Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016
OR
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-19311
BIOGEN INC.
(Exact name of registrant as specified in its charter)
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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):
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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 October 21, 2016, was 217,574,479 shares.
BIOGEN INC.
FORM 10-Q — Quarterly Report
For the Quarterly Period Ended September 30, 2016
TABLE OF CONTENTS
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Item 1. | Financial Statements (unaudited) | |
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| Certain totals may not sum due to rounding. | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 6. | | |
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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:
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• | 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 selling, general and administrative expenses, amortization of intangible assets, foreign currency exchange risk, estimated fair value of assets and liabilities and impairment assessments; |
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• | expectations, plans and prospects relating to sales, pricing, growth and launch of our marketed and pipeline products; |
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• | the potential impact of increased product competition in the markets in which we compete; |
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• | the proposed spin off of our hemophilia business, including the completion and timing of the spin off and its anticipated benefits, costs and tax treatment; |
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• | the costs and timing of potential clinical trials, filing and approvals, and the potential therapeutic scope of the development and commercialization of our and our collaborators’ pipeline products; |
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• | the drivers for growing our business, including our plans and intent to commit resources relating to research and development programs; |
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• | our manufacturing capacity, use of third-party contract manufacturing organizations and plans and timing relating to the expansion of our manufacturing capabilities, including investments and activities in new manufacturing facilities; |
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• | the expected financial impact of ceasing manufacturing activities and fully or partially vacating our biologics manufacturing facility in Cambridge, MA and warehouse space in Somerville, MA; |
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• | the impact of the continued uncertainty of the credit and economic conditions in certain countries in Europe and our collection of accounts receivable in such countries; |
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• | the potential impact on our results of operations and liquidity of the United Kingdom's (U.K.'s) intent to voluntarily depart from the European Union (E.U.); |
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• | the potential impact of healthcare reform in the United States (U.S.) and measures being taken worldwide designed to reduce healthcare costs to constrain the overall level of government expenditures, including the impact of pricing actions and reduced reimbursement for our products; |
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• | 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, pricing matters, sales and promotional practices, product liability and other matters; |
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• | lease commitments, purchase obligations and the timing and satisfaction of other contractual obligations; |
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• | potential costs and expenses incurred in connection with corporate restructurings and to execute business transformation and optimization initiatives; |
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• | our ability to finance our operations and business initiatives and obtain funding for such activities; and |
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• | the impact of new laws and accounting standards. |
These forward-looking statements involve risks and uncertainties, including those that are described in the “Risk Factors” section of this report, and elsewhere in 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. Except as required by law, we do not undertake any obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.
NOTE REGARDING COMPANY AND PRODUCT REFERENCES
Throughout this report, “Biogen,” the “Company,” “we,” “us” and “our” refer to Biogen 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). References to "ELOCTATE" refer to both ELOCTATE (the trade name for Antihemophilic Factor (Recombinant), Fc Fusion Protein in the U.S., Canada and Japan) and ELOCTA (the trade name for Antihemophilic Factor (Recombinant), Fc Fusion Protein in the E.U.).
NOTE REGARDING TRADEMARKS
ALPROLIX®, AVONEX®, BENEPALI®, ELOCTATE®, FLIXABI®, PLEGRIDY®, RITUXAN®, TECFIDERA® and TYSABRI® are registered trademarks of Biogen. FUMADERMTM and ZINBRYTATM are trademarks of Biogen. ENBREL®, FAMPYRATM, GAZYVA®, HUMIRA®, OCREVUS®, REMICADE® and other trademarks referenced in this report are the property of their respective owners.
PART I FINANCIAL INFORMATION
BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share amounts)
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| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Revenues: | | | | | | | |
Product, net | $ | 2,539.6 |
| | $ | 2,391.7 |
| | $ | 7,315.0 |
| | $ | 6,762.6 |
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Revenues from anti-CD20 therapeutic programs | 317.6 |
| | 337.2 |
| | 996.3 |
| | 1,005.3 |
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Other | 98.6 |
| | 49.0 |
| | 265.5 |
| | 156.6 |
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Total revenues | 2,955.8 |
| | 2,777.9 |
| | 8,576.8 |
| | 7,924.5 |
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Cost and expenses: | | | | | | | |
Cost of sales, excluding amortization of acquired intangible assets | 416.9 |
| | 310.0 |
| | 1,100.2 |
| | 908.6 |
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Research and development | 529.0 |
| | 519.9 |
| | 1,439.4 |
| | 1,471.1 |
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Selling, general and administrative | 462.7 |
| | 477.8 |
| | 1,452.4 |
| | 1,530.1 |
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Amortization of acquired intangible assets | 99.7 |
| | 98.1 |
| | 281.4 |
| | 286.0 |
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Restructuring charges | 11.6 |
| | — |
| | 21.3 |
| | — |
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(Gain) loss on fair value remeasurement of contingent consideration | 5.9 |
| | 0.2 |
| | 18.8 |
| | 5.9 |
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Collaboration profit (loss) sharing | 4.7 |
| | — |
| | (0.9 | ) | | — |
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Total cost and expenses | 1,530.5 |
| | 1,406.0 |
| | 4,312.6 |
| | 4,201.7 |
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Income from operations | 1,425.3 |
| | 1,371.8 |
| | 4,264.2 |
| | 3,722.8 |
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Other income (expense), net | (58.1 | ) | | (15.4 | ) | | (169.4 | ) | | (41.3 | ) |
Income before income tax expense and equity in loss of investee, net of tax | 1,367.2 |
| | 1,356.4 |
| | 4,094.8 |
| | 3,681.5 |
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Income tax expense | 337.0 |
| | 330.1 |
| | 1,047.0 |
| | 904.5 |
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Equity in loss of investee, net of tax | — |
| | 6.8 |
| | — |
| | 12.5 |
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Net income | 1,030.2 |
| | 1,019.5 |
| | 3,047.8 |
| | 2,764.5 |
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Net income (loss) attributable to noncontrolling interests, net of tax | (2.7 | ) | | 53.9 |
| | (5.8 | ) | | 49.1 |
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Net income attributable to Biogen Inc. | $ | 1,032.9 |
| | $ | 965.6 |
| | $ | 3,053.6 |
| | $ | 2,715.4 |
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Net income per share: | | | | | | | |
Basic earnings per share attributable to Biogen Inc. | $ | 4.72 |
| | $ | 4.16 |
| | $ | 13.95 |
| | $ | 11.60 |
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Diluted earnings per share attributable to Biogen Inc. | $ | 4.71 |
| | $ | 4.15 |
| | $ | 13.92 |
| | $ | 11.57 |
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Weighted-average shares used in calculating: | | | | | | | |
Basic earnings per share attributable to Biogen Inc. | 218.9 |
| | 232.2 |
| | 219.0 |
| | 234.1 |
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Diluted earnings per share attributable to Biogen Inc. | 219.4 |
| | 232.6 |
| | 219.4 |
| | 234.7 |
