e10vq
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q 
 
 
     
(Mark One)    
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended September 30, 2009
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number 0-19311
 
BIOGEN IDEC INC.
(Exact name of registrant as specified in its charter)
 
 
     
Delaware   33-0112644
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
 
14 Cambridge Center, Cambridge, MA 02142
(617) 679-2000
 
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes þ     No o
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):  Yes þ     No o
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):  Yes o     No þ
 
 
The number of shares of the issuer’s Common Stock, $0.0005 par value, outstanding as of October 14, 2009, was 289,198,517 shares.
 


 

 
BIOGEN IDEC INC.

FORM 10-Q — Quarterly Report
For the Quarterly Period Ended September 30, 2009

TABLE OF CONTENTS
 
             
        Page
 
    PART I — FINANCIAL INFORMATION        
Item 1.   Financial Statements (unaudited)        
  Consolidated Statements of Income — For the Three and Nine Months Ended September 30, 2009 and 2008     3  
  Consolidated Balance Sheets — As of September 30, 2009 and December 31, 2008     4  
  Consolidated Statements of Cash Flows — For the Nine Months Ended September 30, 2009 and 2008     5  
  Notes to Consolidated Financial Statements     6  
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations     45  
Item 3.   Quantitative and Qualitative Disclosures About Market Risk     64  
Item 4.   Controls and Procedures     64  
    PART II — OTHER INFORMATION        
Item 1.   Legal Proceedings     64  
Item 1A.   Risk Factors     64  
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds     75  
Item 6.   Exhibits     75  
Signatures     76  
 EX-31.1 SECTION 302 CERTIFICATION OF CEO
 EX-31.2 SECTION 302 CERTIFICATION OF CFO
 EX-32.1 SECTION 906 CERTIFICATION OF CEO & CFO
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


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PART I FINANCIAL INFORMATION
 
BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
 
                                 
    For the Three Months
    For the Nine Months
 
    Ended September 30,     Ended September 30,  
    2009     2008     2009     2008  
 
Revenues:
                               
Product
  $ 801,689     $ 758,260     $ 2,326,067     $ 2,107,816  
Unconsolidated joint business
    283,919       298,979       838,307       825,024  
Other revenues
    34,910       35,725       85,918       95,754  
                                 
Total revenues
    1,120,518       1,092,964       3,250,292       3,028,594  
                                 
Costs and expenses:
                               
Cost of sales, excluding amortization of acquired intangible assets
    93,486       107,493       282,404       300,828  
Research and development
    304,055       268,800       999,986       779,291  
Selling, general and administrative
    226,755       232,824       669,415       694,342  
Collaboration profit sharing
    60,697       43,533       152,608       98,368  
Amortization of acquired intangible assets
    51,347       94,464       233,830       242,114  
Acquired in-process research and development
                      25,000  
                                 
Total costs and expenses
    736,340       747,114       2,338,243       2,139,943  
                                 
Income from operations
    384,178       345,850       912,049       888,651  
Other income (expense), net
    9,360       (23,713 )     30,886       (24,651 )
                                 
Income before income tax expense
    393,538       322,137       942,935       864,000  
Income tax expense
    113,936       114,337       271,869       282,320  
                                 
Net income
    279,602       207,800       671,066       581,680  
Net income attributable to noncontrolling interest, net of tax
    1,939       1,012       6,571       5,167  
                                 
Net income attributable to Biogen Idec Inc. 
  $ 277,663     $ 206,788     $ 664,495     $ 576,513  
                                 
                                 
Basic earnings per share attributable to
Biogen Idec Inc. 
  $ 0.96     $ 0.71     $ 2.30     $ 1.97  
                                 
Diluted earnings per share attributable to
Biogen Idec Inc. 
  $ 0.95     $ 0.70     $ 2.28     $ 1.95  
                                 
Weighted-average shares used in calculating:
                               
Basic earnings per share attributable to
Biogen Idec Inc. 
    288,917       291,408       288,416       292,613  
                                 
Diluted earnings per share attributable to
Biogen Idec Inc. 
    291,037       293,921       290,368       295,515  
                                 
 
See accompanying notes to these unaudited consolidated financial statements.


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BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share amounts)
 
                 
    As of September 30,
    As of December 31,
 
    2009     2008  
 
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 585,788     $ 622,385  
Marketable securities
    821,888       719,586  
Collateral received for loaned securities
          29,991  
Accounts receivable, net
    550,995       446,665  
Due from unconsolidated joint business
    193,279       206,925  
Loaned securities
          29,446  
Inventory
    278,686       263,602  
Other current assets
    141,623       139,400  
                 
Total current assets
    2,572,259       2,458,000  
                 
Marketable securities
    1,497,447       891,406  
Property, plant and equipment, net
    1,634,696       1,594,754  
Intangible assets, net
    1,927,115       2,161,058  
Goodwill
    1,138,621       1,138,621  
Investments and other assets
    256,299       235,152  
                 
Total assets
  $ 9,026,437     $ 8,478,991  
                 
 
LIABILITIES AND EQUITY
Current liabilities:
               
Collateral payable on loaned securities
  $     $ 29,991  
Accounts payable
    108,547       107,417  
Taxes payable
    59,961       223,260  
Accrued expenses and other
    537,408       534,887  
Current portion of notes payable and line of credit
    15,452       27,667  
                 
Total current liabilities
    721,368       923,222  
                 
Notes payable and line of credit
    1,085,844       1,085,431  
Long-term deferred tax liability
    289,654       356,017  
Other long-term liabilities
    331,761       280,369  
                 
Total liabilities
    2,428,627       2,645,039  
                 
Commitments and contingencies (Notes 12, 14 and 15)
               
Equity:
               
Preferred stock, par value $0.001 per share
           
Common stock, par value $0.0005 per share
    149       149  
Additional paid-in capital
    6,184,315       6,073,957  
Accumulated other comprehensive income (loss)
    37,114       (11,106 )
Retained earnings
    781,321       270,180  
Treasury stock, at cost
    (438,710 )     (527,097 )
                 
Total Biogen Idec Inc. shareholders’ equity
    6,564,189       5,806,083  
Noncontrolling interest
    33,621       27,869  
                 
Total equity
    6,597,810       5,833,952  
                 
Total liabilities and equity
  $ 9,026,437     $ 8,478,991  
                 
 
See accompanying notes to these unaudited consolidated financial statements.


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BIOGEN IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
                 
    For the Nine Months
 
    Ended September 30,  
    2009     2008  
 
Cash flows from operating activities:
               
Net income
  $ 671,066     $ 581,680  
Adjustments to reconcile net income to net cash flows from operating activities:
               
Depreciation and amortization of property, plant and equipment and intangible assets
    334,761       340,042  
Acquired in-process research and development
          25,000  
Share-based compensation
    119,902       104,339  
Non-cash interest (income) expense and foreign exchange remeasurement loss (gain), net
    (12,861 )     (11,288 )
Deferred income taxes
    (72,580 )     (57,591 )
Realized loss (gain) on sale of marketable securities and strategic investments
    (17,185 )     3,774  
Write-down of inventory to net realizable value
    13,431       22,472  
Impairment of marketable securities, investments and other assets
    9,866       31,502  
Excess tax benefit from stock options
    (3,194 )     (27,424 )
Changes in operating assets and liabilities, net:
               
Accounts receivable
    (96,215 )     (95,337 )
Due from unconsolidated joint business
    13,646       (29,856 )
Inventory
    (25,195 )     (34,376 )
Other assets
    8,555       24,898  
Accrued expenses and other current liabilities
    (40,565 )     155,437  
Other liabilities and taxes payable
    (110,706 )     121,928  
                 
Net cash flows provided by operating activities
    792,726       1,155,200  
                 
Cash flows from investing activities:
               
Purchases of marketable securities
    (3,001,156 )     (1,801,056 )
Proceeds from sales and maturities of marketable securities
    2,334,093       2,135,065  
Collateral received under securities leading
    29,991       30,080  
Acquisitions, net of cash acquired
          (25,000 )
Purchases of property, plant and equipment
    (110,129 )     (221,961 )
Proceeds from the sale of property, plant and equipment
          16  
Purchases of other investments
    (36,519 )     (17,260 )
Proceeds from the sale of a strategic equity investment
    6,067        
                 
Net cash flows (used in) provided by investing activities
    (777,653 )     99,884  
                 
Cash flows from financing activities:
               
Purchase of treasury stock
    (57,631 )     (559,767 )
Proceeds from issuance of stock for share-based compensation arrangements
    33,236       167,032  
Change in cash overdraft
    7,497       18,052  
Excess tax benefit from stock options
    3,194       27,424  
Proceeds from borrowings
          986,980  
Repayment of borrowings
    (10,867 )     (1,512,474 )
Obligation under securities lending
    (29,991 )     (30,080 )
                 
Net cash flows used in financing activities
    (54,562 )     (902,833 )
                 
Net (decrease) increase in cash and cash equivalents
    (39,489 )     352,251  
Effect of exchange rate changes on cash and cash equivalents
    2,892       (1,212 )
Cash and cash equivalents, beginning of the period
    622,385       659,662  
                 
Cash and cash equivalents, end of the period
  $ 585,788     $ 1,010,701  
                 
 
See accompanying notes to these unaudited consolidated financial statements.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
1.   Business Overview
 
Overview
 
Biogen Idec Inc. (“Biogen Idec,” “we,” “us” or “the Company”) is a global biotechnology company that creates new standards of care in therapeutic areas with high unmet medical needs. We currently have four marketed products: AVONEX®, RITUXAN®, TYSABRI®, and FUMADERMtm. Our marketed products are used for the treatment of multiple sclerosis, or MS, non-Hodgkin’s lymphoma, or NHL, rheumatoid arthritis, or RA, Crohn’s disease and psoriasis.
 
Basis of Presentation
 
In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, consisting of only normal recurring accruals, necessary for a fair statement of our financial position, results of operations and cash flows. The information included in this quarterly report on Form 10-Q should be read in conjunction with our consolidated financial statements and the accompanying notes included in our annual report on Form 10-K for the year ended December 31, 2008. Our accounting policies are described in “Notes to Consolidated Financial Statements” in our 2008 annual report on Form 10-K and updated, as necessary, in this Form 10-Q. The year-end consolidated balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
 
In June 2009, the Financial Accounting Standards Board, or FASB, issued the FASB Accounting Standards Codification, or Codification. Effective this quarter, the Codification became the single source for all authoritative generally accepted accounting principles, or GAAP, recognized by the FASB and is required to be applied to financial statements issued for interim and annual periods ending after September 15, 2009. The Codification does not change GAAP and did not impact our financial position or results of operations.
 
Effective January 1, 2009, we adopted a newly issued accounting standard for noncontrolling interests. In accordance with the accounting standard, we changed the accounting and reporting for our minority interests (now called noncontrolling interest) in our consolidated financial statements. Upon adoption, certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications did not have a material impact on our previously reported financial position or results of operations. Refer to Note 9, Equity, and Note 13, Other Income (Expense), Net, of this Form 10-Q for additional information on the adoption of this standard.
 
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 Dompé SRL and Biogen Dompé Switzerland Gmbh, respectively. We consolidate variable interest entities in which we are the primary beneficiary. For such consolidated entities in which we own less than a 100% interest, we record net income attributable to noncontrolling interest (minority interest) in our consolidated statements of income equal to the percentage of ownership of the respective noncontrolling owners. All material intercompany balances and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States requires our management to make estimates and judgments that may affect the


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition and related allowances, marketable securities, derivatives and hedging activities, inventory, impairments of long-lived assets including intangible assets, impairments of goodwill, income taxes including the valuation allowance for deferred tax assets, valuation of investments, research and development expenses, contingencies and litigation, and share-based payments. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
 
Subsequent Events
 
We evaluated all events and transactions through October 21, 2009, the date we issued these financial statements. During this period we did not have any material recognizable subsequent events. However, we did have the following nonrecognizable subsequent events:
 
  •  On October 19, 2009, our Board of Directors authorized the repurchase of our common stock in an amount of up to $1 billion. The Company intends to retire these shares following repurchase on the open market. This repurchase program does not have an expiration date.
 
  •  On October 16, 2009, we extended our September 21, 2009 tender offer to acquire all of the outstanding shares of Facet Biotech Corporation, or Facet, until December 16, 2009 at the same offering price of $14.50 per share.
 
2.   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:
 
                 
    As of
    As of
 
    September 30,
    December 31,
 
(In millions)
  2009     2008  
 
Raw materials
  $ 40.6     $ 29.8  
Work in process
    168.4       180.0  
Finished goods
    69.7       53.8  
                 
Total Inventory
  $ 278.7     $ 263.6  
                 
 
3.   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 seller’s price to the buyer is fixed or determinable; and collectibility is reasonably assured.
 
Revenues from product sales are recognized when title and risk of loss have passed to the customer, which is typically upon delivery. However, under the terms of a development and marketing collaboration agreement with Elan Pharma International, Ltd., or Elan, an affiliate of Elan Corporation, plc, we manufacture TYSABRI and collaborate with Elan on the product’s marketing, commercial distribution and on-going


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
development activities. Therefore, sales of TYSABRI in the United States are recognized on the “sell-through” model, that is, upon shipment of the product by Elan to its third party distributor rather than upon shipment to Elan. For sales of TYSABRI outside the United States, we are responsible for distributing TYSABRI to customers and are primarily responsible for all operating activities. Generally, revenue on sales of TYSABRI outside the United States is recognized at the time of product delivery to our customers and distributors, as all revenue recognition criteria have been met.
 
Reserves
 
Reserves for Discounts and Allowances
 
Revenues are recorded net of applicable allowances for trade term discounts, wholesaler incentives, Medicaid rebates, Veteran’s Administration rebates, managed care rebates, product returns and other applicable allowances. Reserves established for these discounts and allowances are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer).
 
Our product revenue reserves are based on estimates of the amounts earned or to be claimed on the related sales. These estimates take into consideration our historical experience, current contractual requirements, statutory requirements, specific known market events and trends and forecasted customer buying patterns. If actual results vary, we may need to adjust these estimates, which could have an effect on earnings in the period of the adjustment.
 
An analysis of the amount of, and change in, reserves is as follows:
 
                                 
          Contractual
             
(In millions)
  Discounts     Adjustments     Returns     Total  
 
Balance, as of December 31, 2008
  $ 9.2     $ 48.1     $ 18.1     $ 75.4  
Current provisions relating to sales in current period
    54.9       140.2       14.0       209.1  
Adjustments relating to prior periods
          3.2             3.2  
Payments/returns relating to sales in current period
    (42.2 )     (76.6 )     (0.5 )     (119.3 )
Payments/returns relating to sales in prior periods
    (8.7 )     (45.1 )     (12.3 )     (66.1 )
                                 
Balance, as of September 30, 2009
  $   13.2     $   69.8     $   19.3     $   102.3  
                                 
 
The total reserves summarized within the table above were included in our consolidated balance sheets as follows:
 
                 
    As of
    As of
 
    September 30,
    December 31,
 
(In millions)
  2009     2008  
 
Reduction of accounts receivable
  $ 41.6     $ 31.6  
Current liability
    60.7       43.8  
                 
Total reserves
  $   102.3     $   75.4  
                 


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
Reserves for discounts, contractual adjustments and returns reduced gross product revenues as follows:
 
                                 
    For the
    For the
 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
(In millions, except percentages)
  2009     2008     2009     2008  
 
Discounts
  $ 18.7     $ 16.2     $ 54.9     $ 46.5  
Contractual adjustments
    50.6       40.1       143.4       112.3  
Returns
    4.4       5.9       14.0       14.4  
                                 
Total allowances
  $ 73.7     $ 62.2     $ 212.3     $ 173.2  
                                 
Gross product revenues
  $ 875.4     $ 820.5     $ 2,538.4     $ 2,281.0  
                                 
Percent of gross product revenues
    8.4 %     7.6 %     8.4 %     7.6 %
                                 
 
Bad Debt Reserves
 
Bad debt reserves are based on our estimated uncollectible accounts receivable. Given our historical experiences with bad debts, combined with our credit management policies and practices, we do not presently maintain significant bad debt reserves. Reserves for bad debts are reflected as a reduction of accounts receivable.
 
