e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2010
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 0-19311
Biogen Idec Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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33-0112644
(I.R.S. Employer
Identification No.)
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133 Boston Post Road,
Weston, Massachusetts
(Address of principal
executive offices)
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02493
(Zip
code)
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(781) 464-2000
(Registrants telephone
number, including area code)
Securities registered pursuant
to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.0005 par value
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The Nasdaq Global Select Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark 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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the registrants common stock
held by non-affiliates of the registrant (without admitting that
any person whose shares are not included in such calculation is
an affiliate) computed by reference to the price at which the
common stock was last sold as of the last business day of the
registrants most recently completed second fiscal quarter
was $11,688,813,825.
As of January 31, 2011, the registrant had
240,911,883 shares of common stock, $0.0005 par value,
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for our 2011 Annual
Meeting of Stockholders are incorporated by reference into
Part III of this report.
BIOGEN
IDEC INC.
ANNUAL
REPORT ON
FORM 10-K
For the
Year Ended December 31, 2010
TABLE OF
CONTENTS
NOTE REGARDING
FORWARD-LOOKING STATEMENTS
In addition to historical information, this report contains
forward-looking statements that are based on our current beliefs
and expectations. These forward-looking statements 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:
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the anticipated amount, mix and timing of future product sales,
corporate partner revenue, foreign earnings, royalty revenues or
obligations, milestone payments, expenses, liabilities, charges,
contractual obligations, cash expenditures, share-based
compensation, currency hedges, tax benefits and effective tax
rate, and amortization of intangible assets;
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the growth trends for TYSABRI and our ability to improve the
benefit-risk profile of TYSABRI;
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the assumed remaining life of the core technology relating to
AVONEX and expected lifetime revenue of AVONEX;
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the incidence, timing, outcome and impact of litigation,
proceedings related to patents and other intellectual property
rights, tax audits and assessments and other legal proceedings;
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the timing and impact of accounting standards;
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the design, costs, development and timing of, and therapeutic
area and indications targeted by, programs in our clinical
pipeline;
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the timing and outcome of regulatory filings and communications
with regulatory authorities;
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the impact and interpretation of healthcare reform and other
measures designed to reduce healthcare costs;
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the impact of the global macroeconomic environment and the
deterioration of the credit and economic conditions in certain
countries in Europe;
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our ability to finance our operations and business initiatives
and obtain funding for such activities;
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our reliance on third-parties for certain aspects of our
business;
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opportunistic return of cash to shareholders;
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the structure, strategy, financial and operational impact, and
timing of our framework for growth;
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the status, use, location and financial impact of our
manufacturing facilities and other properties; and
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the drivers for growing our business, including our plans to
pursue external business development and research opportunities,
and the impact of competition.
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These forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those
reflected in such forward-looking statements, including those
discussed in the Risk Factors section of this
report and elsewhere in this report. You should not place undue
reliance on these statements. Forward-looking statements speak
only as of the date of this report. We do not undertake any
obligation to publicly update any forward-looking statements.
NOTE REGARDING
COMPANY AND PRODUCT REFERENCES
Throughout this report, Biogen Idec, the
Company, we, us and
our refer to Biogen Idec Inc. and its consolidated
subsidiaries. References to RITUXAN refer to both
RITUXAN (the trade name for rituximab in the U.S., Canada and
Japan) and MabThera (the trade name for rituximab outside the
U.S., Canada and Japan), and ANGIOMAX refers to both
ANGIOMAX (the trade name for bivalirudin in the U.S., Canada and
Latin America) and ANGIOX (the trade name for bivalirudin in
Europe).
NOTE REGARDING
TRADEMARKS
AVONEX®,
RITUXAN®
and
ADENTRI®
are registered trademarks of Biogen Idec.
FUMADERMtm
is a common law trademark of Biogen Idec Inc.
TYSABRI®
and
TOUCH®
are registered trademarks of Elan Pharmaceuticals, Inc. The
following are trademarks of the respective companies listed:
ACTEMRA®
Chugai Seiyaku Kabushiki Kaisha;
AMEVIVE®
Astellas US LLC;
AMPYRA®
and
FAMPYRA®
Acorda Therapeutics, Inc.;
ANGIOMAX®
and
ANGIOX®
The Medicines Company;
ARZERRAtm
Glaxo Group Limited;
BETASERON®
and
BETAFERON®
Bayer Schering Pharma AG;
CAMPATH®
and
LEMTRADA®
Genzyme Corporation;
CIMZIA®
UCB Pharma, S.A.;
COPAXONE®
Teva Pharmaceutical Industries Limited;
ENBREL®
Immunex Corporation;
EXTAVIA®
and
GILENYA®
Novartis AG;
HUMIRA®
Abbott Biotechnology Ltd.;
ONCOVINtm
Eli Lilly and Company;
ORENCIA®
Bristol-Myers Squibb Company;
REBIF®
Ares Trading S.A.;
REMICADE®
Centocor Ortho Biotech Inc.;
SIMPONItm
Johnson & Johnson;
TREANDA®
Cephalon, Inc.; and
ZEVALIN®
RIT Oncology, LLC
PART I
Overview
Biogen Idec is a global biotechnology company focused on
discovering, developing, manufacturing and marketing products
for the treatment of neurological disorders and other serious
diseases. Patients worldwide benefit from our significant
products used for the treatment of multiple sclerosis,
non-Hodgkins lymphoma, rheumatoid arthritis, Crohns
disease, chronic lymphocytic leukemia and psoriasis.
Marketed
Products
We have four therapeutic products on the market, which are
summarized in the tables below.
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Product Revenues
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to Biogen Idec (in millions)
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Product
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Indications
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2010
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2009
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2008
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AVONEX
(interferon beta-1a)
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Multiple sclerosis
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$
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2,518.4
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$
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2,322.9
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$
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2,202.6
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TYSABRI
(natalizumab)
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Multiple sclerosis
Crohns disease
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900.2
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776.0
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588.6
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FUMADERM
(dimethylfumarate and monoethylfumarate salts)
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Psoriasis
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51.2
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49.6
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43.4
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Unconsolidated Joint Business
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Revenues to Biogen Idec (in millions)
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Product
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Indications
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2010
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2009
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2008
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RITUXAN
(rituximab)
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Non-Hodgkins lymphoma
Rheumatoid arthritis
Chronic lymphocytic leukemia
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$
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1,077.2
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$
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1,094.9
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$
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1,128.2
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Additional financial information about our product revenues,
other revenues and geographic areas in which we operate is set
forth in our consolidated financial statements, Note 24,
Segment Information to our consolidated financial
statements, and Item 6. Selected Consolidated Financial
Data included in this report.
Research
and Development
We devote significant resources to research and development
programs and external business development opportunities. We
have incurred significant expenditures related to conducting
clinical studies to develop new pharmaceutical products and
explore the utility of our existing products in treating
disorders beyond those currently approved in their labels.
In 2010, 2009 and 2008, our research and development costs
totaled $1,248.6 million, $1,283.1 million, and
$1,072.1 million, respectively. In addition, we incurred
charges associated with acquired in process research and
development as follows: $245.0 million in 2010 of which
$145.0 million was attributed to noncontrolling interests;
none in 2009; and $25.0 million in 2008.
CEO
Appointment
On July 15, 2010, George A. Scangos, Ph.D. began
serving as our Chief Executive Officer and member of our Board
of Directors. Dr. Scangos succeeded James C. Mullen, who
retired as our President and Chief Executive Officer on
June 8, 2010.
1
Framework
for Growth
On November 3, 2010, we announced a number of strategic,
operational and organizational initiatives designed to provide a
framework for the future growth of our business, which are
summarized as follows:
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We intend to focus our business on neurology and leverage our
strengths in biologics research, development and manufacturing
to pursue select biological therapies where there is a
significant unmet need and where the drug candidate has the
potential to be highly differentiated. Accordingly, during the
fourth quarter of 2010, we began to reallocate resources within
our research and development organization to maximize our
investment in our highest-potential programs. As a result, we
have terminated or are in the process of discontinuing certain
research and development programs, including substantially all
of our oncology programs (which we are looking to spin out or
out-license), our cardiovascular programs and selected neurology
and immunology programs. In addition, we have substantially
reduced our small molecule discovery activities in favor of
outsourcing these efforts.
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We are in the process of closing the San Diego, California
facility and consolidating our Massachusetts facilities.
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We eliminated our RITUXAN oncology and rheumatology sales force
and Genentech, Inc. (Genentech), a wholly-owned member of the
Roche Group, has assumed sole responsibility for the
U.S. sales and marketing efforts related to RITUXAN.
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We are in the process of completing a 13% reduction in our
workforce and realigning our overall structure to become a more
efficient and cost-effective organization.
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We expect these initiatives to be substantially completed by the
end of 2011 and to result in total restructuring charges of
approximately $110.0 million.
Business
Development
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In December 2010, we completed our acquisition of 100% of the
stock of Panima Pharmaceuticals AG (Panima), an affiliate of
Neurimmune AG. The purchase price is comprised of a
$32.5 million cash payment, plus contingent consideration
in the form of development milestones of up to
$395.0 million in cash. Panima is involved in the discovery
of antibodies designed to treat neurological disorders. For a
more detailed description of this transaction, please read
Note 2, Acquisitions to our consolidated financial
statements included in this report.
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In October 2010, we amended our collaboration agreement with
Genentech with regard to the development of ocrelizumab and
agreed to terms for the development of GA101. Under the terms of
the amended agreement, Genentech is responsible for the further
development and commercialization of ocrelizumab and funding
future costs. We will receive tiered royalties between 13.5% and
24% on U.S. sales of ocrelizumab. Commercialization of
ocrelizumab will not impact our percentage of the co-promotion
profits for RITUXAN. In addition, we will pay 35% of the
development and commercialization expenses of GA101 and will
receive between 35% and 39% of the profits of GA101 based upon
the achievement of certain sales milestones. Commercialization
of GA101 will impact our percentage of the co-promotion profits
for RITUXAN. This amendment did not have an impact on our share
of the co-promotion operating profits of RITUXAN in 2010. For a
more detailed description of this collaboration, please read
Note 19, Collaborations to our consolidated
financial statements included in this report.
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In August 2010, we entered into a license agreement with Knopp
Neurosciences, Inc. (Knopp), for the development, manufacture
and commercialization of dexpramipexole, an orally administered
small molecule in clinical development for the treatment of
amyotrophic lateral sclerosis (ALS). Under the terms of the
license agreement we made a $26.4 million upfront payment
and agreed to pay Knopp up to an additional $265.0 million
in development and sales-based milestone payments, as well as
royalties on future commercial sales. For a more detailed
description of this transaction, please read Note 18,
Investments in Variable Interest Entities to our
consolidated financial statements included in this report.
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Available
Information
We were formed as a California corporation in 1985 and became a
Delaware corporation in 1997. In 2003, we acquired Biogen, Inc.
and changed our corporate name from IDEC Pharmaceuticals
Corporation to Biogen Idec Inc. Our principal executive offices
are located at 133 Boston Post Road, Weston, MA 02493 and our
telephone number is
(781) 464-2000.
Our website address is www.biogenidec.com. We make available
free of charge through the Investors section of our website our
Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or
furnished to the Securities and Exchange Commission (SEC). We
include our website address in this report only as an inactive
textual reference and do not intend it to be an active link to
our website. The contents of our website are not incorporated
into this filing.
Marketed
Products
Our marketed products address the following diseases: multiple
sclerosis (MS); non-Hodgkins lymphoma (NHL); rheumatoid
arthritis (RA); Crohns disease (CD); chronic lymphocytic
leukemia (CLL); and psoriasis. In addition, we are exploring the
expansion of our marketed products into other diseases through
ongoing development efforts. The approved indications for, and
ongoing development of, our marketed products are summarized in
the table below.
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Development or Marketing
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Product
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Approved Indication
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Development Program
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Collaborators
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AVONEX (1)
(interferon beta-1a)
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Relapsing MS
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None
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TYSABRI (2)
(natalizumab)
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Relapsing MS
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Elan Pharmaceuticals
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CD
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Elan Pharmaceuticals
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RITUXAN (3)
(rituximab)
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NHL
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Genentech (Roche Group)
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RA
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Genentech (Roche Group)
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CLL
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Genentech (Roche Group)
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ANCA-associated vasculitis in registration
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Genentech (Roche Group)
(Our rights are limited to U.S.)
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FUMADERM (4)
(dimethylfurnarate and
monoethylfumarate salts)
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Severe psoriasis
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None
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(1) |
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AVONEX is indicated for the treatment of patients with relapsing
forms of MS to slow the accumulation of physical disability and
decrease the frequency of clinical exacerbations. |
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TYSABRI is indicated for the treatment of (1) relapsing
forms of MS as a monotherapy to delay the accumulation of
physical disability and reduce the frequency of clinical
exacerbations and (2) in the U.S., moderately to severely
active CD with evidence of inflammation in adult patients who
have had an inadequate response to or inability to tolerate
conventional CD therapies and TNF inhibitors. |
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RITUXAN is indicated for the treatment of (1)(a) relapsed or
refractory, low-grade or follicular, CD20-positive, B-cell NHL
as a single agent, (b) previously untreated follicular,
CD20-positive, B-cell NHL in combination with first line
chemotherapy and, in patients achieving a complete or partial
response to RITUXAN in combination with chemotherapy, as a
single-agent
maintenance therapy, (c) non-progressing (including stable
disease), low-grade, CD20-positive, B-cell NHL, as a single
agent, after first-line CVP chemotherapy, and
(d) previously untreated diffuse large B-cell,
CD20-positive NHL in combination with cyclophosphamide,
doxorubicin, ONCOVIN and prednisone or other anthracycline-based
chemotherapy regimens, (2) CD20-positive CLL in combination
with fludarabine and cyclophosphamide, and (3) moderately-
to severely-active RA, in combination with methotrexate, in
adult patients who have had an inadequate response to one or
more tumor necrosis factor (TNF) antagonist therapies. |
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FUMADERM is only approved in Germany and is indicated for the
treatment of adult patients with moderate to severe plaque
psoriasis for whom topical therapy is ineffective. |
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AVONEX
AVONEX is a leading therapeutic for relapsing forms of MS. MS is
a progressive neurological disease in which the body loses the
ability to transmit messages along nerve cells, leading to a
loss of muscle control, paralysis and, in some cases, death.
Patients with active relapsing MS experience an uneven pattern
of disease progression characterized by periods of stability
that are interrupted by
flare-ups of
the disease after which the patient returns to a new baseline of
functioning. AVONEX is a recombinant form of the interferon beta
protein produced in the body in response to viral infection.
TYSABRI
TYSABRI is a treatment for MS with powerful efficacy. TYSABRI is
a monoclonal antibody that was initially approved by the
U.S. Food and Drug Administration (FDA) in November 2004 to
treat relapsing MS. In February 2005, in consultation with the
FDA, we and our collaborator Elan Corporation plc (Elan)
voluntarily suspended the marketing and commercial distribution
of TYSABRI based on reports of cases of progressive multifocal
leukoencephalopathy (PML) in patients treated with TYSABRI in
clinical studies. PML is an opportunistic viral infection of the
brain that often leads to death or severe disability. In July
2006, TYSABRI was reintroduced in the U.S., and introduced in
the European Union (E.U.), as a monotherapy treatment for
relapsing MS. TYSABRI is also approved in the U.S. to treat
CD, which is an inflammatory disease of the intestines.
Because of the risk of PML, TYSABRI has a boxed warning and is
marketed under risk management or minimization plans approved by
local regulatory authorities. In the U.S., TYSABRI was
reintroduced under the TOUCH Prescribing Program, a restricted
distribution program designed to assess and minimize the risk of
PML, minimize death and disability due to PML, and promote
informed risk-benefit decisions regarding TYSABRI use.
Based upon data available to us through the TOUCH prescribing
program and other third-party sources, we estimate that as of
December 31, 2010 approximately 56,600 patients were
on commercial and clinical TYSABRI therapy worldwide. We
continue to monitor the growth of TYSABRI unit sales, which may
be adversely impacted by the significant safety warnings in the
prescribing information. We continue to research and develop
protocols that may reduce risk and improve outcomes of PML in
patients. Our efforts have included working to identify patient
or viral characteristics which contribute to the risk of
developing PML, including the presence of asymptomatic JC virus
infection with an assay to detect an immune response against the
JC virus.
We have initiated the five year renewal process for
TYSABRIs marketing authorization in the E.U. This
marketing authorization review by E.U. regulators, in addition
to ongoing label discussions with U.S. regulators, includes
assessment of the criteria for confirming PML diagnosis, the
number of PML cases, the incidence of PML in TYSABRI patients,
the risk factors for PML, as well as an overall assessment of
TYSABRIs benefit-risk profile. Our interactions with E.U.
and U.S. regulators could result in modifications to the
respective labels or other restrictions for TYSABRI. Upon
completion of the assessment of the TYSABRI renewal in the E.U.
the marketing authorization is expected to be valid for either
an unlimited period or for an additional five year term.
We collaborate with Elan on the development and
commercialization of TYSABRI. For a more detailed description of
this collaboration, please read Note 19, Collaborations
to our consolidated financial statements included in this
report.
2010
Developments
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In December 2010, we and Elan submitted a supplemental Biologics
License Application (sBLA) to the FDA and a Type II
Variation to the European Medicines Agency (EMA) to request
review and approval to update the respective TYSABRI Prescribing
Information and Summary of Product Characteristics. We are
proposing updated product labeling to include anti-JC virus
antibody status as one potential factor to help stratify the
risk of PML in the TYSABRI-treated population.
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In November 2010, we updated the E.U. TYSABRI label to include
information about the increased risk of PML in patients who have
a history of prior treatment with immunosuppressant therapy.
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In July 2010, we updated the U.S. TYSABRI label to reflect
that the risk of PML increases in patients with prior
immunosuppressant use.
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In May 2010, we updated the U.S. TYSABRI label to reflect
that Immune Reconstitution Inflammatory Syndrome (IRIS) may
occur in patients who developed PML and subsequently
discontinued TYSABRI.
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In May 2010, we updated the E.U. TYSABRI label to reflect that
the risk of PML increases after two years of therapy, with
limited experience beyond three years, and there is a risk for
the occurrence of IRIS in patients with TYSABRI induced PML
following discontinuation or removal of TYSABRI by plasma
exchange, a process that clears TYSABRI from patients
blood allowing the immune system to fight the infection.
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In March 2010, we began enrolling patients in a Phase 3 study,
known as SURPASS, designed to evaluate switching patients with
relapsing MS to TYSABRI from COPAXONE or REBIF. Although
enrollment targets have not been met, we have stopped enrollment
and will continue the study for currently enrolled patients.
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In March 2010, we began enrolling patients in two Phase 4
studies, known as STRATIFY-1 and STRATIFY-2, designed to
evaluate the potential utility of a blood test that is designed
to detect antibodies to the JC virus.
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RITUXAN
RITUXAN is a widely prescribed oncology therapeutic with over
2.4 million patient exposures across all indications.
RITUXAN is a monoclonal antibody used to treat NHL, CLL and RA.
NHL and CLL are cancers that affect lymphocytes, which are a
type of white blood cell that help to fight infection. RA is a
chronic disease that occurs when the immune system mistakenly
attacks the bodys joints, resulting in inflammation, pain
and joint damage.
We collaborate with Genentech on the development and
commercialization of RITUXAN. In October 2010, we amended our
collaboration agreement with Genentech with regard to the
development of ocrelizumab, a humanized anti-CD20 antibody, and
agreed to terms for the development of GA101, a next-generation
anti-CD20 antibody. For a more detailed description of this
collaboration, please read Note 19, Collaborations
to our consolidated financial statements included in this
report.
2010
Developments
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In October 2010, we and Genentech filed a supplemental biologics
license application with the FDA to expand the U.S. RITUXAN
label for the treatment of antineutrophil cytoplasmic antibody
(ANCA) associated vasculitis, a systemic inflammation of the
blood vessels.
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In May 2010, we and Genentech announced that data from a Phase 3
study, known as PRIMA, showed that continuing RITUXAN for two
years in patients who responded to initial treatment with
RITUXAN plus chemotherapy doubled the likelihood of them living
without their disease worsening compared to those who stopped
treatment. The RITUXAN label has since been expanded to include
maintenance treatment for patients with advanced follicular
lymphoma who responded to initial treatment with RITUXAN plus
chemotherapy.
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In March 2010, we and Genentech were issued a patent by the
U.S. Patent and Trademark Office (PTO) related to a method
of treating CLL using an anti-CD20 antibody. For information
about legal proceedings related to this patent, please read
Note 20, Litigation to our consolidated financial
statements included in this report.
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In February 2010, the FDA approved RITUXAN for the treatment of
CD20-positive CLL in combination with fludarabine and
cyclophosphamide, expanding the label beyond the treatment of
NHL and RA.
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FUMADERM
FUMADERM is approved for the treatment of severe psoriasis in
Germany. Psoriasis is a skin disease in which cells build up on
the skin surface and form scales and red patches.
5
Other
Sources of Revenue
Our primary source of other revenue is derived from royalties
received on sales by our licensees of other products covered
under patents that we own. Our royalty revenues are dependent
upon our licensees sales of licensed products which could
vary significantly due to competition, manufacturing,
regulatory, safety or efficacy issues or other factors that are
outside our control. In addition, the expiration or invalidation
of any underlying patents could reduce or eliminate the royalty
revenues derived from such patents. Royalties on sales of
ANGIOMAX (bivalirudin) by The Medicines Company (TMC) represent
our most significant source of other revenue. TMC markets
ANGIOMAX primarily in the U.S. and the E.U. for use as an
anticoagulant in patients undergoing percutaneous coronary
intervention. For a description of this royalty arrangement and
factors that could adversely affect this portion of our
revenues, please read the subsection entitled Other
Revenue Royalty Revenues in the
Managements Discussion and Analysis of Financial
Condition and Results of Operations section of this
report.
We have also sold or exclusively licensed to third parties
rights to certain products previously included within our
product line. Royalty or supply agreement revenues received
based upon those products are recorded as corporate partner
revenue. Amounts recorded as corporate partner revenue also
include amounts earned upon delivery of product under contract
manufacturing agreements.
In 2010, 2009 and 2008, our royalty revenues totaled
$137.4 million, $124.4 million and
$116.2 million, respectively, and our corporate partner
revenues totaled $31.7 million, $5.1 million and
$13.4 million, respectively.
6
Research
and Development Programs
We intend to continue committing significant resources to
research and development opportunities, focusing on
high-potential treatments for select disorders where there is a
significant unmet need and where the drug candidate has the
potential to be highly differentiated. The table below
highlights our research and development programs. Drug
development involves a high degree of risk and investment, and
the status, timing and scope of our development programs are
subject to change. Important factors that could adversely affect
our drug development efforts are discussed in the Risk
Factors section of this report.
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Therapeutic Area
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Product Candidate
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Targeted Indications
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Status
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Neurology
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FAMPYRA
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MS (walking ability)
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In registration (our rights exclude the
U.S.)
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BG-12
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MS (monotherapy)
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Phase 3
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Daclizumab
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MS
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Phase 3
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PEGylated Interferon Beta 1a
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MS
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Phase 3
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BG-12
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MS (combination therapy)
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Phase 2
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Dexpramipexole
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Amyotrophic Lateral Sclerosis
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Phase 3 planned
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Anti-LINGO
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MS
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Phase 1
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Baminercept
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MS
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Phase 1b
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Neublastin
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Neuropathy
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Phase 1
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BIIB034
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Parkinsons Disease
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Preclinical
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BART
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Alzheimers Disease
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Preclinical
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Gamma Secretase Modulator
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Alzheimers Disease
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Preclinical
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Immunology
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Anti-TWEAK
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Lupus
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Phase 2 planned
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Baminercept
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Ulcerative Colitis
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Phase 2a
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Anti-TWEAK
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RA
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Phase 1
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CD40L - Fab
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Lupus
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Phase 1
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Hemophilia
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Factor VIII Fc
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Hemophilia A
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Phase 3
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Factor IX Fc
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Hemophilia B
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Phase 3
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Oncology
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GA101
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Chronic Lymphocytic Leukemia
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Phase 3
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Non-Hodgkins Lymphoma
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Phase 3
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Additional information about our product candidates in or near
registrational stage development by therapeutic area is set
forth below:
Neurology
FAMPYRA
FAMPYRA (prolonged-release fampridine) is an oral compound that
is being developed as a treatment to improve walking ability in
people with MS. We have filed for approval of FAMPYRA for this
indication in the E.U., Canada, Australia and other
jurisdictions. FAMPYRA was approved in the U.S. in January
2010 and is marketed by Acorda Therapeutics, Inc. under the
trade name AMPYRA (dalfampridine) Extended Release Tablets
10 mg. AMPYRA is indicated to improve walking in patients
with MS. This was demonstrated by an increase in walking speed.
We collaborate with Acorda on the development and
commercialization of FAMPYRA in markets outside the
U.S. For a more detailed description of this collaboration,
please read Note 19, Collaborations to our
consolidated financial statements included in this report.
In January 2011, the EMAs Committee for Medicinal Products
for Human Use (CHMP) issued a negative opinion recommending
against approval of FAMPYRA to improve walking ability in adult
patients with MS in the
7
E.U. We intend to appeal this opinion and request a
re-examination of the decision by the CHMP. We also received a
Notice of Deficiency from Health Canada for our application to
sell FAMPYRA in Canada.
BG-12
BG-12 is an oral compound that is being tested in relapsing MS.
During 2009, we completed patient enrollment in two Phase 3
studies of BG-12 in relapsing MS, known as DEFINE and CONFIRM,
one of which includes a glatiramer acetate (COPAXONE) reference
comparator arm. The two studies were designed to have a two year
endpoint with each study involving approximately 1,000 to
1,200 patients. The FDA has granted BG-12 fast track
status, which may result in an expedited review.
Daclizumab
Daclizumab is a monoclonal antibody that is being tested in
relapsing MS. A Phase 2b trial of daclizumab in MS, known as
SELECT, completed enrollment in 2010. The SELECT trial has a one
year end point and is expected to involve approximately
600 patients worldwide. In May 2010, we began patient
enrollment in a Phase 3 study of daclizumab in relapsing MS,
known as DECIDE, evaluating the efficacy and safety of
daclizumab compared to interferon beta-1a (AVONEX). The DECIDE
trial is designed to have a two year endpoint and is expected to
involve approximately 1,500 patients.
We collaborate with Abbott Biotherapeutics Corporation (Abbott),
on the development and commercialization of daclizumab. In
January 2010, we amended our collaboration agreement with Abbott
whereby we assumed full development and manufacturing
responsibility for daclizumab. For a more detailed description
of this collaboration, please read Note 19,
Collaborations to our consolidated financial statements
included in this report.
PEGylated
interferon beta-1a
PEGylated interferon beta-1a is designed to prolong the effects
and reduce the dosing frequency of interferon beta-1a. During
the first half of 2009, we began patient enrollment in a Phase 3
trial of PEGylated interferon beta-1a in relapsing MS, known as
ADVANCE. The study is designed to have a one year endpoint and
involve approximately 1,200 patients. The FDA has granted
PEGylated interferon beta-1a fast track status, which may result
in an expedited review.
Dexpramipexole
Dexpramipexole is an orally administered small molecule in
clinical development for the treatment of amyotrophic lateral
sclerosis (ALS). ALS, also known as Lou Gehrigs disease,
is a neurodegenerative disorder characterized by progressive
muscle weakness and wasting.
We have agreed with the FDA on a Special Protocol Assessment for
the design of a registrational study of dexpramipexole and
expect to begin patient enrollment in the first half of 2011.
Dexpramipexole has been granted fast track status by the FDA,
which may result in an expedited review, and has received orphan
drug designation for the treatment of ALS from both the FDA and
EMA.
We have entered into a license agreement with Knopp
Neurosciences, Inc. for the development, manufacture and
commercialization of dexpramipexole. For a more detailed
description of this collaboration, please read Note 18,
Investments in Variable Interest Entities to our
consolidated financial statements included in this report.
Hemophilia
Long-Lasting
Recombinant Factors VIII and IX.
We collaborate with Swedish Orphan Biovitrum AB (Biovitrum) on
the development and commercialization of long-lasting
recombinant Factor VIII and Factor IX. In February 2010, we
amended our collaboration agreement with Biovitrum to provide
that we will assume full development responsibilities and costs
and perform all manufacturing for the Factor VIII and Factor XI
programs, among other matters. For a more detailed description
of this collaboration, please read Note 19,
Collaborations to our consolidated financial statements
included in this report.
8
Factor VIII is a proprietary fusion protein that is being tested
in hemophilia A, a disorder in which blood clotting is impaired.
In December 2010, we began patient enrollment in a
registrational trial of Factor VIII in hemophilia A, known as
A-LONG. This study will involve approximately 150 patients.
Factor VIII has received orphan drug designation for the
treatment of hemophilia A from both the FDA and EMA.
Factor IX is a proprietary fusion protein that is being tested
in hemophilia B, a disorder in which blood clotting is impaired.
During the first half of 2010, we began patient enrollment in a
registrational trial of Factor IX in hemophilia B, known as
B-LONG. This study will involve approximately 100 patients.
Factor IX has received orphan drug designation for the treatment
of hemophilia B from both the FDA and EMA.
Oncology
GA101
GA101 is a monoclonal antibody that is being tested in CLL and
NHL. During the second half of 2009, we began patient enrollment
in a Phase 3 trial of GA101 in combination with chlorambucil as
compared to rituximab plus chlorambucil or chlorambucil alone in
patients with previously untreated CLL. The study has a
6 month end point, with a minimum five year
follow-up
period, and is expected to involve approximately
800 patients worldwide. In April 2010, we began patient
enrollment in a Phase 3 trial of GA101 combined with
bendamustine compared with bendamustine alone in patients with
rituximab-refractory, indolent NHL. The study has a six to
twelve month end point and is expected to involve approximately
360 patients.
We collaborate with Genentech on the development and
commercialization of GA101. In October 2010, we amended our
collaboration agreement with Genentech to specify the terms for
the development of GA101, among other matters. For a more
detailed description of this collaboration and the recent
amendment, please read Note 19, Collaborations to
our consolidated financial statements included in this report.
Former
Registrational Programs
In October 2010, we agreed to terminate our collaboration with
Cardiokine Biopharma, LLC (Cardiokine ) for the development of
lixivaptan in hyponatremia effective November 1, 2010.
