e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30, 2009
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 0-19311
BIOGEN IDEC INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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33-0112644
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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14 Cambridge Center, Cambridge, MA 02142
(617) 679-2000
(Address, including zip code,
and telephone number, including
area code, of registrants principal executive
offices)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days: Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files): Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act): Yes o No þ
The number of shares of the registrants Common Stock,
$0.0005 par value, outstanding as of July 13, 2009,
was 288,855,922 shares.
BIOGEN
IDEC INC.
FORM 10-Q
Quarterly Report
For the Quarterly Period Ended June 30, 2009
TABLE OF
CONTENTS
2
PART I
FINANCIAL INFORMATION
BIOGEN
IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except
per share amounts)
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For the Three Months
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For the Six Months
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Ended June 30,
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Ended June 30,
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2009
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2008
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2009
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2008
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Revenues:
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Product
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$
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790,970
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$
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684,486
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$
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1,524,378
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$
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1,349,556
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Unconsolidated joint business
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275,570
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278,822
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554,388
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526,045
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Other revenues
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26,749
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30,136
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51,008
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60,029
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Total revenues
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1,093,289
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993,444
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2,129,774
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1,935,630
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Costs and expenses:
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Cost of sales, excluding amortization of acquired intangible
assets
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90,721
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92,401
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188,918
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193,335
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Research and development
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416,453
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252,259
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695,931
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510,491
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Selling, general and administrative
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220,829
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245,689
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442,660
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461,518
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Collaboration profit sharing
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49,138
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33,429
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91,911
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54,835
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Amortization of acquired intangible assets
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93,234
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72,869
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182,482
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147,650
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Acquired in-process research and development
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25,000
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Total costs and expenses
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870,375
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696,647
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1,601,902
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1,392,829
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Income from operations
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222,914
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296,797
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527,872
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542,801
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Other income (expense), net
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14,680
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(4,018
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)
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21,526
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(938
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)
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Income before income tax expense
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237,594
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292,779
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549,398
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541,863
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Income tax expense
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92,709
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84,706
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157,934
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167,983
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Net income
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144,885
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208,073
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391,464
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373,880
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Net income attributable to noncontrolling interest, net of tax
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2,040
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1,445
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4,632
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4,155
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Net income attributable to Biogen Idec Inc.
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$
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142,845
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$
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206,628
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$
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386,832
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$
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369,725
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Basic earnings per share attributable to Biogen Idec Inc.
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$
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0.49
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$
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0.71
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$
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1.34
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$
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1.26
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Diluted earnings per share attributable to Biogen Idec Inc.
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$
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0.49
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$
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0.70
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$
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1.33
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$
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1.24
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Weighted-average shares used in calculating:
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Basic earnings per share attributable to Biogen Idec Inc.
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288,615
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290,356
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288,162
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293,268
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Diluted earnings per share attributable to Biogen Idec Inc.
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290,359
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293,476
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290,014
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296,554
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See accompanying notes to these unaudited consolidated financial
statements.
3
BIOGEN
IDEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except
per share amounts)
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As of June 30,
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As of December 31,
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2009
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2008
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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786,804
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$
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622,385
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Marketable securities
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836,270
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719,586
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Collateral received for loaned securities
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29,991
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Accounts receivable, net
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511,286
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446,665
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Due from unconsolidated joint business
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198,206
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206,925
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Loaned securities
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29,446
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Inventory
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268,529
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263,602
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Other current assets
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143,183
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139,400
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Total current assets
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2,744,278
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2,458,000
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Marketable securities
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1,047,611
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891,406
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Property, plant and equipment, net
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1,608,660
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1,594,754
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Intangible assets, net
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1,978,519
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2,161,058
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Goodwill
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1,138,621
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1,138,621
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Investments and other assets
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259,507
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235,152
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Total assets
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$
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8,777,196
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$
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8,478,991
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LIABILITIES AND EQUITY
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Current liabilities:
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Collateral payable on loaned securities
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$
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$
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29,991
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Accounts payable
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210,941
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107,417
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Taxes payable
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81,594
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223,260
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Accrued expenses and other
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496,694
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534,887
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Current portion of notes payable and line of credit
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14,697
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27,667
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Total current liabilities
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803,926
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923,222
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Notes payable and line of credit
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1,085,607
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1,085,431
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Long-term deferred tax liability
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310,962
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356,017
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Other long-term liabilities
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330,996
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280,369
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Total liabilities
|
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2,531,491
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2,645,039
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Commitments and contingencies (Notes 11 and 14)
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Equity:
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Preferred stock, par value $0.001 per share
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Common stock, par value $0.0005 per share
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149
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149
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Additional paid-in capital
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6,142,936
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6,073,957
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Accumulated other comprehensive income (loss)
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11,293
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(11,106
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)
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Retained earnings
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516,632
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270,180
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Treasury stock, at cost
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(458,472
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)
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|
(527,097
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)
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|
|
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|
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Total Biogen Idec Inc. shareholders equity
|
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|
6,212,538
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|
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5,806,083
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Noncontrolling interest
|
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|
33,167
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27,869
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Total equity
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6,245,705
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5,833,952
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Total liabilities and equity
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$
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8,777,196
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$
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8,478,991
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See accompanying notes to these unaudited consolidated financial
statements.
4
BIOGEN
IDEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in
thousands)
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For the Six Months
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Ended June 30,
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2009
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2008
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Cash flows from operating activities:
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Net income
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$
|
391,464
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|
$
|
373,880
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|
Adjustments to reconcile net income to net cash flows from
operating activities:
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Depreciation and amortization of property, plant and equipment
and intangible assets
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|
248,877
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212,471
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Acquired in-process research and development
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25,000
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Share-based compensation
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|
78,892
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67,647
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Non-cash interest (income) expense and foreign exchange
remeasurement loss (gain), net
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|
(7,592
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)
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|
|
12,151
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|
Deferred income taxes
|
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|
(42,772
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)
|
|
|
(14,757
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)
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Realized gain on sale of marketable securities and strategic
investments
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|
|
(15,434
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)
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|
|
(5,928
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)
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Write-down of inventory to net realizable value
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|
11,475
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|
|
|
9,838
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Impairment of marketable securities, investments and other assets
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|
10,002
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|
|
15,451
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Excess tax benefit from stock options
|
|
|
(2,800
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)
|
|
|
(18,448
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)
|
Changes in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(63,842
|
)
|
|
|
(86,302
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)
|
Due from unconsolidated joint business
|
|
|
8,719
|
|
|
|
(17,535
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)
|
Inventory
|
|
|
(14,353
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)
|
|
|
(28,187
|
)
|
Other assets
|
|
|
(5,537
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)
|
|
|
(7,427
|
)
|
Accrued expenses and other current liabilities
|
|
|
22,950
|
|
|
|
101,412
|
|
Other liabilities and taxes payable
|
|
|
(90,748
|
)
|
|
|
3,741
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
529,301
|
|
|
|
643,007
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(1,869,415
|
)
|
|
|
(1,060,159
|
)
|
Proceeds from sales and maturities of marketable securities
|
|
|
1,637,562
|
|
|
|
1,391,949
|
|
Collateral received under securities lending
|
|
|
29,991
|
|
|
|
61,253
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(25,000
|
)
|
Purchases of property, plant and equipment
|
|
|
(71,721
|
)
|
|
|
(157,093
|
)
|
Purchases of other investments
|
|
|
(35,202
|
)
|
|
|
(11,611
|
)
|
Proceeds from the sale of a strategic equity investment
|
|
|
5,565
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Net cash flows (used in) provided by investing activities
|
|
|
(303,220
|
)
|
|
|
199,354
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(57,631
|
)
|
|
|
(559,767
|
)
|
Proceeds from issuance of stock for share-based compensation
arrangements
|
|
|
24,387
|
|
|
|
89,532
|
|
Change in cash overdraft
|
|
|
7,525
|
|
|
|
873
|
|
Excess tax benefit from stock options
|
|
|
2,800
|
|
|
|
18,448
|
|
Proceeds from borrowings
|
|
|
|
|
|
|
986,980
|
|
Repayment of borrowings
|
|
|
(10,867
|
)
|
|
|
(1,512,474
|
)
|
Obligation under securities lending
|
|
|
(29,991
|
)
|
|
|
(61,253
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
|
(63,777
|
)
|
|
|
(1,037,661
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
162,304
|
|
|
|
(195,300
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
2,115
|
|
|
|
2,131
|
|
Cash and cash equivalents, beginning of the period
|
|
|
622,385
|
|
|
|
659,662
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
786,804
|
|
|
$
|
466,493
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these unaudited consolidated financial
statements.
5
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Overview
Biogen Idec Inc. (Biogen Idec, we,
us or the Company) is a global
biotechnology company that creates new standards of care in
therapeutic areas with high unmet medical needs. We currently
have four marketed products. Our marketed products are used for
the treatment of multiple sclerosis, or MS, non-Hodgkins
lymphoma, or NHL, rheumatoid arthritis, or RA, Crohns
disease and psoriasis, which are summarized in the table below.
|
|
|
|
|
Product
|
|
Indications
|
|
|
|
AVONEX®
|
|
Relapsing MS
|
|
|
(interferon beta-1a)
|
|
|
|
|
|
|
RITUXAN®*
|
|
Certain B-cell NHL
|
|
|
(rituximab)
|
|
RA
|
|
|
|
|
TYSABRI®**
|
|
Relapsing MS
|
|
|
(natalizumab)
|
|
Crohns disease
|
|
|
|
|
FUMADERM®
|
|
Severe psoriasis
|
|
|
(dimethylfumarate and monoethylfumarate salts)
|
|
|
|
|
|
|
|
|
|
* |
|
Outside the United States, Canada and Japan, MabThera is the
trade name for rituximab. We refer to rituximab, RITUXAN and
MabThera collectively as RITUXAN. |
|
** |
|
TYSABRI is indicated in the United States for the treatment of
some patients with moderately to severely active Crohns
disease. |
Basis
of Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments,
consisting of only normal recurring accruals, necessary for a
fair statement of our financial position, results of operations
and cash flows. The information included in this quarterly
report on
Form 10-Q
should be read in conjunction with our consolidated financial
statements and the accompanying notes included in our annual
report on
Form 10-K
for the year ended December 31, 2008. Our accounting
policies are described in the Notes to Consolidated
Financial Statements in our 2008 annual report on
Form 10-K
and updated, as necessary, in this
Form 10-Q.
The year-end consolidated balance sheet data presented for
comparative purposes was derived from audited financial
statements, but does not include all disclosures required by
accounting principles generally accepted in the United States.
The results of operations for the three and six months ended
June 30, 2009 are not necessarily indicative of the
operating results for the full year or for any other subsequent
interim period.
Effective January 1, 2009, we implemented Statement of
Financial Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment
to ARB No. 51, or SFAS 160. This standard changed the
accounting for and reporting of minority interest (now called
noncontrolling interest) in our consolidated financial
statements. Upon adoption, certain prior period amounts have
been reclassified to conform to the current period financial
statement presentation. These reclassifications did not have a
material impact on our previously reported financial position or
results of operations. Refer to Note 8, Equity, and
Note 12, Other Income (Expense), Net, of this
Form 10-Q
for additional information on the adoption of SFAS 160.
Principles
of Consolidation
The consolidated financial statements reflect our financial
statements, those of our wholly-owned subsidiaries and of our
joint ventures in Italy and Switzerland, Biogen Dompé SRL
and Biogen Dompé Switzerland Gmbh,
6
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
respectively. In accordance with the Financial Accounting
Standards Board, or FASB, Interpretation No. 46 (Revised
2003), Consolidation of Variable Interest Entities, or
FIN 46(R), we consolidate variable interest entities in
which we are the primary beneficiary. For such consolidated
entities in which we own less than a 100% interest, we record
net income attributable to noncontrolling interest (minority
interest) in our consolidated statement of income equal to the
percentage of ownership of the respective noncontrolling owners.
All material intercompany balances and transactions have been
eliminated in consolidation.
Use of
Estimates
The preparation of consolidated financial statements in
accordance with accounting principles generally accepted in the
United States requires our management to make estimates and
judgments that may affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to revenue
recognition and related allowances, marketable securities,
derivatives and hedging activities, inventory, impairments of
long-lived assets, including intangible assets, impairments of
goodwill, income taxes including the valuation allowance for
deferred tax assets, valuation of long-lived assets and
investments, research and development, contingencies and
litigation, and share-based payments. We base our estimates on
historical experience and on various other assumptions that are
believed to be reasonable, the results of which form the basis
for making judgments about the carrying values of assets and
liabilities. Actual results may differ from these estimates
under different assumptions or conditions.
Subsequent
Events
Effective this quarter, we implemented Statement of Financial
Accounting Standards No. 165, Subsequent Events, or
SFAS 165. This standard establishes general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued.
The adoption of SFAS 165 did not impact our financial
position or results of operations. We evaluated all events or
transactions that occurred after June 30, 2009 up through
July 16, 2009, the date we issued these financial
statements. During this period we did not have any material
recognizable subsequent events. However, we did have a
nonrecognizable subsequent event related to our collaboration
agreement with Cardiokine. Refer to Note 13,
Collaborations, for additional information.
Inventories are stated at the lower of cost or market with cost
determined under the
first-in,
first-out, or FIFO, method. Included in inventory are raw
materials used in the production of pre-clinical and clinical
products, which are charged to research and development expense
when consumed.
The components of inventories are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
38.8
|
|
|
$
|
29.8
|
|
Work in process
|
|
|
173.4
|
|
|
|
180.0
|
|
Finished goods
|
|
|
56.3
|
|
|
|
53.8
|
|
|
|
|
|
|
|
|
|
|
Total Inventory
|
|
$
|
268.5
|
|
|
$
|
263.6
|
|
|
|
|
|
|
|
|
|
|
Amounts written down related to unmarketable inventory are
charged to cost of product revenues, a component of total cost
of sales, excluding amortization of acquired intangible assets.
During the three and six months ended June 30, 2009 we have
written-down $2.1 million and $11.5 million,
respectively, in unmarketable inventory as compared to
$5.5 million and $9.8 million, respectively, during
the prior year comparative periods.
7
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Product
Revenues
We recognize revenue when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has
occurred or services have been rendered; the sellers price
to the buyer is fixed or determinable; and collectibility is
reasonably assured.
Revenues from product sales are recognized when title and risk
of loss have passed to the customer, which is typically upon
delivery. However, under the terms of a development and
marketing collaboration agreement with Elan Pharma
International, Ltd., or Elan, an affiliate of Elan Corporation,
plc, we manufacture TYSABRI and collaborate with Elan on the
products marketing, commercial distribution and on-going
development activities. Therefore, sales of TYSABRI in the
United States are recognized on the sell-through
model, that is, upon shipment of the product by Elan to its
third party distributor rather than upon shipment to Elan. For
sales of TYSABRI outside the United States, we are responsible
for distributing TYSABRI to customers and are primarily
responsible for all operating activities. Generally, revenue on
sales of TYSABRI outside the United States is recognized at the
time of product delivery to our customers and distributors, as
all revenue recognition criteria have been met.
Reserves
Reserves
for Discounts and Allowances
Revenues are recorded net of applicable allowances for trade
term discounts, wholesaler incentives, Medicaid rebates,
Veterans Administration rebates, managed care rebates,
product returns and other applicable allowances. Reserves
established for these discounts and allowances are classified as
reductions of accounts receivable (if the amount is payable to
our customer) or a liability (if the amount is payable to a
party other than our customer).
Our product revenue reserves are based on estimates of the
amounts earned or to be claimed on the related sales. These
estimates take into consideration our historical experience,
current contractual requirements, statutory requirements,
specific known market events and trends and forecasted customer
buying patterns. If actual results vary, we may need to adjust
these estimates, which could have an effect on earnings in the
period of the adjustment.
An analysis of the amount of, and change in, reserves is as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
Discounts
|
|
|
Adjustments
|
|
|
Returns
|
|
|
Total
|
|
|
Beginning balance, as of January 1, 2009
|
|
$
|
9.2
|
|
|
$
|
48.1
|
|
|
$
|
18.1
|
|
|
$
|
75.4
|
|
Current provisions relating to sales in current period
|
|
|
36.3
|
|
|
|
89.5
|
|
|
|
9.6
|
|
|
|
135.4
|
|
Adjustments relating to prior periods
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
3.2
|
|
Payments/returns relating to sales in current period
|
|
|
(24.5
|
)
|
|
|
(35.8
|
)
|
|
|
(0.3
|
)
|
|
|
(60.6
|
)
|
Payments/returns relating to sales in prior periods
|
|
|
(8.1
|
)
|
|
|
(46.7
|
)
|
|
|
(8.6
|
)
|
|
|
(63.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, as of June 30, 2009
|
|
$
|
12.9
|
|
|
$
|
58.3
|
|
|
$
|
18.8
|
|
|
$
|
90.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The total reserves above were included in the consolidated
balance sheets as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Reduction of accounts receivable
|
|
$
|
38.8
|
|
|
$
|
31.6
|
|
Current liability
|
|
|
51.2
|
|
|
|
43.8
|
|
|
|
|
|
|
|
|
|
|
Total reserves
|
|
$
|
90.0
|
|
|
$
|
75.4
|
|
|
|
|
|
|
|
|
|
|
Reserves for discounts, contractual adjustments and returns
reduced gross product revenues as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Discounts
|
|
$
|
19.1
|
|
|
$
|
15.9
|
|
|
$
|
36.3
|
|
|
$
|
30.3
|
|
Contractual adjustments
|
|
|
50.9
|
|
|
|
35.8
|
|
|
|
92.7
|
|
|
|
72.2
|
|
Returns
|
|
|
3.7
|
|
|
|
5.5
|
|
|
|
9.6
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowances
|
|
$
|
73.7
|
|
|
$
|
57.2
|
|
|
$
|
138.6
|
|
|
$
|
111.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross product revenues
|
|
$
|
864.7
|
|
|
$
|
741.7
|
|
|
$
|
1,663.0
|
|
|
$
|
1,460.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of gross product revenues
|
|
|
8.5
|
%
|
|
|
7.7
|
%
|
|
|
8.3
|
%
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad Debt
Reserves
Bad debt reserves are based on our estimated uncollectible
accounts receivable. Given our historical experiences with bad
debts, combined with our credit management policies and
practices, we do not presently maintain significant bad debt
reserves. Reserves for bad debts are reflected as a reduction of
accounts receivable.
|
|
4.
|
Intangible
Assets and Goodwill
|
Intangible assets and goodwill, net of accumulated amortization,
impairment charges and adjustments, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
As of December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Estimated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Out-licensed patents
|
|
|
12 years
|
|
|
$
|
578.0
|
|
|
$
|
(274.3
|
)
|
|
$
|
303.7
|
|
|
$
|
578.0
|
|
|
$
|
(250.3
|
)
|
|
$
|
327.7
|
|
Core/developed technology
|
|
|
15-20 years
|
|
|
|
3,005.3
|
|
|
|
(1,397.1
|
)
|
|
|
1,608.2
|
|
|
|
3,005.3
|
|
|
|
(1,241.0
|
)
|
|
|
1,764.3
|
|
Trademarks and tradenames
|
|
|
Indefinite
|
|
|
|
64.0
|
|
|
|
|
|
|
|
64.0
|
|
|
|
64.0
|
|
|
|
|
|
|
|
64.0
|
|
In-licensed patents
|
|
|
14 years
|
|
|
|
3.0
|
|
|
|
(1.0
|
)
|
|
|
2.0
|
|
|
|
3.0
|
|
|
|
(0.9
|
)
|
|
|
2.1
|
|
Assembled workforce
|
|
|
4 years
|
|
|
|
2.1
|
|
|
|
(1.5
|
)
|
|
|
0.6
|
|
|
|
2.1
|
|
|
|
(1.2
|
)
|
|
|
0.9
|
|
Distribution rights
|
|
|
2 years
|
|
|
|
12.7
|
|
|
|
(12.7
|
)
|
|
|
|
|
|
|
12.7
|
|
|
|
(10.6
|
)
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
3,665.1
|
|
|
$
|
(1,686.6
|
)
|
|
$
|
1,978.5
|
|
|
$
|
3,665.1
|
|
|
$
|
(1,504.0
|
)
|
|
$
|
2,161.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Indefinite
|
|
|
$
|
1,138.6
|
|
|
$
|
|
|
|
$
|
1,138.6
|
|
|
$
|
1,138.6
|
|
|
$
|
|
|
|
$
|
1,138.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Intangible
Assets
Our intangible assets consist of patents, licenses,
core/developed technology, trademarks, tradenames, assembled
workforce, and distribution rights, the majority of which arose
in connection with the merger of Biogen Inc. and Idec
Pharmaceuticals Corporation, or the Merger. These intangible
assets were recorded at fair value and are stated net of
accumulated amortization and impairments.
Intangible assets related to patents, licenses, core/developed
technology, assembled workforce, and distribution rights are
amortized over their remaining estimated useful lives, ranging
from 2 to 20 years. The useful lives of our assets are
primarily based on the legal or contractual life of the
underlying patent or contract, which does not include additional
years for the extension or renewal of the contract or patent.
Our amortization policy for intangible assets is based on the
principles in Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets, or
SFAS 142, which requires that the amortization of
intangible assets reflect the pattern that the economic benefits
of the intangible assets are consumed.
Effective January 1, 2009, we implemented FASB Staff
Position (FSP)
FAS 142-3,
Determination of the Useful Life of Intangible Assets, or
FSP
FAS 142-3.
FSP
FAS 142-3
amends SFAS 142 and provides guidance for determining the
useful life of a recognized intangible asset and requires
enhanced disclosures so that users of financial statements are
able to assess the extent to which the expected future cash
flows associated with the asset are affected by our intent and
ability to renew or extend the arrangement. The adoption of this
FSP did not impact our financial position or results of
operations as this standard was required to be implemented
prospectively; however, this standard may impact us in
subsequent periods.
Our most significant intangible asset is the core technology
related to our AVONEX product. We believe the economic benefit
of our core technology is consumed as revenue is generated from
our AVONEX product. An analysis of the anticipated product sales
of AVONEX is performed annually during our long range planning
cycle. The results of this forecast serve as the basis for our
assumptions used in the economic consumption amortization model
for our core technology intangible assets. Although we believe
our process has allowed us to reliably determine our best
estimate of the pattern in which we will consume the economic
benefits of the core technology intangible assets, the model
could result in deferring amortization charges to future periods
in certain instances, including the impact of continued sales of
the product at a nominal level after patent expiration.
Consequently, in establishing our methodology, we considered
models that would prevent deferring amortization charges to
future periods such as the model described in paragraph 8
of Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed, or SFAS 86. In order to
ensure amortization charges are not unreasonably deferred to
future periods, we use the straight-line method to determine the
minimum annual amount of amortization expense, or the minimum
amount. At the time of the Merger we estimated a useful life of
15 years (2018) based on the patent lives of AVONEX across
various countries. The minimum amount is recalculated each year
based on the remaining unamortized balance of the intangible
asset and the years remaining to 2018. The results of the long
range planning process determine whether amortization will be
based on an economic consumption model or the minimum amount
and, thus, the amount of amortization for the next four
quarters. Amortization is currently based upon the economic
consumption model.
Intangible assets related to trademarks and tradenames have
indefinite lives, and as a result are not amortized, but are
subject to review for impairment. We review our intangible
assets with indefinite lives for impairment annually, as of
October 31, and whenever events or changes in circumstances
indicate that the carrying value of an asset may not be
recoverable.
Amortization expense was $93.2 million and
$182.5 million for the three months and six months ended
June 30, 2009, respectively, as compared to
$72.9 million and $147.7 million, respectively, for
the prior year comparative periods. We did not record a charge
related to acquired in-process research and development, or
IPR&D, during the three and six months ended June 30,
2009, respectively, or during the three months ended
10
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
June 30, 2008. In the first quarter of 2008, we recorded an
IPR&D charge of $25.0 million related to a
HSP90-related milestone payment made to the former shareholders
of Conforma Therapeutics, Inc., or Conforma, pursuant to the
terms of our acquisition of Conforma in 2006.
|
|
5.
|
Fair
Value Measurements
|
Effective January 1, 2008, we implemented Statement of
Financial Accounting Standards No. 157, Fair Value
Measurements, or SFAS 157, for financial assets and
liabilities that are remeasured and reported at fair value at
each reporting period, and non-financial assets and liabilities
that are remeasured and reported at fair value at least
annually. In accordance with the provisions of FSP
FAS 157-2,
Effective Date of FASB Statement No. 157, we elected
to defer until January 1, 2009 implementation of
SFAS 157 as it relates to our non-financial assets and
liabilities that are recognized and disclosed at fair value in
the financial statements on a non-recurring basis.