4.   Intangible Assets and Goodwill
 
Intangible assets and goodwill, net of accumulated amortization, impairment charges and adjustments, are as follows:
 
                                                         
          As of September 30,
    As of December 31,
 
          2009     2008  
    Estimated
          Accumulated
                Accumulated
       
(In millions)
  Life     Cost     Amortization     Net     Cost     Amortization     Net  
 
Intangible assets:
                                                       
Out-licensed patents
    12 years     $ 578.0     $ (288.6 )   $ 289.4     $ 578.0     $ (250.3 )   $ 327.7  
Core/developed technology
    15-23 years       3,005.3       (1,434.0 )     1,571.3       3,005.3       (1,241.0 )     1,764.3  
Trademarks and tradenames
    Indefinite       64.0             64.0       64.0             64.0  
In-licensed patents
    14 years       3.0       (1.1 )     1.9       3.0       (0.9 )     2.1  
Assembled workforce
    4 years       2.1       (1.6 )     0.5       2.1       (1.2 )     0.9  
Distribution rights
    2 years       12.7       (12.7 )           12.7       (10.6 )     2.1  
                                                         
Total intangible assets
          $ 3,665.1     $ (1,738.0 )   $ 1,927.1     $ 3,665.1     $ (1,504.0 )   $ 2,161.1  
                                                         
Goodwill
    Indefinite     $ 1,138.6     $     $ 1,138.6     $ 1,138.6     $     $ 1,138.6  
                                                         
 
Intangible Assets
 
Effective January 1, 2009, we implemented an amendment to the accounting and disclosure requirements related to intangible assets. This amendment provides guidance for determining the useful life of a recognized intangible asset and requires enhanced disclosures so that users of financial statements are able to assess the extent to which the expected future cash flows associated with the asset are affected by our intent and ability to renew or extend the arrangement. The adoption of this guidance did not impact our financial position or


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
results of operations as this standard was required to be implemented prospectively; however, this standard may impact us in subsequent periods.
 
Our intangible assets consist of patents, licenses, core/developed technology, trademarks, tradenames, assembled workforce, and distribution rights, the majority of which arose in connection with the merger of Biogen Inc. and Idec Pharmaceuticals Corporation, or the Merger. These intangible assets were recorded at fair value and are stated net of accumulated amortization and impairments.
 
The useful lives of our assets are primarily based on the legal or contractual life of the underlying patent or contract, which does not include additional years for the potential extension or renewal of the contract or patent. Our policy is based on the general accounting principles for amortization of intangible assets, which requires that the amortization of intangible assets reflect the pattern that the economic benefits of the intangible assets are consumed.
 
Intangible assets related to patents, licenses, core/developed technology, assembled workforce, and distribution rights are amortized over their remaining estimated useful lives. 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.
 
Our most significant intangible asset is the core technology related to our AVONEX product which was established at the time of the Merger. The net book value of this asset as of September 30, 2009 was $1,554.6 million. We believe the economic benefit of this core technology is consumed as revenue is generated from our AVONEX product. An analysis of the anticipated lifetime revenue of AVONEX is performed at least annually during our long range planning cycle. The results of this forecast serve as the basis for our assumptions used in the economic consumption amortization model for our core technology intangible assets. Although we believe this process has allowed us to reliably determine the best estimate of the pattern in which we will consume the economic benefits of our core technology intangible asset, the model could result in deferring amortization charges to future periods in certain instances, due to continued sales of the product at a nominal level after patent expiration or otherwise. In order to ensure 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 amortization amount. This minimum amortization amount is recalculated each year based on the remaining unamortized balance of the intangible asset and the remaining estimated useful life of the intangible asset and is compared to the amount of amortization determined under the economic consumption model. We record amortization based upon the higher of the amount of amortization determined under the economic consumption model or the minimum amortization amount determined under the straight-line method.
 
In September 2009, we were issued a U.S. patent for the use of beta interferon for immunomodulation or treating a viral condition, viral disease, cancers or tumors. This patent, expiring in September 2026, covers the treatment of multiple sclerosis with AVONEX, which is our brand of recombinant beta interferon. This patent extends the expected remaining life of our core intangible asset through 2026 and thus, under the straight-line method, reduces the minimum amortization amount.
 
We completed our most recent long range planning cycle in the third quarter, which includes an analysis of the anticipated product sales of AVONEX. The outcome of this analysis is based on certain assumptions that we evaluate on a periodic basis, such as the expected impact of competitor products and our own pipeline product candidates, as well as the issuance of new patents or extension of existing patents. Based on this year’s analysis, we have continued to amortize this asset on the economic consumption model for the third quarter of 2009, and expect to apply the same model for the subsequent three quarters. The results of our


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
analysis were most significantly impacted by the extension of the assumed remaining life of the core intangible asset due to the issuance of the U.S. patent in September 2009.
 
Summary of Expense Recognized Related to Intangible Assets
 
                                 
    For the Three Months
  For the Nine Months
    Ended September 30,   Ended September 30,
(In millions)
  2009   2008   2009   2008
 
Amortization of acquired intangible assets
  $ 51.3     $ 94.5     $ 233.8     $ 242.1  
Acquired in-process research and development
  $     $     $     $ 25.0  
 
The decrease in amortization related to our acquired intangible assets for the three and nine months ended September 30, 2009, as compared to the prior year comparative periods, was primarily due to the decrease in amortization attributable to our core intangible asset. This decrease in amortization resulted from changes in the estimate of the future revenues of AVONEX which serves as the basis for our calculation of economic consumption for core technology.
 
Amortization of acquired intangible assets is expected to be approximately $283.0 million for the twelve months ended December 31, 2009 and between $160.0 million and $220.0 million for each of the following five years.
 
In the first quarter of 2008, we recorded an in-process research and development, or IPR&D, charge of $25.0 million related to a HSP90-related milestone payment made to the former shareholders of Conforma Therapeutics, Inc., or Conforma, pursuant to the terms of our acquisition of Conforma in 2006.
 
5.   Fair Value Measurements
 
Effective January 1, 2009, we adopted a newly issued accounting standard for fair value measurements of all nonfinancial assets and nonfinancial liabilities not recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of the accounting standard for these assets and liabilities did not have a material impact on our financial position or results of operations; however, this standard may impact us in subsequent periods and require additional disclosures.
 
During the quarter ended June 30, 2009, we implemented newly issued accounting standards which provide guidance for determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying circumstances that indicate that a transaction is not orderly. Specifically, the new standards provide additional guidelines for making fair value measurements more consistent with the principles presented and provide authoritative guidance in determining whether a market is active or inactive, and whether a transaction is distressed. This guidance is applicable to all assets and liabilities (i.e. financial and nonfinancial) and requires enhanced disclosures, including interim and annual disclosure of the input and valuation techniques (or changes in techniques) used to measure fair value and the defining of the major security types comprising debt and equity securities held based upon the nature and risk of the security. The adoption of the new standards did not impact our financial position or results of operations; however, adoption has enhanced disclosures for our investments in marketable debt securities and resulted in the reclassification of certain amounts included within our previously reported disclosures to conform to the presentation adopted in the current year.
 
During the second quarter of 2009, we also implemented a newly issued accounting standard requiring disclosure about the fair value of financial instruments in interim as well as in annual financial statements. The adoption of this standard has resulted in the disclosure of the fair values attributable to our debt instruments within our interim report. Since this guidance addresses disclosure requirements, the adoption of this standard did not impact our financial position or results of operations.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
Summary of Assets and Liabilities Recorded at Fair Value
 
The tables below present information about our assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2009 and December 31, 2008 and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability.
 
A majority of our financial assets and liabilities have been classified as Level 2. These assets and liabilities have been initially valued at the transaction price and subsequently valued typically utilizing third party pricing services. The pricing services use many inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates, other industry, and economic events. We validate the prices provided by our third party pricing services by reviewing their pricing methods and matrices, obtaining market values from other pricing sources, and analyzing pricing data in certain instances. The fair values of our cash equivalents, derivative contracts, marketable debt securities, and plan assets for deferred compensation are determined through market and observable sources and have been classified as Level 2. After completing our validation procedures, we did not adjust or override any fair value measurements provided by our pricing services as of September 30, 2009 and December 31, 2008.
 
Our strategic investments are investments in publicly traded equity securities where fair value is readily determinable and have therefore been classified as Level 1 assets.
 
Our venture capital investments are the only assets for which we used Level 3 inputs to determine the fair value. Venture capital investments represented approximately 0.3% of total assets as of both September 30, 2009 and December 31, 2008. The underlying assets in these funds are initially measured at transaction prices and subsequently valued using the pricing of recent financing 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, accrued expenses and other approximate fair value due to their short-term nature.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
The following tables set forth our financial assets and liabilities that were recorded at fair value:
 
                                 
                      Significant
 
    Balance as of
    Quoted Prices in
    Significant Other
    Unobservable
 
    September 30,
    Active Markets
    Observable Inputs
    Inputs
 
(In millions)
  2009     (Level 1)     (Level 2)     (Level 3)  
 
Assets:
                               
Cash equivalents
  $ 483.5     $     $ 483.5     $  
Marketable debt securities:
                               
Corporate debt securities
    446.2             446.2        
Government securities
    1,638.9             1,638.9        
Mortgage and other asset backed securities
    234.2             234.2        
Strategic investments
    4.2       4.2              
Venture capital investments
    23.1                   23.1  
Derivative contracts
                       
Plan assets for deferred compensation
    13.2             13.2        
                                 
Total
  $ 2,843.3     $     4.2     $ 2,816.0     $     23.1  
                                 
Liabilities:
                               
Derivative contracts
    36.0             36.0        
                                 
Total
  $ 36.0     $     $ 36.0     $  
                                 
 
                                 
                      Significant
 
    Balance as of
    Quoted Prices in
    Significant Other
    Unobservable
 
    December 31,
    Active Markets
    Observable Inputs
    Inputs
 
(In millions)
  2008     (Level 1)     (Level 2)     (Level 3)  
 
Assets:
                               
Cash equivalents
  $ 500.9     $     $ 500.9     $  
Marketable debt securities:
                               
Corporate debt securities
    328.5             328.5        
Government securities
    1,005.0             1,005.0        
Mortgage and other asset backed securities
    306.9             306.9        
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     $  
                                 


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
The following table provides a roll forward of the fair value of our venture capital investments, where fair value is determined by Level 3 inputs:
 
                                 
    For the Three Months
    For the Nine Months
 
    Ended September 30,     Ended September 30,  
(In millions)
  2009     2008     2009     2008  
 
Beginning Balance
  $ 21.6     $ 24.6     $ 23.9     $ 28.1  
Total net unrealized gains (losses) included in earnings
    0.9       2.2       (2.2 )     (2.6 )
Purchases, issuances, and settlements
    0.6       1.6       1.4       2.9  
                                 
Ending Balance
  $ 23.1     $ 28.4     $ 23.1     $ 28.4  
                                 
 
Summary of Liabilities Recorded at Carrying Value
 
The fair values of our debt instruments were estimated using market observable inputs, including quoted prices in active markets, market indices and interest rate measurements. Within the hierarchy of fair value measurements, these are Level 2 fair values.
 
The fair and carrying value of our debt instruments are detailed as follows:
 
                                 
    As of September 30, 2009     As of December 31, 2008  
    Fair
    Carrying
    Fair
    Carrying
 
(In millions)
  Value     Value     Value     Value  
 
Credit line from Dompé
  $ 17.5     $ 17.5     $ 16.4     $ 16.8  
Notes payable to Fumedica
    31.7       29.7       37.5       38.5  
6.0% Senior Notes due 2013
    476.7       449.6       429.8       449.6  
6.875% Senior Notes due 2018
    602.1       604.5       562.4       608.2  
                                 
Total
  $ 1,128.0     $ 1,101.3     $ 1,046.1     $ 1,113.1  
                                 
 
6.   Financial Instruments
 
Financial instruments that potentially subject us to concentrations of credit risk are accounts receivable and marketable securities. The majority of our accounts receivable are payable by wholesale distributors and large pharmaceutical companies and collateral is generally not required from these large customers. We monitor the financial performance and credit worthiness of our large customers so that we can properly assess and respond to changes in their credit profile. Our portfolio of marketable securities is subject to concentration limits set within our investment policy that help to mitigate our credit exposure.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
Marketable Securities, including Strategic Investments
 
The following tables summarize our marketable securities and strategic investments (in millions):
 
                                 
          Gross
    Gross
       
    Fair
    Unrealized
    Unrealized
    Amortized
 
As of September 30, 2009 (In millions):
  Value     Gains     Losses     Cost  
 
Available-for-sale
                               
Corporate debt securities
                               
Current
  $ 167.1     $ 1.5     $     $ 165.6  
Non-current
    279.1       6.7       (0.2 )     272.6  
Government securities
                               
Current
    650.5       1.5             649.0  
Non-current
    988.4       6.8       (1.1 )     982.7  
Mortgage and other asset backed securities
                               
Current
    4.3       0.1             4.2  
Non-current
    229.9       5.4       (0.1 )     224.6  
                                 
Total available-for-sale securities
  $ 2,319.3     $    22.0     $   (1.4 )   $ 2,298.7  
                                 
Other Investments
                               
Strategic investments, non-current
  $ 4.2     $ 0.9     $ (0.2 )   $ 3.5  
                                 
 
                                 
          Gross
    Gross
       
    Fair
    Unrealized
    Unrealized
    Amortized
 
As of December 31, 2008 (In millions):
  Value     Gains     Losses     Cost  
 
Available-for-sale
                               
Corporate debt securities
                               
Current
  $ 128.2     $ 0.4     $     $ 127.8  
Non-current
    200.3       2.6             197.7  
Government securities
                               
Current
    582.8       1.5             581.3  
Non-current
    422.2       8.7             413.5  
Mortgage and other asset backed securities
                               
Current
    13.9                   13.9  
Non-current
    293.0       3.3       (0.3 )     290.0  
                                 
Total available-for-sale securities
  $ 1,640.4     $    16.5     $   (0.3 )   $ 1,624.2  
                                 
Other Investments
                               
Strategic investments, non-current
  $ 4.6     $ 0.5     $ (0.1 )   $ 4.2  
                                 
 
In the tables above, as of September 30, 2009 and December 31, 2008, government securities included $384.1 million and $139.1 million, respectively, of Federal Deposit Insurance Corporation, or FDIC, guaranteed senior notes issued by financial institutions under the Temporary Liquidity Guarantee Program. In addition, the balances as of December 31, 2008 include amounts related to our loaned securities.
 
Certain commercial paper and short-term debt securities with original maturities of less than 90 days are included in cash and cash equivalents on the accompanying consolidated balance sheets and are not included


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
in the tables above. As of September 30, 2009 and December 31, 2008, the commercial paper, including accrued interest, had fair and carrying values of $95.1 million and $42.7 million, respectively, and short-term debt securities had fair and carrying values of $388.4 million and $458.2 million, respectively.
 
Summary of Contractual Maturities: Available-for-Sale Securities
 
The estimated fair value and amortized cost of securities, excluding strategic investments, available-for-sale by contractual maturity as of September 30, 2009 and December 31, 2008 were as follows (in millions):
 
                                 
    As of September 30, 2009     As of December 31, 2008  
    Estimated
    Amortized
    Estimated
    Amortized
 
(In millions)
  Fair Value     Cost     Fair Value     Cost  
 
Due in one year or less
  $ 731.4     $ 728.7     $ 714.9     $ 713.0  
Due after one year through five years
    1,397.2       1,382.8       733.7       722.0  
Due after five years
    190.7       187.2       191.8       189.2  
                                 
Total
  $ 2,319.3     $ 2,298.7     $ 1,640.4     $ 1,624.2  
                                 
 
The average maturity of our marketable securities as of September 30, 2009 and December 31, 2008, was 15 months and 13 months, respectively.
 
Impairments
 
Other-than-Temporary Impairments
 
In April 2009, we implemented newly issued accounting standards which provided guidance for the recognition, measurement and presentation of other-than-temporary impairments. These newly issued standards amended the other-than-temporary impairment model for debt securities and requires additional disclosures regarding the calculation of credit losses and the factors considered in reaching a conclusion that an investment is not other-than-temporarily impaired. The impairment model for equity securities was not affected.
 
Prior to our adoption of these new accounting standards in April 2009, we recognized all other-than-temporary impairment amounts related to our debt securities in earnings as required under the previously effective guidance which required that management assert that it had the ability and intent to hold a debt security until maturity or until we recovered the cost of our investment. Under the new accounting standards, an other-than-temporary impairment must be recognized through earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost basis. However, even if an investor does not expect to sell a debt security, expected cash flows to be received must be evaluated to determine if a credit loss has occurred. In the event of a credit loss, only the amount associated with the credit loss is recognized in income. The amount of losses relating to other factors, including those resulting from changes in interest rates, are recorded in accumulated other comprehensive income. The adoption of this guidance did not have a material impact on our financial position or results of operations.
 
Evaluating Investments for Other-than-Temporary Impairments
 
We conduct periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment and its application to certain investments, as required by the general accounting principles provided under the Investment for Debt and Equity Securities Topic of the Codification. An unrealized loss exists when the current fair value of an individual security is less


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
than its amortized cost basis. Unrealized losses on available-for-sale securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated other comprehensive income.
 
For available-for-sale debt securities with unrealized losses, management performs an analysis to assess whether we intend to sell or whether we would more likely than not be required to sell the security before the expected recovery of the amortized cost basis. Where we intend to sell a security, or may be required to do so, the security’s decline in fair value is deemed to be other-than-temporary and the full amount of the unrealized loss is recorded within earnings as an impairment loss.
 
Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security.
 
For equity securities, when assessing whether a decline in fair value below our cost basis is other-than-temporary, we consider the fair market value of the security, the duration of the security’s decline, and the financial condition of the issuer. We then consider our intent and ability to hold the equity security for a period of time sufficient to recover our carrying value. Where we have determined that we lack the intent and ability to hold an equity security to its expected recovery, the security’s decline in fair value is deemed to be other-than-temporary and is recorded within earnings as an impairment loss.
 
