues are primarily attributed to individual
countries based on location of the customer or licensee.
Revenue by product is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
|
|
Rest of
|
|
|
|
|
|
|
US
|
|
|
World
|
|
|
Total
|
|
|
US
|
|
|
World
|
|
|
Total
|
|
|
US
|
|
|
World
|
|
|
Total
|
|
|
AVONEX
|
|
$
|
1,276.5
|
|
|
$
|
926.1
|
|
|
$
|
2,202.6
|
|
|
$
|
1,085.0
|
|
|
$
|
782.8
|
|
|
$
|
1,867.8
|
|
|
$
|
1,022.2
|
|
|
$
|
684.5
|
|
|
$
|
1,706.7
|
|
AMEVIVE
|
|
|
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
0.7
|
|
|
|
5.0
|
|
|
|
6.5
|
|
|
|
11.5
|
|
ZEVALIN
|
|
|
|
|
|
|
4.8
|
|
|
|
4.8
|
|
|
|
13.9
|
|
|
|
3.0
|
|
|
|
16.9
|
|
|
|
16.4
|
|
|
|
1.4
|
|
|
|
17.8
|
|
FUMADERM
|
|
|
|
|
|
|
43.4
|
|
|
|
43.4
|
|
|
|
|
|
|
|
21.5
|
|
|
|
21.5
|
|
|
|
|
|
|
|
9.5
|
|
|
|
9.5
|
|
TYSABRI
|
|
|
196.4
|
|
|
|
392.2
|
|
|
|
588.6
|
|
|
|
104.4
|
|
|
|
125.5
|
|
|
|
229.9
|
|
|
|
25.9
|
|
|
|
9.9
|
|
|
|
35.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
1,472.9
|
|
|
$
|
1,366.8
|
|
|
$
|
2,839.7
|
|
|
$
|
1,203.6
|
|
|
$
|
933.2
|
|
|
$
|
2,136.8
|
|
|
$
|
1,069.5
|
|
|
$
|
711.8
|
|
|
$
|
1,781.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our geographic information is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
US
|
|
|
Europe
|
|
|
Germany
|
|
|
Asia
|
|
|
Other
|
|
|
Total
|
|
|
Product revenues from external customers
|
|
$
|
1,472.9
|
|
|
$
|
822.6
|
|
|
$
|
354.5
|
|
|
$
|
36.5
|
|
|
$
|
153.2
|
|
|
$
|
2,839.7
|
|
Revenues from unconsolidated joint business
|
|
$
|
793.2
|
|
|
$
|
272.3
|
|
|
$
|
|
|
|
$
|
21.7
|
|
|
$
|
41.0
|
|
|
$
|
1,128.2
|
|
Other revenues from external customers
|
|
$
|
96.5
|
|
|
$
|
32.8
|
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
129.6
|
|
Long-lived assets
|
|
$
|
1,111.2
|
|
|
$
|
658.8
|
|
|
$
|
2.5
|
|
|
$
|
4.2
|
|
|
$
|
1.2
|
|
|
$
|
1,777.9
|
|
In 2008, we recorded revenue from two wholesale distributors
accounting for a total of 16.2% and 13.1% of product revenue,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
US
|
|
|
Europe
|
|
|
Germany
|
|
|
Asia
|
|
|
Other
|
|
|
Total
|
|
|
Product revenues from external customers
|
|
$
|
1,203.6
|
|
|
$
|
565.9
|
|
|
$
|
231.1
|
|
|
$
|
4.2
|
|
|
$
|
132.0
|
|
|
$
|
2,136.8
|
|
Revenues from unconsolidated joint business
|
|
$
|
675.3
|
|
|
$
|
200.2
|
|
|
$
|
|
|
|
$
|
18.1
|
|
|
$
|
32.5
|
|
|
$
|
926.1
|
|
Other revenues from external customers
|
|
$
|
78.1
|
|
|
$
|
27.0
|
|
|
$
|
0.4
|
|
|
$
|
3.2
|
|
|
$
|
|
|
|
$
|
108.7
|
|
Long-lived assets
|
|
$
|
1,145.7
|
|
|
$
|
494.9
|
|
|
$
|
2.6
|
|
|
$
|
3.5
|
|
|
$
|
2.0
|
|
|
$
|
1,648.7
|
|
In 2007, we recorded revenue from two wholesale distributors
accounting for a total of 19.4% and 15.2% of total product
revenue, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
US
|
|
|
Europe
|
|
|
Germany
|
|
|
Asia
|
|
|
Other
|
|
|
Total
|
|
|
Product revenues from external customers
|
|
$
|
1,069.5
|
|
|
$
|
455.2
|
|
|
$
|
135.8
|
|
|
$
|
0.4
|
|
|
$
|
120.4
|
|
|
$
|
1,781.3
|
|
Revenues from unconsolidated joint business
|
|
$
|
616.8
|
|
|
$
|
150.2
|
|
|
$
|
|
|
|
$
|
16.7
|
|
|
$
|
27.2
|
|
|
$
|
810.9
|
|
Other revenues from external customers
|
|
$
|
61.4
|
|
|
$
|
18.8
|
|
|
$
|
0.1
|
|
|
$
|
10.5
|
|
|
$
|
|
|
|
$
|
90.8
|
|
In 2006, we recorded revenue from one specialty distributor and
three wholesale distributors accounting for a total of 15%, 18%,
14%, and 12% of total product revenue, respectively.