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See accompanying notes to these unaudited condensed consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
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| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Net income attributable to Biogen Inc. | $ | 1,032.9 |
| | $ | 965.6 |
| | $ | 3,053.6 |
| | $ | 2,715.4 |
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Other comprehensive income: | | | | | | | |
Unrealized gains (losses) on securities available for sale, net of tax | (5.4 | ) | | (2.2 | ) | | 1.6 |
| | (1.2 | ) |
Unrealized gains (losses) on cash flow hedges, net of tax | 1.3 |
| | (31.2 | ) | | (17.0 | ) | | (40.1 | ) |
Unrealized gains (losses) on pension benefit obligation | 0.4 |
| | 0.5 |
| | 1.3 |
| | 4.6 |
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Currency translation adjustment | (14.4 | ) | | (23.5 | ) | | (62.8 | ) | | (61.3 | ) |
Total other comprehensive income (loss), net of tax | (18.1 | ) | | (56.4 | ) | | (76.9 | ) | | (97.9 | ) |
Comprehensive income attributable to Biogen Inc. | 1,014.8 |
| | 909.2 |
| | 2,976.7 |
| | 2,617.5 |
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Comprehensive income (loss) attributable to noncontrolling interests, net of tax | (2.6 | ) | | 53.6 |
| | (5.7 | ) | | 49.1 |
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Comprehensive income | $ | 1,012.2 |
| | $ | 962.8 |
| | $ | 2,971.0 |
| | $ | 2,666.6 |
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See accompanying notes to these unaudited condensed consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share amounts)
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| As of September 30, 2016 | | As of December 31, 2015 |
ASSETS |
Current assets: | | | |
Cash and cash equivalents | $ | 2,084.8 |
| | $ | 1,308.0 |
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Marketable securities | 2,231.2 |
| | 2,120.5 |
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Accounts receivable, net | 1,467.8 |
| | 1,227.0 |
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Due from anti-CD20 therapeutic programs | 305.2 |
| | 314.5 |
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Inventory | 1,009.7 |
| | 893.4 |
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Other current assets | 993.1 |
| | 836.9 |
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Total current assets | 8,091.8 |
| | 6,700.3 |
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Marketable securities | 3,096.9 |
| | 2,760.4 |
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Property, plant and equipment, net | 2,387.0 |
| | 2,187.6 |
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Intangible assets, net | 3,869.9 |
| | 4,085.1 |
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Goodwill | 3,419.7 |
| | 2,663.8 |
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Investments and other assets | 1,239.6 |
| | 1,107.6 |
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Total assets | $ | 22,104.9 |
| | $ | 19,504.8 |
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LIABILITIES AND EQUITY |
Current liabilities: | | | |
Current portion of notes payable and other financing arrangements | $ | 4.9 |
| | $ | 4.8 |
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Taxes payable | 208.8 |
| | 208.7 |
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Accounts payable | 274.0 |
| | 267.4 |
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Accrued expenses and other | 2,012.0 |
| | 2,096.8 |
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Total current liabilities | 2,499.7 |
| | 2,577.7 |
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Notes payable and other financing arrangements | 6,529.6 |
| | 6,521.5 |
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Long-term deferred tax liability | 98.7 |
| | 124.9 |
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Other long-term liabilities | 862.1 |
| | 905.8 |
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Total liabilities | 9,990.1 |
| | 10,129.9 |
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Commitments and contingencies |
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Equity: | | | |
Biogen Inc. shareholders’ equity | | | |
Preferred stock, par value $0.001 per share | — |
| | — |
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Common stock, par value $0.0005 per share | 0.1 |
| | 0.1 |
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Additional paid-in capital | — |
| | — |
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Accumulated other comprehensive loss | (300.9 | ) | | (224.0 | ) |
Retained earnings | 15,030.0 |
| | 12,208.4 |
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Treasury stock, at cost | (2,611.7 | ) | | (2,611.7 | ) |
Total Biogen Inc. shareholders’ equity | 12,117.5 |
| | 9,372.8 |
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Noncontrolling interests | (2.7 | ) | | 2.1 |
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Total equity | 12,114.8 |
| | 9,374.9 |
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Total liabilities and equity | $ | 22,104.9 |
| | $ | 19,504.8 |
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See accompanying notes to these unaudited condensed consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
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| For the Nine Months Ended September 30, |
| 2016 | | 2015 |
Cash flows from operating activities: | | | |
Net income | $ | 3,047.8 |
| | $ | 2,764.5 |
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Adjustments to reconcile net income to net cash flows from operating activities: | | | |
Depreciation and amortization | 505.3 |
| | 444.1 |
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Share-based compensation | 117.8 |
| | 131.5 |
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Deferred income taxes | (56.8 | ) | | (185.8 | ) |
Other | 33.4 |
| | 31.6 |
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Changes in operating assets and liabilities, net: | | | |
Accounts receivable | (238.1 | ) | | (63.6 | ) |
Inventory | (155.1 | ) | | (150.4 | ) |
Accrued expenses and other current liabilities | (223.2 | ) | | (174.5 | ) |
Changes in other tax assets and liabilities, net | (147.4 | ) | | (1.2 | ) |
Other changes in operating assets and liabilities, net | 62.1 |
| | (120.5 | ) |
Net cash flows provided by operating activities | 2,945.8 |
| | 2,675.7 |
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Cash flows from investing activities: | | | |
Proceeds from sales and maturities of marketable securities | 5,185.8 |
| | 3,363.4 |
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Purchases of marketable securities | (5,631.7 | ) | | (4,870.1 | ) |
Contingent consideration related to Fumapharm AG acquisition | (900.0 | ) | | (550.0 | ) |
Purchases of property, plant and equipment | (434.0 | ) | | (456.9 | ) |
Acquisitions of intangible assets | (110.4 | ) | | (6.3 | ) |
Acquisitions of business, net of cash acquired | — |
| | (198.8 | ) |
Other | (12.8 | ) | | (27.4 | ) |
Net cash flows used in investing activities | (1,903.1 | ) | | (2,746.1 | ) |
Cash flows from financing activities: | | | |
Purchase of treasury stock | (348.9 | ) | | (2,998.2 | ) |
Proceeds from issuance of stock for share-based compensation arrangements | 35.2 |
| | 45.5 |
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Proceeds from borrowings | — |
| | 5,930.9 |
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Repayment of borrowings | (2.7 | ) | | (2.1 | ) |
Excess tax benefit from share-based awards | 11.9 |
| | 70.8 |
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Other | 37.9 |
| | (62.1 | ) |
Net cash flows (used in) provided by financing activities | (266.6 | ) | | 2,984.8 |
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Net increase in cash and cash equivalents | 776.1 |
| | 2,914.4 |
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Effect of exchange rate changes on cash and cash equivalents | 0.7 |
| | (30.3 | ) |
Cash and cash equivalents, beginning of the period | 1,308.0 |
| | 1,204.9 |
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Cash and cash equivalents, end of the period | $ | 2,084.8 |
| | $ | 4,089.0 |
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See accompanying notes to these unaudited condensed consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
Business Overview
Biogen is a global biopharmaceutical company focused on discovering, developing, manufacturing and delivering therapies to patients for the treatment of neurological diseases, autoimmune disorders and rare diseases.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, ZINBRYTA and FAMPYRA for multiple sclerosis (MS), ELOCTATE for hemophilia A and ALPROLIX for hemophilia B and FUMADERM for the treatment of severe plaque psoriasis. We also have a collaboration agreement with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group, which entitles us to certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions, GAZYVA indicated for the treatment of CLL and follicular lymphoma.