Recognition and Measurement of Other-than-Temporary Impairment
 
During the nine months ended September 30, 2009, we recognized $3.6 million in charges for the other-than-temporary impairment of available for sale securities primarily related to mortgage and asset backed securities when we lacked the ability and intent to hold the securities to recovery. No impairment losses were recognized through earnings related to available for sale securities during the three months ended September 30, 2009.
 
For the three and nine months ended September 30, 2008, we recognized $14.1 million and $19.3 million, respectively, in charges for the other-than-temporary impairment of available-for-sale securities primarily related to mortgage and asset backed securities.
 
For the three and nine months ended September 30, 2009 we recorded increases of $0.6 million and $4.3 million, respectively, in unrealized net gains accounted for through accumulated other comprehensive income, a component of shareholders’ equity. This compares to an increase of $2.4 million and a decrease of $5.7 million in unrealized net gains, respectively, in the comparable periods of the prior year.
 
Proceeds from Marketable Securities, excluding Strategic Investments
 
The proceeds from maturities and sales of marketable securities, excluding strategic investments, which were primarily reinvested and resulting realized gains and losses, were as follows (in millions):
 
                                 
    For the Three Months
    For the Nine Months
 
    Ended September 30,     Ended September 30,  
(In millions)
  2009     2008     2009     2008  
 
Proceeds from maturities and sales
  $ 696.5     $ 743.2     $ 2,334.1     $ 2,135.1  
Realized gains
  $ 3.1     $ 0.9     $ 17.0     $ 11.6  
Realized losses
  $ 1.3     $ 10.6     $ 3.4     $ 15.4  
 
The realized losses for the three and nine months ended September 30, 2009 and 2008 primarily relate to losses on the sale of corporate debt securities and non-agency mortgage-backed securities.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
Securities Lending
 
We previously loaned certain securities from our portfolio to other institutions. We held collateral in the amount of $30.0 million as of December 31, 2008. The cash collateral was recorded as collateral received for loaned securities on the accompanying consolidated balance sheet. No such loans were outstanding as of September 30, 2009 and accordingly no collateral was held as of September 30, 2009.
 
7.   Derivative Instruments
 
Forward Contracts and Interest Rate Swaps
 
On January 1, 2009, we adopted a newly issued accounting standard which requires additional disclosure about our objectives for using derivative instruments, the level of derivative activity we engage in, and the effect of derivative instruments and related hedged items on our financial position and performance. The adoption of this standard did not impact our financial position or results of operations.
 
Our primary market exposure is to interest rates and foreign exchange rates. We use certain derivative instruments to help manage this exposure. We execute these instruments with financial institutions we judge to be creditworthy and the majority of the foreign currencies are denominated in currencies of major industrial countries. We do not hold or issue derivative instruments for trading or speculative purposes.
 
We recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance sheets. We classify the cash flows from these instruments in the same category as the cash flows from the hedged items.
 
Forward Contracts
 
Due to the global nature of our operations, portions of our revenues are in currencies other than the U.S. dollar. The value of revenue measured in U.S. dollars is subject to changes in currency exchange rates. In order to mitigate these changes we use forward contracts to lock in exchange rates. We do not engage in currency speculation.
 
All foreign currency forward contracts in effect as of September 30, 2009 and December 31, 2008 had durations of 1 to 12 months. These contracts have been designated as cash flow hedges and accordingly, to the extent effective, any unrealized gains or losses on these foreign currency forward contracts are reported in accumulated other comprehensive income (loss). Realized gains and losses for the effective portion of such contracts are recognized in revenue when the sale of product in the currency being hedged is recognized. To the extent ineffective, hedge transaction gains and losses are reported in other income (expense), net at each reporting date.
 
Foreign currency forward contracts that were entered into to hedge forecasted revenue were as follows:
 
                 
    Notional Amount  
    As of September 30,
    As of December 31,
 
Foreign Currency: (In millions)
  2009     2008  
 
Euro
  $ 399.0     $ 489.4  
Canadian Dollar
    36.7       34.1  
                 
Total
  $ 435.7     $ 523.5  
                 
 
The portion of the fair value of these contracts that was included in accumulated other comprehensive income (loss) within total equity reflected losses of $34.7 million and $44.1 million as of September 30, 2009 and December 31, 2008, respectively. 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


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
of September 30, 2009 and December 31, 2008, respectively, credit risk did not materially change the fair value of our foreign currency forward contracts.
 
In relation to our foreign currency forward contracts, we recognize gains and losses in earnings due to hedge ineffectiveness. During the three and nine months ended September 30, 2009 we recognized net losses of $0.1 million and $0.9 million, respectively. During the three and nine months ended September 30, 2008, we recognized net losses of $1.3 million and $2.4 million, respectively. In addition, we recognized $16.3 million and $28.6 million, respectively, of losses in product revenue for the settlement of certain effective cash flow hedge instruments for the three and nine months ended September 30, 2009 as compared to losses recognized in the amount of $2.3 million and $20.0 million, respectively, during the prior year comparative periods. These settlements were recorded in the same period as the related forecasted revenue.
 
Interest Rate Swaps
 
In connection with the issuance of our 6.0% and 6.875% Senior Notes in March 2008, we entered into interest rate swaps for an aggregate notional amount of $550.0 million, which were settled in December 2008. Under the settlement we received $53.9 million. As the interest rate swaps were settled in 2008, no hedge ineffectiveness was recognized for the three and nine months ended September 30, 2009. In the three and nine months ended September 30, 2008, we recognized a net gain of $1.3 million and a net loss of $3.6 million, respectively, in earnings due to hedge ineffectiveness.
 
Additionally, upon termination of the swaps in December 2008, the carrying amount of the 6.875% Senior Notes increased $62.8 million. This amount will be recognized as a reduction of interest expense and amortized using the effective interest rate method over the remaining life of the 6.875% Senior Notes. During the three and nine months ended September 30, 2009, approximately $1.3 million and $4.0 million, respectively, was recorded as a reduction of interest expense.
 
Summary of Derivatives designated as Hedging Instruments
 
The following table summarizes the fair value and presentation in the consolidated balance sheets for derivatives designated as hedging instruments as of September 30, 2009 and December 31, 2008:
 
                                 
    Foreign Currency Contracts  
    Asset Derivatives     Liability Derivatives  
    Balance Sheet
          Balance Sheet
       
(In millions)
  Location     Fair Value     Location     Fair Value  
 
September 30, 2009
    Other Current Assets     $       Accrued Expenses and Other     $ 34.8  
December 31, 2008
    Other Current Assets     $   1.9       Accrued Expenses and Other     $   46.0  
 
As noted above, the interest rate swaps were settled in December 2008.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
The following table summarizes the effect of derivatives designated as hedging instruments on the consolidated statements of income for the three and nine months ended September 30, 2009 and 2008:
 
                                 
    Amount
      Amount
       
    Recognized in
      Reclassified from
       
    Accumulated
      Accumulated
       
    Other
      Other
       
    Comprehensive
      Comprehensive
       
    Income
  Income
  Income
  Income
  Amount of
    on Derivative
  Statement
  into Income
  Statement
  Gain/(Loss)
    Gain/(Loss)
  Location
  Gain/(Loss)
  Location
  Recorded
(In millions)
  (Effective Portion)   (Effective Portion)   (Effective Portion)   (Ineffective Portion)   (Ineffective Portion)
 
For the Three Months Ended
                               
September 30, 2009:
                               
Foreign currency contracts
  $ (34.7 )   Revenue   $ (16.3 )   Other income (expense)   $ (0.1 )
Interest rate swap
  $     Interest expense   $     Interest expense   $  
September 30, 2008:
                               
Foreign currency contracts
  $ 5.7     Revenue   $ (2.3 )   Other income (expense)   $ (1.3 )
Interest rate swap
  $     Interest expense   $     Interest expense   $ 1.3  
                                 
For the Nine Months Ended
                               
September 30, 2009:
                               
Foreign currency contracts
  $ (34.7 )   Revenue   $ (28.6 )   Other income (expense)   $ (0.9 )
Interest rate swap
  $     Interest expense   $     Interest expense   $  
September 30, 2008:
                               
Foreign currency contracts
  $ 5.7     Revenue   $ (20.0 )   Other income (expense)   $ (2.4 )
Interest rate swap
  $     Interest expense   $     Interest expense   $ (3.6 )
 
Other Derivatives
 
During the quarter ended September 30, 2009 we entered into several foreign currency forward contracts to mitigate the foreign currency risk related to certain intercompany transactions. We have not elected hedge accounting for these transactions. As of September 30, 2009 the aggregate notional amount of our outstanding foreign currency contracts was $115.6 million. The fair value of these contracts was a liability of $1.2 million. Net losses of $2.2 million and a de minimis amount, respectively, were recognized as a component of other income (expense), net related to these contracts in the three and nine months ended September 30, 2009.
 
8.   Property, Plant and Equipment
 
Property, plant and equipment are recorded at historical cost, net of accumulated depreciation.
 
                 
    As of
  As of
    September 30,
  December 31,
(In millions)
  2009   2008
 
Accumulated depreciation
  $ 622.9     $ 537.0  


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
 
9.   Equity
 
The following tables reflect the reconciliation at the beginning and the end of the period of the carrying amount of equity attributable to the shareholders of Biogen Idec Inc., equity attributable to noncontrolling interests, and total equity:
 
                                                 
    For the
    For the
 
    Three Months Ended September 30, 2009     Three Months Ended September 30, 2008  
    Biogen Idec Inc.
                Biogen Idec Inc.
             
    Shareholders’
    Noncontrolling
    Total
    Shareholders’
    Noncontrolling
    Total
 
(In millions)
  Equity     interest     Equity     Equity     interest     Equity  
 
Beginning Balance
  $ 6,212.5     $ 33.2     $ 6,245.7     $ 5,522.9     $ 26.2     $ 5,549.1  
                                                 
Comprehensive income:
                                               
Net income
    277.7       1.9       279.6       206.8       1.0       207.8  
Unrealized gains(losses) on securities available for sale, net of tax of $0.3 and $(0.7)
    (0.5 )           (0.5 )     1.3             1.3  
Unrealized gains(losses) on foreign currency forward contracts, net of tax of $0.8 and $(7.6)
    (2.3 )           (2.3 )     13.0             13.0  
Unrealized gains(losses) on pension benefit obligation, net of tax of $(0.1) and $0.0
    0.2             0.2       (0.2 )           (0.2 )
Translation adjustments
    28.4       1.3       29.7       (101.8 )     (2.7 )     (104.5 )
                                                 
Comprehensive income (loss)
    303.5       3.2       306.7       119.1       (1.7 )     117.4  
Distribution to noncontrolling interest
          (2.8 )     (2.8 )           (1.4 )     (1.4 )
Capital contribution from noncontrolling interest
                            1.6       1.6  
Repurchase of common stock for Treasury, at cost
                                   
Issuance of common stock from conversion of subordinated notes payable
                                   
Issuance of common stock under stock option and stock purchase plans
    8.8             8.8       77.6             77.6  
Issuance of common stock under stock award plans
    (2.0 )           (2.0 )     (1.0 )           (1.0 )
Compensation expense related to share-based payments
    42.8             42.8       38.5             38.5  
Tax benefit from share-based payments
    (1.4 )           (1.4 )     11.4             11.4  
                                                 
Ending Balance
  $ 6,564.2     $ 33.6     $ 6,597.8     $ 5,768.5     $ 24.7     $ 5,793.2  
                                                 
 


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
                                                 
    For the
    For the
 
    Nine Months Ended September 30, 2009     Nine Months Ended September 30, 2008  
    Biogen Idec Inc.
                Biogen Idec Inc.
             
    Shareholders’
    Noncontrolling
    Total
    Shareholders’
    Noncontrolling
    Total
 
(In millions)
  Equity     interest     Equity     Equity     interest     Equity  
 
Beginning Balance
  $ 5,806.1     $ 27.9     $ 5,834.0     $ 5,534.3     $ 19.7     $ 5,554.0  
                                                 
Comprehensive income:
                                               
Net income
    664.5       6.6       671.1       576.5       5.2       581.7  
Unrealized gains(losses) on securities available for sale, net of tax of $(1.7) and $2.6
    3.0             3.0       (6.2 )           (6.2 )
Unrealized gains(losses) on foreign currency forward contracts, net of tax of $0.3 and $(4.5)
    9.6             9.6       7.6             7.6  
Unrealized gains on pension benefit obligation, net of tax of $(0.1) and $0.0
    0.2             0.2       (0.1 )           (0.1 )
Translation adjustment
    35.4       1.9       37.3       (47.1 )     (1.0 )     (48.1 )
                                                 
Total comprehensive income
    712.7       8.5       721.2       530.7       4.2       534.9  
Distribution to noncontrolling interest
          (2.8 )     (2.8 )           (2.8 )     (2.8 )
Capital contribution from noncontrolling interest
                            3.6       3.6  
Repurchase of common stock for Treasury, at cost
    (57.6 )           (57.6 )     (559.8 )           (559.8 )
Issuance of common stock from conversion of subordinated notes payable
                      0.2             0.2  
Issuance of common stock under stock option and stock purchase plans
    33.2             33.2       167.3             167.3  
Issuance of common stock under stock award plans
    (40.5 )           (40.5 )     (42.8 )           (42.8 )
Compensation expense related to share-based payments
    124.7             124.7       109.8             109.8  
Tax benefit from share-based payments
    (14.4 )           (14.4 )     28.8             28.8  
                                                 
Ending Balance
  $ 6,564.2     $ 33.6     $ 6,597.8     $ 5,768.5     $ 24.7     $ 5,793.2  
                                                 
 
As noted within Note 1, Business Overview, of this Form 10-Q, effective January 1, 2009, we adopted a newly issued accounting standard for noncontrolling interests. The newly issued accounting standard requires enhanced disclosures to clearly distinguish between our interests and the interests of noncontrolling owners.
 
We changed the accounting and reporting for our minority interests by recharacterizing them as noncontrolling interests and classifying them as a separate component of total equity in our accompanying consolidated balance sheets. Additionally, net income attributable to noncontrolling interest is now shown separately from net income in the consolidated statements of income. As a result, our accompanying consolidated statements of income include net income, which represents net income prior to any allocation to minority shareholders and net income attributable to noncontrolling interest, as well as a new line item titled

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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
net income attributable to Biogen Idec Inc., which is the equivalent of the previously reported net income line item. These reclassifications had no effect on our previously reported financial position or results of operations. Refer to Note 1, Business Overview, and Note 13, Other Income (Expense), Net, of this Form 10-Q for additional information on the adoption of this guidance.
 
10.   Earnings per Share
 
Basic and diluted earnings per share are calculated as follows:
 
                                 
     
     
    For the
    For the
 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
(In millions)
  2009     2008     2009     2008  
 
Numerator:
                               
Net income attributable to Biogen Idec Inc. 
  $ 277.7     $ 206.8     $ 664.5     $ 576.5  
Adjustment for net income allocable to preferred stock
    (0.5 )     (0.4 )     (1.1 )     (1.0 )
                                 
Net income used in calculating basic and diluted earnings per share
  $ 277.2     $ 206.4     $ 663.4     $ 575.5  
                                 
Denominator:
                               
Weighted average number of common shares outstanding
    288.9       291.4       288.4       292.6  
Effect of dilutive securities:
                               
Stock options and ESPP
    0.6       1.1       0.7       1.6  
Time-vested restricted stock units
    1.5       1.4       1.3       1.2  
Performance-vested restricted stock units
                       
Restricted stock awards
                      0.1  
                                 
Dilutive potential common shares
    2.1       2.5       2.0       2.9  
                                 
Shares used in calculating diluted earnings per share
    291.0       293.9       290.4       295.5  
                                 
 
The following amounts were not included in the calculation of net income per diluted share because their effects were anti-dilutive or the performance criteria had not been met for the performance-vested restricted stock units:
 
                                 
    For the
    For the
 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
(In millions)
  2009     2008     2009     2008  
 
Numerator:
                               
Net income allocable to preferred stock
  $ 0.5     $  0.4     $ 1.1     $  1.0  
Denominator:
                               
Stock options
    8.4       6.7       7.4       6.4  
Time-vested restricted stock units
    2.3       1.8       2.1       1.4  
Performance-vested restricted stock units
    0.2             0.1        
Convertible preferred stock
    0.5       0.5       0.5       0.5  
                                 
Total
    11.4       9.0       10.1       8.3  
                                 


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
On January 1, 2009, we adopted a newly issued accounting standard which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the earnings allocation in computing earnings per share under the two-class method. This newly issued accounting standard requires us to include all unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, as participating securities and to include them in the number of shares outstanding in our basic and diluted EPS calculations pursuant to the two-class method. Our awards do not have nonforfeitable rights to dividends or dividend equivalents and therefore the adoption of this guidance did not impact our financial position or results of operations.
 
