BIIB-2014.6.30-10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
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.)
225 Binney Street, 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  x    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  x    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 x
 
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  x
The number of shares of the issuer’s Common Stock, $0.0005 par value, outstanding as of July 18, 2014, was 236,144,705 shares.
 



Table of Contents

BIOGEN IDEC INC.
FORM 10-Q — Quarterly Report
For the Quarterly Period Ended June 30, 2014
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II — OTHER INFORMATION
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 


2
Table of Contents

NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are being made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”) with the intention of obtaining the benefits of the “Safe Harbor” provisions of the Act. These forward-looking statements may be accompanied by such words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “target,” “will” and other words and terms of similar meaning. Reference is made in particular to forward-looking statements regarding:
•
the anticipated amount, timing and accounting of revenues, contingent payments, milestone, royalty and other payments under licensing, collaboration or acquisition agreements, tax positions and contingencies, collectability of receivables, pre-approval inventory, cost of sales, research and development costs, compensation and other expenses, amortization of intangible assets, foreign currency forward contracts and impairment assessments;
•
the potential impact of increased product competition in the multiple sclerosis (MS) and hemophilia markets, including competition from and growth of our own products and the possibility of future competition from biosimilars, gene therapies, generic versions or related prodrug derivatives;
•
the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to patents and other proprietary and intellectual property rights, tax audits, assessments and settlements, sales and promotional practices, product liability and other matters;
•
the expected resolution and financial impact of our dispute with the Italian National Medicines Agency relating to sales of TYSABRI for the periods from February 2009 through January 2013;
•
the costs, timing, potential approval and therapeutic scope of the development and commercialization of our pipeline products;
•
the potential impact of healthcare reform in the U.S., implementation of provisions of the Affordable Care Act, and measures being taken worldwide designed to reduce healthcare costs to constrain the overall level of government expenditures, including the impact of pricing actions in Europe and elsewhere, and reduced reimbursement for our products;
•
our ability to finance our operations and business initiatives and obtain funding for such activities;
•
the impact of new laws and accounting standards; and
•
the drivers for growing our business, including our plans to pursue business development and research opportunities, and competitive conditions.
These forward-looking statements involve risks and uncertainties, including those that are described in the “Risk Factors” section of this report and elsewhere within this report that could cause actual results to differ materially from those reflected in such statements. You should not place undue reliance on these statements. Forward-looking statements speak only as of the date of this report. We do not undertake any obligation to publicly update any forward-looking statements.
NOTE REGARDING COMPANY AND PRODUCT REFERENCES
Throughout this report, “Biogen Idec,” the “Company,” “we,” “us” and “our” refer to Biogen Idec Inc. and its consolidated subsidiaries. References to “RITUXAN” refer to both RITUXAN (the trade name for rituximab in the U.S., Canada and Japan) and MabThera (the trade name for rituximab outside the U.S., Canada and Japan), and “ANGIOMAX” refers to both ANGIOMAX (the trade name for bivalirudin in the U.S., Canada and Latin America) and ANGIOX (the trade name for bivalirudin in Europe).
NOTE REGARDING TRADEMARKS
AVONEX®, RITUXAN®, TECFIDERA®, and TYSABRI® are registered trademarks of Biogen Idec. ALPROLIXTM, ELOCTATETM, FUMADERMTM and PLEGRIDYTM are trademarks of Biogen Idec. The following are trademarks of the respective companies listed: ANGIOMAX® and ANGIOXTM — The Medicines Company; ARZERRA® — Glaxo Group Limited; BENLYSTA® — GlaxoSmithKline Intellectual Property Limited; BETASERON®— Bayer Schering Pharma AG; EXTAVIA® — Novartis AG; FAMPYRA® — Acorda Therapeutics, Inc.; GAZYVA® —  Genentech, Inc.; and REBIF® — Ares Trading S.A.

3
Table of Contents

PART I FINANCIAL INFORMATION

BIOGEN IDEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Product, net
$
2,056,292

 
$
1,385,918

 
$
3,799,057

 
$
2,481,697

Unconsolidated joint business
303,296

 
288,785

 
600,181

 
553,391

Other
61,864

 
48,770

 
151,965

 
103,481

Total revenues
2,421,452

 
1,723,473

 
4,551,203

 
3,138,569

Cost and expenses:
 
 
 
 
 
 
 
Cost of sales, excluding amortization of acquired intangible assets
291,887

 
230,728

 
571,132

 
364,477

Research and development
447,273

 
327,463

 
976,157

 
611,803

Selling, general and administrative
576,622

 
431,012

 
1,088,296

 
783,610

Amortization of acquired intangible assets
116,826

 
82,225

 
260,084

 
133,526

Collaboration profit sharing
—

 
—

 
—

 
85,357

(Gain) loss on fair value remeasurement of contingent consideration
4,019

 
(5,163
)
 
3,220

 
(2,886
)
Total cost and expenses
1,436,627

 
1,066,265

 
2,898,889

 
1,975,887

Gain on sale of rights
3,900

 
5,319

 
7,759

 
10,370

Income from operations
988,725

 
662,527

 
1,660,073

 
1,173,052

Other income (expense), net
4,861

 
(10,428
)
 
(740
)
 
(24,885
)
Income before income tax expense and equity in loss of investee, net of tax
993,586

 
652,099

 
1,659,333

 
1,148,167

Income tax expense
268,521

 
159,140

 
446,935

 
224,648

Equity in loss of investee, net of tax
1,933

 
2,289

 
9,538

 
6,100

Net income
723,132

 
490,670

 
1,202,860

 
917,419

Net income (loss) attributable to noncontrolling interests, net of tax
8,626

 
—

 
8,398

 
—

Net income attributable to Biogen Idec Inc.
$
714,506

 
$
490,670

 
$
1,194,462

 
$
917,419

Net income per share:
 
 
 
 
 
 
 
Basic earnings per share attributable to Biogen Idec Inc.
$
3.02

 
$
2.07

 
$
5.05

 
$
3.87

Diluted earnings per share attributable to Biogen Idec Inc.
$
3.01

 
$
2.06

 
$
5.03

 
$
3.85

Weighted-average shares used in calculating:
 
 
 
 
 
 
 
Basic earnings per share attributable to Biogen Idec Inc.
236,661

 
237,484

 
236,729

 
237,162

Diluted earnings per share attributable to Biogen Idec Inc.
237,401

 
238,743

 
237,634

 
238,543







See accompanying notes to these unaudited condensed consolidated financial statements.