Approximately 28%, 29%, and 30% of our total revenues in 2008,
2007, and 2006, respectively, are derived from our joint
business arrangement with Genentech (see Note 17,
Unconsolidated Joint Business Arrangement). Included in long
lived assets in Europe at December 31, 2008 and 2007 is
approximately $611.5 million and $480.5 million,
respectively, related to our operations in Denmark.
In 2008, we discovered that amounts previously disclosed in our
2007 financial statements for
long-lived
assets in the US, Europe, Asia and Other of
$1,021.3 million, $1,516.6 million, $3.1 million,
and $89.7 million, respectively, inappropriately included
long-term
marketable securities, as well as misclassifications in
geographic categories, principally between the US and Europe.
F-60
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
23.
|
Severance
and Other Restructuring Costs
|
During 2008, we incurred $5.0 million in restructuring
costs, primarily related to the reorganization of our legal
structure and the consolidation of certain organizational
functions, which are included in research and development and
selling, general and administrative expense. During 2007, we
incurred $1.8 million in restructuring costs, primarily
related to the Syntonix acquisition and the ZEVALIN divestiture,
which are included in selling, general and administrative
expense. During 2006, we incurred restructuring costs associated
with acquisitions and planned dispositions. Specifically, we
incurred $1.2 million in severance costs associated with
the acquisition of Conforma, and $1.7 million related in
headcount reductions related to the planned disposition of our
ZEVALIN product line. At December 31, 2008, there are no
material remaining restructuring accruals on our consolidated
balance sheets.
At December 31, 2008, we have no liabilities recorded for
guarantees, as defined by No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation
of FASB Statements No. 5, 57, and 107 and Rescission of
FASB Interpretation No. 34, or FIN 45, as the
value of our guarantees are not material.
We enter into indemnification provisions under our agreements
with other companies in the ordinary course of business,
typically with business partners, contractors, clinical sites
and customers. Under these provisions, we generally indemnify
and hold harmless the indemnified party for losses suffered or
incurred by the indemnified party as a result of our activities.
These indemnification provisions generally survive termination
of the underlying agreement. The maximum potential amount of
future payments we could be required to make under these
indemnification provisions is unlimited. However, to date we
have not incurred material costs to defend lawsuits or settle
claims related to these indemnification provisions. As a result,
the estimated fair value of these agreements is minimal.
Accordingly, we have no liabilities recorded for these
agreements as of December 31, 2008.
In connection with the relocation from leased facilities to our
research campus in San Diego, California, we entered into a
lease assignment, in January 2005, with Tanox West, Inc., or
Tanox, for a manufacturing facility in San Diego for which
we had outstanding lease obligations through September 2008.
This lease has expired and as of December 31, 2008, we have
no obligations under this lease.
|
|
25.
|
Facility
Impairments and Loss (Gain) on Dispositions
|
In 2008, as part of the lease agreement described in
Note 18, Commitments and Contingencies, we sold the
development rights on a parcel of land in Cambridge, MA for
$11.4 million in a non monetary transaction and we
recorded a pre-tax gain of approximately $9.2 million on
the sale. In December 2006, we completed the sale of a research
building at our Cambridge, Massachusetts facility. Proceeds from
the sale were approximately $39.5 million. We recorded a
pre-tax gain of $15.6 million on the sale. We continue to
occupy a minor portion of the building under a leasing
arrangement. In April 2006, we sold the worldwide rights and
other assets of AMEVIVE for $59.8 million, including
$43.7 million of inventory on hand, to Astellas Pharma US,
Inc. As of December 31, 2005, our AMEVIVE assets held for
sale included $8.0 million, net, related to intangible
assets, and $5.4 million of property, plant and equipment,
net, and were reported separately in current assets on the
consolidated balance sheet. The pre-tax gain on this sale of
approximately $2.8 million was deferred and is being
recognized over the period of a related long-term supply
contract. In February 2006, we sold our clinical manufacturing
facility in Oceanside, California, known as NICO. The assets
associated with the facility were included in assets held for
sale on our consolidated balance sheet as of December 31,
2005. Total consideration was $29.0 million. In 2005, we
recorded impairment charges totaling $28.0 million to
reduce the carrying value of NICO to its net realizable value.