11.   Share-Based Payments
 
The following table summarizes share-based compensation expense included within our consolidated statements of income:
 
                                 
    For the Three
    For the Nine
 
    Months Ended
    Months Ended
 
    September 30,     September 30,  
(In millions)
  2009     2008     2009     2008  
 
Research and development
  $ 15.6     $ 14.0     $ 46.0     $ 45.8  
Selling, general and administrative
    27.2       24.5       78.7       64.0  
                                 
Subtotal
    42.8       38.5       124.7       109.8  
Capitalized share-based payment costs
    (1.7 )     (1.8 )     (4.8 )     (5.5 )
                                 
Share-based compensation expense included in total costs and expenses
    41.1       36.7       119.9       104.3  
Income tax effect
    (12.6 )     (11.4 )     (36.8 )     (32.2 )
                                 
Share-based compensation expense included in net income attributable to Biogen Idec, Inc. 
  $ 28.5     $ 25.3     $ 83.1     $ 72.1  
                                 
 
Our share-based compensation programs consist of share-based awards which include stock options, time-vested restricted stock units and performance-vested restricted stock units, as well as our employee stock purchase plan. The following table summarizes share-based compensation expense associated with each of these programs:
 
                                 
    For the Three
    For the Nine
 
    Months Ended
    Months Ended
 
    September 30,     September 30,  
(In millions)
  2009     2008     2009     2008  
 
Stock options
  $ 5.5     $ 4.9     $ 16.6     $ 14.3  
Time-vested restricted stock units
    34.4       30.5       99.9       89.5  
Performance-vested restricted stock units
    (0.3 )     0.1       3.0       0.8  
Restricted stock awards
                      0.6  
Employee stock purchase plan
    3.2       3.0       5.2       4.6  
                                 
Subtotal
  $  42.8     $ 38.5     $ 124.7     $ 109.8  
Capitalized share-based payment costs
    (1.7 )     (1.8 )     (4.8 )     (5.5 )
                                 
Share-based compensation expense included in total costs and expenses
  $ 41.1     $  36.7     $ 119.9     $ 104.3  
                                 


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
Stock Options
 
The fair values of our stock option grants are estimated as of the date of grant using a Black-Scholes option valuation model. The estimated fair values of the stock options, including the effect of estimated forfeitures, are then expensed over the options’ vesting periods. A summary of stock options granted during the three and nine months ended September 30, 2009 and 2008 is as follows:
 
                                                                 
    For the Three Months Ended September 30,   For the Nine Months Ended September 30,
    2009   2008   2009   2008
        Weighted
      Weighted
      Weighted
      Weighted
        Average
      Average
      Average
      Average
    Number
  Exercise
  Number
  Exercise
  Number
  Exercise
  Number
  Exercise
(In millions, except share price)
  Granted(a)   Price   Granted   Price   Granted   Price   Granted   Price
 
Stock Options
        $ 47.96       0.1     $ 65.70       1.0     $ 50.02       1.4     $ 60.89  
 
 
    (a)  Approximately 14,000 stock options were granted during the quarter ended September 30, 2009.
 
Time-Vested Restricted Stock Units
 
The fair values of our time-vested restricted stock units, or RSUs, are based on the market value of our stock on the date of grant and are recognized over the applicable service period, adjusted for the effect of estimated forfeitures. A summary of RSU activity for the three and nine months ended September 30, 2009 and 2008 is as follows:
 
                                                                 
    For the Three Months Ended September 30,   For the Nine Months Ended September 30,
    2009   2008   2009   2008
        Weighted
      Weighted
      Weighted
      Weighted
        Average
      Average
      Average
      Average
    Number
  Grant Date
  Number
  Grant Date
  Number
  Grant Date
  Number
  Grant Date
(In millions, except share price)
  Granted   Fair Value   Granted   Fair Value   Granted   Fair Value   Granted   Fair Value
 
Time-Vested
                                                               
Restricted Stock Units
    0.1     $ 48.42       0.2     $ 51.87       2.5     $ 49.35       2.8     $ 60.04  
 
Performance-Vested Restricted Stock Units
 
2009 Grant Activity
 
We apply a graded vesting expense methodology when accounting for the performance-vested restricted stock units, or PVRSUs, issued during 2009 in accordance with generally accepted accounting principles for share-based compensation. During the nine months ended September 30, 2009, approximately 321,000 PVRSUs were granted with a weighted average grant date fair value of $49.46 per share. Approximately 307,000 of these PVRSUs were granted during the first quarter of 2009, primarily in connection with our annual awards made in February; the remainder of the PVRSUs granted during the nine months ended September 30, 2009 were made in conjunction with promotions and new hires.
 
The number of PVRSUs reflected as granted represents the target number of shares that are eligible to vest in full or in part and are earned subject to the attainment of certain performance criteria established at the beginning of the performance period; the performance period ends December 31, 2009. Participants may ultimately earn up to 200% of the target number of shares granted in the event that the maximum performance thresholds are attained. Accordingly, additional PVRSUs may be issued upon final determination of the number of awards earned.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
Once the earned number of performance-vested awards has been determined, the earned PVRSUs will then vest in three equal increments on (1) the later of the first anniversary of the grant date or the date of results determination; (2) the second anniversary of the grant date; and (3) the third anniversary of the grant date. The vesting of these awards is also subject to the respective employees’ continued employment. Compensation expense associated with these PVRSUs is initially based upon the number of shares expected to vest after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures. Cumulative adjustments are recorded quarterly to reflect subsequent changes in the estimated outcome of performance-related conditions until the date results are determined.
 
2007 Grant Activity
 
During 2007, our Board of Directors awarded a total of 120,000 PVRSUs to Dr. Cecil Pickett, our former President, Research and Development. Vesting of these PVRSUs was subject to certain performance criteria established at the beginning of each of four performance periods, beginning January 1 on each of 2007, 2008, 2009 and 2010, and Dr. Pickett’s continued employment through the end of the respective performance periods. In February 2008, a total of 27,000 shares were issued based upon the attainment of performance criteria set for 2007. An additional 30,000 shares were issued in February 2009 based on the attainment of performance criteria set for 2008. No additional shares were issued to Dr. Pickett during the three and nine months ended September 30, 2009 and 2008, respectively. Dr. Pickett retired from the position of President, Research and Development effective October 5, 2009. Accordingly, no additional PVRSUs awarded to Dr. Pickett will vest or be issued. Expense previously recognized in relation to unvested awards was reversed during the current quarter.
 
Employee Stock Purchase Plan
 
The purchase price of common stock under the employee stock purchase plan, or ESPP, is equal to 85% of the lower of (i) the market value per share of the common stock on the participant’s entry date into an offering period or (ii) the market value per share of the common stock on the purchase date. However, for each participant whose entry date is other than the start date of the offering period, the amount shall in no event be less than the market value per share of the common stock as of the beginning of the related offering period. The fair value of the discounted purchases made under the employee stock purchase plan are calculated using the Black-Scholes model. The fair value of the look-back provision plus the 15% discount is recognized as compensation expense over the purchase period. We apply a graded vesting approach since our ESPP provides for multiple purchase periods and is, in substance, a series of linked awards.
 
The table below provides a summary of shares issued under our ESPP for the three and nine months ended September 30, 2009 and 2008, respectively:
 
                                 
    For the Three Months Ended September 30,   For the Nine Months Ended September 30,
    2009   2008   2009   2008
(In millions)
  Shares Issued   Shares Issued   Shares Issued   Shares Issued
 
Employee Stock Purchase Plan
    0.1       0.1       0.4       0.4  


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
 
12.   Income Taxes
 
The following table provides a comparative summary of our effective tax rates and income tax expense for the three and nine months ended September 30, 2009 and 2008, respectively:
 
                                                 
    For the Three Months Ended September 30,   For the Nine Months Ended September 30,
(In millions, except percentages)
  2009   2008   Change %   2009   2008   Change %
 
Effective tax rate
    29.0 %     35.5 %     (18.3 )%     28.8 %     32.7 %     (11.9 )%
Income tax expense
  $ 113.9     $ 114.3       (0.3 )%   $ 271.9     $ 282.3       (3.7 )%
 
Our effective tax rate will fluctuate from period to period due to several factors inherent in the nature of our global operations and business transactions. The factors that most significantly impact our tax rate include the variability of the proportion of our taxable earnings in multiple jurisdictions, changes in tax laws and acquisition and licensing transactions.
 
Our effective tax rate for the three and nine months ended September 30, 2009 was favorably impacted by certain adjustments to our transfer pricing and other estimates made in conjunction with the filing of our income tax returns during the current quarter. These adjustments had a favorable impact of 1.9% and 0.8% on our tax rate for the three and nine months ended September 30, 2009, respectively. In addition, our tax rate for the nine months ended September 30, 2009, was also favorably impacted by changes in the tax laws of certain states in which we operate. These tax law changes required us to establish deferred tax assets for certain tax credits and adjust certain deferred tax liabilities and reserves for uncertain tax positions resulting in a favorable impact of 3.2% on our effective tax rate for the nine months ended September 30, 2009. As these tax law changes became effective during the first quarter of 2009, these changes did not have an impact on our effective tax rate for the three months ended September 30, 2009.
 
The favorable impact of these items on our effective tax rate for the nine months ended September 30, 2009 was offset by the impact of the collaboration and license agreement entered into with Acorda Therapeutics, Inc., or Acorda, on June 30, 2009. As there is no income tax benefit associated with the $110.0 million July 1, 2009 upfront payment made to Acorda and other registrational costs of Fampridine-SR, these payments had a 2.4% and 2.3% unfavorable impact on our effective tax rate for the three and nine months ended September 30, 2009, respectively. Refer to Note 14, Collaborations, of this Form 10-Q for additional information related to the Acorda transaction.
 
In connection with the acquisition of Syntonix Pharmaceuticals, or Syntonix, in January 2007, we agreed to make additional future consideration payments contingent upon the achievement of certain milestone events. In accordance with the acquisition agreement, we expect to make a $40.0 million milestone payment to the former shareholders of Syntonix in the fourth quarter of 2009. This amount will be recorded as a charge to IPR&D when the related milestone has been achieved. This payment was anticipated in determining our full year effective tax rate. As this amount is not deductible for United States income tax purposes, our 2009 effective tax rate would be favorably impacted in the event that the achievement of these milestones is not met or is delayed beyond the fourth quarter of 2009.
 
Our effective tax rate for the nine months ended September 30, 2008 was favorably impacted by the restructuring of our operations in foreign jurisdictions as well as other activities and adjustments made.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
Reconciliation between the U.S. federal statutory tax rate and our effective tax rate for the three and nine months ended September 30, 2009 and 2008 is as follows:
 
                                 
    For the
    For the
 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
    2009     2008     2009     2008  
 
Statutory rate
    35.0 %     35.0 %     35.0 %     35.0 %
State taxes
    2.2       4.4       1.6       3.0  
Taxes on foreign earnings
    (7.7 )     (7.4 )     (5.8 )     (9.0 )
Credits and net operating loss utilization
    (1.5 )     1.1       (4.1 )     0.1  
Fair value adjustment
    0.9       3.8       2.0       3.6  
IPR&D
    0.9             1.1       1.0  
Permanent items
    (1.0 )     (0.9 )     (1.5 )     (0.8 )
Other
    0.2       (0.5 )     0.5       (0.2 )
                                 
Effective tax rate
    29.0 %     35.5 %     28.8 %     32.7 %
                                 
 
On September 12, 2006, we received a Notice of Assessment from the Massachusetts Department of Revenue for $38.9 million, including penalties and interest, with respect to the 2002 tax year. Subsequently, we filed a petition with the Massachusetts Appellate Tax Board, seeking among other items, abatements of corporate excise tax for the 2001, 2002 and 2003 tax years. We believe that we have meritorious defenses to the proposed adjustment and are vigorously opposing the assessment. We believe that the assessment does not impact the level of liabilities for income tax contingencies. However, there is a possibility that we may not prevail in all of our assertions. If this is resolved unfavorably in the future, it could have a material impact on our results of operations in the period the resolution occurs. We are subject to examinations by the Massachusetts Department of Revenue for additional tax years and, therefore, may be assessed for a similar proposed adjustment to those additional tax years. Refer to Note 15, Litigation, of this Form 10-Q for additional information.
 
We file income tax returns in the United States federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2001. During the second quarter of 2007, the Internal Revenue Service, or IRS, completed its examination of our consolidated federal income tax returns for the fiscal years 2003 and 2004 and issued an assessment. During the first quarter of 2009 the IRS completed an examination of our consolidated federal income tax returns for fiscal years 2005 and 2006 and issued an assessment. Our level of liabilities for income tax contingencies approximate the assessment amounts for items agreed to with the IRS; we are appealing several other items. If these items are resolved unfavorably in the future, the outcome could have an adverse impact on our results of operations in the period the resolution occurs.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
 
13.   Other Income (Expense), Net
 
Total other income (expense), net consists of the following:
 
                                 
    For the
    For the
 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
(In millions)
  2009     2008     2009     2008  
 
Interest income
  $  10.9     $ 16.8     $ 37.8     $ 55.0  
Interest expense
    (8.5 )     (8.1 )     (27.6 )     (37.6 )
Impairments of investments
    (0.5 )     (17.4 )     (10.1 )     (32.0 )
Net gains (losses) on foreign currency transactions
    3.2       (1.8 )     10.6       (2.8 )
Net realized gains (losses) on marketable securities
    1.8       (9.7 )     13.7       (3.8 )
Other, net
    2.5       (3.5 )     6.5       (3.5 )
                                 
Total other income (expense), net
  $ 9.4     $ (23.7 )   $ 30.9     $ (24.7 )
                                 
 
Impairment on Investments
 
In April 2009, we implemented newly issued accounting standards which provided guidance for recognition and presentation of other-than-temporary impairments. The adoption of the guidance did not have a material impact on our financial position or results of operations; however, this standard amended the other-than-temporary impairment model for debt securities. The impairment model for equity securities was not affected. Refer to Note 6, Financial Instruments, of this Form 10-Q for additional information on the adoption of this guidance.
 
During the three and nine months ended September 30, 2009, we recognized impairment losses of $0.5 million and $6.5 million, respectively, on our strategic investments and non-marketable securities. In addition, during the three and nine months ended September 30, 2008, we recognized $3.3 million and $12.7 million, respectively, in charges for the impairment of strategic investments and non-marketable securities that were determined to be other-than-temporary.
 
No impairment losses were recognized through earnings related to available for sale securities during the three months ended September 30, 2009. For the nine months ended September 30, 2009, we recognized $3.6 million in charges. For the three and nine months ended September 30, 2008, we recognized $14.1 million and $19.3 million, respectively, in charges for the other-than-temporary impairment of available for sale securities primarily related to mortgage and asset backed securities.
 
Noncontrolling Interest
 
Effective January 1, 2009, we changed the accounting and reporting for our minority interests by recharacterizing them as noncontrolling interest. Prior year amounts related to noncontrolling interest, historically reflected as a component of other income (expense), net, have been reclassified to conform to current year presentation. Amounts previously reported as minority interest are now shown separately from net income in the accompanying consolidated statements of income and total $1.9 million and $6.6 million, respectively, for the three and nine months ended September 30, 2009, as compared to $1.0 million and $5.2 million, respectively, in the prior year comparative periods. Refer to Note 1, Business Overview, and Note 9, Equity, of this Form 10-Q for additional information on the adoption of this guidance.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
 
14.   Collaborations
 
In connection with our business strategy, we have entered into various collaboration agreements which provide us with rights to develop, produce and market products using certain know-how, technology and patent rights maintained by our collaborative partners. Terms of the various collaboration agreements may require us to make milestone payments upon the achievement of certain product research and development objectives and pay royalties on future sales, if any, of commercial products resulting from the collaboration.
 
Effective January 1, 2009, we adopted a newly issued accounting standard for the accounting and disclosure of an entity’s collaborative arrangements. This newly issued standard prescribes that certain transactions between collaborators be recorded in the income statement on either a gross or net basis, depending on the characteristics of the collaboration relationship, and provides for enhanced disclosure of collaborative relationships. In accordance with this guidance, we must also evaluate our collaborative agreements for proper income statement classification based on the nature of the underlying activity. Amounts due from our collaborative partners related to development activities are generally reflected as a reduction of research and development expense because the performance of contract development services is not central to our operations. For collaborations with commercialized products, if we are the principal (as defined in reporting revenue as a principal versus net as an agent as required by the Revenue Recognition Topic of the Codification) we record revenue and the corresponding operating costs in their respective line items within our consolidated statements of income. If we are not the principal, we record operating costs as a reduction of revenue. The guidance describes the principal as the party who is responsible for delivering the product or service to the customer, has latitude to determine price, and has the risks and rewards of providing product or service to the customer, including inventory and credit risk. The adoption of this newly issued accounting standard did not impact our financial position or results of operations; however it resulted in enhanced disclosures for our collaboration activities.
 