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BIOGEN IDEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2014
 
2013
 
2014
 
2013
Net income attributable to Biogen Idec Inc.
$
714,506

 
$
490,670

 
$
1,194,462

 
$
917,419

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities available for sale, net of tax of $4,029 and $3,569 for the three months ended June 30, 2014 and 2013, respectively; and $3,015 and $2,915 for the six months ended June 30, 2014 and 2013, respectively
(6,865
)
 
6,077

 
(5,140
)
 
4,960

Unrealized gains (losses) on foreign currency forward contracts, net of tax of $260 and $59 for the three months ended June 30, 2014 and 2013, respectively; and $5 and $1,480 for the six months ended June 30, 2014 and 2013, respectively
10,760

 
(2,305
)
 
16,551

 
9,298

Unrealized gains (losses) on pension benefit obligation
(170
)
 
1,011

 
646

 
2,274

Currency translation adjustment
(8,047
)
 
8,056

 
(10,991
)
 
(16,363
)
Total other comprehensive income (loss), net of tax
(4,322
)
 
12,839

 
1,066

 
169

Comprehensive income attributable to Biogen Idec Inc.
710,184

 
503,509

 
1,195,528

 
917,588

Comprehensive income attributable to noncontrolling interests, net of tax
8,626

 
—

 
8,398

 
—

Comprehensive income
$
718,810

 
$
503,509

 
$
1,203,926

 
$
917,588































See accompanying notes to these unaudited condensed consolidated financial statements.

5
Table of Contents

BIOGEN IDEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share amounts)
 
 
As of June 30,
2014
 
As of December 31,
2013
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
863,197

 
$
602,562

Marketable securities
709,869

 
620,167

Accounts receivable, net
1,002,328

 
824,406

Due from unconsolidated joint business, net
286,897

 
252,662

Inventory
715,935

 
659,003

Other current assets
346,787

 
226,134

Total current assets
3,925,013

 
3,184,934

Marketable securities
1,010,837

 
625,772

Property, plant and equipment, net
1,756,164

 
1,750,710

Intangible assets, net
4,249,378

 
4,474,653

Goodwill
1,364,815

 
1,232,916

Investments and other assets
611,791

 
594,350

Total assets
$
12,917,998

 
$
11,863,335

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Current portion of notes payable and line of credit
$
3,386

 
$
3,494

Taxes payable
192,758

 
179,685

Accounts payable
224,931

 
219,913

Accrued expenses and other
1,495,549

 
1,355,187

Total current liabilities
1,916,624

 
1,758,279

Notes payable
586,091

 
592,433

Long-term deferred tax liability
139,092

 
232,554

Other long-term liabilities
710,965

 
659,231

Total liabilities
3,352,772

 
3,242,497

Commitments and contingencies


 


Equity:
 
 
 
Biogen Idec Inc. shareholders’ equity
 
 
 
Preferred stock, par value $0.001 per share
—

 
—

Common stock, par value $0.0005 per share
128

 
128

Additional paid-in capital
4,106,084

 
4,023,651

Accumulated other comprehensive loss
(26,678
)
 
(27,745
)
Retained earnings
7,543,597

 
6,349,135

Treasury stock, at cost
(2,061,832
)
 
(1,724,927
)
Total Biogen Idec Inc. shareholders’ equity
9,561,299

 
8,620,242

Noncontrolling interests
3,927

 
596

Total equity
9,565,226

 
8,620,838

Total liabilities and equity
$
12,917,998

 
$
11,863,335



See accompanying notes to these unaudited condensed consolidated financial statements.

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Table of Contents

BIOGEN IDEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
 
For the Six Months
Ended June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
1,202,860

 
$
917,419

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
355,102

 
225,880

Share-based compensation
83,856

 
67,387

Deferred income taxes
(146,506
)
 
(118,047
)
Other
(64,213
)
 
(42,495
)
Changes in operating assets and liabilities, net:
 
 
 
Accounts receivable
(188,961
)
 
(185,688
)
Inventory
(72,689
)
 
(129,171
)
Accrued expenses and other current liabilities
(30,299
)
 
(15,970
)
Other changes in operating assets and liabilities, net
(43,931
)
 
84,836

Net cash flows provided by operating activities
1,095,219

 
804,151

Cash flows from investing activities:
 
 
 
Proceeds from sales and maturities of marketable securities
1,317,525

 
4,404,707

Purchases of marketable securities
(1,787,606
)
 
(1,617,974
)
Acquisition of TYSABRI rights
—

 
(3,262,719
)
Purchases of property, plant and equipment
(118,308
)
 
(87,440
)
Acquisitions of business, net of cash acquired
(25,000
)
 
—

Other
(10,745
)
 
(6,874
)
Net cash flows used in investing activities
(624,134
)
 
(570,300
)
Cash flows from financing activities:
 
 
 
Purchase of treasury stock
(336,905
)
 
(41,023
)
Proceeds from issuance of stock for share-based compensation arrangements
33,477

 
39,002

Repayment of borrowings under senior notes
—

 
(452,340
)
Excess tax benefit from stock options
83,940

 
53,311

Other
12,003

 
(8,137
)
Net cash flows used in financing activities
(207,485
)
 
(409,187
)
Net increase (decrease) in cash and cash equivalents
263,600

 
(175,336
)
Effect of exchange rate changes on cash and cash equivalents
(2,965
)
 
(2,878
)
Cash and cash equivalents, beginning of the period
602,562

 
570,721

Cash and cash equivalents, end of the period
$
863,197

 
$
392,507














See accompanying notes to these unaudited condensed consolidated financial statements.

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Table of Contents
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


1.
Summary of Significant Accounting Policies
Business Overview
Biogen Idec is a global biotechnology company focused on discovering, developing, manufacturing and marketing therapies for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders. We also collaborate on the development and commercialization of RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia and other conditions and share profits and losses for GAZYVA for the treatment of chronic lymphocytic leukemia.
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial statements for interim periods in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The information included in this quarterly report on Form 10-Q should be read in conjunction with our consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K). Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2013 Form 10-K and updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
Consolidation
Our condensed consolidated financial statements reflect our financial statements, those of our wholly-owned subsidiaries and those of certain variable interest entities where we are the primary beneficiary. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interests in our condensed consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.
In determining whether we are the primary beneficiary of an entity and therefore required to consolidate, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. These considerations impact the way we account for our existing collaborative relationships and other arrangements. We continuously assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in us consolidating or deconsolidating one or more of our collaborators or partners.
 Use of Estimates
The preparation of our condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments and methodologies. 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.
Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost, net of accumulated depreciation. Accumulated depreciation on property, plant and equipment was $1,210.6 million and $1,118.3 million as of June 30, 2014 and December 31, 2013, respectively.