The adoption of SFAS 157 for our non-financial assets and
liabilities that are remeasured at fair value on a non-recurring
basis did not have a material impact on our financial position
or results of operations upon adoption; however, this standard
may impact us in subsequent periods and require additional
disclosures.
Effective this quarter, we implemented FSP
FAS 157-4,
Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly, or FSP
FAS 157-4.
FSP
FAS 157-4
provides additional guidelines for making fair value
measurements more consistent with the principles presented in
SFAS 157 and provides authoritative guidance in determining
whether a market is active or inactive, and whether a
transaction is distressed. This FSP is applicable to all assets
and liabilities (i.e. financial and nonfinancial) and requires
enhanced disclosures, including interim and annual disclosure of
the input and valuation techniques (or changes in techniques)
used to measure fair value and the defining of the major
security types comprising debt and equity securities held based
upon the nature and risk of the security. The adoption of this
FSP did not impact our financial position or results of
operations; however, adoption has enhanced disclosures for our
investments in marketable debt securities and resulted in the
reclassification of certain amounts included within our
previously reported disclosures to conform to the presentation
adopted in the current year.
Effective this quarter, we have also implemented FSP
FAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments, or FSP
FAS 107-1.
FSP
FAS 107-1
amended Statement of Financial Accounting Standards
No. 107, Disclosures about Fair Value of Financial
Instruments, and APB Opinion No. 28, Interim
Financial Reporting, to require disclosures about the fair
value of financial instruments in interim as well as in annual
financial statements. The adoption of this standard has resulted
in the disclosure of the fair values attributable to our debt
instruments within our interim report. Since this FSP addresses
disclosure requirements, the adoption of this FSP did not impact
our financial position or results of operations.
Summary
of Assets and Liabilities Recorded at Fair Value
The tables below present information about our assets and
liabilities that are measured at fair value on a recurring basis
as of June 30, 2009 and December 31, 2008 and indicate
the fair value hierarchy of the valuation techniques we utilized
to determine such fair value. In general, fair values determined
by Level 1 inputs utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities. Fair values
determined by Level 2 inputs utilize data points that are
observable such as quoted prices, interest rates and yield
curves. Fair values determined by Level 3 inputs utilize
unobservable data points for the asset or liability.
A majority of our financial assets and liabilities have been
classified as Level 2. These assets and liabilities have
been initially valued at the transaction price and subsequently
valued typically utilizing third party pricing services. The
pricing services use many inputs to determine value, including
reportable trades, benchmark yields, credit spreads,
broker/dealer quotes, bids, offers, current spot rates, other
industry, and economic events. We validate the prices provided
by our third party pricing services by reviewing their pricing
methods and matrices,
11
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
obtaining market values from other pricing sources, and
analyzing pricing data in certain instances. The fair values of
our cash equivalents, derivative contracts, marketable debt
securities, and plan assets for deferred compensation are
determined through market and observable sources and have been
classified as Level 2. After completing our validation
procedures, we did not adjust or override any fair value
measurements provided by our pricing services as of
June 30, 2009 and December 31, 2008.
The following tables set forth our financial assets and
liabilities that were recorded at fair value (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Balance as of
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
June 30,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
670.3
|
|
|
$
|
|
|
|
$
|
670.3
|
|
|
$
|
|
|
Marketable debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
412.6
|
|
|
|
|
|
|
|
412.6
|
|
|
|
|
|
Government securities
|
|
|
1,267.5
|
|
|
|
|
|
|
|
1,267.5
|
|
|
|
|
|
Mortgage and other asset backed securities
|
|
|
203.8
|
|
|
|
|
|
|
|
203.8
|
|
|
|
|
|
Strategic investments
|
|
|
5.7
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
Venture capital investments
|
|
|
21.6
|
|
|
|
|
|
|
|
|
|
|
|
21.6
|
|
Derivative contracts
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
Plan assets for deferred compensation
|
|
|
11.9
|
|
|
|
|
|
|
|
11.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,593.7
|
|
|
$
|
5.7
|
|
|
$
|
2,566.4
|
|
|
$
|
21.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
|
31.8
|
|
|
|
|
|
|
|
31.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31.8
|
|
|
$
|
|
|
|
$
|
31.8
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
Balance as of
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
500.9
|
|
|
$
|
|
|
|
$
|
500.9
|
|
|
$
|
|
|
Marketable debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
328.5
|
|
|
|
|
|
|
|
328.5
|
|
|
|
|
|
Government securities
|
|
|
1,005.0
|
|
|
|
|
|
|
|
1,005.0
|
|
|
|
|
|
Mortgage and other asset backed securities
|
|
|
306.9
|
|
|
|
|
|
|
|
306.9
|
|
|
|
|
|
Strategic investments
|
|
|
4.6
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
Venture capital investments
|
|
|
23.9
|
|
|
|
|
|
|
|
|
|
|
|
23.9
|
|
Derivative contracts
|
|
|
1.9
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
Plan assets for deferred compensation
|
|
|
13.3
|
|
|
|
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,185.0
|
|
|
$
|
4.6
|
|
|
$
|
2,156.5
|
|
|
$
|
23.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
|
46.0
|
|
|
|
|
|
|
|
46.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46.0
|
|
|
$
|
|
|
|
$
|
46.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Our strategic investments are investments in publicly traded
equity securities where fair value is readily determinable.
The following table provides a roll forward of the fair value of
our venture capital investments, where fair value is determined
by Level 3 inputs (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
Description
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Beginning Balance
|
|
$
|
24.3
|
|
|
$
|
24.9
|
|
|
$
|
23.9
|
|
|
$
|
28.1
|
|
Total net unrealized gains (losses) included in earnings
|
|
|
(2.8
|
)
|
|
|
(1.2
|
)
|
|
|
(3.1
|
)
|
|
|
(4.8
|
)
|
Purchases, issuances, and settlements
|
|
|
0.1
|
|
|
|
0.9
|
|
|
|
0.8
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
21.6
|
|
|
$
|
24.6
|
|
|
$
|
21.6
|
|
|
$
|
24.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our venture capital investments are the only assets where we
used Level 3 inputs to determine the fair value. Venture
capital investments represented approximately 0.2% and 0.3% of
total assets as of June 30, 2009 and December 31,
2008, respectively. The underlying assets in these funds are
initially measured at transaction prices and subsequently valued
using the pricing of recent financing or by reviewing the
underlying economic fundamentals and liquidation value of the
companies. Gains and losses (realized and unrealized) included
in earnings for the period are reported in other income
(expense), net.
The carrying amounts reflected in the consolidated balance
sheets for cash, accounts receivable, due from unconsolidated
joint business, other current assets, accounts payable, accrued
expenses, and other approximate fair value due to their
short-term nature.
Summary
of Liabilities Recorded at Carrying Value
The fair and carrying value of our debt instruments are detailed
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009
|
|
|
As of December 31, 2008
|
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Credit line from Dompé
|
|
$
|
16.6
|
|
|
$
|
16.9
|
|
|
$
|
16.4
|
|
|
$
|
16.8
|
|
Notes payable to Fumedica
|
|
|
28.8
|
|
|
|
28.1
|
|
|
|
37.5
|
|
|
|
38.5
|
|
6.0% Senior Notes due 2013
|
|
|
458.7
|
|
|
|
449.6
|
|
|
|
429.8
|
|
|
|
449.6
|
|
6.875% Senior Notes due 2018
|
|
|
561.6
|
|
|
|
605.7
|
|
|
|
562.4
|
|
|
|
608.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,065.7
|
|
|
$
|
1,100.3
|
|
|
$
|
1,046.1
|
|
|
$
|
1,113.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of our debt instruments were estimated using
market observable inputs, including quoted prices in active
markets, market indices and interest rate measurements. Within
the hierarchy of fair value measurements, these are Level 2
fair values.
Financial instruments that potentially subject us to
concentrations of credit risk are accounts receivable and
marketable securities. The majority of our accounts receivable
are payable by wholesale distributors and large pharmaceutical
companies and collateral is generally not required from these
large customers. We monitor the financial performance and credit
worthiness of our large customers so that we can properly assess
and respond to changes in their credit profile. Our portfolio of
marketable securities is subject to concentration limits set
within our investment policy that help to mitigate our credit
exposure.
13
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Marketable
Securities, including Strategic Investments
The following is a summary of our marketable securities and
strategic investments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
As of June 30, 2009:
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
189.9
|
|
|
$
|
1.7
|
|
|
$
|
|
|
|
$
|
188.2
|
|
Non-current
|
|
|
222.7
|
|
|
|
5.2
|
|
|
|
(0.4
|
)
|
|
|
217.9
|
|
Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
642.1
|
|
|
|
1.9
|
|
|
|
|
|
|
|
640.2
|
|
Non-current
|
|
|
625.4
|
|
|
|
6.3
|
|
|
|
(0.3
|
)
|
|
|
619.4
|
|
Mortgage and other asset backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
4.3
|
|
|
|
0.1
|
|
|
|
|
|
|
|
4.2
|
|
Non-current
|
|
|
199.5
|
|
|
|
5.5
|
|
|
|
|
|
|
|
194.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
1,883.9
|
|
|
$
|
20.7
|
|
|
$
|
(0.7
|
)
|
|
$
|
1,863.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic investments, non-current
|
|
$
|
5.7
|
|
|
$
|
2.1
|
|
|
$
|
|
|
|
$
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Amortized
|
|
As of December 31, 2008:
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Cost
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
128.2
|
|
|
$
|
0.4
|
|
|
$
|
|
|
|
$
|
127.8
|
|
Non-current
|
|
|
200.3
|
|
|
|
2.6
|
|
|
|
|
|
|
|
197.7
|
|
Government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
582.8
|
|
|
|
1.5
|
|
|
|
|
|
|
|
581.3
|
|
Non-current
|
|
|
422.2
|
|
|
|
8.7
|
|
|
|
|
|
|
|
413.5
|
|
Mortgage and other asset backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
13.9
|
|
Non-current
|
|
|
293.0
|
|
|
|
3.3
|
|
|
|
(0.3
|
)
|
|
|
290.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
1,640.4
|
|
|
$
|
16.5
|
|
|
$
|
(0.3
|
)
|
|
$
|
1,624.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic investments, non-current
|
|
$
|
4.6
|
|
|
$
|
0.5
|
|
|
$
|
(0.1
|
)
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the tables above, as of June 30, 2009 and
December 31, 2008, government securities included
$274.8 million and $139.1 million, respectively, of
Federal Deposit Insurance Corporation, or FDIC, guaranteed
senior notes issued by financial institutions under the
Temporary Liquidity Guarantee Program. In addition, the balances
as of December 31, 2008 include amounts related to our
loaned securities.
As of June 30, 2009, we held mortgage and other asset
backed securities totaling $203.8 million. No
non-agency
mortgage backed securities were held as of June 30, 2009.
As of December 31, 2008, we held total
14
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
mortgage and other asset backed securities totaling
$306.8 million, which included $66.5 million of
non-agency
mortgage backed securities.
Certain commercial paper and short-term debt securities with
original maturities of less than 90 days are included in
cash and cash equivalents on the accompanying balance sheet and
are not included in the tables above. As of June 30, 2009
and December 31, 2008, the commercial paper, including
accrued interest, has a fair and carrying value of
$115.1 million and $42.7 million, respectively, and
short-term debt securities have a fair and carrying value of
$555.2 million and $458.2 million, respectively.
Summary
of Contractual Maturities: Available-for-Sale
Securities
The estimated fair value and amortized cost of securities,
excluding strategic investments, available-for-sale by
contractual maturity as of June 30, 2009 and
December 31, 2008 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009
|
|
|
As of December 31, 2008
|
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Due in one year or less
|
|
$
|
713.5
|
|
|
$
|
710.3
|
|
|
$
|
714.9
|
|
|
$
|
713.0
|
|
Due after one year through five years
|
|
|
1,027.1
|
|
|
|
1,013.5
|
|
|
|
733.7
|
|
|
|
722.0
|
|
Due after five years
|
|
|
143.3
|
|
|
|
140.1
|
|
|
|
191.8
|
|
|
|
189.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,883.9
|
|
|
$
|
1,863.9
|
|
|
$
|
1,640.4
|
|
|
$
|
1,624.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average maturity of our marketable securities as of
June 30, 2009 and December 31, 2008, was
15 months and 13 months, respectively.
Impairments
Other-than-Temporary
Impairments
In April 2009, the FASB issued FSP
No. FAS 115-2
and
FAS 124-2,
Recognition and Presentation of Other-than-Temporary
Impairments, or FSP
FAS 115-2,
which amended the other-than-temporary impairment model for debt
securities. The impairment model for equity securities was not
affected.
Under this FSP, an other-than-temporary impairment must be
recognized through earnings if an investor has the intent to
sell the debt security or if it is more likely than not that the
investor will be required to sell the debt security before
recovery of its amortized cost basis. However, even if an
investor does not expect to sell a debt security, it must
evaluate expected cash flows to be received and determine if a
credit loss has occurred. In the event of a credit loss, only
the amount associated with the credit loss is recognized in
income. The amount of loss relating to other factors is recorded
in accumulated other comprehensive income. The FSP also requires
additional disclosures regarding the calculation of credit
losses and the factors considered in reaching a conclusion that
an investment is not other-than-temporarily impaired.
We adopted the provisions of FSP
FAS 115-2
on April 1, 2009. The adoption of the FSP did not have a
material impact on our financial position or results of
operations.
Evaluating
Investments for Other-than-Temporary Impairments
We conduct periodic reviews to identify and evaluate each
investment that has an unrealized loss, in accordance with FSP
FAS 115-1,
The Meaning of Other-than-Temporary Impairment and its
Application to Certain Investments, or FSP FAS
115-1, and
FSP
FAS 115-2.
An unrealized loss exists when the current fair value of an
individual security is less than its amortized cost basis.
Unrealized losses on available-for-sale securities that are
15
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
determined to be temporary, and not related to credit loss, are
recorded, net of tax, in accumulated other comprehensive income.
For available-for-sale debt securities with unrealized losses,
management performs an analysis to assess whether we intend to
sell or whether we would more likely than not be required to
sell the security before the expected recovery of the amortized
cost basis. Where we intend to sell a security, or may be
required to do so, the securitys decline in fair value is
deemed to be other-than-temporary and the full amount of the
unrealized loss is recorded within earnings as an impairment
loss.
Regardless of our intent to sell a security, we perform
additional analysis on all securities with unrealized losses to
evaluate losses associated with the creditworthiness of the
security. Credit losses are identified where we do not expect to
receive cash flows sufficient to recover the amortized cost
basis of a security.
For equity securities, when assessing whether a decline in fair
value below our cost basis is other-than-temporary, we consider
the fair market value of the security, the duration of the
securitys decline, and the financial condition of the
issuer. We then consider our intent and ability to hold the
equity security for a period of time sufficient to recover our
carrying value. Where we have determined that we lack the intent
and ability to hold an equity security to its expected recovery,
the securitys decline in fair value is deemed to be
other-than-temporary and is recorded within earnings as an
impairment loss.
Recognition
and Measurement of Other-than-Temporary Impairment
Prior to our adoption of FSP
FAS 115-2
in the current quarter, we recognized impairments under the
previously effective guidance contained within SFAS 115,
Accounting for Certain Investments in Debt and Equity
Securities.
No impairment losses were recognized through earnings related to
available for sale securities during the three months ended
June 30, 2009. During the six months ended June 30,
2009, we recognized $3.6 million in charges for the
impairment of available for sale securities primarily related to
mortgage and asset backed securities when we lacked the ability
and intent to hold the securities to recovery.
For the three and six months ended June 30, 2008, we
recognized $2.9 million and $5.2 million,
respectively, in charges for the other-than-temporary impairment
of available-for-sale securities primarily related to mortgage
and asset backed securities.
During the three months ended June 30, 2009, we recognized
in other comprehensive income, before tax unrealized losses of
$0.7 million.
Strategic
Investments
We hold investments in equity securities of certain publicly
traded companies. These strategic investments are included in
investments and other assets on the accompanying consolidated
balance sheet.
No impairment losses were recognized related to our strategic
investments during the three months ended June 30, 2009.
During the six months ended June 30, 2009 we recognized
charges totaling $0.4 million for the impairment of
strategic investments that were determined to be
other-than-temporary.
For the three and six months ended June 30, 2008, we
recognized $0.9 million and $3.6 million,
respectively, in charges for the impairment of strategic
investments that were determined to be
other-than-temporary.
Non-Marketable
Securities
We hold investments in equity securities of certain privately
held biotechnology companies and biotechnology oriented venture
capital funds. The carrying value of these securities as of
June 30, 2009 and December 31, 2008,
16
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
was $92.5 million and $64.7 million, respectively.
These securities are included in investments and other assets on
the accompanying consolidated balance sheet.
For the three and six months ended June 30, 2009, we
recognized unrealized losses of $2.8 million and
$3.1 million, respectively, due to declines in the fair
value of the investments in venture capital funds, as compared
to $1.2 million and $4.8 million, respectively, during
the comparable period in the prior year.
We recognized charges for the impairment of investments in
privately held companies or funds that were determined to be
other-than-temporary
during the three and six month periods ended June 30, 2009
of $0.5 million and $1.9 million, respectively.
Charges for the impairment of investments in privately held
companies or funds that were determined to be
other-than-temporary
were recognized during the three and six month periods ended
June 30, 2008 in the amount of $1.0 million,
respectively.
Proceeds
from Marketable Securities, excluding Strategic
Investments
The proceeds from maturities and sales of marketable securities,
excluding strategic investments, which were primarily reinvested
and resulting realized gains and losses, were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
|
|
|
Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Proceeds from maturities and sales
|
|
$
|
579.9
|
|
|
$
|
473.9
|
|
|
$
|
1,637.6
|
|
|
$
|
1,391.9
|
|
Realized gains
|
|
$
|
8.2
|
|
|
$
|
1.1
|
|
|
$
|
13.9
|
|
|
$
|
10.7
|
|
Realized losses
|
|
$
|
0.6
|
|
|
$
|
0.5
|
|
|
$
|
2.0
|
|
|
$
|
4.8
|
|
The realized losses for the three and six months ended
June 30, 2009 and 2008 primarily relate to losses on the
sale of corporate debt securities and non-agency mortgage-backed
securities.
Securities
Lending
We have previously loaned certain securities from our portfolio
to other institutions. Such securities are classified as loaned
securities on the accompanying consolidated balance sheet.
Collateral for the loaned securities, consisting of cash or
other securities is maintained at a rate of approximately 102%
of the market value of each loaned security. We held collateral
in the amount of $30.0 million as of December 31,
2008. The cash collateral was recorded as collateral received
for loaned securities on the accompanying consolidated balance
sheet. No such loans were outstanding as of June 30, 2009
and accordingly no collateral was held as of June 30, 2009.
Forward
Contracts and Interest Rate Swaps
Effective January 1, 2009, we implemented Statement of
Financial Accounting Standards No. 161, Disclosures
About Derivative Instruments and Hedging Activities, or
SFAS 161. As a result of adopting this standard we have
provided additional information about our objectives for using
derivative instruments, the level of derivative activity we
engage in, and the effect of derivative instruments and related
hedged items on our financial position and performance. The
adoption of SFAS 161 did not affect our financial position
or results of operations.
Forward
Contracts
Due to the global nature of our operations, portions of our
revenues are in currencies other than the U.S. dollar. The
value of revenue measured in U.S. dollars is subject to
changes in currency exchange rates. In order to mitigate these
changes we use forward contracts to lock in exchange rates. We
do not engage in currency speculation.
All foreign currency forward contracts in effect as of
June 30, 2009 and December 31, 2008 had durations of 1
to 12 months. These contracts have been designated as cash
flow hedges and accordingly, to the extent effective, any
17
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
unrealized gains or losses on these foreign currency forward
contracts are reported in accumulated other comprehensive income
(loss). Realized gains and losses for the effective portion of
such contracts are recognized in revenue with the completion of
the underlying hedged transaction. To the extent ineffective,
hedge transaction gains and losses are reported in other income
(expense) at each reporting date.
Foreign currency forward contracts that were entered into to
hedge forecasted revenue were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
|
As of June 30,
|
|
|
As of December 31,
|
|
Foreign Currency:
|
|
2009
|
|
|
2008
|
|
|
Euro
|
|
$
|
379.5
|
|
|
$
|
489.4
|
|
Canadian Dollar
|
|
|
32.8
|
|
|
|
34.1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
412.3
|
|
|
$
|
523.5
|
|
|
|
|
|
|
|
|
|
|
The notional settlement amount of the foreign currency forward
contracts outstanding as of June 30, 2009 was approximately
$412.3 million. The portion of the fair value of these
contracts that was included in accumulated other comprehensive
income (loss) within total equity was a $31.7 million loss
as of June 30, 2009. We consider the impact of our and our
counterparties credit risk on the fair value of the
contracts as well as the ability of each party to execute its
obligations under the contract. As of June 30, 2009, credit
risk did not materially change the fair value of our foreign
currency forward contracts.
The notional settlement amount of the foreign currency forward
contracts outstanding as of December 31, 2008 was
approximately $523.5 million and the fair value of these
contracts resulted in a net unrealized loss of
$44.1 million which was included in accumulated other
comprehensive income (loss) within total equity.
In relation to our foreign currency forward contracts, we
recognized net gains of $1.7 million and net losses of
$0.8 million, respectively, in earnings due to hedge
ineffectiveness, during the three and six months ended
June 30, 2009, as compared to net losses of
$0.5 million and $1.2 million, respectively, during
the prior year comparative periods. We recognized
$9.2 million and $12.3 million, respectively, of
losses in product revenue for the settlement of certain
effective cash flow hedge instruments for the three and six
months ended June 30, 2009 as compared to losses recognized
in the amount of $10.1 million and $17.7 million,
respectively, during the prior year comparative periods. These
settlements were recorded in the same period as the related
forecasted revenue.
Interest
Rate Swaps
In connection with the issuance of our 6.0% and
6.875% Senior Notes in March 2008, we entered into interest
rate swaps for an aggregate notional amount of
$550.0 million, which were subsequently settled in December
2008. Under the settlement we received $53.9 million. As
the interest rate swaps were settled in 2008, no hedge
ineffectiveness was recognized for the three and six months
ended June 30, 2009. Net losses due to hedge
ineffectiveness of $3.7 and $5.0 million were recognized in
earnings for the three and six months ended June 30, 2008,
respectively.
Additionally, upon termination of the swaps in December 2008,
the carrying amount of the 6.875% Senior Notes increased
$62.8 million. This amount will be recognized as a
reduction of interest expense and amortized using the effective
interest rate method over the remaining life of the
6.875% Senior Notes. During the three and six months ended
June 30, 2009, approximately $1.3 million and
$2.6 million, respectively, was recorded as a reduction of
interest expense.
18
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Summary
of Derivatives designated as Hedging Instruments
The following table summarizes the fair value and presentation
in the consolidated balance sheets for derivatives designated as
hedging instruments under Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, or SFAS 133, as of
June 30, 2009 and December 31, 2008, respectively (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Contracts
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
|
June 30, 2009
|
|
Other current assets
|
|
$
|
|
|
|
Accrued expenses and other
|
|
$
|
31.8
|
|
December 31, 2008
|
|
Other current assets
|
|
$
|
1.9
|
|
|
Accrued expenses and other
|
|
$
|
46.0
|
|
As noted above, the interest rate swaps were settled in December
2008.
The following table summarizes the effect of derivative
instruments on the consolidated statements of income for the
three and six months ended June 30, 2009 and 2008 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
Recognized in
|
|
|
|
|
Reclassified from
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
Income on
|
|
|
Income
|
|
Income
|
|
|
Income
|
|
Amount of
|
|
|
|
Derivative
|
|
|
Statement
|
|
into Income
|
|
|
Statement
|
|
Gain/(Loss)
|
|
|
|
Gain/(Loss)
|
|
|
Location
|
|
Gain/(Loss)
|
|
|
Location
|
|
Recorded
|
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
(Effective Portion)
|
|
|
(Ineffective Portion)
|
|
(Ineffective Portion)
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(31.7
|
)
|
|
Revenue
|
|
$
|
(9.2
|
)
|
|
Other income (expense)
|
|
$
|
1.7
|
|
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(14.9
|
)
|
|
Revenue
|
|
$
|
(10.1
|
)
|
|
Other income (expense)
|
|
$
|
(0.5
|
)
|
Interest rate swap
|
|
$
|
|
|
|
Interest expense
|
|
$
|
|
|
|
Interest expense
|
|
$
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(31.7
|
)
|
|
Revenue
|
|
$
|
(12.3
|
)
|
|
Other income (expense)
|
|
$
|
(0.8
|
)
|
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
(14.9
|
)
|
|
Revenue
|
|
$
|
(17.7
|
)
|
|
Other income (expense)
|
|
$
|
(1.2
|
)
|
Interest rate swap
|
|
$
|
|
|
|
Interest expense
|
|
$
|
|
|
|
Interest expense
|
|
$
|
(5.0
|
)
|
Other
Derivatives
During the quarter ended June 30, 2009 we entered into
several foreign currency forward contracts to mitigate the
foreign currency risk related to certain intercompany
transactions. We have not elected hedge accounting for these
transactions. As of June 30, 2009 the notional amount of
these foreign currency contracts was $80.0 million. The
fair value of the foreign currency contracts was insignificant.