Genentech
 
We collaborate with Genentech, Inc., or Genentech, a member of the Roche Group, on the development and commercialization of RITUXAN. We also have rights to collaborate with Genentech on the development and commercialization of (1) anti-CD20 products that Genentech acquires or develops, which we refer to as New Anti-CD20 Products, and (2) anti-CD20 products that Genentech licenses from a third party, which we refer to as Third Party Anti-CD20 Products. Currently, there is only one New Anti-CD20 Product, ocrelizumab, and only one Third Party Anti-CD20 Product, GA101. Our collaboration rights for New Anti-CD20 Products are limited to the United States and our collaboration rights for Third Party Anti-CD20 Products are dependent upon Genentech’s underlying license rights. A joint development committee, or JDC, composed of three members from each company must unanimously approve a development plan for each specific indication of certain pharmaceutical products, and Genentech has responsibility for implementation of JDC approved development plans in accordance with the provisions of our collaboration agreement. In the event that we undergo a change in control, as defined in the collaboration agreement, Genentech has the right to present an offer to buy the rights to RITUXAN, and we must either accept Genentech’s offer or purchase Genentech’s 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 United States 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. Our collaboration with Genentech was created through a contractual arrangement and not through a joint venture or other legal entity.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
While Genentech is responsible for the worldwide manufacturing of RITUXAN, development and commercialization rights and responsibilities under this collaboration are divided as follows:
 
United States
 
We share with Genentech co-exclusive rights to develop, commercialize and market RITUXAN and New Anti-CD20 Products in the United States. Although we contribute to the marketing and continued development of RITUXAN, we have a limited sales force dedicated to RITUXAN and limited development activity. Genentech is primarily responsible for the commercialization of RITUXAN in the United States. Its responsibilities include selling and marketing, customer service, order entry, distribution, shipping and billing, and other administrative support. Genentech also incurs the majority of continuing development costs for RITUXAN.
 
Canada
 
We and Genentech have assigned our rights to develop, commercialize and market RITUXAN, in Canada to F. Hoffmann-La Roche Ltd., or Roche.
 
Outside the United States and Canada
 
We have granted Genentech exclusive rights to develop, commercialize and market RITUXAN outside the United States and Canada. Under the terms of separate sublicense agreements between Genentech and Roche, development and commercialization of RITUXAN outside the United States and Canada is the responsibility of Roche, 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. We do not have any direct contractual arrangements with Roche, Zenyaku or Chugai for such development or commercialization.
 
Revenues from unconsolidated joint business consists of (1) our share of pretax co-promotion profits in the United States (2) reimbursement of selling and development expenses in the United States; and (3) revenue on sales of RITUXAN outside the United States, which consist of our share of pretax co-promotion profits in Canada and royalty revenue on sales of RITUXAN outside the United States and Canada by Roche, Zenyaku and Chugai. Pre-tax co-promotion profits are calculated and paid to us by Genentech in the United States and by Roche in Canada. Pre-tax co-promotion profits consist of United States and Canadian sales of RITUXAN to third-party customers net of discounts and allowances less the cost to manufacture RITUXAN, third-party royalty expenses, distribution, selling, and marketing expenses, and joint development expenses incurred by Genentech, Roche and us. We record our royalty and co-promotion profits revenue on sales of RITUXAN outside the United States on a cash basis.
 
Revenues from unconsolidated joint business consist of the following:
 
                                 
    For the Three
    For the Nine
 
    Months Ended
    Months Ended
 
    September 30,     September 30,  
(In millions)
  2009     2008     2009     2008  
 
Biogen Idec Inc.’s share of co-promotion profits in the United States
  $ 203.3     $ 192.2     $ 581.3     $ 527.9  
Reimbursement of selling and development expenses in the United States
    15.8       16.8       47.5       45.4  
Revenue on sales of RITUXAN outside the United States
    64.8       90.0       209.5       251.7  
                                 
Total unconsolidated joint business
  $ 283.9     $ 299.0     $ 838.3     $ 825.0  
                                 


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
Under the collaboration agreement, our current pretax co-promotion profit-sharing formula, which resets annually, is stated within the table below. In 2009 and 2008, the 40% threshold was met during the first quarter.
 
         
    Biogen Idec
    Inc.’s Share of
    Co-promotion
Co-promotion Operating Profits
  Profits
 
First $50 million
    30 %
Greater than $50 million
    40 %
 
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. Specifically, for each calendar year or portion thereof following the approval date of the first New Anti-CD20 Product, the pretax co-promotion profit-sharing formula for RITUXAN and New Anti-CD20 Products sold by us and Genentech will change as follows:
 
             
        Biogen Idec
        Inc.’s Share of
    First New Anti-CD20 Product U.S.
  Co-promotion
Co-promotion Operating Profits
  Gross Product Sales   Profits
 
First $50 million(1)
  Not Applicable     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%.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
 
We will participate in Third Party Anti-CD20 Products on similar financial terms as for ocrelizumab.
 
Currently, we record our share of the expenses incurred by the collaboration for the development of New Anti-CD20 Products in research and development expense in our consolidated statements of income. After a New Anti-CD20 Product is approved, we will record our share of the development expenses related to that product as a reduction of our share of pretax co-promotion profits in revenues from unconsolidated joint business. We incurred $14.7 million and $47.3 million in development expense related to New Anti-CD20 products for the three and nine months ended September 30, 2009, respectively, as compared to $9.0 million and $31.6 million, respectively, during the prior year comparative periods. Reimbursement to Genentech for our share of these costs occurs through the net amount of co-promotion profits in the United States remitted to us.
 
Elan
 
We have a collaboration agreement with Elan to collaborate in the development, manufacture and commercialization of TYSABRI. Under the terms of the agreement, we manufacture TYSABRI and collaborate with Elan on the product’s marketing, commercial distribution and on-going development activities. The collaboration with Elan is designed to effect an equal sharing of profits and losses generated by the activities of the collaboration between Elan and us. Under the agreement, however, once sales of TYSABRI exceeded specific thresholds, Elan was required to make milestone payments to us in order to continue sharing equally in the collaboration’s results. As of September 30, 2009, Elan has paid to us milestone payments of $75.0 million in the third quarter of 2008 and $50.0 million in the first quarter of 2009. We have recorded these amounts as deferred revenue upon receipt and are recognizing the entire $125.0 million as product revenue in our consolidated statements of income over the term of the collaboration agreement based on a units of revenue method whereby the revenue recognized is based on the ratio of units shipped in the current period over the total units expected to be shipped over the remaining term of the collaboration. No additional milestone payments are required under the agreement to maintain the current profit sharing split. Our collaboration agreement with Elan provides Elan or us with the option to buy the rights to TYSABRI in the event that the other company was to undergo a change of control (as defined in the collaboration agreement).
 
In the United States, we sell TYSABRI to Elan who sells the product to third party distributors. Our sales price to Elan in the United States is set prior to the beginning of each quarterly period to effect an approximate equal sharing of the gross margin between Elan and us. We recognize revenue for sales in the United States of TYSABRI upon Elan’s shipment of the product to the third party distributors. We incur manufacturing and distribution costs, research and development expenses, commercial expenses, and general and administrative expenses. We record these expenses to their respective line items within our consolidated statements of income when they are incurred. Research and development and sales and marketing expenses are shared equally with Elan and the reimbursement of these expenses is recorded as reductions of the respective expense categories. During the three and nine months ended September 30, 2009, we recorded $5.2 million and $16.6 million, respectively, as reductions of research and development expense for reimbursements from Elan as compared to $4.0 million and $17.8 million, respectively, of research and development expense recorded for reimbursement from Elan during the prior year comparative periods. In addition, for the three and nine months ended September 30, 2009, we recorded $14.7 million and $46.9 million, respectively, as reductions of selling, general and administrative expense for reimbursements from Elan as compared to $9.3 million and $26.8 million, respectively, in the prior year comparative periods.
 
Outside the United States, or rest of world, we are responsible for distributing TYSABRI to customers and are primarily responsible for all operating activities. Generally, we recognize revenue for sales of TYSABRI in the rest of world at the time of product delivery to our customers. Payments are made to Elan for their share of the rest of world net operating profits to effect an equal sharing of collaboration operating profit. These payments also include the reimbursement for our portion of third-party royalties that Elan pays


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
on behalf of the collaboration relating to rest of world sales. These amounts are reflected in the collaboration profit sharing line in our consolidated statements of income. For the three and nine months ended September 30, 2009, $60.7 million and $152.6 million, respectively, was reflected in the collaboration profit sharing line for our collaboration with Elan, as compared to $43.5 million and $98.4 million, respectively, for the prior year comparative periods. As rest of world sales of TYSABRI increase, our collaboration profit sharing expense is expected to increase.
 
Acorda
 
On June 30, 2009, we entered into a collaboration and license agreement with Acorda to develop and commercialize products containing Fampridine-SR in markets outside the United States. Fampridine-SR is an oral sustained-release compound, which is being developed to improve walking ability in people with MS. The transaction represents a sublicensing of an existing license agreement between Acorda and Elan. The parties have also entered into a related supply agreement. The $110.0 million upfront payment made on July 1, 2009 was recorded as research and development expense during the second quarter 2009 as the product candidate has not received regulatory approval.
 
Under the terms of the agreement, we will commercialize Fampridine-SR and any aminopyridine products developed in our territory and will also have responsibility for regulatory activities and future clinical development of Fampridine-SR in those markets. We may incur additional milestone payments of up to $400.0 million based upon the successful achievement of regulatory and commercial sales milestones. We will also make tiered royalty payments to Acorda on sales outside of the United States. The consideration that we pay for products will reflect all amounts due from Acorda to Elan for sales in markets outside the United States, including royalties owed. We can also carry out future joint development activities under a cost-sharing arrangement.
 
Elan will continue to manufacture commercial supply of Fampridine-SR, based upon its existing supply agreement with Acorda. Under the existing agreements with Elan, Acorda will pay Elan 7% of the upfront and milestone payments that Acorda receives from us.
 
A summary of activity related to this collaboration for the three and nine months ended September 30, 2009 and 2008, respectively, is as follows:
 
                                 
    For the Three Months Ended September 30,     For the Nine Months Ended September 30,  
(In millions)
  2009     2008     2009     2008  
 
Upfront payments made to Acorda
  $     $     $ 110.0     $  
Total expense incurred by Biogen Idec Inc., excluding upfront and milestone payments
  $   0.5     $   —     $   0.5     $   —  
Total expense reflected within our consolidated statements of income
  $ 0.5     $     $ 110.5     $  


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
A summary of activity related to this collaboration since inception, along with an estimate of additional future development expense expected to be incurred by us, is as follows:
 
         
    As of
    September 30,
(In millions)
  2009
 
Total upfront and milestone payments made to Acorda
  $   110.0  
Total expense incurred by Biogen Idec Inc., excluding upfront and milestone payments
  $ 0.5  
Estimate of additional expense to be incurred by us in development of Fampridine-SR
  $ 10.0  
 
Neurimmune
 
We have a collaboration agreement with Neurimmune SubOne AG, or Neurimmune, a subsidiary of Neurimmune Therapeutics AG, for the development and commercialization of antibodies for the treatment of Alzheimer’s disease. Neurimmune will conduct research to identify potential therapeutic antibodies and we will be responsible for the development, manufacturing and commercialization of all products. We may pay Neurimmune up to $360.0 million in remaining milestone payments, as well as royalties on sales of any resulting commercial products. Milestone payments are reflected within our consolidated statements of income when achieved. The royalty term for sales in each country will be no less than 12 years from the first commercial sale of product using such compound in such country.
 
We have determined that we are the primary beneficiary of Neurimmune in accordance with the guidance provided by the Consolidation Topic of the Codification. As such, we consolidate the results of Neurimmune. The assets and liabilities of Neurimmune are not significant as it is a research and development organization. We reimburse Neurimmune for all research and development costs incurred in support of the collaboration. These amounts are also reflected in research and development expense in our statements of income. A summary of activity related to this collaboration for the three and nine months ended September 30, 2009 and 2008, respectively, is as follows:
 
                                 
    For the Three
    For the Nine
 
    Months Ended
    Months Ended
 
    September 30,     September 30,  
(In millions)
  2009     2008     2009     2008  
 
Total upfront and milestone payments made to Neurimmune
  $     $ 2.5     $ 7.5     $ 10.5  
Total expense incurred by Neurimmune in support of the collaboration
  $   1.9     $   1.3     $   5.5     $   4.5  
Total expense reflected within our consolidated statements of income
  $ 1.9     $ 3.8     $ 13.0     $ 15.0  
 
A summary of activity related to this collaboration since inception, along with an estimate of additional future development expense expected to be incurred by us, is as follows:
 
         
    As of
    September 30,
(In millions)
  2009
 
Total upfront and milestone payments made to Neurimumune
  $   20.0  
Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments
  $ 12.0  
Estimate of additional expense to be incurred by us in development of the lead compound
  $   440.0  


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
Cardiokine
 
We have a collaboration agreement with Cardiokine Biopharma LLC, or Cardiokine, a subsidiary of Cardiokine Inc., for the joint development of Lixivaptan, an oral compound for the potential treatment of hyponatremia in patients with congestive heart failure. The royalty term under the agreement for sales in each country will be no less than 10 years from the first commercial sale of a Lixivaptan product in such country. If successful, we will be responsible for certain development activities, manufacturing and global commercialization of Lixivaptan, and Cardiokine has an option for limited co-promotion in the United States. Under the terms of the agreement, we may pay up to $150.0 million in remaining development milestone payments as well as royalties on commercial sales.
 
We have determined that we are the primary beneficiary of Cardiokine in accordance with the guidance provided by the Consolidation Topic of the Codification. As such, we consolidate the results of Cardiokine. The assets and liabilities of Cardiokine are not significant as it is a research and development organization. We reimburse Cardiokine for 90% of research and development costs incurred in support of the collaboration. A summary of activity related to this collaboration for the three and nine months ended September 30, 2009 and 2008, respectively, is as follows:
 
                                 
    For the Three
  For the Nine
    Months Ended
  Months Ended
    September 30,   September 30,
(In millions)
  2009   2008   2009   2008
 
Total upfront and milestone payments made to Cardiokine
  $ 20.0           $ 20.0        
Total expense incurred by the collaboration
  $ 17.2     $ 15.3     $ 48.5     $ 38.9  
Biogen Idec Inc.’s share of expense reflected within our consolidated statements of income
  $ 35.5     $ 13.8     $ 63.7     $ 35.0  
Collaboration expense allocated to noncontrolling interests, net of tax
  $ 1.7     $ 1.5     $ 4.8     $ 3.9  
 
A summary of activity related to this collaboration since inception, along with an estimate of additional future development expense expected to be incurred by us, is as follows:
 
         
    As of
    September 30,
(In millions)
  2009
 
Total upfront and milestone payments made to Cardiokine
  $   70.0  
Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments
  $ 106.8  
Estimate of additional expense to be incurred by us in development of the Lixivaptan (all indications)
  $ 430.0  
 
Biovitrum
 
We have a collaboration agreement with Biovitrum AB, or Biovitrum, to jointly develop and commercialize Factor VIII and Factor IX for the treatment of hemophilia. Under the agreement, development costs are shared equally. We have commercial rights to North America and Biovitrum has commercial rights to Europe. Each party shares in the other’s net sales based on a royalty percentage of up to 33.3%. All other territories are to be managed by a third party with us and Biovitrum sharing equally in all royalties, license fees and other revenues arising from arrangements with third party licenses and distributors.
 
Amounts incurred by us in the development of the Factor XIII and Factor IX are reflected as research and development expense in our consolidated statements of income, reduced by amounts due from Biovitrum. A


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
summary of collective activity related to the Factor VIII and Factor IX programs for the three and nine months ended September 30, 2009 and 2008, respectively, is as follows:
 
                                 
    For the Three
  For the Nine
    Months Ended
  Months Ended
    September 30,   September 30,
(In millions)
  2009   2008   2009   2008
 
Total expense incurred by the collaboration
  $   6.8     $   8.4     $   33.2     $   26.9  
Biogen Idec Inc.’s share of expense reflected within our consolidated statements of income
  $ 3.4     $ 4.2     $ 16.6     $ 13.5  
 
A summary of activity related to this collaboration since inception, along with an estimate of additional future development expense expected to be incurred by us, is as follows:
 
         
    As of
    September 30,
(In millions)
  2009
 
Total upfront and milestone payments received from Biovitrum
  $ 4.0  
Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments
  $ 44.8  
Estimate of additional expense to be incurred by the collaboration in development of Factors XIII and IX
  $   95.0  
 
Under the agreement, Biovitrum may pay us an additional $19.0 million in milestone payments.
 
Mondo
 
We have an agreement with MondoGen, or Mondo, a subsidiary of MondoBiotech AG, to develop and commercialize Aviptadil, a clinical compound for the treatment of pulmonary arterial hypertension, or PAH. Under the agreement, we are responsible for manufacturing, development, and commercialization of the compound and could incur up to $30.0 million in milestone payments for successful development and commercialization of the program in the United States and Europe, as well as royalty payments on commercial sales. In February 2009, the parties revised the agreement to clarify that our development funding obligation should not exceed $13.3 million, inclusive of all amounts incurred during 2009 and the three months ended December 31, 2008, if we decide not to pursue the collaboration beyond 2009.
 
We have determined that we are the primary beneficiary of Mondo, and as such, we consolidate the results of Mondo. The assets and liabilities of Mondo are not significant as it is a research and development organization. Expenses incurred by the collaboration are reflected in research and development expense in our consolidated statements of income.
 