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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Accounting for Share-Based Compensation
During the six months ended June 30, 2014, under our share-based compensation program we began to grant awards for performance-vested restricted stock units, which can be settled in cash or shares of our common stock (PUs) at the sole discretion of the Compensation and Management Development Committee of the Board of Directors. We have classified these awards as a liability as, historically, similar awards have been settled in cash. We record the estimated fair value of PUs as compensation expense over the requisite service period, which is generally the vesting period. Where awards are made with non-substantive vesting periods (for instance, where a portion of the award vests upon retirement eligibility), we estimate and recognize expense, net of forfeitures, over the period from the grant date to the date on which the employee is retirement eligible.
We apply an accelerated attribution method to recognize share based compensation expense when accounting for our PUs and the fair value of the liability is remeasured at the end of each reporting period through expected settlement. Compensation expense associated with PUs is based upon the share price and the number of units expected to be earned 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 each quarter to reflect changes in the share price and estimated outcome of the performance-related conditions until the date results are determined and settled.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
During the quarter ended June 30, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The new standard will be effective for us on January 1, 2017. We are currently evaluating the potential impact that Topic 606 may have on our financial position and results of operations.
Also during the quarter ended June 30, 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosure. The new standard expands secured borrowing accounting for repurchase-to-maturity transactions and repurchase financings and sets forth new disclosure requirements for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions that are accounted for as secured borrowings. The new standard will be effective for us on April 1, 2015. The adoption of this standard is not expected to have an impact on our financial position or results of operations.
2.
Accounts Receivable
Our accounts receivable primarily arise from product sales in the U.S. and Europe and mainly represent amounts due from our wholesale distributors, public hospitals and other government entities. Concentrations of credit risk with respect to our accounts receivable, which are typically unsecured, are limited due to the wide variety of customers and markets using our products, as well as their dispersion across many different geographic areas. The majority of our accounts receivable have standard payment terms which generally require payment within 30 to 90 days. We monitor the financial performance and credit worthiness of our large customers so that we can properly assess and respond to changes in their credit profile. We provide reserves against trade receivables for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve. To date, our historical reserves and write-offs of accounts receivable have not been significant.

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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

The credit and economic conditions within Italy, Spain and Portugal, among other members of the E.U. continue to remain uncertain. Uncertain credit and economic conditions have generally led to a lengthening of time to collect our accounts receivable in some of these countries. In Portugal and select regions in Spain and Italy, where our collections have slowed and a significant portion of these receivables are routinely being collected beyond our contractual payment terms and over periods in excess of one year, we have discounted our receivables and reduced related revenues based on the period of time that we estimate those amounts will be paid, to the extent such period exceeds one year, using the country’s market-based borrowing rate for such period. The related receivables are classified at the time of sale as non-current assets. We accrete interest income on these receivables, which is recognized as a component of other income (expense), net within our condensed consolidated statements of income.
Our net accounts receivable balances from product sales in selected European countries are summarized as follows:
 
As of June 30, 2014
(In millions)
Current
Balance Included
within Accounts
Receivable, net
 
Non-Current
Balance Included
within Investments
and Other Assets
 
Total
Spain
$
54.7

 
$
10.0

 
$
64.7

Italy
$
79.3

 
$
1.3

 
$
80.6

Portugal
$
10.7

 
$
12.7

 
$
23.4

 
 
As of December 31, 2013
(In millions)
Current
Balance Included
within Accounts
Receivable, net
 
Non-Current
Balance Included
within Investments
and Other Assets
 
Total
Spain
$
113.3

 
$
6.8

 
$
120.1

Italy
$
76.1

 
$
2.4

 
$
78.5

Portugal
$
10.4

 
$
8.2

 
$
18.6

Approximately $15.5 million and $45.9 million of the total net accounts receivable balances for these countries were overdue more than one year as of June 30, 2014 and December 31, 2013, respectively. During the first quarter of 2014, we received approximately $59.6 million in payments from Spain related to receivables aged greater than one year. During the fourth quarter of 2013, Portugal remitted approximately $10.0 million related to receivables aged greater than two years.
Pricing of TYSABRI in Italy - AIFA
In the fourth quarter of 2011, Biogen Idec Italia SRL, our Italian subsidiary, received a notice from the Italian National Medicines Agency (Agenzia Italiana del Farmaco or AIFA) stating that sales of TYSABRI for the period from mid-February 2009 through mid-February 2011 exceeded by EUR30.7 million a reimbursement limit established pursuant to a Price Determination Resolution (Price Resolution) granted by AIFA in December 2006. In December 2011, based on our interpretation that the Price Resolution by its terms only applied to the first 24 months of TYSABRI sales (which began in mid-February 2007), we filed an appeal against AIFA in administrative court seeking a ruling that the reimbursement limit does not apply to the periods beginning in mid-February 2009 and that the position of AIFA is unenforceable. That appeal is pending. Since being notified in the fourth quarter of 2011 that AIFA believed a reimbursement limit was in effect, we deferred revenue on sales of TYSABRI as if the reimbursement limit were in effect for each biannual period beginning in mid-February 2009.
In July 2013, we negotiated an agreement in principle with AIFA's Price and Reimbursement Committee that would have resolved all of AIFA's claims relating to sales of TYSABRI in excess of the reimbursement limit for the periods from February 2009 through January 2013 for an aggregate repayment of EUR33.3 million. The agreement was sent to the Avvocatura Generale dello Stata (Attorney General) for its opinion. As a result of this agreement in principle, we recorded a liability and reduction to revenue of EUR15.4 million at June 30, 2013. That adjustment approximated 50% of the claim related to the period from February 2009 through January 2011 as the likelihood of making a payment to resolve AIFA's claims for that period was then probable and the amount could be estimated. This agreement in principle was not finalized, and AIFA and Biogen Idec Italia SRL remain in discussions about a resolution relating to the claims at issue in that agreement in principle. We continue to believe that a settlement with AIFA relating to these claims is probable and have retained the EUR15.4 million liability recorded as of June 30, 2013.

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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

In June 2014, AIFA approved a resolution, effective for a 24 month term, setting the price for TYSABRI in Italy. The resolution also eliminated the reimbursement limit from February 2013 going forward. As a result, we recognized $53.5 million of TYSABRI revenues related to the periods beginning February 2013 that were previously deferred. An aggregate amount of $86.9 million remains deferred as of June 30, 2014 related to the periods from mid-February 2011 through January 2013.
3.
Reserves for Discounts and Allowances
An analysis of the change in reserves for discounts and allowances is summarized as follows:
(In millions)
Discounts
 
Contractual
Adjustments
 
Returns
 
Total
Balance, as of December 31, 2013
$
47.0

 
$
335.6

 
$
33.7

 
$
416.3

Current provisions relating to sales in current year
161.2

 
577.3

 
14.7

 
753.2

Adjustments relating to prior years
(0.4
)
 
7.6

 
5.4

 
12.6

Payments/returns relating to sales in current year
(111.5
)
 
(330.3
)
 
(0.1
)
 
(441.9
)
Payments/returns relating to sales in prior years
(44.5
)
 
(200.8
)
 
(20.4
)
 
(265.7
)
Balance, as of June 30, 2014
$
51.8

 
$
389.4

 
$
33.3

 
$
474.5

The total reserves above, included in our condensed consolidated balance sheets, are summarized as follows:
(In millions)
As of June 30,
2014
 
As of December 31,
2013
Reduction of accounts receivable
$
153.4

 
$
151.4

Component of accrued expenses and other
321.1

 
264.9

Total reserves
$
474.5

 
$
416.3

4.
Inventory
The components of inventory are summarized as follows:
(In millions)
As of
June 30,
2014
 
As of
December 31,
2013
Raw materials
$
124.8

 
$
115.0

Work in process
447.4

 
435.4

Finished goods
143.7

 
108.6

Total inventory
$
715.9

 
$
659.0

As of June 30, 2014 our inventory includes $45.5 million associated with our PLEGRIDY and Daclizumab High Yield Process programs, which have been capitalized in advance of regulatory approval. As of December 31, 2013, our inventory included $93.7 million associated with our ALPROLIX, ELOCTATE and PLEGRIDY programs, which were capitalized in advance of regulatory approval.