In addition to our innovative drug development efforts, we aim to leverage our manufacturing and commercial capabilities and scientific expertise through Samsung Bioepis, our joint venture with Samsung BioLogics Co. Ltd. (Samsung Biologics) that develops, manufactures and markets biosimilars as well as through other strategic contract manufacturing partners. Under our commercial agreement with Samsung Bioepis, we market and sell BENEPALI, an etanercept biosimilar referencing ENBREL, and FLIXABI, an infliximab biosimilar referencing REMICADE, in the E.U.
In May 2016, we announced our intention to spin off our hemophilia business as an independent, publicly traded company. The company, named Bioverativ Inc. (Bioverativ), will focus on the discovery, development and commercialization of therapies for the treatment of hemophilia and other blood disorders, including our existing marketed products ELOCTATE and ALPROLIX. The transaction is expected to be completed in early 2017, subject to the satisfaction of certain conditions, including, among others, final approval of our Board of Directors, receipt of a favorable opinion with respect to the tax-free nature of the transaction and the effectiveness of a Form 10 registration statement filed with the Securities and Exchange Commission. The results of Bioverativ will be included in our condensed consolidated financial statements until the transaction is completed.
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, 2015 (2015 Form 10-K). Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2015 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 nine months ended September 30, 2016, are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
We operate as one operating segment, which is discovering, developing, manufacturing and delivering therapies to patients for the treatment of neurological diseases, autoimmune disorders and rare diseases.
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.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
In determining whether we are the primary beneficiary of an entity, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. These considerations impact the way we account for our existing collaborative 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 ongoing basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions.
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 we adopt as of the specified effective date. Unless otherwise discussed, we do not believe that the impact of recently issued standards that are not yet effective will have a material impact on our financial position or results of operations upon adoption.
In May 2014, the FASB issued Accounting Standards Update (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. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies certain aspects of identifying performance obligations and licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on collectibility, non-cash consideration and the presentation of sales and other similar taxes collected from customers. These standards have the same effective date and transition date of January 1, 2018. We are currently evaluating the method of adoption and the potential impact that these standards may have on our financial position and results of operations.
During 2015, the FASB issued the following new standards, which we adopted on January 1, 2016:
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• | ASU No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. |
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• | ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. |
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• | ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. |
The adoption of these standards did not have an impact on our financial position or results of operations. For additional information related to these standards, please read Note 1, Summary of Significant Accounting Policies: New Accounting Pronouncements to our consolidated financial statements included in our 2015 Form 10-K.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new standard amends certain aspects of accounting and disclosure requirements of financial instruments, including the requirement that equity investments with readily determinable fair values be measured at fair value with changes in fair value recognized in our results of operations. The new standard does not apply to investments accounted for under the equity method of accounting or those that result in consolidation of the investee. Equity investments that do not have readily determinable fair values may be measured at fair value or at cost minus impairment adjusted for changes in observable prices. A financial liability that is measured at fair value in accordance with the fair value option is required to be presented separately in other comprehensive income for the portion of the total change in the fair value resulting from change in the instrument-specific credit risk. In addition, a valuation allowance should be evaluated on deferred tax assets related to available-for-sale debt securities in combination with other deferred tax assets. The new standard will be effective for us on January 1, 2018. The adoption of this standard is not expected to have a material impact on our financial position or results of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for us on January 1, 2019. The adoption of this standard is not expected to have a material impact on our net financial position, but will impact the amount of our assets and liabilities. We are currently evaluating the potential impact that this standard may have on our results of operations.
In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The new standard simplifies the embedded derivative analysis for debt instruments containing contingent call or put options by removing the requirement to assess whether a contingent event is related to interest rates or credit risks. The new standard will be effective for us on January 1, 2017. The adoption of this standard is not expected to have an impact on our financial position or results of operations.
In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The new standard eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an adjustment must be made to the investment, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The new standard will be effective for us on January 1, 2017. The adoption of this standard is not expected to have a material impact on our financial position or results of operations.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard requires recognition of the income tax effects of vested or settled awards in the income statement and involves several other aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The new standard will be effective for us on January 1, 2017. The adoption of this standard is not expected to have a material impact on our financial position, results of operations or statements of cash flows upon adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holding financial assets and net investment in leases that are not accounted for at fair value through net income to be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The new standard will be effective for us on January 1, 2020. The adoption of this standard is not expected to have a material impact on our financial position or results of operations.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new standard clarifies certain aspects of the statement of cash flows, including the classification of debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees and beneficial interests in securitization transactions. The new standard also clarifies that an entity should determine each separately identifiable source or use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows. In situations in which cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. The new standard will be effective for us on January 1, 2018. The adoption of this standard is not expected to have a material impact on our statements of cash flows upon adoption.
2. Restructuring, Business Transformation and Other Cost Saving Initiatives
2015 Cost Saving Initiatives
2015 Restructuring Charges
On October 21, 2015, we announced a corporate restructuring, which included the termination of certain pipeline programs and an 11% reduction in workforce. Under this restructuring, cash payments were estimated to total approximately $120 million, of which $15.9 million were related to previously accrued 2015 incentive compensation, resulting in expected net restructuring charges totaling approximately $105 million. These amounts are expected to be substantially paid by the end of 2016.
For the three months ended September 30, 2016, we recognized an adjustment to our previous estimates, which resulted in a negative restructuring charge of $1.6 million. For the nine months ended September 30, 2016, we recognized total net restructuring charges of $8.1 million. We previously recognized $93.4 million of restructuring charges in our consolidated statements of income during the fourth quarter of 2015. Our restructuring reserve is included in accrued expenses and other in our condensed consolidated balance sheets.
The following table summarizes the charges and spending related to our 2015 restructuring efforts during the nine months ended September 30, 2016:
|
| | | | | | | | | | | |
(In millions) | Workforce Reduction | | Pipeline Programs | | Total |
Restructuring reserve as of December 31, 2015 | $ | 33.7 |
| | $ | 3.6 |
| | $ | 37.3 |
|
Expense | 4.9 |
| | 5.4 |
| | 10.3 |
|
Payments | (29.6 | ) | | (7.5 | ) | | (37.1 | ) |
Adjustments to previous estimates, net | (5.1 | ) | | 2.9 |
| | (2.2 | ) |
Restructuring reserve as of September 30, 2016 | $ | 3.9 |
| | $ | 4.4 |
| | $ | 8.3 |
|
2016 Organizational Changes and Cost Saving Initiatives
2016 Restructuring Charges
During the third quarter of 2016, we initiated additional cost saving measures which are primarily intended to realign our organizational structure in anticipation of the changes in roles and workforce resulting from our decision to spin off our hemophilia business, and to achieve further targeted cost reductions. For the three and nine months ended September 30, 2016, we recognized charges totaling $13.2 million related to this effort, which are in addition to, and separate from, the 2015 corporate restructuring described above. These charges are reflected in restructuring charges in our condensed consolidated statements of income.