Under the terms of the agreement, we have funded our share of
development costs through the effective date and made a final
payment of $25.0 million to Cardiokine. The termination was
consistent with our broader strategic decision to terminate our
efforts in cardiovascular medicine described above under the
heading Overview Framework for
Growth.
In May 2010, we and the Roche Group announced our decision to
discontinue the ocrelizumab clinical development program for the
treatment of patients with RA. Following a detailed analysis of
the efficacy and safety results from the RA program, we
concluded that the overall benefit to risk profile of
ocrelizumab was not favorable in RA taking into account
currently available treatment options. The ocrelizumab RA
program included several Phase 3 studies.
Patents
and Other Proprietary Rights
Patents are important to developing and protecting our
competitive position. We regularly seek patent protection in the
U.S. and in selected countries outside the U.S. for
inventions originating from our research and development
efforts. In addition, we license rights to various patents and
patent applications, generally, in return for the payment of
royalties to the patent owner. U.S. patents, as well as
most foreign patents, are generally effective for 20 years
from the date the earliest (priority) application was filed;
however, U.S. patents that issue on applications filed
before June 8, 1995 may be effective until
17 years from the issue date, if that is later than the
20 year date. In some cases, the patent term may be
extended to recapture a portion of the term lost during FDA
regulatory review or because of U.S. Patent and Trademark
Office (USPTO) delays in prosecuting the application. The
duration of foreign patents varies similarly, in accordance with
local law.
We also rely upon unpatented confidential information to remain
competitive. We protect such information principally through
confidentiality agreements with our employees, consultants,
outside scientific collaborators, scientists whose research we
sponsor and other advisers. In the case of our employees, these
agreements also
9
provide, in compliance with relevant law, that inventions and
other intellectual property conceived by such employees during
their employment shall be our exclusive property.
Our trademarks, including RITUXAN and AVONEX, are important to
us and are generally covered by trademark applications or
registrations in the USPTO and the patent offices of other
countries. We also use trademarks licensed from third parties,
such as the mark TYSABRI which we license from Elan. Trademark
protection varies in accordance with local law, and continues in
some countries as long as the mark is used and in other
countries as long as the mark is registered. Trademark
registrations generally are for fixed but renewable terms.
Our patent position and proprietary rights are subject to
certain risks and uncertainties. For additional information
about certain risks and uncertainties that may affect our patent
position and proprietary rights, please read the Risk
Factors section of this report.
Additional information about the patents and other proprietary
rights covering our marketed products is set forth below.
AVONEX
and Beta Interferon
Our U.S. patent No. 7,588,755, granted in September
2009, claims the use of beta interferon for immunomodulation or
treating a viral condition, viral disease, cancers or tumors.
This patent, which expires in September 2026, covers, among
other things, the treatment of MS with our product AVONEX. This
issuance of this patent extends the expected remaining life of
the intangible asset related to our AVONEX core technology. For
information about legal proceedings related to this patent,
please read Note 20, Litigation to our consolidated
financial statements included in this report.
We have non-exclusive rights under certain third-party patents
and patent applications to manufacture, use and sell AVONEX,
including patents owned by the Japanese Foundation for Cancer
Research which expire in 2011 and 2013 in the U.S., and a
European patent owned by Rentschler Biotechnologie GmbH, which
expires in 2012. Additionally, third parties own pending
U.S. patent applications related to recombinant
interferon-beta. These applications, which fall outside of the
GATT amendments to the U.S. patent statute, are not
published by the USPTO and, if they mature into granted patents,
may be entitled to a term of seventeen years from the grant
date. There is at least one pending interference proceeding in
the USPTO involving such third party applications, and
additional interferences could be declared in the future. We are
unable to predict which, if any, such applications will mature
into patents with claims relevant to our AVONEX product.
TYSABRI
We and our collaborator, Elan, have patents and patent
applications covering TYSABRI in the U.S. and other
countries. These patents and patent applications cover TYSABRI
and related manufacturing methods, as well as various methods of
treatment using the product. In the U.S., the principal patents
covering the product and use of the product to treat MS
generally expire between 2015 and 2020. Additional
U.S. patents and applications covering other indications,
including treatment of inflammatory bowel disease, and methods
of manufacturing generally expire between 2012 and 2020. In the
rest of world, patents on the product and methods of
manufacturing the product generally expire between 2015 and
2020, subject to any supplemental protection (i.e., patent term
extension) certificates that may be obtained. In the rest of
world, patents and patent applications covering methods of
treatment using TYSABRI generally expire between 2012 and 2020.
RITUXAN
and Anti-CD20 Antibodies
We have several U.S. patents and patent applications, and
numerous corresponding foreign counterparts, directed to
anti-CD20 antibody technology, including RITUXAN. The principal
patents with claims to RITUXAN or its uses expire in the
U.S. between 2015 and 2018 and in the rest of the world in
2013, subject to any available patent term extensions. In
addition, we and our collaborator, Genentech, have filed
numerous patent applications directed to anti-CD20 antibodies
and their uses to treat various diseases. These pending patent
applications have the potential of issuing as patents in the
U.S. and in the rest of world with claims to anti-CD20
antibody molecules for
10
periods beyond that stated above for RITUXAN. In 2008, a
European patent of ours claiming the treatment with anti-CD20
antibodies of certain auto-immune indications, including RA, was
revoked by the European Patent Office. We are appealing that
decision.
Genentech, our collaborator on RITUXAN, has secured an exclusive
license to five U.S. patents and counterpart U.S. and
foreign patent applications assigned to Xoma Corporation that
relate to chimeric antibodies against the CD20 antigen. These
patents expire between 2007 and 2014. Genentech has granted us a
non-exclusive sublicense to make, have made, use and sell
RITUXAN under these patents and patent applications. We, along
with Genentech, share the cost of any royalties due to Xoma in
our co-promotion territory on sales of RITUXAN.
Sales,
Marketing and Distribution
We focus our sales and marketing efforts on specialist
physicians in private practice or at major medical centers. We
use customary pharmaceutical company practices to market our
products and to educate physicians, such as sales
representatives calling on individual physicians,
advertisements, professional symposia, direct mail, public
relations and other methods. We provide customer service and
other related programs for our products, such as disease and
product-specific websites, insurance research services and
order, delivery and fulfillment services. We have also
established programs in the U.S. which provide qualified
uninsured or underinsured patients with marketed products at no
or reduced charge, based on specific eligibility criteria.
Additional information about our sales, marketing and
distribution efforts for our marketed products is set forth
below.
AVONEX
We continue to focus our marketing and sales activities on
maximizing the potential of AVONEX in the U.S. and the rest
of world in the face of increased competition. The principal
markets for AVONEX are the U.S., Germany, France and Italy. In
the U.S., Canada, Brazil, Argentina, Australia, Japan and most
of the major countries of the E.U., we market and sell AVONEX
through our own sales forces and marketing groups and distribute
AVONEX principally through wholesale distributors of
pharmaceutical products, mail order specialty distributors or
shipping service providers. In other countries, we sell AVONEX
to distribution partners who are then responsible for most
marketing and distribution activities.
TYSABRI
The principal markets for TYSABRI are the U.S., Germany, France
and Italy.
In the U.S., we are principally responsible for marketing
TYSABRI for MS and use our own sales force and marketing group
for this. Elan is responsible for TYSABRI distribution in the
U.S. and uses a third party distributor to ship TYSABRI
directly to customers.
In the rest of world, we are responsible for TYSABRI marketing
and distribution and we use a combination of our own sales force
and marketing group and third party service providers.
FUMADERM
FUMADERM is marketed only in Germany. We have been marketing and
distributing FUMADERM directly in Germany since February 2009
and previously used a third party service provider.
RITUXAN
The Roche Group and its sublicensees market and sell RITUXAN
worldwide. In the U.S, we had previously contributed a sales
force and other resources to the marketing of RITUXAN. In
connection with our framework for growth initiative, we reached
an agreement with Genentech to eliminate our RITUXAN oncology
and rheumatology sales force, with Genentech assuming sole
responsibility for the U.S. sales and marketing efforts
related to RITUXAN. Notwithstanding this operational decision,
we continue to collaborate with Genentech on the development and
commercialization of RITUXAN. RITUXAN is generally sold to
wholesalers, specialty distributors and directly to hospital
pharmacies.
11
Competition
Competition in the biotechnology and pharmaceutical industries
is intense and comes from many and varied sources, including
specialized biotechnology firms and large pharmaceutical
companies. Many of our competitors are working to develop
products similar to those we are developing or already market
and have considerable experience in undertaking clinical trials
and in obtaining regulatory approval to market pharmaceutical
products. Certain of these companies have substantially greater
financial, marketing and research and development resources than
we do.
We believe that competition and leadership in the industry will
be based on managerial and technological superiority and
establishing patent and other proprietary positions through
research and development. The achievement of a leadership
position also depends largely upon our ability to identify and
exploit commercially the products resulting from research and
the availability of adequate financial resources to fund
facilities, equipment, personnel, clinical testing,
manufacturing and marketing. Another key aspect of remaining
competitive within the industry is recruiting and retaining
qualified scientists and technicians. We believe that we have
been successful in attracting skilled and experienced scientific
personnel.
Competition among products approved for sale may be based, among
other things, on patent position, product efficacy, safety,
convenience, reliability, availability and price. In addition,
early entry of a new pharmaceutical product into the market may
have important advantages in gaining product acceptance and
market share. Accordingly, the relative speed with which we can
develop products, complete the testing and approval process and
supply commercial quantities of products will have an important
impact on our competitive position.
We may face increased competitive pressures as a result of the
emergence of biosimilars. In the United States, most of our
marketed products, including AVONEX, RITUXAN and TYSABRI, are
licensed under the Public Health Service Act (PHSA) as
biological products. In March 2010, U.S. healthcare reform
legislation amended the PHSA to authorize the FDA to approve
biological products, known as biosimilars or follow-on
biologics, that are shown to be highly similar to previously
approved biological products based upon potentially abbreviated
data packages. The approval pathway for biosimilars does,
however, grant a biologics manufacturer a 12 year period of
exclusivity from the date of approval of its biological product
before biosimilar competition can be introduced. Biosimilars
legislation has also been in place in the E.U. since 2003. In
November 2010, draft guidelines issued by the EMA for
approving biosimilars of marketed monoclonal antibody products
were adopted by the CHMP. These guidelines are now out for
public consultation. If a biosimilar version of one of our
products were approved, it could reduce our sales of that
product.
Additional information about the competition that our marketed
products face is set forth below.
AVONEX
AND TYSABRI
AVONEX and TYSABRI both compete with the following products:
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COPAXONE (glatiramer acetate), which is marketed by Teva
Pharmaceutical Industries Ltd. in the U.S. and copromoted
by Teva Pharmaceutical Industries and Sanofi-Aventis in Europe.
COPAXONE generated worldwide revenues of approximately
$2.8 billion in 2009.
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REBIF (interferon-beta-1a), which is co-promoted by EMD Serono,
a subsidiary of Merck Serono, and Pfizer Inc. in the
U.S. and is marketed by Merck Serono in the E.U. REBIF
generated worldwide revenues of approximately $2.0 billion
in 2009.
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BETASERON (interferon-beta-1b), which is marketed by Bayer
HealthCare Pharmaceuticals, the U.S. pharmaceuticals
affiliate of Bayer Schering Pharma AG, in the U.S. and is
marketed under the name BETAFERON by Bayer Schering Pharma AG in
the E.U. BETASERON and BETAFERON together generated worldwide
revenues of approximately $1.6 billion in 2009.
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EXTAVIA (interferon-beta-1b), which is marketed by Novartis AG
in the E.U. and other markets. EXTAVIA was launched in the
U.S. in September 2009. EXTAVIA generated worldwide revenue
of approximately $49.0 million in 2009.
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GILENYA (fingolimod), which is marketed by Novartis AG in the
U.S. GILENYA is the first oral MS drug approved in the U.S., and
was launched in the U.S. in October 2010. In January 2011,
GILENYA was recommended for approval in the E.U. by the CHMP,
and is either approved or under review in other countries.
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Along with us, a number of companies are working to develop
additional treatments for MS that may in the future compete with
AVONEX and TYSABRI. For example, an oral formulation of
cladribine (developed by Merck Serono) has recently been
approved for use in Australia and Russia. LEMTRADA (alemtuzumab)
(developed by Genzyme Corporation), teriflunomide (developed by
Sanofi-Aventis) and laquinimod (developed by Teva Pharmaceutical
Industries) are in late-stage development for the treatment of
MS. In addition, the commercialization of certain of our own
pipeline product candidates, such as BG-12, may also negatively
impact future sales of AVONEX and TYSABRI.
FUMADERM
FUMADERM competes with several different types of therapies in
the psoriasis market within Germany, including oral systemics
such as methotrexate and cyclosporine.
RITUXAN
IN ONCOLOGY
RITUXAN competes with several different types of therapies in
the oncology market, including:
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CAMPATH (alemtuzumab) (marketed by Bayer HealthCare
Pharmaceuticals), which is indicated for B-cell CLL.
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TREANDA (bendamustine HCL) (marketed by Cephalon) and ARZERRA
(ofatumumab) (marketed by GenMab in collaboration with
GlaxoSmithKline), which is indicated for refractory CLL patients
to both alemtuzumab and fludarabine.
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We are also aware of other anti-CD20 molecules in development
that, if successfully developed and registered, may compete with
RITUXAN in the oncology market.
RITUXAN
IN RA
RITUXAN competes with several different types of therapies in
the RA market, including:
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traditional therapies for RA, including disease-modifying
anti-rheumatic drugs such as steroids, methotrexate and
cyclosporine, and pain relievers such as acetaminophen.
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TNF inhibitors, such as REMICADE (infliximab) and SIMPONI
(golimumab) (marketed by Johnson & Johnson), HUMIRA
(adalimumab) (marketed by Abbott Laboratories), ENBREL
(etanercept) (marketed by Amgen, Inc. and Pfizer) and CIMZIA
(certolizumab pegol) (marketed by UCB, S.A.).
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ORENCIA (abatacept) (marketed by Bristol-Myers Squibb Company).
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ACTEMRA (tocilizumab) (marketed by the Roche Group).
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We are also aware of other products in development that, if
successfully developed and registered, may compete with RITUXAN
in the RA market.
Regulatory
Our current and contemplated activities and the products and
processes that will result from such activities are subject to
substantial government regulation.
Regulation
of Pharmaceuticals
Before new pharmaceutical products may be sold in the
U.S. and other countries, preclinical studies and clinical
trials of the products must be conducted and the results
submitted to appropriate regulatory agencies for approval.
Clinical trial programs must establish efficacy, determine an
appropriate dose and regimen, and define the conditions for safe
use. This is a high-risk process that requires stepwise clinical
studies in which the candidate product must successfully meet
predetermined endpoints. In the U.S., the results of the
preclinical and clinical
13
testing of a product are then submitted to the FDA in the form
of a Biologics License Application (BLA) or a New Drug
Application (NDA). In response to a BLA or NDA, the FDA may
grant marketing approval, request additional information or deny
the application if it determines the application does not
provide an adequate basis for approval. Similar submissions are
required by authorities in other jurisdictions who independently
assess the product and may reach the same or different
conclusions. Our initial focus for obtaining marketing approval
outside the U.S. is typically the E.U. There are currently
three potential tracks for marketing approval in E.U. countries:
mutual recognition, decentralized procedures, and centralized
procedures. These review mechanisms may ultimately lead to
approval in all countries within the E.U., but each method
grants all participating countries some decision-making
authority in product approval.
The receipt of regulatory approval often takes a number of
years, involves the expenditure of substantial resources and
depends on a number of factors, including the severity of the
disease in question, the availability of alternative treatments,
potential safety signals observed in preclinical or clinical
tests, and the risks and benefits demonstrated in clinical
trials. On occasion, regulatory authorities may require larger
or additional studies, leading to unanticipated delay or
expense. Even after initial FDA approval or approvals from other
regulatory agencies have been obtained, further clinical trials
may be required to provide additional data on safety and
effectiveness. Additional trials are required to gain approval
for the use of a product as a treatment for indications other
than those initially approved. Furthermore, the FDA and other
regulatory agencies require companies to register clinical
trials and disclose clinical trial results in public databases.
Failure to register a trial or disclose study results within the
required time periods could result in penalties, including civil
monetary penalties.
In the U.S., the FDA may grant accelerated approval
status to products that treat serious or life-threatening
illnesses and that provide meaningful therapeutic benefits to
patients over existing treatments. Under this pathway, the FDA
may approve a product based on surrogate endpoints, or clinical
endpoints other than survival or irreversible morbidity. When
approval is based on surrogate endpoints or clinical endpoints
other than survival or morbidity, the sponsor will be required
to conduct additional post-approval clinical studies to verify
and describe clinical benefit. Under the Agencys
Accelerated Approval regulations, FDA may also provide approval
with restrictions to assure safe use. Within this section of the
Accelerated Approval regulations, if FDA concludes that a drug
that has shown to be effective can be safely used only if
distribution or use is restricted, they will require such
post-marketing restrictions as necessary to assure safe use.
When a drug approved under these conditions requires restricted
use or distribution to ensure its safe use, the sponsor may be
required to establish rigorous systems to assure use of the
product under safe conditions. These systems are usually
referred to as Risk Evaluation and Mitigation Strategies (REMS).
In addition, for all products approved under accelerated
approval, sponsors must submit all copies of their promotional
materials, including advertisements, to the FDA at least thirty
days prior to initial dissemination. The FDA may withdraw
approval under accelerated approval after a hearing if, for
instance, post-marketing studies fail to verify any clinical
benefit or it becomes clear that restrictions on the
distribution of the product are inadequate to ensure its safe
use. TYSABRI was initially approved in MS under the accelerated
approval pathway and, following such approval and after efficacy
was confirmed, a stringent restricted distribution program was
agreed upon. We cannot be certain that the FDA will approve any
products for their proposed indications whether under
accelerated approval or another pathway.
In addition, the FDA may grant fast track status to
products that treat serious diseases and fill an unmet medical
need. Fast track is a process designed to expedite the review of
such products by providing, among other things, more frequent
meetings with the FDA to discuss the products development
plan, more frequent written correspondence from the FDA about
trial design, eligibility for accelerated approval, and rolling
review, which allows submission of individually completed
sections of a NDA for FDA review before the entire NDA is
completed. Fast track status does not ensure that a product will
be developed more quickly or receive FDA approval.
If the FDA or other regulatory agency approves a product or new
indication, the agency may require us to conduct additional
post-marketing studies. If we fail to conduct the required
studies or otherwise fail to comply with the conditions of
accelerated approval, the agency may withdraw its approval. In
addition, the FDA and EMA can impose financial penalties for
failing to comply with certain post-marketing commitments,
including REMS.
Regulatory authorities track information on side effects and
adverse events reported during clinical studies and after
marketing approval. Non-compliance with regulatory
authorities safety reporting requirements may result in
civil or criminal penalties. Side effects or adverse events that
are reported during clinical trials can delay, impede, or
14
prevent marketing approval. Regulatory authorities may conduct
post-marketing safety surveillance and may require additional
post-approval studies or clinical trials. These requirements may
affect our ability to maintain marketing approval of our
products or require us to make significant expenditures to
obtain or maintain such approvals. In addition, adverse events
that are reported after marketing approval can result in changes
to the products labeling, additional limitations being
placed on the products use and, potentially, withdrawal or
suspension of the product from the market.
If we seek to make certain types of changes to an approved
product, such as adding a new indication, making certain
manufacturing changes, or changing manufacturers or suppliers of
certain ingredients or components, regulatory authorities,
including the FDA and EMA, will need to review and approve such
changes in advance. Such regulatory reviews can result in denial
or modification of the planned changes, or requirements to
conduct additional tests or evaluations that can substantially
delay or increase the cost of the planned changes.
In addition, the FDA regulates all advertising and promotion
activities for products under its jurisdiction both before and
after approval. A company can make only those claims relating to
safety and efficacy that are approved by the FDA. However,
physicians may prescribe legally available drugs for uses that
are not described in the drugs labeling. Such off-label
uses are common across medical specialties, and often reflect a
physicians belief that the off-label use is the best
treatment for patients. The FDA does not regulate the behavior
of physicians in their choice of treatments, but the FDA
regulations do impose stringent restrictions on
manufacturers communications regarding off-label uses.
Failure to comply with applicable FDA requirements may subject a
company to adverse publicity, enforcement action by the FDA,
corrective advertising, and the full range of civil and criminal
penalties available to the FDA. Similar regulations are in place
in outside the U.S.
Good
Manufacturing Practices
The FDA, the EMA and other regulatory agencies regulate and
inspect equipment, facilities, and processes used in the
manufacturing of pharmaceutical and biologic products prior to
approving a product. If, after receiving clearance from
regulatory agencies, a company makes a material change in
manufacturing equipment, location, or process, additional
regulatory review and approval may be required. We also must
adhere to current Good Manufacturing Practices and
product-specific regulations enforced by the FDA following
product approval. The FDA, the EMA and other regulatory agencies
also conduct periodic visits to re-inspect equipment,
facilities, and processes following the initial approval of a
product. If, as a result of these inspections, it is determined
that our equipment, facilities, or processes do not comply with
applicable regulations and conditions of product approval,
regulatory agencies may seek civil, criminal, or administrative
sanctions or remedies against us, including the suspension of
our manufacturing operations.
Good
Clinical Practices
The FDA, the EMA and other regulatory agencies promulgate
regulations and standards, commonly referred to as current Good
Clinical Practices (cGCP), for designing, conducting,
monitoring, auditing and reporting the results of clinical
trials to ensure that the data and results are accurate and that
the rights and welfare of trial participants are adequately
protected. The FDA, the EMA and other regulatory agencies
enforce cGCP through periodic inspections of trial sponsors,
principal investigators and trial sites, contract research
organizations (CROs), and institutional review boards. If our
studies fail to comply with applicable cGCP, the clinical data
generated in our clinical trials may be deemed unreliable and
relevant regulatory agencies may require us to perform
additional clinical trials before approving our marketing
applications. Noncompliance can also result in civil or criminal
sanctions. We rely on third parties, including CROs, to carry
out many of our clinical trial-related activities. Failure of
such third party to comply with cGCP can likewise result in
rejection of our clinical trial data or other sanctions.
Orphan
Drug Act
Under the U.S. Orphan Drug Act, the FDA may grant orphan
drug designation to drugs intended to treat a rare disease
or condition, which generally is a disease or condition
that affects fewer than 200,000 individuals in the U.S. If
a product which has an orphan drug designation subsequently
receives the first FDA approval for the indication for which it
has such designation, the product is entitled to orphan
exclusivity, i.e., the FDA may not approve any other
applications to market the same drug for the same indication for
a period of seven years following marketing approval, except in
certain very limited circumstances, such as if the later product
is shown to be
15
clinically superior to the orphan product. Legislation similar
to the U.S. Orphan Drug Act has been enacted in other
countries, including within the E.U.
Regulation Pertaining
to Sales, Marketing and Product Pricing
The U.S. and foreign governments regularly consider
reforming health care coverage and costs. Such reform may
include changes to the coverage and reimbursement of our
products which may have a significant impact on our business.
In 2010, significant healthcare reform legislation was enacted
in the U.S., which has had and will continue to have an impact
our business by:
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expanding the coverage of and increasing the rate of rebates on
sales of our products, including (1) increasing the
Medicaid rebate from 15.1% to 23.1% of the average manufacturer
price (AMP) on our branded prescription drugs,
(2) extending the Medicaid rebate to Managed Care
Organizations, and (3) expanding the 340B Public Health
Service (PHS) drug pricing program, which provides outpatient
drugs at reduced rates, to include additional hospitals,
clinics, and healthcare centers;
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requiring drug manufactures to provide a 50% discount to
Medicare beneficiaries whose prescription drug costs cause them
to be subject to the Medicare Part D coverage gap (i.e. the
donut hole);
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assessing a new fee allocated to all manufacturers and importers
of branded prescription drugs paid for pursuant to coverage
provided under specified government programs;
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including an abbreviated approval pathway for
biosimilars; and
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changing the calculation of AMP for injectable drugs not
generally dispensed through retail community pharmacies.
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Considerable uncertainty remains surrounding determinations
necessary to implement the new legislation. For example,
determinations as to how the Medicare coverage gap will operate
remain to be clarified. In addition, uncertainty also exists as
to when and how discounts will be provided to the additional
hospitals eligible to participate under the 340B program. In
addition, in November 2010 the Centers for Medicare and Medicaid
Services (CMS) amended and then withdrew current regulations
governing calculation of AMP; however, no replacement
regulations have been proposed.
Medicaid is a joint federal and state program that is
administered by the states for low income and disabled
beneficiaries. Under the Medicaid Drug Rebate Program, we are
required to pay a rebate for each unit of product reimbursed by
the state Medicaid programs. The amount of the rebate for each
product is set by law as the larger of 23.1% of AMP or the
difference between AMP and the best price available from us to
any commercial or non-governmental customer. The rebate amount
must be adjusted upward where the AMP for a products first
full quarter of sales, when adjusted for increases in the CPI-U,
or Consumer Price Index Urban, exceeds the AMP for
the current quarter with the upward adjustment equal to the
excess amount. The rebate amount is required to be recomputed
each quarter based on our report of current AMP and best price
for each of our products to the Centers for Medicare and
Medicaid Services. The terms of our participation in the program
impose a requirement for us to report revisions to AMP or best
price within a period not to exceed 12 quarters from the quarter
in which the data was originally due. Any such revisions could
have the impact of increasing or decreasing our rebate liability
for prior quarters, depending on the direction of the revision.
In addition, if we were found to have knowingly submitted false
information to the government, the statute provides for civil
monetary penalties in an amount not to exceed $100,000 per item
of false information, in addition to other penalties available
to the government.
Medicare is a federal program that is administered by the
federal government that covers individuals age 65 and over
as well as those with certain disabilities. Medicare Part B
pays physicians that administer our products under a payment
methodology using average sales price, or ASP, information.
Manufacturers, including us, are required to provide ASP
information to the Centers for Medicare and Medicaid Services on
a quarterly basis. The manufacturer-submitted information is
used to compute Medicare payment rates, which are set at ASP
plus 6 percent and updated quarterly. There is a mechanism
for comparison of such payment rates to widely available market
prices, which could cause further decreases in Medicare payment
rates, although this mechanism has yet to be utilized. Effective
January 1, 2006, Medicare began to use the same ASP plus
6 percent payment methodology to determine Medicare rates
paid for products furnished by hospital outpatient departments.
As of January 1, 2009, the
16
reimbursement rate in the hospital outpatient setting was ASP
plus 4 percent. The reimbursement rate in the hospital
outpatient setting was increased to ASP plus 5 percent
effective January 1, 2011. If a manufacturer is found to
have made a misrepresentation in the reporting of ASP, the
statute provides for civil monetary penalties of up to $10,000
for each misrepresentation and for each day in which the
misrepresentation was applied.
The Medicare Prescription Drug Improvement and Modernization Act
of 2003 established the Medicare Part D program to provide
voluntary prescription drug benefit to enrolled Medicare
patients. This is a voluntary benefit that is being implemented
through private plans under contractual arrangements with the
federal government. Like pharmaceutical coverage through private
health insurance, Part D plans establish formularies that
govern the drugs and biologicals that will be offered and the
out-of-pocket obligations for such products. In addition, plans
negotiate discounts from drug manufacturers and pass on some of
those savings to Medicare beneficiaries.
The availability of federal funds to pay for our products under
the Medicaid and Medicare Part B programs requires that we
extend discounts under the 340B/PHS drug pricing program. The
340B/PHS drug pricing program extends discounts to a variety of
community health clinics and other entities that receive health
services grants from the PHS, as well as hospitals that serve a
disproportionate share of poor Medicare beneficiaries.
We also make our products available for purchase by authorized
users of the Federal Supply Schedule (FSS) of the General
Services Administration pursuant to our FSS contract with the
Department of Veterans Affairs. Under the Veterans Health Care
Act of 1992 (VHC Act) we are required to offer deeply discounted
FSS contract pricing to four Federal agencies the
Department of Veterans Affairs, the Department of Defense, the
Coast Guard and the PHS (including the Indian Health
Service) for federal funding to be made available
for reimbursement of any of our products under the Medicaid
program and for our products to be eligible to be purchased by
those four Federal agencies and certain Federal grantees. FSS
pricing to those four Federal agencies must be equal to or less
than the Federal Ceiling Price, which is, at a
minimum, 24% below the Non-Federal Average Manufacturer Price
(Non-FAMP) for the prior fiscal year. In addition, if we are
found to have knowingly submitted false information to the
government, the VHC Act provides for civil monetary penalties up
to $100,000 per false item of information in addition to other
penalties available to the government.
Under the 2008 National Defense Authorization Act, we are
required to treat the TRICARE retail pharmacy program, which
reimburses military personnel for drug purchases from retail
pharmacies, as an element of the Department of Defense to ensure
the application of the VHC Acts pricing standards.
We are also subject to various federal and state laws pertaining
to health care fraud and abuse, including
anti-kickback laws and false claims laws. Anti-kickback laws
make it illegal for a prescription drug manufacturer to solicit,
offer, receive, or pay any remuneration in exchange for, or to
induce, the referral of business, including the purchase or
prescription of a particular drug. Due to the breadth of the
statutory provisions and the absence of guidance in the form of
regulations and very few court decisions addressing industry
practices, it is possible that our practices might be challenged
under anti-kickback or similar laws. False claims laws prohibit
anyone from knowingly and willingly presenting, or causing to be
presented for payment to third party payors (including Medicare
and Medicaid) claims for reimbursed drugs or services that are
false or fraudulent, claims for items or services not provided
as claimed, or claims for medically unnecessary items or
services. In addition, several states require that companies
implement compliance programs or comply with industry ethics
codes, adopt spending limits, and report to state governments
any gifts, compensation, and other remuneration provided to
physicians. Federal legislation, the Physician Payments Sunshine
Act of 2009, also has been proposed that would require
disclosure to the federal government of payments to physicians.
Our activities relating to the sale and marketing of our
products may be subject to scrutiny under these laws. Violations
of fraud and abuse laws may be punishable by criminal or civil
sanctions, including fines and civil monetary penalties, as well
as the possibility of exclusion from federal health care
programs (including Medicare and Medicaid). If the government
were to allege or convict us of violating these laws, our
business could be harmed. In addition, private individuals may
bring similar actions.