11
Table of Contents
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

5.
Intangible Assets and Goodwill
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments, are summarized as follows:
 
 
 
As of June 30, 2014
 
As of December 31, 2013
(In millions)
Estimated
Life
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
Out-licensed patents
13-23 years
 
$
543.3

 
$
(465.9
)
 
$
77.4

 
$
578.0

 
$
(450.8
)
 
$
127.2

Developed 
technology
15-23 years
 
3,005.3

 
(2,283.7
)
 
721.6

 
3,005.3

 
(2,165.4
)
 
839.9

In-process research and development
Indefinite until commercialization
 
330.9

 
—

 
330.9

 
327.4

 
—

 
327.4

Trademarks and 
tradenames
Indefinite
 
64.0

 
—

 
64.0

 
64.0

 
—

 
64.0

Acquired and in-licensed rights 
and patents
6-17 years
 
3,271.5

 
(216.0
)
 
3,055.5

 
3,240.0

 
(123.8
)
 
3,116.2

Total intangible assets
 
 
$
7,215.0

 
$
(2,965.6
)
 
$
4,249.4

 
$
7,214.7

 
$
(2,740.0
)
 
$
4,474.7

For the three and six months ended June 30, 2014, amortization of acquired intangible assets totaled $116.8 million and $260.1 million, respectively, as compared to $82.2 million and $133.5 million, respectively, in the prior year comparative periods. For the three and six months ended June 30, 2014, compared to the same periods in 2013, the change in amortization of acquired intangible assets was primarily driven by our acquisition of the TYSABRI rights from Elan Pharma International Ltd. (Elan) and an increase in the amount of amortization recorded in relation to our AVONEX intangible asset.
Out-licensed Patents
Out-licensed patents to third-parties primarily relate to patents acquired in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. During the six months ended June 30, 2014, we recorded a charge of $34.7 million related to the impairment of one of our out-licensed patents to reflect a change in its estimated fair value, due to a change in the underlying competitive market for that product, which occurred during the first quarter of 2014. The charge is included in amortization of acquired intangibles. The fair value of the intangible asset was based on discounted cash flow calculated using Level 3 fair value measurements and inputs including estimated revenues.
Developed Technology
Developed technology primarily relates to our AVONEX product, which was recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. The net book value of this asset as of June 30, 2014 was $711.9 million. We amortize this intangible asset using the economic consumption method based on actual and expected revenues generated from the sales of our AVONEX product.
Acquired and In-licensed Rights and Patents
Acquired and in-licensed rights and patents primarily relate to our acquisition of the TYSABRI rights from Elan. The net intangible asset capitalized related to this acquisition was $3,178.3 million. In the second quarter of 2013, we began amortizing this intangible asset over the estimated useful life using an economic consumption method based on actual and expected revenues generated from the sales of our TYSABRI product. The net book value of this asset as of June 30, 2014 was $2,995.1 million. For a more detailed description of this transaction, please read Note 2, Acquisitions to our consolidated financial statements included within our 2013 Form 10-K.
The increase in acquired and in-licensed rights and patents during the six months ended June 30, 2014 was primarily related to the $20.0 million contingent payment due to the former owners of Syntonix Pharmaceuticals, Inc., which became payable upon the approval of ALPROLIX in the U.S. by the U.S. Food and Drug Administration (FDA) in the first quarter of 2014. We have recorded an additional $7.8 million of acquired in-licensed rights and patents related to this consideration, along with a corresponding deferred tax liability of the same amount.

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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Estimated Future Amortization of Intangible Assets
Our amortization expense is based on the economic consumption of the intangible assets. Our most significant intangible assets are related to our AVONEX and TYSABRI products. Annually, during our long-range planning cycle, we perform an analysis of anticipated lifetime revenues of AVONEX and TYSABRI. This analysis is updated whenever events or changes in circumstances would significantly affect the anticipated lifetime revenues of either product.
Our most recent long range planning cycle was updated in the third quarter of 2013, and included the impact of our acquisition of TYSABRI rights from Elan and a decrease in the expected future product revenues of AVONEX, resulting in an increase in amortization expense as compared to prior quarters. The results of our analysis were impacted by changes in the estimated impact of TECFIDERA, as well as other existing and potential oral and alternative MS formulations, including PLEGRIDY, that may compete with AVONEX and TYSABRI. Based upon this recent analysis, the estimated future amortization for acquired intangible assets for the balance of 2014 and the next five years is expected to be as follows:
(In millions)
As of June 30, 2014
2014 (remaining six months)
$
217.2

2015
333.4

2016
318.8

2017
322.0

2018
323.1

2019
302.9

Total
$
1,817.4

Goodwill
The following table provides a roll forward of the changes in our goodwill balance:
(In millions)
As of
June 30,
2014
 
As of
December 31,
2013
Goodwill, beginning of period
$
1,232.9

 
$
1,201.3

Increase to goodwill
131.9

 
35.7

Other
—

 
(4.1
)
Goodwill, end of period
$
1,364.8

 
$
1,232.9

The increase in goodwill during the six months ended June 30, 2014 was related to the accrual of a $150.0 million contingent payment (exclusive of an $18.1 million tax benefit) to be made to former shareholders of Fumapharm AG and holders of their rights. During the quarter ended June 30, 2014, we reached the $2.0 billion cumulative sales level related to the Fumapharm Products. For additional information related to future contingent payments, please read Note 19, Commitments and Contingencies to these condensed consolidated financial statements.
As of June 30, 2014, we had no accumulated impairment losses related to goodwill.