Under this initiative, we expect to incur restructuring charges totaling approximately $20.0 million. These amounts are primarily related to severance and are expected to be substantially incurred and paid by the end of 2016.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
Cambridge, MA Manufacturing Facility
In June 2016, following an evaluation of our current and future manufacturing capabilities and capacity needs, we determined that we intend to vacate and cease manufacturing in our 67,000 square foot small-scale biologics manufacturing facility in Cambridge, MA and also vacate our 46,000 square foot warehouse space in Somerville, MA by the end of 2016.
We are currently considering alternatives for the facility, which may include a sale of our rights to, lease of, or other form of disposition of, the facility and related assets. In the event we are unsuccessful with a sale, lease or other disposition, we will cease manufacturing by December 31, 2016. As of September 30, 2016, the carrying value of associated assets totaled approximately $29.0 million. An impairment assessment was performed related to the assets, which resulted in no impairments. Our remaining lease obligation related to these facilities totaled $25.5 million.
Our anticipated departure from these facilities has shortened the expected useful lives of certain leasehold improvements and other assets at these facilities. As a result, we recorded additional depreciation expense to reflect the assets' new shorter useful lives. During the three and nine months ended September 30, 2016, we recognized approximately $15.7 million and $31.5 million, respectively, of this additional depreciation, which was recorded as cost of sales in our condensed consolidated statements of income.
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, 2015 | $ | 56.1 |
| | $ | 548.7 |
| | $ | 57.9 |
| | $ | 662.7 |
|
Current provisions relating to sales in current year | 385.1 |
| | 1,535.5 |
| | 23.4 |
| | 1,944.0 |
|
Adjustments relating to prior years | (2.4 | ) | | (11.0 | ) | | (13.4 | ) | | (26.8 | ) |
Payments/credits relating to sales in current year | (334.5 | ) | | (1,129.6 | ) | | (2.3 | ) | | (1,466.4 | ) |
Payments/credits relating to sales in prior years | (48.4 | ) | | (510.6 | ) | | (16.1 | ) | | (575.1 | ) |
Balance, as of September 30, 2016 | $ | 55.9 |
| | $ | 433.0 |
| | $ | 49.5 |
| | $ | 538.4 |
|
The total reserves above, included in our condensed consolidated balance sheets, are summarized as follows:
|
| | | | | | | |
(In millions) | As of September 30, 2016 | | As of December 31, 2015 |
Reduction of accounts receivable | $ | 155.4 |
| | $ | 144.6 |
|
Component of accrued expenses and other | 383.0 |
| | 518.1 |
|
Total reserves | $ | 538.4 |
| | $ | 662.7 |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
4. Inventory
The components of inventory are summarized as follows:
|
| | | | | | | |
(In millions) | As of September 30, 2016 | | As of December 31, 2015 |
Raw materials | $ | 166.4 |
| | $ | 213.0 |
|
Work in process | 712.0 |
| | 577.6 |
|
Finished goods | 171.1 |
| | 143.0 |
|
Total inventory | $ | 1,049.5 |
| | $ | 933.6 |
|
| | | |
Balance Sheet Classification: | | | |
Inventory | $ | 1,009.7 |
| | $ | 893.4 |
|
Investments and other assets | 39.8 |
| | 40.2 |
|
Total inventory | $ | 1,049.5 |
| | $ | 933.6 |
|
Inventory included in investments and other assets in our condensed consolidated balance sheets primarily consisted of work in process.
As of December 31, 2015, our inventory included $24.7 million associated with our ZINBRYTA program, $24.2 million associated with the FLIXABI program and $18.4 million associated with the BENEPALI program, which had been capitalized in advance of regulatory approval. The European Commission (EC) approved the marketing authorization applications for BENEPALI and FLIXABI, two anti-tumor necrosis factor (TNF) biosimilars, for marketing in the E.U. in January 2016 and May 2016, respectively. In addition, the U.S. Food and Drug Administration (FDA) approved ZINBRYTA for the treatment of relapsing forms of MS in the U.S. in May 2016, and the EC approved ZINBRYTA for the treatment of relapsing forms of MS in the E.U. in July 2016.
5. Intangible Assets and Goodwill
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments, are summarized as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of September 30, 2016 | | As of December 31, 2015 |
(In millions) | Estimated Life | | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net |
Out-licensed patents | 13-23 years | | $ | 543.3 |
| | $ | (519.4 | ) | | $ | 23.9 |
| | $ | 543.3 |
| | $ | (506.0 | ) | | $ | 37.3 |
|
Developed technology | 15-23 years | | 3,005.3 |
| | (2,619.8 | ) | | 385.5 |
| | 3,005.3 |
| | (2,552.9 | ) | | 452.4 |
|
In-process research and development | Indefinite until commercialization | | 679.7 |
| | — |
| | 679.7 |
| | 730.5 |
| | — |
| | 730.5 |
|
Trademarks and tradenames | Indefinite | | 64.0 |
| | — |
| | 64.0 |
| | 64.0 |
| | — |
| | 64.0 |
|
Acquired and in-licensed rights and patents | 6-18 years | | 3,420.2 |
| | (703.4 | ) | | 2,716.8 |
| | 3,303.2 |
| | (502.3 | ) | | 2,800.9 |
|
Total intangible assets | | | $ | 7,712.5 |
| | $ | (3,842.6 | ) | | $ | 3,869.9 |
| | $ | 7,646.3 |
| | $ | (3,561.2 | ) | | $ | 4,085.1 |
|
For the three and nine months ended September 30, 2016, amortization of acquired intangible assets totaled $99.7 million and $281.4 million, respectively, as compared to $98.1 million and $286.0 million, respectively, in the prior year comparative periods. In-process research and development balances include adjustments related to foreign exchange rate fluctuations.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
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 September 30, 2016 was $377.8 million.
Acquired and In-licensed Rights and Patents
Acquired and in-licensed rights and patents primarily relate to our acquisition of all remaining rights to TYSABRI from Elan Corporation plc (Elan). The net book value of this asset as of September 30, 2016 was $2,559.9 million.