During the quarter, total gains of $1.4 million were
recognized as a component of other income (expense), net related
to the transactions.
|
|
7.
|
Property,
Plant and Equipment
|
Property, plant and equipment are recorded at historical cost,
net of accumulated depreciation of $588.8 million and
$537.0 million as of June 30, 2009 and
December 31, 2008, respectively.
19
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The following tables reflects the reconciliation at the
beginning and the end of the period of the carrying amount of
equity attributable to the shareholders of Biogen Idec Inc.,
equity attributable to noncontrolling interests, and total
equity (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended June 30, 2009
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
Biogen Idec Inc.
|
|
|
|
|
|
|
|
|
Biogen Idec Inc.
|
|
|
|
|
|
|
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Equity
|
|
|
Interest
|
|
|
Total Equity
|
|
|
Equity
|
|
|
Interest
|
|
|
Total Equity
|
|
|
Beginning Balance
|
|
$
|
5,987.7
|
|
|
$
|
32.6
|
|
|
$
|
6,020.3
|
|
|
$
|
5,532.7
|
|
|
$
|
24.7
|
|
|
$
|
5,557.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
142.9
|
|
|
|
2.0
|
|
|
|
144.9
|
|
|
|
206.6
|
|
|
|
1.4
|
|
|
|
208.0
|
|
Unrealized gains(losses) on securities available for sale, net
of tax of $(0.8) and $3.5
|
|
|
1.4
|
|
|
|
|
|
|
|
1.4
|
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
(6.1
|
)
|
Unrealized gains(losses) on foreign currency forward contracts,
net of tax of $2.6 and $(3.8)
|
|
|
(16.3
|
)
|
|
|
|
|
|
|
(16.3
|
)
|
|
|
6.5
|
|
|
|
|
|
|
|
6.5
|
|
Unrealized gains(losses) on pension benefit obligation, net of
tax of $0
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
58.4
|
|
|
|
(1.4
|
)
|
|
|
57.0
|
|
|
|
(2.7
|
)
|
|
|
(0.1
|
)
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
186.5
|
|
|
|
0.6
|
|
|
|
187.1
|
|
|
|
204.3
|
|
|
|
1.3
|
|
|
|
205.6
|
|
Distribution to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
(1.4
|
)
|
Capital contribution from noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
|
1.6
|
|
Repurchase of common stock for Treasury, at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(319.5
|
)
|
|
|
|
|
|
|
(319.5
|
)
|
Issuance of common stock from conversion of subordinated notes
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
Issuance of common stock under stock option and stock purchase
plans
|
|
|
7.3
|
|
|
|
|
|
|
|
7.3
|
|
|
|
61.2
|
|
|
|
|
|
|
|
61.2
|
|
Issuance of common stock under stock award plans
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
(1.8
|
)
|
Compensation expense related to share-based payments
|
|
|
42.5
|
|
|
|
|
|
|
|
42.5
|
|
|
|
35.0
|
|
|
|
|
|
|
|
35.0
|
|
Tax benefit from share-based payments
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
(9.5
|
)
|
|
|
10.9
|
|
|
|
|
|
|
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
6,212.5
|
|
|
$
|
33.2
|
|
|
$
|
6,245.7
|
|
|
$
|
5,522.9
|
|
|
$
|
26.2
|
|
|
$
|
5,549.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
Biogen Idec Inc.
|
|
|
|
|
|
|
|
|
Biogen Idec Inc.
|
|
|
|
|
|
|
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Equity
|
|
|
Interest
|
|
|
Total Equity
|
|
|
Equity
|
|
|
Interest
|
|
|
Total Equity
|
|
|
Beginning Balance
|
|
$
|
5,806.1
|
|
|
$
|
27.9
|
|
|
$
|
5,834.0
|
|
|
$
|
5,534.3
|
|
|
$
|
19.7
|
|
|
$
|
5,554.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
386.8
|
|
|
|
4.6
|
|
|
|
391.4
|
|
|
|
369.7
|
|
|
|
4.2
|
|
|
|
373.9
|
|
Unrealized gains(losses) on securities available for sale, net
of tax of $(2.0) and $3.3
|
|
|
3.5
|
|
|
|
|
|
|
|
3.5
|
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
(7.6
|
)
|
Unrealized gains(losses) on foreign currency forward contracts,
net of tax of $(0.5) and $3.1
|
|
|
11.9
|
|
|
|
|
|
|
|
11.9
|
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
(5.3
|
)
|
Unrealized gains on pension benefit obligation, net of tax of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
Translation adjustment
|
|
|
7.0
|
|
|
|
0.7
|
|
|
|
7.7
|
|
|
|
54.7
|
|
|
|
1.7
|
|
|
|
56.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
409.2
|
|
|
|
5.3
|
|
|
|
414.5
|
|
|
|
411.6
|
|
|
|
5.9
|
|
|
|
417.5
|
|
Distribution to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
(1.4
|
)
|
Capital contribution from noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
2.0
|
|
Repurchase of common stock for Treasury, at cost
|
|
|
(57.6
|
)
|
|
|
|
|
|
|
(57.6
|
)
|
|
|
(559.7
|
)
|
|
|
|
|
|
|
(559.7
|
)
|
Issuance of common stock from conversion of subordinated notes
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
Issuance of common stock under stock option and stock purchase
plans
|
|
|
24.4
|
|
|
|
|
|
|
|
24.4
|
|
|
|
89.5
|
|
|
|
|
|
|
|
89.5
|
|
Issuance of common stock under stock award plans
|
|
|
(38.4
|
)
|
|
|
|
|
|
|
(38.4
|
)
|
|
|
(41.7
|
)
|
|
|
|
|
|
|
(41.7
|
)
|
Compensation expense related to share-based payments
|
|
|
82.0
|
|
|
|
|
|
|
|
82.0
|
|
|
|
71.3
|
|
|
|
|
|
|
|
71.3
|
|
Tax benefit from share-based payments
|
|
|
(13.2
|
)
|
|
|
|
|
|
|
(13.2
|
)
|
|
|
17.5
|
|
|
|
|
|
|
|
17.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
6,212.5
|
|
|
$
|
33.2
|
|
|
$
|
6,245.7
|
|
|
$
|
5,522.9
|
|
|
$
|
26.2
|
|
|
$
|
5,549.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The adoption of SFAS 160 has resulted in the
reclassification of amounts previously attributable to minority
interest, now referred to as noncontrolling interest, to a
separate component of total equity on the accompanying
consolidated balance sheet. Additionally, net income
attributable to noncontrolling interest is shown separately from
net income in the consolidated statements of income. This
reclassification had no effect on our previously reported
financial position or results of operations. Refer to
Note 1, Business Overview, and Note 12,
Other Income (Expense), Net, of this
Form 10-Q
for additional information on the adoption of SFAS 160.
Prior year amounts related to noncontrolling interest have been
reclassified to conform to the current year presentation as
required by SFAS 160.
21
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Basic and diluted earnings per share are calculated as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec Inc.
|
|
$
|
142.8
|
|
|
$
|
206.6
|
|
|
$
|
386.8
|
|
|
$
|
369.7
|
|
Adjustment for net income allocable to preferred stock
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income used in calculating basic and diluted earnings per
share
|
|
$
|
142.6
|
|
|
$
|
206.3
|
|
|
$
|
386.1
|
|
|
$
|
369.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
288.6
|
|
|
|
290.4
|
|
|
|
288.2
|
|
|
|
293.3
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and employee stock purchase plan
|
|
|
0.7
|
|
|
|
1.9
|
|
|
|
0.7
|
|
|
|
2.0
|
|
Time-vested restricted stock units
|
|
|
1.1
|
|
|
|
1.2
|
|
|
|
1.1
|
|
|
|
1.2
|
|
Performance-vested restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
1.8
|
|
|
|
3.1
|
|
|
|
1.8
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculating diluted earnings per share
|
|
|
290.4
|
|
|
|
293.5
|
|
|
|
290.0
|
|
|
|
296.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following amounts were not included in the calculation of
net income per share because their effects were anti-dilutive or
the performance criteria had not been met for the
performance-vested restricted stock units (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to preferred stock
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
$
|
0.7
|
|
|
$
|
0.6
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
7.4
|
|
|
|
4.0
|
|
|
|
7.3
|
|
|
|
5.2
|
|
Time-vested restricted stock units
|
|
|
1.1
|
|
|
|
0.2
|
|
|
|
1.1
|
|
|
|
0.2
|
|
Performance-vested restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9.0
|
|
|
|
4.7
|
|
|
|
8.9
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective January 1, 2009, we implemented FSP
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities, or FSP
EITF 03-6-1.
FSP
EITF 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting, and
therefore need to be included in the earnings allocation in
computing earnings per share under the two-class method as
described in Statement of Financial Accounting Standards
No. 128, Earnings per Share. Under the guidance of
FSP
EITF 03-6-1,
unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend
22
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
equivalents, whether paid or unpaid, are participating
securities and shall be included in the computation of earnings
per share pursuant to the two-class method. Our awards do not
have nonforfeitable rights to dividends or dividend equivalents
and therefore the adoption of this FSP did not impact our
financial position or results of operations.
Our share-based compensation programs consist of share-based
awards which include stock options, time-vested restricted stock
units and performance-vested restricted stock units, as well as
our employee stock purchase plan.
Shared-based
compensation expense
For the three and six months ended June 30, 2009 and 2008,
share-based compensation expense recorded in accordance with
Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payments, or
SFAS 123(R), reduced our results of operations as follows
(in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Effect on
|
|
|
Effect on
|
|
|
|
Net Income
|
|
|
Net Income
|
|
|
Income before income taxes
|
|
$
|
(41.1
|
)
|
|
$
|
(33.1
|
)
|
|
$
|
(78.9
|
)
|
|
$
|
(67.6
|
)
|
Tax effect
|
|
|
12.7
|
|
|
|
10.0
|
|
|
|
24.2
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec, Inc.
|
|
$
|
(28.4
|
)
|
|
$
|
(23.1
|
)
|
|
$
|
(54.7
|
)
|
|
$
|
(46.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense and capitalized share-based
costs for the three and six months ended June 30, 2009 and
2008 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended June 30, 2009
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
Stock
|
|
|
Restricted Stock
|
|
|
|
|
|
Stock
|
|
|
Restricted Stock
|
|
|
|
|
|
|
Options
|
|
|
and Restricted
|
|
|
|
|
|
Options
|
|
|
and Restricted
|
|
|
|
|
|
|
& ESPP
|
|
|
Stock Units
|
|
|
Total
|
|
|
& ESPP
|
|
|
Stock Units
|
|
|
Total
|
|
|
Research and development
|
|
$
|
1.2
|
|
|
$
|
12.9
|
|
|
$
|
14.1
|
|
|
$
|
1.4
|
|
|
$
|
12.8
|
|
|
$
|
14.2
|
|
Selling, general and administrative
|
|
|
5.2
|
|
|
|
23.2
|
|
|
|
28.4
|
|
|
|
3.8
|
|
|
|
17.0
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6.4
|
|
|
$
|
36.1
|
|
|
$
|
42.5
|
|
|
$
|
5.2
|
|
|
$
|
29.8
|
|
|
$
|
35.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized share-based payment costs
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
$
|
41.1
|
|
|
|
|
|
|
|
|
|
|
$
|
33.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
Stock
|
|
|
Restricted Stock
|
|
|
|
|
|
Stock
|
|
|
Restricted Stock
|
|
|
|
|
|
|
Options
|
|
|
and Restricted
|
|
|
|
|
|
Options
|
|
|
and Restricted
|
|
|
|
|
|
|
& ESPP
|
|
|
Stock Units
|
|
|
Total
|
|
|
& ESPP
|
|
|
Stock Units
|
|
|
Total
|
|
|
Research and development
|
|
$
|
3.4
|
|
|
$
|
27.0
|
|
|
$
|
30.4
|
|
|
$
|
3.8
|
|
|
$
|
28.0
|
|
|
$
|
31.8
|
|
Selling, general and administrative
|
|
|
9.8
|
|
|
|
41.8
|
|
|
|
51.6
|
|
|
|
7.2
|
|
|
|
32.3
|
|
|
|
39.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13.2
|
|
|
$
|
68.8
|
|
|
$
|
82.0
|
|
|
$
|
11.0
|
|
|
$
|
60.3
|
|
|
$
|
71.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized share-based payment costs
|
|
|
|
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
$
|
78.9
|
|
|
|
|
|
|
|
|
|
|
$
|
67.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
The fair values of our stock option grants are estimated as of
the date of grant using a Black-Scholes option valuation model.
The estimated fair values of the stock options, including the
effect of estimated forfeitures, are then expensed over the
options vesting periods.
During the six months ended June 30, 2009, approximately
996,000 stock options were granted with a weighted average
exercise price of $50.05 per share. Approximately 825,000 of
these stock options were granted during the first quarter of
2009, of which approximately 775,000 were granted in connection
with our annual awards made in February; the remainder of the
stock options granted during the six months ended June 30,
2009 were made in conjunction with promotions or hiring of
employees and grants made to members of our Board of Directors.
During the six months ended June 30, 2008, approximately
1.3 million stock options were granted with a weighted
average exercise price of $60.70 per share. Approximately
1.2 million of these stock options were granted during the
first quarter of 2008, of which approximately 1.1 million
were granted in connection with our annual awards made in
February; the remainder of the stock options granted during the
six months ended June 30, 2008 were made in conjunction
with the promotion or hiring of employees and grants made to
members of our Board of Directors.
Stock options awarded as part of the annual award in each of
February 2009 and 2008 were granted with exercise prices of
$49.65 per share and $60.56 per share, respectively, except the
grants to our Chief Executive Officer, which were granted with
exercise prices of $50.55 per share and $63.24 per share,
respectively.
In the three and six months ended June 30, 2009, we
recognized $6.0 million and $11.2 million,
respectively, of share-based compensation expense related to
stock options awarded as compared to $4.7 million and
$9.5 million, respectively, during the prior year
comparative periods.
24
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
The fair values of the stock option grants awarded for the six
months ended June 30, 2009 and 2008 were estimated as of
the date of grant using a Black-Scholes option valuation model
that uses the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected stock price volatility
|
|
|
39.3
|
%
|
|
|
34.4
|
%
|
Risk-free interest rate
|
|
|
1.9
|
%
|
|
|
2.5
|
%
|
Expected option life in years
|
|
|
4.7
|
|
|
|
5.1
|
|
Weighted average per share grant date fair value
|
|
$
|
18.03
|
|
|
$
|
21.07
|
|
Time-Vested
Restricted Stock Units
The fair values of our time-vested restricted stock units, or
RSUs, are based on the market value of our stock on the date of
grant and are recognized over the applicable service period,
adjusted for the effect of estimated forfeitures.
During the six months ended June 30, 2009, approximately
2.4 million RSUs were granted with a weighted average grant
date fair value of $49.37 per share. Approximately
2.3 million of these RSUs were granted during the first
quarter of 2009, of which approximately 2.1 million of
these RSUs were granted in connection with our annual awards
made in February; the remainder of the RSUs granted during the
six months ended June 30, 2009 were made in conjunction
with promotions or hiring of employees and grants made to
members of our Board of Directors.
During the six months ended June 30, 2008, approximately
2.6 million RSUs were granted with a weighted average grant
date fair value of $60.60 per share. Approximately
2.5 million of these RSUs were granted during the first
quarter of 2008, of which approximately 2.4 million were
granted in connection with our annual awards made in February;
the remainder of the RSUs granted during the six months ended
June 30, 2008 were made in conjunction with the promotion
or hiring of employees and grants made to members of our Board
of Directors.
RSUs awarded as part of the annual grant in each of February
2009 and 2008 had grant date fair values of $49.65 per share and
$60.56 per share, respectively, except the grants to our Chief
Executive Officer, which had grant date fair values of $50.55
per share and $63.24 per share, respectively.
For the three and six months ended June 30, 2009, we
recognized approximately $33.9 million and
$65.4 million, respectively, of share-based compensation
expense related to RSU, as compared to approximately
$29.9 million and $59.1 million, respectively,
recognized in the prior year comparative periods.
Performance-Vested
Restricted Stock Units
We apply a graded vesting expense methodology when accounting
for our performance-vested restricted stock units, or PVRSUs, in
accordance with SFAS 123(R). For the three and six months
ended June 30, 2009, we recorded $2.2 million and
$3.4 million, respectively, of share-based compensation
expense related to PVRSUs as compared to $0.1 million and
$0.7 million, respectively, for the prior year comparative
periods.
During the six months ended June 30, 2009, approximately
318,000 PVRSUs were granted with a weighted average grant date
fair value of $49.48 per share. Approximately 307,000 of these
PVRSUs were granted during the first quarter of 2009, of which
approximately 291,000 were in connection with our annual awards
made in February; the remainder of the PVRSUs granted during the
six months ended June 30, 2009 were made in conjunction
with promotions or hiring of employees. These PVRSUs are
eligible to vest in full or in part and are earned subject to
the attainment of certain performance criteria established at
the beginning of the performance period; the performance
25
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
period ends December 31, 2009. Once the earned number of
performance-vested awards have been determined, the earned
PVRSUs will then vest in three equal increments on (1) the
later of the first anniversary of the grant date or the date of
results determination; (2) the second anniversary of the
grant date; and (3) the third anniversary of the grant
date. The vesting of these awards are also subject to the
respective employees continued employment. The fair values
of these PVRSUs are based on the market price of our stock on
the date of grant. Compensation expense associated with these
PVRSUs is initially based upon the number of shares expected to
vest after assessing the probability that certain performance
criteria will be met and the associated targeted payout level
that is forecasted will be achieved, net of estimated
forfeitures. Cumulative adjustments are recorded quarterly to
reflect subsequent changes in the estimated outcome of
performance-related conditions until the date results are
determined.
During 2007, our Board of Directors awarded a total of 120,000
PVRSUs to Dr. Cecil Pickett, our President, Research and
Development. Vesting of these PVRSUs is subject to certain
performance criteria established at the beginning of each of
four performance periods, beginning January 1 on each of 2007,
2008, 2009 and 2010. Up to 30,000 PVRSUs are eligible to vest
each performance period and convert into shares of our common
stock subject to attainment of certain performance criteria and
Dr. Picketts continued employment through the end of
the respective performance period; the performance periods end
on December 31, 2007, December 31, 2008,
December 31, 2009 and September 30, 2010. The fair
values of the PVRSUs granted to Dr. Pickett are based on
the market price of our stock on the date of grant, adjusted
quarterly for subsequent changes in the market price of our
stock. As of June 30, 2008, a total of 27,000 shares
were issued based upon the attainment of performance criteria
set for 2007. As of June 30, 2009, an additional
30,000 shares were issued based on the attainment of
performance criteria set for 2008.
Employee
Stock Purchase Plan
The purchase price of common stock under the employee stock
purchase plan, or ESPP, is equal to 85% of the lower of
(i) the market value per share of the common stock on the
participants entry date into an offering period or
(ii) the market value per share of the common stock on the
Purchase Date. However, for each participant whose entry date is
other than the start date of the offering period, the amount
shall in no event be less than the market value per share of the
common stock as of the beginning of the related offering period.
The fair value of the discounted purchases made under the
employee stock purchase plan are calculated using the
Black-Scholes model. The fair value of the look-back provision
plus the 15% discount is recognized as compensation expense over
the purchase period. We apply a graded vesting approach since
our ESPP provides for multiple purchase periods and is, in
substance, a series of linked awards.
During the three and six months ended June 30, 2009, a
total of approximately 0.1 million and 0.3 million
shares, respectively, were issued under the ESPP as compared to
a total of approximately 0.1 million and 0.3 million
shares, respectively, issued during the prior year comparative
periods.
For the three and six months ended June 30, 2009, we
recognized approximately $0.4 million and
$2.0 million, respectively, of share-based compensation
expense in relation to the ESPP as compared to approximately
$0.5 million and $1.6 million, respectively,
recognized in the prior year comparative periods.
Our effective tax rate was 39.0% and 28.7% for the three and six
months ended June 30, 2009, respectively, compared to 28.9%
and 31.0% for the prior year comparative periods.
The effective tax rate for the six months ended June 30,
2009 was favorably impacted by changes in tax law that became
effective during 2009 in certain state jurisdictions in which we
operate. These changes required us to establish assets for
certain tax credits and adjust certain deferred tax liabilities
and reserves for uncertain tax positions, having a favorable
effect of 5.5%. This favorable effect was offset by the impact
of the collaboration and license agreement entered into with
Acorda Therapeutics, Inc., or Acorda. There is no income tax
benefit associated
26
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
with the upfront payment made to Acorda, by a
non-U.S. affiliate,
which had a 7.5% and 2.3% unfavorable effect for the three and
six months ended June 30, 2009, respectively. Refer to
Note 13, Collaborations, of this
Form 10-Q
for additional information related to the Acorda transaction.
Our effective tax rate for the six months ended June 30,
2008 was favorably impacted by the restructuring of our
operations in foreign jurisdictions as well as other activities.
Reconciliation between the U.S. federal statutory tax rate
and our effective tax rate for the three and six months ended
June 30, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes
|
|
|
4.1
|
|
|
|
1.6
|
|
|
|
1.1
|
|
|
|
2.2
|
|
Taxes on foreign earnings
|
|
|
(2.7
|
)
|
|
|
(11.2
|
)
|
|
|
(4.4
|
)
|
|
|
(10.0
|
)
|
Credits and net operating loss utilization
|
|
|
(1.3
|
)
|
|
|
0.5
|
|
|
|
(5.9
|
)
|
|
|
(0.5
|
)
|
Fair value adjustment
|
|
|
4.4
|
|
|
|
3.6
|
|
|
|
2.8
|
|
|
|
3.5
|
|
IPR&D
|
|
|
1.4
|
|
|
|
|
|
|
|
1.2
|
|
|
|
1.6
|
|
Non-deductible items
|
|
|
(2.6
|
)
|
|
|
(0.7
|
)
|
|
|
(1.8
|
)
|
|
|
(0.8
|
)
|
Other
|
|
|
0.7
|
|
|
|
0.1
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
39.0
|
%
|
|
|
28.9
|
%
|
|
|
28.7
|
%
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On September 12, 2006, we received a Notice of Assessment
from the Massachusetts Department of Revenue for
$38.9 million, including penalties and interest, with
respect to the 2002 tax year. Subsequently, we filed a petition
with the Massachusetts Appellate Tax Board, seeking among other
items, abatements of corporate excise tax for the 2001, 2002 and
2003 tax years. We believe that we have meritorious defenses to
the proposed adjustment and are vigorously opposing the
assessment. We believe that the assessment does not impact the
level of liabilities for income tax contingencies. However,
there is a possibility that we may not prevail in all of our
assertions. If this is resolved unfavorably in the future, it
could have a material impact on our results of operations in the
period the resolution occurs. We are subject to examinations by
the Massachusetts Department of Revenue for additional tax years
and, therefore, may be assessed for a similar proposed
adjustment to those additional tax years. Refer to Note 14,
Litigation, of this
Form 10-Q
for additional information.
We file income tax returns in the United States federal
jurisdiction, and various states and foreign jurisdictions. With
few exceptions, we are no longer subject to U.S. federal,
state and local, or
non-U.S. income
tax examinations by tax authorities for years before 2001.
During the second quarter of 2007, the Internal Revenue Service,
or IRS, completed its examination of our consolidated federal
income tax returns for the fiscal years 2003 and 2004 and issued
an assessment. During the first quarter of 2009 the IRS
completed an examination of our consolidated federal income tax
returns for fiscal years 2005 and 2006 and issued an assessment.
Our level of liabilities for income tax contingencies
approximate those amounts for items agreed to with the IRS; we
are appealing several other items. If this is resolved
unfavorably in the future, the outcome could have an impact on
our results of operations in the period the resolution occurs.