No additional loss resulted from completion of the sale.
F-61
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
26.
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter(e)
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total Year
|
|
|
|
(In millions, except per share amounts)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
942.2
|
|
|
$
|
993.4
|
|
|
$
|
1,093.0
|
|
|
$
|
1,068.9
|
|
|
$
|
4,097.5
|
|
Product revenue
|
|
|
665.1
|
|
|
|
684.5
|
|
|
|
758.3
|
|
|
|
731.8
|
|
|
|
2,839.7
|
|
Unconsolidated joint business revenue
|
|
|
247.2
|
|
|
|
278.8
|
|
|
|
299.0
|
|
|
|
303.2
|
|
|
|
1,128.2
|
|
Other revenue
|
|
|
29.9
|
|
|
|
30.1
|
|
|
|
35.7
|
|
|
|
33.9
|
|
|
|
129.6
|
|
Total expenses and taxes
|
|
|
779.5
|
|
|
|
781.4
|
|
|
|
861.5
|
|
|
|
827.7
|
|
|
|
3,249.7
|
|
Other income, net
|
|
|
0.4
|
|
|
|
(5.5
|
)
|
|
|
(24.7
|
)
|
|
|
(34.9
|
)
|
|
|
(64.7
|
)
|
Net income
|
|
|
163.1
|
|
|
|
206.6
|
|
|
|
206.8
|
|
|
|
206.7
|
|
|
|
783.2
|
|
Basic earnings per share
|
|
|
0.55
|
|
|
|
0.71
|
|
|
|
0.71
|
|
|
|
0.71
|
|
|
|
2.67
|
|
Diluted earnings per share
|
|
|
0.54
|
|
|
|
0.70
|
|
|
|
0.70
|
|
|
|
0.70
|
|
|
|
2.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter(a)
|
|
|
Quarter
|
|
|
Quarter (b),(c)
|
|
|
Quarter(d)
|
|
|
Total Year
|
|
|
|
(In millions, except per share amounts)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
715.9
|
|
|
$
|
773.2
|
|
|
$
|
789.2
|
|
|
$
|
893.3
|
|
|
$
|
3,171.6
|
|
Product revenue
|
|
|
484.4
|
|
|
|
518.6
|
|
|
|
529.6
|
|
|
|
604.2
|
|
|
|
2,136.8
|
|
Unconsolidated joint business revenue
|
|
|
207.2
|
|
|
|
230.6
|
|
|
|
234.6
|
|
|
|
253.7
|
|
|
|
926.1
|
|
Other revenue
|
|
|
24.3
|
|
|
|
24.0
|
|
|
|
25.0
|
|
|
|
35.4
|
|
|
|
108.7
|
|
Total expenses and taxes
|
|
|
606.1
|
|
|
|
618.6
|
|
|
|
714.7
|
|
|
|
724.8
|
|
|
|
2,664.2
|
|
Other income, net
|
|
|
21.7
|
|
|
|
31.5
|
|
|
|
44.9
|
|
|
|
32.7
|
|
|
|
130.8
|
|
Net income
|
|
|
131.5
|
|
|
|
186.1
|
|
|
|
119.4
|
|
|
|
201.2
|
|
|
|
638.2
|
|
Basic earnings per share
|
|
|
0.39
|
|
|
|
0.55
|
|
|
|
0.41
|
|
|
|
0.68
|
|
|
|
2.02
|
|
Diluted earnings per share
|
|
|
0.38
|
|
|
|
0.54
|
|
|
|
0.41
|
|
|
|
0.67
|
|
|
|
1.99
|
|
|
|
|
(a) |
|
The first quarter of 2007 includes a charge of
$18.4 million for in-process research and development
related to the acquisition of Syntonix. |
|
(b) |
|
The third quarter of 2007 includes a charge of approximately
$30 million for in-process research and development related
to our collaboration with Cardiokine Biopharma LLC. This amount
was offset by minority interest income of approximately
$30 million, representing the value of the underlying
technology retained by the parent company of Cardiokine
Biopharma LLC. |
|
(c) |
|
In July 2007, we purchased 56,424,155 shares of our common
stock pursuant to a tender offer. We funded the transaction in
July 2007 through existing cash and cash equivalents of
$1,490.5 million and by obtaining a short term loan for
$1,500.0 million. |
|
(d) |
|
The fourth quarter of 2007 includes a charge of
$34.3 million for in-process research and development
related to our collaboration with Neurimmune. This amount was
offset by minority interest income of $34.3 million,
representing the value of the underlying technology retained by
the parent company of Neurimmune. |
|
(e) |
|
The first quarter of 2008 includes a charge of
$25.0 million for in process research and development
related to a milestone payment made to the former stockholders
of Conforma pursuant to our acquisition of Conforma in 2006. |
F-62
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
27.