Our activities could be subject to challenge for the reasons
discussed above and due to the broad scope of these laws and the
increasing attention being given to them by law enforcement
authorities. Further, there are an increasing number of state
laws that require manufacturers to make reports to states on
pricing and marketing information. Many of these laws contain
ambiguous requirements. Given the lack of clarity in laws and
their implementation, our reporting actions could be subject to
the penalty provisions of the pertinent state authorities.
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Future legislation or regulatory actions implementing recent or
future legislation may have a significant effect on our
business. Our ability to successfully commercialize products may
depend in part on the extent to which reimbursement for the
costs of our products and related treatments will be available
in the U.S. and worldwide from government health
administration authorities, private health insurers and other
organizations. Substantial uncertainty exists as to the
reimbursement status by third party payors of newly approved
health care products.
Other
Regulations
Foreign
Anti-Corruption
We are subject to the U.S. Foreign Corrupt Practices Act
(FCPA), which prohibits U.S. corporations and their
representatives from paying, offering to pay, promising,
authorizing, or making payments of anything of value to any
foreign government official, government staff member, political
party, or political candidate in an attempt to obtain or retain
business or to otherwise influence a person working in an
official capacity. In many countries, the health care
professionals we regularly interact with may meet the
FCPAs definition of a foreign government official. The
FCPA also requires public companies to make and keep books and
records that accurately and fairly reflect their transactions
and to devise and maintain an adequate system of internal
accounting controls.
In 2010, the Bribery Act was passed in the United Kingdom, which
proscribes giving and receiving bribes in the public and private
sectors, bribing a foreign public official, and failing to have
adequate procedures to prevent employees and other agents from
giving bribes. U.S. corporations that conduct business in the
United Kingdom generally will be subject to the Bribery Act.
Penalties under the Bribery Act include potentially unlimited
fines for corporations and criminal sanctions for corporate
officers under certain circumstances.
NIH
Guidelines
We conduct research at our U.S. facilities in compliance with
the current U.S. National Institutes of Health Guidelines
for Research Involving Recombinant DNA Molecules (NIH
Guidelines) and all other applicable federal and state
regulations. By local ordinance, we are required to, among other
things, comply with the NIH Guidelines in relation to our
facilities in Cambridge, Massachusetts and Research Triangle
Park, North Carolina and are required to operate pursuant to
certain permits.
Other
Laws
Our present and future business has been and will continue to be
subject to various other laws and regulations. Various laws,
regulations and recommendations relating to safe working
conditions, laboratory practices, the experimental use of
animals, and the purchase, storage, movement, import and export
and use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious
disease agents, used in connection with our research work are or
may be applicable to our activities. Certain agreements entered
into by us involving exclusive license rights may be subject to
national or international antitrust regulatory control, the
effect of which cannot be predicted. The extent of government
regulation, which might result from future legislation or
administrative action, cannot accurately be predicted.
Manufacturing
and Raw Materials
We are focused on the manufacture of biologics. The chart below
outlines the location of our primary manufacturing locations and
products manufactured therein.
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Research
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Triangle
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Product
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Park, NC
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Cambridge, MA
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Third Party
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AVONEX
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ü
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TYSABRI
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ü
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FUMADERM
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CLINICAL PRODUCTS
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ü
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ü
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We currently produce all of our bulk AVONEX at our manufacturing
facilities located in Research Triangle Park, North Carolina
(RTP) and Cambridge, Massachusetts. We currently produce TYSABRI
at our RTP facility. In April 2009, the FDA approved our high
titer process for the production of TYSABRI. Similar approval
was obtained from
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the EMA in December 2008. Genentech is responsible for all
worldwide manufacturing activities for bulk RITUXAN and has
sourced the manufacturing of certain bulk RITUXAN requirements
to an independent third party.
We plan to stop further validation of our large-scale
manufacturing facility in Hillerød, Denmark following
completion of the facilitys operational qualification
activities in the first half of 2011 as we continue to evaluate
our current manufacturing utilization strategy. This facility is
intended to manufacture large molecule products. Recent
manufacturing improvements have resulted in favorable production
yields on TYSABRI, that along with slower than expected TYSABRI
growth, have reduced our expected capacity requirements. As a
result, we have decided to delay the start of manufacturing
activities at this site until additional capacity is required by
the business.
We source all of our fill-finish and the majority of final
product storage operations for our products, along with a
substantial part of our packaging operations, to a concentrated
group of third party contractors. Many of the raw materials and
supplies required for the production of AVONEX, TYSABRI and
FUMADERM are available from various suppliers in quantities
adequate to meet our needs. However, due to the unique nature of
the production of our products, we do have single source
providers of several raw materials. We make efforts to qualify
new vendors and to develop contingency plans so that production
is not impacted by short-term issues associated with single
source providers. Each of our third party service providers,
suppliers and manufacturers is subject to continuing inspection
by the FDA or comparable agencies in other jurisdictions. Any
delay, interruption or other issues that arise in the
manufacture, fill-finish, packaging or storage of our products,
including as a result of a failure of our facilities or the
facilities or operations of third parties to pass any regulatory
agency inspection, could significantly impair our ability to
sell our products.
Important factors that could adversely affect our manufacturing
operations are discussed in the Risk Factors
section of this report.
Our
Employees
As of December 31, 2010, we had approximately
4,850 employees worldwide. We are in the process of
completing a 13% reduction in our workforce as part of our
framework for growth initiatives. This workforce reduction
impacts our sales, research and development and administrative
functions.
Our
Executive Officers (as of February 4, 2011)
George A. Scangos, Ph.D., 62, is our Chief
Executive Officer and has served in this position since July
2010. Prior to that, Dr. Scangos served as President and
Chief Executive Officer of Exelixis, Inc., a life sciences
company, since October 1996, where he continues to serve on the
board. From 1993 to 1996, Dr. Scangos served as President
of Bayer Biotechnology, where he was responsible for research,
business development, process development, manufacturing,
engineering and quality assurance of Bayers biological
products. Before joining Bayer in 1987, Dr. Scangos was a
Professor of Biology at Johns Hopkins University for six years.
Dr. Scangos served as non-executive Chairman of Anadys
Pharmaceuticals, Inc., a biopharmaceutical company, from 2005 to
July 2010 and was a director of the company since 2003.
Dr. Scangos served as the Chair of the California
Healthcare Institute in 2010, was a member of the Board of the
Global Alliance for TB Drug Developments until 2010, and is a
director of Foundation Sante. He is also a member of the Board
of Visitors of the University of California, San Francisco
School of Pharmacy, and the National Board of Visitors of the
University of California, Davis School of Medicine. He is
currently an Adjunct Professor of Biology at Johns Hopkins.
Dr. Scangos was a Jane Coffin Childs Post-Doctoral Fellow
at Yale University. Dr. Scangos holds a B.A. in Biology
from Cornell University and a Ph.D. in Microbiology from the
University of Massachusetts.
Susan H. Alexander, 54, is our Executive Vice President,
General Counsel and Corporate Secretary and has served in these
positions since January 2006. Prior to that, Ms. Alexander
served as the Senior Vice President, General Counsel and
Corporate Secretary of PAREXEL International Corporation, a
biopharmaceutical services company, since September 2003. From
June 2001 to September 2003, Ms. Alexander served as
General Counsel of IONA Technologies, a software company. Prior
to that, Ms. Alexander served as Counsel at Cabot
Corporation, a specialty chemicals and performance materials
company, from January 1995 to May 2001. Prior to that,
Ms. Alexander was a partner at the law firms of Hinckley,
Allen & Snyder and Fine & Ambrogne.
Paul J. Clancy, 49, is our Executive Vice President,
Finance and Chief Financial Officer and has served in these
positions since August 2007. Mr. Clancy joined Biogen, Inc.
in 2001 and has held several senior executive positions with us,
including Vice President of Business Planning, Portfolio
Management and U.S. Marketing, and Senior Vice President
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of Finance with responsibilities for leading the Treasury, Tax,
Investor Relations and Business Planning groups. Prior to that,
he spent 13 years at PepsiCo, a food and beverage company,
serving in a range of financial and general management
positions. He holds a B.S. in finance from Babson College and a
M.B.A. from Columbia University.
John G. Cox, 48, is our Executive Vice President,
Pharmaceutical Operations and Technology and has served in this
position since June 2010. Mr. Cox joined Biogen, Inc. in
2003 and has held several senior executive positions with us,
including Senior Vice President of Technical Operations, Senior
Vice President of Global Manufacturing, and Vice President of
Manufacturing and General Manager of Biogen Idecs
operations in RTP. Prior to that, Mr. Cox held a number of
senior operational roles at Diosynth, a life sciences
manufacturing and services company, where he worked in
technology transfer, validation and purification. Prior to that,
Mr. Cox focused on the same areas at Wyeth Corporation, a
life sciences company, from 1993 to 2000.
Robert E. Gagnon, 36, is our Vice President, Finance,
Chief Accounting Officer and Controller and has served in these
positions since November 2010. Prior to that, Mr. Gagnon
served as Vice President, Finance and Controller from July 2007
to November 2010, and Director of Corporate Accounting from
October 2005 to July 2007. Prior to that, Mr. Gagnon worked
in the business advisory and assurance practices of
PricewaterhouseCoopers LLP and Deloitte & Touche LLP.
Mr. Gagnon is a certified public accountant and holds an
M.B.A. from the MIT Sloan School of Management.
Francesco Granata, M.D., 60, is our Executive Vice
President, Global Commercial Operations and has served in this
position since January 2010. Prior to that, Dr. Granata
served as Group Vice President and President of EUCAN Region in
the Global Pharmaceutical Business at Schering-Plough
Corporation, a pharmaceutical company, from September 2005 to
November 2010. Prior to that, Dr. Granata worked in
commercial leadership positions at Pfizer, Inc., a
pharmaceutical company, from 2003 to 2005 and at Pharmacia
Corporation, a life sciences company, from 1999 to 2003.
Stephen H. Holtzman, 56, is our Executive Vice President,
Corporate Development and has served in this position since
January 2011. Prior to that, Mr. Holtzman was a founder of
Infinity Pharmaceuticals, Inc., a drug discovery and development
company, where he has served as Chair of the Board of Directors
since 2001, and served as Executive Chair of the Board of
Directors in 2010 and as Chief Executive Officer from 2001 to
December 2009. From 1994 to 2001, Mr. Holtzman was Chief
Business Officer at Millenium Pharmaceuticals Inc., a
biopharmaceutical company. From 1986 to 1994, he was the
co-founder, member of the Board of Directors and Executive Vice
President of DNX Corporation, a biotechnology company. From 1996
to 2001, Mr. Holtzman served as presidential appointee to
the national Bioethics Advisory Commission.
Craig Eric Schneier, Ph.D., 63, is our Executive
Vice President, Human Resources, Public Affairs and
Communications and has served in this position since October
2007. Dr. Schneier joined Biogen, Inc. in 2001 and has held
several senior executive positions with us, including Executive
Vice President, Human Resources and Senior Vice President,
Strategic Organization Design and Effectiveness. Prior to that,
Dr. Schneier was president of his own management consulting
firm in Princeton, NJ, where he provided consulting services to
over 70 of the Fortune 100 companies, as well as several of
the largest European and Asian firms. Dr. Schneier held a
tenured professorship at the University of Marylands Smith
School of Business and has held teaching positions at the
business schools of the University of Michigan, Columbia
University, and at the Tuck School of Business, Dartmouth
College.
Douglas E. Williams, Ph.D., 52, is our Executive
Vice President, Research and Development and has served in this
position since January 2011. Prior to that, Dr. Williams
held several senior executive positions at ZymoGenetics Inc., a
biopharmaceutical company, including Chief Executive Officer and
a director from January 2009 to October 2010, President and
Chief Scientific Officer from July 2007 to January 2009, and
Executive Vice President, Research and Development and Chief
Scientific Officer from 2004 to July 2007. Prior to that, he
held leadership positions within the biotechnology industry,
including Chief Scientific Officer and Executive Vice President
of Research and Development at Seattle Genetics Inc., a
biotechnology company, from 2003 to 2004, and Senior Vice
President and Washington Site Leader at Amgen Inc., a
biotechnology company, in 2002. Dr. Williams also served in
a series of scientific and senior leadership positions over a
decade at Immunex Corp., a biopharmaceutical company, including
Executive Vice President and Chief Technology Officer, Senior
Vice President of Discovery Research, Vice President of Research
and Development and as a director. Prior to that,
Dr. Williams served on the faculty of the Indiana
University School of Medicine and the Department of Laboratory
Medicine at the Roswell Park Memorial Institute in Buffalo, New
York.
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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 2010.
Although we have developed and continue to develop additional
products for commercial introduction, we may 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, including biosimilars, or
adverse regulatory or legislative developments may reduce our
revenues and adversely affect our results of operations. New
competing products for use in multiple sclerosis are beginning
to enter the market and if they have a similar or more
attractive profile in terms of efficacy, convenience or safety,
future sales of AVONEX and TYSABRI could be limited, which would
reduce our revenues.
TYSABRIs
sales growth is important to our success.
We expect that our revenue growth over the next several years
will be dependent in part upon sales of TYSABRI. If we are not
successful in growing sales of TYSABRI, our future business
plans, revenue growth and results of operations may be adversely
affected.
TYSABRIs sales growth cannot be certain given the
significant restrictions on use and the significant safety
warnings in the label, including the risk of developing
progressive multifocal leukoencephalopathy (PML), a serious
brain infection. The risk of developing PML increases with prior
immunosuppressant use, which may cause patients who have
previously received immunosuppressants or their physicians to
refrain from using or prescribing TYSABRI. The risk of
developing PML also increases with longer treatment duration,
with limited experience beyond three years. This may cause
prescribing physicians or patients to suspend treatment with
TYSABRI. Increased incidences of PML could limit sales growth,
prompt regulatory review, require significant changes to the
label or result in market withdrawal. Additional regulatory
restrictions on the use of TYSABRI or safety-related label
changes, including enhanced risk management programs, 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. In addition, ongoing or future clinical
trials involving TYSABRI and efforts at stratifying patients
into groups with lower or higher risk for developing PML,
including evaluating the potential clinical utility of a JC
virus antibody assay, may have an adverse impact on prescribing
behavior and reduce sales of TYSABRI.
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
benefit from significantly greater sales and marketing
capabilities, may develop products that are accepted more widely
than ours and may receive patent protection that dominates,
blocks or adversely affects our product development or business.
In addition, recently enacted healthcare reform legislation in
the U.S. has created a pathway for the FDA to approve
biosimilars, which could compete on price and differentiation
with products that we now or could in the future market. 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.
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, including products
licensed from third parties. In addition, we have several
late-stage clinical programs expected to have near-term data
readouts that could impact our prospects for additional revenue
growth. Product development and commercialization are very
expensive and
21
involve a high degree of risk. Only a small number of research
and development programs result in the commercialization of a
product. Success in preclinical work or early stage clinical
trials does not ensure that later stage or larger scale clinical
trials will be successful. Even if later stage clinical trials
are successful, product candidates may not receive marketing
approval if regulatory authorities 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 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 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 expect to rely
on third party manufacturers to 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.
Adverse
safety events can negatively affect our business and stock
price.
Adverse safety events involving our marketed products may have a
negative impact on our commercialization efforts. Later
discovery of safety issues with our products that were not known
at the time of their approval by the FDA or other regulatory
agencies worldwide 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 and material restructuring charges. 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.
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 addition, 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.
The U.S. Congress recently enacted legislation to reform
the health care system. This legislation imposes cost
containment measures that have adversely affected the amount of
reimbursement for our products. These measures include
increasing the minimum rebates we pay to state Medicaid programs
for our drugs covered by Medicaid programs; extending such
rebates to drugs dispensed to Medicaid beneficiaries enrolled in
Medicaid managed care organizations; and expanding the 340B
Public Health Service drug discount program under which we are
obligated to provide certain discounts on our drugs to certain
purchasers. Additional provisions of the health care reform
legislation, which become effective in 2011, may negatively
affect our revenues and prospects for profitability in the
future. Beginning in 2011, a new fee will be payable by all
branded prescription drug manufacturers and importers. This fee
will be calculated based upon each organizations
percentage share of total branded prescription drugs sales to
qualifying U.S. government programs, including Medicare and
Medicaid. As part of the health care reform legislations
provisions closing a coverage gap that currently exists in the
Medicare Part D prescription drug
22
program (commonly known as the donut hole), we will
also be required to provide a 50% discount on brand name
prescription drugs sold to beneficiaries who fall within the
donut hole.
Economic pressure on state budgets may result in states
increasingly seeking to achieve budget savings through
mechanisms that limit coverage or payment for our drugs. In
recent years, some states have considered legislation that would
control the prices of drugs. State Medicaid programs are
increasingly requesting manufacturers to pay 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. It is likely that
federal and state legislatures and health agencies will continue
to focus on additional health care reform in the future.
We encounter similar regulatory and legislative issues in most
other countries. In the European Union 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. Many countries are
reducing their public expenditures and we expect to see strong
efforts to reduce healthcare costs in our international markets,
including patient access restrictions, suspensions on price
increases, prospective and possibly retroactive price reductions
and increased mandatory discounts or rebates, recoveries of past
price increases, and greater importation of drugs from
lower-cost countries to higher-cost countries. We expect that
our revenues would be negatively impacted if similar measures
are or are continued to be implemented in other countries in
which we operate. In addition, 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 third party cross border trade or
influence our decision to sell or not to sell a product, thus
affecting our geographic expansion plans.
Adverse
market and economic 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 adverse conditions affecting the U.S. and global
economies and credit and financial markets, including the
current sovereign debt crisis in certain countries in Europe,
these organizations may be unable to satisfy their reimbursement
obligations or may delay payment. In addition, governmental
health authorities may reduce the extent of 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, or result in additional
allowances or significant bad debts, which may adversely affect
our results of operations.
We
depend on collaborators and other third-parties for both product
and royalty revenue and the clinical development of future
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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Our RITUXAN revenues are substantially dependent on the efforts
of Genentech and the Roche Group. Their interests may not always
be aligned with our interests and they may not market RITUXAN in
the same manner or to the same extent that we would, which could
adversely affect our RITUXAN revenues.
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Under our collaboration agreement with Genentech, the successful
development and commercialization of GA101 and certain other
anti-CD20 products will decrease our percentage of the
collaborations co-promotion profits.
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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, and the introduction of
competitive products, and new indication approvals which may
affect the sales of collaboration products.
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Any failure on the part of our collaboration partners to comply
with applicable laws and regulatory requirements 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.
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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 or regulatory
approvals of products under joint control.
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In addition, we rely on third parties for several other aspects
of our business. As a sponsor of clinical trials of our
products, we rely on third party contract research organizations
to carry out many of our clinical trial related activities.
These activities include initiating the conduct of studies at
clinical trial sites, regularly monitoring the conduct of the
study at study sites, and identifying instances of noncompliance
with the study protocol or current Good Clinical Practices. The
failure of a contract research organization to conduct these
activities with proper vigilance and competence and in
accordance with Good Clinical Practices can result in regulatory
authorities rejecting our clinical trial data or, in some
circumstances, the imposition of civil or criminal sanctions
against us.
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 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 that we will be able to
identify candidates that we and our shareholders consider
suitable or complete transactions on terms that are acceptable
to us and our shareholders. 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.
Even if we are able to successfully identify and complete
acquisitions, we may not be able to integrate them or take full
advantage of them and therefore may not realize the benefits
that we expect. If we are unsuccessful in our external growth
program, we may not be able to grow our business significantly
and we may incur asset impairment or restructuring charges as a
result of unsuccessful transactions.
If we
fail to comply with the extensive legal and regulatory
requirements affecting the health care 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 U.S. 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. Our interactions in the U.S. or
abroad with physicians and other health care providers that
prescribe or purchase our products are also subject to
government regulation designed to prevent fraud and abuse in the
sale and use of the products. In the U.S., states increasingly
have been placing greater restrictions on the marketing
practices of health care 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 health care 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
against us, including fines and civil monetary penalties and
exclusion from participation in government programs, including
24
Medicare and Medicaid, as well as against executives overseeing
our business. 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. Recent changes in U.S. fraud and abuse laws have
strengthened government regulation, increased the investigative
powers of government enforcement agencies, and enhanced
penalties for non-compliance.
If we
fail to meet the stringent requirements of governmental
regulation in the manufacture of our products, we could incur
substantial costs and a reduction in sales.
We and our third party providers are generally required to
maintain compliance with current Good Manufacturing Practice and
are subject to inspections by the FDA and 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 current Good Manufacturing
Practice compliance, we may be required to withdraw or recall
product, interrupt commercial supply of our products, undertake
costly remediation efforts or seek more costly manufacturing
alternatives. 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.
Our
investments in properties, including our manufacturing
facilities, may not be fully realizable.
We own or lease real estate primarily consisting of buildings
that contain research laboratories, office space, and biologic
manufacturing operations, some of which are located in markets
that are experiencing high vacancy rates and decreasing property
values. If we decide to consolidate or co-locate certain aspects
of our business operations, for strategic or other operational
reasons, we may dispose of one or more of our properties.
Due to reduced expectations of product demand, improved yields
on production and other factors, we may not fully utilize our
manufacturing facilities at normal levels resulting in idle time
at facilities or substantial excess manufacturing capacity. We
regularly evaluate our current manufacturing strategy, and may
pursue alternatives that include disposing of manufacturing
facilities.
If we determine that the fair value of any of our owned
properties, including any properties we may classify as held for
sale, is lower than their book value we may not realize the full
investment in these properties and incur significant impairment
charges. In addition, if we decide to fully or partially vacate
a leased property, we may incur significant cost, including
lease termination fees, rent expense in excess of sublease
income and impairment of leasehold improvements.
Problems
with manufacturing or with inventory planning could result in
inventory shortages, product recalls and increased
costs.
Biologics manufacturing is extremely susceptible to product loss
due to contamination, equipment failure, or vendor or operator
error. In addition, we may need to close a manufacturing
facility for an extended period of time due to microbial, viral
or other contamination. Any of these events could result in
shipment delays or product recalls, impairing our ability to
supply products in existing markets or expand into new markets.
In the past, we have taken inventory write-offs and incurred
other charges and expenses for products that failed to meet
specifications, and we may incur similar charges in the future.
We rely solely on our manufacturing facility in Research
Triangle Park, North Carolina for the production of TYSABRI. Our
global bulk supply of TYSABRI depends on the uninterrupted and
efficient operation of this facility, which could be adversely
affected by equipment failures, labor shortages, 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 or other regulatory authorities
25
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,
involve significant expense and increase our manufacturing costs.
We
rely on third parties to provide services in connection with the
manufacture of our products and, in some instances, manufacture
the product itself.
We rely on Genentech for all RITUXAN manufacturing. Genentech
relies on a third party to manufacture certain bulk RITUXAN
requirements. If Genentech or any third party upon which it
relies does not manufacture or fill-finish RITUXAN in sufficient
quantities and on a timely and cost-effective basis, or if
Genentech or any third party does not obtain and maintain all
required manufacturing approvals, our business could be harmed.
We also source all of our fill-finish and the majority of our
final product storage operations, along with a substantial
portion of our packaging operations, 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 U.S. must
be licensed by the FDA. As a result, alternative third party
providers may not be readily available on a timely basis or, if
available, may be more costly than current providers. 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 or 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 or damage our
reputation.
Due to the unique manner in which our products are manufactured,
we rely on single source providers of several raw materials. We
make efforts to qualify new vendors and to develop contingency
plans so that production is not impacted by short-term issues
associated with single source providers. Nonetheless, our
business could be materially impacted by long-term or chronic
issues associated with single source providers.
Changes
in laws affecting the health care 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 U.S. of health care reform, potential
regulations easing 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.
Our
effective tax rate may fluctuate and we may incur obligations in
tax jurisdictions in excess of accrued amounts.
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
26
places that we operate. In preparing our financial statements,
we estimate the amount of tax that will become payable in each
of such places. Our effective tax rate, however, may be
different than experienced in the past due to numerous factors,
including changes in the mix of our profitability from country
to country, the results of audits of our tax filings, 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.
In addition, our inability to secure or sustain acceptable
arrangements with tax authorities and previously enacted or
future changes in the tax laws, among other things, may result
in tax obligations in excess of amounts accrued in our financial
statements.
In the U.S., there are several proposals under consideration to
reform tax law, including proposals that may reduce or eliminate
the deferral of U.S. income tax on our unrepatriated
earnings, scrutinize certain transfer pricing structures, and
reduce or eliminate certain foreign tax credits. Our future
reported financial results may be adversely affected by tax law
changes which restrict or eliminate certain foreign tax credits
or deduct expenses attributable to foreign earnings, or
otherwise affect the treatment of our unrepatriated earnings.
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 to 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.
Our
sales and operations are subject to the risks of doing business
internationally.
We are increasing our presence in international markets, which
subjects us to many risks, such as:
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the inability to obtain necessary foreign regulatory or pricing
approvals of products in a timely manner;
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fluctuations in currency exchange rates;
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difficulties in staffing and managing international operations;
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the imposition of governmental controls;
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less favorable intellectual property or other applicable laws;
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restrictions on direct investments by foreign entities and trade
restrictions; and
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changes in tax laws and tariffs.
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In addition, our international operations are subject to
regulation under U.S. law. For example, the Foreign Corrupt
Practices Act prohibits U.S. companies and their
representatives from offering, promising, authorizing or making
payments to foreign officials for the purpose of obtaining or
retaining business abroad. In many countries, the health care
professionals we regularly interact with may meet the definition
of a foreign government official for purposes of the Foreign
Corrupt Practices Act. Failure to comply with domestic or
foreign laws could result in various adverse consequences,
including possible delay in approval or refusal to approve a
product, recalls, seizures, withdrawal of an approved product
from the market, the imposition of civil or criminal sanctions
and the prosecution of executives overseeing our international
operations.
Uncertainty
over intellectual property in the biotechnology industry has
been the source of litigation, which is inherently costly and
unpredictable.
We are aware that others, including various universities and
companies working in the biotechnology field, have filed patent
applications and have been granted patents in the U.S. and
in other countries claiming subject matter potentially useful to
our business. Some of those patents and patent applications
claim only specific products or methods of making such products,
while others claim more general processes or techniques useful
or now used in
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the biotechnology industry. There is considerable uncertainty
within the biotechnology industry about the validity, scope and
enforceability of many issued patents in the U.S. and
elsewhere in the world, and, to date, there is no consistent
policy regarding the breadth of claims allowed in biotechnology
patents. We cannot currently determine the ultimate scope and
validity of patents which may be granted to third parties in the
future or which patents might be asserted to be infringed by the
manufacture, use and sale of our products.
There has been, and we expect that there may continue to be,
significant litigation in the industry regarding patents and
other intellectual property rights. Litigation and
administrative proceedings concerning patents and other
intellectual property rights may be protracted, expensive and
distracting to management. Competitors may sue us as a way of
delaying the introduction of our products. Any litigation,
including any interference proceedings to determine priority of
inventions, oppositions to patents in foreign countries or
litigation against our partners may be costly and time consuming
and could harm our business. We expect that litigation may be
necessary in some instances to determine the validity and scope
of certain of our proprietary rights. Litigation may be
necessary in other instances to determine the validity, scope or
non-infringement of certain patent rights claimed by third
parties to be pertinent to the manufacture, use or sale of our
products. Ultimately, the outcome of such litigation could
adversely affect the validity and scope of our patent or other
proprietary rights or hinder our ability to manufacture and
market our products.
If we
are unable to adequately protect and enforce our intellectual
property rights, our competitors may take advantage of our
development efforts or our acquired technology.
We have filed numerous patent applications in the U.S. and
various other countries seeking protection of the processes,
products and other inventions originating from our research and
development. Patents have been issued on many of these
applications. We have also obtained rights to various patents
and patent applications under licenses with third parties, which
provide for the payment of royalties by us. The ultimate degree
of patent protection that will be afforded to biotechnology
products and processes, including ours, in the U.S. and in
other important markets remains uncertain and is dependent upon
the scope of protection decided upon by the patent offices,
courts and lawmakers in these countries. Our patents may not
afford us substantial protection or commercial benefit.
Similarly, our pending patent applications or patent
applications licensed from third parties may not ultimately be
granted as patents and we may not prevail if patents that have
been issued to us are challenged in court. In addition, pending
legislation to reform the patent system and court decisions or
patent office regulations that place additional restrictions on
patent claims or that facilitate patent challenges could also
reduce our ability to protect our intellectual property rights.
If we cannot prevent others from exploiting our inventions, we
will not derive the benefit from them that we currently expect.
We also rely upon unpatented trade secrets and other proprietary
information, and we cannot ensure that others will not
independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade
secrets or disclose such technology, or that we can meaningfully
protect such rights. We require our employees, consultants,
outside scientific collaborators, scientists whose research we
sponsor and other advisers to execute confidentiality agreements
upon the commencement of employment or consulting relationships
with us. These agreements may not provide meaningful protection
or adequate remedies for our unpatented proprietary information
in the event of use or disclosure of such information.
If our
products infringe the intellectual property rights of others, we
may incur damages and be required to incur the expense of
obtaining a license.
A substantial number of patents have already been issued to
other biotechnology and pharmaceutical companies. To the extent
that valid third party patent rights cover our products or
services, we or our strategic collaborators would be required to
seek licenses from the holders of these patents in order to
manufacture, use or sell these products and services, and
payments under them would reduce our profits from these products
and services. We are currently unable to predict the extent to
which we may wish or be required to acquire rights under such
patents and the availability and cost of acquiring such rights,
or whether a license to such patents will be available on
acceptable terms or at all. There may be patents in the
U.S. or in foreign countries or patents issued in the
future that are unavailable to license on acceptable terms. Our
inability to obtain such licenses may hinder our ability to
manufacture and market our products.
28
Pending
and future product liability claims may adversely affect our
business and our reputation.
The administration of drugs in humans, whether in clinical
studies or commercially, carries the inherent risk of product
liability claims whether or not the drugs are actually the cause
of an injury. Our products or product candidates may cause, or
may appear to have caused, injury or dangerous drug
interactions, and we may not learn about or understand those
effects until the product or product candidate has been
administered to patients for a prolonged period of time.
