10-Q 1 biib-2013630x10q.htm 10-Q BIIB-2013.6.30-10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19311
BIOGEN IDEC INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
33-0112644
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
133 Boston Post Road, Weston, MA 02493
(781) 464-2000
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company  o
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  o    No  x
The number of shares of the issuer’s Common Stock, $0.0005 par value, outstanding as of July 18, 2013, was 237,671,593 shares.
 





BIOGEN IDEC INC.
FORM 10-Q — Quarterly Report
For the Quarterly Period Ended June 30, 2013
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II — OTHER INFORMATION
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 


2


NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are based on our current beliefs and expectations. The following cautionary statements are being made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”) with the intention of obtaining the benefits of the “Safe Harbor” provisions of the Act. These forward-looking statements may be accompanied by such words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “target,” “will” and other words and terms of similar meaning. Reference is made in particular to forward-looking statements regarding:
the anticipated amount, timing and accounting of revenues, contingency payments, milestone, royalty and other payments under licensing, collaboration or acquisition agreements, tax positions and contingencies, doubtful accounts, cost of sales, research and development costs, compensation and other expenses, amortization of intangible assets, and foreign currency forward contracts;
the impact of the commercial launch of TECFIDERA in the U.S. on sales and market share of our products, and the potential approval and launch of TECFIDERA in Europe;
patent terms, patent term extensions, patent office actions, data protection and market exclusivity rights;
the impact of increased product competition in the multiple sclerosis (MS) market, including competition from and growth of our own products and the possibility of future competition from biosimilars, generic versions or related prodrug derivatives;
our plans to develop further risk stratification protocols for TYSABRI and the impact of such protocols;
the potential approval and launches of ELOCTATE (recombinant factor VIII Fc fusion protein), ALPROLIX (recombinant factor IX Fc fusion protein) and PLEGRIDY (Peginterferon beta-1a);
the timing, outcome and impact of administrative, regulatory, litigation and other proceedings related to patents and other proprietary and intellectual property rights; tax audits, assessments and settlements; product liability and other matters;
the costs to be incurred in connection with Genentech's arbitration with Hoechst;
the expected timing and financial impact of the approval of the settlement of our dispute with the Italian National Medicines Agency (AIFA) relating to sales of TYSABRI;
the costs, timing and therapeutic scope of the development and commercialization of our pipeline products;
our intent to exercise our put option requiring Knopp Neurosciences, Inc. (Knopp) to purchase our Class B common share ownership in Knopp;
the impact of budget cuts in the U.S. and other measures worldwide designed to reduce healthcare costs to constrain the overall level of government expenditures, including the impact of pricing actions in Europe and elsewhere;
the impact of the continued uncertainty and deterioration of the credit and economic conditions in certain countries in Europe and our collection of accounts receivable in such countries;
our ability to finance our operations and business initiatives and obtain funding for such activities;
the impact of new laws and accounting standards;
the timing and expected financial impact of relocating our corporate headquarters in Weston, Massachusetts to Cambridge, Massachusetts; and
the drivers for growing our business, including our plans to pursue business development and research opportunities, and competitive conditions.
These forward-looking statements involve risks and uncertainties, including those that are described in the “Risk Factors” section of this report and elsewhere within this report that could cause actual results to differ materially from those reflected in such statements. You should not place undue reliance on these statements. Forward-looking statements speak only as of the date of this report. We do not undertake any obligation to publicly update any forward-looking statements.

3


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®, AVONEX PEN®, RITUXAN®, TECFIDERA® and TYSABRI® are registered trademarks of Biogen Idec. ALPROLIXTM, ELOCTATETM, FUMADERMTM and PLEGRIDYTM are trademarks of Biogen Idec. The following are trademarks of the respective companies listed: ANGIOMAX® and ANGIOX® — The Medicines Company; ARZERRA® — Glaxo Group Limited; BENLYSTA® — Human Genome Sciences, Inc.; BETASERON® — Bayer Schering Pharma AG; EXTAVIA® — Novartis AG; FAMPYRA® — Acorda Therapeutics, Inc.; and REBIF® — Ares Trading S.A.