The increase in acquired and in-licensed rights and patents during the nine months ended September 30, 2016, primarily reflects:
| |
• | $50.0 million in total milestone payments due to Samsung Bioepis, which became payable upon the approval of BENEPALI and FLIXABI in the E.U. in January 2016 and May 2016, respectively; |
| |
• | $32.0 million in total milestone payments due to AbbVie, Inc. (AbbVie), which became payable upon the regulatory approval of ZINBRYTA in the U.S. in May 2016 and the E.U. in July 2016; and |
| |
• | $26.5 million upon the approval of ALPROLIX in the E.U. in May 2016, which is comprised of a $20.0 million contingent payment due to the former owners of Syntonix Pharmaceuticals, Inc. (Syntonix) and $6.5 million related to the establishment of a corresponding deferred tax liability. |
For additional information on our relationship with Samsung Bioepis and AbbVie, please read Note 17, Collaborative and Other Relationships to these condensed consolidated financial statements. For additional information on our obligation to the former shareholders of Syntonix, please read Note 21, Commitments and Contingencies to our consolidated financial statements included in our 2015 Form 10-K.
Estimated Future Amortization of Intangible Assets
Our amortization expense is based on the economic consumption of 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 also 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 completed in the third quarter of 2016. Based upon this analysis, the estimated future amortization of acquired intangible assets for the next five years is expected to be as follows:
|
| | | |
(In millions) | As of September 30, 2016 |
2016 (remaining three months) | $ | 92.8 |
|
2017 | 347.8 |
|
2018 | 321.4 |
|
2019 | 301.9 |
|
2020 | 265.6 |
|
2021 | 247.7 |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
Goodwill
The following table provides a roll forward of the changes in our goodwill balance:
|
| | | |
(In millions) | As of September 30, 2016 |
Goodwill, beginning of period | $ | 2,663.8 |
|
Increase to goodwill | 771.3 |
|
Other | (15.4 | ) |
Goodwill, end of period | $ | 3,419.7 |
|
The increase in goodwill during the nine months ended September 30, 2016 was related to $900.0 million in contingent milestones achieved (exclusive of $128.7 million in tax benefits) and payable to the former shareholders of Fumapharm AG or holders of their rights. Other includes changes in foreign exchange rates. For additional information related to future contingent payments to the former shareholders of Fumapharm AG or holders of their rights, please read Note 19, Commitments and Contingencies to these condensed consolidated financial statements.
As of September 30, 2016, we had no accumulated impairment losses related to goodwill.
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:
|
| | | | | | | | | | | | | | | |
As of September 30, 2016 (In millions) | Total | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Cash equivalents | $ | 1,736.4 |
| | $ | — |
| | $ | 1,736.4 |
| | $ | — |
|
Marketable debt securities: | | | | | | | |
Corporate debt securities | 2,632.1 |
| | — |
| | 2,632.1 |
| | — |
|
Government securities | 2,038.2 |
| | — |
| | 2,038.2 |
| | — |
|
Mortgage and other asset backed securities | 657.8 |
| | — |
| | 657.8 |
| | — |
|
Marketable equity securities | 29.0 |
| | 29.0 |
| | — |
| | — |
|
Derivative contracts | 20.3 |
| | — |
| | 20.3 |
| | — |
|
Plan assets for deferred compensation | 34.1 |
| | — |
| | 34.1 |
| | — |
|
Total | $ | 7,147.9 |
| | $ | 29.0 |
| | $ | 7,118.9 |
| | $ | — |
|
Liabilities: | | | | | | | |
Derivative contracts | $ | 14.0 |
| | $ | — |
| | $ | 14.0 |
| | $ | — |
|
Contingent consideration obligations | 521.6 |
| | — |
| | — |
| | 521.6 |
|
Total | $ | 535.6 |
| | $ | — |
| | $ | 14.0 |
| | $ | 521.6 |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
|
| | | | | | | | | | | | | | | |
As of December 31, 2015 (In millions) | Total | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Cash equivalents | $ | 909.5 |
| | $ | — |
| | $ | 909.5 |
| | $ | — |
|
Marketable debt securities: | | | | | | | |
Corporate debt securities | 1,510.9 |
| | — |
| | 1,510.9 |
| | — |
|
Government securities | 2,875.9 |
| | — |
| | 2,875.9 |
| | — |
|
Mortgage and other asset backed securities | 494.1 |
| | — |
| | 494.1 |
| | — |
|
Marketable equity securities | 37.5 |
| | 37.5 |
| | — |
| | — |
|
Derivative contracts | 27.2 |
| | — |
| | 27.2 |
| | — |
|
Plan assets for deferred compensation | 40.1 |
| | — |
| | 40.1 |
| | — |
|
Total | $ | 5,895.2 |
| | $ | 37.5 |
| | $ | 5,857.7 |
| | $ | — |
|
Liabilities: | | | | | | | |
Derivative contracts | $ | 14.7 |
| | $ | — |
| | $ | 14.7 |
| | $ | — |
|
Contingent consideration obligations | 506.0 |
| | — |
| | — |
| | 506.0 |
|
Total | $ | 520.7 |
| | $ | — |
| | $ | 14.7 |
| | $ | 506.0 |
|
There have been no material impairments of our assets measured and carried at fair value during the three and nine months ended September 30, 2016. In addition, there were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the three and nine months ended September 30, 2016. The fair values 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 in our 2015 Form 10-K.
Debt Instruments
The fair and carrying values of our debt instruments, which are Level 2 liabilities, are summarized as follows:
|
| | | | | | | | | | | | | | | |
| As of September 30, 2016 | | As of December 31, 2015 |
(In millions) | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Notes payable to Fumedica | $ | 6.5 |
| | $ | 6.3 |
| | $ | 9.4 |
| | $ | 9.0 |
|
6.875% Senior Notes due March 1, 2018 | 591.9 |
| | 560.2 |
| | 602.6 |
| | 565.3 |
|
2.900% Senior Notes due September 15, 2020 | 1,558.1 |
| | 1,500.6 |
| | 1,497.5 |
| | 1,485.5 |
|
3.625% Senior Notes due September 15, 2022 | 1,070.8 |
| | 993.0 |
| | 1,014.2 |
| | 992.2 |
|
4.050% Senior Notes due September 15, 2025 | 1,908.3 |
| | 1,734.5 |
| | 1,764.6 |
| | 1,733.4 |
|
5.200% Senior Notes due September 15, 2045 | 2,070.5 |
| | 1,721.4 |
| | 1,757.6 |
| | 1,721.1 |
|
Total | $ | 7,206.1 |
| | $ | 6,516.0 |
| | $ | 6,645.9 |
| | $ | 6,506.5 |
|
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 values of each of our series of Senior Notes were determined through market, observable and corroborated sources. For additional information related to our debt instruments, please read Note 11, Indebtedness to our consolidated financial statements included in our 2015 Form 10-K.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
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 September 30, | | For the Nine Months Ended September 30, |
(In millions) | 2016 | | 2015 | | 2016 | | 2015 |
Fair value, beginning of period | $ | 515.7 |
| | $ | 495.7 |
| | $ | 506.0 |
| | $ | 215.5 |
|
Additions | — |
| | — |
| | — |
| | 274.5 |
|
Changes in fair value | 5.9 |
| | 0.2 |
| | 18.8 |
| | 5.9 |
|
Payments | — |
| | (14.5 | ) | | (3.2 | ) | | (14.5 | ) |
Fair value, end of period | $ | 521.6 |
| | $ | 481.4 |
| | $ | 521.6 |
| | $ | 481.4 |
|
As of September 30, 2016 and December 31, 2015, approximately $251.1 million and $301.3 million, respectively, of our contingent consideration obligations valued using Level 3 measurements were reflected as components of other long-term liabilities in our condensed consolidated balance sheets with the remaining balances reflected as a component of accrued expenses and other.