We are subject from time to time to lawsuits based on product
liability and related claims. We cannot predict with certainty
the eventual outcome of any pending or future litigation. We may
not be successful in defending ourselves in the litigation and,
as a result, our business could be materially harmed. These
lawsuits may result in large judgments or settlements against
us, any of which could have a negative effect on our financial
condition and business if in excess of our insurance coverage.
Additionally, lawsuits can be expensive to defend, whether or
not they have merit, and the defense of these actions may divert
the attention of our management and other resources that would
otherwise be engaged in managing our business.
Our
operating results are subject to significant
fluctuations.
Our quarterly revenues, expenses and net income (loss) have
fluctuated in the past and are likely to fluctuate significantly
in the future due to the timing of charges and expenses that we
may take. In recent periods, for instance, we have recorded
charges that include:
|
|
|
|
|
the cost of restructurings;
|
|
|
|
impairments that we are required to take with respect to
investments;
|
|
|
|
impairments that we are required to take with respect to fixed
assets, including those that are recorded in connection with the
sale of fixed assets;
|
|
|
|
inventory write-downs for failed quality specifications, charges
for excess or obsolete inventory and charges for inventory write
downs relating to product suspensions;
|
|
|
|
milestone payments under license and collaboration agreements;
and
|
|
|
|
payments in connection with acquisitions and other business
development activity.
|
Our revenues are also subject to foreign exchange rate
fluctuations due to the global nature of our operations. We
recognize foreign currency gains or losses arising from our
operations in the period in which we incur those gains or
losses. Although we have foreign currency forward contracts to
hedge specific forecasted transactions denominated in foreign
currencies, our efforts to reduce currency exchange losses may
not be successful. As a result, currency fluctuations among our
reporting currency, the U.S. dollar, and the currencies in
which we do business will affect our operating results, often in
unpredictable ways. Our net income may also fluctuate due to the
impact of charges we may be required to take with respect to
foreign currency hedge transactions. In particular, we may incur
higher charges from hedge ineffectiveness than we expect or from
the termination of a hedge relationship.
These examples are only illustrative and other risks, including
those discussed in these Risk Factors, could
also cause fluctuations in our reported earnings. In addition,
our operating results during any one period do not necessarily
suggest the anticipated results of future periods.
Our
portfolio of marketable securities is significant and subject to
market, interest and credit risk that may reduce its
value.
We maintain a significant portfolio of marketable securities.
Changes in the value of this portfolio could adversely affect
our earnings. In particular, the value of our investments may
decline due to increases in interest rates, downgrades in the
corporate bonds and other securities included in our portfolio,
instability in the global financial markets that reduces the
liquidity of securities included in our portfolio, declines in
the value of collateral underlying the mortgage and asset-backed
securities included in our portfolio, and other factors. Each of
these events may cause us to record charges to reduce the
carrying value of our investment portfolio or sell investments
for
29
less than our acquisition cost. Although we attempt to mitigate
these risks by investing in high quality securities and
continuously monitoring our portfolios overall risk
profile, the value of our investments may nevertheless decline.
Our
level of indebtedness could adversely affect our business and
limit our ability to plan for or respond to changes in our
business.
As of December 31, 2010, we had $1.2 billion of
outstanding indebtedness, and we may incur additional debt in
the future. Our level of indebtedness could adversely affect our
business by, among other things:
|
|
|
|
|
requiring us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow for other purposes,
including business development efforts and research and
development;
|
|
|
|
limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate,
thereby placing us at a competitive disadvantage compared to our
competitors that may have less debt; and
|
|
|
|
increasing our vulnerability to adverse economic and industry
conditions.
|
Our
business involves environmental risks, which include the cost of
compliance and the risk of contamination or
injury.
Our business and the business of several of our strategic
partners, including Genentech and Elan, involve the controlled
use of hazardous materials, chemicals, biologics and radioactive
compounds. Although we believe that our safety procedures for
handling and disposing of such materials comply with state and
federal standards, there will always be the risk of accidental
contamination or injury. If we were to become liable for an
accident, or if we were to suffer an extended facility shutdown,
we could incur significant costs, damages and penalties that
could harm our business. Biologics manufacturing also requires
permits from government agencies for water supply and wastewater
discharge. If we do not obtain appropriate permits, or permits
for sufficient quantities of water and wastewater, we could
incur significant costs and limits on our manufacturing volumes
that could harm our business.
Several
aspects of our corporate governance and our collaboration
agreements may discourage a third party from attempting to
acquire us.
Several factors might discourage a takeover attempt that could
be viewed as beneficial to shareholders who wish to receive a
premium for their shares from a potential bidder. For example:
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|
|
|
|
Our Board of Directors has the authority to issue, without a
vote or action of shareholders, shares of preferred stock and to
fix the price, rights, preferences and privileges of those
shares, which shares could be used to dilute the interest of a
potential bidder.
|
|
|
|
Our collaboration agreements with Elan and Genentech
respectively allow Elan to purchase our rights to TYSABRI and
Genentech to purchase our rights to RITUXAN and certain
anti-CD20 products developed under the agreement if we undergo a
change of control and certain other conditions are met, which
may limit our attractiveness to potential acquirers.
|
|
|
|
Our directors are elected to staggered terms, which prevents the
entire board from being replaced in any single year.
|
The
possibility that activist shareholders may gain additional
representation on or control of our Board of Directors could
result in costs and disruption to our operations and cause
uncertainty about the direction of our business.
Entities affiliated with Carl Icahn commenced proxy contests in
2008, 2009 and 2010, resulting in three of their director
nominees being elected to our Board of Directors. In addition,
recent SEC rulemaking gives certain shareholders or groups of
shareholders the ability to include director nominees and
proposals relating to a shareholder nomination process in
company proxy materials. As a result, we may face an increase in
the number of shareholder nominees for election to our Board of
Directors. Future proxy contests could be costly and time-
30
consuming, disrupt our operations and divert the attention of
management and our employees from executing our strategic plan.
Disagreement among our directors may create uncertainty
regarding the direction of our business and could impair our
ability to effectively execute our strategic plan.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Below is a summary of our owned and leased properties as of
December 31, 2010. In connection with our recent
restructuring initiative, described above under the heading
Overview Framework for Growth, we
are in the process of closing the San Diego, California
facility and consolidating our Massachusetts facilities.
Massachusetts
In Cambridge, we own approximately 508,000 square feet of
real estate space, consisting of a building that houses a
research laboratory, office space and a cogeneration plant which
total approximately 263,000 square feet and a building that
contains research, development and quality laboratories totaling
approximately 245,000 square feet.
In addition, we lease a total of approximately
885,000 square feet in Massachusetts, which is summarized
as follows:
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|
|
|
|
356,000 square feet of office space housing our principal
executive offices in Weston;
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|
|
347,000 square feet in Cambridge, which is comprised of a
67,000 square foot biologics manufacturing facility,
laboratory space of 127,000 square feet and office space of
153,000 square feet;
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|
|
105,000 square feet of office space in Wellesley, which we
expect to vacate in the first quarter of 2011;
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|
|
|
41,000 square feet of office and laboratory space in
Waltham; and
|
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|
|
36,000 square feet of warehouse space in Somerville.
|
Our Massachusetts lease agreements expire at various dates
through the year 2025.
California
On October 1, 2010, we sold the San Diego facility,
which was comprised of 43 acres of land and buildings
totaling approximately 355,000 square feet of laboratory
and office space for cash proceeds, net of transaction costs, of
approximately $127.0 million. As part of this transaction,
we agreed to lease back the San Diego facility for a period
of 15 months, however in January 2011, we entered into an
agreement to terminate this lease effective August 31, 2011.
North
Carolina
We manufacture bulk AVONEX, TYSABRI and other products in our
pipeline at our facilities located in Research Triangle Park,
North Carolina, where we own approximately 550,000 square
feet of real estate space, which is summarized as follows:
|
|
|
|
|
175,000 square feet related to a large-scale biologics
manufacturing facility;
|
|
|
|
167,000 square feet of laboratory and office space;
|
|
|
|
105,000 square feet related to a biologics manufacturing
facility;
|
|
|
|
60,000 square feet of warehouse space; and
|
|
|
|
43,000 square feet related to a large-scale purification
facility.
|
In addition, we lease approximately 50,000 square feet of
office space in Durham, North Carolina.
31
We are planning to increase the laboratory space in our Research
Triangle Park campus and consolidate all of our North Carolina
activities by moving local general and administrative offices
and patient services to a 180,000 square foot office
building to be built on the campus, with a planned occupancy
around mid-year 2012.
Denmark
We own approximately 60 acres of land in Hillerød,
Denmark, upon which we have been constructing a large-scale
biologics manufacturing facility totaling approximately
225,000 square feet. We plan to stop further validation on
this facility following completion of the facilitys
operational qualification activities in the first half of 2011
as we continue to evaluate our current manufacturing utilization
strategy.
We own approximately 310,000 square feet of additional
space, which is currently in use at this location and is
summarized as follows:
|
|
|
|
|
140,000 square feet of warehouse, utilities and support
space;
|
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|
|
70,000 square feet related to a label and packaging
facility;
|
|
|
|
50,000 square feet of administrative space; and
|
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|
|
50,000 square feet related to a laboratory facility.
|
Other
International
We lease office and laboratory space in Zug, Switzerland, our
international headquarters, the United Kingdom, Germany, France,
Denmark, and numerous other countries. Our international lease
agreements expire at various dates through the year 2023.
|
|
Item 3.
|
Legal
Proceedings
|
Please refer to Note 20, Litigation to our
consolidated financial statements included in this report, which
is incorporated into this item by reference.
32
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
and Stockholder Information
Our common stock trades on The NASDAQ Global Select Market under
the symbol BIIB. The following table shows the high
and low sales price for our common stock as reported by The
NASDAQ Global Select Market for each quarter in the years ended
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Price
|
|
|
|
2010
|
|
|
2009
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
60.28
|
|
|
$
|
52.16
|
|
|
$
|
53.66
|
|
|
$
|
42.92
|
|
Second Quarter
|
|
$
|
57.99
|
|
|
$
|
45.96
|
|
|
$
|
55.34
|
|
|
$
|
44.56
|
|
Third Quarter
|
|
$
|
58.64
|
|
|
$
|
46.15
|
|
|
$
|
52.12
|
|
|
$
|
44.41
|
|
Fourth Quarter
|
|
$
|
68.60
|
|
|
$
|
55.63
|
|
|
$
|
54.00
|
|
|
$
|
41.75
|
|
As of January 31, 2011, there were approximately 1,052
stockholders of record of our common stock.
In addition, as of January 31, 2011, 128 stockholders of
record of Biogen, Inc. common stock have yet to exchange their
shares of Biogen, Inc. common stock for our common stock as
contemplated by the merger of Biogen, Inc. and IDEC
Pharmaceuticals Corporation in November 2003.
Dividends
We have not paid cash dividends since our inception. We do not
anticipate paying any cash dividends in the near term.
Issuer
Purchases of Equity Securities
During the fourth quarter of 2010, we did not repurchase any
common stock.
33
Stock
Performance Graph
The graph below compares the five-year cumulative total
stockholder return on our common stock, the S&P 500 Index
and the Nasdaq Pharmaceutical Index, assuming the investment of
$100.00 on December 31, 2005 with dividends being
reinvested. The stock price performance in the graph below is
not necessarily indicative of future price performance.
34
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
BIOGEN
IDEC INC. AND SUBSIDIARIES
SELECTED
FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
(In millions, except per share amounts)
|
|
(8) (9) (10) (11)
|
|
|
(5) (6) (7)
|
|
|
(4)
|
|
|
(2) (3)
|
|
|
(1)
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues
|
|
$
|
3,470.1
|
|
|
$
|
3,152.9
|
|
|
$
|
2,839.7
|
|
|
$
|
2,136.8
|
|
|
$
|
1,781.3
|
|
Revenue from unconsolidated joint business
|
|
|
1,077.2
|
|
|
|
1,094.9
|
|
|
|
1,128.2
|
|
|
|
926.1
|
|
|
|
810.9
|
|
Other revenues
|
|
|
169.1
|
|
|
|
129.5
|
|
|
|
129.6
|
|
|
|
108.7
|
|
|
|
90.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,716.4
|
|
|
|
4,377.3
|
|
|
|
4,097.5
|
|
|
|
3,171.6
|
|
|
|
2,683.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding amortization of acquired intangible
assets
|
|
|
400.3
|
|
|
|
382.1
|
|
|
|
402.0
|
|
|
|
335.2
|
|
|
|
274.4
|
|
Research and development
|
|
|
1,248.6
|
|
|
|
1,283.1
|
|
|
|
1,072.1
|
|
|
|
925.2
|
|
|
|
718.4
|
|
Selling, general and administrative
|
|
|
1,031.5
|
|
|
|
911.0
|
|
|
|
925.3
|
|
|
|
776.1
|
|
|
|
685.1
|
|
Collaboration profit sharing
|
|
|
258.1
|
|
|
|
215.9
|
|
|
|
136.0
|
|
|
|
14.1
|
|
|
|
(9.7
|
)
|
Amortization of acquired intangible assets
|
|
|
208.9
|
|
|
|
289.8
|
|
|
|
332.7
|
|
|
|
257.5
|
|
|
|
267.0
|
|
Restructuring charge
|
|
|
75.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired in process research and development
|
|
|
245.0
|
|
|
|
|
|
|
|
25.0
|
|
|
|
84.2
|
|
|
|
330.5
|
|
Facility impairments and gain on dispositions, net
|
|
|
|
|
|
|
|
|
|
|
(9.2
|
)
|
|
|
(0.4
|
)
|
|
|
(16.5
|
)
|
Gain on settlement of license agreements, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
3,467.5
|
|
|
|
3,081.9
|
|
|
|
2,883.9
|
|
|
|
2,391.8
|
|
|
|
2,243.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,248.9
|
|
|
|
1,295.4
|
|
|
|
1,213.6
|
|
|
|
779.8
|
|
|
|
440.0
|
|
Other income (expense), net
|
|
|
(19.0
|
)
|
|
|
37.3
|
|
|
|
(57.7
|
)
|
|
|
72.4
|
|
|
|
58.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense and cumulative effect of
accounting change
|
|
|
1,229.9
|
|
|
|
1,332.7
|
|
|
|
1,155.9
|
|
|
|
852.2
|
|
|
|
498.9
|
|
Income tax expense
|
|
|
331.3
|
|
|
|
355.6
|
|
|
|
365.8
|
|
|
|
272.4
|
|
|
|
278.4
|
|
Cumulative effect of accounting change, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
898.6
|
|
|
|
977.1
|
|
|
|
790.1
|
|
|
|
579.8
|
|
|
|
224.3
|
|
Net income (loss) attributable to noncontrolling interest, net
of tax
|
|
|
(106.7
|
)
|
|
|
6.9
|
|
|
|
6.9
|
|
|
|
(58.4
|
)
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec Inc.
|
|
$
|
1,005.3
|
|
|
$
|
970.1
|
|
|
$
|
783.2
|
|
|
$
|
638.2
|
|
|
$
|
217.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change
|
|
$
|
3.94
|
|
|
$
|
3.35
|
|
|
$
|
2.65
|
|
|
$
|
1.99
|
|
|
$
|
0.62
|
|
Cumulative effect of accounting change, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
3.94
|
|
|
$
|
3.35
|
|
|
$
|
2.65
|
|
|
$
|
1.99
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in calculating diluted earnings per
share
|
|
|
254.9
|
|
|
|
289.5
|
|
|
|
295.0
|
|
|
|
320.2
|
|
|
|
345.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
1,950.8
|
|
|
$
|
2,457.8
|
|
|
$
|
2,262.8
|
|
|
$
|
2,115.8
|
|
|
$
|
2,314.9
|
|
Total assets
|
|
$
|
8,092.5
|
|
|
$
|
8,551.9
|
|
|
$
|
8,479.0
|
|
|
$
|
8,628.8
|
|
|
$
|
8,552.8
|
|
Notes payable and line of credit, less current portion
|
|
$
|
1,066.4
|
|
|
$
|
1,080.2
|
|
|
$
|
1,085.4
|
|
|
$
|
51.8
|
|
|
$
|
96.7
|
|
Total Biogen Idec Inc. shareholders equity
|
|
$
|
5,449.4
|
|
|
$
|
6,221.5
|
|
|
$
|
5,806.1
|
|
|
$
|
5,534.3
|
|
|
$
|
7,149.8
|
|
In addition to the following notes, the financial data included
within the tables above should be read in conjunction with our
consolidated financial statements and related notes and the
Managements Discussion and Analysis of Financial
Condition and Results of Operations sections of this
report and our previously filed
Forms 10-K.
Certain totals may not sum due to rounding.
|
|
|
(1) |
|
Included in total cost and expenses in 2006 is a charge of
$207.4 million for in process research and development from
the acquisition of Fumapharm AG, a net gain of $6.1 million
on the settlement of license agreements associated with
Fumapharm AG and Fumedica GmbH and a charge of
$123.1 million for in process research and development
related to the acquisition of Conforma Therapeutics, Inc. |
|
(2) |
|
Included in total cost and expenses in 2007 is a charge of
$18.4 million for in process research and development
related to the acquisition of Syntonix Pharmaceuticals Inc. and
$64.3 million related to our collaborations with Cardiokine
Biopharma LLC and Neurimmune SubOne AG, which we consolidated as
we determined that we were the primary beneficiary of these
relationships. The $64.3 million was offset by an equal
amount of noncontrolling interest, resulting in no net impact to
the results of our operations. |
|
(3) |
|
In July 2007, we purchased approximately 56.4 million
shares of our common stock pursuant to a tender offer. We funded
the transaction through existing cash and cash equivalents of
$1,490.5 million and a short term loan of
$1,500.0 million. |
|
(4) |
|
Included in total cost and expenses in 2008 is
$25.0 million for in process research and development
related to a milestone payment made to the former shareholders
of Conforma Therapeutics pursuant to the terms of our
acquisition of Conforma Therapeutics in 2006. |
|
(5) |
|
Total cost and expenses in 2009 includes the $110.0 million
upfront payment made to Acorda Therapeutics, Inc. pursuant to
our June 30, 2009 collaboration and license agreement to
develop and commercialize products containing fampridine in
markets outside the U.S. |
|
(6) |
|
Changes in tax law in certain state jurisdictions in which we
operate and the resolution of multiple federal, state and
foreign tax audits, including the effective settlement of
several uncertain tax positions resulted in a $58.3 million
reduction to our 2009 income tax expense. |
|
(7) |
|
In 2009, we repurchased 16.0 million shares of our common
stock at a cost of $751.2 million under our 2006 and
2009 share repurchase programs. |
|
(8) |
|
Included in total cost and expenses in 2010 is a charge to
acquired in process research and development of
$40.0 million related to the achievement of a milestone by
Biogen Idec Hemophilia, Inc. (formerly Syntonix Pharmaceuticals,
Inc.). |
|
(9) |
|
Included in total cost and expenses in 2010 is a charge to
acquired in process research and development of
$205.0 million incurred in connection with the license
agreement entered into with Knopp Neurosciences Inc. (Knopp),
which we consolidated as we determined that we are the primary
beneficiary of the entity. The $205.0 million charge was
partially offset by an attribution of $145.0 million to the
noncontrolling interest. |
|
(10) |
|
Net income attributable to noncontrolling interest also includes
a charge of $25.0 million related to the payment made in
2010 to Cardiokine Biopharma LLC pursuant to the termination of
our lixivaptan collaboration. |
|
(11) |
|
During 2010, we repurchased approximately 40.3 million
shares at a cost of approximately $2.1 billion under our
2010 and 2009 share repurchase authorizations. |
36
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read in conjunction with our
consolidated financial statements and related notes beginning on
page F-1
of this report.
Executive
Summary
Introduction
Biogen Idec is a global biotechnology company focused on
discovering, developing, manufacturing and marketing products
for the treatment of neurological disorders and other serious
diseases. We have four marketed products: AVONEX, TYSABRI,
RITUXAN and FUMADERM. Patients worldwide benefit from our
significant products used for the treatment of multiple
sclerosis (MS), non-Hodgkins lymphoma (NHL), rheumatoid
arthritis (RA), Crohns disease, chronic lymphocytic
leukemia (CLL) and psoriasis.
In the near term, our current and future revenues are dependent
upon continued sales of our three principal products, AVONEX,
RITUXAN and TYSABRI. In the longer term, our revenue growth will
be dependent upon the successful pursuit of external business
development opportunities and clinical development, regulatory
approval and launch of new commercial products as well as upon
our ability to protect our patents related to our marketed
products and assets originating from our research and
development efforts. As part of our ongoing research and
development efforts, we have devoted significant resources to
conducting clinical studies to advance the development of new
pharmaceutical products and to explore the utility of our
existing products in treating disorders beyond those currently
approved in their labels.
On November 3, 2010, we announced a number of strategic,
operational and organizational initiatives, which are described
below under the heading Restructuring Charges.
We expect to incur charges totaling approximately
$110.0 million associated with the implementation of these
initiatives, which are anticipated to be substantially completed
by the end of 2011.
Financial
Highlights
The following table is a summary of financial results achieved:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
% Change
|
|
|
December 31,
|
|
2010
|
|
|
2010
|
|
2009
|
|
Compared
|
(In millions, except per share amounts and percentages)
|
|
(1) (2)
|
|
(3)
|
|
to 2009
|
|
Total revenues
|
|
$
|
4,716.4
|
|
|
$
|
4,377.3
|
|
|
|
7.7
|
%
|
Income from operations
|
|
$
|
1,248.9
|
|
|
$
|
1,295.4
|
|
|
|
(3.6
|
)%
|
Net income attributable to Biogen Idec Inc.
|
|
$
|
1,005.3
|
|
|
$
|
970.1
|
|
|
|
3.6
|
%
|
Diluted earnings per share attributable to Biogen Idec Inc
|
|
$
|
3.94
|
|
|
$
|
3.35
|
|
|
|
17.6
|
%
|
|
|
|
|
(1)
|
Income from operations for 2010 was reduced by approximately
$40.0 million related to the achievement of a milestone by
Biogen Idec Hemophilia, Inc. (formerly Syntonix Pharmaceuticals,
Inc.) and a $205.0 million charge incurred in connection
with the collaboration and license agreement entered into with
Knopp Neurosciences Inc. (Knopp), which we consolidated as we
determined that we were the primary beneficiary of this
relationship. The $205.0 million was partially offset by an
attribution of $145.0 million to the noncontrolling
interest. Net income attributable to noncontrolling interest
also includes a charge of $25.0 million related to the
payment made in 2010 to Cardiokine Biopharma LLC (Cardiokine)
pursuant to the termination of our lixivaptan collaboration.
|
|
|
(2)
|
Income from operations, as well as net income attributable to
Biogen Idec Inc. for 2010, were reduced by the $75.2 million
restructuring charge recognized during the fourth quarter of
2010.
|
|
|
(3)
|
Income from operations for 2009 was reduced by the
$110.0 million upfront payment made to Acorda Therapeutics,
Inc. related to our collaboration and license agreement dated
June 30, 2009.
|
As described below under Results of
Operations, our operating results for the year ended
December 31, 2010, reflect the following:
|
|
|
|
|
Worldwide AVONEX revenues totaled $2,518.4 million for
2010, representing an increase of 8.4% over 2009.
|
37
|
|
|
|
|
Our share of TYSABRI revenues totaled $900.2 million for
2010, representing an increase of 16.0% over 2009.
|
|
|
|
Our share of RITUXAN revenues totaled $1,077.2 million for
2010, representing a decrease of 1.6% from 2009. This decrease
was primarily driven by royalty expirations in our rest of world
markets. Our share of revenue on sales of RITUXAN in the rest of
world decreased 33.2% or $84.8 million from 2009. Our share
of co-promotion profits in the U.S. increased 9.6% or
$74.4 million over 2009. Selling and development expenses
incurred by us and reimbursed by Genentech, which are also
included within our total unconsolidated joint business
revenues, decreased 11.1% to $58.3 million from the prior
year comparative period.
|
|
|
|
Total cost and expenses increased 12.5% for 2010, compared to
2009. This increase was primarily driven by the
$245.0 million IPR&D charge and the $75.2 million
restructuring charges recognized in 2010 as well as a 13.2%
increase in selling, general and administrative costs and a
19.5% increase in collaboration profit sharing expense due to
TYSABRI revenue growth, offset by a 27.9% decrease in
amortization of acquired intangible assets.
|
In addition, we generated $1,624.7 million of net cash
flows from operations for 2010, which were primarily driven by
earnings. Cash and cash equivalents and marketable securities
totaled approximately $1,950.8 million as of
December 31, 2010.
In 2010, we repurchased approximately 40.3 million shares
at a cost of approximately $2.1 billion under our 2010 and
2009 share repurchase authorizations. We retired all of these
shares as they were acquired. Our 2010 and 2009 share repurchase
programs were completed during the third and first quarters of
2010, respectively.
Business
Development Highlights
|
|
|
|
|
In December 2010, we completed our acquisition of Panima
Pharmaceuticals AG (Panima), an affiliate of Neurimmune AG. The
purchase price is comprised of a $32.5 million cash
payment, plus contingent consideration in the form of
development milestones of up to $395.0 million in cash.
Panima is involved in the discovery of antibodies designed to
treat neurological disorders. For a more detailed description of
this transaction, please read Note 2, Acquisitions
to our consolidated financial statements included in this
report.
|
|
|
|
In October 2010, we amended our collaboration agreement with
Genentech with regard to the development of ocrelizumab and
agreed to terms for the development of GA101. Under the terms of
the amended agreement, Genentech is responsible for the further
development and commercialization of ocrelizumab and funding
future costs. We will receive tiered royalties between 13.5% and
24% on U.S. sales of ocrelizumab. Commercialization of
ocrelizumab will not impact our percentage of the co-promotion
profits for RITUXAN. In addition, we will pay 35% of the
development and commercialization expenses of GA101 and will
receive between 35% and 39% of the profits of GA101 based upon
the achievement of certain sales milestones. Commercialization
of GA101 will impact our percentage of the co-promotion profits
for RITUXAN. This amendment did not have an impact on our share
of the co-promotion operating profits of RITUXAN in 2010. For a
more detailed description of this collaboration, please read
Note 19, Collaborations to our consolidated
financial statements included in this report.
|
|
|
|
In August 2010, we entered into a license agreement with Knopp
Neurosciences, Inc. (Knopp), for the development, manufacture
and commercialization of dexpramipexole, an orally administered
small molecule in clinical development for the treatment of
amyotrophic lateral sclerosis (ALS). Under the terms of the
license agreement we made a $26.4 million upfront payment
and agreed to pay Knopp up to an additional $265.0 million
in development and sales-based milestone payments, as well as
royalties on future commercial sales. For a more detailed
description of this transaction, please read Note 18,
Investments in Variable Interest Entities to our
consolidated financial statements included in this report.
|
Business
Environment
We conduct our business primarily within the biotechnology and
pharmaceutical industries, which are highly competitive. Many of
our competitors are working to develop products similar to those
we are developing or already market. We may also face increased
competitive pressures as a result of the emergence of
biosimilars. In the U.S., AVONEX, RITUXAN and TYSABRI are
licensed under the Public Health Service Act (PHSA) as
biological
38
products. In March 2010, U.S. healthcare reform legislation
amended the PHSA to authorize the FDA to approve biological
products, known as biosimilars or follow-on biologics, that are
shown to be highly similar to previously approved biological
products based upon potentially abbreviated data packages.
In addition, the recently enacted U.S. healthcare reform
legislation contained additional provisions, including cost
containment measures. We have encountered similar efforts to
reform health care coverage and costs in other countries in
which we operate. Moreover, the economic environment in Europe
has become increasingly challenging. Many of the countries in
which we operate are also seeking to reduce their public
expenditures in light of the recent global economic downturn.
The deterioration of the credit and economic conditions in
certain countries in Europe has delayed reimbursement for our
products and led to additional austerity measures aimed at
reducing healthcare costs. Global efforts to reduce healthcare
costs continue to exert pressure on product pricing and have
negatively impacted our revenues and results of operations. For
additional information about certain risks that could negatively
impact our financial position or future results of operations,
please read the Risk Factors section of this report.
Results
of Operations
Revenues
Revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
For the Years Ended
|
|
|
2010
|
|
|
2009
|
|
|
|
December 31,
|
|
|
Compared
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
to 2009
|
|
|
to 2008
|
|
|
Product revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,744.4
|
|
|
$
|
1,638.0
|
|
|
$
|
1,472.9
|
|
|
|
6.5
|
%
|
|
|
11.2
|
%
|
Rest of world
|
|
|
1,725.7
|
|
|
|
1,514.9
|
|
|
|
1,366.8
|
|
|
|
13.9
|
%
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
|
3,470.1
|
|
|
|
3,152.9
|
|
|
|
2,839.7
|
|
|
|
10.1
|
%
|
|
|
11.0
|
%
|
Unconsolidated joint business
|
|
|
1,077.2
|
|
|
|
1,094.9
|
|
|
|
1,128.2
|
|
|
|
(1.6
|
)%
|
|
|
(3.0
|
)%
|
Other revenues
|
|
|
169.1
|
|
|
|
129.5
|
|
|
|
129.6
|
|
|
|
30.6
|
%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
4,716.4
|
|
|
$
|
4,377.3
|
|
|
$
|
4,097.5
|
|
|
|
7.7
|
%
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Revenues
Product revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
For the Years Ended
|
|
|
2010
|
|
|
2009
|
|
|
|
December 31,
|
|
|
Compared
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
to 2009
|
|
|
to 2008
|
|
|
AVONEX
|
|
$
|
2,518.4
|
|
|
$
|
2,322.9
|
|
|
$
|
2,202.6
|
|
|
|
8.4
|
%
|
|
|
5.5
|
%
|
TYSABRI
|
|
|
900.2
|
|
|
|
776.0
|
|
|
|
588.6
|
|
|
|
16.0
|
%
|
|
|
31.8
|
%
|
Other
|
|
|
51.5
|
|
|
|
54.0
|
|
|
|
48.5
|
|
|
|
(4.6
|
)%
|
|
|
11.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product revenues
|
|
$
|
3,470.1
|
|
|
$
|
3,152.9
|
|
|
$
|
2,839.7
|
|
|
|
10.1
|
%
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
AVONEX
Revenues from AVONEX are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
For the Years Ended December 31,
|
|
|
Compared
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
to 2009
|
|
|
to 2008
|
|
|
United States
|
|
$
|
1,491.6
|
|
|
$
|
1,406.2
|
|
|
$
|
1,276.5
|
|
|
|
6.1
|
%
|
|
|
10.2
|
%
|
Rest of world
|
|
|
1,026.8
|
|
|
|
916.7
|
|
|
|
926.1
|
|
|
|
12.0
|
%
|
|
|
(1.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AVONEX revenues
|
|
$
|
2,518.4
|
|
|
$
|
2,322.9
|
|
|
$
|
2,202.6
|
|
|
|
8.4
|
%
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For 2010 compared to 2009, as well as for 2009 compared to 2008,
the increase in U.S. AVONEX revenue was due to price
increases offset by decreased commercial demand. Decreased
commercial demand resulted in declines of approximately 6% and
8% in U.S. AVONEX unit sales volume for 2010 and 2009,
respectively, from the prior year comparative periods. Our 2010
U.S. AVONEX revenue was also negatively impacted by
reserves established for rebates and allowances related to the
newly enacted healthcare reform legislation in the U.S. In
addition, we continued to experience higher participation in our
Access Program, which provides free product to eligible patients
for both the 2010 and 2009 comparative periods.