27
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
|
|
12.
|
Other
Income (Expense), Net
|
Total other income (expense), net, consists of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Interest income
|
|
$
|
12.1
|
|
|
$
|
15.3
|
|
|
$
|
26.9
|
|
|
$
|
38.2
|
|
Interest expense
|
|
|
(9.3
|
)
|
|
|
(13.9
|
)
|
|
|
(19.2
|
)
|
|
|
(29.6
|
)
|
Impairments of investments
|
|
|
(3.5
|
)
|
|
|
(5.9
|
)
|
|
|
(9.6
|
)
|
|
|
(14.6
|
)
|
Other, net
|
|
|
15.4
|
|
|
|
0.5
|
|
|
|
23.4
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
14.7
|
|
|
$
|
(4.0
|
)
|
|
$
|
21.5
|
|
|
$
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
on Investments
During the three and six months ended June 30, 2009, we
recognized impairment losses of $3.5 million and
$6.0 million, respectively on our strategic investments and
non-marketable securities. In addition, during the three and six
months ended June 30, 2008, we recognized $3.0 million
and $9.4 million, respectively, in charges for the
impairment of strategic investments and non-marketable
securities that were determined to be
other-than-temporary.
No impairment losses were recognized through earnings related to
available for sale securities during the three months ended
June 30, 2009. For the six months ended June 30, 2009,
we recognized $3.6 million in charges for the impairment of
available for sale securities primarily related to mortgage and
asset backed securities when we lacked the ability and intent to
hold the securities to recovery.
For the three and six months ended June 30, 2008, we
recognized $2.9 million and $5.2 million,
respectively, in charges for the other-than-temporary impairment
of available for sale securities primarily related to mortgage
and asset backed securities.
Other,
net
During the three and six months ended June 30, 2009, Other,
net included net gains on foreign currency of $1.9 million
and $7.4 million, respectively, and reflected
$7.5 million and $11.9 million, respectively, in net
realized gains on marketable securities. Other, net for the
three and six months ended June 30, 2009 also included a
$2.8 million gain recognized on the sale of two strategic
equity investments.
Other, net for the three and six months ended June 30, 2008
included gains on sales of marketable securities of
$0.6 million and $6.0 million, respectively. Other,
net for the six months ended June 30, 2008 also included
losses on foreign currency of $0.9 million and hedge
ineffectiveness of $1.2 million, offset by a VAT refund of
$3.8 million.
Noncontrolling
Interest
Prior year amounts related to noncontrolling interest (minority
interest), historically reflected as a component of other income
(expense), net, have been reclassified to conform to current
year presentation as required by SFAS 160. The adoption of
SFAS 160 has resulted in the reclassification of amounts
previously reported as minority interest totaling
$2.0 million and $4.6 million, being shown separately
from net income in the accompanying consolidated statement of
income for the three and six months ended June 30, 2009,
respectively, as compared to $1.4 million and
$4.2 million, respectively, in the prior year comparative
periods. This reclassification did not have
28
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
a material impact on our previously reported financial position
or results of operations. Refer to Note 1, Business
Overview, and Note 8, Equity, of this
Form 10-Q
for additional information on the adoption of SFAS 160.
In connection with our business strategy, we have entered into
various collaboration agreements which provide us with rights to
develop, produce and market products using certain know-how,
technology and patent rights maintained by our collaborative
partners. Terms of the various collaboration agreements may
require us to make milestone payments upon the achievement of
certain product research and development objectives and pay
royalties on future sales, if any, of commercial products
resulting from the collaboration.
EITF
No. 07-01,
Accounting for Collaborative Arrangements, or
EITF 07-01,
prescribes that certain transactions between collaborators be
recorded in the income statement on either a gross or net basis,
depending on the characteristics of the collaboration
relationship, and provides for enhanced disclosure of
collaborative relationships. In accordance with
EITF 07-01,
we evaluate our collaborative agreements for proper income
statement classification based on the nature of the underlying
activity. If payments to and from our collaborative partners are
not within the scope of other authoritative accounting
literature, the income statement classification for the payments
is based on a reasonable, rational analogy to authoritative
accounting literature that is applied in a consistent manner.
Amounts due from our collaborative partners related to
development activities are generally reflected as a reduction of
research and development expense because the performance of
contract development services is not central to our operations.
For collaborations with commercialized products, if we are the
principal, as defined in EITF
No. 99-19,
Reporting Revenue as a Principal versus Net as an Agent,
or
EITF 99-19,
we record revenue and the corresponding operating costs in their
respective line items within our statement of income. If we are
not the principal, we record operating costs as a reduction of
revenue.
EITF 99-19
describes the principal as the party who is responsible for
delivering the product or service to the customer, has latitude
to determine price, and has the risks and rewards of providing
product or service to the customer, including inventory and
credit risk. The adoption of
EITF 07-01
did not impact our financial position or results of operations;
however it resulted in enhanced disclosures for our
collaboration activities.
Genentech
We collaborate with Genentech, Inc., or Genentech, wholly-owned
subsidiary of Roche Holdings, Inc., on the development and
commercialization of RITUXAN. We also have rights to collaborate
with Genentech on the development and commercialization of
(1) anti-CD20 products that Genentech acquires or develops,
which we refer to as New Anti-CD20 Products, and
(2) anti-CD20 products that Genentech licenses from a third
party, which we refer to as Third Party Anti-CD20 Products.
Currently, there is only one New Anti-CD20 Product, ocrelizumab,
and only one Third Party Anti-CD20 Product, GA101. Our
collaboration rights for New Anti-CD20 Products are limited to
the United States and our collaboration rights for Third Party
Anti-CD20 Products are dependent upon Genentechs
underlying license rights. A joint development committee, or
JDC, composed of three members from each company must
unanimously approve a development plan for each specific
indication of certain pharmaceutical products, and Genentech has
responsibility for implementation of JDC approved development
plans in accordance with the provisions of our collaboration
agreement. In the event that we undergo a change in control, as
defined in the collaboration agreement, Genentech has the right
to present an offer to buy the rights to RITUXAN, and we must
either accept Genentechs offer or purchase
Genentechs rights to RITUXAN on the same terms as its
offer. If Genentech presents such an offer, then they will be
deemed concurrently to have exercised a right, in exchange for a
royalty on net sales in the United States of any anti-CD20
product acquired or developed by Genentech or any anti-CD20
product that Genentech licenses from a third party that is
developed under the agreement, to purchase our interest in each
such product. Our collaboration with Genentech was created
through a contractual arrangement and not through a joint
venture or other legal entity.
29
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
While Genentech is responsible for the worldwide manufacturing
of RITUXAN, development and commercialization rights and
responsibilities under this collaboration are divided as follows:
United
States
We share with Genentech co-exclusive rights to develop,
commercialize and market RITUXAN and New Anti-CD20 Products in
the United States. Although we contribute to the marketing and
continued development of RITUXAN, we have a limited sales force
dedicated to RITUXAN and limited development activity. Genentech
is primarily responsible for the commercialization of RITUXAN in
the United States. Its responsibilities include selling and
marketing, customer service, order entry, distribution, shipping
and billing, and other administrative support. Genentech also
incurs the majority of continuing development costs for RITUXAN.
Canada
We and Genentech have assigned our rights to develop,
commercialize and market RITUXAN, in Canada to F.
Hoffman-La Roche Ltd., or Roche.
Outside
the United States and Canada
We have granted Genentech exclusive rights to develop,
commercialize and market RITUXAN outside the United States and
Canada. Under the terms of separate sublicense agreements
between Genentech and Roche, development and commercialization
of RITUXAN outside the United States and Canada is the
responsibility of Roche, except in Japan where RITUXAN is
co-marketed by Zenyaku Kogyo Co. Ltd., or Zenyaku, and Chugai
Pharmaceutical Co. Ltd, or Chugai, an affiliate of Roche. We do
not have any direct contractual arrangements with Roche, Zenyaku
or Chugai for such development or commercialization.
Revenues from unconsolidated joint business consists of
(1) our share of pretax co-promotion profits in the United
States (2) reimbursement of selling and development
expenses in the United States; and (3) revenue on sales of
RITUXAN outside the United States, which consist of our share of
pretax co-promotion profits in Canada and royalty revenue on
sales of RITUXAN outside the United States and Canada by Roche,
Zenyaku and Chugai. Pre-tax co-promotion profits are calculated
and paid to us by Genentech in the United States and by Roche in
Canada. Pre-tax co-promotion profits consist of Unites States
and Canadian sales of RITUXAN to third-party customers net of
discounts and allowances less the cost to manufacture RITUXAN,
third-party royalty expenses, distribution, selling, and
marketing expenses, and joint development expenses incurred by
Genentech, Roche and us. We record our royalty and co-promotion
profits revenue on sales of RITUXAN outside the United States on
a cash basis.
Revenues from unconsolidated joint business consist of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Co-promotion profits in the United States
|
|
$
|
198.5
|
|
|
$
|
177.7
|
|
|
$
|
378.0
|
|
|
$
|
335.7
|
|
Reimbursement of selling and development expenses in the
United States
|
|
|
16.7
|
|
|
|
15.9
|
|
|
|
31.7
|
|
|
|
28.6
|
|
Revenue on sales of RITUXAN outside the United States
|
|
|
60.4
|
|
|
|
85.2
|
|
|
|
144.7
|
|
|
|
161.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated joint business
|
|
$
|
275.6
|
|
|
$
|
278.8
|
|
|
$
|
554.4
|
|
|
$
|
526.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Under the collaboration agreement, our current pretax
co-promotion profit-sharing formula, which resets annually, is
stated within the table below. In 2009 and 2008, the 40%
threshold was met during the first quarter.
|
|
|
|
|
|
|
Biogen Idecs
|
|
|
|
Share of
|
|
|
|
Co-promotion
|
|
Co-promotion Operating Profits
|
|
Profits
|
|
|
First $50 million
|
|
|
30
|
%
|
Greater than $50 million
|
|
|
40
|
%
|
Our agreement with Genentech provides that the successful
development and commercialization of the first New Anti-CD20
Product will decrease our percentage of co-promotion profits of
the collaboration and that we will participate in Third Party
Anti-CD20 Products on similar financial terms as for
ocrelizumab. Specifically, for each calendar year or portion
thereof following the approval date of the first New Anti-CD20
Product, the pretax co-promotion profit-sharing formula for
RITUXAN and New Anti-CD20 Products sold by us and Genentech will
change as follows.
|
|
|
|
|
|
|
|
|
|
|
Biogen Idecs
|
|
|
|
|
|
Share of
|
|
|
|
First New Anti-CD20 Product U.S.
|
|
Co-promotion
|
|
Co-promotion Operating Profits
|
|
Gross Product Sales
|
|
Profits
|
|
|
First $50 million(1)
|
|
Not Applicable
|
|
|
30
|
%
|
Greater than $50 million
|
|
Until such sales exceed $150 million
in any calendar year(2)
|
|
|
38
|
%
|
|
|
Or
|
|
|
|
|
|
|
After such sales exceed $150 million in
any calendar year until such sales
exceed $350 million in any calendar year(3)
|
|
|
35
|
%
|
|
|
Or
|
|
|
|
|
|
|
After such sales exceed $350 million in
any calendar year(4)
|
|
|
30
|
%
|
|
|
|
(1) |
|
not applicable in the calendar year the first New Anti-CD20
Product is approved if $50 million in co-promotion
operating profits has already been achieved in such calendar
year through sales of RITUXAN. |
|
(2) |
|
if we are recording our share of RITUXAN co-promotion profits at
40%, upon the approval date of the first New Anti-CD20 Product,
our share of co-promotion profits for RITUXAN and the New
Anti-CD20 Product will be immediately reduced to 38% following
the approval date of the first New Anti-CD20 Product until the
$150 million in first New Anti-CD20 Product sales level is
achieved. |
|
(3) |
|
if $150 million in first New Anti-CD20 Product sales is
achieved in the same calendar year the first New Anti-CD20
Product receives approval, then the 35% co-promotion
profit-sharing rate will not be effective until January 1 of the
following calendar year. Once the $150 million in first New
Anti-CD20 Product sales level is achieved then our share of
co-promotion profits for the balance of the year and all
subsequent years (after the first $50 million in
co-promotion operating profits in such years) will be 35% until
the $350 million in first New Anti-CD20 Product sales level
is achieved. |
|
(4) |
|
if $350 million in first New Anti-CD20 Product sales is
achieved in the same calendar year that $150 million in new
product sales is achieved, then the 30% co-promotion
profit-sharing rate will not be effective until January 1 of the
following calendar year (or January 1 of the second following
calendar year if the first New Anti-CD20 Product receives
approval and, in the same calendar year, the $150 million
and $350 million in first New Anti-CD20 Product sales
levels are achieved). Once the $350 million in first New
Anti-CD20 Product sales level is achieved then our share of
co-promotion profits for the balance of the year and all
subsequent years will be 30%. |
31
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Currently, we record our share of the expenses incurred by the
collaboration for the development of New Anti-CD20 Products in
research and development expense in our consolidated statement
of income. After a New Anti-CD20 Product is approved, we will
record our share of the development expenses related to that
product as a reduction of our share of pretax co-promotion
profits in revenues from unconsolidated joint business. We
incurred $17.7 million and $32.7 million in
development expense related to New Anti-CD20 products for the
three and six months ended June 30, 2009, respectively, as
compared to $10.6 million and $22.5 million,
respectively, during the prior year comparative periods.
Reimbursement to Genentech for our share of these costs occurs
through the net amount of co-promotion profits in the United
States remitted to us.
Elan
We have a collaboration agreement with Elan to collaborate in
the development, manufacture and commercialization of TYSABRI.
Under the terms of the agreement, we manufacture TYSABRI and
collaborate with Elan on the products marketing,
commercial distribution and on-going development activities. The
collaboration with Elan is designed to effect an equal sharing
of profits and losses generated by the activities of the
collaboration between Elan and us. Under the agreement, however,
once sales of TYSABRI exceeded specific thresholds, Elan was
required to make milestone payments to us in order to continue
sharing equally in the collaborations results. As of
June 30, 2009, Elan has paid to us milestone payments of
$75.0 million in the third quarter of 2008 and
$50.0 million in the first quarter of 2009. We have
recorded these amounts as deferred revenue upon receipt and are
recognizing the entire $125.0 million as product revenue in
our consolidated statement of income over the term of the
collaboration agreement based on a units of revenue method
whereby the revenue recognized is based on the ratio of units
shipped in the current period over the total units expected to
be shipped over the remaining term of the collaboration. No
additional milestone payments are required under the agreement
to maintain the current profit sharing split. Our collaboration
agreement with Elan provides Elan or us with the option to buy
the rights to TYSABRI in the event that the other company was to
undergo a change of control (as defined in the collaboration
agreement).
In the United States, Elan and we co-market TYSABRI, with us
primarily responsible for marketing TYSABRI for MS, and Elan
primarily responsible for marketing TYSABRI for Crohns
disease. We sell TYSABRI to Elan who sells the product to third
party distributors. Our sales price to Elan in the United States
is set prior to the beginning of each quarterly period to effect
an approximate equal sharing of the gross margin between Elan
and us. We recognize revenue for sales in the Unites States of
TYSABRI upon Elans shipment of the product to the third
party distributors. We incur manufacturing and distribution
costs, research and development expenses, commercial expenses,
and general and administrative expenses. We record these
expenses to their respective line items within our statement of
income when they are incurred. Research and development and
sales and marketing expenses are shared with Elan and the
reimbursement of these expenses is recorded as reductions of the
respective expense categories. During the three and six months
ended June 30, 2009, we recorded $3.7 million and
$11.2 million, respectively, as reductions of research and
development expense for reimbursements from Elan as compared to
$8.0 million and $13.3 million, respectively, of
research and development expense recorded for reimbursement from
Elan during the prior year comparative periods. In addition, for
the three and six months ended June 30, 2009, we recorded
$8.5 million and $17.5 million, respectively, as
reductions of selling, general and administrative expense for
reimbursements from Elan as compared to $7.0 million and
$16.0 million, respectively, in the prior year comparative
periods.
Outside the United States, or rest of world, we are responsible
for distributing TYSABRI to customers and are primarily
responsible for all operating activities. Generally, we
recognize revenue for sales of TYSABRI in the rest of world at
the time of product delivery to our customers. Payments are made
to Elan for their share of the rest of world net operating
profits to effect an equal sharing of collaboration operating
profit. These payments include the reimbursement of our portion
of third-party royalties that Elan pays on behalf of the
collaboration relating to rest of world sales. These amounts are
reflected in the collaboration profit sharing line in our
consolidated statement of income. For the three and six months
ended June 30, 2009, $49.1 million and
$91.9 million, respectively, was
32
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
reflected in the collaboration profit sharing line for our
collaboration with Elan, as compared to $33.4 million and
$54.8 million, respectively, for the prior year comparative
periods. As rest of world sales of TYSABRI increase, our
collaboration profit sharing expense is expected to increase.
Acorda
On June 30, 2009, we entered into a collaboration and
license agreement with Acorda to develop and commercialize
products containing Fampridine-SR in markets outside the United
States. Fampridine-SR is an oral sustained-release compound,
which is being developed to improve walking ability in people
with MS. The transaction represents a sublicensing of an
existing license agreement between Acorda and Elan. The parties
have also entered into a related supply agreement.
Under the terms of the agreement, we will commercialize
Fampridine-SR and any aminopyridine products developed in our
territory and will also have responsibility for regulatory
activities and future clinical development of Fampridine-SR in
those markets. As of June 30, 2009, we have recorded within
accounts payable a liability for the $110.0 million upfront
payment due to Acorda. We may also incur up to an additional
$400.0 million of milestone payments based upon the
successful achievement of regulatory and commercial sales
milestones. We will also make tiered royalty payments to Acorda
on sales outside of the United States. The consideration that we
pay for products will reflect all amounts due from Acorda to
Elan for sales in markets outside the United States, including
royalties owed. The parties can also carry out future joint
development activities under a cost-sharing arrangement.
Elan will continue to manufacture commercial supply of
Fampridine-SR, based upon its existing supply agreement with
Acorda. Under the existing agreements with Elan, Acorda will pay
Elan seven percent of the upfront and milestone payments that
Acorda receives from us.
The $110.0 million upfront payment was recorded as research
and development expense as the asset has not received regulatory
approval. For the three and six months ended June 30, 2009,
we did not record any additional research and development
expense related to the Acorda transaction in our consolidated
statement of income.
Neurimmune
We have a collaboration agreement with Neurimmune SubOne AG, or
Neurimmune, a subsidiary of Neurimmune Therapeutics AG, for the
development and commercialization of antibodies for the
treatment of Alzheimers disease. The royalty term under
the agreement for sales in each country will be no less than
12 years from the first commercial sale of product using
such compound in such country. Neurimmune will conduct research
to identify potential therapeutic antibodies and we will be
responsible for the development, manufacturing and
commercialization of all products. Under the terms of the
agreement, we may pay up to an additional $360.0 million in
milestone payments, as well as a royalty on sales of any
resulting commercial products.
We have determined that we are the primary beneficiary of
Neurimmune under FIN 46(R). As such, we consolidate the
results of Neurimmune. The assets and liabilities of Neurimmune
are not significant as it is a research and development
organization.
We incurred research and development expense of
$2.5 million and $7.5 million for the three and six
months ended June 30, 2009, respectively, related to
milestone payments. We incurred $8.0 million of research
and development expense related to milestone payments during the
six months ended June 30, 2008. No milestone payments were
made during the three months ended June 30, 2008. We
reimburse Neurimmune for all research and development costs
incurred in support of the collaboration. For the three and six
months ended June 30, 2009, the collaboration incurred
$1.9 million and $3.7 million of expenses,
respectively, which were reflected in research and development
expense in our statement of income as compared to
$2.0 million and $3.2 million of research and
development expense recognized for the three and six months
ended June 30, 2008, respectively.
33
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
Since inception of the collaboration excluding an upfront
payment of $2.0 million and milestone payments of
$18.0 million, we have spent an additional
$10.0 million to develop the lead compound. We may incur up
to an additional $280.0 million to develop the lead
compound.
Cardiokine
We have a collaboration agreement with Cardiokine Biopharma LLC,
or Cardiokine, a subsidiary of Cardiokine Inc., for the joint
development of Lixivaptan, an oral compound for the potential
treatment of hyponatremia in patients with congestive heart
failure. The royalty term under the agreement for sales in each
country will be no less than 10 years from the first
commercial sale of a Lixivaptan product in such country. If
successful, we will be responsible for certain development
activities, manufacturing and global commercialization of
Lixivaptan, and Cardiokine has an option for limited
co-promotion in the United States. Under the terms of the
agreement, excluding the $20.0 million milestone payment
incurred in July 2009, referred to below, we may pay up to
an additional $150.0 million in development milestone
payments as well as royalties on commercial sales.
We have determined that we are the primary beneficiary of
Cardiokine under FIN 46(R). As such, we consolidate the
results of Cardiokine. The assets and liabilities of Cardiokine
are not significant as it is a research and development
organization.
We reimburse Cardiokine for 90% of research and development
costs in support of the collaboration. For the three and six
months ended June 30, 2009, the collaboration incurred
$17.5 million and $31.2 million, respectively, which
was reflected in research and development expense in our
consolidated statement of income as compared to
$13.5 million and $22.2 million, respectively,
recognized during the prior year comparative periods.
For the three and six months ended June 30, 2009, we have
allocated $1.7 million and $3.1 million, respectively,
to net income attributable to noncontrolling interest, net of
tax, for the amount of research and development expense retained
by the noncontrolling interest holders. For the comparable
periods in 2008, we have allocated $1.3 million and
$2.2 million, respectively, to net income attributable to
noncontrolling interest, net of tax, for the amount of research
and development expense retained by the noncontrolling interest
holders.
In July 2009, Cardiokine achieved a significant development
milestone and triggered a $20.0 million payment from us. As
the triggering event for the payment occurred after
June 30, 2009, the obligation is not reflected within our
consolidated balance sheet as of June 30, 2009. Such
obligations are recorded when the milestone has been achieved
due to the uncertainty surrounding triggering events.
Since inception of the agreement excluding an upfront payment of
$50.0 million, we have incurred $91.2 million to
develop Lixivaptan. We may incur up to an additional
$465.0 million to develop Lixivaptan for all indications
under development.
Biovitrum
We have a collaboration agreement with Biovitrum AB, or
Biovitrum, to jointly develop and commercialize Factor VIII and
Factor IX for the treatment of hemophilia. Under the agreement,
development and commercialization costs and profits are shared
equally. We have commercial rights to North America and
Biovitrum has commercial rights to Europe. All other territories
are to be managed by a third party with us and Biovitrum sharing
equally in the operating results. Under the agreement, Biovitrum
may pay us up to an additional $19.5 million in milestone
payments.
For the three and six months ended June 30, 2009, the
Factor VIII and Factor IX programs collectively incurred
expenses totaling $13.5 million and $26.4 million,
respectively, as compared to $8.8 million and
$18.5 million, respectively, incurred during the prior year
comparative periods. Amounts due from Biovitrum have been
recorded as a reduction of research and development expense. As
such, we reflected $6.8 million and $13.2 million,
34
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
respectively, in research and development expense in our
consolidated statement of income for the three and six months
ended June 30, 2009 and $4.4 million and
$9.3 million, respectively, for the three and six months
ended June 30, 2008.
Since inception of the agreement, we have incurred
$41.4 million to develop Factor VIII and Factor IX for the
treatment of hemophilia. We may incur up to an additional
$55.0 million to develop Factor VIII and Factor IX for this
indication.
Mondo
We have a collaboration agreement with MondoGen, or Mondo, a
subsidiary of MondoBiotech AG, to develop and commercialize
Aviptadil, a clinical compound for the treatment of pulmonary
arterial hypertension, or PAH. Under the agreement, we are
responsible for manufacturing, development, and
commercialization of the compound and could incur up to
$30.0 million in milestones payments for successful
development and commercialization of the program in the United
States and Europe, as well as royalty payments on commercial
sales. In February 2009, the parties revised the agreement to
clarify that our development funding obligation should not
exceed $13.3 million, inclusive of all amounts incurred
during 2009 and the three months ended December 31, 2008,
if we decide not to pursue the collaboration beyond 2009.
We have determined that we are the primary beneficiary of Mondo
under FIN 46(R). As such, we consolidate the results of
Mondo. The assets and liabilities of Mondo are not significant
as it is a research and development organization.
For the three and six months ended June 30, 2009, the
collaboration incurred $3.8 million and $6.9 million,
respectively, which was reflected in research and development
expense in our consolidated statement of income as compared to
$3.5 million and $9.0 million, respectively, in the
prior year comparative periods.
Since inception of the agreement excluding an upfront payment of
$7.5 million, we have incurred $36.8 million to
develop Aviptadil in PAH.