|
New
Accounting Pronouncements
|
Effective January 1, 2008, we implemented Statement of
Financial Accounting Standard No. 157, Fair Value
Measurement, or SFAS 157, for our financial assets and
liabilities that are re-measured and reported at fair value at
each reporting period, and non-financial assets and liabilities
that are re-measured and reported at fair value at least
annually. In accordance with the provisions of FSP
FAS 157-2,
Effective Date of FASB Statement No. 157, we deferred the
implementation of SFAS 157 as it relates to our
non-financial assets and non-financial liabilities that are
recognized and disclosed at fair value in the financial
statements on a nonrecurring basis until January 1, 2009.
We are evaluating the impact this standard will have on our
financial statements.
On December 12, 2007,
EITF 07-01,
Accounting for Collaborative Arrangements Related to the
Development and Commercialization of Intellectual Property,
or
EITF 07-01,
was issued. EITF-
07-01
prescribes the accounting for collaborations. It requires
certain transactions between collaborators to be recorded in the
income statement on either a gross or net basis within expenses
when certain characteristics exist in the collaboration
relationship.
EITF 07-01
is effective for all of our collaborations existing after
January 1, 2009. The adoption of this standard will not
have a material impact on our financial statements or results of
operations.
On December 4, 2007, Statement of Financial Standard
No. 141(R), Business Combinations, or
SFAS 141(R), was issued. This Standard will require 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. The
Standard is effective for transactions occurring on or after
January 1, 2009. We have not determined the effect that the
adoption of SFAS 141(R) will have on our consolidated
financial statements, but the effect will generally be limited
to future acquisitions in 2009, except for certain tax treatment
of previous acquisitions. SFAS 141(R) amended FASB
Statement No. 109, Accounting for Income Taxes
(SFAS 109), and FIN 48. Previously, SFAS 109 and
FIN 48, respectively, generally required post-acquisitions
adjustments to business combination related deferred tax asset
valuation allowances and liabilities related to uncertain tax
positions to be recorded as an increase or decrease to goodwill.
SFAS 141(R) does not permit this accounting and generally
will require any such changes to be recorded in current period
income tax expense. Thus, after SFAS 141(R) is adopted, all
changes to valuation allowances and liabilities related to
uncertain tax positions established in acquisition accounting
(whether the combination was accounted for under SFAS 141 or
SFAS 141(R)) must be recognized in current period income
tax expense.
On December 4, 2007, Statement of Financial Standard
No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51, or
SFAS 160, was issued. This Standard changes the accounting
for and reporting of noncontrolling or minority interests (now
called noncontrolling interest) in consolidated financial
statements. This Standard is effective January 1, 2009.
When implemented, prior periods will be recast for the changes
required by SFAS 160. The adoption of this standard will
not have a material impact on our financial statements and
results of operations.
On March 19, 2008, Statement of Financial Accounting
Standard No. 161, Disclosures About Derivative Instruments
and Hedging Activities, or SFAS 161, was issued. This
Standard enhances the disclosure requirements for derivative
instruments and hedging activities. This Standard is effective
January 1, 2009. Since SFAS No. 161 requires only
additional disclosures concerning derivatives and hedging
activities, adoption of SFAS No. 161 will not affect
our financial condition, results of operations or cash flows.
On May 5, 2008, Statement of Financial Accounting Standard
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 have a material
impact on our financial statements or results of operations.