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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

6.
Fair Value Measurements
The tables below present information about our assets and liabilities that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques we utilized to determine such fair value:
(In millions)
As of
June 30,
2014
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
475.2

 
$
—

 
$
475.2

 
$
—

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
617.2

 
—

 
617.2

 
—

Government securities
948.0

 
—

 
948.0

 
—

Mortgage and other asset backed securities
155.4

 
—

 
155.4

 
—

Marketable equity securities
0.4

 
0.4

 
—

 
—

Venture capital investments
21.1

 
—

 
—

 
21.1

Derivative contracts
2.1

 
—

 
2.1

 
—

Plan assets for deferred compensation
37.0

 
—

 
37.0

 
—

Total
$
2,256.4

 
$
0.4

 
$
2,234.9

 
$
21.1

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
9.1

 
$
—

 
$
9.1

 
$
—

Contingent consideration obligations
279.1

 
—

 
—

 
279.1

Total
$
288.2

 
$
—

 
$
9.1

 
$
279.1

(In millions)
As of
December 31,
2013
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
424.7

 
$
—

 
$
424.7

 
$
—

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
439.8

 
—

 
439.8

 
—

Government securities
674.7

 
—

 
674.7

 
—

Mortgage and other asset backed securities
131.4

 
—

 
131.4

 
—

Marketable equity securities
11.2

 
11.2

 
—

 
—

Venture capital investments
21.9

 
—

 
—

 
21.9

Derivative contracts
3.8

 
—

 
3.8

 
—

Plan assets for deferred compensation
22.7

 
—

 
22.7

 
—

Total
$
1,730.2

 
$
11.2

 
$
1,697.1

 
$
21.9

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
23.5

 
$
—

 
$
23.5

 
$
—

Contingent consideration obligations
280.9

 
—

 
—

 
280.9

Total
$
304.4

 
$
—

 
$
23.5

 
$
280.9

There have been no impairments of our assets measured and carried at fair value during the three and six months ended June 30, 2014. In addition, there were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the three and six months ended June 30, 2014. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities were determined through third party pricing services. For a description of our validation procedures related to prices provided by third party pricing services, refer to Note 1, Summary of Significant Accounting Policies: Fair Value Measurements, to our consolidated financial statements included within our 2013 Form 10-K.

14
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Marketable Equity Securities and Venture Capital Investments
Our marketable equity securities represent investments in publicly traded equity securities. Our venture capital investments, which are all Level 3 measurements, include investments in certain venture capital funds, accounted for at fair value, that primarily invest in small privately-owned, venture-backed biotechnology companies. These venture capital investments represented approximately 0.2% of total assets as of June 30, 2014 and December 31, 2013, respectively.
The following table provides a roll forward of the fair value of our venture capital investments, which includes Level 3 measurements:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2014
 
2013
 
2014
 
2013
Fair value, beginning of period
$
23.6

 
$
18.0

 
$
21.9

 
$
20.3

Unrealized gains included in earnings
2.1

 
6.1

 
5.0

 
6.7

Unrealized losses included in earnings
(0.1
)
 
(0.6
)
 
(1.3
)
 
(2.0
)
Purchases
—

 
—

 
—

 
—

Settlements
(4.5
)
 
—

 
(4.5
)
 
(1.5
)
Fair value, end of period
$
21.1

 
$
23.5

 
$
21.1

 
$
23.5

 Debt Instruments
The fair and carrying values of our debt instruments, which are Level 2 liabilities, are summarized as follows:
 
As of June 30, 2014
 
As of December 31, 2013
(In millions)
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
Notes payable to Fumedica
$
13.8

 
$
12.6

 
$
17.5

 
$
15.8

6.875% Senior Notes due March 1, 2018
645.9

 
576.9

 
647.9

 
580.1

Total
$
659.7

 
$
589.5

 
$
665.4

 
$
595.9

The fair value of our notes payable to Fumedica was estimated using market observable inputs, including current interest and foreign currency exchange rates. The fair value of our 6.875% Senior Notes was determined through market, observable, and corroborated sources. For additional information related to our debt instruments, please read Note 12, Indebtedness to our consolidated financial statements included within our 2013 Form 10-K.
Contingent Consideration Obligations
The following table provides a roll forward of the fair values of our contingent consideration obligations which includes Level 3 measurements:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2014
 
2013
 
2014
 
2013
Fair value, beginning of period
$
275.1

 
$
293.7

 
$
280.9

 
$
293.9

Additions
—

 
—

 
—

 
—

Changes in fair value
4.0

 
(5.2
)
 
3.2

 
(2.9
)
Payments
—

 
(7.5
)
 
(5.0
)
 
(10.0
)
Fair value, end of period
$
279.1

 
$
281.0

 
$
279.1

 
$
281.0

As of June 30, 2014 and December 31, 2013, approximately $243.4 million and $251.9 million, respectively, of the fair value of our total contingent consideration obligations were reflected as components of other long-term liabilities within our condensed consolidated balance sheets with the remaining balances reflected as a component of accrued expenses and other.

15
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

7.
Financial Instruments
Marketable Securities
The following tables summarize our marketable debt and equity securities:
As of June 30, 2014 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Available-for-sale:
 
 
 
 
 
 
 
Corporate debt securities
 
 
 
 
 
 
 
Current
$
125.0

 
$
0.1

 
$
—

 
$
124.9

Non-current
492.2

 
0.6

 
(0.2
)
 
491.8

Government securities
 
 
 
 
 
 
 
Current
584.9

 
0.1

 
(0.1
)
 
584.9

Non-current
363.1

 
0.2

 
—

 
362.9

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current
—

 
—

 
—

 
—

Non-current
155.4

 
0.1

 
(0.1
)
 
155.4

Total marketable debt securities
$
1,720.6

 
$
1.1

 
$
(0.4
)
 
$
1,719.9

Marketable equity securities, non-current
$
0.4

 
$
—

 
$
(0.1
)
 
$
0.5

As of December 31, 2013 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Available-for-sale:
 
 
 
 
 
 
 
Corporate debt securities
 
 
 
 
 
 
 
Current
$
100.7

 
$
—

 
$
—

 
$
100.7

Non-current
339.1

 
0.4

 
(0.1
)
 
338.8

Government securities
 
 
 
 
 
 
 
Current
519.5

 
—

 
—

 
519.5

Non-current
155.2

 
—

 
(0.1
)
 
155.3

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current
—

 
—

 
—

 
—

Non-current
131.4

 
—

 
(0.1
)
 
131.5

Total marketable debt securities
$
1,245.9

 
$
0.4

 
$
(0.3
)
 
$
1,245.8

Marketable equity securities, non-current
$
11.2

 
$
8.7

 
$
—

 
$
2.5

The following table summarizes our financial assets with maturities of less than 90 days from the date of purchase included within cash and cash equivalents on the accompanying condensed consolidated balance sheet:
(In millions)
As of
June 30,
2014
 
As of
December 31,
2013
Commercial paper
$
5.9

 
$
1.2

Overnight reverse repurchase agreements
294.8

 
22.4

Short-term debt securities
174.5

 
401.1

Total
$
475.2

 
$
424.7

The carrying values of our commercial paper, including accrued interest, overnight reverse repurchase agreements, and our short-term debt securities approximate fair value due to their short term maturities.