For 2010 compared to 2009, the increase in rest of world AVONEX
revenue was due to increased commercial demand offset by price
decreases in some countries and the negative impact of foreign
currency exchange rates resulting from the relative
strengthening of the U.S. dollar against relevant foreign
currencies, primarily the Euro. For 2009 compared to 2008, the
decrease in rest of world AVONEX revenue was primarily due to
the negative impact of foreign exchange rate changes, offset by
increased commercial demand and price increases in some
countries. Increased commercial demand resulted in increases of
approximately 6% in rest of world AVONEX sales volume for 2010
and 2009 in both periods.
AVONEX rest of world revenues for 2010 also include gains
recognized in relation to the settlement of certain cash flow
hedge instruments under our foreign currency hedging program
totaling $35.0 million, compared to losses recognized of
$39.5 million and $8.5 million for 2009 and 2008,
respectively.
We expect AVONEX to face increasing competition in the MS
marketplace in both the U.S. and rest of world. A number of
companies, including us, are working to develop products to
treat MS that may compete with AVONEX now and in the future,
including oral and other alternative formulations. In addition,
the continued growth of TYSABRI and the commercialization of our
other pipeline product candidates may negatively impact future
sales of AVONEX. Increased competition may lead to reduced unit
sales of AVONEX, as well as increasing price pressure.
TYSABRI
We collaborate with Elan Pharma International, Ltd (Elan) an
affiliate of Elan Corporation, plc, on the development and
commercialization of TYSABRI. For a more detailed description of
this collaboration, please read Note 19, Collaborations
to our consolidated financial statements included in this
report.
Revenues from TYSABRI are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
For the Years Ended December 31,
|
|
|
Compared
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
to 2009
|
|
|
to 2008
|
|
|
United States
|
|
$
|
252.8
|
|
|
$
|
231.8
|
|
|
$
|
196.4
|
|
|
|
9.1
|
%
|
|
|
18.0
|
%
|
Rest of world
|
|
|
647.4
|
|
|
|
544.2
|
|
|
|
392.2
|
|
|
|
19.0
|
%
|
|
|
38.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TYSABRI revenues
|
|
$
|
900.2
|
|
|
$
|
776.0
|
|
|
$
|
588.6
|
|
|
|
16.0
|
%
|
|
|
31.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For 2010 compared to 2009, as well as for 2009 compared to 2008,
the increase in U.S. TYSABRI revenue was due to increased
commercial demand. Increased commercial demand resulted in
increases of approximately 10%
40
and 16% in U.S. TYSABRI unit sales volume for 2010 and
2009, respectively, over the prior year comparative periods. For
2010 compared to 2009, the increase was also due to price
increases. This increase was offset by the impact of the sale of
previously written-down TYSABRI inventory, which became saleable
following the approval of our higher-yielding manufacturing
process. As our sales price to Elan in the U.S. is set to
effect an approximate equal sharing of the gross margin with
Elan plus reimbursement for our cost of goods sold, the
distribution of this specific inventory reduced our cost of
sales, which reduced the price per unit we charged to Elan and
reduced our revenues by $7.5 million compared to 2009. This
inventory was fully utilized during 2010.
Net sales of TYSABRI from our collaboration partner, Elan, to
third-party customers in the U.S. for 2010, 2009 and 2008
totaled $593.1 million, $508.5 million and
$421.6 million, respectively.
For 2010 compared to 2009, as well as for 2009 compared to 2008,
the increase in rest of world TYSABRI revenue was due to
increased commercial demand of TYSABRI in our rest of world
markets offset by the negative impact of foreign currency
exchange rates resulting from the relative strengthening of the
U.S. dollar against relevant foreign currencies, primarily
the Euro. For 2010 compared to 2009, the increase in rest of
world TYSABRI revenue was partially offset by price decreases in
some countries. Increased commercial demand resulted in
increases of 23% and 49% in rest of world TYSABRI sales volume
for 2010 and 2009, respectively, over the prior year comparative
periods.
TYSABRI rest of world revenues for 2010 also include gains
recognized in relation to the settlement of certain cash flow
hedge instruments under our foreign currency hedging program
totaling $10.7 million, compared to losses recognized of
$10.1 million for 2009. No such losses were recognized in
2008 as we did not designate hedges against TYSABRI rest of
world revenues in that period.
The prescribing information for TYSABRI contains significant
safety warnings, including:
|
|
|
|
|
TYSABRI increases the risk of developing progressive multifocal
leukoencephalopathy (PML), a serious brain infection.
|
|
|
|
The risk of PML is increased in patients who have been treated
with an immunosuppressant prior to receiving TYSABRI.
|
|
|
|
The risk of developing PML increases with longer treatment
duration, with limited experience beyond three years.
|
|
|
|
Immune Reconstitution Inflammatory Syndrome (IRIS) may occur in
patients who developed PML and subsequently discontinued TYSABRI.
|
These safety warnings, and any future safety-related label
changes, may limit the growth of TYSABRI unit sales. We continue
to research and develop protocols and therapies that may reduce
risk and improve outcomes of PML in patients. For example, our
efforts have included working to identify patient or viral
characteristics which contribute to the risk of developing PML,
including the presence of asymptomatic JC virus infection with
an assay to detect an immune response against the JC virus. We
have initiated two clinical studies in the U.S., known as
STRATIFY-1 and STRATIFY-2, that collectively, are intended to
define the prevalence of serum JC virus antibody in patients
with relapsing MS receiving or considering treatment with
TYSABRI and to evaluate the potential to stratify patients into
lower or higher risk for developing PML based on antibody
status. Our efforts to stratify patients into lower or higher
risk for developing PML, and other ongoing or future clinical
trials involving TYSABRI may have a negative impact on
prescribing behavior in at least the short term which may result
in decreased product revenues from sales of TYSABRI.
We also expect TYSABRI to face increasing competition in the MS
marketplace in both the U.S. and rest of world. A number of
companies, including us, are working to develop products to
treat MS that may compete with TYSABRI now and in the future,
including oral and other alternative formulations. In addition,
the commercialization of our other pipeline product candidates
may negatively impact future sales of TYSABRI. Increased
competition may also lead to reduced unit sales of TYSABRI, as
well as increasing price pressure.
We have initiated the five year renewal process for
TYSABRIs marketing authorization in the E.U. This
marketing authorization review by E.U. regulators, in addition
to ongoing label discussions with U.S. regulators,
41
includes assessment of the criteria for confirming PML
diagnosis, the number of PML cases, the incidence of PML in
TYSABRI patients, the risk factors for PML, as well as an
overall assessment of TYSABRIs benefit-risk profile. Our
interactions with E.U. and U.S. regulators could result in
modifications to the respective labels or other restrictions for
TYSABRI. Upon completion of the assessment of the TYSABRI
renewal in the E.U. the marketing authorization is expected to
be valid for either an unlimited period or for an additional
five year term.
Other
Product Revenues
Other product revenues primarily consist of revenues derived
from sales of FUMADERM and are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
For the Years Ended December 31,
|
|
|
Compared
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
to 2009
|
|
|
to 2008
|
|
|
FUMADERM
|
|
$
|
51.2
|
|
|
$
|
49.6
|
|
|
$
|
43.4
|
|
|
|
3.2
|
%
|
|
|
14.3
|
%
|
Other
|
|
$
|
0.3
|
|
|
$
|
4.4
|
|
|
$
|
5.1
|
|
|
|
(93.2
|
)%
|
|
|
(13.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other product revenues
|
|
$
|
51.5
|
|
|
$
|
54.0
|
|
|
$
|
48.5
|
|
|
|
(4.6
|
)%
|
|
|
11.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
Joint Business Revenues
We collaborate with Genentech on the development and
commercialization of RITUXAN. On October 19, 2010, we and
Genentech amended and restated our Amended and Restated
Collaboration Agreement dated June 19, 2003 with regard to
the development of ocrelizumab, a humanized anti-CD20 antibody,
and agreed to terms for the development of GA101, a
next-generation anti-CD20 antibody. This amendment did not have
an impact on our share of the co-promotion operating profits
recognized for RITUXAN in 2010. For a more detailed description
of this collaboration and additional information regarding the
pretax co-promotion profit sharing formula for RITUXAN and its
impact on future unconsolidated joint business revenues, please
read Note 19, Collaborations to our consolidated
financial statements included in this report.
In the fourth quarter of 2010, as part of our recent
restructuring initiative, which is described below under the
heading Restructuring Charge, we reached an
agreement with Genentech to eliminate our RITUXAN oncology and
rheumatology sales force, with Genentech assuming the sole
responsibility for the U.S. sales and marketing efforts
related to RITUXAN. We believe that centralizing the sales force
will enhance the sales effectiveness and profitability of our
collaboration for the sale of RITUXAN in the U.S. As a
result of this change, we expect that the amount of
reimbursement for selling and development expense in the
U.S. to decrease in future periods to a negligible amount.
For 2010, 2009, and 2008, we were reimbursed $58.3 million,
$65.6 million and $59.7 million, respectively,
primarily for sales and marketing activities performed in
support of RITUXAN.
Revenues from unconsolidated joint business are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
For the Years Ended
|
|
|
2010
|
|
|
2009
|
|
|
|
December 31,
|
|
|
Compared
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
to 2009
|
|
|
to 2008
|
|
|
Biogen Idecs share of co-promotion profits in the
U.S.
|
|
$
|
848.0
|
|
|
$
|
773.6
|
|
|
$
|
733.5
|
|
|
|
9.6
|
%
|
|
|
5.5
|
%
|
Reimbursement of selling and development expenses in the
U.S.
|
|
|
58.3
|
|
|
|
65.6
|
|
|
|
59.7
|
|
|
|
(11.1
|
)%
|
|
|
9.9
|
%
|
Revenue on sales of RITUXAN in the rest of world
|
|
|
170.9
|
|
|
|
255.7
|
|
|
|
335.0
|
|
|
|
(33.2
|
)%
|
|
|
(23.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unconsolidated joint business revenues
|
|
$
|
1,077.2
|
|
|
$
|
1,094.9
|
|
|
$
|
1,128.2
|
|
|
|
(1.6
|
)%
|
|
|
(3.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Biogen
Idecs Share of Co-Promotion Profits in the
U.S.
The following table provides a summary of amounts comprising our
share of co-promotion profits in the U.S.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
For the Years Ended December 31,
|
|
|
Compared
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
to 2009
|
|
|
to 2008
|
|
|
Product revenues, net
|
|
$
|
2,759.2
|
|
|
$
|
2,665.5
|
|
|
$
|
2,587.4
|
|
|
|
3.5
|
%
|
|
|
3.0
|
%
|
Costs and expenses
|
|
|
626.8
|
|
|
|
724.1
|
|
|
|
741.0
|
|
|
|
(13.4
|
)%
|
|
|
(2.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-promotion profits in the U.S.
|
|
$
|
2,132.4
|
|
|
$
|
1,941.4
|
|
|
$
|
1,846.4
|
|
|
|
9.8
|
%
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biogen Idecs share of co-promotion profits in the
U.S.
|
|
$
|
848.0
|
|
|
$
|
773.6
|
|
|
$
|
733.5
|
|
|
|
9.6
|
%
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For 2010 compared to 2009, as well as for 2009 compared to 2008,
the increase in U.S. RITUXAN product revenues was primarily
due to price increases and an increase in commercial demand,
which resulted in an increase in unit sales volume of
approximately 2%. For 2009 compared to 2008, the increase in
U.S. RITUXAN product revenue was primarily due to price
increases offset by a decrease in commercial demand of
approximately 1%.
For 2010 compared to 2009, as well as for 2009 compared to 2008,
the decrease in collaboration costs and expenses primarily
resulted from a decline in expenditures for the development of
RITUXAN for use in other indications. As described below under
the heading Provision for Discounts and
Allowances Healthcare Reform, beginning in
2011, a new fee will be payable by all prescription drug
manufacturers and importers. We estimate that the fee assessed
Genentech on qualifying sales of RITUXAN will result in a
reduction of our share of
pre-tax
co-promotion
profits in the U.S. of approximately $15.0 million in 2011.
Under our collaboration agreement, our current pretax
co-promotion profit-sharing formula, which resets annually,
provides for a 40% share of co-promotion profits if co-promotion
operating profits exceed $50.0 million. For 2010, 2009 and
2008, the 40% threshold was met during the first quarter.
Reimbursement
of Selling and Development Expense in the U.S.
As discussed in Note 19, Collaborations to our
consolidated financial statements included in this report,
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. For 2010
compared to 2009, the decrease in selling and development
expenses incurred by us in the U.S. and reimbursed by
Genentech was primarily the result of the elimination of our
RITUXAN oncology and rheumatology sales force in the fourth
quarter 2010. For 2009 compared to 2008, the increase in selling
and development expenses incurred by us in the U.S. and
reimbursed by Genentech was primarily the result of our
increased sales and marketing activities in support of RITUXAN.
Revenue
on Sales of RITUXAN in the Rest of World
Revenue on sales of RITUXAN in the rest of world consists of our
share of pretax co-promotion profits in Canada and royalty
revenue on sales of RITUXAN outside the U.S. and Canada.
For 2010 compared to 2009, as well as for 2009 compared to 2008,
revenues on sales of RITUXAN in the rest of world continue to
decline due to royalty expirations in certain of our rest of
world markets. The royalty period for sales in the rest of world
with respect to all products is 11 years from the first
commercial sale of such product on a
country-by-country
basis. Specifically, the royalty periods with respect to sales
in France, Spain, Germany and the United Kingdom expired in
2009. The royalty period with respect to sales in Italy expired
in 2010. The royalty periods for substantially all of the
remaining royalty-bearing sales of RITUXAN in the rest of the
world will expire through 2012. As a result of these
expirations, we expect royalty revenues derived from sales of
RITUXAN in the rest of world to continue to decline in future
periods. The decreases experienced during 2010 were offset by a
payment from Genentech totaling $21.3 million representing
a cumulative underpayment of royalties owed to us on sales of
RITUXAN in the rest of world.
43
Other
Revenues
Other revenues are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
For the Years Ended
|
|
|
2010
|
|
|
2009
|
|
|
|
December 31,
|
|
|
Compared
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
to 2009
|
|
|
to 2008
|
|
|
Royalty revenues
|
|
$
|
137.4
|
|
|
$
|
124.4
|
|
|
$
|
116.2
|
|
|
|
10.5
|
%
|
|
|
7.1
|
%
|
Corporate partner revenues
|
|
|
31.7
|
|
|
|
5.1
|
|
|
|
13.4
|
|
|
|
521.6
|
%
|
|
|
(61.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenues
|
|
$
|
169.1
|
|
|
$
|
129.5
|
|
|
$
|
129.6
|
|
|
|
30.6
|
%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
Revenues
We receive royalties on sales by our licensees of products
covered under patents that we own. Sales of licensed products
could vary significantly due to competition, manufacturing
difficulties and other factors that are not within our control.
In addition, the expiration or invalidation of any underlying
patents could reduce or eliminate the royalty revenues derived
from such patents.
For 2010 compared to 2009, as well as for 2009 compared to 2008,
the increase in royalty revenues was primarily driven by
increased sales of ANGIOMAX (bivalirudin) licensed to The
Medicines Company (TMC). The increase for 2009 compared to 2008
was offset by a decline in royalties from sales of other
licensed products and the expiration of certain contracts and
license agreements.
Our most significant source of royalty revenue is derived from
sales of ANGIOMAX by TMC. TMC sells ANGIOMAX in the U.S.,
Europe, Canada, Central America, South America, Israel and
Australia. 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
for that tier under our agreement with TMC. The royalty rate
increases based upon which tier of total net sales are earned in
any calendar year. The increased royalty 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 later quarters and, as a
result, an adjustment is recorded in the period in which an
increase in royalty rate has been achieved.
Under the terms of our 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 or
(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 where sales have been reduced to
a certain volume-based market share. TMC began selling ANGIOMAX
in the U.S. in January 2001. The principal U.S. patent
that covers ANGIOMAX was due to expire in March 2010 and TMC
applied for an extension of the term of this patent. Initially,
the U.S. Patent and Trademark Office (PTO) rejected
TMCs application because in its view the application was
not timely filed. TMC sued the PTO in federal district court
seeking to extend the term of the principal U.S. patent to
December 2014. On August 3, 2010, the federal district
court ordered the PTO to deem the application as timely filed.
The PTO did not appeal the order, but a generic manufacturer is
seeking the right to intervene and file an appeal. The PTO has
granted an interim extension of the patent term until
August 13, 2011. In the event that TMC is unsuccessful in
obtaining a patent term extension thereafter and third parties
sell products comparable to ANGIOMAX, we would expect a
significant decrease in royalty revenues due to increased
competition, which may impact sales and result in lower royalty
tiered rates.
Corporate
Partner Revenues
We have also sold or exclusively licensed to third parties
rights to certain products previously included within our
product line. Royalty or supply agreement revenues received
based upon those products are recorded as corporate partner
revenue. Amounts recorded as corporate partner revenue also
include amounts earned upon delivery of product under contract
manufacturing agreements.
For 2010 compared to 2009, the increase in corporate partner
revenues was primarily due to amounts earned under the terms of
our 2006 contract manufacturing agreement with Astellas Pharma
US, Inc. for the supply of
44
AMEVIVE. For 2009 compared to 2008, the decrease in corporate
partner revenues was primarily due to milestone and royalty
payments received in 2008 totaling $7.0 million related to
ZEVALIN.
Provisions
for Discounts and Allowances
Revenues from product sales are recorded net of applicable
allowances for trade term discounts, wholesaler incentives,
Medicaid rebates, Veterans Administration (VA) and Public Health
Service (PHS) discounts, 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). Reserves for discounts, contractual adjustments
and returns that reduced gross product revenues are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
For the Years Ended
|
|
|
2010
|
|
|
2009
|
|
|
|
December 31,
|
|
|
Compared
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
to 2009
|
|
|
to 2008
|
|
|
Discounts
|
|
$
|
77.9
|
|
|
$
|
74.0
|
|
|
$
|
67.1
|
|
|
|
5.3
|
%
|
|
|
10.3
|
%
|
Contractual adjustments
|
|
|
282.6
|
|
|
|
192.5
|
|
|
|
149.0
|
|
|
|
46.8
|
%
|
|
|
29.2
|
%
|
Returns
|
|
|
14.3
|
|
|
|
16.6
|
|
|
|
12.2
|
|
|
|
(13.9
|
)%
|
|
|
36.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowances
|
|
$
|
374.8
|
|
|
$
|
283.1
|
|
|
$
|
228.3
|
|
|
|
32.4
|
%
|
|
|
24.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross product revenues
|
|
$
|
3,844.9
|
|
|
$
|
3,436.0
|
|
|
$
|
3,068.0
|
|
|
|
11.9
|
%
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of gross product revenues
|
|
|
9.7
|
%
|
|
|
8.2
|
%
|
|
|
7.4
|
%
|
|
|
18.3
|
%
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount reserves include trade term discounts and wholesaler
incentives. For 2010 compared to 2009, as well as for 2009
compared to 2008, the increase in discounts was primarily driven
by increases in trade term discounts and wholesaler incentives
as a result of price increases and increased sales.
Contractual adjustment reserves relate to Medicaid and managed
care rebates, VA and PHS discounts and other applicable
allowances. For 2010 compared to 2009, as well as for 2009
compared to 2008, the increase in contractual adjustments was
due to the impact of higher reserves for managed care and
Medicaid and VA programs primarily associated with price
increases in the U.S. For 2010 compared to 2009, the increase in
contractual adjustments was also due to the impact of higher
contractual rebates and discounts resulting from
U.S. healthcare reform legislation passed in March 2010, as
further discussed below.
Product return reserves are established for returns made by
wholesalers. In accordance with contractual terms, wholesalers
are permitted to return product for reasons such as damaged or
expired product. The majority of wholesaler returns are due to
product expiration. We also accept returns from our patients for
various reasons. Reserves for product returns are recorded in
the period the related revenue is recognized, resulting in a
reduction to product sales. For 2010 compared to 2009, as well
as for 2009 compared to 2008, return reserves remained
relatively unchanged.
Healthcare
Reform
In 2010, healthcare reform legislation was enacted in the
U.S. This legislation contains several provisions that
affect our business. Although many provisions of the new
legislation do not take effect immediately, several provisions
became effective in 2010. These include (1) an increase in
the minimum Medicaid rebate to states participating in the
Medicaid program from 15.1% to 23.1% on our branded prescription
drugs; (2) the extension of the Medicaid rebate to Managed
Care Organizations that dispense drugs to Medicaid
beneficiaries; and (3) the expansion of the 340B PHS drug
pricing program, which provides outpatient drugs at reduced
rates, to include additional hospitals, clinics, and healthcare
centers.
Beginning in 2011, the new law also requires drug manufacturers
to provide a 50% discount to Medicare beneficiaries whose
prescription drug costs cause them to be subject to the Medicare
Part D coverage gap (i.e., the donut hole).
Also, in 2011, a new fee will be payable by all branded
prescription drug manufacturers and importers. This fee will be
calculated based upon each organizations percentage share
of total branded prescription
45
drug sales to qualifying U.S. government programs (such as
Medicare, Medicaid and VA and PHS discount programs). As defined
by the Act, branded prescription drug sales exclude
the sales of any drug or biologic for which an orphan drug tax
credit was allowed and was not subsequently approved for a
non-orphan indication. As AVONEX has no other labeled
indications, other than that for which it received its orphan
designation, we believe that AVONEX sales are considered exempt
from the fee. We estimate that the fee assessed to Genentech on
qualifying sales of RITUXAN will result in a reduction of our
share of pre-tax co-promotion profits in the U.S. of
approximately $15.0 million in 2011. We will reflect our
share of the fee assessed to Elan on qualifying sales of TYSABRI
as selling, general and administrative expense, which we do not
expect to be significant based on expected sales for qualifying
U.S. government programs.
This new legislation contains a number of provisions that affect
existing government programs and has required the creation of
new programs, policies and processes, many of which remain under
development and have not been fully implemented. For example, we
do not yet fully know the extent of additional entities eligible
to participate under the 340B program or when and how discounts
will be provided to these entities. In addition, in November
2010, the Centers for Medicare and Medicaid Services (CMS)
amended and then withdrew current regulations governing
calculation of Average Manufacture Price; however, no
replacement regulations have been proposed. Accordingly, our
discounts and allowances are based on several assumptions about
the implementation of this legislation. Actual results may
differ from our estimates.
In addition, we anticipate that many countries outside the
U.S. will continue to implement austerity measures
including efforts aimed at reducing healthcare costs as these
countries attempt to manage increasing healthcare expenditures,
especially in light of the global economic downturn and the
deterioration of the credit and economic conditions in certain
countries in Europe. For example, certain governments of
countries in which we operate have already implemented or may
implement measures to reduce or control healthcare costs that,
among other things, include imposed price reductions,
suspensions on pricing increases on pharmaceuticals, increased
mandatory discounts and rebates or seek recoveries of past price
increases. Certain measures already implemented have negatively
impacted our revenues. Our revenues and results of operations
will be further negatively impacted if these, similar or more
extensive measures continue to be implemented.
Cost and
Expenses
A summary of total cost and expenses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
For the Years Ended
|
|
|
2010
|
|
|
2009
|
|
|
|
December 31,
|
|
|
Compared
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
to 2009
|
|
|
to 2008
|
|
|
Cost of sales, excluding amortization of acquired intangible
assets
|
|
$
|
400.3
|
|
|
$
|
382.1
|
|
|
$
|
402.0
|
|
|
|
4.8
|
%
|
|
|
(5.0
|
)%
|
Research and development
|
|
|
1,248.6
|
|
|
|
1,283.1
|
|
|
|
1,072.1
|
|
|
|
(2.7
|
)%
|
|
|
19.7
|
%
|
Selling, general and administrative
|
|
|
1,031.5
|
|
|
|
911.0
|
|
|
|
925.3
|
|
|
|
13.2
|
%
|
|
|
(1.5
|
)%
|
Collaboration profit sharing
|
|
|
258.1
|
|
|
|
215.9
|
|
|
|
136.0
|
|
|
|
19.5
|
%
|
|
|
58.8
|
%
|
Amortization of acquired intangible assets
|
|
|
208.9
|
|
|
|
289.8
|
|
|
|
332.7
|
|
|
|
(27.9
|
)%
|
|
|
(12.9
|
)%
|
Restructuring charge
|
|
|
75.2
|
|
|
|
|
|
|
|
|
|
|
|
**
|
|
|
|
**
|
|
Acquired in process research and development
|
|
|
245.0
|
|
|
|
|
|
|
|
25.0
|
|
|
|
**
|
|
|
|
(100.0
|
)%
|
Gain on dispositions, net
|
|
|
|
|
|
|
|
|
|
|
(9.2
|
)
|
|
|
**
|
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses
|
|
$
|
3,467.5
|
|
|
$
|
3,081.9
|
|
|
$
|
2,883.9
|
|
|
|
12.5
|
%
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Cost
of Sales, Excluding Amortization of Acquired Intangible Assets
(Cost of Sales)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
For the Years Ended
|
|
2010
|
|
2009
|
|
|
December 31,
|
|
Compared
|
|
Compared
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
2008
|
|
to 2009
|
|
to 2008
|
|
Cost of sales, excluding amortization of acquired intangible
assets
|
|
$
|
400.3
|
|
|
$
|
382.1
|
|
|
$
|
402.0
|
|
|
|
4.8
|
%
|
|
|
(5.0
|
)%
|
For 2010 compared to 2009, the increase in cost of sales was
primarily due to higher unit sales volume. The increase for the
comparative period was also driven by a $5.7 million
increase in costs associated with contract manufacturing
activity for the supply of AMEVIVE as well as $6.7 million
of period expense incurred related to the shutdown for capital
upgrades of our manufacturing facility in Research Triangle
Park, North Carolina. This comparative increase was offset by
the sale of previously written-down TYSABRI inventory, which
became saleable following approval of our new higher-yielding
manufacturing process. The distribution of this inventory, which
was fully utilized during 2010, reduced our cost of sales by
$11.4 million compared to 2009. In addition, the sale of
inventory produced under our new high-titer production process
reduced our cost of sales by $8.4 million compared to 2009.
For 2009 compared to 2008, the decrease in cost of sales was
primarily due to a $12.9 million decrease in write-downs
from unmarketable inventory, a $10.9 million decrease in
production costs due to the implementation of a new high-titer
production process which produces higher yields of TYSABRI and
an $8.8 million decrease in royalty payments on sales of
licensed product due mainly to the expiration of certain
contracts and license agreements. These decreases were offset by
a $17.0 million increase in costs associated with higher
TYSABRI unit sales volume. In addition, during 2008 we also
incurred a $4.3 million period expense related to the
shutdown of our manufacturing facility in Research Triangle
Park, North Carolina for the implementation of the high-titer
production process upgrades.
We expect an increase in total cost of sales for 2011, as a
result of an increase in expected contract manufacturing
activity and increased production costs.
Write-downs
from Unmarketable Inventory
Our products are subject to strict quality control and
monitoring which we perform throughout the manufacturing
process. Periodically, certain batches or units of product may
no longer meet quality specifications or may expire. The expiry
associated with our inventory is generally between 6 months
and 5 years, depending on the product. Obsolescence due to
expiration has historically been insignificant.
Amounts written down related to unmarketable inventory are
charged to cost of sales, and totaled $11.8 million,
$16.9 million and $29.8 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
For the Years Ended
|
|
2010
|
|
2009
|
|
|
December 31,
|
|
Compared
|
|
Compared
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
2008
|
|
to 2009
|
|
to 2008
|
|
Research and development
|
|
$
|
1,248.6
|
|
|
$
|
1,283.1
|
|
|
$
|
1,072.1
|
|
|
|
(2.7
|
)%
|
|
|
19.7
|
%
|
For 2010 compared to 2009, research and development expense
decreased by $34.5 million. Our research and development
spend in 2010 included a $26.4 million upfront payment made
to Knopp under a license agreement, increased clinical activity
for our daclizumab, PEGylated interferon beta-1a, Neublastin,
Factor VIII and Factor IX programs, and efforts to research and
develop protocols that may reduce risk and improve outcomes of
PML in patients treated with TYSABRI. In addition, our costs for
the Factor VIII and Factor IX programs increased in 2010
following the restructuring of our collaboration agreement with
Swedish Orphan Biovitrum, whereby we assumed full development
and manufacturing responsibilities for these programs. These
increases were offset by a reduction in spending in certain
deprioritized programs.
47
For 2009 compared to 2008, research and development expenses
increased by $211.0 million, driven primarily by the
$110.0 million upfront payment made to Acorda, as well as a
net increase of $100.2 million related to the ramp up of
clinical trial activity for certain development stage product
candidates including lixivaptan, BG-12, humanized anti-CD20 and
ADENTRI. In addition, in 2009, we also initiated registrational
trials in our PEGylated interferon program. The aforementioned
increases were offset by a reduction of spending across several
programs including baminercept in RA, lumiliximab and
volociximab.