7. Financial Instruments
The following table summarizes our financial assets with maturities of less than 90 days from the date of purchase included in cash and cash equivalents on the accompanying condensed consolidated balance sheet:
|
| | | | | | | |
(In millions) | As of September 30, 2016 | | As of December 31, 2015 |
Commercial paper | $ | 84.2 |
| | $ | 21.9 |
|
Overnight reverse repurchase agreements | 42.1 |
| | 134.7 |
|
Money market funds | 1,600.1 |
| | 673.8 |
|
Short-term debt securities | 10.0 |
| | 79.1 |
|
Total | $ | 1,736.4 |
| | $ | 909.5 |
|
The carrying values of our commercial paper, including accrued interest, overnight reverse repurchase agreements, money market funds and our short-term debt securities approximate fair value due to their short-term maturities. Our overnight reverse repurchase agreements are collateralized with agency-guaranteed mortgage-backed securities and represent approximately 0.2% and 0.7% of total assets as of September 30, 2016 and December 31, 2015, respectively.
The following tables summarize our marketable debt and equity securities, classified as available-for-sale:
|
| | | | | | | | | | | | | | | |
As of September 30, 2016 (In millions) | Fair Value | | Gross Unrealized Gains | | Gross Unrealized Losses | | Amortized Cost |
Corporate debt securities | | | | | | | |
Current | $ | 1,293.2 |
| | $ | 0.2 |
| | $ | (0.3 | ) | | $ | 1,293.3 |
|
Non-current | 1,338.9 |
| | 4.5 |
| | (0.7 | ) | | 1,335.1 |
|
Government securities | | | | | | | |
Current | 938.0 |
| | 0.6 |
| | (0.1 | ) | | 937.5 |
|
Non-current | 1,100.2 |
| | 1.6 |
| | (0.5 | ) | | 1,099.1 |
|
Mortgage and other asset backed securities | | | | | | | |
Current | — |
| | — |
| | — |
| | — |
|
Non-current | 657.8 |
| | 1.3 |
| | (0.8 | ) | | 657.3 |
|
Total marketable debt securities | $ | 5,328.1 |
| | $ | 8.2 |
| | $ | (2.4 | ) | | $ | 5,322.3 |
|
Marketable equity securities, non-current | $ | 29.0 |
| | $ | 3.8 |
| | $ | (8.3 | ) | | $ | 33.5 |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
|
| | | | | | | | | | | | | | | |
As of December 31, 2015 (In millions) | Fair Value | | Gross Unrealized Gains | | Gross Unrealized Losses | | Amortized Cost |
Corporate debt securities | | | | | | | |
Current | $ | 394.3 |
| | $ | — |
| | $ | (0.5 | ) | | $ | 394.8 |
|
Non-current | 1,116.6 |
| | 0.1 |
| | (4.1 | ) | | 1,120.6 |
|
Government securities | | | | | | | |
Current | 1,723.4 |
| | 0.1 |
| | (1.1 | ) | | 1,724.4 |
|
Non-current | 1,152.5 |
| | — |
| | (3.1 | ) | | 1,155.6 |
|
Mortgage and other asset backed securities | | | | | | | |
Current | 2.8 |
| | — |
| | — |
| | 2.8 |
|
Non-current | 491.3 |
| | 0.1 |
| | (1.8 | ) | | 493.0 |
|
Total marketable debt securities | $ | 4,880.9 |
| | $ | 0.3 |
| | $ | (10.6 | ) | | $ | 4,891.2 |
|
Marketable equity securities, non-current | $ | 37.5 |
| | $ | 9.2 |
| | $ | — |
| | $ | 28.3 |
|
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 September 30, 2016 | | As of December 31, 2015 |
(In millions) | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value | | Amortized Cost |
Due in one year or less | $ | 2,231.2 |
| | $ | 2,230.8 |
| | $ | 2,120.5 |
| | $ | 2,122.0 |
|
Due after one year through five years | 2,815.5 |
| | 2,810.2 |
| | 2,575.9 |
| | 2,583.9 |
|
Due after five years | 281.4 |
| | 281.3 |
| | 184.5 |
| | 185.3 |
|
Total available-for-sale securities | $ | 5,328.1 |
| | $ | 5,322.3 |
| | $ | 4,880.9 |
| | $ | 4,891.2 |
|
The average maturity of our marketable debt securities available-for-sale as of September 30, 2016 and December 31, 2015 was approximately 14 months and 16 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 September 30, | | For the Nine Months Ended September 30, |
(In millions) | 2016 | | 2015 | | 2016 | | 2015 |
Proceeds from maturities and sales | $ | 2,362.2 |
| | $ | 2,387.9 |
| | $ | 5,185.8 |
| | $ | 3,363.4 |
|
Realized gains | $ | 1.1 |
| | $ | 0.7 |
| | $ | 2.1 |
| | $ | 1.3 |
|
Realized losses | $ | (1.1 | ) | | $ | (2.0 | ) | | $ | (2.7 | ) | | $ | (2.9 | ) |
Strategic Investments
As of September 30, 2016 and December 31, 2015, our strategic investment portfolio was comprised of investments totaling $94.8 million and $96.0 million, respectively, which are included in investments and other assets in our condensed consolidated balance sheets. Our strategic investment portfolio includes investments in equity securities of certain biotechnology companies and investments in venture capital funds where the underlying investments are in equity securities of biotechnology companies.
BIOGEN 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 and operating expenses are recorded in currencies other than the U.S. dollar. The value of revenues and operating expenses 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 and operating expenses.
Foreign currency forward contracts in effect as of September 30, 2016 and December 31, 2015 had durations of 1 to 15 months and 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 and, beginning in the fourth quarter 2015, in operating expenses when the expense in the currency being hedged is recorded. 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 and operating expenses is summarized as follows:
|
| | | | | | | |
| Notional Amount |
Foreign Currency: (In millions) | As of September 30, 2016 | | As of December 31, 2015 |
Euro | $ | 980.6 |
| | $ | 945.5 |
|
Swiss francs | 23.9 |
| | 80.8 |
|
Canadian dollar | 20.3 |
| | 76.7 |
|
Total foreign currency forward contracts | $ | 1,024.8 |
| | $ | 1,103.0 |
|
The portion of the fair value of these foreign currency forward contracts that was included in accumulated other comprehensive income (loss) in total equity reflected net losses of $15.0 million and net gains of $1.8 million as of September 30, 2016 and December 31, 2015, respectively. We expect all contracts outstanding as of September 30, 2016 to be settled over the next 15 months and any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to revenue or operating expense. 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 September 30, 2016 and December 31, 2015, credit risk did not change the fair value of our foreign currency forward contracts.