F-63
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Board of Directors and Shareholders of Biogen Idec
Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income,
shareholders equity and cash flows present fairly, in all
material respects, the financial position of Biogen Idec Inc.
and its subsidiaries at December 31, 2008 and 2007, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2008 in
conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in
Managements Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express opinions
on these financial statements and on the Companys internal
control over financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 15 to the consolidated financial
statements, the Company changed the manner in which it accounts
for income tax contingencies in 2007.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
Boston, Massachusetts
February 6, 2009
F-64
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Descriptionˆ
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation. Filed as
Exhibit 3.1 to our Annual Report on
Form 10-K
for the year ended December 31, 2003.
|
|
3
|
.2
|
|
Certificate of Amendment to the Amended and Restated Certificate
of Incorporation dated May 21, 2001. Filed as
Exhibit 3.2 to our Annual Report on
Form 10-K
for the year ended December 31, 2003.
|
|
3
|
.3
|
|
Certificate Increasing the Number of Authorized Shares of
Series X Junior Participating Preferred Stock dated
July 26, 2001. Filed as Exhibit 3.3 to our Annual
Report on
Form 10-K
for the year ended December 31, 2003.
|
|
3
|
.4
|
|
Certificate of Amendment to the Amended and Restated Certificate
of Incorporation dated November 12, 2003. Filed as
Exhibit 3.4 to our Annual Report on
Form 10-K
for the year ended December 31, 2003.
|
|
3
|
.5
|
|
Second Amended and Restated Bylaws. Filed as Exhibit 3.1 to
our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008.
|
|
4
|
.1
|
|
Reference is made to Exhibit 3.1 for a description of the
rights, preferences and privileges of our Series A
Preferred Stock and Series X Junior Participating Preferred
Stock
|
|
4
|
.2
|
|
Amended and Restated Rights Agreement between Biogen Idec and
Mellon Investor Services LLC dated as of July 26, 2001.
Filed as Exhibit 4.1 to an amendment to our Registration
Statement on
Form 8-A
filed on July 27, 2001.
|
|
4
|
.3
|
|
Amendment No. 1 to Amended and Restated Rights Agreement
between Biogen Idec and Mellon Investor Services LLC dated as of
June 20, 2003. Filed as Exhibit 4.1 to our Current
Report on
Form 8-K
filed on June 23, 2003.
|
|
4
|
.4+
|
|
Amendment No. 2 to Amended and Restated Rights Agreement
between Biogen Idec and Mellon Investor Services LLC dated as of
January 22, 2009.
|
|
10
|
.1
|
|
Credit Agreement among Biogen Idec, Bank of America, N.A. as
administrative agent, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Goldman Sachs Credit Partners L.P. as
co-syndication agents, and the other lenders party thereto dated
June 29, 2007. Filed as Exhibit 99.2 to our Current
Report on
Form 8-K
filed on July 2, 2007.
|
|
10
|
.2
|
|
Indenture between Biogen Idec and The Bank of New York
Trust Company, N.A. dated as of February 26, 2008.
Filed as Exhibit 4.1 to our Registration Statement on
Form S-3
(File No. 333-149379).
|
|
10
|
.3
|
|
First Supplemental Indenture between Biogen Idec and The Bank of
New York Trust Company, N.A. dated as of March 4,
2008. Filed as Exhibit 4.1 to our Current Report on
Form 8-K
filed on March 4, 2008.
|
|
10
|
.4
|
|
Expression Technology Agreement between Biogen Idec and
Genentech. Inc. dated March 16, 1995. Filed as an exhibit
to Biogen Idecs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 1995.
|
|
10
|
.5
|
|
Letter Agreement between Biogen Idec and Genentech, Inc. dated
May 21, 1996. Filed as Exhibit 10.1 to our Current
Report on
Form 8-K
filed on June 6, 1996.
|
|
10
|
.6
|
|
Amended and Restated Collaboration Agreement between Biogen Idec
and Genentech, Inc. dated June 19, 2003. Filed as
Exhibit 99.1 to our Current Report on
Form 8-K
filed on July 31, 2003.
|
|
10
|
.7
|
|
Purchase and Sale Agreement and Joint Escrow Instructions
between Biogen Idec and Genentech, Inc. dated as of
June 16, 2005. Filed as Exhibit 10.1 to our Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2005.
|
|
10
|
.8
|
|
ANTEGREN (now TYSABRI) Development and Marketing Collaboration
Agreement between Biogen Idec and Elan Pharma International
Limited dated August 15, 2000. Filed as Exhibit 10.48
to Biogen, Inc.s Annual Report on
Form 10-K
for the year ended December 31, 2002
(File No. 0-12042)
and incorporated herein by reference.
|
|
10
|
.9
|
|
License Agreement between Biogen Idec and Coulter Immunology
(now Corixa Corporation) dated May 16, 1991. Filed as an
exhibit to our Registration Statement on
Form S-1
(File
No. 33-40756).
|
A-1
|
|
|
|
|
Exhibit No.
|
|
Descriptionˆ
|
|
|
10
|
.10
|
|
Collaboration & License Agreement between Biogen Idec
and Schering Aktiengesellschaft dated June 9, 1999. Filed
as Exhibit 10.10 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 1999.
|
|
10
|
.11
|
|
Cambridge Center Lease between Mortimer Zuckerman, Edward H.