As part of our recent restructuring initiative, which is
described below under the heading Restructuring
Charge, we are in the process of reducing our overall
headcount by approximately 13% and have terminated or are in the
process of discontinuing certain research and development
programs, including substantially all of our cardiovascular and
oncology programs and select programs in neurology and
immunology. Our workforce reduction efforts impact all sales,
research and development and administrative functions.
We expect total research and development expense in 2011 to be
between 22% and 24% of total revenue.
Milestone
and Upfront Payments
Milestone and upfront payments to our collaboration partners,
included within research and development expense, totaled
$68.9 million, $151.5 million and $47.6 million
for 2010, 2009 and 2008, respectively. The change for each of
the comparative periods was primarily the result of the
$110.0 million upfront payment made to Acorda in 2009. The
timing of future upfront fees and milestone payments may cause
variability in future research and development expense.
Selling,
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
For the Years Ended
|
|
2010
|
|
2009
|
|
|
December 31,
|
|
Compared
|
|
Compared
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
2008
|
|
to 2009
|
|
to 2008
|
|
Selling, general and administrative
|
|
$
|
1,031.5
|
|
|
$
|
911.0
|
|
|
$
|
925.3
|
|
|
|
13.2
|
%
|
|
|
(1.5
|
)%
|
Selling, general and administrative expenses are primarily
comprised of compensation and benefits associated with sales and
marketing, finance, legal and other administrative personnel,
outside marketing and legal expenses and other general and
administrative costs.
For 2010 compared to 2009, selling, general and administrative
expenses increased primarily due to increased sales and
marketing activities in support of AVONEX and TYSABRI and
increased grant and sponsorship activity. The increase for the
comparative periods also includes an incremental charge of
approximately $18.6 million recognized in 2010 related to
the modification of equity based compensation in accordance with
the transition agreement entered into with James C. Mullen, who
retired as our President and Chief Executive Officer on
June 8, 2010.
For 2009 compared to 2008, the decrease in selling, general and
administrative expenses was primarily driven by the positive
impact of foreign currency exchange rates and a reduction of
expenses reimbursed to Elan for their marketing of TYSABRI for
Crohns disease in the U.S. These decreases were
offset by costs incurred associated with our geographic
expansion into new markets.
As part of our recent restructuring initiative, which is
described below under the heading Restructuring
Charge, we are in the process of reducing our overall
headcount by approximately 13%. This workforce reduction impacts
all sales, research and development and administrative functions.
We expect total selling, general and administrative expense in
2011 to be between 20% and 21% of total revenue.
48
Collaboration
Profit Sharing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
For the Years Ended
|
|
2010
|
|
2009
|
|
|
December 31,
|
|
Compared
|
|
Compared
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
2008
|
|
to 2009
|
|
to 2008
|
|
Collaboration profit sharing
|
|
$
|
258.1
|
|
|
$
|
215.9
|
|
|
$
|
136.0
|
|
|
|
19.5
|
%
|
|
|
58.7
|
%
|
For 2010 compared to 2009, as well as for 2009 compared to 2008,
the increases in collaboration profit sharing expense were due
to the continued increase in TYSABRI rest of world sales
resulting in higher rest of world net operating profits to be
shared with Elan and resulting in growth in the third-party
royalties Elan paid on behalf of the collaboration. For 2010,
2009 and 2008, our collaboration profit sharing expense included
$45.5 million, $40.0 million and $28.4 million
related to the reimbursement of third-party royalty payments
made by Elan. For a more detailed description of this
collaboration, please read Note 19, Collaborations
to our consolidated financial statements included in this
report.
Amortization
of Acquired Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
For the Years Ended
|
|
2010
|
|
2009
|
|
|
December 31,
|
|
Compared
|
|
Compared
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
2008
|
|
to 2009
|
|
to 2008
|
|
Amortization of acquired intangible assets
|
|
$
|
208.9
|
|
|
$
|
289.8
|
|
|
$
|
332.7
|
|
|
|
(27.9
|
)%
|
|
|
(12.9
|
)%
|
Our most significant intangible asset is the core technology
related to our AVONEX product. Our amortization policy reflects
our belief that the economic benefit of our core technology is
consumed as revenue is generated from our AVONEX product. We
refer to this amortization methodology as the economic
consumption model, which involves calculating a ratio of actual
current period sales to total anticipated sales for the life of
the product and applying this ratio to the carrying amount of
the intangible asset. An analysis of the anticipated lifetime
revenue of AVONEX is performed at least annually during our long
range planning cycle, and this analysis serves as the basis for
the calculation of our economic consumption amortization model.
Although we believe this process has allowed us to reliably
determine the best estimate of the pattern in which we will
consume the economic benefits of our core technology intangible
asset, the model could result in deferring amortization charges
to future periods in certain instances, due to continued sales
of the product at a nominal level after patent expiration or
otherwise. In order to ensure that amortization charges are not
unreasonably deferred to future periods, we compare the amount
of amortization determined under the economic consumption model
against the minimum amount of amortization recalculated each
year under the straight-line method and record the higher amount.
We completed our most recent long range planning cycle in the
third quarter of 2010. This analysis is based upon certain
assumptions that we evaluate on a periodic basis, such as the
anticipated product sales of AVONEX and expected impact of
competitor products and our own pipeline product candidates, as
well as the issuance of new patents or the extension of existing
patents. Based upon this analysis, we have continued to amortize
this asset on the economic consumption model for the third and
fourth quarters of 2010, and expect to apply the same model for
the next two quarters. In addition, since we do not currently
expect a significant change in the expected lifetime revenue of
AVONEX, amortization expected to be recorded in relation to our
core intangible asset for the first two quarters of 2011 is
anticipated to be comparable to the amounts recorded during the
third and fourth quarters of 2010. Amortization of our core
intangible asset related to AVONEX totaled $162.4 million,
$229.3 million and $271.7 million in 2010, 2009 and
2008, respectively.
For 2009 compared to 2008, amortization recorded for the third
and fourth quarters of 2009 decreased significantly from their
respective prior year comparative periods. This decrease was
driven by the issuance of the AVONEX 755 Patent in
September 2009. The issuance of this patent, expiring in
September 2026, resulted in an increase in the total
expected lifetime revenue of AVONEX and an extension of the
assumed remaining life of our core intangible asset.
Based upon our most recent analysis, amortization for acquired
intangible assets is expected to be in the range of
approximately $170.0 million to $210.0 million
annually through 2015.
49
We monitor events and expectations on product performance. If
there are any indications that the assumptions underlying our
most recent analysis would be different than those utilized
within our current estimates, our analysis would be updated and
may result in a significant change in the anticipated lifetime
revenue of AVONEX determined during our most recent annual
review. For example, the occurrence of an adverse event, such as
the invalidation of our AVONEX 755 Patent issued in
September 2009, could substantially increase the amount of
amortization expense associated with our acquired intangible
assets as compared to previous periods or our current
expectations, which may result in a significant negative impact
on our future results of operations.
Restructuring
Charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
For the Years Ended
|
|
2010
|
|
2009
|
|
|
December 31,
|
|
Compared
|
|
Compared
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
2008
|
|
to 2009
|
|
to 2008
|
|
Restructuring charge
|
|
$
|
75.2
|
|
|
$
|
|
|
|
$
|
|
|
|
|
**
|
|
|
|
**
|
|
On November 3, 2010, we announced a number of strategic,
operational and organizational initiatives designed to provide a
framework for the future growth of our business, which are
summarized as follows:
|
|
|
|
|
We intend to focus our business on neurology and leverage our
strengths in biologics research, development and manufacturing
to pursue select biological therapies where there is a
significant unmet need and where the drug candidate has the
potential to be highly differentiated. Accordingly, during the
fourth quarter of 2010, we began to reallocate resources within
our research and development organization to maximize our
investment in our highest-potential programs. As a result, we
have terminated or are in the process of discontinuing certain
research and development programs, including substantially all
of our oncology programs (which we are looking to spin out or
out-license), our cardiovascular programs and select neurology
and immunology programs. In addition, we have substantially
reduced our small molecule discovery activities in favor of
outsourcing these efforts.
|
|
|
|
We are in the process of vacating the San Diego, California
facility and consolidating our Massachusetts facilities.
|
|
|
|
We eliminated our RITUXAN oncology and rheumatology sales force
and Genentech, Inc., a wholly-owned member of the Roche Group,
has assumed sole responsibility for the U.S. sales and
marketing efforts related to RITUXAN.
|
|
|
|
We are in the process of completing a 13% reduction in our
workforce and realigning our overall structure to become a more
efficient and cost-effective organization. The workforce
reduction spans our sales, research and development and
administrative functions.
|
As a result of these initiatives, we expect to realize annual
savings of approximately $300.0 million. The substantial
majority of the savings will be realized within research and
development and selling, general and administrative expense and
are expected to be fully realized beginning in the latter half
of 2011. These expected savings may be offset to some degree by
costs associated with initiatives to grow our business.
We expect to incur total restructuring charges of approximately
$110.0 million, comprised of $90.0 million for
workforce reduction and $20.0 million for facility
consolidation.
We recognized $75.2 million of these charges within our
consolidated statement of income during 2010, which are
summarized as follows:
|
|
|
|
|
|
|
For the Year Ended
|
|
(In millions)
|
|
December 31, 2010
|
|
|
Workforce reduction
|
|
$
|
67.2
|
|
Facility consolidation
|
|
|
8.0
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
75.2
|
|
|
|
|
|
|
50
We expect that our restructuring efforts will be substantially
completed, and that substantially all of the remaining
restructuring charges will be incurred by the end of 2011.
Costs associated with our workforce reduction primarily relate
to employee severance and benefits. Facility consolidation costs
are primarily comprised of charges associated with the closing
of facilities, related lease obligations and additional
depreciation recognized when the expected useful lives of
certain assets have been shortened due to the consolidation and
closing of related facilities and the discontinuation of certain
research and development programs.
The following table summarizes the charges and spending related
to our restructuring efforts during 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
Facility
|
|
|
|
|
(In millions)
|
|
Reduction
|
|
|
Consolidation
|
|
|
Total
|
|
|
Reserves established
|
|
$
|
67.2
|
|
|
$
|
8.0
|
|
|
$
|
75.2
|
|
Amounts paid
|
|
|
(6.6
|
)
|
|
|
|
|
|
|
(6.6
|
)
|
Additional depreciation and other non-cash charges
|
|
|
|
|
|
|
(2.2
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserves at December 31, 2010
|
|
$
|
60.6
|
|
|
$
|
5.8
|
|
|
$
|
66.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect that substantially all remaining payments will be
made, by the end of 2011.
Acquired
In Process Research and Development (IPR&D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
For the Years Ended
|
|
2010
|
|
2009
|
|
|
December 31,
|
|
Compared
|
|
Compared
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
2008
|
|
to 2009
|
|
to 2008
|
|
Acquired in process research and development
|
|
$
|
245.0
|
|
|
$
|
|
|
|
$
|
25.0
|
|
|
|
**
|
|
|
|
(100.0
|
)%
|
In August 2010, we entered into a license agreement with Knopp
for the development, manufacture and commercialization of
dexpramipexole, an orally administered small molecule in
clinical development for the treatment of ALS. As we determined
that we are the primary beneficiary of Knopp, we consolidate the
results of Knopp and recorded an IPR&D charge of
approximately $205.0 million upon initial consolidation. We
have attributed approximately $145.0 million of the total
IPR&D charge to the noncontrolling interest, representing
the noncontrolling interests ownership interest in the
equity of Knopp. For a more detailed description of this
transaction, please read Note 18, Investments in
Variable Interest Entities to our consolidated financial
statements included in this report.
In connection with our acquisition of Biogen Idec Hemophilia
Inc., formerly Syntonix Pharmaceuticals, Inc. (Syntonix), in
January 2007, we agreed to make additional future consideration
payments based upon the achievement of certain milestone events.
One of these milestones was achieved when, in January 2010, we
initiated patient enrollment in a registrational trial of Factor
IX in hemophilia B. As a result of the achievement of this we
paid approximately $40.0 million to the former shareholders
of Syntonix.
In 2008, we recorded an IPR&D charge of $25.0 million
related to a HSP90-related milestone payment made to the former
shareholders of Conforma Therapeutics, Inc. (Conforma) pursuant
to the terms of our acquisition of Conforma in 2006.
51
Other
Income (Expense), Net
Components of other income (expense), net, are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
For the Years Ended
|
|
|
2010
|
|
|
2009
|
|
|
|
December 31,
|
|
|
Compared
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
to 2009
|
|
|
to 2008
|
|
|
Interest income
|
|
$
|
22.3
|
|
|
$
|
48.5
|
|
|
$
|
72.1
|
|
|
|
(54.0
|
)%
|
|
|
(32.7
|
)%
|
Interest expense
|
|
|
(36.1
|
)
|
|
|
(35.8
|
)
|
|
|
(52.0
|
)
|
|
|
(0.8
|
)%
|
|
|
31.2
|
%
|
Impairments of investments
|
|
|
(21.3
|
)
|
|
|
(10.6
|
)
|
|
|
(60.3
|
)
|
|
|
(100.9
|
)%
|
|
|
82.4
|
%
|
Gain (loss) on sales of investments, net
|
|
|
16.3
|
|
|
|
22.8
|
|
|
|
(1.1
|
)
|
|
|
(28.5
|
)%
|
|
|
2172.7
|
%
|
Foreign exchange gains (losses), net
|
|
|
(3.5
|
)
|
|
|
11.4
|
|
|
|
(9.8
|
)
|
|
|
(130.7
|
)%
|
|
|
216.3
|
%
|
Other, net
|
|
|
3.3
|
|
|
|
1.0
|
|
|
|
(6.6
|
)
|
|
|
230.0
|
%
|
|
|
114.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
$
|
(19.0
|
)
|
|
$
|
37.3
|
|
|
$
|
(57.7
|
)
|
|
|
(151.0
|
)%
|
|
|
164.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
For 2010 compared to 2009, as well as for 2009 compared to 2008,
interest income decreased primarily due to lower yields on cash,
cash equivalents, and marketable securities. The decrease for
2010 compared to 2009, was also due to lower average cash
balances. For 2009 compared to 2008, these decreases were offset
by higher average cash balances.
Interest
Expense
For 2010 compared to 2009, interest expense remained relatively
unchanged. For 2009 compared to 2008, interest expense decreased
primarily due to decreased average debt balances. In addition,
approximately $5.7 million and $5.4 million was recorded in
2010 and 2009, respectively, as a reduction of interest expense
due to the amortization of the deferred gain associated with the
termination of an interest rate swap in December 2008.
Capitalized
Interest Costs
For 2010, 2009, and 2008, we capitalized interest costs related
to construction in progress totaling approximately
$28.6 million, $28.5 million and $23.2 million,
respectively, which reduced our interest expense by the same
amount. Capitalized interest costs are primarily related to the
development of our large-scale biologic manufacturing facility
in Hillerød, Denmark.
We plan to stop further validation on this facility following
completion of facilitys operational qualification
activities in the first half of 2011 as we continue to evaluate
our current manufacturing utilization strategy. Recent
manufacturing improvements have resulted in favorable production
yields on TYSABRI, that along with slower than expected TYSABRI
growth, have reduced our expected capacity requirements. As a
result, we have decided to delay the start of manufacturing
activities at this site until additional capacity is required by
the business. Accordingly, we expect to cease capitalizing
interest in relation to this project at that time.
Impairment
on Investments
In 2010, we recognized $21.3 million in charges for the
other-than-temporary
impairment of our publicly held strategic investments,
investments in venture capital funds and investments in
privately held companies. The increase over amounts recognized
in 2009 was primarily the result of AVEO Pharmaceuticals, Inc.,
one of our strategic investments, executing an equity offering
at a price below our cost basis during the first quarter of 2010.
In 2009, we recognized impairment losses of $7.0 million on
our publicly-held strategic investments and non-marketable
securities and an additional $3.6 million in charges for
the
other-than-temporary
impairment on our marketable debt securities primarily related
to mortgage and asset-backed securities.
52
In 2008, we recognized impairment losses of $18.6 million
on our publicly-held strategic investments and
non-marketable
securities and an additional $41.7 million in impairment on
our marketable debt securities primarily related to mortgage and
asset-backed and corporate securities.
We may incur additional impairment charges on these investments
in the future.
Income
Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
For the Years Ended December 31,
|
|
Compared
|
|
Compared
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
2008
|
|
to 2009
|
|
to 2008
|
|
Effective tax rate on pre-tax income
|
|
|
26.9
|
%
|
|
|
26.7
|
%
|
|
|
31.6
|
%
|
|
|
0.7
|
%
|
|
|
(15.5
|
)%
|
Income tax expense
|
|
$
|
331.3
|
|
|
$
|
355.6
|
|
|
$
|
365.8
|
|
|
|
(6.8
|
)%
|
|
|
(2.8
|
)%
|
Our effective tax rate fluctuates from year to year due to the
nature of our global operations. The factors that most
significantly impact our effective tax rate include variability
in the allocation of our taxable earnings between multiple
jurisdictions, changes in tax laws, acquisitions and licensing
transactions.
For 2010 compared to 2009, our effective tax rate was negatively
impacted due to the attribution to noncontrolling interest of
$145.0 million of the IPR&D charge related to our
license agreement with Knopp Neurosciences, Inc. As such, the
attributed amount will not generate a tax deduction, causing our
tax rate to be unfavorably impacted by 2.8%. The impact of the
Knopp transaction was partially offset by a higher percentage of
our profits being earned in lower rate international
jurisdictions in 2010. This change in the location of our
relative profits was caused by the growth of our international
operations and lower 2010 domestic earnings as a proportion of
total consolidated earnings. For a more detailed description of
our transaction with Knopp, please read Note 18,
Investments in Variable Interest Entities to our
consolidated financial statements included in this report.
During 2010, we also experienced a favorable impact on our
effective tax rates due to a statutory increase in the
U.S. manufacturers tax deduction and an increase in
expenditures eligible for our orphan drug credit. In December
2010, an extension of the research and development tax credit
was enacted for years 2010 and 2011. Upon enactment, we
recognized an income tax benefit of $14.9 million for
qualifying expenditures from the full year 2010. In addition,
our 2009 effective tax rate was increased by 2.1% as a result of
the $110.0 million upfront payment incurred in connection
with the collaboration and license agreement entered into with
Acorda Therapeutics, Inc. (Acorda) in the second quarter of
2009. Our effective tax rate for 2009 was also favorably
impacted by 2.3% for changes in tax law which became effective
during the first quarter of 2009 in certain state jurisdictions
in which we operate and the favorable resolution of certain
federal, state and foreign tax audits. The resolution of these
tax audits resulted in a reduction of our reserves for several
uncertain tax positions, which had a favorable impact of 2.1% on
our 2009 effective tax rate.
Our effective tax rate in 2009 was lower than in 2008 due to the
net effect of changes in tax laws and the resolution of certain
tax audits discussed above, as well as a higher percentage of
our foreign earnings being subject to U.S. income taxation
in 2008 partially offset by the effect of the Acorda licensing
transaction. The effect of the allocation of earnings was
partially offset by certain tax credits and deferred tax assets
realized as a result of our 2008 domestic reorganization.
Our 2008 domestic and foreign reorganizations to our corporate
structure involved the movement of certain personnel, operations
and processes amongst our affiliates. Our effective tax rate
will continue to be dependent upon the allocation of our profits
amongst jurisdictions and the percentage of our foreign earnings
which are subject to taxation in the U.S. We expect our
2011 effective tax rate to be between 26% and 28%.
53
Noncontrolling
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
For the Years Ended December 31,
|
|
Compared
|
|
Compared
|
(In millions, except percentages)
|
|
2010
|
|
2009
|
|
2008
|
|
to 2009
|
|
to 2008
|
|
Net income (loss) attributable to noncontrolling interests, net
of tax
|
|
$
|
(106.7
|
)
|
|
$
|
6.9
|
|
|
$
|
6.9
|
|
|
|
(1,639.7
|
)%
|
|
|
0.0
|
%
|
For 2010 compared to 2009, net income attributable to
noncontrolling interests decreased by $113.6 million. This
decrease was primarily the result of the attribution of
$145.0 million of the $205.0 million IPR&D charge
recognized upon consolidation of the Knopp variable interest
entity to the noncontrolling interest. This decrease was
partially offset by the $25.0 million payment made to
Cardiokine upon the termination of our license agreement and an
attribution of earnings from our foreign joint ventures.
For 2009 compared to 2008, net income (loss) attributable to
noncontrolling interests primarily consisted of the attribution
of earnings from our foreign joint ventures, which were
relatively consistent in each year.
Market
Risk
We conduct business globally. As a result, our international
operations are subject to certain opportunities and risks which
may affect our results of operations, including volatility in
foreign currency exchange rates or weak economic conditions in
the foreign market in which we operate.
Foreign
Currency Exchange Risk
Our results of operations are subject to foreign currency
exchange rate fluctuations due to the global nature of our
operations. While the financial results of our global activities
are reported in U.S. dollars, the functional currency for
most of our foreign subsidiaries is their local currency.
Fluctuations in the foreign currency exchange rates of the
countries in which we do business will affect our operating
results, often in ways that are difficult to predict. For
example, when the U.S. dollar strengthens against foreign
currencies, the relative value of sales made in the respective
foreign currencies decreases, conversely, when the
U.S. dollar weakens against foreign currencies, the
relative amount of such sales in U.S. dollars increases.
Our net income may also fluctuate due to the impact of our
foreign currency hedging program. Our foreign currency
management program is designed to mitigate, over time, a portion
of the impact on volatility in exchange rate changes on net
income and earnings per share. We use foreign currency forward
contracts to manage foreign currency risk with the majority of
our forward contracts used to hedge certain forecasted revenue
transactions denominated in foreign currencies. Foreign currency
gains or losses arising from our operations are recognized in
the period in which we incur those gains or losses.
Pricing
Pressure
We operate in certain countries where the economic conditions
continue to present significant challenges. Many countries are
reducing their public expenditures in light of the global
economic downturn and the deterioration of the credit and
economic conditions in certain countries in Europe. As a result,
we expect to see continued efforts to reduce healthcare costs,
particularly in certain of the international markets in which we
operate. The implementation of pricing actions varies by country
and certain measures already implemented, which include among
other things, mandatory price reductions and suspensions on
pricing increases on pharmaceuticals, have negatively impacted
our revenues. In addition, 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. We
expect that our revenues and results of operations will be
further negatively impacted if these, similar or more extensive
measures are, or continue to be, implemented in other countries
in which we operate.
54
Credit
Risk
We are subject to credit risk from our accounts receivable
related to our product sales. The majority of our accounts
receivable arise from product sales in the U.S. and Europe
with concentrations of credit risk generally limited due to the
wide variety of customers and markets using our products, as
well as their dispersion across many different geographic areas.
Our accounts receivable are primarily due from wholesale
distributors, large pharmaceutical companies and public
hospitals. We monitor the financial performance and credit
worthiness of our large customers so that we can properly assess
and respond to changes in their credit profile. We operate in
certain countries where the economic conditions continue to
present significant challenges. We continue to monitor these
conditions, including the volatility associated with
international economies and associated impacts on the relevant
financial markets and our business. Our historical write-offs of
accounts receivable have not been significant.
Within the European Union, our product sales in Italy, Spain and
Portugal continue to be subject to significant payment delays
due to government funding and reimbursement practices. The
credit and economic conditions within these countries have
continued to deteriorate throughout 2010. These conditions have
resulted in, and may continue to result in, an increase in the
average length of time that it takes to collect on our accounts
receivable outstanding in these countries. As of
December 31, 2010, our accounts receivable balances in
Italy, Spain and Portugal totaled $118.0 million,
$100.6 million and $23.3 million, respectively,
totaling approximately $241.9 million. Approximately
$45.0 million of this amount was outstanding for greater
than one year. As of December 31, 2010, we had
$50.1 million of receivables that are expected to be
collected beyond one year, which are included as a component of
investments and other assets within our consolidated balance
sheet.
Our concentrations of credit risk related to our accounts
receivable from product sales in Greece to date have been
limited as our receivables within this market are due from our
wholesale distributor, for which related accounts receivable
balances as of December 31, 2010, remain current and
substantially in compliance with their contractual due dates. As
of December 31, 2010 our accounts receivable balances due
from our distributor in Greece totaled $3.9 million.
However, the majority of our sales by our distributor are to
government funded hospitals and as a result our distributor
maintains significant outstanding receivables with the
government of Greece. Furthermore, the government of Greece has
recently required financial support from both the European Union
and the International Monetary Fund to avoid defaulting on its
debt. In the event that Greece defaults on its debt, and could
not pay our distributor, we may be unable to collect some or all
of our remaining amounts due from the distributor. The
government of Greece may also require pharmaceutical creditors
to accept mandatory, retroactive, price deductions in settlement
of outstanding receivables and we could be required to repay our
distributor a portion of the amounts they have previously
remitted to us. The potential impact resulting from such
mandatory actions remains uncertain, although delays or changes
in the availability of government funding may adversely impact
the operations of our distributor. To date, we have not been
required to repay such amounts to our distributor or take a
discount in settlement of any outstanding receivables and do not
intend to do so.
We believe that our allowance for doubtful accounts was adequate
as of December 31, 2010; however, if significant changes
occur in the availability of government funding or the
reimbursement practices of these or other governments, we may
not be able to collect on amounts due to us from customers in
such countries and our results of operations could be adversely
affected.
55
Financial
Condition and Liquidity
Our financial condition is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
As of December 31,
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
to 2009
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
759.6
|
|
|
$
|
581.9
|
|
|
|
30.5
|
%
|
Marketable securities current
|
|
|
448.1
|
|
|
|
681.8
|
|
|
|
(34.3
|
)%
|
Marketable securities non-current
|
|
|
743.1
|
|
|
|
1,194.1
|
|
|
|
(37.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
1,950.8
|
|
|
$
|
2,457.8
|
|
|
|
(20.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of notes payable, line of credit and other
financing arrangements
|
|
$
|
137.2
|
|
|
$
|
19.8
|
|
|
|
594.0
|
%
|
Notes payable and line of credit
|
|
|
1,066.4
|
|
|
|
1,080.2
|
|
|
|
(1.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
1,203.5
|
|
|
$
|
1,100.0
|
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total working capital
|
|
$
|
1,490.3
|
|
|
$
|
1,765.7
|
|
|
|
(15.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2010, certain significant
cash flows were as follows:
|
|
|
|
|
$2,077.6 million used for share repurchases;
|
|
|
|
$680.3 million in net proceeds received on sales and
maturities of marketable securities;
|
|
|
|
$352.0 million in total payments for domestic income taxes;
|
|
|
|
$183.5 million in proceeds from the issuance of stock for
share-based compensation arrangements;
|
|
|
|
$173.1 million used for purchases of property, plant and
equipment;
|
|
|
|
$127.0 million in proceeds, net of transaction costs,
received from sale of the San Diego facility, which has
been accounted for as a financing arrangement;
|
|
|
|
$26.4 million in upfront payments to Knopp under our
license agreement dated August 17, 2010 and a
$60.0 million investment in the equity of Knopp;
|
|
|
|
$40.0 million payment made to the former shareholders of
Syntonix recognized as IPR&D expense;
|
|
|
|
$32.5 million payment made for the acquisition of Panima;
|
|
|
|
$30.0 million milestone payment made to Abbott
Biotherapeutics Corp (formerly Facet Biotech Corporation)
recognized as research and development expense; and
|
|
|
|
$25.0 million termination payment made to Cardiokine
recognized as a distribution to a noncontrolling interest.
|
For the year ended December 31, 2009, certain significant
cash flows were as follows:
|
|
|
|
|
$696.3 million in total payments for domestic income taxes;
|
|
|
|
$229.1 million used for net purchases of marketable
securities;
|
|
|
|
$165.6 million used for purchases of property, plant and
equipment.
|
|
|
|
$110.0 million upfront payment made to Acorda on
July 1, 2009;
|
|
|
|
$751.2 million used for share repurchases; and
|
|
|
|
$47.8 million in proceeds from the issuance of stock for
share-based compensation arrangements.
|
56
We have historically financed our operating and capital
expenditures primarily through positive cash flows earned
through our operations. We expect to continue funding our
current and planned operating requirements principally through
our cash flows from operations, as well as our existing cash
resources. We believe that existing funds, when combined with
cash generated from operations and our access to additional
financing resources, if needed, are sufficient to satisfy our
operating, working capital, strategic alliance, milestone
payment, capital expenditure and debt service requirements for
the foreseeable future. In addition, we may choose to
opportunistically return cash to shareholders and pursue other
business initiatives, including acquisition and licensing
activities. We may, from time to time, also seek additional
funding through a combination of new collaborative agreements,
strategic alliances and additional equity and debt financings or
from other sources should we identify a significant new
opportunity.
We consider the unrepatriated cumulative earnings of certain of
our foreign subsidiaries to be invested indefinitely outside the
U.S. Of the total cash, cash equivalents and marketable
securities at December 31, 2010, approximately
$0.9 billion was generated from operations in foreign tax
jurisdictions and is intended for use in our foreign operations.
In managing our
day-to-day
liquidity in the U.S., we do not rely on the unrepatriated
earnings as a source of funds and we have not provided for
U.S. federal or state income taxes on these undistributed
foreign earnings.
For additional information related to certain risks that could
negatively impact our financial position or future results of
operations, please read the Risk Factors and
Quantitative and Qualitative Disclosures About Market
Risk sections of this report.
Share
Repurchase Programs
In April 2010, our Board of Directors authorized the repurchase
of up to $1.5 billion of our common stock, with the
objective of reducing shares outstanding and returning excess
cash to shareholders. This repurchase authorization was
completed during the third quarter of 2010. During 2010, we
repurchased approximately 29.8 million shares of our common
stock under this authorization. All shares repurchased under
this program were retired.
In October 2009, our Board of Directors authorized the
repurchase of up to $1.0 billion of our common stock with
the objective of reducing shares outstanding and returning
excess cash to shareholders. This repurchase program was
completed during the first quarter of 2010. During the first
quarter of 2010, approximately 10.5 million shares of our
common stock were repurchased for approximately
$577.6 million under this authorization. During 2009,
approximately 8.8 million shares of our common stock were
repurchased for approximately $422.4 million under this
authorization. All shares repurchased under this program were
retired.
In October 2006, our Board of Directors authorized the
repurchase of up to 20.0 million shares of our common
stock. This repurchase program was completed during the fourth
quarter of 2009. During 2009, approximately 7.2 million
shares of our common stock were repurchased for approximately
$328.8 million under this authorization. During 2008,
approximately 12.8 million shares of our common stock were
repurchased for approximately $738.9 million under this
authorization. We used the 2006 share repurchase program
principally for share stabilization.