A summary of activity related to this collaboration for the three and nine months ended September 30, 2009 and 2008, respectively, is as follows:
 
                                 
    For the Three
  For the Nine
    Months Ended
  Months Ended
    September 30,   September 30,
(In millions)
  2009   2008   2009   2008
 
Total expense incurred by the collaboration
  $   4.0     $   2.7     $   10.9     $   11.7  
Total expense reflected within our consolidated statements of income
  $ 4.0     $ 2.7     $ 10.9     $ 11.7  


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
A summary of activity related to this collaboration since inception, along with an estimate of additional future development expense expected to be incurred by us, is as follows:
 
         
    As of
    September 30,
(In millions)
  2009
 
Total upfront and milestone payments made to Mondo
  $ 7.5  
Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments
  $   40.8  
 
UCB
 
In June 2009, UCB, S.A., or UCB, and we announced the discontinuation of the Phase 2 clinical trial for this collaboration’s only product candidate due to the absence of clinically relevant efficacy. Since the inception of our collaboration agreement with UCB, we have incurred a total of $98.0 million in research and development expenses for the development and commercialization of an oral alpha4 integrin, or VLA-4, antagonist for the treatment of relapsing remitting MS.
 
A summary of activity related to this collaboration for the three and nine months ended September 30, 2009 and 2008, respectively, is as follows:
 
                                 
    For the Three
  For the Nine
    Months Ended
  Months Ended
    September 30,   September 30,
(In millions)
  2009   2008   2009   2008
 
Total expense incurred by the collaboration
  $   5.3     $   7.2     $   27.7     $   23.7  
Biogen Idec Inc.’s share of expense reflected within our consolidated statements of income
  $ 3.7     $ 5.0     $ 18.0     $ 15.3  
 
A summary of activity related to this collaboration since inception, along with an estimate of additional future development expense expected to be incurred by us, is as follows:
 
         
    As of
    September 30,
(In millions)
  2009
 
Total upfront and milestone payments made to UCB
  $   30.0  
Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments
  $ 68.0  
Estimate of additional expense to be incurred by us in development of the compound in this indication
  $ 4.5  
 
Facet Biotech
 
We have a collaboration agreement with Facet aimed at advancing the development and commercialization of daclizumab in MS and volociximab in solid tumors. Daclizumab is a humanized monoclonal antibody that binds to the IL-2 receptor on activated T cells. Volociximab is an anti-angiogenic chimeric antibody directed against alpha5 beta1 integrin, or VLA5. Under the agreement, development, and commercialization costs and profits are shared equally. We may incur up to an additional $650.0 million of payments upon achievement of development and commercial milestones.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
A summary of activity related to this collaboration for the three and nine months ended September 30, 2009 and 2008, respectively, is as follows:
 
                                 
    For the Three
  For the Nine
    Months Ended
  Months Ended
    September 30,   September 30,
(In millions)
  2009   2008   2009   2008
 
Total expense incurred by the collaboration
  $   10.6     $   13.3     $   28.3     $   52.9  
Biogen Idec Inc.’s share of expense reflected within our consolidated statements of income
  $ 5.3     $ 6.7     $ 14.2     $ 26.4  
 
A summary of activity related to this collaboration since inception, along with an estimate of additional future development expense expected to be incurred by us, is as follows:
 
         
    As of
    September 30,
(In millions)
  2009
 
Total upfront and milestone payments made to Facet
  $ 50.0  
Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments
  $   115.1  
Estimate of additional expense to be incurred by us in development of current indications of daclizumab and volociximab
  $ 500.0  
 
On September 21, 2009, we commenced a tender offer to acquire all of the outstanding shares of Facet for approximately $356.0 million or $14.50 per share in cash. On October 16, 2009, we extended the offer to December 16, 2009 at the same offering price of $14.50 per share. Our all-cash proposal is not subject to any financing contingency or approval by Biogen Idec shareholders. We may incur additional costs to complete this transaction in the event that this tender offer is successfully completed. We do not expect these additional transaction costs to be material to our financial position or results of operations.
 
Vernalis
 
We have a collaboration agreement with Vernalis plc, or Vernalis, aimed at advancing the development and commercialization of an adenosine A2a receptor antagonist for treatment of Parkinson’s disease. Under the agreement, we received exclusive worldwide rights to develop and commercialize the compound. We are responsible for funding all development costs and may incur up to an additional $85.0 million of milestone payments upon achievement of certain objectives, as well as royalties on commercial sales.
 
A summary of activity related to this collaboration for the three and nine months ended September 30, 2009 and 2008, respectively, is as follows:
 
                                 
    For the Three
  For the Nine
    Months Ended
  Months Ended
    September 30,   September 30,
(In millions)
  2009   2008   2009   2008
 
Total expense incurred by the collaboration and reflected within our consolidated statements of income
  $ 3.3     $ 4.4     $ 10.4     $ 13.2  


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
A summary of activity related to this collaboration since inception, along with an estimate of additional future development expense expected to be incurred by us, is as follows:
 
         
    As of
    September 30,
(In millions)
  2009
 
Total upfront and milestone payments made to Vernalis
  $ 13.0  
Total development expense incurred by Biogen Idec Inc., excluding upfront and milestone payments
  $ 65.3  
Estimate of additional expense to be incurred by us in development of the compound in this indication
  $   230.0  
 
15.   Litigation
 
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, or the Three County Actions — are the subject of a Consolidated Complaint, first filed on September 15, 2005 in the U.S. District Court for the District of Massachusetts in Multi-District Litigation No. 1456, or the MDL proceedings. The complaints allege that the defendants (i) fraudulently reported the Average Wholesale Price for certain drugs for which Medicaid provides reimbursement, or the Covered Drugs; (ii) marketed and promoted the sale of Covered Drugs to providers based on the providers’ ability to collect inflated payments from the government and Medicaid beneficiaries that exceeded payments possible for competing drugs; (iii) provided financing incentives to providers to over-prescribe Covered Drugs or to prescribe Covered Drugs in place of competing drugs; and (iv) overcharged Medicaid for illegally inflated Covered Drugs reimbursements. Among other things, the complaints allege violations of New York state law and advance common law claims for unfair trade practices, fraud, and unjust enrichment. In addition, the amended Consolidated Complaint alleges that the defendants failed to accurately report the “best price” on the Covered Drugs to the Secretary of Health and Human Services pursuant to rebate agreements, and excluded from their reporting certain discounts and other rebates that would have reduced the “best price.” With respect to the MDL proceedings, some of the plaintiffs’ claims were dismissed, and the parties, including Biogen Idec, began a mediation of the outstanding claims on July 1, 2008. We have not formed an opinion that an unfavorable outcome is either “probable” or “remote” in any of these cases, and do not express an opinion at this time as to their likely outcome or as to the magnitude or range of any potential loss. We believe that we have good and valid defenses to each of these complaints and are vigorously defending against them.
 
On September 12, 2006, the Massachusetts Department of Revenue, or the DOR, issued a notice of assessment against Biogen Idec MA, Inc. for $38.9 million of corporate excise tax with respect to the 2002 tax year, which includes associated interest and penalties. On December 6, 2006, we filed an abatement application with the DOR, seeking abatements for 2001, 2002 and 2003 tax years. The abatement application was denied on July 24, 2007. On July 25, 2007, we filed a petition with the Massachusetts Appellate Tax Board, seeking, among other items, abatements of corporate excise tax for 2001, 2002 and 2003 tax years and adjustments in certain credits and credit carryforwards for 2001, 2002 and 2003 tax years. Issues before the Board include the computation of Biogen Idec MA’s sales factor for 2001, 2002 and 2003 tax years, computation of Biogen Idec MA’s research credits for those same years, and the availability of deductions for certain expenses and partnership flow-through items. We anticipate that the trial will take place in 2010. We intend to contest this matter vigorously.
 
On October 4, 2004, Genentech, Inc. received a subpoena from the U.S. Department of Justice requesting documents related to the promotion of RITUXAN. We market RITUXAN in the United States in collaboration


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
with Genentech. Genentech has disclosed that it is cooperating with the associated investigation, and that it has been advised the investigation is civil in nature. We are cooperating with the U.S. Department of Justice in its investigation of Genentech. The potential outcome of this matter and its impact on us cannot be determined at this time.
 
On October 27, 2008, Sanofi-Aventis Deutschland GmbH, or Sanofi, filed suit against Genentech and Biogen Idec in federal court in Texas (E.D. Tex.), which we refer to as the Texas Action claiming that RITUXAN and certain other Genentech products infringe U.S. Patents 5,849,522, or the ‘522 patent, and 6,218,140, or the ‘140 patent. Sanofi seeks preliminary and permanent injunctions, compensatory and exemplary damages, and other relief. On October 27, 2008, Genentech and Biogen Idec filed a complaint against Sanofi, Sanofi-Aventis U.S. LLC, and Sanofi-Aventis U.S. Inc. in federal court in California (N.D. Cal.), which we refer to as the California Action seeking a declaratory judgment that RITUXAN and other Genentech products do not infringe the ‘522 patent or the ‘140 patent, and a declaratory judgment that those patents are invalid. On May 22, 2009, the United States Court of Appeals for the Federal Circuit granted Genentech’s and our petition for a writ of mandamus transferring the Texas Action to the federal court in California, and denied Sanofi’s petition for rehearing on August 10, 2009. 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 Hoechst’s 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.
 
16.   Segment Information
 
We operate in one business segment, which is the business of development, manufacturing and commercialization of novel therapeutics for human health care and therefore, our chief operating decision-maker manages the operation of the Company as a single operating segment.
 
17.   New Accounting Pronouncements
 
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company’s management believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.
 
Recently Issued Accounting Standards
 
In August 2009, the FASB issued Accounting Standards Update No. 2009-05, Measuring Liabilities at Fair Value, or ASU 2009-05. ASU 2009-05 amends Accounting Standards Codification Topic 820, Fair Value Measurements. Specifically, ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or 2) a valuation technique that is consistent with the principles of Topic 820 of the


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
Accounting Standards Codification (e.g. an income approach or market approach). ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The adoption of this standard did not have an impact on our financial position or results of operations; however, this standard may impact us in future periods.
 
In September 2009, the FASB issued ASU No. 2009-12, Fair Value Measurements and Disclosure, or ASU 2009-12. This standard provides additional guidance on using the net asset value per share, provided by an investee, when estimating the fair value of an alternate investment that does not have a readily determinable fair value and enhances the disclosures concerning these investments. Examples of alternate investments, within the scope of this standard, include investments in hedge funds and private equity, real estate, and venture capital partnerships. This Standard is effective for interim and annual periods ending after December 15, 2009. At of September 30, 2009, our only investments falling within the scope of this Standard are our venture capital investments. For these investments we use the net asset value to assess fair value. Refer to Note 5, Fair Value Measurements, of this Form 10-Q for additional disclosure related to our venture capital investments. We are currently evaluating the potential impact of this standard on our financial position and results of operations.
 
In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements, or ASU 2009-13. ASU 2009-13, amends existing revenue recognition accounting pronouncements that are currently within the scope of FASB Accounting Standards Codification, or ASC, Subtopic 605-25 (previously included within EITF 00-21, Revenue Arrangements with Multiple Deliverables, or EITF 00-21). The consensus to EITF Issue No. 08-01, Revenue Arrangements with Multiple Deliverables, or EITF 08-01, provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. EITF 00-21 previously required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique features. Under EITF 00-21, if the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This new approach is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We are currently evaluating the potential impact of this standard on our financial position and results of operations.
 
Other Recently Issued Accounting Standards
 
In June 2009, the FASB issued the following two new accounting standards, which have not yet been integrated into the Codification. Accordingly, these accounting standards will remain authoritative until integrated:
 
  •  SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140, or SFAS 166; and
 
  •  SFAS No. 167, Amendments to FASB Interpretation No. 46 (R), or SFAS 167
 
SFAS 166 prescribes the information that a reporting entity must provide in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. Specifically, among other


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
aspects, this standard amends previously issued accounting guidance, modifies the financial-components approach and removes the concept of a qualifying special purpose entity when accounting for transfers and servicing of financial assets and extinguishments of liabilities, and removes the exception from applying the general accounting principles for the consolidation of variable interest entities that are qualifying special-purpose entities. This new accounting standard is effective for transfers of financial assets occurring on or after January 1, 2010. We have not determined the effect that the adoption of SFAS 166 will have on our financial position or results of operations but the effect will generally be limited to future transactions.
 
SFAS 167 amends previously issued accounting guidance for the consolidation of variable interest entities to require an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. This amended consolidation guidance for variable interest entities also replaces the existing quantitative approach for identifying which enterprise should consolidate a variable interest entity, which was based on which enterprise is exposed to a majority of the risks and rewards, with a qualitative approach, based on which enterprise has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. This new standard has broad implications and may affect how we account for the consolidation of common structures, such as joint ventures, equity method investments, collaboration and other agreements and purchase arrangements. Under this revised guidance, more entities may meet the definition of a variable interest entity, and the determination about who should consolidate a variable interest entity is required to be evaluated continuously. We are evaluating all entities that fall within the scope of the amended guidance to determine whether we may be required to consolidate additional entities or deconsolidate existing consolidated entities on January 1, 2010, which is the effective date of SFAS 167; however we have not yet completed our implementation analysis. Accordingly, we have not determined the effect that the adoption of this standard will have on our financial position or results of operation.
 
Recently Adopted Accounting Standards
 
Effective January 1, 2009, we adopted a newly issued accounting standard for business combinations. This standard requires an acquiring company to measure all assets acquired and liabilities assumed, including contingent considerations and all contractual contingencies, at fair value as of the acquisition date. In addition, an acquiring company is required to capitalize IPR&D and either amortize it over the life of the product, or write it off if the project is abandoned or impaired. Due to the fact that this guidance is applicable to acquisitions completed after January 1, 2009 and we did not have any business combinations in the first nine months of 2009, the adoption did not impact our financial position or results of operations. The standard also amended accounting for uncertainty in income taxes as required by the Income Tax Topic of the Codification. Previously, accounting standards generally required post-acquisition adjustments related to business combination deferred tax asset valuation allowances and liabilities for uncertain tax positions to be recorded as an increase or decrease to goodwill. This new standard does not permit this accounting and, generally, requires any such changes to be recorded in current period income tax expense. Thus, all changes to valuation allowances and liabilities for uncertain tax positions established in acquisition accounting, whether the business combination was accounted for under this guidance, will be recognized in current period income tax expense.
 
In April, 2009, the FASB issued a new accounting standard providing guidance for the accounting of assets acquired and liabilities assumed in a business combination that arise from contingencies, This guidance amends and clarifies previous accounting standards to address application issues regarding the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. Due to the fact that this guidance is applicable to acquisitions completed after January 1, 2009 and we did not have any business combinations in the first nine months of 2009, the adoption did not impact our financial position or results of operations.


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BIOGEN IDEC INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
 
In June 2009, the SEC issued Staff Accounting Bulletin No. 112, which updates the SEC’s rules and regulations to be consistent with the accounting principles and standards established with guidance issued by the FASB during 2009 related to the measurement of assets and liabilities assumed at fair value as of the acquisition date and the reporting of amounts associated with noncontrolling interests. This bulletin did not impact our financial position or results of operations; however, the adoption of this new accounting resulted in the reclassification of certain prior period amounts related to noncontrolling interests to conform to the current financial statement presentation.
 
In April 2009, the Securities and Exchange Commission, or SEC, issued Staff Accounting Bulletin No. 111 which aligns SEC regulations to the accounting standards issued by the FASB during 2009 on accounting for other-than-temporary impairments for marketable debt securities. Specifically, it amends Topic 5.M., Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities, to exclude debt securities from its scope. This bulletin did not impact our financial position or results of operations; however, we conduct periodic reviews to evaluate our investments for the other-than-temporary impairments in accordance with the Investments — Debt and Equity Securities Topic of the Codification. Refer to Note 1, Business Overview, Note 9, Equity, and Note 13, Other Income (Expense), Net, of this Form 10-Q for additional information on the adoption of the new accounting standard for noncontrolling interests.


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Item 2.   Management’s 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,” “may,” “plan,” “project,” “target,” “will” and other words and terms of similar meaning. Reference is made in particular to forward-looking statements regarding the anticipated level and mix of future product sales, royalty revenues, milestone payments, expenses, liabilities, the impact of competitive products, the incidence, outcome or impact of litigation, proceedings related to patents and other intellectual property rights, tax assessments and other legal proceedings, our effective tax rate for future periods, the impact of accounting standards, the development and timing of programs in our clinical pipeline, our ability to finance our operations, meet our manufacturing needs and source funding for such activities, the completion and use of our manufacturing facility in Hillerød, Denmark, our share repurchase program, and our plans to spend additional capital on external business development and research opportunities. Important factors which could cause actual results to differ from our expectations and which could negatively impact our financial position and results of operations are discussed in the section entitled “Risk Factors” in Part II of this report and elsewhere in this report. Forward-looking statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated). Unless required by law, we do not undertake any obligation to publicly update any forward-looking statements.
 
The following discussion should be read in conjunction with our consolidated financial statements and related notes beginning on page 3 of this quarterly report on Form 10-Q.
 