UCB
Since inception of our collaboration agreement with UCB, S.A.,
or UCB, we have incurred a total of $94.4 million in
research and development expenses for the development and
commercialization of an oral alpha4 integrin, or VLA-4,
antagonist for the treatment of relapsing remitting MS. The
total research and development expenses incurred are inclusive
of an upfront payment made in the amount of $30.0 million.
In June 2009, UCB and we announced the discontinuation of the
Phase II clinical trial for this collaborations only
product candidate due to the absence of clinically relevant
efficacy.
For the three and six months ended June 30, 2009, the
collaboration incurred $13.5 million and
$22.3 million, respectively. Our share of the collaboration
expenses were $8.5 million and $14.3 million,
respectively, which is reflected in research and development
expense in our consolidated statement of income.
For the three and six months ended June 30, 2008, the
collaboration incurred $9.5 million and $16.5 million,
respectively. Our share of the collaboration expenses were
$5.7 million and $10.3 million, respectively, which is
reflected in research and development expense in our
consolidated statement of income.
Facet
Biotech
We have a collaboration agreement with Facet Biotech, or Facet,
aimed at advancing the development and commercialization of
daclizumab in MS and volociximab in solid tumors. Daclizumab is
a humanized monoclonal antibody that binds to the IL-2 receptor
on activated T cells. Volociximab is an anti-angiogenic chimeric
antibody directed against alpha5 beta1 integrin, or VLA5. Under
the agreement, development, and commercialization costs
35
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
and profits are shared equally. We may incur up to an additional
$650.0 million of payments upon achievement of development
and commercial milestones.
For the three and six months ended June 30, 2009, the
collaboration incurred $9.5 million and $17.7 million,
respectively. As a result, we reflected $4.8 million and
$8.9 million, respectively, in research and development
expense in our consolidated statement of income.
For the three and six months ended June 30, 2008, the
collaboration incurred $20.3 million and
$39.6 million, respectively. As a result, we reflected
$10.1 million and $19.8 million, respectively, in
research and development expense in our consolidated statement
of income.
Since inception of the collaboration excluding an upfront
payment of $40.0 million and milestone payments of
$10.0 million, we have incurred $49.0 million and
$60.6 million to develop daclizumab and volociximab,
respectively. We may incur up to an additional
$250.0 million and $170.0 million, respectively, to
develop daclizumab and volociximab in these indications.
Vernalis
We have a collaboration agreement with Vernalis plc, or
Vernalis, aimed at advancing the development and
commercialization of an adenosine A2a receptor antagonist for
treatment of Parkinsons disease. Under the agreement, we
received exclusive worldwide rights to develop and commercialize
the compound. We are responsible for funding all development
costs and may incur up to an additional $85.0 million of
milestone payments upon achievement of certain objectives, as
well as royalties on commercial sales.
For the three and six months ended June 30, 2009, we
incurred $2.8 million and $7.1 million, respectively,
which is reflected in research and development expense in our
consolidated statement of income, as compared to
$5.3 million and $8.8 million, respectively, in the
prior year comparative periods.
Since inception of the collaboration excluding an upfront
payment of $10.0 million and a milestone payment of
$3.0 million, we have incurred $61.8 million to
develop a compound for treatment of Parkinsons disease. We
may incur up to an additional $160.0 million to develop the
compound in this indication.
Along with several other major pharmaceutical and biotechnology
companies, Biogen, Inc. (now Biogen Idec MA, Inc., one of our
wholly-owned subsidiaries) or, in some cases, Biogen Idec Inc.,
was named as a defendant in lawsuits filed by the City of New
York and numerous Counties of the State of New York. All of the
cases except for cases filed by the County of Erie,
County of Oswego and County of Schenectady, or the Three County
Actions are the subject of a Consolidated Complaint,
first filed on June 15, 2005 in the U.S. District
Court for the District of Massachusetts in Multi-District
Litigation No. 1456, or the MDL proceedings. The complaints
allege that the defendants (i) fraudulently reported the
Average Wholesale Price for certain drugs for which Medicaid
provides reimbursement, or the Covered Drugs; (ii) marketed
and promoted the sale of Covered Drugs to providers based on the
providers ability to collect inflated payments from the
government and Medicaid beneficiaries that exceeded payments
possible for competing drugs; (iii) provided financing
incentives to providers to over-prescribe Covered Drugs or to
prescribe Covered Drugs in place of competing drugs; and
(iv) overcharged Medicaid for illegally inflated Covered
Drugs reimbursements. Among other things, the complaints allege
violations of New York state law and advance common law claims
for unfair trade practices, fraud, and unjust enrichment. In
addition, the amended Consolidated Complaint alleges that the
defendants failed to accurately report the best
price on the Covered Drugs to the Secretary of Health and
Human Services pursuant to rebate agreements, and excluded from
their reporting certain discounts and other rebates that would
have reduced the best price. With respect to the MDL
proceedings, some of the plaintiffs claims were dismissed,
and the parties, including Biogen Idec, began a mediation of the
outstanding claims on July 1, 2008. We have not formed an
opinion that an unfavorable outcome is
36
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
either probable or remote in any of
these cases, and do not express an opinion at this time as to
their likely outcome or as to the magnitude or range of any
potential loss. We believe that we have good and valid defenses
to each of these complaints and are vigorously defending against
them.
On June 17, 2006, Biogen Idec filed a Demand for
Arbitration against Genentech, Inc. with the American
Arbitration Association, or the AAA, which Demand was amended on
December 5, 2006 and on January 29, 2008. In the
Demand, Biogen Idec alleged that Genentech breached the
parties Amended and Restated Collaboration Agreement dated
June 19, 2003, or the Collaboration Agreement, by failing
to honor Biogen Idecs right to participate in strategic
decisions affecting the parties joint development of
certain pharmaceutical products, including humanized anti-CD20
antibodies. Genentech filed an Answering Statement in response
to Biogen Idecs Demand in which Genentech denied that it
had breached the Collaboration Agreement and alleged that Biogen
Idec had breached the Collaboration Agreement. In its Answering
Statement, filed in 2006, Genentech also asserted for the first
time that the November 2003 transaction in which Idec
Pharmaceuticals acquired Biogen and became Biogen Idec was a
change of control under the Collaboration Agreement. On
June 15, 2009, the arbitration panel issued its final
decision (the Award). The panel ruled that a Joint
Development Committee (JDC) composed of three members from each
company must unanimously approve a separate development plan for
each specific indication (disease). The panel also ruled that,
absent unanimous approval of the JDC, which may not be
unreasonably withheld, Genentech may not proceed with further
development of 2H7v16 in neuromyelitis optica, 2H7v16 in
relapsing-remitting multiple sclerosis, or 2H7v114 for oncology.
The panel ruled that Genentech may continue clinical trials of
2H7 for lupus and Phase III clinical trials of 2H7 for
rheumatoid arthritis. The panel also confirmed Genentechs
undisputed responsibility for implementation of JDC approved
development plans in accordance with the provisions of the
Collaboration Agreement. The panel rejected Genentechs
assertion of the Change of Control provision under
the Collaboration Agreement. The panel did not award damages to
either party.
On September 12, 2006, the Massachusetts Department of
Revenue, or the DOR, issued a notice of assessment against
Biogen Idec MA, Inc. for $38.9 million of corporate excise
tax with respect to the 2002 tax year, which includes associated
interest and penalties. On December 6, 2006, we filed an
abatement application with the DOR, seeking abatements for 2001,
2002 and 2003 tax years. The abatement application was denied on
July 24, 2007. On July 25, 2007, we filed a petition
with the Massachusetts Appellate Tax Board, seeking, among other
items, abatements of corporate excise tax for 2001, 2002 and
2003 tax years and adjustments in certain credits and credit
carryforwards for 2001, 2002 and 2003 tax years. Issues before
the Board include the computation of Biogen Idec MAs sales
factor for 2001, 2002 and 2003 tax years, computation of Biogen
Idec MAs research credits for those same years, and the
availability of deductions for certain expenses and partnership
flow-through items. We anticipate that the trial will take place
in 2010. We intend to contest this matter vigorously.
On October 4, 2004, Genentech, Inc. received a subpoena
from the U.S. Department of Justice requesting documents
related to the promotion of RITUXAN. We market RITUXAN in the
United States in collaboration with Genentech. Genentech has
disclosed that it is cooperating with the associated
investigation, and that it has been advised the investigation is
civil in nature. We are cooperating with the
U.S. Department of Justice in its investigation of
Genentech. The potential outcome of this matter and its impact
on us cannot be determined at this time.
In January 2008, the European Commission, or the EC, began an
industry-wide antitrust inquiry into competitive conditions
within the pharmaceutical sector. As part of the inquiry, the EC
requested information from approximately 100 companies,
including Biogen Idec. The EC published its final report on the
inquiry in July 2009 in which it found delay in the market entry
of generic drugs and a decline in drug innovation. The report
did not contain any findings regarding, or reference to, Biogen
Idec. The potential impact on us of the ECs final report
cannot be determined at this time.
On October 27, 2008, Sanofi-Aventis Deutschland GmbH, or
Sanofi, filed suit against Genentech and Biogen Idec in federal
court in Texas (E.D. Tex.), which we refer to as the Texas
Action claiming that Rituxan and certain
37
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
other Genentech products infringe U.S. Patents 5,849,522,
or the 522 patent, and 6,218,140, or the 140 patent.
Sanofi seeks preliminary and permanent injunctions, compensatory
and exemplary damages, and other relief. On October 27,
2008, Genentech and Biogen Idec filed a complaint against
Sanofi, Sanofi-Aventis U.S. LLC, and Sanofi-Aventis
U.S. Inc. in federal court in California (N.D. Cal.), which
we refer to as the California Action seeking a declaratory
judgment that Rituxan and other Genentech products do not
infringe the 522 patent or the 140 patent, and a
declaratory judgment that those patents are invalid. The parties
are currently litigating whether the Texas Action should be
transferred to the court in the California Action. In addition,
on October 24, 2008, Hoechst GmbH filed with the ICC
International Court of Arbitration (Paris) a request for
arbitration against Genentech, relating to a terminated
agreement between Hoechsts predecessor and Genentech that
pertained to the above-referenced patents and related patents
outside the U.S. Hoechst is seeking payment of royalties on
sales of Genentech products, damages for breach of contract, and
other relief. We have not formed an opinion that an unfavorable
outcome is either probable or remote,
and do not express an opinion at this time as to the likely
outcome of the matters or as to the magnitude or range of any
potential loss. We believe that we have good and valid defenses
and intend vigorously to defend against the allegations against
us.
In addition, we are involved in product liability claims and
other legal proceedings generally incidental to our normal
business activities. While the outcome of any of these
proceedings cannot be accurately predicted, we do not believe
the ultimate resolution of any of these existing matters would
have a material adverse effect on our business or financial
conditions.
We operate in one business segment, which is the business of
development, manufacturing and commercialization of novel
therapeutics for human health care and therefore, our chief
operating
decision-maker
manages the operation of the Company as a single operating
segment.
|
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16.
|
New
Accounting Pronouncements
|
Effective January 1, 2009, we implemented Statement of
Financial Accounting Standards No. 141(R), Business
Combination, or SFAS 141(R). This standard requires an
acquiring company to measure all assets acquired and liabilities
assumed, including contingent considerations and all contractual
contingencies, at fair value as of the acquisition date. In
addition, an acquiring company is required to capitalize
IPR&D and either amortize it over the life of the product,
or write it off if the project is abandoned or impaired. The
adoption of this standard did not have a material impact on our
financial position or results of operations as SFAS 141(R)
is applicable to acquisitions completed after January 1,
2009 and we did not complete any business combination
transactions during the first six months of 2009.
SFAS 141(R) also amended Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, or
SFAS 109, and FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, or
FIN 48. Previously, SFAS 109 and FIN 48,
generally required post-acquisition adjustments related to
business combination deferred tax asset valuation allowances and
liabilities for uncertain tax positions to be recorded as an
increase or decrease to goodwill. SFAS 141(R) does not
permit this accounting and, generally, requires any such changes
to be recorded in current period income tax expense. Thus, all
changes to valuation allowances and liabilities for uncertain
tax positions established in acquisition accounting, whether the
business combination was accounted for under SFAS 141 or
SFAS 141(R), will be recognized in current period income
tax expense.
On April 1, 2009, the FASB Board issued FSP
FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies, or FSP FAS 141(R)-1. FSP
FAS 141(R)-1 amends and clarifies SFAS 141(R), to
address application issues regarding the initial recognition and
measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from contingencies
in a business combination. Due to the fact that SFAS 141(R)
is applicable to acquisitions completed after January 1,
38
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
2009 and we did not have any business combinations in the first
six months of 2009, the adoption of FSP FAS 141(R)-1 did
not impact our financial position or results of operations.
In April 2009, the Securities and Exchange Commission, or SEC,
issued Staff Accounting Bulletin No. 111 which aligns SEC
regulations to the newly issued accounting standards (FSP FAS
115-1 and FAS 124-2) on accounting for other-than-temporary
impairments for marketable debt securities. Specifically, it
amends Topic 5.M to exclude debt securities from its scope. This
bulletin did not impact our financial position or results of
operations; however, we conduct periodic reviews to evaluate our
investments for the other-than-temporary impairments in
accordance with FSP FAS 115-1.
In June 2009, the SEC issued Staff Accounting
Bulletin No. 112, which updates the SECs rules
and regulations to be consistent with the accounting principles
and standards established in SFAS 141(R) and SFAS 160.
This bulletin did not impact our financial position or results
of operations; however, the adoption of SFAS 160 resulted
in the reclassification of certain prior period amounts to
conform to the current financial statement presentation.
Recently
Issued Accounting Standards
On June 3, 2009, the FASB approved the FASB Accounting
Standards Codification, or the Codification, as the single
source of authoritative nongovernmental Generally Accepted
Accounting Principles, or GAAP, in the United States. The
Codification will be effective for interim and annual periods
ending after September 15, 2009, which means July 1,
2009 for Biogen Idec. Upon the effective date, the Codification
will be the single source of authoritative accounting principles
to be applied by all nongovernmental U.S. entities. All
other accounting literature not included in the Codification
will be nonauthoritative. We do not expect the adoption of the
Codification to have an impact on our financial position or
results of operations.
In June 2009, the FASB issued the following new accounting
standards:
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|
SFAS No. 166, Accounting for Transfers of Financial
Assets, an amendment of FASB Statement No. 140, or
SFAS 166;
|
|
|
|
SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), or SFAS 167; and
|
|
|
|
SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles, a replacement of FASB Statement No. 162, or
SFAS 168
|
SFAS 166 prescribes the information that a reporting entity
must provide in its financial reports about a transfer of
financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a
transferors continuing involvement in transferred
financial assets. Specifically, among other aspects,
SFAS 166 amends Statement of Financial Standard
No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, or
SFAS 140, by removing the concept of a qualifying
special-purpose entity from SFAS 140 and removes the
exception from applying FIN 46(R) to variable interest
entities that are qualifying special-purpose entities. It also
modifies the financial-components approach used in
SFAS 140. SFAS 166 is effective for transfer of
financial assets occurring on or after January 1, 2010. We
have not determined the effect that the adoption of
SFAS 166 will have on our financial position or results of
operations but the effect will generally be limited to future
transactions. Historically, we have not had any material
transfer of financial assets.
SFAS 167 amends FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (revised December
2003) an interpretation of ARB No. 51, or
FIN 46(R), to require an enterprise to determine whether
its variable interest or interests give it a controlling
financial interest in a variable interest entity. The primary
beneficiary of a variable interest entity is the enterprise that
has both (1) the power to direct the activities of a
variable interest entity that most significantly impact the
entitys economic performance and (2) the obligation
to absorb losses of the entity that could potentially be
significant to the variable interest entity or the right to
receive benefits from the entity that
39
BIOGEN
IDEC INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited,
continued)
could potentially be significant to the variable interest
entity. SFAS 167 also amends FIN 46(R) to require
ongoing reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity. SFAS 167 is
effective for all variable interest entities and relationships
with variable interest entities existing as of January 1,
2010. We have not determined the effect that the adoption of
SFAS 167 will have on our financial position or results of
operations.
SFAS 168 replaces SFAS No. 162, The Hierarchy
of Generally Accepted Accounting Principles, to establish
the FASB Accounting Standards Codification as the source
of authoritative accounting principles recognized by the FASB to
be applied by nongovernmental entities in preparation of
financial statements in conformity with generally accepted
accounting principles in the United States. SFAS 168 is
effective for interim and annual periods ending after
September 15, 2009. We do not expect the adoption of this
standard to have an impact on our financial position or results
of operations.
40
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|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Forward-Looking
Information
In addition to historical information, this report contains
forward-looking statements that are based on our current beliefs
and expectations. These statements involve risks and
uncertainties that could cause actual results to differ
materially from those reflected in such forward-looking
statements. These forward-looking statements do not relate
strictly to historical or current facts and they may be
accompanied by such words as anticipate,
believe, estimate, expect,
forecast, intend, may,
plan, project, target,
will and other words and terms of similar meaning.
Reference is made in particular to forward-looking statements
regarding the anticipated level and mix of future product sales,
royalty revenues, milestone payments, expenses, liabilities, the
value of our portfolio of marketable securities, the impact of
competitive products, the incidence, outcome or impact of
litigation, proceedings related to patents and other
intellectual property rights, tax assessments and other legal
proceedings, our effective tax rate for future periods, the
adequacy of our reserves, the impact of accounting standards,
our ability to improve the benefit-risk profile of TYSABRI, our
ability to finance our operations and meet our manufacturing
needs and the source of funding for such activities, the
completion and use of our manufacturing facility in
Hillerød, Denmark, our share repurchase program, and our
plans to spend additional capital on external business
development and research opportunities. Important factors which
could cause actual results to differ from our expectations and
which could negatively impact our financial condition and
results of operations are discussed in the section entitled
Risk Factors in Part II of this report and
elsewhere in this report. Forward-looking statements, like all
statements in this report, speak only as of the date of this
report (unless another date is indicated). Unless required by
law, we do not undertake any obligation to publicly update any
forward-looking statements.
The following discussion should be read in conjunction with our
consolidated financial statements and related notes beginning on
page 3 of this quarterly report on
Form 10-Q.
Executive
Summary
Business
Overview
Biogen Idec Inc. (Biogen Idec, we,
us or the Company) is a global
biotechnology company that creates new standards of care in
therapeutic areas with high unmet medical needs. Our business
strategy is focused on discovering and developing
first-in-class
or
best-in-class
products that we can deliver to specialty markets globally.
Patients around the world benefit from Biogen Idecs
significant products that address medical needs in the areas of
neurology, oncology and immunology.
We currently have four marketed products. Our marketed products
are used for the treatment of multiple sclerosis, or MS,
non-Hodgkins lymphoma, or NHL, rheumatoid arthritis, or
RA, Crohns disease and psoriasis, and are summarized in
the table below.
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Product
|
|
Indications
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AVONEX®
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Relapsing MS
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(interferon beta-1a)
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RITUXAN®*
(rituximab)
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Certain B-cell NHL
RA
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TYSABRI®**
(natalizumab)
|
|
Relapsing MS
Crohns disease
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FUMADERM®
|
|
Severe psoriasis
|
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|
(dimethylfumarate and monoethylfumarate salts)
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* |
|
Outside the United States, Canada and Japan, MabThera is the
trade name for rituximab. We refer to rituximab, RITUXAN and
MabThera collectively as RITUXAN. |
|
** |
|
TYSABRI is indicated in the United States for the treatment of
some patients with moderately to severely active Crohns
disease. |
41
As part of our on-going development efforts, we are seeking to
expand our marketed products into treatment of other diseases,
such as chronic lymphocytic leukemia, or CLL, ANCA-associated
vasculitis, multiple myeloma and ulcerative colitis. In addition
to the ongoing development of our marketed products, we continue
to focus our research and development efforts on finding novel
therapeutics in areas of high unmet medical needs, both within
our current focus areas of neurology, oncology, immunology and
cardiology, as well as in new therapeutic areas. As of
June 30, 2009, we have 22 pipeline products in Phase 2
trials or beyond.
Financial
Highlights
Results for the three months ended June 30, 2009 included
total revenues of $1,093.3 million and net income
attributable to Biogen Idec Inc. of $142.8 million. Diluted
earnings per share attributable to Biogen Idec Inc. was $0.49
during the same period.
Revenues for the second quarter of 2009 increased 10.1% over the
comparable period in 2008. These results were primarily driven
by the continued growth of TYSABRI providing $187.6 million
of revenue during the three months ended June 30, 2009 and
a $64.0 million increase in AVONEX sales as compared to the
comparable period in the prior year. Our diluted earnings per
share amount of $0.49 for the three months ended June 30,
2009 reflects the impact of the $110.0 million upfront
payment due to Acorda Therapeutics, Inc., or Acorda, which was
recognized as research and development expense and is further
described within Business Highlights below.
Global in-market net sales of TYSABRI achieved a
$1.0 billion run rate during the second quarter of 2009.
For the three months ended June 30, 2009, we have
recognized, within our statement of income, $57.3 million
of product revenue related to sales of TYSABRI in the United
States and $130.3 million for the sale of product within
our rest of world markets. The TYSABRI revenue amounts are
inclusive of $1.8 million of revenue recognized based upon
the current period amortization of the milestone payments
received from Elan during 2008 and 2009. Overall, TYSABRI
revenues for the three months ended June 30, 2009, have
increased 27.4% as compared to the comparable three month period
in the prior year. This growth is primarily due to an increase
in number of patients using TYSABRI in both the United States
and our rest of world markets.
AVONEX worldwide revenue was $591.2 million for the three
months ended June 30, 2009, representing a 12.1% increase
over the same period in the prior year. On a sequential basis,
AVONEX worldwide revenue increased by 6.5% over the first
quarter of 2009. Sales of AVONEX in the United States increased
19.7% to $365.8 million during the three months ended
June 30, 2009 as compared to the comparable period in 2008.
This increase was primarily due to price increases, partially
offset by a decrease in patient demand. Rest of world sales
increased 1.7%, to $225.4 million during the three months
ended June 30, 2009 as compared to the comparable prior
year period, primarily resulting from increased patient demand
within our rest of world markets, offset by the negative impact
of foreign currency exchange rate changes.
As described below under Results of Operations, we record our
share of the pretax co-promotion profits from our joint business
arrangement related to sales of RITUXAN. Revenues from our
unconsolidated joint business totaled $275.6 million for
the three months ended June 30, 2009 representing a 1.2%
decrease over the same period in the prior year. Net sales of
RITUXAN to third-party customers in the United States for the
three months ended June 30, 2009 totaled
$695.9 million as compared to $650.9 million in the
comparable prior year period. The increase in third party sales
within the United States was primarily due to increased unit
sales resulting from continued growth of use for treatment of
B-cell NHL, RA and CLL (an unapproved and unpromoted use of
RITUXAN). Our share of co-promotion profits in the United States
totaled $198.5 million for the second quarter of 2009,
representing an increase of 11.7% over the same period in the
prior year. The increase in our share of co-promotion profits
was offset by a $24.8 million decrease in royalty revenues
from sales of RITUXAN outside the United States as compared to
the same period in the prior year. This decrease primarily
resulted from royalty expirations in certain of our rest of
world markets and the negative impact of foreign currency
exchange rates.
In addition to the positive revenue and earnings growth
achieved, net cash flows from operations, which are primarily
driven by increases in our earnings, provided
$529.3 million during the six months ended June 30,
2009. Cash and cash equivalents and marketable securities
totaled approximately $2,670.7 million as of June 30,
2009.
42
Business
Highlights
In July 2009, Cardiokine enrolled the 300th patient in the
Phase III clinical trial for Lixivaptan. The achievement of
this milestone has triggered a $20.0 million payment from
us.
On June 30, 2009, we entered into a collaboration and
license agreement with Acorda to develop and commercialize
products containing Fampridine-SR in markets outside the United
States. Fampridine-SR is an oral sustained-release compound
being developed to improve walking ability in people with MS.
The parties have also entered into a related supply agreement.
Under the terms of the agreement, we will make a
$110.0 million upfront payment, are responsible for funding
all development and commercialization costs in our territory,
and may incur up to an additional $400.0 million of
milestone payments upon achievement of regulatory and commercial
milestones, as well as royalties on commercial sales.
Product
and Pipeline Highlights
In July 2009, the U.S. Food and Drug Administration, or
FDA, granted PEGylated interferon beta-1a Fast Track designation
for relapsing MS. We are currently enrolling patients in a
global Phase III study evaluating the efficacy and safety
of either bi-weekly or once-monthly injections of PEGylated
interferon beta-1a in this patient population. The FDAs
Fast Track program is designed to expedite the review of new
drugs that are intended to treat serious or life-threatening
conditions and demonstrate the potential to address unmet
medical needs.