As a result of the approximately 40.3 million shares
repurchased during 2010, common shares outstanding have
decreased by approximately 15% since December 31, 2009.
Cash,
Cash Equivalents and Marketable Securities
Until required for another use in our 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 and marketable
securities by maintaining a well diversified portfolio that
limits the amount of investment exposure as to institution,
maturity, and investment type. The value of our investments,
however, may be adversely affected by increases in interest
rates, downgrades in the credit rating of the corporate bonds
included in our portfolio, instability in the global financial
markets that reduces the liquidity of securities included in our
portfolio, and by other factors which may result in declines in
the value of the investments. Each of these events may cause us
to
57
record charges to reduce the carrying value of our investment
portfolio if the declines are
other-than-temporary
or sell investments for less than our acquisition cost which
could adversely impact our financial position and our overall
liquidity. For a summary of the fair value and valuation methods
of our marketable securities please read Note 7, Fair
Value Measurements to our consolidated financial statements
included in this report.
The decrease in cash and marketable securities from
December 31, 2009, was primarily due to the execution of
our share repurchases programs, tax payments, purchases of
property, plant and equipment, the $32.5 million paid upon
the acquisition of Panima, and the $86.4 million in
payments made to Knopp under our recent license and stock
purchase agreements, along with other milestone payments. These
uses of cash were offset by cash generated from operations, net
proceeds received from sales and maturities of marketable
securities, net proceeds recorded from the sale of the San Diego
facility and proceeds from the issuance of stock under our
share-based compensation arrangements.
Borrowings
We have a $360.0 million senior unsecured revolving credit
facility, which we may choose to use for future working capital
and general corporate purposes. The terms of this revolving
credit facility include various covenants, including financial
covenants that require us to not exceed a maximum leverage ratio
and, under certain circumstances, an interest coverage ratio.
This facility terminates in June 2012. No borrowings have been
made under this credit facility and as of December 31, 2010
and 2009 we were in compliance with all applicable covenants.
In connection with our 2006 distribution agreement with
Fumedica, we issued notes totaling 61.4 million Swiss
Francs which were payable to Fumedica in varying amounts from
June 2008 through June 2018. In June 2010, we repaid
12.0 million Swiss Francs ($10.3 million) of the
outstanding amount. As of December 30, 2010, our remaining
note payable to Fumedica has a present value of
20.7 million Swiss Francs ($22.0 million) and remains
payable in a series of payments through June 2018. The notes are
non-interest bearing, have been discounted for financial
statement presentation purposes, and are being accreted at an
annual rate of 5.75%.
As described in Note 10 Property, Plant &
Equipment, on October 1, 2010, we sold the
San Diego facility and agreed to lease back the facility
for a period of 15 months. Because we do not qualify for
immediate sales treatment due to our continuing involvement with
the facility, we have accounted for these transactions as a
financing arrangement and recorded an obligation of
$127.0 million on that date reflecting cash proceeds
received, net of transaction costs. As of December 31,
2010, our remaining obligation was $125.9 million, which is
reflected as a component of current portion of notes payable,
line of credit and other financing arrangements within our
consolidated balance sheet.
There have been no other significant changes in our borrowings
since December 31, 2009. For a summary of the fair and
carrying value of our outstanding borrowings as of
December 31, 2010 and 2009, please read Note 7,
Fair Value Measurements to our consolidated financial
statements included in this report.
Working
Capital
We define working capital as current assets less current
liabilities. The decrease in working capital from
December 31, 2009, primarily reflects the overall increase
in total current liabilities by $335.2 million.
The increase in total current liabilities reflects increases in
accounts payable and accrued expenses offset by the June 2010
repayment of certain Fumedica notes payable as described above
under Borrowings. The increase in accrued expenses is inclusive
of an increase in the current portion of our Medicaid and VA
accruals and accruals related to the restructuring activities we
under took in the fourth quarter of 2010 and higher employee
compensation accruals.
58
Cash
Flows
Our net cash flows are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
For the Years Ended December 31,
|
|
|
Compared
|
|
|
Compared
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
to 2009
|
|
|
to 2008
|
|
|
Net cash flows provided by operating activities
|
|
$
|
1,624.7
|
|
|
$
|
1,074.9
|
|
|
$
|
1,562.4
|
|
|
|
51.1
|
%
|
|
|
(31.2
|
)%
|
Net cash flows used in investing activities
|
|
$
|
345.3
|
|
|
$
|
(395.0
|
)
|
|
$
|
(365.9
|
)
|
|
|
(187.4
|
%)
|
|
|
8.0
|
%
|
Net cash flows used in financing activities
|
|
$
|
(1,784.9
|
)
|
|
$
|
(724.2
|
)
|
|
$
|
(1,234.6
|
)
|
|
|
146.5
|
%
|
|
|
(41.3
|
)%
|
Operating
Activities
Cash flows from operating activities represent the cash receipts
and disbursements related to all of our activities other than
investing and financing activities. Cash provided by operating
activities was 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 for the
foreseeable future.
Operating cash flow is derived by adjusting our net income for:
|
|
|
|
|
Non-cash operating items such as depreciation and amortization,
impairment charges and share-based compensation charges;
|
|
|
|
Changes in operating assets and liabilities which reflect timing
differences between the receipt and payment of cash associated
with transactions and when they are recognized in results of
operations; and
|
|
|
|
Changes associated with the payment of contingent milestones
associated with our prior acquisitions of businesses.
|
For 2010 compared to 2009, the increase in net cash provided by
operating activities was primarily driven by increased revenues
and lower payments for U.S. federal income taxes offset by
an increase in accounts receivable and receivables due from
unconsolidated joint business.
For 2009 compared to 2008, the decrease in net cash provided by
operating activities was primarily driven by changes in other
liabilities and taxes payable, primarily due to an increase in
income tax payments of $373.4 million which primarily
resulted from increased earnings and the resolution of a number
of audits in 2009, the $110.0 million upfront payment made
to Acorda on July 1, 2009 and the payment of certain
accrued expenses and other current liabilities.
On November 3, 2010, we announced a restructuring plan that
involves a workforce reduction and the consolidation of
facilities. During the fourth quarter of 2010, we began to
record restructuring charges and currently expect to incur total
pre-tax costs through the fourth quarter of 2011 totaling
approximately $110.0 million. The majority of the cash
expenditures associated with these charges will be paid in the
first half of 2011 and we expect that substantially all payments
will be made by the end of 2011.
Investing
Activities
For 2010 compared to 2009, the increase in net cash provided by
investing activities was primarily due to net proceeds received
from sales and maturities of marketable securities, offset by
the $86.4 million in payments made to Knopp under our
recent license and stock purchase agreements, the
$32.5 million payment made upon our acquisition of Panima,
our purchases of property, plant and equipment and the milestone
payment made to the former shareholders of Syntonix. Net
proceeds received from sales and maturities of marketable
securities in 2010 totaled $680.3 million compared to net
purchases of $229.1 million made in 2009.
For 2009 compared to 2008, the increase in net cash used in
investing activities was primarily due to a decrease in
collateral received under our securities lending program and an
increase in net purchases of marketable securities and strategic
and other investments offset by a reduction in purchases of
property, plant and equipment and the 2008 milestone
payment made to the former shareholders of Conforma
Therapeutics, Inc. The decline in purchases
59
of property, plant and equipment was primarily attributable to
our Hillerød, Denmark manufacturing facility and certain
other manufacturing upgrades.
Financing
Activities
For 2010 compared to 2009, the increase in net cash used in
financing activities was primarily due to increases in the
amounts of our common stock repurchased compared to the same
period in 2009. In 2010, we repurchased approximately
40.3 million shares of our common stock for approximately
$2.1 billion compared to 16.0 million shares for
approximately $751.2 million in 2009. Cash used in
financing activities also includes the $127.0 in net proceeds
from the sale of the San Diego facility, which is being
accounted for as a financing arrangement and activity under our
employee stock plans. We received $183.5 million in 2010
compared to $47.8 million in 2009 related to stock option
exercises and stock issuances under our employee stock purchase
plan.
For 2009 compared to 2008, the decrease in cash used in
financing activities was primarily due to the repayment of our
term loan facility of $1.5 billion in 2008 and a decrease
in obligations under our securities lending program offset in
part by the net proceeds of $987.0 million from the
issuance of long-term debt and a decrease in proceeds received
from the issuance of stock under our share-based compensation
programs.
Contractual
Obligations and Off-Balance Sheet Arrangements
Contractual
Obligations
The following table summarizes our contractual obligations as of
December 31, 2010, excluding amounts related to uncertain
tax positions, amounts payable to tax authorities, funding
commitments, contingent milestone payments, our financing
arrangement related to the San Diego facility, and
restructuring accruals, as described below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1 to 3
|
|
|
4 to 5
|
|
|
After
|
|
(In millions)
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Non-cancellable operating leases(1)
|
|
$
|
367.8
|
|
|
$
|
40.9
|
|
|
$
|
63.7
|
|
|
$
|
57.6
|
|
|
$
|
205.6
|
|
Notes payable and line of credit(2)
|
|
|
1,359.7
|
|
|
|
76.2
|
|
|
|
563.2
|
|
|
|
81.1
|
|
|
|
639.2
|
|
Purchase and other obligations(3)
|
|
|
69.6
|
|
|
|
52.1
|
|
|
|
14.8
|
|
|
|
2.4
|
|
|
|
0.3
|
|
Defined benefit obligation
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,805.3
|
|
|
$
|
169.2
|
|
|
$
|
641.7
|
|
|
$
|
141.1
|
|
|
$
|
853.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We lease properties and equipment for use in our operations. In
addition to rent, the leases may require us to pay additional
amounts for taxes, insurance, maintenance and other operating
expenses. Amounts reflected within the table, detail future
minimum rental commitments under non-cancelable operating leases
as of December 31 for each of the years presented. |
|
(2) |
|
Notes payable and line of credit includes principal and interest
payments. |
|
(3) |
|
Purchase and other obligations include our obligations of
approximately $12.2 million related to the fair value of
net liabilities on derivative contracts due in less than one
year, approximately $4.5 million related to fixed
obligations for the purchase of natural gas and approximately
$16.8 million related to obligations for communication
services |
Restructuring
In connection with our recent restructuring initiative, we are
in the process of vacating the San Diego, California
facility and consolidating our Massachusetts facilities. Costs
associated with closing these facilities, including costs
related to the termination of certain leases, are reflected
within our consolidated statement of income as a component of
total restructuring charges incurred. For a more detailed
description of our restructuring efforts, including our plan to
consolidate facilities, please read Note 3,
Restructuring to our consolidated financial statements
included in this report.
60
Financing
Arrangement
As described in Note 10 Property, Plant &
Equipment to our consolidated financial statements included
in this report, on October 1, 2010, we sold the
San Diego facility and agreed to lease back the facility
for a period of 15 months. We have accounted for these
transactions as a financing arrangement and recorded an
obligation of $127.0 million on that date. As of
December 31, 2010, our remaining obligation was
$125.9 million, which is reflected as a component of
current portion of notes payable, line of credit and other
financing arrangements within our consolidated balance sheet.
In January 2011, we entered into an agreement to terminate
our 15 month lease of the San Diego facility. Under the
terms of this agreement, we will continue to make monthly rental
payments through August 31, 2011 and will have no
continuing involvement or remaining obligation after that date.
Once the lease arrangement has concluded we will account for the
San Diego facility as a sale of property and we do not expect to
recognize a significant gain or loss on the sale at that time.
We are scheduled to incur debt service payments and interest
totaling approximately $6.9 million over the term of the
revised leaseback period.
Tax
Related Obligations
We exclude liabilities pertaining to uncertain tax positions
from our summary of contractual obligations as we cannot make a
reliable estimate of the period of cash settlement with the
respective taxing authorities. As of December 31, 2010, we
have approximately $137.7 million of liabilities associated
with uncertain tax positions. Included in these liabilities are
amounts related to the settlement of certain federal and state
tax audits in the fourth quarter of 2009. As of
December 31, 2010, we expect to pay approximately
$76.1 million within the next twelve months in connection
with such settlements.
Other
Funding Commitments
As of December 31, 2010, we have funding commitments of up
to approximately $19.0 million as part of our investment in
biotechnology oriented venture capital funds.
As of December 31, 2010, we have several ongoing clinical
studies in various clinical trial stages. Our most significant
clinical trial expenditures are to clinical research
organizations (CROs). The contracts with CROs are generally
cancellable, with notice, at our option. We have recorded
accrued expenses of $16.1 million on our consolidated
balance sheet for expenditures incurred by CROs as of
December 31, 2010. We have approximately
$326.9 million in cancellable future commitments based on
existing CRO contracts as of December 31, 2010 which are
not included in the contractual obligations table above because
of our termination rights.
Contingent
Milestone Payments
Based on our development plans as of December 31, 2010, we
have committed to make potential future milestone payments to
third parties of up to approximately $1,334.3 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
development, regulatory or commercial milestones. Because the
achievement of these milestones had not occurred as of
December 31, 2010, such contingencies have not been
recorded in our financial statements. We anticipate that we may
pay approximately $55.6 million of milestone payments in
2011, provided various development, regulatory or commercial
milestones are achieved. Amounts related to contingent milestone
payments are not included in the contractual obligations table
above as they are contingent on the successful achievement of
certain development, regulatory approval and commercial
milestones. These milestones may not be achieved.
Other
Off-Balance Sheet Arrangements
We do not have any 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 variable
interest entities if we are the primary beneficiary.
61
Legal
Matters
For a discussion of legal matters as of December 31, 2010,
please read Note 20, Litigation to our consolidated
financial statements included in this report.
Critical
Accounting Estimates
The preparation of our consolidated financial statements, which
have been prepared in accordance with accounting principles
generally accepted in the U.S. (U.S. GAAP), requires
us to make estimates, judgments and assumptions that may affect
the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. We believe the most complex judgments result
primarily from the need to make estimates about the effects of
matters that are inherently uncertain and are significant to our
consolidated financial statements. We base our estimates on
historical experience and on various other assumptions that we
believe are reasonable, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities. We evaluate our estimates, judgments and
assumptions on an ongoing basis. Actual results may differ from
these estimates under different assumptions or conditions.
The most significant areas involving estimates, judgments and
assumptions used in the preparation of our consolidated
financial statements are as follows:
|
|
|
|
|
Revenue recognition and related allowances;
|
|
|
|
Collaborative relationships;
|
|
|
|
Clinical trial expenses;
|
|
|
|
Consolidation of variable interest entities;
|
|
|
|
Valuation of contingent consideration resulting from a business
combination;
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Valuation of acquired intangible assets, including in process
research and development;
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Inventory;
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Impairment and amortization of long-lived assets and accounting
for goodwill;
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Investments, including fair value measures and impairments;
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Share-based compensation;
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Income taxes;
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Contingencies; and
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Restructuring charges.
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Revenue
Recognition and Related Allowances
We recognize revenue when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery of
product has occurred or services have been rendered; the
sellers price to the buyer is fixed or determinable; and
collectability is reasonably assured.
Product
Revenues
Revenues from product sales are recognized when title and risk
of loss have passed to the customer, which is typically upon
delivery. However, sales of TYSABRI in the U.S. are
recognized on the sell-through model, that is, upon
shipment of the product by Elan to its third party distributor
rather than upon shipment to Elan. The timing of distributor
orders and shipments can cause variability in earnings.
Reserves
for Discounts and Allowances
We establish reserves for trade term discounts, wholesaler
incentives, Medicaid rebates, Veterans Administration and PHS
discounts, managed care rebates, product returns and other
applicable allowances. These reserves
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are based on estimates of the amounts earned or to be claimed on
the related sales. Our estimates take into consideration our
historical experience, current contractual and statutory
requirements, specific known market events and trends and
forecasted customer buying patterns. If actual results vary, we
may need to adjust these estimates, which could have an effect
on earnings in the period of the adjustment. The estimates we
make with respect to these allowances represent the most
significant judgments with regard to revenue recognition.
In addition to the discounts and rebates described above and
classified as a reduction of revenue, we also maintain certain
customer service contracts with distributors and other customers
in the distribution channel that provide us with inventory
management and distribution services. We have established the
fair value of these services and classified these customer
service contracts as sales and marketing expense. If we had
concluded that we did not receive a separate identifiable
benefit or have sufficient evidence that the fair value did not
exist for these services, we would have been required to
classify these costs as a reduction of revenue.
Healthcare
Reform
In 2010, healthcare reform legislation was enacted in the
U.S. This legislation contains several provisions that
affect our accounting estimates. Although many provisions of the
new legislation did not take effect immediately, several
provisions became effective in 2010. These include (1) an
increase in the minimum Medicaid rebate to states participating
in the Medicaid program from 15.1% to 23.1% on our branded
prescription drugs; (2) the extension of the Medicaid
rebate to Managed Care Organizations that dispense drugs to
Medicaid beneficiaries; and (3) the expansion of the 340B
PHS drug pricing program, which provides outpatient drugs at
reduced rates, to include additional hospitals, clinics, and
healthcare centers. These incremental discounts have been
factored into determining the amount and timing of our revenues
on sales to certain customers and are based upon several
assumptions about the implementation of this new legislation.
Our estimates are based upon our knowledge of current events and
actual results may ultimately differ from these estimates.
Revenues
from Unconsolidated Joint Business
We collaborate with Genentech on the development and
commercialization of RITUXAN. Revenues from unconsolidated joint
business consist of (1) our share of pre-tax co-promotion
profits in the U.S.; (2) reimbursement of our selling and
development expense in the U.S.; and (3) revenue on sales
of RITUXAN in the rest of world, which consists of our share of
pretax co-promotion profits in Canada and royalty revenue on
sales of RITUXAN outside the U.S. and Canada by F.
Hoffmann-La Roche Ltd. (Roche) and its sublicensees.
Pre-tax co-promotion profits are calculated and paid to us by
Genentech in the U.S. and by Roche in Canada. Pre-tax
co-promotion profits consist of U.S. and Canadian sales of
RITUXAN to third-party customers net of discounts and allowances
less the cost to manufacture RITUXAN, third-party royalty
expenses, distribution, selling and marketing, and joint
development expenses incurred by Genentech, Roche and us. We
record our share of the pretax co-promotion profits in Canada
and royalty revenues on sales of RITUXAN outside the U.S. on a
cash basis. Additionally, our share of the pretax co-promotion
profits in the U.S. includes estimates supplied by Genentech.
Actual results may ultimately differ from our estimates.
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.
Concentrations
of Credit Risk
The majority of our accounts receivable arise from product sales
in the United States and Europe and are primarily due from
wholesale distributors, large pharmaceutical companies and
public hospitals. We monitor the financial performance and
credit worthiness of our large customers so that we can properly
assess and respond to changes in their credit profile. We
continue to monitor economic conditions, including the
volatility associated with international economies, and
associated impacts on the relevant financial markets and our
business, especially in light of the global economic downturn.
The credit and economic conditions within Italy, Spain, Portugal
and Greece among other members of the European Union have
deteriorated throughout 2010. These conditions have resulted in,
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and may continue to result in, an increase in the average length
of time that it takes to collect on our accounts receivable
outstanding in these countries.
As of December 31, 2010, our accounts receivable balances
in Italy, Spain, Portugal and Greece, were $118.0 million,
$100.6 million, $23.3 million and $3.9 million,
respectively, totaling approximately $245.8 million.
Approximately $45.0 million of these amounts were
outstanding for greater than one year, none of which related to
our Greek distributor. As of December 31, 2010, we had
$50.1 million of receivables that are expected to be
collected beyond one year, which are included as a component of
investments and other assets within our consolidated balance
sheet. To date, we have not experienced any significant losses
with respect to the collection of our accounts receivable. If
economic conditions worsen and/or the financial condition of our
customers were to further deteriorate, our risk of
collectability may increase, which may result in additional
allowances
and/or
significant bad debts.
Royalty
Revenues
We receive royalty revenues under license agreements with a
number of third parties that sell products based on technology
we have developed or to which we own rights. The license
agreements provide for the payment of royalties to us based on
sales of these licensed products. There are no future
performance obligations on our part under these license
agreements. We record these revenues based on estimates of the
sales that occurred during the relevant period. The relevant
period estimates of sales are based on interim data provided by
licensees and analysis of historical royalties that have been
paid to us, adjusted for any changes in facts and circumstances,
as appropriate. We maintain regular communication with our
licensees in order to assess the reasonableness of our
estimates. Differences between actual royalty revenues and
estimated royalty revenues are adjusted for in the period in
which they become known, typically the following quarter.
Historically, adjustments have not been material when compared
to actual amounts paid by licensees. To the extent we do not
have sufficient ability to accurately estimate revenues; we
record such revenues on a cash basis.
Collaborative
Relationships
We evaluate our collaborative agreements for proper income
statement classification based on the nature of the underlying
activity. Amounts due from our collaborative partners related to
development activities are generally reflected as a reduction of
research and development expense because the performance of
contract development services is not central to our operations.
For collaborations with commercialized products, if we are the
principal we record revenue and the corresponding operating
costs in their respective line items within our consolidated
statements of income. If we are not the principal, we record
operating costs as a reduction of revenue.
As discussed within Note 19, Collaborations to our
consolidated financial statements included in this report,
Genentech incurs the majority of continuing development cost 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.
Clinical
Trial Expenses
Clinical trial expenses include expenses associated with CROs.
The invoicing from CROs for services rendered can lag several
months. We accrue the cost of services rendered in connection
with CRO activities based on our estimate of site management,
monitoring costs, and project management costs. We maintain
regular communication with our CROs to gauge the reasonableness
of our estimates. Differences between actual clinical trial
expenses and estimated clinical trial expenses recorded have not
been material and are adjusted for in the period in which they
become known.
Consolidation
of Variable Interest Entities
We consolidate variable interest entities in which we are the
primary beneficiary. For such consolidated entities where we own
less than a 100% interest, we record noncontrolling interest in
our statement of income for the current results allocated to the
third party equity interests.
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Effective January 1, 2010, we adopted a new accounting
standard related to the consolidation of variable interest
entities which affected how we determined whether a variable
interest or interests give us a controlling financial interest
in a variable interest entity. In determining whether we are the
primary beneficiary of a variable interest entity, we consider a
number of factors, including our ability to direct the
activities that most significantly affect the entitys
economic success, our contractual rights and responsibilities
under the arrangement and the significance of the arrangement to
each party. These considerations impact the way we account for
our existing collaborative and joint venture relationships and
may result in the future consolidation of companies or entities
with which we have collaborative or other arrangements.
Valuation
of Contingent Consideration Resulting from a Business
Combination
For acquisitions completed after January 1, 2009, we record
contingent consideration resulting from a business combination
at its fair value on the acquisition date. Each reporting period
thereafter, we revalue these obligations and record increases or
decreases in their fair value as an adjustment to contingent
consideration expense within the consolidated statement of
income. Changes in the fair value of the contingent
consideration obligations can result from adjustments to the
discount rates and periods, updates in the assumed achievement
or timing of any development milestones, or changes in the
probability of certain clinical events and changes in the
assumed probability associated with regulatory approval.
Significant judgment is employed in determining the
appropriateness of these assumptions as of the acquisition date
and for each subsequent period. Accordingly, assumptions
described above, could have a material impact on the amount of
contingent consideration expense we record in any given period.
Valuation
of Acquired Intangible Assets, including In Process Research and
Development
We have acquired, and expect to continue to acquire, intangible
assets through the acquisition of biotechnology companies or
through the consolidation of variable interest entities. These
intangible assets primarily consist of technology associated
with human therapeutic products and in process research and
development product candidates. When significant identifiable
intangible assets are acquired, we generally engage an
independent third-party valuation firm to assist in determining
the fair values of these assets as of the acquisition date.
Management will determine the fair value of less significant
identifiable intangible assets acquired. Discounted cash flow
models are typically used in these valuations, and these models
require the use of significant estimates and assumptions
including but not limited to:
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estimating the timing of and expected costs to complete the in
process projects;
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projecting regulatory approvals;
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estimating future cash flows from product sales resulting from
completed products and in process projects; and
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developing appropriate discount rates and probability rates by
project.
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We believe the fair values assigned to the intangible assets
acquired are based upon reasonable estimates and assumptions
given available facts and circumstances as of the acquisition
dates.
If these projects are not successfully developed, the sales and
profitability of the company may be adversely affected in future
periods. Additionally, the value of the acquired intangible
assets may become impaired. We believe that the foregoing
assumptions used in the IPR&D analysis were reasonable at
the time of the respective acquisition. No assurance can be
given, however, that the underlying assumptions used to estimate
expected project sales, development costs or profitability, or
the events associated with such projects, will transpire as
estimated.
Prior to January 1, 2009, we measured acquired IPR&D
in a business combination at fair value and expensed it on
acquisition date if that technology lacked an alternative future
use, or capitalized it as an intangible asset if certain
criteria were met; however, effective January 1, 2009, if
we are purchasing a business, the acquired IPR&D is
measured at fair value, capitalized as an intangible asset and
tested for impairment at least annually until commercialization,
after which time the IPR&D is amortized over its estimated
useful life. If we acquire an asset or group of assets, that do
not meet the definition of a business under applicable
accounting standards; then the
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acquired IPR&D is expensed on its acquisition date. Future
costs to develop these assets are recorded to expense as they
are incurred if the technology lacks alternative future uses.
Inventory
Inventories are stated at the lower of cost or market with cost
determined under the
first-in,
first-out (FIFO) method. Included in inventory are raw materials
used in the production of pre-clinical and clinical products,
which are expensed as research and development costs when
consumed.
Capitalization
of Inventory Costs
Our policy is to capitalize inventory costs associated with our
products prior to regulatory approval, when, based on
managements judgment, future commercialization is
considered probable and the future economic benefit is expected
to be realized. We consider numerous attributes in evaluating
whether the costs to manufacture a particular product should be
capitalized as an asset. We assess the regulatory approval
process and where the particular product stands in relation to
that approval process, including any known safety or efficacy
concerns, potential labeling restrictions and other impediments
to approval. We evaluate our anticipated research and
development initiatives and constraints relating to the product
and the indication in which it will be used. We consider our
manufacturing environment including our supply chain in
determining logistical constraints that could hamper approval or
commercialization. We consider the shelf life of the product in
relation to the expected timeline for approval and we consider
patent related or contract issues that may prevent or delay
commercialization. We are sensitive to the significant
commitment of capital to scale up production and to launch
commercialization strategies. We also base our judgment on the
viability of commercialization, trends in the marketplace and
market acceptance criteria. Finally, we consider the
reimbursement strategies that may prevail with respect to the
product and assess the economic benefit that we are likely to
realize.
We expense previously capitalized costs related to pre-approval
inventory upon a change in such judgment, due to, among other
potential factors, a denial or delay of approval by necessary
regulatory bodies. As of December 31, 2010 and 2009, the
carrying value of our inventory did not include any costs
associated with products that had not yet received regulatory
approval.
There is a risk inherent in these judgments and any changes we
make in these judgments may have a material impact on our
results in future periods.
Obsolescence
and Unmarketable Inventory
We periodically review our inventories for excess or obsolete
inventory and write-down obsolete or otherwise unmarketable
inventory to its estimated net realizable value. If the actual
net realizable value is less than that estimated by us, or if it
is determined that inventory utilization will further diminish
based on estimates of demand, additional inventory write-downs
may be required. Additionally, our products are subject to
strict quality control and monitoring which we perform
throughout the manufacturing process. In the event that certain
batches or units of product no longer meet quality
specifications or become obsolete due to expiration, we will
record a charge to cost of sales to write-down any obsolete or
otherwise unmarketable inventory to its estimated net realizable
value. In all cases product inventory is carried at the lower of
cost or its estimated net realizable value.
Impairment
and Amortization of Long-lived Assets and Accounting for
Goodwill
Long-lived
Assets Other than Goodwill
Long-lived assets to be held and used, including property plant
and equipment as well as intangible assets, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable.
If such circumstances are determined to exist, an estimate of
undiscounted future cash flows produced by the long-lived asset,
including its eventual residual value, is compared to the
carrying value to determine whether impairment exists. In the
event that such cash flows are not expected to be sufficient to
recover the carrying amount of the assets, the assets are
written-down to their estimated fair values.
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We also regularly evaluate our current manufacturing utilization
strategy and assess alternatives. In June 2010, we decided to
stop further validation of our large-scale manufacturing
facility in Hillerød, Denmark following completion of the
facilitys operational qualification activities in the
first half of 2011 as we continue to evaluate our current
manufacturing utilization strategy. Recent manufacturing
improvements have resulted in favorable production yields on
TYSABRI, that along with slower than expected TYSABRI growth,
have reduced our expected capacity requirements. As a result, we
have decided to delay the start of manufacturing activities at
this site until additional capacity is required by the business.
If we decide to consolidate, co-locate or dispose of certain
aspects of our business operations, for strategic or other
operational reasons, we may dispose of or vacate one or more of
our properties.
Our most significant intangible asset is the core technology
related to our AVONEX product. We believe the economic benefit
of our core technology is consumed as revenue is generated from
our AVONEX product, which we refer to as the economic
consumption amortization model. This amortization methodology
involves calculating a ratio of actual current period sales to
total anticipated sales for the life of the product and applying
this ratio to the carrying amount of the intangible asset. An
analysis of the anticipated product sales of AVONEX is performed
at least annually during our long range planning cycle, and this
analysis serves as the basis for the calculation of our economic
consumption amortization model. Although we believe this process
has allowed us to reliably determine the best estimate of the
pattern in which we will consume the economic benefits of our
core technology intangible asset, the model could result in
deferring amortization charges to future periods in certain
instances, due to continued sales of the product at a nominal
level after patent expiration or otherwise. In order to ensure
that amortization charges are not unreasonably deferred to
future periods, we compare the amount of amortization determined
under the economic consumption model against the minimum amount
of amortization recalculated each year under the straight-line
method. Amortization is then recorded based upon the higher of
the amount of amortization determined under the economic
consumption model or the minimum amortization amount determined
under the straight-line method.