16
Table of Contents
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Summary of Contractual Maturities: Available-for-Sale Securities
The estimated fair value and amortized cost of our marketable debt securities available-for-sale by contractual maturity are summarized as follows:
 
As of June 30, 2014
 
As of December 31, 2013
(In millions)
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
Due in one year or less
$
709.8

 
$
709.8

 
$
620.2

 
$
620.2

Due after one year through five years
931.0

 
930.3

 
573.1

 
572.9

Due after five years
79.8

 
79.8

 
52.6

 
52.7

Total available-for-sale securities
$
1,720.6

 
$
1,719.9

 
$
1,245.9

 
$
1,245.8

The average maturity of our marketable debt securities available-for-sale as of June 30, 2014 and December 31, 2013 was 13 months, respectively.
Proceeds from Marketable Debt Securities
The proceeds from maturities and sales of marketable debt securities and resulting realized gains and losses are summarized as follows:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2014
 
2013
 
2014
 
2013
Proceeds from maturities and sales
$
560.1

 
$
78.3

 
$
1,317.5

 
$
4,404.7

Realized gains
$
0.2

 
$
—

 
$
0.4

 
$
6.3

Realized losses
$
(0.1
)
 
$
—

 
$
(0.2
)
 
$
(2.0
)
Strategic Investments
As of June 30, 2014 and December 31, 2013, our strategic investment portfolio was comprised of investments totaling $51.1 million and $56.9 million, respectively, which are included in investments and other assets in our accompanying condensed consolidated balance sheets.
Our strategic investment portfolio includes investments in marketable equity securities of certain biotechnology companies and our investments in venture capital funds accounted for at fair value which totaled $21.5 million and $33.1 million as of June 30, 2014 and December 31, 2013, respectively. Our strategic investment portfolio also includes other equity investments in privately-held companies and additional investments in venture capital funds accounted for under the cost method. The carrying value of these investments totaled $29.6 million and $23.8 million as of June 30, 2014 and December 31, 2013, respectively.
Changes in Fair Value
During the three and six months ended June 30, 2014 and 2013, we realized changes in fair value recorded through income of $2.0 million and $4.9 million, respectively, on our strategic investment portfolio as compared to $4.4 million and $4.1 million, respectively, in the prior year comparative periods.
Impairments
For the three and six months ended June 30, 2014 and 2013, impairment charges on our marketable equity securities of certain biotechnology companies, investments in venture capital funds accounted for under the cost method and investments in privately-held companies were insignificant.

17
Table of Contents
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

8.
Derivative Instruments
Foreign Currency Forward Contracts - Hedging Instruments
Due to the global nature of our operations, portions of our revenues are earned in currencies other than the U.S. dollar. The value of revenues measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. In order to mitigate these changes we use foreign currency forward contracts to lock in exchange rates associated with a portion of our forecasted international revenues.
Foreign currency forward contracts in effect as of June 30, 2014 and December 31, 2013 had durations of 1 to 18 months, respectively. 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) (referred to as AOCI in the tables below). Realized gains and losses for the effective portion of such contracts are recognized in revenue when the sale of product in the currency being hedged is recognized. To the extent ineffective, hedge transaction gains and losses are reported in other income (expense), net.
The notional value of foreign currency forward contracts that were entered into to hedge forecasted revenues is summarized as follows:
 
Notional Amount
Foreign Currency: (In millions)
As of
June 30,
2014
 
As of
December 31,
2013
Euro
$
703.4

 
$
636.3

Canadian dollar
19.5

 
34.0

British pound sterling
39.1

 
72.3

Total foreign currency forward contracts
$
762.0

 
$
742.6

The portion of the fair value of these foreign currency forward contracts that was included in accumulated other comprehensive income (loss) within total equity reflected losses of $7.0 million and $23.6 million as of June 30, 2014 and December 31, 2013, respectively. We expect all contracts to be settled over the next 18 months and any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to revenue. We consider the impact of our and our counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its contractual obligations. As of June 30, 2014 and December 31, 2013, respectively, credit risk did not change the fair value of our foreign currency forward contracts.
The following table summarizes the effect of derivatives designated as hedging instruments on our condensed consolidated statements of income:
For the Three Months Ended June 30,
Net Gains/(Losses)
Reclassified from AOCI into Net Income
(Effective Portion)
 
Net Gains/(Losses)
Recognized into Net Income
(Ineffective Portion)
Location
 
2014
 
2013
 
Location
 
2014
 
2013
Revenue
 
$
(5.2
)
 
$
0.1

 
Other income (expense)
 
$
(1.0
)
 
$
0.1

For the Six Months Ended June 30,
Net Gains/(Losses)
Reclassified from AOCI into Net Income
(Effective Portion)
 
Net Gains/(Losses)
Recognized into Net Income
(Ineffective Portion)
Location
 
2014
 
2013
 
Location
 
2014
 
2013
Revenue
 
$
(10.0
)
 
$
1.2

 
Other income (expense)
 
$
(1.2
)
 
$
0.3


18
Table of Contents
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Foreign Currency Forward Contracts - Other Derivatives
We also enter into other foreign currency forward contracts, usually with one month durations, to mitigate the foreign currency risk related to certain balance sheet positions. We have not elected hedge accounting for these transactions.
The aggregate notional amount of these outstanding foreign currency contracts was $440.3 million and $273.3 million as of June 30, 2014 and December 31, 2013, respectively. Net losses of $2.4 million and $3.8 million related to these contracts were recognized as a component of other income (expense), net, for three and six months ended June 30, 2014, respectively, as compared to net gains of $0.6 million and $1.5 million, respectively, in the prior year comparative periods.
Summary of Derivatives
While certain of our derivatives are subject to netting arrangements with our counterparties, we do not offset derivative assets and liabilities within our condensed consolidated balance sheets.
The following table summarizes the fair value and presentation in our condensed consolidated balance sheets for our outstanding derivatives including those designated as hedging instruments:
(In millions)
Balance Sheet Location
Fair Value As of June 30, 2014
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
0.4

 
Investments and other assets
$
0.6

Liability derivatives
Accrued expenses and other
$
7.9

 
Other long-term liabilities
$
0.5

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
1.1

Liability derivatives
Accrued expenses and other
$
0.7

 
 
 
(In millions)
Balance Sheet Location
Fair Value As of December 31, 2013
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
0.6

Liability derivatives
Accrued expenses and other
$
23.4

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
3.2

Liability derivatives
Accrued expenses and other
$
0.1

9.
Indebtedness
Credit Facility
In March 2014, our $750.0 million senior unsecured revolving credit facility expired and was not renewed.
10.
Equity
Total equity as of June 30, 2014 increased $944.4 million compared to December 31, 2013. This increase was primarily driven by net income attributable to Biogen Idec Inc. of $1,194.5 million and an increase in additional paid in capital resulting from our share-based compensation arrangements totaling $82.4 million, partially offset by repurchases of our common stock totaling $336.9 million.
Share Repurchases
In February 2011, our Board of Directors authorized the repurchase of up to 20.0 million shares of common stock. This authorization does not have an expiration date. During the six months ended June 30, 2014, we repurchased approximately 1.2 million shares of common stock at a cost of $336.9 million for the purpose of share stabilization. During the six months ended June 30, 2013, we repurchased approximately 0.3 million shares of common stock at a cost of $41.0 million.