Acorda previously announced that the European Medicines Agency,
or EMEA, notified Acorda that Fampridine-SR is eligible to be
submitted for a Marketing Authorization Application via the
Agencys Centralized Procedure as a new active substance.
Results
of Operations
Revenues
Revenues were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Product revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
423.1
|
|
|
|
38.7
|
%
|
|
$
|
352.2
|
|
|
|
35.5
|
%
|
|
$
|
816.0
|
|
|
|
38.3
|
%
|
|
$
|
702.2
|
|
|
|
36.3
|
%
|
Rest of world
|
|
|
367.9
|
|
|
|
33.7
|
%
|
|
|
332.3
|
|
|
|
33.4
|
%
|
|
|
708.4
|
|
|
|
33.3
|
%
|
|
|
647.4
|
|
|
|
33.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
791.0
|
|
|
|
72.4
|
%
|
|
$
|
684.5
|
|
|
|
68.9
|
%
|
|
$
|
1,524.4
|
|
|
|
71.6
|
%
|
|
$
|
1,349.6
|
|
|
|
69.7
|
%
|
Unconsolidated joint business
|
|
|
275.6
|
|
|
|
25.2
|
%
|
|
|
278.8
|
|
|
|
28.1
|
%
|
|
|
554.4
|
|
|
|
26.0
|
%
|
|
|
526.0
|
|
|
|
27.2
|
%
|
Other revenues
|
|
|
26.7
|
|
|
|
2.4
|
%
|
|
|
30.1
|
|
|
|
3.0
|
%
|
|
|
51.0
|
|
|
|
2.4
|
%
|
|
|
60.0
|
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,093.3
|
|
|
|
100.0
|
%
|
|
$
|
993.4
|
|
|
|
100.0
|
%
|
|
$
|
2,129.8
|
|
|
|
100.0
|
%
|
|
$
|
1,935.6
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Revenues
Product revenues were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
AVONEX
|
|
$
|
591.2
|
|
|
|
74.8
|
%
|
|
$
|
527.2
|
|
|
|
77.0
|
%
|
|
$
|
1,146.5
|
|
|
|
75.2
|
%
|
|
$
|
1,063.3
|
|
|
|
78.8
|
%
|
TYSABRI
|
|
|
187.6
|
|
|
|
23.7
|
%
|
|
|
147.2
|
|
|
|
21.5
|
%
|
|
|
352.8
|
|
|
|
23.1
|
%
|
|
|
261.8
|
|
|
|
19.4
|
%
|
FUMADERM
|
|
|
12.2
|
|
|
|
1.5
|
%
|
|
|
10.0
|
|
|
|
1.5
|
%
|
|
|
22.8
|
|
|
|
1.5
|
%
|
|
|
21.7
|
|
|
|
1.6
|
%
|
Other
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.1
|
|
|
|
0.0
|
%
|
|
|
2.3
|
|
|
|
0.2
|
%
|
|
|
2.8
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
791.0
|
|
|
|
100.0
|
%
|
|
$
|
684.5
|
|
|
|
100.0
|
%
|
|
$
|
1,524.4
|
|
|
|
100.0
|
%
|
|
$
|
1,349.6
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
AVONEX
We currently market and sell AVONEX for the treatment of
relapsing MS, including patients with a first clinical episode
and MRI features consistent with MS. AVONEX has been shown in
clinical trials in relapsing MS both to slow the accumulation of
disability and to reduce the frequency of
flare-ups.
Revenues from AVONEX were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
AVONEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
365.8
|
|
|
|
61.9
|
%
|
|
$
|
305.6
|
|
|
|
58.0
|
%
|
|
$
|
705.7
|
|
|
|
61.6
|
%
|
|
$
|
614.0
|
|
|
|
57.7
|
%
|
Rest of world
|
|
|
225.4
|
|
|
|
38.1
|
%
|
|
|
221.6
|
|
|
|
42.0
|
%
|
|
|
440.8
|
|
|
|
38.4
|
%
|
|
|
449.3
|
|
|
|
42.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AVONEX revenues
|
|
$
|
591.2
|
|
|
|
100.0
|
%
|
|
$
|
527.2
|
|
|
|
100.0
|
%
|
|
$
|
1,146.5
|
|
|
|
100.0
|
%
|
|
$
|
1,063.3
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AVONEX revenues for the three and six months ended
June 30, 2009 increased 12.1% and 7.8%, respectively, as
compared to the prior year comparative periods.
Sales of AVONEX in the United States for the three and six
months ended June 30, 2009 totaled $365.8 million and
$705.7 million, respectively, representing increases of
19.7% and 14.9%, as compared to the prior year comparative
periods. The increases for both the three and six month periods
were primarily due to price increases, partially offset by
decreased patient demand.
Rest of world sales of AVONEX for the three months ended
June 30, 2009 totaled $225.4 million, representing an
increase of 1.7% over the prior year comparative period. This
increase was primarily due to an increase in patient demand,
offset by the negative impact of foreign currency exchange rate
changes. Rest of world sales of AVONEX for the six months ended
June 30, 2009 totaled $440.8 million, representing a
1.9% decrease as compared to the same period in the prior year.
The decrease for the comparative six month periods was primarily
due to the negative impact of foreign currency exchange rate
changes, partially offset by increased patient demand.
We expect to face increasing competition in the MS marketplace
in both the United States and rest of world from existing and
new MS treatments, including TYSABRI and our other pipeline
products, which may have a continued negative impact on the unit
sales of AVONEX. We expect future unit sales of AVONEX to be
dependent to a large extent on our ability to compete
successfully with the products of our competitors.
TYSABRI
In August 2000, we entered into a collaboration agreement with
Elan Pharma International, Ltd, or Elan, an affiliate of Elan
Corporation, plc. Under the terms of the agreement with Elan, we
manufacture TYSABRI and collaborate with Elan on the
products marketing, commercial distribution and on-going
development activities. TYSABRI is sold as a monotherapy
treatment for relapsing MS to slow the progression of disability
and reduce the frequency of clinical relapses.
Revenues from TYSABRI were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
TYSABRI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
57.3
|
|
|
|
30.5
|
%
|
|
$
|
46.5
|
|
|
|
31.6
|
%
|
|
$
|
110.3
|
|
|
|
31.3
|
%
|
|
$
|
87.7
|
|
|
|
33.5
|
%
|
Rest of world
|
|
|
130.3
|
|
|
|
69.5
|
%
|
|
|
100.7
|
|
|
|
68.4
|
%
|
|
|
242.5
|
|
|
|
68.7
|
%
|
|
|
174.1
|
|
|
|
66.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TYSABRI revenues
|
|
$
|
187.6
|
|
|
|
100.0
|
%
|
|
$
|
147.2
|
|
|
|
100.0
|
%
|
|
$
|
352.8
|
|
|
|
100.0
|
%
|
|
$
|
261.8
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TYSABRI revenues for the three and six months ended
June 30, 2009 increased 27.4% and 34.8%, respectively, as
compared to the prior year comparative periods.
In the United States, Elan and we co-market TYSABRI, with us
primarily responsible for marketing TYSABRI for MS and Elan
primarily responsible for marketing TYSABRI for Crohns
disease. We sell TYSABRI
44
to Elan who sells the product to third party distributors. Our
sales price to Elan in the United States is set prior to the
beginning of each quarterly period to effect an approximate
equal sharing of the gross margin on sales in the United States
between Elan and us. We recognize revenue for sales of TYSABRI
in the United States upon Elans shipment of the product to
the third party distributors. We incur manufacturing and
distribution costs, research and development expenses,
commercial expenses and general and administrative expenses. We
record these expenses to their respective line items within our
consolidated statement of income when they are incurred.
Research and development and sales and marketing expenses are
shared with Elan and the reimbursement of these expenses is
recorded as reductions of the respective expense categories.
Sales of TYSABRI in the United States for the three and six
months ended June 30, 2009 totaled $57.3 million and
$110.3 million, respectively, representing an increase of
23.2% and 25.8% as compared to the prior year comparative
periods. The increases for both the three and six month periods
were primarily due to an increase in the number of patients
using TYSABRI in the United States.
Net sales of TYSABRI from our collaboration partner, Elan, to
third-party customers in the United States for the three and six
months ended June 30, 2009 totaled $124.5 million and
$240.4 million, respectively, as compared to
$99.3 million and $185.6 million, respectively, in the
prior year comparative periods.
In the rest of world markets, we are responsible for
distributing TYSABRI to customers and are primarily responsible
for all operating activities. We recognize revenue for sales of
TYSABRI in the rest of world at the time of product delivery to
our customers. Payments are made to Elan for their share of rest
of world net operating profits to effect an equal sharing of
collaboration operating profit. These payments include the
reimbursement of our portion of third-party royalties that Elan
pays on behalf of the collaboration, relating to the rest of
world sales. These amounts are reflected in the collaboration
profit sharing line in our consolidated statement of income. As
rest of world sales of TYSABRI increase, our collaboration
profit sharing expense is expected to increase.
Rest of world sales of TYSABRI for the three and six months
ended June 30, 2009 totaled $130.3 million and
$242.5 million, respectively, representing increases of
29.4% and 39.3% over the prior year comparative periods. These
increases were primarily due to increased patient demand,
partially offset by the negative impact of foreign currency
exchange rate changes.
TYSABRI is marketed under risk management or minimization plans
as agreed to with local regulatory authorities. In the United
States, TYSABRI was reintroduced with a risk minimization action
plan known as the TOUCH Prescribing Program, a rigorous system
intended to educate physicians and patients about the risks
involved and help assure appropriate use of the product. Since
the reintroduction of TYSABRI to the market in July 2006, we
have disclosed cases of progressive multifocal
leukoencephalopathy, or PML, a known side effect, in patients
taking TYSABRI in the post-marketing setting. We continue to
monitor the growth of TYSABRI unit sales in light of these
results and we continue to develop protocols to potentially
mitigate the outcome of PML in patients being treated with
TYSABRI. We believe that the reported cases of PML have slowed
the growth of TYSABRI in both the United States and rest of
world.
Elan has paid to us $75.0 million in 2008 and
$50.0 million in 2009 representing milestone payments made
in accordance with our collaboration agreement. We have recorded
these amounts as deferred revenue upon receipt and are
recognizing the entire $125.0 million as product revenue in
our consolidated statement of income over the term of our
collaboration with Elan based on a units of revenue method
whereby the revenue recognized is based on the ratio of units
shipped in the current period over the total units expected to
be shipped over the remaining term of the collaboration. As of
June 30, 2009, we have recognized $4.7 million of
these milestones as revenue, of which $1.8 million and
$3.2 million were recognized during the three and six
months ended June 30, 2009, respectively.
Unconsolidated
Joint Business Revenue
We collaborate with Genentech, Inc., a wholly-owned subsidiary
of Roche Holdings, Inc., on the development and
commercialization of RITUXAN. RITUXAN is approved for:
|
|
|
|
|
treatment of relapsed or refractory, low-grade or follicular,
CD20-positive, B-cell NHL as a single agent;
|
45
|
|
|
|
|
previously untreated diffuse large B-cell, CD20-positive, NHL in
combination with CHOP (cyclophosphamide, doxorubicin,
vincristine and prednisone) or other anthracycline-based
chemotherapy regimens;
|
|
|
|
|
|
previously untreated follicular, CD20-positive, B-cell NHL in
combination with CVP (cyclophosphamide, vincristine and
prednisolone) chemotherapy; and
|
|
|
|
for the treatment of non-progressing (including stable disease),
low-grade, CD20-positive, B-cell NHL as a single agent, after
first-line CVP chemotherapy.
|
RITUXAN is also approved for use in combination with
methotrexate (MTX) for reducing signs and symptoms and to slow
the progression of structural damage in adult patients with
moderately- to severely-active rheumatoid arthritis who have had
an inadequate response to one or more tumor necrosis factor
antagonist therapies.
While Genentech is responsible for the worldwide manufacturing
of RITUXAN, development and commercialization rights and
responsibilities under this collaboration are divided as follows:
United
States
We share with Genentech co-exclusive rights to develop,
commercialize and market RITUXAN and New Anti-CD20 Products in
the United States. Although we contribute to the marketing and
continued development of RITUXAN, we have a limited sales force
dedicated to RITUXAN and limited development activity. Genentech
is primarily responsible for the commercialization of RITUXAN in
the United States. Its responsibilities include selling and
marketing, customer service, order entry, distribution, shipping
and billing, and other administrative support. Genentech also
incurs the majority of continuing development costs for RITUXAN.
Canada
We and Genentech have assigned our rights to develop,
commercialize and market RITUXAN, in Canada to F.
Hoffman-La Roche Ltd., or Roche.
Outside
the United States and Canada
We have granted Genentech exclusive rights to develop,
commercialize and market RITUXAN outside the United States and
Canada. Under the terms of separate sublicense agreements
between Genentech and Roche, development and commercialization
of RITUXAN outside the United States and Canada is the
responsibility of Roche, except in Japan where RITUXAN is
co-marketed by Zenyaku Kogyo Co. Ltd., or Zenyaku, and Chugai
Pharmaceutical Co. Ltd, or Chugai, an affiliate of Roche. We do
not have any direct contractual arrangements with Roche, Zenyaku
or Chugai for such development or commercialization.
Revenues from unconsolidated joint business consists of
(1) our share of pretax co-promotion profits in the United
States; (2) reimbursement of selling and development
expense in the United States; and (3) revenue on sales of
RITUXAN outside the United States, which consist of our share of
pretax co-promotion profits in Canada and royalty revenue on
sales of RITUXAN outside the United States and Canada by Roche,
Zenyaku and Chugai. Pre-tax co-promotion profits are calculated
and paid to us by Genentech in the United States and by Roche in
Canada. Pre-tax co-promotion profits consist of United States
and Canadian sales of RITUXAN to third-party customers net of
discounts and allowances less the cost to manufacture RITUXAN,
third-party royalty expenses, distribution, selling and
marketing, and joint development expenses incurred by Genentech,
Roche and us.
46
Revenues from unconsolidated joint business consist of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Co-promotion profits in the United States
|
|
$
|
198.5
|
|
|
$
|
177.7
|
|
|
$
|
378.0
|
|
|
$
|
335.7
|
|
Reimbursement of selling and development expenses in the
United States
|
|
|
16.7
|
|
|
|
15.9
|
|
|
|
31.7
|
|
|
|
28.6
|
|
Revenue on sales of RITUXAN outside the United States
|
|
|
60.4
|
|
|
|
85.2
|
|
|
|
144.7
|
|
|
|
161.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated joint business
|
|
$
|
275.6
|
|
|
$
|
278.8
|
|
|
$
|
554.4
|
|
|
$
|
526.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-promotion profits in the United States consist of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Product revenues, net
|
|
$
|
695.9
|
|
|
$
|
650.9
|
|
|
$
|
1,337.6
|
|
|
$
|
1,255.5
|
|
Costs and expenses
|
|
|
199.7
|
|
|
|
206.6
|
|
|
|
379.9
|
|
|
|
403.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-promotion profits in the United States
|
|
$
|
496.2
|
|
|
$
|
444.3
|
|
|
$
|
957.7
|
|
|
$
|
851.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biogen Idec Inc.s share of co-promotion profits in the
United States
|
|
$
|
198.5
|
|
|
$
|
177.7
|
|
|
$
|
378.0
|
|
|
$
|
335.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales of RITUXAN to third-party customers in the United
States recorded by Genentech for the three and six months ended
June 30, 2009 totaled $695.9 million and
$1,337.6 million, respectively, as compared to
$650.9 million and $1,255.5 million in the prior year
comparative periods. The increase in sales to third-party
customers was primarily due to increased unit sales, resulting
from continued growth for treatment of B-cell NHL, RA, and CLL
(an unapproved and unpromoted use of RITUXAN), and RITUXAN price
increases.
Total collaboration costs and expenses for the three and six
months ended June 30, 2009 decreased 3.3% and 5.9% over the
prior year comparative periods. These decreases were primarily
the result of higher costs incurred during the three and six
months ended June 30, 2008 associated with the development
of RITUXAN for use in other indications.
Selling and development expenses incurred by us in the United
States and reimbursed by Genentech totaled $16.7 million
and $31.7 million for the three and six months ended
June 30, 2009, respectively, representing increases of 5.0%
and 10.8% over the same period in the prior year. These
increases are primarily due to increased clinical development
and marketing expenses.
Revenue on sales of RITUXAN outside the United States consists
of our share of co-promotion profits in Canada and royalty
revenue on sales of RITUXAN outside of the United States and
Canada. Our royalty revenue on sales of RITUXAN is based on
Roche, Zenyaku and Chugais net sales to third-party
customers. We record our royalty revenue and co-promotion profit
revenue on sales of RITUXAN outside the United States on a cash
basis. Revenues on sales of RITUXAN outside the United States
for the three and six months ended June 30, 2009 were
$60.4 million and $144.7 million, respectively,
representing decreases of 29.1% and 10.5% over the prior year
comparative periods. The decreases were primarily due to royalty
expirations in certain of our rest of world markets and the
negative impact of foreign currency exchange rates.
The royalty period with respect to all products is 11 years
from the first commercial sale of such product on a
country-by-country
basis. For the majority of European countries, the first
commercial sale of RITUXAN occurred in the second half of 1998.
Therefore, we continue to expect a significant decrease in
royalty revenues on sales of RITUXAN outside the United States
and Canada in the latter half of 2009. Specifically, the royalty
periods with respect to sales in France, Spain, Germany and the
United Kingdom expire in 2009 and in 2010 with respect to sales
in Italy. The royalty periods with respect to sales in other
countries will subsequently expire through 2012.
47
Under the collaboration agreement, our current pretax
co-promotion profit-sharing formula, which resets annually, is
stated within the table below. In 2009 and 2008, the 40%
threshold was met during the first quarter.
|
|
|
|
|
|
|
Biogen Idecs
|
|
|
|
Share of
|
|
|
|
Co-promotion
|
|
Co-promotion Operating Profits
|
|
Profits
|
|
|
First $50 million
|
|
|
30
|
%
|
Greater than $50 million
|
|
|
40
|
%
|
In addition, under the collaboration agreement, we also have
rights to collaborate with Genentech on the development and
commercialization of (1) anti-CD20 products that Genentech
acquires or develops, which we refer to as New Anti-CD20
Products, and (2) anti-CD20 products that Genentech
licenses from a third party, which we refer to as Third Party
Anti-CD20 Products. Our collaboration rights for New Anti-CD20
Products are limited to the United States and our collaboration
rights for Third Party Anti-CD20 Products are dependent upon
Genentechs underlying license rights. Currently, there is
only one New Anti-CD20 Product, ocrelizumab, and only one Third
Party Anti-CD20 Product, GA101. A joint development committee,
or JDC, composed of three members from each company must
unanimously approve a development plan for each specific
indication of certain pharmaceutical products, and Genentech has
responsibility for implementation of JDC approved development
plans in accordance with the provisions of our collaboration
agreement.
Our agreement with Genentech provides that the successful
development and commercialization of the first New Anti-CD20
Product will decrease our percentage of co-promotion profits of
the collaboration and that we will participate in Third Party
Anti-CD20 Products on similar financial terms as for
ocrelizumab. Refer to Footnote 13, Collaborations, in
Notes to Consolidated Financial Statements, for a
detailed discussion of the pretax co-promotion profit sharing
formula for RITUXAN and New Anti-CD20 Products sold by us and
Genentech following the approval date of the first New Anti-CD20
Product.
Currently, we record our share of expenses incurred for the
development of New Anti-CD20 Products in research and
development expense in our consolidated statement of income.
After a New Anti-CD20 Product is approved, we will record our
share of the development expenses related to that product as a
reduction of our share of pretax co-promotion profits in
revenues from unconsolidated joint business.
Under our collaboration agreement with Genentech, we will
receive a lower royalty percentage of revenue from Genentech on
sales by Roche and Zenyaku of New Anti-CD20 products, as
compared to the royalty percentage of revenue on sales of
RITUXAN.
Other
Revenues
Our product line previously included ZEVALIN (ibritumomab
tiuxetan), which is part of a treatment regimen for certain
B-cell NHL, and AMEVIVE (alefacept), a treatment for certain
psoriasis. We have sold or exclusively licensed the rights to
these products to third parties and continue to receive royalty
or supply agreement revenues based on those products. We also
receive royalties on sales by our licensees of a number of other
products covered under patents that we control.
Other revenues for the three and six months ended June 30,
2009 and 2008 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Royalty revenues
|
|
$
|
25.0
|
|
|
|
93.6
|
%
|
|
$
|
28.1
|
|
|
|
93.4
|
%
|
|
$
|
49.1
|
|
|
|
96.3
|
%
|
|
$
|
52.1
|
|
|
|
86.8
|
%
|
Corporate partner revenues
|
|
|
1.7
|
|
|
|
6.4
|
%
|
|
|
2.0
|
|
|
|
6.6
|
%
|
|
|
1.9
|
|
|
|
3.7
|
%
|
|
|
7.9
|
|
|
|
13.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenues
|
|
$
|
26.7
|
|
|
|
100.0
|
%
|
|
$
|
30.1
|
|
|
|
100.0
|
%
|
|
$
|
51.0
|
|
|
|
100.0
|
%
|
|
$
|
60.0
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
Revenues
For the three and six months ended June 30, 2009 as
compared to the comparable periods in the prior year, royalty
revenues decreased by 11.0% and 5.8%, respectively. These
decreases were caused by an overall decline in
48
royalties from sales of licensed product as well as the
expiration of a license agreement, partially offset by increased
sales of
ANGIOMAX®
(bivalirudin) licensed to The Medicines Company.
We receive revenues from royalties on sales by our licensees of
a number of products covered under patents that we control. Our
royalty revenues on sales of RITUXAN outside the United States
are included in revenues from unconsolidated joint business in
the accompanying consolidated statements of income. Our royalty
revenues are dependent upon sales of licensed products which
could vary significantly due to competition, manufacturing
difficulties and other factors, including the timing and extent
of major events such as new indication approvals or government
sponsored programs. In addition, the expiration or invalidation
of any underlying patents could reduce or eliminate the royalty
revenues derived from such patents.
Our most significant source of royalty revenue is derived from
sales of ANGIOMAX by The Medicines Company, or TMC. TMC sells
ANGIOMAX in the United States, Europe, Canada, and Latin America
for use as an anticoagulant in combination with aspirin in
patients with unstable angina undergoing percutaneous
transluminal coronary angioplasty.
Royalty revenues related to the sales of ANGIOMAX are recognized
in an amount equal to the level of net sales achieved during a
calendar year multiplied by the royalty rate in effect under our
royalty agreement with TMC. The royalty rate increases based
upon the level of total net sales earned in any calendar year,
and the increased rate is applied retroactively to the first
dollar of net sales achieved during the year. This formula has
the effect of increasing the amount of royalty revenue to be
recognized in periods subsequent to the first period of each
calendar year in which increased royalty revenues were
recognized. Accordingly, an adjustment is recorded in the period
in which a change in royalty rate has been achieved.
Under the terms of the royalty agreement, TMC is obligated to
pay us royalties earned, on a
country-by-country
basis, until the later of (1) twelve years from the date of
the first commercial sale of ANGIOMAX in such country and
(2) the date upon which the product is no longer covered by
a patent in such country. The annual royalty rate is reduced by
a specified percentage in any country where the product is no
longer covered by a patent and has been reduced to a certain
volume-based market share. TMC began selling ANGIOMAX in the
United States in January 2001. The principal U.S. patent
that covers ANGIOMAX expires in March 2010. Marketing
exclusivity is due to expire in September 2010, due to a
grant of pediatric exclusivity. We expect a significant decrease
in royalty revenues beginning in 2010.
Corporate
Partner Revenues
Corporate partner revenues represent contract revenues, such as
those generated by ZEVALIN and AMEVIVE, and license fees.
Costs and
Expenses
Cost
of Sales, Excluding Amortization of Acquired Intangible
Assets
Costs of sales, excluding amortization of acquired intangible
assets were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Cost of product revenues
|
|
$
|
90.1
|
|
|
|
99.3
|
%
|
|
$
|
91.2
|
|
|
|
98.7
|
%
|
|
$
|
187.1
|
|
|
|
99.0
|
%
|
|
$
|
190.9
|
|
|
|
98.8
|
%
|
Cost of other revenues
|
|
|
0.6
|
|
|
|
0.7
|
%
|
|
|
1.2
|
|
|
|
1.3
|
%
|
|
|
1.8
|
|
|
|
1.0
|
%
|
|
|
2.4
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding amortization of intangible assets
|
|
$
|
90.7
|
|
|
|
100
|
%
|
|
$
|
92.4
|
|
|
|
100.0
|
%
|
|
$
|
188.9
|
|
|
|
100
|
%
|
|
$
|
193.3
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenues for the three and six months ended
June 30, 2009 totaled $90.1 million and
$187.1 million, respectively, representing decreases of
1.2% and 2.0% as compared to the prior year comparative periods.