We completed our most recent long range planning cycle in the
third quarter of 2010. This analysis is based upon certain
assumptions that we evaluate on a periodic basis, such as the
anticipated product sales of AVONEX and expected impact of
competitor products and our own pipeline product candidates, as
well as the issuance of new patents or the extension of existing
patents. Based upon this analysis, we have continued to amortize
this asset on the economic consumption model for the third and
fourth quarters of 2010, and expect to apply the same model for
the next two quarters.
In addition, this analysis did not result in a significant
change in the expected lifetime revenue of AVONEX. If there are
any indications that the assumptions underlying our most recent
analysis would be different than those utilized within our
current estimates, our analysis would be updated and may result
in a significant change in the anticipated lifetime revenue of
AVONEX determined during our most recent annual review. For
example, the occurrence of an adverse event, such as the
invalidation of our AVONEX 755 Patent issued in September
2009, could substantially increase the amount of related
amortization expense as compared to previous periods or our
current expectations, which may result in a significant negative
impact on our future results of operations.
We did not recognize an impairment charge related to our
long-lived assets during 2010, 2009 and 2008.
Goodwill
Goodwill totaled approximately $1,146.3 million as of
December 31, 2010, and relates largely to amounts that
arose in connection with the merger of Biogen, Inc. and IDEC
Pharmaceuticals Corporation. Our goodwill balances represent the
difference between the purchase price and the fair value of the
identifiable tangible and intangible net assets when accounted
for using the purchase method of accounting.
We assess our goodwill balance within our single reporting unit
annually and whenever events or changes in circumstances
indicate the carrying value of goodwill may not be recoverable
to determine whether any impairment in this asset may exist and,
if so, the extent of such impairment. The provisions of this
guidance require that we perform a two-step impairment test. In
the first step, we compare the fair value of our reporting unit
to its carrying value. If the carrying value of the net assets
assigned to our reporting unit exceeds the fair value of our
reporting unit, then the second step of the impairment test is
performed in order to determine the implied fair value of our
reporting units goodwill. If the carrying value of our
reporting units goodwill exceeds its implied fair value,
then the company records an impairment loss equal to the
difference.
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We completed our required annual impairment test in the fourth
quarter of 2010, 2009 and 2008 and determined in each of those
periods that the carrying value of goodwill was not impaired. In
each year, the fair value of our reporting unit, which includes
goodwill, was significantly in excess of the carry value of our
reporting unit.
Investments,
including Fair Value Measures and Impairments
We invest in various types of securities, including:
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short-term and long-term marketable securities, principally
corporate notes, government securities including government
sponsored enterprise mortgage-backed securities and credit card
and auto loan asset-backed securities, in which our excess cash
balances are invested;
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equity securities in certain publicly-traded biotechnology
companies, some of which have collaborative agreements with us;
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equity securities of certain companies whose securities are not
publicly traded and where fair value is not readily
available; and
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investments in biotechnology oriented venture capital funds
where fair value is not readily available.
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In accordance with the accounting standard for fair value
measurements we have classified our financial assets and
liabilities as Level 1, 2 or 3 within the fair value
hierarchy. Fair values determined by Level 1 inputs utilize
quoted prices (unadjusted) in active markets for identical
assets or liabilities that we have the ability to access. Fair
values determined by Level 2 inputs utilize data points
that are observable such as quoted prices, interest rates and
yield curves. Fair values determined by Level 3 inputs
utilize unobservable data points for the asset or liability.
As noted in Note 6, Fair Value Measurements to our
consolidated financial statements, a majority of our financial
assets and liabilities have been classified as Level 2.
These assets and liabilities have been initially valued at the
transaction price and subsequently valued utilizing third party
pricing services. The pricing services use many observable
market inputs to determine value, including reportable trades,
benchmark yields, credit spreads, broker/dealer quotes, bids,
offers, current spot rates and other industry and economic
events. We validate the prices provided by our third party
pricing services by understanding the models used, obtaining
market values from other pricing sources, analyzing pricing data
in certain instances and confirming those securities trade in
active markets.
We also have some investments classified as Level 3 whose
fair value is initially measured at transaction prices and
subsequently valued using the pricing of recent financing or by
reviewing the underlying economic fundamentals and liquidation
value of the companies. We apply judgments and estimates when we
validate the prices provided by third parties. While we believe
the valuation methodologies are appropriate, the use of
valuation methodologies is highly judgmental and changes in
methodologies can have a material impact on our results of
operations.
Impairment
We conduct periodic reviews to identify and evaluate each
investment that has an unrealized loss, in accordance with the
meaning of
other-than-temporary
impairment and its application to certain investments. 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
debt securities that are determined to be temporary, and not
related to credit loss, are recorded, net of tax, in accumulated
other comprehensive income.
For
available-for-sale
debt securities with unrealized losses, management performs an
analysis to assess whether we intend to sell or whether we would
more likely than not be required to sell the security before the
expected recovery of the amortized cost basis. Where we intend
to sell a security, or may be required to do so, the
securitys decline in fair value is deemed to be
other-than-temporary
and the full amount of the unrealized loss is reflected 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 and are reflected within earnings as an
impairment loss.
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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 reflected within earnings as an impairment loss.
Share-Based
Compensation
We make certain assumptions in order to value and record expense
for our share-based compensation arrangements. We review and
evaluate our assumptions regularly and, as a result, we confirm
or change the assumptions used to value share-based awards
granted in future periods. Such changes may lead to a
significant increase or decrease in the expense we recognize in
connection with share-based payments.
In connection with valuing stock options and our employee stock
purchase plan, we use the Black-Scholes options pricing model,
which requires us to develop certain subjective assumptions. The
key assumptions that most significantly affect the calculation
include the expected volatility of our stock, the expected term
of the award and the expected forfeiture rate associated with
our stock option plan.
For each of our restricted stock programs, we make assumptions
in accounting for these awards, principally related to the
forfeiture rate.
For our time-vested and performance-vested restricted stock
awards, each period end, we also develop an estimate of each
performance factor in order to estimate the actual number of
shares that will be earned. For our plan, the number of shares
to be earned is based on company performance metrics, such as
annual revenue and earnings per share. Thus, during the
performance period, we estimate our full year revenue and
earnings per share and then adjust the performance factor after
the completion of the full year.
In addition, beginning in 2010, we granted certain employees
restricted stock units which will vest based on stock price
performance, referred to as market stock units, as well as
performance-vested restricted stock units which will be settled
in cash, rather than in shares, referred to as cash settled
performance shares. These market stock units use a binomial
model or Monte Carlo simulation to value each award at the grant
date and include key assumptions such as the expected market
price of our stock on the vest date and the expected number of
shares to be vested under the terms of the award. The cash
settled awards are marked to market at the end of
each period, with fluctuations in value reported through
earnings.
Income
Taxes
We prepare and file income tax returns based on our
interpretation of each jurisdictions tax laws and
regulations. In preparing our consolidated financial statements,
we estimate our income tax liability in each of the
jurisdictions in which we operate by estimating our actual
current tax expense together with assessing temporary
differences resulting from differing treatment of items for tax
and financial reporting purposes. These differences result in
deferred tax assets and liabilities, which are included in our
consolidated balance sheets. Significant management judgment is
required in assessing the realizability of our deferred tax
assets. In performing this assessment, we consider whether it is
more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary
differences become deductible. In making this determination,
under the applicable financial accounting standards, we are
allowed to consider the scheduled reversal of deferred tax
liabilities, projected future taxable income, and the effects of
tax planning strategies. Our estimates of future taxable income
include, among other items, our estimates of future income tax
deductions related to the exercise of stock options. In the
event that actual results differ from our estimates, we adjust
our estimates in future periods and we may need to establish a
valuation allowance, which could materially impact our financial
position and results of operations.
We account for uncertain tax positions using a
more-likely-than-not threshold for recognizing and
resolving uncertain tax positions. We evaluate uncertain tax
positions on a quarterly basis and consider various factors,
that
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include, but are not limited to, changes in tax law, the
measurement of tax positions taken or expected to be taken in
tax returns, the effective settlement of matters subject to
audit, new audit activity and changes in facts or circumstances
related to a tax position. We adjust the level of the liability
to reflect any subsequent changes in the relevant facts
surrounding the uncertain positions. Our liabilities for
uncertain tax positions can be relieved only if the contingency
becomes legally extinguished through either payment to the
taxing authority or the expiration of the statute of
limitations, the recognition of the benefits associated with the
position meet the more-likely-than-not threshold or
the liability becomes effectively settled through the
examination process. We consider matters to be effectively
settled once the taxing authority has completed all of its
required or expected examination procedures, including all
appeals and administrative reviews; we have no plans to appeal
or litigate any aspect of the tax position; and we believe that
it is highly unlikely that the taxing authority would examine or
re-examine the related tax position. We also accrue for
potential interest and penalties, related to unrecognized tax
benefits in income tax expense.
As of December 31, 2010, undistributed foreign earnings and
other basic differences of
non-U.S. subsidiaries
included in consolidated retained earnings aggregated
approximately $2.4 billion. We intend to reinvest these
earnings indefinitely in operations outside the U.S.; however,
if we decide to repatriate funds in the future to execute our
growth initiatives or to fund any other liquidity needs, the
resultant tax consequences would negatively impact our results
of operations. It is not practicable to estimate the amount of
additional tax that might be payable if such earnings were
remitted to the U.S.
Contingencies
We are currently involved in various claims and legal
proceedings. On a quarterly basis, we review the status of each
significant matter and assess its potential financial exposure.
If the potential loss from any claim, asserted or unasserted, or
legal proceeding is considered probable and the amount can be
reasonably estimated, we accrue a liability for the estimated
loss. Significant judgment is required in both the determination
of probability and the determination as to whether an exposure
is reasonably estimable. Because of uncertainties related to
these matters, accruals are based only on the best information
available at the time. As additional information becomes
available, we reassess the potential liability related to
pending claims and litigation and may revise our estimates.
These revisions in the estimates of the potential liabilities
could have a material impact on our consolidated results of
operations and financial position.
Restructuring
Charges
We have made estimates and judgments regarding the amount and
timing of our restructuring expense and liability, including
current and future period termination benefits and other exit
costs to be incurred when related actions take place. We have
also assessed the recoverability of certain long-lived assets
employed in the business and in certain instances shortened the
expected useful life of the assets based on changes in their
expected use. When we determine that the useful lives of assets
are shorter than we had originally estimated, we record
additional depreciation to reflect the assets new shorter
useful lives. Severance and other related costs and
asset-related charges are reflected within our consolidated
statement of income as a component of total restructuring
charges incurred. Actual results may differ from these
estimates. For a more detailed description of our recent
restructuring efforts, please read Note 3,
Restructuring, to these consolidated financial statements.
New
Accounting Standards
For a discussion of new accounting standards please read
Note 1, Summary of Significant Accounting Principles
to our consolidated financial statements included in this
report.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We have operations or maintain distribution relationships in the
U.S., Europe, Middle East, Canada, Central and South America,
Australia, New Zealand, Japan, China, India and elsewhere in
Asia in connection with the sale of AVONEX and TYSABRI and in
Germany in connection with the sale of FUMADERM. We also receive
royalty revenues based on worldwide product sales by our
licensees and through Genentech on sales of RITUXAN in the
70
rest of world. As a result, our financial position, results of
operations and cash flows can be affected by market fluctuations
in foreign exchange rates, primarily with respect to the Euro,
Canadian dollar, Swiss franc, Danish krone, Swedish krona,
British pound, and Japanese yen.
We use foreign currency forward contracts to manage foreign
currency risk but do not engage in currency speculation. The
majority of our forward contracts are used to hedge certain
forecasted revenue transactions denominated in foreign
currencies. We also use forward contracts to mitigate the
foreign currency exposure related to certain balance sheet
items. We have not elected hedge accounting for the balance
sheet related items.
The following quantitative information includes the impact of
currency movements on forward contracts used in both programs.
As of December 31, 2010 and 2009, a hypothetical adverse
10% movement in foreign exchange rates compared to the
U.S. dollar across all maturities (for example, a
strengthening of the Euro) would result in a hypothetical
decrease in the fair value of forward contracts of approximately
$65.5 million and $64.4 million, respectively. Our use
of this methodology to quantify the market risk of such
instruments should not be construed as an endorsement of its
accuracy or the accuracy of the related assumptions. The
quantitative information about market risk is limited because it
does not take into account all foreign currency operating
transactions.
Certain of our debt instruments are variable rate instruments
and our interest expense associated with these instruments is,
therefore, subject to changes in market interest rates. As of
December 31, 2010 and 2009, a 100 basis-point adverse
movement (increase in LIBOR) would increase annual interest
expense by approximately $0.1 million and $0.2 million,
respectively.
In addition, the fair value of our marketable securities is
subject to change as a result of potential changes in market
interest rates. The potential change in fair value for interest
rate sensitive instruments has been assessed on a hypothetical
100 basis point adverse movement across all maturities. As
of December 31, 2010 and 2009, we estimate that such
hypothetical adverse 100 basis point movement would result
in a hypothetical loss in fair value of approximately
$10.5 million and $16.9 million, respectively, to our
interest rate sensitive instruments.
The returns from cash, cash equivalents and marketable
securities will vary as short-term interest rates change. A 100
basis-point adverse movement (decrease) in short-term interest
rates would decrease interest income by approximately
$11.4 million and $12.5 million as of
December 31, 2010 and 2009, respectively.
We are exposed to equity price risks on the marketable portion
of equity securities included in our portfolio of investments
entered into for the promotion of business and strategic
objectives. These investments are generally in small
capitalization stocks in the biotechnology industry sector. We
regularly review the market prices of these investments for
impairment purposes. A hypothetical adverse 10% movement in
market values would result in a hypothetical loss in fair value
of approximately $4.5 million and $1.0 million as of
December 31, 2010 and 2009, respectively.
|
|
Item 8.
|
Consolidated
Financial Statements and Supplementary Data
|
The information required by this Item 8 is contained on
pages F-1 through F-71 of this report and is incorporated herein
by reference.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures and Internal Control over Financial
Reporting
Controls
and Procedures
We have carried out an evaluation, under the supervision and
with 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), as of
December 31, 2010. Based upon that evaluation, our
principal
71
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 SECs rules and forms, and
(b) such information is accumulated and communicated to our
management, including our principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, our
management recognized that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, 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 December 31, 2010 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting. Internal
control over financial reporting is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act as a process designed by, or
under the supervision of, a companys principal executive
and principal financial officers and effected by a
companys board of directors, management and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles in the
U.S. (U.S. GAAP). Our internal control over financial
reporting includes those policies and procedures that:
|
|
|
|
|
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect our transactions and
dispositions of our assets;
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with U.S. GAAP, and that our receipts and
expenditures are being made only in accordance with
authorizations of our management and directors; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our financial
statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2010.
In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control
Integrated Framework.
Based on our assessment, our management has concluded that, as
of December 31, 2010, our internal control over financial
reporting is effective based on those criteria.
The effectiveness of our internal control over financial
reporting as of December 31, 2010 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report, which is included
herein.
|
|
Item 9B.
|
Other
Information
|
None.
72
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information concerning our executive officers is set forth
under the heading Our Executive Officers in
Part I of this report. The text of our code of business
conduct, which includes the code of ethics that applies to our
principal executive officer, principal financial officer,
principal accounting officer or controller, and persons
performing similar functions, is posted on our website,
www.biogenidec.com, under the Board of
Directors Corporate Governance subsection of
the About Us section of the site. We intend to make
all required disclosures regarding any amendments to, or waivers
from, provisions of our code of business conduct, at the same
location of our website. Our corporate governance principles
(also posted on www.biogenidec.com) prohibit our Board of
Directors from granting any waiver of the code of ethics for any
of our directors or executive officers. We include our website
address in this report only as an inactive textual reference and
do not intend it to be an active link to our website.
The response to the remainder of this item is incorporated by
reference from the discussion responsive thereto in the sections
entitled Proposal 1 Election of
Directors, Corporate Governance, Stock
Ownership Section 16(a) Beneficial Ownership
Reporting Compliance and
Miscellaneous Stockholder
Proposals contained in the proxy statement for our
2011 annual meeting of stockholders.
|
|
Item 11.
|
Executive
Compensation
|
The response to this item is incorporated by reference from the
discussion responsive thereto in the sections entitled
Executive Compensation and Related
Information and Corporate Governance
contained in the proxy statement for our 2011 annual meeting
of stockholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The response to this item is incorporated by reference from the
discussion responsive thereto in the sections entitled
Stock Ownership and Equity
Compensation Plan Information contained in the proxy
statement for our 2011 annual meeting of stockholders.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The response to this item is incorporated by reference from the
discussion responsive thereto in the sections entitled
Certain Relationships and Related Person
Transactions and Corporate
Goverance contained in the proxy statement for our
2011 annual meeting of stockholders.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The response to this item is incorporated by reference from the
discussion responsive thereto in the section entitled
Proposal 2 Ratification of the
Selection of our Independent Registered Public Accounting
Firm contained in the proxy statement for our 2011
annual meeting of stockholders.
73
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
a. (1) Consolidated Financial Statements:
The following financial statements are filed as part of this
report:
|
|
|
|
|
Financial Statements
|
|
Page Number
|
|
Consolidated Statements of Income
|
|
|
F-2
|
|
Consolidated Balance Sheets
|
|
|
F-3
|
|
Consolidated Statements of Cash Flows
|
|
|
F-4
|
|
Consolidated Statements of Equity
|
|
|
F-5
|
|
Notes to Consolidated Financial Statements
|
|
|
F-8
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-71
|
|
(2) Financial Statement Schedules
Schedules are omitted because they are not applicable, or are
not required, or because the information is included in the
consolidated financial statements and notes thereto.
(3) Exhibits
The exhibits listed on the Exhibit Index beginning on
page A-1,
which is incorporated herein by reference, are filed or
furnished as part of this report or are incorporated into this
report by reference.
74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BIOGEN IDEC INC.
|
|
|
|
By:
|
/s/ George
A. Scangos
|
George A. Scangos
Chief Executive Officer
Date: February 4, 2011
Pursuant to the requirements the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Name
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ George
A. Scangos
George
A. Scangos
|
|
Director and Chief Executive Officer (principal executive
officer)
|
|
February 4, 2011
|
|
|
|
|
|
/s/ Paul
J. Clancy
Paul
J. Clancy
|
|
Executive Vice President, Finance and Chief Financial Officer
(principal financial officer)
|
|
February 4, 2011
|
|
|
|
|
|
/s/ Robert
E. Gagnon
Robert
E. Gagnon
|
|
Vice President, Finance, Chief Accounting Officer and Controller
(principal accounting officer)
|
|
February 4, 2011
|
|
|
|
|
|
/s/ William
D. Young
William
D. Young
|
|
Director and Chairman of the Board of Directors
|
|
February 3, 2011
|
|
|
|
|
|
Alexander
J. Denner
|
|
Director
|
|
|
|
|
|
|
|
/s/ Caroline
D. Dorsa
Caroline
D. Dorsa
|
|
Director
|
|
February 3, 2011
|
|
|
|
|
|
/s/ Nancy
L. Leaming
Nancy
L. Leaming
|
|
Director
|
|
February 3, 2011
|
|
|
|
|
|
/s/ Richard
C. Mulligan
Richard
C. Mulligan
|
|
Director
|
|
February 3, 2011
|
|
|
|
|
|
/s/ Robert
W. Pangia
Robert
W. Pangia
|
|
Director
|
|
February 4, 2011
|
|
|
|
|
|
/s/ Stelios
Papadopoulos
Stelios
Papadopoulos
|
|
Director
|
|
February 3, 2011
|
75
|
|
|
|
|
|
|
Name
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ Brian
S. Posner
Brian
S. Posner
|
|
Director
|
|
February 3, 2011
|
|
|
|
|
|
/s/ Eric
K. Rowinsky
Eric
K. Rowinsky
|
|
Director
|
|
February 3, 2011
|
|
|
|
|
|
/s/ Lynn
Schenk
Lynn
Schenk
|
|
Director
|
|
February 3, 2011
|
|
|
|
|
|
/s/ Stephen
A. Sherwin
Stephen
A. Sherwin
|
|
Director
|
|
January 30, 2011
|
76
BIOGEN
IDEC INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
Page
|
|
Consolidated Statements of Income
|
|
|
F-2
|
|
Consolidated Balance Sheets
|
|
|
F-3
|
|
Consolidated Statements of Cash Flows
|
|
|
F-4
|
|
Consolidated Statements of Equity
|
|
|
F-5
|
|
Notes to Consolidated Financial Statements
|
|
|
F-8
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-71
|
|
F-1
BIOGEN
IDEC INC. AND SUBSIDIARIES
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
3,470,056
|
|
|
$
|
3,152,941
|
|
|
$
|
2,839,651
|
|
Unconsolidated joint business
|
|
|
1,077,244
|
|
|
|
1,094,863
|
|
|
|
1,128,238
|
|
Other
|
|
|
169,123
|
|
|
|
129,544
|
|
|
|
129,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,716,423
|
|
|
|
4,377,348
|
|
|
|
4,097,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding amortization of acquired intangible
assets
|
|
|
400,262
|
|
|
|
382,104
|
|
|
|
401,989
|
|
Research and development
|
|
|
1,248,604
|
|
|
|
1,283,068
|
|
|
|
1,072,058
|
|
Selling, general and administrative
|
|
|
1,031,540
|
|
|
|
911,034
|
|
|
|
925,305
|
|
Collaboration profit sharing
|
|
|
258,071
|
|
|
|
215,904
|
|
|
|
136,041
|
|
Amortization of acquired intangible assets
|
|
|
208,928
|
|
|
|
289,811
|
|
|
|
332,745
|
|
Restructuring charge
|
|
|
75,153
|
|
|
|
|
|
|
|
|
|
Acquired in process research and development
|
|
|
244,976
|
|
|
|
|
|
|
|
25,000
|
|
Gain on dispositions, net
|
|
|
|
|
|
|
|
|
|
|
(9,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses
|
|
|
3,467,534
|
|
|
|
3,081,921
|
|
|
|
2,883,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,248,889
|
|
|
|
1,295,427
|
|
|
|
1,213,611
|
|
Other income (expense), net
|
|
|
(18,983
|
)
|
|
|
37,252
|
|
|
|
(57,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
1,229,906
|
|
|
|
1,332,679
|
|
|
|
1,155,883
|
|
Income tax expense
|
|
|
331,333
|
|
|
|
355,617
|
|
|
|
365,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
898,573
|
|
|
|
977,062
|
|
|
|
790,107
|
|
Net income (loss) attributable to noncontrolling interests, net
of tax
|
|
|
(106,700
|
)
|
|
|
6,930
|
|
|
|
6,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Biogen Idec Inc.
|
|
$
|
1,005,273
|
|
|
$
|
970,132
|
|
|
$
|
783,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to Biogen Idec Inc.
|
|
$
|
3.98
|
|
|
$
|
3.37
|
|
|
$
|
2.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Biogen Idec Inc.
|
|
$
|
3.94
|
|
|
$
|
3.35
|
|
|
$
|
2.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in calculating:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to Biogen Idec Inc.
|
|
|
252,307
|
|
|
|
287,356
|
|
|
|
292,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Biogen Idec Inc.
|
|
|
254,867
|
|
|
|
289,476
|
|
|
|
294,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial
statements.
F-2
BIOGEN
IDEC INC. AND SUBSIDIARIES
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
759,598
|
|
|
$
|
581,889
|
|
Marketable securities
|
|
|
448,146
|
|
|
|
681,835
|
|
Accounts receivable, net of allowances of $54,922 and $43,818,
respectively
|
|
|
605,329
|
|
|
|
551,208
|
|
Due from unconsolidated joint business
|
|
|
222,459
|
|
|
|
193,789
|
|
Inventory
|
|
|
289,066
|
|
|
|
293,950
|
|
Other current assets
|
|
|
215,822
|
|
|
|
177,924
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,540,420
|
|
|
|
2,480,595
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
743,101
|
|
|
|
1,194,080
|
|
Property, plant and equipment, net
|
|
|
1,641,634
|
|
|
|
1,637,083
|
|
Intangible assets, net
|
|
|
1,772,826
|
|
|
|
1,871,078
|
|
Goodwill
|
|
|
1,146,314
|
|
|
|
1,138,621
|
|
Investments and other assets
|
|
|
248,198
|
|
|
|
230,397
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,092,493
|
|
|
$
|
8,551,854
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of notes payable, line of credit and other
financing arrangements
|
|
$
|
137,153
|
|
|
$
|
19,762
|
|
Taxes payable
|
|
|
84,517
|
|
|
|
75,891
|
|
Accounts payable
|
|
|
162,529
|
|
|
|
118,534
|
|
Accrued expenses and other
|
|
|
665,923
|
|
|
|
500,755
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,050,122
|
|
|
|
714,942
|
|
|
|
|
|
|
|
|
|
|
Notes payable and line of credit
|
|
|
1,066,379
|
|
|
|
1,080,207
|
|
Long-term deferred tax liability
|
|
|
200,950
|
|
|
|
240,618
|
|
Other long-term liabilities
|
|
|
325,599
|
|
|
|
254,205
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,643,050
|
|
|
|
2,289,972
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 2, 3, 10, 16, 18, 19,
20 and 21)
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Biogen Idec Inc. shareholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.001 per share
|
|
|
|
|
|
|
|
|
Common stock, par value $0.0005 per share
|
|
|
124
|
|
|
|
144
|
|
Additional paid-in capital
|
|
|
3,895,103
|
|
|
|
5,781,920
|
|
Accumulated other comprehensive income (loss)
|
|
|
(21,610
|
)
|
|
|
50,496
|
|
Retained earnings
|
|
|
1,872,481
|
|
|
|
1,068,890
|
|
Treasury stock, at cost; 7,662 shares and
13,639 shares, respectively
|
|
|
(349,592
|
)
|
|
|
(679,920
|
)
|
|
|
|
|
|
|
|
|
|
Total Biogen Idec Inc. shareholders equity
|
|
|
5,396,506
|
|
|
|
6,221,530
|
|
Noncontrolling interests
|
|
|
52,937
|
|
|
|
40,352
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
5,449,443
|
|
|
|
6,261,882
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
8,092,493
|
|
|
$
|
8,551,854
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial
statements.
F-3
BIOGEN
IDEC INC. AND SUBSIDIARIES
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
898,573
|
|
|
$
|
977,062
|
|
|
$
|
790,107
|
|
Adjustments to reconcile net income to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment
and intangible assets
|
|
|
354,101
|
|
|
|
427,961
|
|
|
|
462,059
|
|
Acquired in process research and development
|
|
|
271,376
|
|
|
|
|
|
|
|
25,000
|
|
Share-based compensation
|
|
|
167,826
|
|
|
|
160,902
|
|
|
|
146,207
|
|
Excess tax benefit from shared-based compensation
|
|
|
(13,136
|
)
|
|
|
(3,436
|
)
|
|
|
(27,990
|
)
|
Deferred income taxes
|
|
|
(81,410
|
)
|
|
|
(137,351
|
)
|
|
|
(139,549
|
)
|
Write-down of inventory to net realizable value
|
|
|
11,808
|
|
|
|
16,924
|
|
|
|
29,850
|
|
Impairment of marketable securities, investments and other assets
|
|
|
20,846
|
|
|
|
16,184
|
|
|
|
61,644
|
|
Non-cash interest (income) expense and foreign exchange
remeasurement loss (gain), net
|
|
|
5,808
|
|
|
|
(7,892
|
)
|
|
|
(4,934
|
)
|
Cash received upon termination of interest rate swap
|
|
|
|
|
|
|
|
|
|
|
53,873
|
|
Realized (gain) loss on sale of marketable securities and
strategic investments
|
|
|
(16,321
|
)
|
|
|
(23,974
|
)
|
|
|
1,078
|
|
(Gain) loss on sale of property, plant and equipment, net
|
|
|
1,643
|
|
|
|
|
|
|
|
(9,242
|
)
|
Changes in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(99,227
|
)
|
|
|
(100,442
|
)
|
|
|
(57,565
|
)
|
Due from unconsolidated joint business
|
|
|
(28,670
|
)
|
|
|
13,136
|
|
|
|
(40,239
|
)
|
Inventory
|
|
|
(4,527
|
)
|
|
|
(42,772
|
)
|
|
|
(54,204
|
)
|
Other assets
|
|
|
(12,584
|
)
|
|
|
22,271
|
|
|
|
3,711
|
|
Accrued expenses and other current liabilities
|
|
|
130,875
|
|
|
|
(48,942
|
)
|
|
|
146,420
|
|
Other liabilities and taxes payable
|
|
|
17,692
|
|
|
|
(194,733
|
)
|
|
|
176,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
1,624,673
|
|
|
|
1,074,898
|
|
|
|
1,562,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales and maturities of marketable securities
|
|
|
2,668,694
|
|
|
|
3,319,007
|
|
|
|
2,941,060
|
|
Purchases of marketable securities
|
|
|
(1,988,394
|
)
|
|
|
(3,548,119
|
)
|
|
|
(3,163,824
|
)
|
Acquisitions
|
|
|
(72,476
|
)
|
|
|
|
|
|
|
(25,000
|
)
|
Acquisition of a variable interest entity, net
|
|
|
(84,952
|
)
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(173,055
|
)
|
|
|
(165,646
|
)
|
|
|
(275,954
|
)
|
Purchases of other investments
|
|
|
(4,492
|
)
|
|
|
(44,086
|
)
|
|
|
(20,373
|
)
|
Proceeds from the sale of strategic investments
|
|
|
|
|
|
|
13,822
|
|
|
|
|
|
Collateral received under securities lending
|
|
|
|
|
|
|
29,991
|
|
|
|
178,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) in investing activities
|
|
|
345,325
|
|
|
|
(395,031
|
)
|
|
|
(365,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(2,077,579
|
)
|
|
|
(751,170
|
)
|
|
|
(738,938
|
)
|
Proceeds from issuance of stock for share-based compensation
arrangements
|
|
|
183,486
|
|
|
|
47,810
|
|
|
|
178,486
|
|
Excess tax benefit from share-based compensation
|
|
|
13,136
|
|
|
|
3,436
|
|
|
|
27,990
|
|
Change in cash overdraft
|
|
|
11,781
|
|
|
|
12,275
|
|
|
|
(498
|
)
|
Net distributions to noncontrolling interests
|
|
|
(23,475
|
)
|
|
|
4,356
|
|
|
|
2,047
|
|
Repayments of borrowings
|
|
|
(18,073
|
)
|
|
|