Linde and David Barrett, as Trustees of Fourteen Cambridge
Center Trust, and B. Leasing, Inc. dated October 4, 1982.
Filed as an exhibit to Biogen, Inc.s Registration
Statement on
Form S-1
(File
No. 2-81689)
and incorporated herein by reference.
|
|
10
|
.12
|
|
First Amendment to Lease dated January 19, 1989, amending
Cambridge Center Lease dated October 4, 1982. Filed as an
exhibit to Biogen, Inc.s Annual Report on
Form 10-K
for the year ended December 31, 1992 (File
No. 0-12042)
and incorporated herein by reference.
|
|
10
|
.13
|
|
Second Amendment to Cambridge Center Lease dated March 8,
1990. Filed as an exhibit to Biogen, Inc.s Annual Report
on
Form 10-K
for the year ended December 31, 1992 (File
No. 0-12042)
and incorporated herein by reference.
|
|
10
|
.14
|
|
Third Amendment to Cambridge Center Lease dated
September 25, 1991. Filed as an exhibit to Biogen,
Inc.s Annual Report on
Form 10-K
for the year ended December 31, 1992 (File
No. 0-12042)
and incorporated herein by reference.
|
|
10
|
.15
|
|
Fourth Amendment to Cambridge Center Lease dated October 6,
1993. Filed as an exhibit to Biogen, Inc.s Annual Report
on
Form 10-K
for the year ended December 31, 1997 (File
No. 0-12042)
and incorporated herein by reference.
|
|
10
|
.16
|
|
Fifth Amendment to Cambridge Center Lease dated October 9,
1997. Filed as an exhibit to Biogen, Inc.s Annual Report
on
Form 10-K
for the year ended December 31, 1997 (File
No. 0-12042)
and incorporated herein by reference.
|
|
10
|
.17
|
|
Lease agreement between Biogen Idec BV and TUG Vastgoed B.V.
dated as of September 24, 2004. Filed as Exhibit 10.1
to our Current Report on
Form 8-K
filed on September 29, 2004.
|
|
10
|
.18*
|
|
Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as
Appendix A to our Definitive Proxy Statement on
Schedule 14A filed on May 8, 2008.
|
|
10
|
.19*+
|
|
Amendment to Biogen Idec Inc. 2008 Omnibus Equity Plan dated
October 13, 2008.
|
|
10
|
.20*
|
|
Form of restricted stock unit award agreement under the Biogen
Idec Inc. 2008 Omnibus Equity Plan. Filed as Exhibit 10.1
to our Current Report on
Form 8-K
filed on August 1, 2008.
|
|
10
|
.21*
|
|
Form of nonqualified stock option award agreement under the
Biogen Idec Inc. 2008 Omnibus Equity Plan. Filed as
Exhibit 10.2 to our Current Report on
Form 8-K
filed on August 1, 2008.
|
|
10
|
.22*
|
|
Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan. Filed
as Appendix A to our Definitive Proxy Statement on
Schedule 14A filed on April 14, 2006.
|
|
10
|
.23*
|
|
Amendment to the Biogen Idec Inc. 2006 Non-Employee Directors
Equity Plan dated October 11, 2006. Filed as
Exhibit 10.45 to our Annual Report on
Form 10-K
for the year ended December 31, 2007.
|
|
10
|
.24*
|
|
Amendment to Biogen Idec Inc. 2006 Non-Employee Directors Equity
Plan dated April 18, 2008. Filed as Exhibit 10.8 to
our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008.
|
|
10
|
.25*+
|
|
Amendment to Biogen Idec Inc. 2006
Non-Employee
Directors Equity Plan dated October 13, 2008.
|
|
10
|
.26*
|
|
Biogen Idec Inc. 2005 Omnibus Equity Plan. Filed as
Appendix A to our Definitive Proxy Statement on
Schedule 14A filed on April 15, 2005.
|
|
10
|
.27*
|
|
Amendment No. 1 to the Biogen Idec Inc. 2005 Omnibus Equity
Plan dated April 4, 2006. Filed as Exhibit 10.1 to our
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2007.