19
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BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Approximately 3.0 million shares of our common stock remain available for repurchase under the 2011 authorization.
Noncontrolling Interests
The following table reconciles equity attributable to noncontrolling interests (NCI):
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2014
 
2013
 
2014
 
2013
Noncontrolling interests, beginning of period
$
4.4

 
$
0.6

 
$
0.6

 
$
2.3

Net income (loss) attributable to noncontrolling interests, net of tax
8.6

 
—

 
8.4

 
—

Fair value of net assets and liabilities acquired and assigned to NCI
—

 
—

 
4.0

 
—

Distribution to noncontrolling interest
(9.1
)
 
—

 
(9.1
)
 
—

Deconsolidation of noncontrolling interest
—

 
—

 
—

 
(1.7
)
Noncontrolling interests, end of period
$
3.9

 
$
0.6

 
$
3.9

 
$
0.6

11.
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss), net of tax by component:
(In millions)
Unrealized Gains (Losses) on Securities Available for Sale
 
Unrealized Gains (Losses) on Foreign Currency Forward Contracts
 
Unfunded Status of Postretirement Benefit Plans
 
Translation Adjustments
 
Total
Balance, as of December 31, 2013
$
5.6

 
$
(23.7
)
 
$
(19.6
)
 
$
10.0

 
$
(27.7
)
Other comprehensive income (loss) before reclassifications
1.4

 
6.5

 
0.6

 
(11.0
)
 
(2.5
)
Amounts reclassified from accumulated other comprehensive income (loss)
(6.6
)
 
10.1

 
—

 
—

 
3.5

Net current period other comprehensive income (loss)
(5.2
)
 
16.6

 
0.6

 
(11.0
)
 
1.1

Balance, as of June 30, 2014
$
0.4

 
$
(7.1
)
 
$
(19.0
)
 
$
(1.0
)
 
$
(26.7
)
(In millions)
Unrealized Gains (Losses) on Securities Available for Sale
 
Unrealized Gains (Losses) on Foreign Currency Forward Contracts
 
Unfunded Status of Postretirement Benefit Plans
 
Translation Adjustments
 
Total
Balance, as of December 31, 2012
$
4.2

 
$
(10.7
)
 
$
(21.7
)
 
$
(27.1
)
 
$
(55.3
)
Other comprehensive income (loss) before reclassifications
7.8

 
10.2

 
2.3

 
(16.4
)
 
3.9

Amounts reclassified from accumulated other comprehensive income (loss)
(2.8
)
 
(0.9
)
 
—

 
—

 
(3.7
)
Net current period other comprehensive income (loss)
5.0

 
9.3

 
2.3

 
(16.4
)
 
0.2

Balance, as of June 30, 2013
$
9.2

 
$
(1.4
)
 
$
(19.4
)
 
$
(43.5
)
 
$
(55.1
)

20
Table of Contents
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

The following table summarizes the amounts reclassified from accumulated other comprehensive income:
(In millions)
Income Statement Location
Amounts Reclassified from Accumulated Other Comprehensive Income
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
2014
 
2013
 
2014
 
2013
Gains (losses) on securities available for sale
Other income (expense)
$
10.1

 
$
—

 
$
10.2

 
$
4.3

 
Income tax benefit (expense)
(3.6
)
 
—

 
(3.6
)
 
(1.5
)
 
 
 
 
 
 
 
 
 
Gains (losses) on foreign currency forward contracts
Revenues
(5.3
)
 
0.1

 
(10.0
)
 
1.2

 
Income tax benefit (expense)
(0.5
)
 
(0.2
)
 
(0.1
)
 
(0.3
)
 
 
 
 
 
 
 
 
 
Total reclassifications, net of tax
 
$
0.7

 
$
(0.1
)
 
$
(3.5
)
 
$
3.7

12.
Earnings per Share
Basic and diluted earnings per share are calculated as follows:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Net income attributable to Biogen Idec Inc.
$
714.5

 
$
490.7

 
$
1,194.5

 
$
917.4

Denominator:
 
 
 
 
 
 
 
Weighted average number of common shares outstanding
236.7

 
237.5

 
236.7

 
237.2

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options and employee stock purchase plan
0.1

 
0.3

 
0.1

 
0.4

Time-vested restricted stock units
0.4

 
0.6

 
0.5

 
0.7

Market stock units
0.2

 
0.3

 
0.3

 
0.3

Dilutive potential common shares
0.7

 
1.2

 
0.9

 
1.4

Shares used in calculating diluted earnings per share
237.4

 
238.7

 
237.6

 
238.5

Amounts excluded from the calculation of net income per diluted share because their effects were anti-dilutive were insignificant.

21
Table of Contents
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

13.
Share-based Payments
Share-based Compensation Expense
The following table summarizes share-based compensation expense included within our condensed consolidated statements of income:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2014
 
2013
 
2014
 
2013
Research and development
$
24.5

 
$
23.7

 
$
53.9

 
$
48.9

Selling, general and administrative
33.6

 
45.4

 
80.8

 
79.7

Subtotal
58.1

 
69.1

 
134.7

 
128.6

Capitalized share-based compensation costs
(2.6
)
 
(2.7
)
 
(5.2
)
 
(5.0
)
Share-based compensation expense included in total cost and expenses
55.5

 
66.4

 
129.5

 
123.6

Income tax effect
(16.5
)
 
(20.3
)
 
(38.8
)
 
(36.9
)
Share-based compensation expense included in net income attributable to Biogen Idec Inc.
$
39.0

 
$
46.1

 
$
90.7

 
$
86.7

The following table summarizes share-based compensation expense associated with each of our share-based compensation programs:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2014
 
2013
 
2014
 
2013
Stock options
$
—

 
$
0.1

 
$
—

 
$
0.4

Market stock units
8.2

 
6.6

 
23.1

 
15.1

Time-vested restricted stock units
29.2

 
24.8

 
58.4

 
51.9

Cash settled performance units
14.0

 
35.8

 
35.4

 
56.2

Performance units
4.0

 
—

 
10.3

 
—

Employee stock purchase plan
2.7

 
1.8

 
7.5

 
5.0

Subtotal
58.1

 
69.1

 
134.7

 
128.6

Capitalized share-based compensation costs
(2.6
)
 
(2.7
)
 
(5.2
)
 
(5.0
)
Share-based compensation expense included in total cost and expenses
$
55.5

 
$
66.4

 
$
129.5

 
$
123.6

Grants Under Share-based Compensation Plans
The following table summarizes our equity grants to employees, officers and directors under our current stock plans:
 
For the Six Months
Ended June 30,
 
2014
 
2013
Market stock units
222,000

 
257,000

Cash settled performance shares
180,000

 
271,000

Performance units
50,000

 
—

Time-vested restricted stock units
418,000

 
680,000

The market stock units (MSUs) granted during the six months ended June 30, 2014 primarily vest in three equal annual increments beginning on the anniversary of the grant date. For these grants, the performance multiplier is derived based on the stock price growth rate between the 30 calendar day average closing stock price on the grant date and the 30 calendar day average closing stock price leading up to and including each of the three vesting dates. These awards may ultimately earn between 0% and 200% of the target number of units granted based on actual stock performance. Any performance multiplier less than 50% results in no shares being earned for that respective tranche.