49
The $1.1 million decrease in cost of product revenues for
the three months ended June 30, 2009 as compared to the
three months ended June 30, 2008, was primarily due to
decreased royalty payments, a decrease in write-offs for
unmarketable inventory and decreased production costs resulting
from the implementation of a new production process related to
TYSABRI, partially offset by higher sales volume.
Cost of product revenues decreased $3.8 million for the six
months ended June 30, 2009 as compared to the comparative
period in the prior year. This decrease was primarily due to
decreased royalty payments, and decreased production costs
resulting from the implementation of a new production process
for TYSABRI, partially offset by higher sales volume and an
increase in write-offs for unmarketable inventory.
In April 2009, we received approval from the U.S. Food and Drug
Administration, or FDA, of a process for the production of
TYSABRI, known as a second generation high-titer process, which
produces higher yields of TYSABRI than the process used prior to
regulatory approval. The FDA approval of this new production
process follows the approval granted by the European Medicines
Agency, or EMEA, in December 2008.
During the three and six months ended June 30, 2009 we have
charged cost of sales for write downs of $2.1 million and
$11.5 million, respectively, in unmarketable inventory as
compared to $5.5 million and $9.8 million during the
prior year comparative periods.
Research
and Development
We devote significant resources to research and development
programs focusing our efforts on finding novel therapeutics in
areas of high unmet medical need, both within our current core
focus areas of neurology, oncology, immunology and cardiology as
well as in new therapeutic areas. We dedicate resources to the
development of new product candidates and, in some cases, to new
applications of existing marketed products and late-stage
product candidates. As of June 30, 2009, including our
RITUXAN product candidates, we have 22 pipeline products in
Phase 2 trials or beyond.
Research and development expenses consist of upfront fees and
milestones paid to collaborators and expenses incurred in
performing research and development activities including
salaries and benefits, facilities expenses, overhead expenses,
clinical trial and related clinical manufacturing expenses,
clinical research organizations, or CROs, and other outside
expenses. Research and development expenses are expensed as
incurred. The timing of upfront fees and milestone payments in
the future may cause variability in future research and
development expense. As discussed within Note 13,
Collaborations, in Notes to Consolidated Financial
Statements, Genentech incurs the majority of continuing
development costs for RITUXAN. Expenses incurred by Genentech in
the development of RITUXAN are not recorded as research and
development expense, but rather reduce our share of co-promotion
profits recorded as a component of unconsolidated joint business
revenue.
Research and development expenses totaled $416.5 million
and $695.9 million for the three and six months ended
June 30, 2009, respectively, as compared to
$252.3 million and $510.5 million for the prior year
comparative periods. Included within research and development
expenses for the three and six months ended June 30, 2009
were milestone and upfront payments made to our collaboration
partners totaling $119.0 million and $129.0 million,
respectively. Milestone and upfront payments included within
research and development expense for the three and six months
ended June 30, 2008 totaled $0.1 million and
$10.6 million, respectively. The increase in expense for
the three and six months ended June 30, 2009, as compared
to the prior year comparative periods, is primarily attributable
to the $110.0 upfront payment due to Acorda under the recent
collaboration and license agreement.
Over the past few years, we have incurred significant
expenditures related to developing new pharmaceutical products
and exploring the utility of our existing products in treating
disorders beyond those currently approved in their labels.
Excluding our RITUXAN product candidates, we had 7 product
indications in registration stage development as of
June 30, 2009 as compared to 6 product indications as of
June 30, 2008. Costs associated with registration stage
clinical trials are, in most cases, more significant than those
incurred in earlier stages of our pipeline; accordingly, the
increase in research and development expense for the six months
ended June 30, 2009 as compared to the prior year was
partially related to the continued advancement of several of our
registration stage programs, as well as the LINGO program for MS
indications which recently transitioned into development. These
increased costs were partially offset by a reduction in spending
associated with the termination of Baminercept in RA in late
2008.
50
We expect that research and development expense, excluding
milestone payments, will continue to increase in 2009, primarily
due to greater investment in our registration stage clinical
pipeline.
The following table lists our registrational trial product
indications, excluding RITUXAN, as of June 30, 2009 and
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
Product
|
|
Indication
|
|
June 30, 2009
|
|
June 30, 2008
|
|
BG-12
|
|
Relapsing MS
|
|
ü
|
|
ü
|
|
|
Anti-CD80 MAb (galiximab)
|
|
Relapsed NHL
|
|
ü
|
|
ü
|
|
|
Anti-CD23 MAb (lumiliximab)
|
|
Relapsed CLL
|
|
ü
|
|
ü
|
|
|
Humanized Anti-CD20 MAb (ocrelizumab)
|
|
RA
|
|
ü
|
|
ü
|
|
|
Lupus nephritis
|
|
ü
|
|
ü
|
|
|
Lixivaptan
|
|
Hyponatremia, commonly seen in acute decompensated heart failure
|
|
ü
|
|
ü
|
|
|
PEGylated Interferon beta 1a
|
|
Relapsing MS
|
|
ü
|
|
|
|
|
In addition to the 7 registrational product indications included
within the table above, the EMEA has communicated that
Fampridine-SR is eligible to be submitted for a Marketing
Authorization Application via the Agencys Centralized
Procedure as a new active substance.
Within our quarterly report on
Form 10-Q
for the period ended March 31, 2009, we included an
ADENTRI®
product candidate with an indication for the treatment of acute
decompensated heart failure with renal insufficiency within our
list of registrational trial product indications. However, based
upon a recent review of this product indication with the FDA it
was determined that this ADENTRI product candidate should more
appropriately be classified as a product indication in the
Phase 2 and beyond stage of development.
Selling,
General and Administrative
Selling, general and administrative expenses are primarily
comprised of salaries and benefits associated with sales and
marketing, finance, legal and other administrative personnel;
outside marketing and legal expenses; and other general and
administrative costs.
Selling, general and administrative expenses totaled $220.8
million and $442.7 million, respectively, for the three and six
months ended June 30, 2009, representing decreases of 10.1%
and 4.1% over the prior year comparative periods. The decreases
in selling, general and administrative expenses were primarily
driven by the positive impact of foreign currency exchange rate
changes and an increase in the amount of expense reimbursements
from Elan as further described within Footnote 13,
Collaborations.
We anticipate continued lower total selling, general, and
administrative expenses during 2009 as compared to the amount
incurred in 2008.
Collaboration
Profit Sharing
Payments are made to Elan for their share of the rest of world
net operating profits to effect an equal sharing of
collaboration operating profit. These payments include the
reimbursement of our portion of
third-party
royalties that Elan pays on behalf of the collaboration,
relating to sales outside of the United States. These amounts
are reflected in the collaboration profit sharing line in our
consolidated statement of income. As rest of world sales of
TYSABRI increase, our collaboration profit sharing expense will
increase.
For the three and six months ended June 30, 2009, the
collaboration profit sharing was $49.1 million and
$91.9 million, respectively as compared to
$33.4 million and $54.8 million during the comparable
periods in the prior year.
51
The increases for both the three and six months ended
June 30, 2009 as compared to the three and six months ended
June 30, 2008 were due to the growth in TYSABRI rest of
world sales and the resulting growth in the third-party
royalties Elan paid on behalf of the collaboration. For the
three and six months ended June 30, 2009, our collaboration
profit sharing expense included $9.4 million and
$17.5 million, respectively, related to the reimbursement
of Elans royalty payments as compared to $7.3 million
and $12.6 million during the prior year comparable periods.
Amortization
of Acquired Intangible Assets
Our most significant intangible asset is the core technology
related to our AVONEX product. We believe the economic benefit
of our core technology is consumed as revenue is generated from
our AVONEX product. An analysis of the anticipated product sales
of AVONEX is performed annually during our long range planning
cycle. The results of this forecast serve as the basis for the
calculation of economic consumption for the core technology
intangible assets.
Amortization of acquired intangible assets totaled
$93.2 million and $182.5 million for the three and six
months ended June 30, 2009, respectively, as compared to
$72.9 million and $147.7 million, respectively, for
the three and six months ended June 30, 2008. The increases
in amortization, as compared to the prior year comparative
periods, are primarily driven by changes in estimated future
AVONEX revenues calculated during the long range planning cycle,
which was most recently completed in the third quarter of 2008.
The change in the estimate of the future AVONEX revenues is
attributable to the expected impact of competitor products in
future periods, including commercialization of our own internal
pipeline product candidates.
Acquired
In-Process Research and Development (IPR&D)
We did not record a charge related to acquired in-process
research and development, or IPR&D, during the three and
six months ended June 30, 2009, respectively, or during the
three months ended June 30, 2008. In the six months ended
June 30, 2008, we recorded an IPR&D charge of
$25.0 million related to a
HSP90-related
milestone payment made to the former shareholders of Conforma
Therapeutics, Inc., or Conforma, pursuant to the terms of our
acquisition of Conforma in 2006.
Other
Income (Expense), Net
Total other income (expense), net, consists of the following (in
millions):
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
For the
|
|
|
Six Months
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Interest income
|
|
$
|
12.1
|
|
|
$
|
15.3
|
|
|
$
|
26.9
|
|
|
$
|
38.2
|
|
Interest expense
|
|
|
(9.3
|
)
|
|
|
(13.9
|
)
|
|
|
(19.2
|
)
|
|
|
(29.6
|
)
|
Impairments of investments
|
|
|
(3.5
|
)
|
|
|
(5.9
|
)
|
|
|
(9.6
|
)
|
|
|
(14.6
|
)
|
Other, net
|
|
|
15.4
|
|
|
|
0.5
|
|
|
|
23.4
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
14.7
|
|
|
$
|
(4.0
|
)
|
|
$
|
21.5
|
|
|
$
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
Interest income for the three and six months ended June 30,
2009 totaled $12.1 million and $26.9 million,
respectively, representing decreases of 20.9% and 29.6% over the
prior year comparative periods. These decreases were primarily
due to lower yields on cash, cash equivalents, and marketable
securities and due to a reallocation of our portfolio to
increase the relative share of short-term and government issued
securities.
52
Interest
Expense
Interest expense for the three and six months ended
June 30, 2009 totaled $9.3 million and
$19.2 million, respectively, representing decreases of
33.1% and 35.1% over the prior year comparative periods. These
decreases were primarily due to decreased average debt balances
in 2009 as compared to 2008.
As discussed in Note 6, Financial Instruments, in
the Notes to Consolidated Financial Statements, the
carrying amount of the 6.875% Senior Notes increased
$62.8 million upon the termination of certain interest rate
swaps in December 2008. This amount is being amortized over the
remaining life of the 6.875% Senior Notes using the
effective interest rate method and is recognized as a reduction
of interest expense. During the three and six months ended
June 30, 2009, approximately $1.3 million and
$2.6 million, respectively, was recorded as a reduction of
interest expense.
Impairment
on Investments
During the three and six months ended June 30, 2009, we
recognized impairment losses of $3.5 million and
$6.0 million, respectively, on our strategic investments
and non-marketable securities. In addition, during the three and
six months ended June 30, 2008, we recognized
$3.0 million and $9.4 million, respectively, in
charges for the impairment of strategic investments and
non-marketable securities that were determined to be
other-than-temporary.
No impairment losses were recognized through earnings related to
available for sale securities during the three months ended
June 30, 2009. For the six months ended June 30, 2009,
we recognized $3.6 million in charges for the impairment of
available for sale securities primarily related to mortgage and
asset backed securities when we lacked the ability and intent to
hold the securities to recovery.
For the three and six months ended June 30, 2008, we
recognized $2.9 million and $5.2 million,
respectively, in charges for the other-than-temporary impairment
of available for sale securities primarily related to mortgage
and asset backed securities.
Other,
net
During the three and six months ended June 30, 2009, Other,
net included net gains on foreign currency of $1.9 million
and $7.4 million, respectively, and reflected
$7.5 million and $11.9 million, respectively, in net
realized gains on marketable securities. Other, net for the
three and six months ended June 30, 2009 also included a
$2.8 million gain recognized on the sale of two strategic
equity investments.
Other, net for the three and six months ended June 30, 2008
included gains on sales of marketable securities of
$0.6 million and $6.0 million, respectively. Other,
net for the six months ended June 30, 2008 also included
losses on foreign currency of $0.9 million and hedge
ineffectiveness of $1.2 million, offset by a VAT refund of
$3.8 million.
Income
Tax Provision
Tax
Rate
Our effective tax rate was 39.0% and 28.7% for the three and six
months ended June 30, 2009, respectively, compared to 28.9%
and 31.0% for the prior year comparative periods.
The effective tax rate for the six months ended June 30,
2009 was favorably impacted by changes in tax law that became
effective during 2009 in certain state jurisdictions in which we
operate. These changes required us to establish assets for
certain tax credits and adjust certain deferred tax liabilities
and reserves for uncertain tax positions, having a favorable
effect of 5.5%. This favorable effect was offset by the impact
of the Acorda transaction. There is no income tax benefit
associated with the upfront payment made to Acorda, by a
non-U.S. affiliate, which had a 7.5% and 2.3% unfavorable effect
for the three and six months ended June 30, 2009,
respectively. Refer to Note 13, Collaborations, in
Notes to Consolidated Financial Statements, for
additional information related to the Acorda transaction.
53
Our effective tax rate for the six months ended June 30,
2008 was favorably impacted by the restructuring of our
operations in foreign jurisdictions as well as other activities.
We expect our effective tax rate for the full-year ending
December 31, 2009 to be in a range of 30% to 32%. Refer to
Note 11, Income Taxes, in Notes to
Consolidated Financial Statements for detailed income tax
rate reconciliation for the three and six months ended
June 30, 2009 and 2008.
Financial
Condition and Liquidity
Our financial condition is summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash and cash equivalents
|
|
$
|
786.8
|
|
|
$
|
622.4
|
|
Marketable securities and loaned securities current
and non-current
|
|
$
|
1,883.9
|
|
|
$
|
1,640.4
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents, marketable securities and
loaned securities
|
|
$
|
2,670.7
|
|
|
$
|
2,262.8
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
1,940.4
|
|
|
$
|
1,534.8
|
|
Outstanding borrowings current and non-current
|
|
$
|
1,100.3
|
|
|
$
|
1,113.1
|
|
Our balances attributable to cash and cash equivalents,
marketable securities and loaned securities, as of June 30,
2009, have increased by 18.0% as compared to balances as of
December 31, 2008.
The increase in cash is primarily due to cash flows provided by
operations of $529.3 million, partially offset by
$71.7 million in purchases of property, plant and
equipment, $57.6 million used to fund share repurchases and
$35.2 million used to fund purchases of strategic
investments.
Proceeds from sales and maturities of marketable securities
totaled $1,637.6 million for the six months ended
June 30, 2009, as compared to purchases of marketable
securities of $1,869.4 million made during the same period.
Until required for use in the business, we invest our cash
reserves in bank deposits, certificates of deposit, commercial
paper, corporate notes, U.S. and foreign government
instruments and other interest bearing marketable debt
instruments in accordance with our investment policy. We
mitigate credit risk in our cash reserves by maintaining a well
diversified portfolio that limits the amount of investment
exposure as to institution, maturity, and investment type.
However, the value of these securities may be adversely affected
by the instability of the global financial markets which could
adversely impact our financial position and our overall
liquidity.
As noted in Note 5, Fair Value Measurements, in
Notes to Consolidated Financial Statements, a
majority of our financial assets and liabilities have been
classified as Level 2. The fair values of our foreign
currency forward contracts, interest rate swaps, debt
instruments and plan assets for deferred compensation are based
on market inputs and have been classified as Level 2. These
assets and liabilities have been initially valued at the
transaction price and subsequently valued typically utilizing
third party pricing services. The pricing services use many
inputs to determine value, including reportable trades,
benchmark yields, credit spreads, broker/dealer quotes, bids,
offers, current spot rates, other industry and economic events.
We validate the prices provided by our third party pricing
services by reviewing their pricing methods and matrices,
obtaining market values from other pricing sources, and
analyzing pricing data in certain instances.
Our venture capital investments are the only assets where we
used unobservable, or Level 3, inputs to determine the fair
value. The underlying assets in these investments are initially
measured at transaction prices and subsequently valued using the
pricing of recent financing or by reviewing the underlying
economic fundamentals and liquidation value of the companies.
Venture capital investments represented approximately 0.2% and
0.3% of total assets as of June 30, 2009 and
December 31, 2008, respectively.
While we believe the valuation methodologies are appropriate,
the use of valuation methodologies is highly judgmental and
changes in methodologies can have a material impact on the
values of these assets, our financial
54
position, and overall liquidity. After completing our validation
procedures, we did not adjust or override any fair value
measurements provided by our pricing services as of
June 30, 2009 or December 31, 2008.
We have financed our operating and capital expenditures
principally through cash flows from our operations. We expect to
finance our current and planned operating requirements
principally through cash from operations, as well as existing
cash resources. We believe that existing funds, cash generated
from operations and existing sources of and access to financing
are adequate to satisfy our operating, working capital, capital
expenditure and debt service requirements for the foreseeable
future. In addition, we plan to opportunistically pursue our
stock repurchase program and other business initiatives,
including acquisitions and licensing activities. However, we
may, from time to time, seek additional funding through a
combination of new collaborative agreements, strategic alliances
and additional equity and debt financings or from other sources.
Refer to Part II, Item 7A Quantitative and
Qualitative Disclosures About Market Risk in our 2008
annual report on
Form 10-K
and Part II, Item 1A: Risk Factors of this
Form 10-Q
for discussion of risks that could negatively impact our cash
position and ability to fund future operations.
Working
capital
As of June 30, 2009, our working capital, which we define
as current assets less current liabilities, was
$1,940.4 million, compared to $1,534.8 million as of
December 31, 2008, an increase of $405.6 million or
26.4%. This increase primarily reflects the overall increase in
balances attributable to cash and cash equivalents and
marketable securities included within current assets and the
overall reduction of current liabilities by $119.3 million.
The reduction in current liabilities is primarily driven by a
$141.7 million reduction in balances attributable to taxes
payable, a $38.2 million decrease in accrued expenses and
other liabilities, partially offset by the $110.0 million
upfront payment due to Acorda, which is included within accounts
payable.
Operating
activities
Cash provided by operating activities is primarily driven by our
earnings and changes in working capital. We expect cash provided
from operating activities will continue to be our primary source
of funds to finance operating needs and capital expenditures
over the foreseeable future. Cash provided by operations was
$529.3 million for the six months ended June 30, 2009,
representing a decrease of 17.7% over the prior year comparative
periods. This decrease is primarily due to the payment taxes
payable and other liabilities during the second quarter 2009 as
compared to the prior year comparative period.
Investing
activities
Cash used in investing activities for the six months ended
June 30, 2009 was $303.2 million as compared to cash
provided by investing activities of $199.4 million during
the same period in the prior year. The decrease is primarily due
to an increase in purchases of marketable securities during the
six months ended June 30, 2009, as compared to the same
period in 2008, partially offset by a reduction in purchases of
property, plant and equipment.
Purchases of property, plant and equipment decreased from
$157.1 million for the six months ended June 30, 2008
to $71.7 million for the six months ended June 30,
2009. This decrease is primarily attributed to reduced capital
expenditures as our Hillerød, Denmark manufacturing
facility and certain other manufacturing upgrades near
completion.
Financing
activities
Cash used in financing activities for the six months ended
June 30, 2009 was $63.8 million, as compared to
$1,037.7 million during the six months ended June 30,
2008. This decrease is due, principally, to the repayment of our
term loan facility of $1.5 billion in 2008, and a reduction
in the amounts of our common stock repurchased as compared to
the same period in 2008.
55
Borrowings
Our borrowings consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Current portion:
|
|
|
|
|
|
|
|
|
Notes payable to Fumedica
|
|
$
|
10.5
|
|
|
$
|
10.9
|
|
Credit line from Dompé
|
|
|
4.2
|
|
|
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14.7
|
|
|
$
|
27.7
|
|
|
|
|
|
|
|
|
|
|
Non-current portion:
|
|
|
|
|
|
|
|
|
6.000% Senior Notes due 2013
|
|
$
|
449.6
|
|
|
$
|
449.6
|
|
6.875% Senior Notes due 2018
|
|
|
605.7
|
|
|
|
608.2
|
|
Notes payable to Fumedica
|
|
|
17.6
|
|
|
|
27.6
|
|
Credit line from Dompé
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,085.6
|
|
|
$
|
1,085.4
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009 and December 31, 2008,
Biogen-Dompé SRL, a consolidated joint venture, had loan
balances of 12 million Euros for the equivalent of
$16.9 million and $16.8 million, respectively,
representing a line of credit from us and Dompé
Farmaceutici SpA of 24 million Euros, half of which was
eliminated for purposes of presenting our consolidated financial
position as it is an intercompany loan. Borrowings under this
line of credit were to be made equally between the partners,
with any repayments paid in a similar manner. The loan was
originally due June 1, 2009; however, a new loan was
subsequently executed with a maturity date of December 1,
2011. The interest rate on the line of credit under the new
agreements is determined at a rate of three month Euro LIBOR
plus 150 basis points, reset quarterly and payable
quarterly in arrears.
On March 4, 2008, we issued $450.0 million aggregate
principal amount of 6.0% Senior Notes due March 1,
2013 and $550.0 million aggregate principal amount of
6.875% Senior Notes due March 1, 2018 for proceeds of
$986.9 million, net of issuance costs.
Additionally, in connection with the note issuance, we entered
into interest rate swaps which were terminated in December 2008
and are further described in Note 6, Financial
Instruments, in Notes to Consolidated Financial
Statements.
As of June 30, 2009, the notes payable to Fumedica have a
present value of 30.3 million Swiss Francs
($28.1 million). The notes, which were entered into in
connection with the settlement of various agreements associated
with Fumedica, are non-interest bearing, have been discounted
for financial statement presentation purposes and are being
accreted at a rate of 5.75% and are payable in a series of
payments over the period from 2008 to 2018.
In June 2007, we entered into a five-year $400.0 million
senior unsecured revolving credit facility, which we may use for
future working capital and general corporate purposes. The
bankruptcy of Lehman Brothers Holdings Inc. has eliminated their
$40.0 million commitment, thereby reducing the availability
of the credit facility to $360.0 million. As of
June 30, 2009 and December 31, 2008 we were in
compliance with applicable covenants and there were no
borrowings under this credit facility.
Share
Repurchase Program
In October 2006, our Board of Directors authorized the
repurchase of up to 20.0 million shares of our common
stock. We utilize this program to stabilize the number of common
shares outstanding and will from time to time purchase shares on
the open market. During the six months ended June 30, 2009
and 2008, we repurchased approximately 1.2 million and
9.0 million shares of our common stock for
$57.6 million and $559.8 million, respectively. As of
June 30, 2009, we have up to 6.0 million shares
available for repurchase under this program.
56
Contractual
Obligations and Off-Balance Sheet Arrangements
As of June 30, 2009, we have funding commitments of up to
approximately $27.6 million as part of our investment in
biotechnology oriented venture capital investments.
Based on our development plans as of June 30, 2009, we have
committed to make potential future milestone payments to
third-parties of up to $1,576.9 million as part of our
various collaborations including licensing and development
programs. Payments under these agreements generally become due
and payable only upon achievement of certain developmental,
regulatory or commercial milestones. Because the achievement of
these milestones had not occurred as of June 30, 2009, such
contingencies have not been recorded in our financial
statements. We anticipate that we may pay approximately
$70.0 million of additional milestone payments during the
remainder of 2009, provided the achievement of various
developmental, regulatory or commercial milestones.
As of June 30, 2009, we have several clinical studies in
various clinical trial stages. Our most significant clinical
trial expenditures are to CROs. The contracts with CROs are
generally cancellable, with notice, at our option. We have
recorded $39.4 million of accrued expenses on our
consolidated balance sheet for work done by CROs as of
June 30, 2009. We have approximately $379.0 million in
cancellable future commitments based on existing CRO contracts
as of June 30, 2009.
We do not have any significant relationships with entities often
referred to as structured finance or special purpose entities,
which would have been established for the purpose of
facilitating off-balance sheet arrangements. As such, we are not
exposed to any financing, liquidity, market or credit risk that
could arise if we had engaged in such relationships. We
consolidate entities falling within the scope of FIN 46(R)
if we are the primary beneficiary.