|
|
10
|
.28*
|
|
Amendment No. 2 to the Biogen Idec Inc. 2005 Omnibus Equity
Plan dated February 12, 2007. Filed as Exhibit 10.2 to
our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2007.
|
|
10
|
.29*
|
|
Amendment to the Biogen Idec Inc. 2005 Omnibus Equity Plan dated
April 18, 2008. Filed as Exhibit 10.7 to our Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2008.
|
|
10
|
.30*+
|
|
Amendment to Biogen Idec Inc. 2005 Omnibus Equity Plan dated
October 13, 2008.
|
|
10
|
.31*
|
|
Biogen Idec Inc. 2003 Omnibus Equity Plan. Filed as
Exhibit 10.73 to our Current Report on
Form 8-K
filed on November 12, 2003.
|
A-2
|
|
|
|
|
Exhibit No.
|
|
Descriptionˆ
|
|
|
10
|
.32*
|
|
Amendment to Biogen Idec Inc. 2003 Omnibus Equity Plan. Filed as
Exhibit 10.1 to our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2005.
|
|
10
|
.33*
|
|
Amendment to Biogen Idec Inc. 2003 Omnibus Equity Plan dated
April 18, 2008. Filed as Exhibit 10.6 to our Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2008.
|
|
10
|
.34*+
|
|
Amendment to Biogen Idec Inc. 2003 Omnibus Equity Plan dated
October 13, 2008.
|
|
10
|
.35*
|
|
Biogen Idec Inc. 1995 Employee Stock Purchase Plan as amended
and restated effective April 6, 2005. Filed as
Appendix B to our Definitive Proxy Statement on
Schedule 14A filed on April 15, 2005.
|
|
10
|
.36*
|
|
IDEC Pharmaceuticals Corporation 1993 Non-Employee Directors
Stock Option Plan, as amended and restated through
February 19, 2003. Filed as Appendix B to our
Definitive Proxy Statement on Schedule 14A filed on
April 11, 2003.
|
|
10
|
.37*
|
|
Amendment to IDEC Pharmaceuticals Corporation 1993 Non-Employee
Directors Stock Option Plan dated April 18, 2008. Filed as
Exhibit 10.5 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008.
|
|
10
|
.38*
|
|
IDEC Pharmaceuticals Corporation 1988 Stock Option Plan, as
amended and restated through February 19, 2003. Filed as
Appendix A to our Definitive Proxy Statement on
Schedule 14A filed on April 11, 2003.
|
|
10
|
.39*
|
|
Amendment to the IDEC Pharmaceuticals Corporation 1988 Stock
Option Plan dated April 16, 2004. Filed as
Exhibit 10.1 to our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2004.
|
|
10
|
.40*
|
|
Amendment to IDEC Pharmaceuticals Corporation 1988 Stock Option
Plan dated April 18, 2008. Filed as Exhibit 10.4 to
our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008.
|
|
10
|
.41*
|
|
Biogen, Inc. 1987 Scientific Board Stock Option Plan (as amended
and restated through February 7, 2003). Filed as
Exhibit 10.22 to Biogen, Inc.s Annual Report on
Form 10-K
for the year ended December 31, 2002 (File
No. 0-12042)
and incorporated herein by reference.
|
|
10
|
.42*
|
|
Amendment to Biogen, Inc. 1987 Scientific Board Stock Option
Plan dated April 18, 2008. Filed as Exhibit 10.3 to
our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008.
|
|
10
|
.43*
|
|
Biogen, Inc. 1985 Non-Qualified Stock Option Plan, as amended
and restated through April 11, 2003. Filed as
Exhibit 10.22 to our Annual Report on
Form 10-K
for the year ended December 31, 2007.
|
|
10
|
.44*
|
|
Amendment to Biogen, Inc. 1985 Non-Qualified Stock Option Plan
dated April 18, 2008. Filed as Exhibit 10.2 to our
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008.
|
|
10
|
.45*+
|
|
Amendment to Biogen, Inc. 1985
Non-Qualified
Stock Option Plan dated October 13, 2008.
|
|
10
|
.46*
|
|
Biogen Idec Inc. 2008 Performance-Based Management Incentive
Plan. Filed as Appendix B to Biogen Idecs Definitive
Proxy Statement on Schedule 14A filed on May 8, 2008.
|
|
10
|
.47*
|
|
Biogen Idec Inc. 2003 Performance-Based Management Incentive
Plan. Filed as Exhibit 10.74 to our Current Report on
Form 8-K
filed on November 12, 2003.