Executive Summary
 
Business Overview
 
Biogen Idec Inc. (“Biogen Idec,” “we,” “us” or “the Company”) is a global biotechnology company that creates new standards of care in therapeutic areas with high unmet medical needs. Our business strategy is focused on discovering and developing first-in-class or best-in-class products that we can deliver to specialty markets globally. Patients around the world benefit from Biogen Idec’s significant products that address medical needs in the areas of neurology, oncology and immunology.
 
We currently have four marketed products. Our marketed products are used for the treatment of multiple sclerosis, or MS, non-Hodgkin’s lymphoma, or NHL, rheumatoid arthritis, or RA, Crohn’s disease and psoriasis, and are summarized in the table below.
 
       
Product
   
Indications                 
AVONEX®
(interferon beta-1a)
    Relapsing MS
       
RITUXAN®*
(rituximab)
    Certain B-cell NHL
RA
       
TYSABRI®**
(natalizumab)
    Relapsing MS
Crohn’s disease
       
FUMADERMTM
(dimethylfumarate and monoethylfumarate salts)
    Severe psoriasis
       
 
 
* Outside the United States, Canada and Japan, MabThera is the trade name for rituximab. We refer to rituximab, RITUXAN and MabThera collectively as RITUXAN.
 
** TYSABRI is indicated in the United States for the treatment of some patients with moderately to severely active Crohn’s disease.


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As part of our on-going development efforts, we are seeking to expand our marketed products into treatment of other diseases, such as chronic lymphocytic leukemia, or CLL, ANCA-associated vasculitis, multiple myeloma and ulcerative colitis. In addition to the on-going development of our marketed products, we continue to focus our research and development efforts on finding novel therapeutics in areas of high unmet medical needs, both within our current focus areas of neurology, oncology, immunology and cardiology, as well as in new therapeutic areas.
 
Financial Highlights
 
The following table is a summary of results achieved for the three months ended September 30, 2009 and 2008:
 
                         
    For the Three Months Ended September 30,  
(In millions, except per share amounts and percentages)
  2009     2008     Change %  
 
Total revenues
  $ 1,120.5     $ 1,093.0       2.5 %
Income from operations
  $ 384.2     $ 345.9       11.1 %
Net income attributable to Biogen Idec Inc. 
  $ 277.7     $ 206.8       34.3 %
Diluted earnings per share attributable to Biogen Idec Inc. 
  $ 0.95     $ 0.70       35.7 %
 
As described below under Results of Operations, our operating results for the three months ended September 30, 2009 were primarily driven by:
 
  •  Continued TYSABRI growth. TYSABRI provided $207.0 million of revenue during the third quarter 2009, representing an increase of 20.9% over the same period in the prior year.
 
  •  Increased AVONEX worldwide revenue. Total AVONEX revenues totaled $580.0 million in the current period, representing a 1.1% increase over the prior year comparable period.
 
  •  $283.9 million in revenues from our unconsolidated joint business; driven by net sales of RITUXAN to third-party customers in the United States recorded by Genentech totaling $670.4 million during the current period, representing a 2.3% increase over the same period in 2008. Our share of co-promotion profits of RITUXAN in the United States totaled $203.3 million for the third quarter of 2009, representing an increase of 5.8% over the same period in the prior year. These amounts were offset by a $25.2 million decrease in our share of co-promotion profits in Canada and royalty revenues on sales of RITUXAN outside of the United States primarily driven by royalty expirations in our rest of world markets.
 
  •  Excluding the impact of amortization related to our acquired intangible assets, total costs and expenses increased 5.0% as compared to the prior year comparable period. This increase was driven by a 13.1% increase in research and development spending primarily related to the continued advancement of our pipeline and a 39.4% increase in collaboration profit sharing expense due to TYSABRI growth. These increases were partially offset by a 13.0% decrease in costs of sales and a reduction in selling, general and administrative expense of 2.6%. Amortization of acquired intangible assets decreased 45.6% which is further described within in Note 4, Intangible Assets and Goodwill, in “Notes to Consolidated Financial Statements”. Including amortization of acquired intangible assets, total costs and expenses decreased 1.4% over the same period in the prior year.
 
In addition to the strong operating results achieved for the three months ended September 30, 2009, year to date we generated $792.7 million of net cash flows from operations, which are primarily driven by increases in our earnings.
 
Cash and cash equivalents and marketable securities totaled approximately $2,905.1 million as of September 30, 2009.


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Business Highlights
 
  •  On October 19, 2009, our Board of Directors authorized the repurchase of our common stock in an amount of up to $1.0 billion. This is in addition to the 6.0 million shares remaining from our previous share repurchase authorization. We have used the prior share repurchase program principally for share stabilization. This new $1.0 billion authorization is intended to reduce our shares outstanding, with the objective of returning excess cash to shareholders. The Company intends to retire these shares following repurchase on the open market. This repurchase program does not have an expiration date.
 
  •  On September 21, 2009, we commenced a tender offer to acquire all of the outstanding shares of Facet Biotech, or Facet, for approximately $356.0 million or $14.50 per share in cash. On October 16, 2009, we extended the tender offer to December 16, 2009, unless otherwise extended. The tender offer was previously set to expire on October 19, 2009. The offer price remained unchanged at $14.50 per share in cash. Our all-cash proposal is not subject to any financing contingency or approval by Biogen Idec shareholders.
 
Under our current collaboration agreement with Facet, we have been jointly developing daclizumab for the treatment of relapsing multiple sclerosis and volociximab for the treatment of solid tumors. Refer to Note 14, Collaborations, in “Notes to Consolidated Financial Statements”, for additional discussion.
 
  •  On July 1, 2009, we made a $110.0 million upfront payment to Acorda Therapeutics, Inc., or Acorda, pursuant to our June 30, 2009 collaboration and license agreement to develop and commercialize products containing Fampridine-SR in markets outside the United States.
 
Product and Pipeline Highlights
 
  •  We currently believe that the risk of developing PML increases with the number of TYSABRI infusions received. We continue to believe the overall rate of developing PML with TYSABRI therapy remains consistent with the rate implied in the label. We have proposed and are currently discussing with regulatory authorities a potential label change to reflect this increased risk of PML with increased duration of TYSABRI exposure.
 
  •  On October 19, 2009, Biovitrum AB and we announced plans to advance the companies’ long-acting, fully-recombinant Factor IX Fc fusion protein (rFIXFc) into a registrational clinical trial in hemophilia B patients. The decision to advance the program was based on data from a Phase 1/2a open-label, multi-center, safety dose-escalation and pharmacokinetic study of intravenous rFIXFc in severe, previously treated hemophilia B patients. rFIXFc was well tolerated in the study. In addition, rFIXFc demonstrated a prolonged half-life compared to historical data for existing therapies, supporting advancement of the program.
 
  •  We and Genentech, Inc., or Genentech, a member of the Roche Group, previously submitted a supplemental Biologics License Application, or sBLA, to the U.S. Food and Drug Administration, or FDA, seeking to extend the RITUXAN label to a broader DMARD-IR population. On October 16, 2009, the FDA issued a Complete Response expressing concern related to the prolonged nature of RITUXAN-mediated B-cell depletion and the risk for PML in a less refractory RA population than that covered by our current label. We expect to meet with the FDA to discuss risk-benefit for RITUXAN in a less refractory RA population and determine the appropriate next steps.
 
  •  In September 2009, we were issued U.S. patent no. 7,588,755 for the use of beta interferon for immunomodulation or treating a viral condition, viral disease, cancers or tumors. The patent expires in September 2026. This patent covers the treatment of multiple sclerosis with AVONEX, which is our brand of recombinant beta interferon.
 
  •  In September 2009, Genentech and we announced that a Phase 3 study (PRIMA) met its endpoint during a pre-planned interim analysis, and the study was stopped early on the recommendation of an independent data and safety monitoring board. The primary endpoint was progression-free survival of patients with follicular lymphoma who continued receiving RITUXAN alone after responding to RITUXAN and


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  chemotherapy compared to those who did not continue to receive RITUXAN. The safety profile of RITUXAN observed in the study was consistent with that previously reported.
 
  •  In August 2009, Facet announced its continued plans for the Phase 3 trial of daclizumab high-yield process in MS and that it would request a Special Protocol Assessment from the FDA prior to the initiation of this study. The Phase 3 trial is expected to begin during the first half of 2010. Upon enrollment of the first patient into the Phase 3 study, Facet would receive a $30.0 million milestone payment from us.
 
  •  In July 2009, the FDA granted PEGylated interferon beta-1a Fast Track designation for relapsing MS. We are currently enrolling patients in a global Phase 3 study evaluating the efficacy and safety of either bi-weekly or once-monthly injections of PEGylated interferon beta-1a in this patient population. The FDA’s Fast Track program is designed to expedite the review of new drugs that are intended to treat serious or life-threatening conditions and demonstrate the potential to address unmet medical needs.
 
  •  In July 2009, Cardiokine enrolled the 300th patient in the Phase 3 clinical trial for Lixivaptan. We made a $20.0 million payment to Cardiokine upon achievement of this milestone which was included within research and development expense in the quarter ended September 30, 2009.
 
  •  Acorda previously announced that the European Medicines Agency, or EMEA, notified Acorda that Fampridine-SR is eligible to be submitted for a Marketing Authorization Application via the EMEA’s Centralized Procedure as a new active substance.
 
Additional information about our product pipeline appears under the heading “Research and Development” in Management’s Discussion and Analysis of Financial Condition and Results of Operations of this quarterly report on Form 10-Q.
 
Results of Operations
 
Revenues
 
Revenues were as follows:
 
                                                                 
    For the Three Months Ended September 30,     For the Nine Months Ended September 30,  
(In millions, except percentages)
  2009     2008     2009     2008  
 
Product revenues
                                                               
United States
  $ 407.8       36.4 %   $ 380.6       34.8 %   $ 1,223.9       37.7 %   $ 1,084.8       35.8 %
Rest of world
    393.9       35.2 %     377.7       34.6 %     1,102.2       33.9 %     1,023.0       33.8 %
                                                                 
Total product revenues
  $ 801.7       71.6 %   $ 758.3       69.4 %   $ 2,326.1       71.6 %   $ 2,107.8       69.6 %
Unconsolidated joint business
    283.9       25.3 %     299.0       27.3 %     838.3       25.8 %     825.0       27.2 %
Other revenues
    34.9       3.1 %     35.7       3.3 %     85.9       2.6 %     95.8       3.2 %
                                                                 
Total revenues
  $ 1,120.5       100.0 %   $ 1,093.0       100.0 %   $ 3,250.3       100.0 %   $ 3,028.6       100.0 %
                                                                 


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Product Revenues
 
Product revenues were as follows:
 
                                                                 
    For the Three Months Ended
    For the Nine Months Ended
 
    September 30,     September 30,  
(In millions, except percentages)
  2009     2008     2009     2008  
 
AVONEX
  $ 580.0       72.3 %   $ 573.5       75.6 %   $ 1,726.5       74.2 %   $ 1,636.8       77.7 %
TYSABRI
    207.0       25.8 %     171.2       22.6 %     559.8       24.1 %     433.0       20.5 %
FUMADERM
    12.6       1.6 %     11.1       1.5 %     35.4       1.5 %     32.8       1.6 %
Other
    2.1       0.3 %     2.5       0.3 %     4.4       0.2 %     5.2       0.2 %
                                                                 
Total product revenues
  $ 801.7       100.0 %   $ 758.3       100.0 %   $ 2,326.1       100.0 %   $ 2,107.8       100.0 %
                                                                 
 
AVONEX
 
We currently market and sell AVONEX for the treatment of relapsing MS, including patients with a first clinical episode and MRI features consistent with MS. 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.
 
Revenues from AVONEX were as follows:
 
                                                 
    For the Three Months Ended
    For the Nine Months Ended
 
    September 30,     September 30,  
(In millions, except percentages)
  2009     2008     Change %     2009     2008     Change %  
 
AVONEX
                                               
United States
  $ 348.5     $ 321.9       8.3 %   $ 1,054.2     $ 935.9       12.6 %
Rest of world
    231.5       251.6       (8.0 )%     672.3       700.9       (4.1 )%
                                                 
Total AVONEX revenues
  $ 580.0     $ 573.5       1.1 %   $ 1,726.5     $ 1,636.8       5.5 %
                                                 
 
The increase in revenues from the sales of AVONEX in the United States for both the three and nine months ended September 30, 2009, as compared to the prior year comparative periods, was primarily due to price increases, partially offset by decreased patient demand and participation in our AVONEX Access Program, which provides free product to eligible patients.
 
Revenues from the sale of AVONEX within our rest of world markets decreased for both the three and nine months ended September 30, 2009, as compared to the same periods in the prior year, primarily due to the negative impact of foreign currency exchange rate changes, partially offset by price increases and increased patient demand.
 
We expect to face increasing competition in the MS marketplace in both the United States and rest of world from existing and new MS treatments, including oral and other alternative formulations developed by our competitors, the continued growth of TYSABRI and the commercialization of our other pipeline product candidates, which may have a continued negative impact on the unit sales of AVONEX. We expect future unit sales of AVONEX to be dependent to a large extent on our ability to compete successfully with the products of our competitors.
 
TYSABRI
 
In August 2000, we entered into a collaboration agreement with Elan Pharma International, Ltd, or Elan, an affiliate of Elan Corporation, plc. Under the terms of the agreement with Elan, we manufacture TYSABRI and collaborate with Elan on the product’s marketing, commercial distribution and on-going development activities. TYSABRI is sold 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


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the TOUCH Prescribing Program, a rigorous system intended to educate physicians and patients about the risks involved and help assure appropriate use of the product. Since the reintroduction of TYSABRI to the market in July 2006, we have disclosed cases of progressive multifocal leukoencephalopathy, or PML, a known side effect, in patients taking TYSABRI in the post-marketing setting. We currently believe that the risk of developing PML increases with the number of TYSABRI infusions received. We continue to believe the overall rate of developing PML with TYSABRI therapy remains consistent with the rate implied in the label. We have proposed and are currently discussing with regulatory authorities a potential label change to reflect this increased risk of PML with increased duration of TYSABRI exposure.
 
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 outcome of PML in patients being treated with TYSABRI. We believe that the reported cases of PML have slowed the growth of TYSABRI in both the United States and rest of world.
 
In the United States, we sell TYSABRI to Elan who sells the product to third party distributors. Our sales price to Elan in the United States is set prior to the beginning of each quarterly period to effect an approximate equal sharing of the gross margin on sales in the United States between Elan and us. We recognize revenue for sales of TYSABRI in the United States upon Elan’s shipment of the product to the third party distributors. In the rest of world markets, we are responsible for distributing TYSABRI to customers and are primarily responsible for all operating activities. We recognize revenue for sales of TYSABRI in the rest of world at the time of product delivery to our customers.
 
Revenues from TYSABRI were as follows:
 
                                                 
    For the Three Months Ended
    For the Nine Months Ended
 
    September 30,     September 30,  
(In millions, except percentages)
  2009     2008     Change %     2009     2008     Change %  
 
TYSABRI
                                               
United States
  $ 59.3     $ 56.2       5.5 %   $ 169.7     $ 144.0       17.8 %
Rest of world
    147.7       115.0       28.4 %     390.1       289.0       35.0 %
                                                 
Total TYSABRI revenues
  $ 207.0     $ 171.2       20.9 %   $ 559.8     $ 433.0       29.3 %
                                                 
 
The increase in revenues from the sale of TYSABRI in the United States, as compared to the prior year comparative periods, during the three and nine months ended September 30, 2009, were primarily due to an increase in number of patients using TYSABRI in the United States.
 
Net sales of TYSABRI from our collaboration partner, Elan, to third-party customers in the United States for the three and nine months ended September 30, 2009 totaled $130.7 million and $371.1 million, respectively, as compared to $121.5 million and $307.0 million, respectively, in the prior year comparative periods.
 
Rest of world sales of TYSABRI for the three and nine months ended September 30, 2009, increased as compared to the same periods in the prior year, primarily due to an increase in number of patients using TYSABRI in the United States, partially offset by the negative impact of foreign currency exchange rate changes. TYSABRI rest of world revenues for the three and nine months ended September 30, 2009 also include losses of $4.2 million recognized in relation to the settlement of certain cash flow hedge instruments.
 
In accordance with our collaboration agreement, Elan has paid to us milestone payments totaling $125.0 million. We have recorded these amounts as deferred revenue upon receipt which is being recognized as product revenue in our consolidated statements 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. The following table summarizes the amount of these milestone payments recognized as revenue for the three and nine months ended September 30, 2009 and 2008:
 
                                                 
    For the Three Months Ended
    For the Nine Months Ended
 
    September 30,     September 30,  
(In millions, except percentages)
  2009     2008     Change %     2009     2008     Change %  
 
Revenue recognized from milestone payments
  $ 1.9     $ 0.6       216.7 %   $ 5.1     $ 0.6       750.0 %


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Unconsolidated Joint Business Revenue
 
We collaborate with Genentech on the development and commercialization of RITUXAN which is approved for treating certain B-cell NHL and RA. While Genentech is responsible for the worldwide manufacturing of RITUXAN, development and commercialization rights and responsibilities under this collaboration are divided between us and Genentech as described in Note 14, Collaborations, in “Notes to Consolidated Financial Statements”
 
Revenues from unconsolidated joint business consists of (1) our share of pretax co-promotion profits in the United States; (2) reimbursement of selling and development expense in the United States; and (3) revenue on sales of RITUXAN outside the United States, which consist of our share of pretax co-promotion profits in Canada and royalty revenue on sales of RITUXAN outside the United States and Canada by F. Hoffmann-La Roche Ltd., or Roche, Zenyaku Kogyo, Inc., or Zenyaku and Chugai Pharmaceutical Co. Ltd., or Chugai, an affiliate of Roche. Pre-tax co-promotion profits are calculated and paid to us by Genentech in the United States and by Roche in Canada. Pre-tax co-promotion profits consist of United States and Canadian sales of RITUXAN to third-party customers net of discounts and allowances less the cost to manufacture RITUXAN, third-party royalty expenses, distribution, selling and marketing, and joint development expenses incurred by Genentech, Roche and us.
 