As of June 30, 2009, we have approximately
$136.7 million of long-term liabilities associated with
uncertain tax positions.
Commitments
During 2008, we completed the first phase of our large-scale
biologic manufacturing facility in Hillerød, Denmark, which
included partial completion of a bulk manufacturing component, a
labeling and packaging component, construction of a warehouse
and installation of major equipment. We are proceeding with the
second phase of the project, including the completion of the
large scale bulk manufacturing component. As of June 30,
2009, we had contractual commitments of approximately
$6.0 million related to the second phase. This project is
expected to be ready for commercial production in 2010.
The timing of the completion and anticipated licensing of the
bulk manufacturing facility is in part dependent upon the demand
for our current and future products and the manufacturing
capacity from our other facilities. See Risk
Factors We may not achieve our desired return on our
significant investment in a manufacturing facility currently
under development.
Legal
Matters
Refer to Note 14, Litigation, in Notes to
Consolidated Financial Statements, for a discussion of
legal matters as of June 30, 2009.
New
Accounting Standards
Refer to Note 16, New Accounting Pronouncements, in
Notes to Consolidated Financial Statements, for a
discussion of new accounting standards.
Critical
Accounting Estimates
The discussion and analysis of our financial condition and
results of operations is based on our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements in accordance with
generally accepted accounting principles requires us to make
estimates and judgments that may affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate
57
our estimates, including those related to revenue recognition
and related allowances, marketable securities, derivatives and
hedging activities, inventory, impairments of
long-lived
assets, including intangible assets, impairments of goodwill,
income taxes including the valuation allowance for deferred tax
assets, valuation of long-lived assets and investments, research
and development, contingencies and litigation, and share-based
payments. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable,
the results of which form the basis for making judgments about
the carrying values of assets and liabilities. Actual results
may differ from these estimates under different assumptions or
conditions.
Refer to Part II, Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2008 for a discussion of
the Companys critical accounting estimates.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Our market risks, and the ways we manage them, are summarized in
Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk of our Annual Report on
Form 10-K
for the year ended December 31, 2008. In response to the
instability in the global financial markets, we have regularly
reviewed our marketable securities holdings and reduced
investments deemed to have increased risk. Apart from such
adjustments to our investment portfolio, there have been no
material changes in the first six months of 2009 to our market
risks or to our management of such risks.
|
|
Item 4.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures and Internal Control over Financial
Reporting
Disclosure
Controls and Procedures
We have carried out an evaluation, under the supervision and the
participation of our management, including our principal
executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, or the
Securities Exchange Act) as of June 30, 2009. Based upon
that evaluation, our principal executive officer and principal
financial officer concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures
are effective in ensuring that (a) the information required
to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms, and
(b) such information is accumulated and communicated to our
management, including our principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, our
management recognized that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the quarter ended June 30, 2009 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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Part II
OTHER INFORMATION
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Item 1.
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Legal
Proceedings
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Refer to Note 14, Litigation, in Notes to
Consolidated Financial Statements in Part I of this
quarterly report on
Form 10-Q,
which is incorporated into this item by reference.
We are
substantially dependent on revenues from our three principal
products.
Our current and future revenues depend upon continued sales of
our three principal products, AVONEX, RITUXAN and TYSABRI, which
represented substantially all of our total revenues during the
second quarter of 2009. Although we have developed and continue
to develop additional products for commercial introduction, we
expect to be substantially dependent on sales from these three
products for many years. Any negative developments relating to
any of these products, such as safety or efficacy issues, the
introduction or greater acceptance of competing products or
adverse regulatory or legislative developments may reduce our
revenues and adversely affect our results of operations.
Market
acceptance and successful sales growth of TYSABRI are important
to our success.
TYSABRI is expected to drive additional revenue growth over the
next several years. Achievement of anticipated sales growth of
TYSABRI will depend upon its acceptance by the medical community
and patients, which cannot be certain given the significant
restrictions on use and the significant safety warnings in the
label. Since the reintroduction of TYSABRI to the market in July
2006, we have disclosed cases of progressive multifocal
leukoencephalopathy, or PML, a known side effect, in patients
taking TYSABRI. If the incidence of PML exceeds the rate implied
by the TYSABRI label, it could harm acceptance, limit sales or
result in a withdrawal of TYSABRI from the market. Additional
regulatory restrictions on the use of TYSABRI and safety-related
labeling changes, whether as a result of additional cases of PML
or otherwise, may significantly reduce expected revenues and
require significant expense and management time to address the
associated legal and regulatory issues, including enhanced risk
management programs. In addition, as a relatively new entrant to
a maturing MS market, TYSABRI sales may be more sensitive to
additional new competing products. A number of such products are
expected to be approved for use in MS in the coming years. If
these products have a similar or more attractive overall profile
in terms of efficacy, convenience and safety, future sales of
TYSABRI could be limited. Failure to grow sales of TYSABRI would
materially and adversely affect our growth and plans for the
future.
Our
long-term success depends upon the successful development and
commercialization of other product candidates.
Our long-term viability and growth will depend upon the
successful development and commercialization of other products
from our research and development activities. Product
development and commercialization are very expensive and involve
a high degree of risk. Only a small number of research and
development programs result in the commercialization of a
product. Success in early stage clinical trials or preclinical
work does not ensure that later stage or larger scale clinical
trials will be successful. Even if later stage clinical trials
are successful, regulatory authorities may disagree with our
view of the data or require additional studies.
Conducting clinical trials is a complex, time-consuming and
expensive process. Our ability to complete our clinical trials
in a timely fashion depends in large part on a number of key
factors including protocol design, regulatory and institutional
review board approval, the rate of patient enrollment in
clinical trials, and compliance with extensive current good
clinical practice requirements. We have recently opened clinical
sites and are enrolling patients in a number of new countries
where our experience is more limited, and we are in many cases
using the services of third-party contract clinical trial
providers. If we fail to adequately manage the design, execution
and regulatory aspects of our large, complex and diverse
clinical trials, our studies and ultimately our regulatory
approvals may be delayed or we may fail to gain approval for our
product candidates altogether.
Our product pipeline includes several small molecule drug
candidates. Our small-molecule drug discovery platform is not as
well developed as our biologics platform and we will have to
make a significant investment of
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time and resources to expand our capabilities in this area.
Currently, third party manufacturers supply substantially all of
our clinical requirements for small molecules. If these
manufacturers fail to deliver sufficient quantities of such drug
candidates in a timely and cost-effective manner, it could
adversely affect our small molecule drug discovery efforts. If
we decide to manufacture clinical or commercial supplies of any
small molecule drugs in our own facilities, we will need to
invest substantial additional funds and recruit qualified
personnel to develop our small molecule manufacturing
capabilities.
Adverse
safety events can negatively affect our assets, product sales,
operations, products in development and stock
price.
Even after we receive marketing approval for a product, adverse
event reports may have a negative impact on our
commercialization efforts. Later discovery of safety issues with
our products that were not known at the time of their approval
by the U.S. Food and Drug Administration, or FDA, could
cause product liability events, additional regulatory scrutiny
and requirements for additional labeling, withdrawal of products
from the market and the imposition of fines or criminal
penalties. Any of these actions could result in, among other
things, material write-offs of inventory and impairments of
intangible assets, goodwill and fixed assets. In addition, the
reporting of adverse safety events involving our products and
public rumors about such events could cause our stock price to
decline or experience periods of volatility.
If we
fail to compete effectively, our business and market position
would suffer.
The biotechnology and pharmaceutical industry is intensely
competitive. We compete in the marketing and sale of our
products, the development of new products and processes, the
acquisition of rights to new products with commercial potential
and the hiring and retention of personnel. We compete with
biotechnology and pharmaceutical companies that have a greater
number of products on the market and in the product pipeline,
greater financial and other resources and other technological or
competitive advantages. One or more of our competitors may
receive patent protection that dominates, blocks or adversely
affects our product development or business, may benefit from
significantly greater sales and marketing capabilities, and may
develop products that are accepted more widely than ours. The
introduction of more efficacious, safer, cheaper, or more
convenient alternatives to our products could reduce our
revenues and the value of our product development efforts.
Potential governmental action in the future could provide a
means for competition from developers of follow-on biologics,
which could compete on price and differentiation with products
that we now or could in the future market.
In addition to competing directly with products that are
marketed by substantial pharmaceutical competitors, AVONEX,
RITUXAN and TYSABRI also face competition from off-label uses of
drugs approved for other indications. Some of our current
competitors are also working to develop alternative formulations
for delivery of their products, which may in the future compete
with ours.
We
depend, to a significant extent, on reimbursement from third
party payors and a reduction in the extent of reimbursement
could reduce our product sales and revenue.
Sales of our products are dependent, in large part, on the
availability and extent of reimbursement from government health
administration authorities, private health insurers and other
organizations. Changes in government regulations or private
third-party payors reimbursement policies may reduce
reimbursement for our products and adversely affect our future
results.
In the United States, at both the federal and state levels, the
government regularly proposes legislation to reform healthcare
and its cost, and such proposals have received increasing
political attention. Congress is considering legislation to
reform the U.S. healthcare system by reducing the number of
uninsured and underinsured individuals and making other changes.
While healthcare reform may increase the number of patients who
have insurance coverage for our products, it may also include
changes that adversely affect reimbursement for our products.
Congress is also considering legislation to increase the amount
of rebates that manufacturers pay for coverage of their drugs by
Medicare and Medicaid programs and to facilitate the importation
of lower-cost prescription drugs that are marketed outside the
United States. Some states are considering legislation that
would control the prices of drugs, and state Medicaid programs
are increasingly requesting manufacturers to pay
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supplemental rebates and requiring prior authorization by the
state program for use of any drug for which supplemental rebates
are not being paid. Managed care organizations continue to seek
price discounts and, in some cases, to impose restrictions on
the coverage of particular drugs. Government efforts to reduce
Medicaid expenses may lead to increased use of managed care
organizations by Medicaid programs. This may result in managed
care organizations influencing prescription decisions for a
larger segment of the population and a corresponding constraint
on prices and reimbursement for our products.
We encounter similar regulatory and legislative issues in most
other countries. In the E.U. and some other international
markets, the government provides health care at low cost to
consumers and regulates pharmaceutical prices, patient
eligibility or reimbursement levels to control costs for the
government-sponsored health care system. This international
system of price regulations may lead to inconsistent prices.
Within the E.U. and in other countries, the availability of our
products in some markets at lower prices undermines our sales in
some markets with higher prices. Additionally, certain countries
set prices by reference to the prices in other countries where
our products are marketed. Thus, our inability to secure
adequate prices in a particular country may also impair our
ability to obtain acceptable prices in existing and potential
new markets. This may create the opportunity for the third party
cross border trade previously mentioned or influence our
decision to sell or not to sell the product thus affecting our
geographic expansion plans.
When a new medical product is approved, the availability of
government and private reimbursement for that product is
uncertain, as is the amount for which that product will be
reimbursed. We cannot predict the availability or amount of
reimbursement for our product candidates.
We
depend on collaborators for both product and royalty revenue and
the clinical development of future collaboration products, which
are outside of our full control.
Collaborations between companies on products or programs are a
common business practice in the biotechnology industry.
Out-licensing typically allows a partner to collect up front
payments and future milestone payments, share the costs of
clinical development and risk of failure at various points, and
access sales and marketing infrastructure and expertise in
exchange for certain financial rights to the product or program
going to the in-licensing partner. In addition, the obligation
of in-licensees to pay royalties or share profits generally
terminates upon expiration of the related patents. We have a
number of collaborators and partners, and have both in-licensed
and out-licensed several products and programs. These
collaborations are subject to several risks:
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we are not fully in control of the royalty or profit sharing
revenues we receive from collaborators, which may be adversely
affected by patent expirations, pricing or health care reforms,
other legal and regulatory developments, failure of our partners
to comply with applicable laws and regulatory requirements, the
introduction of competitive products, and new indication
approvals which may affect the sales of collaboration products;
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where we co-promote and co-market products with our
collaboration partners, any failure on their part to comply with
applicable laws in the sale and marketing of our products could
have an adverse effect on our revenues as well as involve us in
possible legal proceedings; and
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collaborations often require the parties to cooperate, and
failure to do so effectively could have an adverse impact on
product sales by our collaborators and partners, and could
adversely affect the clinical development of products or
programs under joint control.
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In addition, under our collaboration agreement with Genentech,
the successful development and commercialization of the first
anti-CD20 product acquired or developed by Genentech will
decrease our percentage of the collaborations co-promotion
profits.
If we
do not successfully execute our growth initiatives through the
acquisition, partnering and
in-licensing
of products, technologies or companies, our future performance
could be adversely affected.
We anticipate growing through internal development projects as
well as external growth opportunities, which include the
acquisition, partnering and in-licensing of products,
technologies and companies or the entry into strategic alliances
and collaborations. The availability of high quality
opportunities is limited and we are not certain
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that we will be able to identify suitable candidates or complete
transactions on terms that are acceptable to us. In order to
pursue such opportunities, we may require significant additional
financing, which may not be available to us on favorable terms,
if at all. The availability of such financing is limited by the
recent tightening of the global credit markets. In addition,
even if we are able to successfully identify and complete
acquisitions, we may not be able to integrate them or take full
advantage of them and therefore may not realize the benefits
that we expect. In addition, third parties may be more reluctant
to partner with us due to the uncertainty created by the
presence on our Board of Directors of two individuals nominated
by certain entities affiliated with Carl Icahn that have
advocated for a sale or
break-up of
the company. If we are unsuccessful in our external growth
program, we may not be able to grow our business significantly
and we may incur asset impairment charges as a result of
acquisitions that are not successful.
If we
fail to comply with the extensive legal and regulatory
requirements affecting the healthcare industry, we could face
increased costs, penalties and a loss of business.
Our activities, and the activities of our collaborators and
third party providers, are subject to extensive government
regulation and oversight both in the United States and in
foreign jurisdictions. The FDA and comparable agencies in other
jurisdictions directly regulate many of our most critical
business activities, including the conduct of preclinical and
clinical studies, product manufacturing, advertising and
promotion, product distribution, adverse event reporting and
product risk management. States increasingly have been placing
greater restrictions on the marketing practices of healthcare
companies. In addition, pharmaceutical and biotechnology
companies have been the target of lawsuits and investigations
alleging violations of government regulation, including claims
asserting submission of incorrect pricing information,
impermissible off-label promotion of pharmaceutical products,
payments intended to influence the referral of federal or state
healthcare business, submission of false claims for government
reimbursement, antitrust violations, or violations related to
environmental matters. Violations of governmental regulation may
be punishable by criminal and civil sanctions, including fines
and civil monetary penalties and exclusion from participation in
government programs, including Medicare and Medicaid. In
addition to penalties for violation of laws and regulations, we
could be required to repay amounts we received from government
payors, or pay additional rebates and interest if we are found
to have miscalculated the pricing information we have submitted
to the government. Whether or not we have complied with the law,
an investigation into alleged unlawful conduct could increase
our expenses, damage our reputation, divert management time and
attention and adversely affect our business.
If we
fail to meet the stringent requirements of governmental
regulation in the manufacture of our products, we could incur
substantial remedial costs and a reduction in
sales.
We and our third party providers are generally required to
maintain compliance with current Good Manufacturing Practice, or
cGMP, and are subject to inspections by the FDA or comparable
agencies in other jurisdictions to confirm such compliance. In
addition, the FDA must approve any significant changes to our
suppliers or manufacturing methods. If we or our third party
service providers cannot demonstrate ongoing cGMP compliance, we
may be required to withdraw or recall product and interrupt
commercial supply of our products. Any delay, interruption or
other issues that arise in the manufacture, fill-finish,
packaging, or storage of our products as a result of a failure
of our facilities or the facilities or operations of third
parties to pass any regulatory agency inspection could
significantly impair our ability to develop and commercialize
our products. Significant noncompliance could also result in the
imposition of monetary penalties or other civil or criminal
sanctions. This non-compliance could increase our costs, cause
us to lose revenue or market share and damage our reputation.
Changes
in laws affecting the healthcare industry could adversely affect
our revenues and profitability.
We and our collaborators and third party providers operate in a
highly regulated industry. As a result, governmental actions may
adversely affect our business, operations or financial
condition, including:
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new laws, regulations or judicial decisions, or new
interpretations of existing laws, regulations or decisions,
related to health care availability, method of delivery and
payment for health care products and services;
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changes in the FDA and foreign regulatory approval processes
that may delay or prevent the approval of new products and
result in lost market opportunity;
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changes in FDA and foreign regulations that may require
additional safety monitoring, labeling changes, restrictions on
product distribution or use, or other measures after the
introduction of our products to market, which could increase our
costs of doing business, adversely affect the future permitted
uses of approved products, or otherwise adversely affect the
market for our products;
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new laws, regulations and judicial decisions affecting pricing
or marketing practices; and
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changes in the tax laws relating to our operations.
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The enactment in the United States of the Deficit Reduction Act
of 2005, possible legislation which could ease the entry of
competing follow-on biologics in the marketplace, new
legislation or implementation of existing statutory provisions
on importation of lower-cost competing drugs from other
jurisdictions, and legislation on comparative effectiveness
research are examples of previously enacted and possible future
changes in laws that could adversely affect our business. In
addition, the Food and Drug Administration Amendments Act of
2007 included new authorization for the FDA to require
post-market safety monitoring, along with an expanded clinical
trials registry and clinical trials results database, and
expanded authority for FDA to impose civil monetary penalties on
companies that fail to meet certain commitments.
Problems
with manufacturing or with inventory planning could result in
our inability to deliver products, inventory shortages or
surpluses, product recalls and increased costs.
We manufacture and expect to continue to manufacture our own
commercial requirements of bulk AVONEX and TYSABRI. Our products
are difficult to manufacture and problems in our manufacturing
processes can occur, resulting in product defects or
contamination, shipment delays and recalls. Biologics
manufacturing is extremely susceptible to product loss due to
contamination, equipment failure, or vendor or operator error.
In addition, microbial or viral contamination may cause the
closure of a manufacturing facility for an extended period of
time. Any of these events could result in inventory write-offs
and impair our ability to expand into new markets or supply
products in existing markets. In the past, we have had to write
down and incur other charges and expenses for products that
failed to meet specifications. Similar charges may occur in the
future.
We rely solely on our manufacturing facility in Research
Triangle Park, North Carolina, or RTP, for the production of
TYSABRI. Our global supply of TYSABRI depends on the
uninterrupted and efficient operation of this facility, which
could be adversely affected by equipment failures, labor
shortages (whether as a result of pandemic flu outbreak or
otherwise), natural disasters, power failures and numerous other
factors. If we are unable to meet demand for TYSABRI for any
reason, we would need to rely on a limited number of qualified
third party contract manufacturers. We cannot be certain that we
could reach agreement on reasonable terms, if at all, with those
manufacturers or that the FDA would approve our use of such
manufacturers on a timely basis, if at all. Moreover, the
transition of our manufacturing process to a third party could
take a significant amount of time. Conversely, lower than
expected demand for our products, including suspension of sales,
or a change in product mix may result in less than optimal
utilization of our manufacturing facilities and lower inventory
turnover, which could result in abnormal manufacturing variance
charges, facility impairment charges and charges for excess and
obsolete inventory.
Our inability to successfully manufacture bulk product and to
obtain and maintain regulatory approvals of our manufacturing
facilities would harm our ability to produce timely sufficient
quantities of commercial supplies of AVONEX and TYSABRI to meet
demand.
We
rely on third parties to provide services in connection with the
manufacture of our products and, in some instances, the
manufacture of the product itself.
We rely on Genentech for all RITUXAN manufacturing. Genentech
relies on a third party to manufacture certain bulk RITUXAN
requirements. If Genentech or any third party upon which it
relies does not manufacture or fill-finish RITUXAN in sufficient
quantities and on a timely and cost-effective basis, or if
Genentech or any third party does not obtain and maintain all
required manufacturing approvals, our business could be harmed.
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We also source all of our fill-finish and the majority of our
final product storage operations, along with a substantial
portion of our packaging operations of the components used with
our products, to a concentrated group of third party
contractors. Any third party we use to fill-finish, package or
store our products to be sold in the United States must be
licensed by the FDA. As a result, alternative third party
providers may not be readily available on a timely basis. The
manufacture of products and product components, fill-finish,
packaging and storage of our products require successful
coordination among us and multiple third party providers. Our
inability to coordinate these efforts, the lack of capacity
available at a third party contractor or any other problems with
the operations of these third party contractors could require us
to delay shipment of saleable products, recall products
previously shipped or impair our ability to supply products at
all. This could increase our costs, cause us to lose revenue or
market share, diminish our profitability and damage our
reputation.
Due to the unique nature of the production of our products,
there are single source providers of several raw materials. We
make every effort to qualify new vendors and to develop
contingency plans so that production is not impacted by
short-term issues associated with single source providers.
Nonetheless, our business could be materially impacted by
long-term or chronic issues associated with single source
providers.
The
current credit and financial market conditions may exacerbate
certain risks affecting our business.
Sales of our products are dependent on reimbursement from
government health administration authorities, private health
insurers, distribution partners and other organizations. As a
result of the current credit and financial market conditions,
these organizations may be unable to satisfy their reimbursement
obligations or may delay payment. In addition, federal and state
health authorities may reduce Medicare and Medicaid
reimbursements, and private insurers may increase their scrutiny
of claims. A reduction in the availability or extent of
reimbursement could reduce our product sales and revenue.
We rely on third parties for several important aspects of our
business, including portions of our product manufacturing,
royalty revenue, clinical development of future collaboration
products, conduct of clinical trials, and raw materials. Such
third parties may be unable to satisfy their commitments to us
due to the recent tightening of global credit, which would
adversely affect our business.
Our
effective tax rate may fluctuate and we may incur obligations in
tax jurisdictions in excess of amounts that have been
accrued.
As a global biotechnology company, we are subject to taxation in
numerous countries, states and other jurisdictions. As a result,
our effective tax rate is derived from a combination of
applicable tax rates in the various countries, states and other
jurisdictions in which we operate. In preparing our financial
statements, we estimate the amount of tax that will become
payable in each of the countries, states and other jurisdictions
in which we operate. Our effective tax rate, however, may be
lower or higher than experienced in the past due to numerous
factors, including a change in the mix of our profitability from
country to country, changes in accounting for income taxes and
changes in tax laws. Any of these factors could cause us to
experience an effective tax rate significantly different from
previous periods or our current expectations, which could have
an adverse effect on our business and results of operations. In
addition, unfavorable results of audits of our tax filings, our
inability to secure or sustain arrangements with tax
authorities, and previously enacted and future changes in tax
laws in jurisdictions in which we operate, among other things,
may cause us to be obligated to accrue for future tax payments
in excess of amounts accrued in our financial statements.
The Obama administration recently announced several proposals to
reform United States tax rules, including proposals that may
reduce or eliminate the deferral of United States income tax on
our unrepatriated earnings, potentially requiring those earnings
to be taxed at the United States federal income tax rate, reduce
or eliminate our ability to claim foreign tax credits, and
eliminate various tax deductions until foreign earnings are
repatriated to the United States. Our future reported financial
results may be adversely affected by tax rule changes which
restrict or eliminate our ability to claim foreign tax credits
or deduct expenses attributable to foreign earnings, or
otherwise affect the treatment of our unrepatriated earnings.
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We may
not achieve our desired return on our significant investment in
a manufacturing facility currently under
development.
We are in the final stages of completing a large-scale biologic
manufacturing facility in Hillerød, Denmark. We have
already made a significant investment in this project and we may
incur substantial additional costs to make this facility ready
for production.
Although the facility may be completed in 2010, we could
experience delays in the completion or licensing of the
facility. In addition, lower than expected demand for our
current or future products or an increase in our manufacturing
capacity from other facilities may result in more capacity than
is necessary for future production. If any of these events
occur, we would likely recognize an impairment in the value of
the facility, which could have a material adverse effect on our
results of operations.
The
growth of our business depends on our ability to attract and
retain qualified personnel and key relationships.
The achievement of our commercial, research and development and
external growth objectives depends upon our ability to attract
and retain qualified scientific, manufacturing, sales and
marketing and executive personnel and develop and maintain
relationships with qualified clinical researchers and key
distributors. Competition for these people and relationships is
intense and comes from a variety of sources, including
pharmaceutical and biotechnology companies, universities and
non-profit research organizations. In addition, it may be more
difficult for us to attract and retain these people and
relationships due to the uncertainty created by the presence on
our Board of Directors of two individuals nominated by certain
entities affiliated with Carl Icahn that have advocated for
a sale or
break-up of
the company.