22
Table of Contents
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

During the first quarter of 2014, we began granting awards for performance-vested restricted stock units (PUs), which can be settled in cash or shares of our common stock at the sole discretion of the Compensation and Management Development Committee of the Board of Directors. PUs awarded to employees vest in three equal annual increments beginning on the anniversary of the grant date. The number of PUs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established at the beginning of the performance period, which ends on December 31st of each year. Participants may ultimately earn between 0% and 200% of the target number of units granted based on the degree of actual performance metric achievement, with no units being earned if the performance multiplier is below 50%. Accordingly, additional PUs may be issued or currently outstanding PUs may be cancelled upon final determination of the number of units earned. Settlement of PUs is based on the 30 calendar day average closing stock price through each vesting date once the actual vested and earned number of units is known.
In addition, for the six months ended June 30, 2014, approximately 112,000 shares were issued under our employee stock purchase plan (ESPP) compared to approximately 160,000 shares issued in the prior year comparative period.
14.
Income Taxes
For the three and six months ended June 30, 2014, our effective tax rate was 27.0% and 26.9% respectively, as compared to 24.4% and 19.6%, respectively, in the prior year comparative periods.
A reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2014
 
2013
 
2014
 
2013
Statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
 
35.0
 %
State taxes
1.1

 
1.9

 
1.1

 
4.4

Taxes on foreign earnings
(8.7
)
 
(7.2
)
 
(8.5
)
 
(8.4
)
Credits and net operating loss utilization
(0.7
)
 
(3.5
)
 
(0.9
)
 
(3.4
)
Purchased intangible assets
1.2

 
1.8

 
1.3

 
1.5

Manufacturing deduction
(1.7
)
 
(2.4
)
 
(1.8
)
 
(11.1
)
Other permanent items
0.4

 
(1.0
)
 
0.4

 
1.8

Other
0.4

 
(0.2
)
 
0.3

 
(0.2
)
Effective tax rate
27.0
 %
 
24.4
 %
 
26.9
 %
 
19.6
 %
For the three and six months ended June 30, 2014, compared to the same periods in 2013, the increase in our income tax rate was primarily the result of a 2013 change in our uncertain tax position related to our U.S. federal manufacturing deduction and our unconsolidated joint business described below, the reinstatement for 2013 of the federal research and development tax credit which is now expired and lower current year expenses eligible for the orphan drug credit, partially offset by a higher percentage of our 2014 income being earned outside the U.S.
The change in the state taxes, manufacturing deduction and other permanent items of the effective tax rate reconciliation for the periods disclosed in the table above is primarily related to changes in the valuation of our federal and state uncertain tax positions in 2013, as discussed below under "Accounting for Uncertainty in Income Taxes".
Accounting for Uncertainty in Income Taxes
We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in the U.S. federal jurisdiction, various U.S. states, and foreign jurisdictions. With few exceptions, including the proposed disallowance we discuss below, we are no longer subject to U.S. federal tax examination for years before 2010 or state, local, or non-U.S. income tax examinations for years before 2004.

23
Table of Contents
BIOGEN IDEC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)

Federal Uncertain Tax Positions
During 2013, we received updated technical guidance from the IRS concerning the calculation of our U.S. federal manufacturing deduction and overall tax classification of our unconsolidated joint business for the current and prior year filings. Based on this guidance we reevaluated the level of our unrecognized benefits related to uncertain tax positions, and recorded a $49.8 million income tax benefit. This benefit was for a previously unrecognized position and related to years 2005 through 2012. We recorded an offsetting expense of $10.3 million for non-income based state taxes, which was recorded in other income (expense) within our condensed consolidated statements of income.
In October 2011, in conjunction with our examination, the IRS proposed a disallowance of approximately $130.0 million in deductions for tax years 2007, 2008 and 2009 related to payments for services provided by our wholly owned Danish subsidiary located in Hillerød, Denmark. We believe that these items represent valid deductible business expenses and are vigorously defending our position. We have initiated a mutual agreement procedure between the IRS and SKAT (the Danish tax authorities) for the years 2001 through 2009, in an attempt to reach agreement on the issue. In addition, we have applied for a bilateral advanced pricing agreement for the years 2010 through 2014 to resolve similar issues for the subsequent years.
It is reasonably possible that we will adjust the value of our uncertain tax positions related to our unconsolidated joint business and certain transfer pricing issues as we receive additional information from various taxing authorities, including reaching settlements with the authorities. In addition, the IRS and other national tax authorities routinely examine our intercompany transfer pricing with respect to intellectual property related transactions and it is possible that they may disagree with one or more positions we have taken with respect to such valuations.
15.
Other Consolidated Financial Statement Detail
Other Income (Expense), Net
Components of other income (expense), net, are summarized as follows:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2014
 
2013
 
2014
 
2013
Interest income
$
2.4

 
$
0.9

 
$
5.1

 
$
5.2

Interest expense
(7.1
)
 
(7.3
)
 
(14.7
)
 
(18.9
)
Impairments of investments
—

 
(1.4
)
 
—

 
(1.7
)
Gain (loss) on investments, net
13.6

 
5.7

 
16.6

 
10.1

Foreign exchange gains (losses), net
(1.4
)
 
(5.3
)
 
(4.7
)
 
(7.9
)
Other, net
(2.6
)
 
(3.0
)
 
(3.0
)
 
(11.7
)
Total other income (expense), net
$
4.9

 
$
(10.4
)
 
$
(0.7
)
 
$
(24.9
)
Accrued Expenses and Other
Accrued expenses and other consists of the following:
(In millions)
As of
June 30,
2014
 
As of
December 31,
2013
Revenue-related rebates
$
321.1

 
$
264.9

Employee compensation and benefits
274.1

 
343.4

Royalties and licensing fees
190.0

 
160.7

Current portion of contingent consideration obligations
185.7

 
29.0

Deferred revenue
145.0