The following tables summarize the effect of foreign currency forward contracts designated as hedging instruments on our condensed consolidated statements of income:
|
| | | | | | | | | | | | | | | | | | |
For the Three Months Ended September 30, |
Net Gains/(Losses) Reclassified from AOCI into Operating Income (Effective Portion) | | Net Gains/(Losses) Recognized into Net Income (Ineffective Portion) |
Location | | 2016 | | 2015 | | Location | | 2016 | | 2015 |
Revenue | | $ | (5.2 | ) | | $ | 43.9 |
| | Other income (expense) | | $ | (0.6 | ) | | $ | 2.0 |
|
Operating expenses | | $ | (0.2 | ) | | $ | — |
| | Other income (expense) | | $ | — |
| | $ | — |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
|
| | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, |
Net Gains/(Losses) Reclassified from AOCI into Operating Income (Effective Portion) | | Net Gains/(Losses) Recognized into Net Income (Ineffective Portion) |
Location | | 2016 | | 2015 | | Location | | 2016 | | 2015 |
Revenue | | $ | (0.7 | ) | | $ | 119.3 |
| | Other income (expense) | | $ | 3.4 |
| | $ | 5.4 |
|
Operating expenses | | $ | (0.4 | ) | | $ | — |
| | Other income (expense) | | $ | (0.3 | ) | | $ | — |
|
Interest Rate Contracts - Hedging Instruments
We have entered into interest rate swap contracts on certain borrowing transactions to manage our exposure to interest rate changes.
In connection with the issuance of our 2.90% Senior Notes, we entered into interest rate swaps with an aggregate notional amount of $675.0 million, which expire on September 15, 2020. The interest rate swap contracts are designated as hedges of the fair value changes in the 2.90% Senior Notes attributable to changes in interest rates. Since the specific terms and notional amount of the swaps match the debt being hedged, it is assumed to be a highly effective hedge and all changes in the fair value of the swaps are recorded as a component of the 2.90% Senior Notes with no net impact recorded in income. Any net interest payments made or received on the interest rate swap contracts are recognized as a component of interest expense in our condensed consolidated statements of income.
Foreign Currency Forward Contracts - Other Derivatives
We also enter into other foreign currency forward contracts, usually with durations of one month or less, 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 $668.6 million and $721.0 million as of September 30, 2016 and December 31, 2015, respectively. Net losses of $0.4 million and $16.6 million related to these contracts were recognized as a component of other income (expense), net, for three and nine months ended September 30, 2016, respectively, as compared to net losses of $8.1 million and $4.2 million, respectively, in the prior year comparative periods.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
Summary of Derivatives
While certain of our derivatives are subject to netting arrangements with our counterparties, we do not offset derivative assets and liabilities in our condensed consolidated balance sheets.
The following table summarizes the fair value and presentation in our condensed consolidated balance sheets of our outstanding derivatives including those designated as hedging instruments:
|
| | | | |
| | Fair Value |
(In millions) | Balance Sheet Location | As of September 30, 2016 |
Hedging Instruments: | | |
Asset derivatives | Other current assets | $ | 2.9 |
|
| Investments and other assets | $ | 12.1 |
|
Liability derivatives | Accrued expenses and other | $ | 11.4 |
|
| Other long-term liabilities | $ | — |
|
Other Derivatives: | | |
Asset derivatives | Other current assets | $ | 5.3 |
|
Liability derivatives | Accrued expenses and other | $ | 2.6 |
|
| | |
| | Fair Value |
(In millions) | Balance Sheet Location | As of December 31, 2015 |
Hedging Instruments: | | |
Asset derivatives | Other current assets | $ | 16.6 |
|
| Investments and other assets | $ | 0.3 |
|
Liability derivatives | Accrued expenses and other | $ | 10.2 |
|
| Other long-term liabilities | $ | 2.5 |
|
Other Derivatives: | | |
Asset derivatives | Other current assets | $ | 10.3 |
|
Liability derivatives | Accrued expenses and other | $ | 2.0 |
|
9. 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 $1,528.4 million and $1,330.1 million as of September 30, 2016 and December 31, 2015, respectively.
Solothurn, Switzerland Facility
On December 1, 2015, we purchased land in Solothurn, Switzerland for 64.4 million Swiss Francs (approximately $62.5 million). We are building a biologics manufacturing facility on this land in the Commune of Luterbach over the next several years. As of September 30, 2016 and December 31, 2015, we had approximately $350.8 million and $99.0 million, respectively, capitalized as construction in progress related to the construction of this facility.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
10. Equity
Total equity as of September 30, 2016 increased $2,739.9 million compared to December 31, 2015. This increase was primarily driven by net income attributable to Biogen Inc. of $3,053.6 million, partially offset by share repurchases of $348.9 million, as described below.
Share Repurchases
In July 2016, our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2016 Share Repurchase Program). This authorization does not have an expiration date. Repurchased shares will be retired. The 2016 Share Repurchase Program is in addition to the approximately 1.3 million shares remaining under our February 2011 Share Repurchase Program (2011 Share Repurchase Program), which has been used principally to offset common stock issuances under our share-based compensation plans. During the three and nine months ended September 30, 2016, we repurchased and retired 1.1 million shares of common stock at a cost of $348.9 million under our 2016 Share Repurchase Program. During the nine months ended September 30, 2016 and 2015, we did not repurchase any shares of common stock under our 2011 Share Repurchase Program.
In May 2015, our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2015 Share Repurchase Program), which was completed as of December 31, 2015. During the three and nine months ended September 30, 2015, we repurchased and retired 9.7 million shares of common stock at a cost of $2,998.2 million under our 2015 Share Repurchase Program.
Noncontrolling Interests
The following table reconciles equity (deficit) attributable to noncontrolling interests (NCI):
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
(In millions) | 2016 | | 2015 | | 2016 | | 2015 |
NCI, beginning of period | $ | (0.1 | ) | | $ | 0.4 |
| | $ | 2.1 |
| | $ | 5.0 |
|
Net income (loss) attributable to NCI, net of tax | (2.7 | ) | | 53.9 |
| | (5.8 | ) | | 49.1 |
|
Fair value of net assets and liabilities acquired and assigned to NCI | — |
| | 0.2 |
| | 0.9 |
| | 0.1 |
|
Distribution to NCI | — |
| | (60.0 | ) | | — |
| | (60.0 | ) |
Translation adjustment and other | 0.1 |
| | (0.3 | ) | | 0.1 |
| | — |
|
NCI, end of period | $ | (2.7 | ) | | $ | (5.8 | ) | | $ | (2.7 | ) | | $ | (5.8 | ) |
For the three and nine months ended September 30, 2015, net income (loss) attributable to NCI, net of tax, was related to a $60.0 million milestone payment made to Neurimmune SubOne AG. For additional information, please read Note 16, Investments in Variable Interest Entities to these condensed consolidated financial statements.