The following table provides a summary of revenues from unconsolidated joint business for the three and nine months ended September 30, 2009 and 2008, respectively:
 
                                                 
    For the Three Months Ended
    For the Nine Months Ended
 
    September 30,     September 30,  
(In millions, except percentages)
  2009     2008     Change %     2009     2008     Change %  
 
Biogen Idec Inc.’s share of co-promotion profits in the United States
  $   203.3     $   192.2       5.8 %   $ 581.3     $ 527.9       10.1 %
Reimbursement of selling and development expense in the United States
    15.8       16.8       (6.0 )%     47.5       45.4       4.6 %
Revenue on sales of RITUXAN outside the United States
    64.8       90.0       (28.0 )%     209.5       251.7       (16.8 )%
                                                 
Total unconsolidated joint business revenues
  $ 283.9     $ 299.0       (5.1 )%   $ 838.3     $ 825.0       1.6 %
                                                 
 
Biogen Idec Inc.’s Share of Co-promotion Profits in the United States
 
The following table provides a summary of amounts comprising our share of co-promotion profits in the United States:
 
                                                 
    For the Three Months Ended
    For the Nine Months Ended
 
    September 30,     September 30,  
(In millions, except percentages)
  2009     2008     Change %     2009     2008     Change %  
 
Product revenues, net
  $ 670.4     $ 655.4       2.3 %   $ 2,008.0     $ 1,910.8       5.1 %
Costs and expenses
    167.3       182.3       (8.2 )%     547.2       586.1       (6.6 )%
                                                 
Co-promotion profits in the United States
  $ 503.1     $ 473.1       6.3 %   $ 1,460.8     $ 1,324.7       10.3 %
                                                 
Biogen Idec Inc.’s share of co-promotion profits in the United States
  $ 203.3     $ 192.2       5.8 %   $ 581.3     $ 527.9       10.1 %
                                                 


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The increase in net sales of RITUXAN to third-party customers in the United States recorded by Genentech for the three and nine months ended September 30, 2009 as compared to the prior year comparative periods resulted from continued growth for treatment of B-cell NHL and RA, and RITUXAN price increases.
 
Total collaboration costs and expenses for the three and nine months ended September 30, 2009 as compared to the same periods in the prior year decreased primarily due to higher costs incurred in development of RITUXAN for use in other indications during the prior year.
 
Under the collaboration agreement, our current pretax co-promotion profit-sharing formula, which resets annually, provides for a 30% share of co-promotion profits on the first $50.0 million of co-promotion operating profit with our share increasing to 40% if co-promotion operating profits exceed $50.0 million. In 2009 and 2008, the 40% threshold was met during the first quarter.
 
In addition, under the collaboration agreement, we also have rights to collaborate with Genentech on the development and commercialization of (1) anti-CD20 products that Genentech acquires or develops, which we refer to as New Anti-CD20 Products, and (2) anti-CD20 products that Genentech licenses from a third party, which we refer to as Third Party Anti-CD20 Products. Our collaboration rights for New Anti-CD20 Products are limited to the United States and our collaboration rights for Third Party Anti-CD20 Products are dependent upon Genentech’s underlying license rights. Currently, there is only one New Anti-CD20 Product, ocrelizumab, and only one Third Party Anti-CD20 Product, GA101.
 
Our agreement with Genentech also 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. Refer to Note 14, Collaborations, in “Notes to Consolidated Financial Statements”, for a detailed discussion of the pretax co-promotion profit sharing formula for RITUXAN and New Anti-CD20 Products sold by us and Genentech following the approval date of the first New Anti-CD20 Product. We will participate in Third Party Anti-CD20 Products on similar financial terms as for ocrelizumab.
 
Reimbursement of Selling and Development Expense in the United States
 
As discussed within Note 14, Collaborations, in “Notes to Consolidated Financial Statements”, Genentech incurs the majority of continuing development costs for RITUXAN. Expenses incurred by Genentech in the development of RITUXAN are not recorded as research and development expense, but rather reduce our share of co-promotion profits recorded as a component of unconsolidated joint business revenue.
 
Selling and development expenses incurred by us in the United States and reimbursed by Genentech for the three months ended September 30, 2009 as compared to the three months ended September 30, 2008 have decreased slightly due to decreases in costs associated with the development of RITUXAN for use in RA.
 
The increase in selling and development expenses incurred by us in the United States and reimbursed by Genentech for the nine months ended September 30, 2009 as compared to the same period in the prior year are primarily to the result of increased clinical development and marketing expenses.
 
Revenue on sales of RITUXAN outside the United States
 
Revenues on sales of RITUXAN outside the United States decreased compared to the prior year comparative periods primarily due to royalty expirations in certain of our rest of world markets and the negative impact of foreign currency exchange rate changes.
 
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 continue to expect a significant decrease in royalty revenues on sales of RITUXAN outside the United States and Canada in the latter half of 2009. Specifically, the royalty periods with respect to sales in France, Spain, Germany and the United Kingdom expire in 2009 and in 2010 with respect to sales in Italy. The royalty periods with respect to sales in other countries will subsequently expire through 2012. As a result of these expirations, we expect a significant decline in royalty


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revenues derived from sales of RITUXAN outside the United States in the fourth quarter of 2009 and in future periods.
 
We record our royalty revenue and co-promotion profit revenue on sales of RITUXAN outside the United States on a cash basis.
 
Other Revenues
 
Our product line previously included ZEVALIN (ibritumomab tiuxetan), which is part of a treatment regimen for certain B-cell NHL, and AMEVIVE (alefacept), a treatment for certain moderate to severe 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.
 
Other revenues were as follows:
 
                                                 
    For the Three Months Ended
    For the Nine Months Ended
 
    September 30,     September 30,  
(In millions, except percentages)
  2009     2008     Change %     2009     2008     Change %  
 
Royalty revenues
  $ 34.5     $ 35.1       (1.7 )%   $ 83.6     $ 87.3       (4.2 )%
Corporate partner revenues
    0.4       0.6       (33.3 )%     2.3       8.5       (72.9 )%
                                                 
Total other revenues
  $ 34.9     $ 35.7       (2.2 )%   $ 85.9     $ 95.8       (10.3 )%
                                                 
 
Royalty Revenues
 
We receive revenues from royalties on sales by our licensees of a number of products covered under patents that we control and are dependent upon sales of licensed products which could vary significantly due to competition, manufacturing difficulties and other factors, including the timing and extent of major events such as new indication approvals or government sponsored programs. In addition, the expiration or invalidation of any underlying patents could reduce or eliminate the royalty revenues derived from such patents.
 
Royalty revenues decreased for the three and nine months ended September 30, 2009 as compared to the prior year comparative periods primarily due to an overall decline in royalties from sales of licensed product as well as the expiration of a license agreement, partially offset by increased sales of ANGIOMAX® (bivalirudin) licensed to The Medicines Company, or TMC.
 
Our most significant source of royalty revenue is derived from sales of ANGIOMAX by TMC. TMC 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. Royalty revenues related to the sales of ANGIOMAX are recognized in an amount equal to the level of net sales achieved during a calendar year multiplied by the royalty rate in effect under our royalty agreement with TMC. The royalty rate increases based upon the level of total net sales earned in any calendar year, and the increased rate is applied retroactively to the first dollar of net sales achieved during the year. This formula has the effect of increasing the amount of royalty revenue to be recognized in periods subsequent to the first period of each calendar year in which increased royalty revenues were recognized. Accordingly, an adjustment is recorded in the period in which a change in royalty rate has been achieved.
 
Under the terms of the royalty agreement, TMC is obligated to pay us royalties earned, on a country-by-country basis, until the later of (1) twelve years from the date of the first commercial sale of ANGIOMAX in such country and (2) the date upon which the product is no longer covered by a patent in such country. The annual royalty rate is reduced by a specified percentage in any country where the product is no longer covered by a patent and has been reduced to a certain volume-based market share. TMC began selling ANGIOMAX in the United States in January 2001. The principal U.S. patent that covers ANGIOMAX expires in March 2010. Marketing exclusivity is due to expire in September 2010, due to a grant of pediatric exclusivity.


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Corporate Partner Revenues
 
Corporate partner revenues represent contract revenues, such as those generated by ZEVALIN and AMEVIVE, and license fees.
 
Costs and Expenses
 
Cost of Sales, Excluding Amortization of Acquired Intangible Assets
 
                                                 
    For the Three Months Ended
  For the Nine Months Ended
    September 30,   September 30,
(In millions, except percentages)
  2009   2008   Change %   2009   2008   Change %
 
Cost of sales, excluding amortization of acquired intangible assets
  $ 93.5     $ 107.5       (13.0 )%   $ 282.4     $ 300.8       (6.1 )%
 
The decrease in cost of sales, excluding amortization of intangible assets for both the three and nine months ended September 30, 2009 as compared to the comparative periods in the prior year was primarily due to decreased write-downs from unmarketable inventory and decreased royalty payments, partially offset by higher sales volume.
 
Write-downs from Unmarketable Inventory
 
Amounts written down related to unmarketable inventory are charged to cost of sales, excluding amortization of acquired intangible assets. Amounts written-down related to unmarketable inventory were as follows:
 
                                                 
    For the Three Months Ended
  For the Nine Months Ended
    September 30,   September 30,
(In millions, except percentages)
  2009   2008   Change %   2009   2008   Change %
 
Write-downs from unmarketable inventory
  $ 2.0     $ 12.6       (84.1 )%   $ 13.4     $ 22.5       (40.4 )%
 
Research and Development
 
                                                 
    For the Three Months Ended
  For the Nine Months Ended
    September 30,   September 30,
(In millions, except percentages)
  2009   2008   Change %   2009   2008   Change %
 
Research and development
  $ 304.1     $ 268.8       13.1 %   $ 1,000.0     $ 779.3       28.3 %
 
We devote significant resources to research and development programs focusing our efforts on finding novel therapeutics in areas of high unmet medical need, both within our current core focus areas of neurology, oncology, immunology and cardiology as well as in new therapeutic areas. Over the past few years, we have incurred significant expenditures related to the development of new product candidates and exploring the utility of our existing products in treating disorders beyond those currently approved in their labels. Costs associated with later stage clinical trials are, in most cases, more significant than those incurred in earlier stages of our pipeline. As of September 30, 2009, including our RITUXAN product candidates, we had more than 20 pipeline products in Phase 2 trials or beyond.
 
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, fees paid to clinical research organizations, or CROs, 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.
 
The increase in research and development expense for the three and nine months ended September 30, 2009 as compared to the comparable periods in the prior year was driven by the continued advancement of


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several of our later stage product candidates, partially offset by a reduction in spending across several other programs including Baminercept in RA which we terminated in October of 2008. The increase in expense for the nine months ended September 30, 2009, as compared to the same period in the prior year is also attributable to the $110.0 million upfront payment made to Acorda under a recent collaboration and license agreement.
 
A summary of milestone and upfront payments made to our collaboration partners and included within research and development expense were as follows:
 
                                                 
    For the Three Months Ended
    For the Nine Months Ended
 
    September 30,     September 30,  
(In millions)
  2009     2008     Change %     2009     2008     Change %  
 
Total milestone and upfront payments reflected within research and development expense
  $ 22.0     $ 5.5       300.0 %   $ 151.0     $ 16.1       837.9 %
 
We have a number of pipeline products in registrational stage development, including:
 
  •  BG-12 for relapsing MS;
 
  •  Humanized Anti-Cd20 MAb (ocrelizumab) for RA;
 
  •  Lixivaptan for hyponatremia commonly seen in acute decompensated heart failure; and
 
  •  PEGylated interferon beta 1 a for relapsing MS.
 
In addition to the registrational product indications listed above:
 
  •  Acorda, our collaboration partner in the development and commercialization of products containing Fampridine-SR in markets outside the United States, previously announced that the EMEA has communicated that Fampridine-SR is eligible to be submitted for a Marketing Authorization Application via the EMEA’s Centralized Procedure as a new active substance.
 
  •  In August 2009, Facet, our collaboration partner in the development of daclizumab, announced its continued plans for the Phase 3 trial of daclizumab high-yield process in MS and that it would request a Special Protocol Assessment from the FDA, prior to the initiation of this study. The Phase 3 trial is expected to begin during the first half of 2010. Upon enrollment of the first patient into the Phase 3 study, Facet would receive a $30.0 million milestone payment from us.
 
  •  On October 19, 2009, Biovitrum and we announced plans to advance the companies’ long-acting, fully-recombinant Factor IX Fc fusion protein (rFIXFc) into a registrational clinical trial in hemophilia B patients. The decision to advance the program is based on data from a Phase 1/2a open-label, multi-center, safety dose-escalation and pharmacokinetic study of intravenous rFIXFc in severe, previously treated hemophilia B patients. rFIXFc was well tolerated in the study. In addition, rFIXFc demonstrated a prolonged half-life compared to historical data for existing therapies, supporting advancement of the program.
 
  •  In October 2009, a safety review of ocrelizumab data in RA and lupus nephritis, or LN, clinical trials was performed revealing an apparent imbalance in opportunistic infections among ocrelizumab-treated RA and LN patients in these clinical trials. Based upon this review, the ocrelizumab FILM study in methotrexate-naïve RA patients was placed on clinical hold and dosing was stopped. We also decided to close the ocrelizumab BELONG study in LN. The other ocrelizumab RA and RRMS studies remain ongoing. We plan to work with regulators to determine the next step for these programs.
 
  •  In October 2009, after a strategic review of our Anti-CD80 MAb (galiximab) and Anti-CD23 MAb (lumiliximab) programs, we decided to stop recruitment in the lumiliximab LUCID trial in CLL and prematurely end the galiximab TARGET trial in NHL. Neither decision was a consequence of any safety concerns. We are evaluating our options for these programs and are working on a path forward.


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Selling, General and Administrative
 
                                                 
    For the Three Months Ended
  For the Nine Months Ended
    September 30,   September 30,
(In millions, except percentages)
  2009   2008   Change %   2009   2008   Change %
 
Selling, general and administrative
  $ 226.8     $ 232.8       (2.6 )%   $ 669.4     $ 694.3       (3.6 )%
 
Selling, general and administrative expenses are primarily comprised of salaries and benefits associated with sales and marketing, finance, legal and other administrative personnel, outside marketing and legal expenses and other general and administrative costs. The decreases in selling, general and administrative expenses were primarily driven by the positive impact of foreign currency exchange rate changes.
 
Collaboration Profit Sharing
 
                                                 
    For the Three Months Ended
  For the Nine Months Ended
    September 30,   September 30,
(In millions, except percentages)
  2009   2008   Change %   2009   2008   Change %
 
Collaboration profit sharing
  $ 60.7     $ 43.5       39.4 %   $ 152.6     $ 98.4       55.1 %
 
Payments are made to Elan for their share of the rest of world net operating profits to effect an equal sharing of collaboration operating profit. These payments include the reimbursement of our portion of third-party royalties that Elan pays on behalf of the collaboration, relating to sales outside of the United States. These amounts are reflected in the collaboration profit sharing line in our consolidated statements of income. As rest of world sales of TYSABRI increase, our collaboration profit sharing expense will increase.
 
The increases for both the three and nine months ended September 30, 2009 as compared to the prior year comparative periods were due to the increase in TYSABRI rest of world sales resulting in a higher rest of world net operating profits to be shared with Elan and causing growth in the third-party royalties Elan paid on behalf of the collaboration. For the three and nine months ended September 30, 2009, our collaboration profit sharing expense included $10.7 million and $28.5 million, respectively, related to the reimbursement of Elan’s royalty payments as compared to $8.0 million and $20.9 million during the prior year comparable periods.
 
Amortization of Acquired Intangible Assets
 
                                                 
    For the Three Months Ended
  For the Nine Months Ended
    September 30,   September 30,
(In millions, except percentages)
  2009   2008   Change %   2009   2008   Change %
 
Amortization of acquired intangible assets
  $ 51.3     $ 94.5       (45.6 )%   $ 233.8     $ 242.1       (3.4 )%
 
Our most significant intangible asset is the core technology related to our AVONEX product. We believe the economic benefit of our core technology is consumed as revenue is generated from our AVONEX product, which we refer to as the economic consumption amortization model. An analysis of the anticipated product sales of