|
|
10
|
.48*
|
|
Voluntary Executive Supplemental Savings Plan, as amended and
restated effective January 1, 2004. Filed as
Exhibit 10.13 to our Annual Report on
Form 10-K
for the year ended December 31, 2003.
|
|
10
|
.49*
|
|
Supplemental Savings Plan, as amended and restated effective
January 1, 2008. Filed as Exhibit 10.55 to our Annual
Report on
Form 10-K
for the year ended December 31, 2007.
|
|
10
|
.50*
|
|
Voluntary Board of Directors Savings Plan, as amended and
restated effective January 1, 2008. Filed as
Exhibit 10.56 to our Annual Report on
Form 10-K
for the year ended December 31, 2007.
|
|
10
|
.51*+
|
|
Biogen Idec Inc. Executive Severance Policy U.S.
Executive Vice President, as amended effective October 13,
2008.
|
|
10
|
.52*+
|
|
Biogen Idec Inc. Executive Severance Policy
International Executive Vice President, as amended effective
October 13, 2008.
|
|
10
|
.53*+
|
|
Biogen Idec Inc. Executive Severance Policy U.S.
Senior Vice President, as amended effective October 13,
2008.
|
|
10
|
.54*+
|
|
Biogen Idec Inc. Executive Severance Policy
International Senior Vice President, as amended effective
October 13, 2008.
|
|
10
|
.55*
|
|
Annual Retainer Summary for Board of Directors. Filed as
Exhibit 10.1 to our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008.
|
A-3
|
|
|
|
|
Exhibit No.
|
|
Descriptionˆ
|
|
|
10
|
.56*
|
|
Form of indemnification agreement for directors. Filed as
Exhibit 10.1 to our Current Report on
Form 8-K
filed on October 17, 2008.
|
|
10
|
.57*
|
|
Employment Agreement between Biogen Idec and James C Mullen
dated as of June 20, 2003. Filed as Exhibit 10.2 to
our Registration Statement on
Form S-4
(File
No. 333-107098).
|
|
10
|
.58*
|
|
First Amendment to Employment Agreement between Biogen Idec and
James C. Mullen dated February 7, 2006. Filed as
Exhibit 10.1 to our Current Report on
Form 8-K
filed on February 10, 2006.
|
|
10
|
.59*+
|
|
Second Amendment to Employment Agreement between Biogen Idec and
James C. Mullen dated as of December 4, 2008.
|
|
10
|
.60*
|
|
Letter regarding employment arrangement of Paul J. Clancy dated
August 17, 2007. Filed as Exhibit 10.49 to our Annual
Report on
Form 10-K
for the year ended December 31, 2007.
|
|
10
|
.61*+
|
|
Employment Agreement between Biogen Idec Management Services
GmbH and Hans Peter Hasler dated October 15, 2008.
|
|
10
|
.62*
|
|
Letter regarding employment arrangement of Cecil B. Pickett
dated June 21, 2006. Filed as Exhibit 10.1 to our
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2006.
|
|
10
|
.63*+
|
|
First Amendment to Employment Agreement between Biogen Idec and
Cecil B. Pickett dated October 28, 2008.
|
|
10
|
.64*
|
|
Letter agreement regarding employment arrangement of Robert Hamm
dated October 15, 2007. Filed as Exhibit 10.50 to our
Annual Report on
Form 10-K
for the year ended December 31, 2007.
|
|
10
|
.65*
|
|
Letter regarding employment arrangement of Craig E. Schneier
dated October 8, 2001. Filed as Exhibit 10.53 to our
Annual Report on
Form 10-K
for the year ended December 31, 2005.
|
|
10
|
.66*+
|
|
First Amendment to Employment Agreement between Biogen Idec and
Craig E. Schneier dated October 8, 2008.
|
|
21
|
+
|
|
Subsidiaries
|
|
23
|
.1+
|
|
Consent of PricewaterhouseCoopers LLP an Independent
Registered Public Accounting Firm
|
|
31
|
.1+
|
|
Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2+
|
|
Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1++
|
|
Certification of the Chief Executive Officer and the Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
ˆ |
|
Reference to our filings mean filings made by Biogen
Idec Inc. and filings made by IDEC Pharmaceuticals Corporation
prior to the merger with Biogen, Inc. 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. |
|
* |
|
Management contract or compensatory plan or arrangement. |
|
|
|
Confidential Treatment has been granted with respect to portions
of this agreement. |
|
+ |
|
Filed herewith. |
|
++ |
|
Furnished herewith. |
A-4