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
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 Cash Flow Hedges | | Unfunded Status of Postretirement Benefit Plans | | Translation Adjustments | | Total |
Balance, as of December 31, 2015 | $ | (0.8 | ) | | $ | 10.2 |
| | $ | (37.8 | ) | | $ | (195.6 | ) | | $ | (224.0 | ) |
Other comprehensive income (loss) before reclassifications | 1.2 |
| | (17.9 | ) | | 1.3 |
| | (62.8 | ) | | (78.2 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) | 0.4 |
| | 0.9 |
| | — |
| | — |
| | 1.3 |
|
Net current period other comprehensive income (loss) | 1.6 |
| | (17.0 | ) | | 1.3 |
| | (62.8 | ) | | (76.9 | ) |
Balance, as of September 30, 2016 | $ | 0.8 |
| | $ | (6.8 | ) | | $ | (36.5 | ) | | $ | (258.4 | ) | | $ | (300.9 | ) |
|
| | | | | | | | | | | | | | | | | | | |
(In millions) | Unrealized Gains (Losses) on Securities Available for Sale | | Unrealized Gains (Losses) on Cash Flow Hedges | | Unfunded Status of Postretirement Benefit Plans | | Translation Adjustments | | Total |
Balance, as of December 31, 2014 | $ | (0.4 | ) | | $ | 71.7 |
| | $ | (31.6 | ) | | $ | (99.2 | ) | | $ | (59.5 | ) |
Other comprehensive income (loss) before reclassifications | (2.2 | ) | | 78.6 |
| | 4.6 |
| | (61.3 | ) | | 19.7 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | 1.0 |
| | (118.7 | ) | | — |
| | — |
| | (117.7 | ) |
Net current period other comprehensive income (loss) | (1.2 | ) | | (40.1 | ) | | 4.6 |
| | (61.3 | ) | | (97.9 | ) |
Balance, as of September 30, 2015 | $ | (1.6 | ) | | $ | 31.6 |
| | $ | (27.0 | ) | | $ | (160.5 | ) | | $ | (157.4 | ) |
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 September 30, | | For the Nine Months Ended September 30, |
2016 | | 2015 | | 2016 | | 2015 |
Gains (losses) on securities available for sale | Other income (expense) | $ | — |
| | $ | (1.3 | ) | | $ | (0.6 | ) | | $ | (1.6 | ) |
| Income tax benefit (expense) | — |
| | 0.5 |
| | 0.2 |
| | 0.6 |
|
| | | | | | | | |
Gains (losses) on cash flow hedges | Revenues | (5.2 | ) | | 43.9 |
| | (0.7 | ) | | 119.3 |
|
| Operating expenses | (0.2 | ) | | — |
| | (0.4 | ) | | — |
|
| Other income (expense) | 0.1 |
| | — |
| | 0.2 |
| | — |
|
| Income tax benefit (expense) | — |
| | (0.2 | ) | | — |
| | (0.6 | ) |
| | | | | | | | |
Total reclassifications, net of tax | | $ | (5.3 | ) | | $ | 42.9 |
| | $ | (1.3 | ) | | $ | 117.7 |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
12. Earnings per Share
Basic and diluted earnings per share are calculated as follows:
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
(In millions) | 2016 | | 2015 | | 2016 | | 2015 |
Numerator: | | | | | | | |
Net income attributable to Biogen Inc. | $ | 1,032.9 |
| | $ | 965.6 |
| | $ | 3,053.6 |
| | $ | 2,715.4 |
|
Denominator: | | | | | | | |
Weighted average number of common shares outstanding | 218.9 |
| | 232.2 |
| | 219.0 |
| | 234.1 |
|
Effect of dilutive securities: | | | | | | | |
Stock options and employee stock purchase plan | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
Time-vested restricted stock units | 0.2 |
| | 0.2 |
| | 0.2 |
| | 0.3 |
|
Market stock units | 0.2 |
| | 0.1 |
| | 0.1 |
| | 0.2 |
|
Dilutive potential common shares | 0.5 |
| | 0.4 |
| | 0.4 |
| | 0.6 |
|
Shares used in calculating diluted earnings per share | 219.4 |
| | 232.6 |
| | 219.4 |
| | 234.7 |
|
Amounts excluded from the calculation of net income per diluted share because their effects were anti-dilutive were insignificant.
13. Share-based Payments
Share-based Compensation Expense
The following table summarizes share-based compensation expense included in our condensed consolidated statements of income:
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
(In millions) | 2016 | | 2015 | | 2016 | | 2015 |
Research and development | $ | 22.7 |
| | $ | 10.8 |
| | $ | 65.6 |
| | $ | 68.3 |
|
Selling, general and administrative | 31.2 |
| | 17.5 |
| | 94.6 |
| | 99.3 |
|
Restructuring charges | — |
| | — |
| | (1.8 | ) | | — |
|
Subtotal | 53.9 |
| | 28.3 |
| | 158.4 |
| | 167.6 |
|
Capitalized share-based compensation costs | (3.2 | ) | | (2.8 | ) | | (10.7 | ) | | (8.4 | ) |
Share-based compensation expense included in total cost and expenses | 50.7 |
| | 25.5 |
| | 147.7 |
| | 159.2 |
|
Income tax effect | (14.6 | ) | | (6.4 | ) | | (42.5 | ) | | (46.0 | ) |
Share-based compensation expense included in net income attributable to Biogen Inc. | $ | 36.1 |
| | $ | 19.1 |
| | $ | 105.2 |
| | $ | 113.2 |
|
BIOGEN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
The following table summarizes share-based compensation expense associated with each of our share-based compensation programs:
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
(In millions) | 2016 | | 2015 | | 2016 | | 2015 |
Market stock units | $ | 5.7 |
| | $ | 7.3 |
| | $ | 27.0 |
| | $ | 33.4 |
|
Time-vested restricted stock units | 28.5 |
| | 30.4 |
| | 92.5 |
| | 94.1 |
|
Cash settled performance units | 7.9 |
| | (9.5 | ) | | 12.7 |
| | 17.5 |
|
Performance units | 9.1 |
| | (2.8 | ) | | 17.3 |
| | 11.6 |
|
Employee stock purchase plan | 2.7 |
| | 2.9 |
| | 8.9 |
| | 11.0 |
|
Subtotal | 53.9 |
| | 28.3 |
| | 158.4 |
| | 167.6 |
|
Capitalized share-based compensation costs | (3.2 | ) | | (2.8 | ) | | (10.7 | ) | | (8.4 | ) |
Share-based compensation expense included in total cost and expenses | $ | 50.7 |
| | $ | 25.5 |
| | $ | 147.7 |
| | $ | 159.2 |
|
We estimate the fair value of our obligations associated with our performance units and cash settled performance units at the end of each reporting period through expected settlement. Cumulative adjustments to these obligations are recorded each quarter to reflect changes in the stock price and estimated outcome of the performance-related conditions.
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 Nine Months Ended September 30, |
| 2016 | | 2015 |
Market stock units | 166,000 |
| | 181,000 |
|
Cash settled performance shares | 86,000 |
| | 115,000 |
|
Performance units | 67,000 |
| | 89,000 |
|
Time-vested restricted stock units | 603,000 |
| | 393,000 |
|