4


PART I FINANCIAL INFORMATION

BIOGEN IDEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Product, net
$
1,385,918

 
$
1,076,800

 
$
2,481,697

 
$
2,052,288

Unconsolidated joint business
288,785

 
284,630

 
553,391

 
569,183

Other
48,770

 
59,521

 
103,481

 
91,495

Total revenues
1,723,473

 
1,420,951

 
3,138,569

 
2,712,966

Cost and expenses:
 
 
 
 
 
 
 
Cost of sales, excluding amortization of acquired intangible assets
230,728

 
139,112

 
364,477

 
272,308

Research and development
327,463

 
329,559

 
611,803

 
685,521

Selling, general and administrative
431,012

 
301,767

 
783,610

 
601,856

Amortization of acquired intangible assets
82,225

 
52,282

 
133,526

 
98,243

Collaboration profit sharing

 
78,511

 
85,357

 
164,406

(Gain) loss on fair value remeasurement of contingent consideration
(5,163
)
 
12,858

 
(2,886
)
 
14,117

Restructuring charge

 
1,139

 

 
1,422

Total cost and expenses
1,066,265

 
915,228

 
1,975,887

 
1,837,873

Gain on sale of rights
5,319

 

 
10,370

 

Income from operations
662,527

 
505,723

 
1,173,052

 
875,093

Other income (expense), net
(10,428
)
 
2,950

 
(24,885
)
 
18,094

Income before income tax expense and equity in loss of investee, net of tax
652,099

 
508,673

 
1,148,167

 
893,187

Income tax expense
159,140

 
121,021

 
224,648

 
203,169

Equity in loss of investee, net of tax
2,289

 
511

 
6,100

 
511

Net income
490,670

 
387,141

 
917,419

 
689,507

Net income attributable to noncontrolling interests, 
net of tax

 
295

 

 

Net income attributable to Biogen Idec Inc.
$
490,670

 
$
386,846

 
$
917,419

 
$
689,507

Net income per share:
 
 
 
 
 
 
 
Basic earnings per share attributable to Biogen Idec Inc.
$
2.07

 
$
1.62

 
$
3.87

 
$
2.88

Diluted earnings per share attributable to Biogen Idec Inc.
$
2.06

 
$
1.61

 
$
3.85

 
$
2.86

Weighted-average shares used in calculating:
 
 
 
 
 
 
 
Basic earnings per share attributable to Biogen Idec Inc.
237,484

 
238,988

 
237,162

 
239,389

Diluted earnings per share attributable to Biogen Idec Inc.
238,743

 
240,622

 
238,543

 
241,245


See accompanying notes to these unaudited condensed consolidated financial statements.

5


BIOGEN IDEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
490,670

 
$
387,141

 
$
917,419

 
$
689,507

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities available for sale, net of tax of $3,569 and $47 for the three months ended June 30, 2013 and 2012, respectively; and $2,915 and $1,075 for the six months ended June 30, 2013 and 2012, respectively
6,077

 
(83
)
 
4,960

 
1,828

Unrealized gains (losses) on foreign currency forward contracts, net of tax of $59 and $2,164 for the three months ended June 30, 2013 and 2012, respectively; and $1,480 and $22 for the six months ended June 30, 2013 and 2012, respectively
(2,305
)
 
18,260

 
9,298

 
(103
)
Unrealized gains on pension benefit obligation
1,011

 
202

 
2,274

 
391

Currency translation adjustment
8,056

 
(51,226
)
 
(16,363
)
 
(26,073
)
Total other comprehensive income (loss), net of tax
12,839

 
(32,847
)
 
169

 
(23,957
)
Comprehensive income
503,509

 
354,294

 
917,588

 
665,550

Comprehensive income attributable to noncontrolling interests, net of tax

 
295

 

 
65

Comprehensive income attributable to Biogen Idec Inc.
$
503,509

 
$
353,999

 
$
917,588

 
$
665,485































See accompanying notes to these unaudited condensed consolidated financial statements.

6


BIOGEN IDEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share amounts)
 
 
As of June 30,
2013
 
As of December 31,
2012
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
392,507

 
$
570,721

Marketable securities
275,163

 
1,134,989

Accounts receivable, net
861,457

 
686,848

Due from unconsolidated joint business
249,996

 
268,395

Inventory
570,390

 
447,373

Other current assets
173,708

 
136,011

Total current assets
2,523,221

 
3,244,337

Marketable securities
107,139

 
2,036,658

Property, plant and equipment, net
1,787,776

 
1,742,226

Intangible assets, net
4,678,884

 
1,631,547

Goodwill
1,210,718

 
1,201,296

Investments and other assets
533,852

 
274,054

Total assets
$
10,841,590

 
$
10,130,118

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Current portion of notes payable and line of credit
$
3,188

 
$
453,379

Taxes payable
81,563

 
20,066

Accounts payable
163,094

 
203,999

Accrued expenses and other
1,056,229

 
979,945

Total current liabilities
1,304,074

 
1,657,389

Notes payable and other financing arrangements
726,388

 
687,396

Long-term deferred tax liability
313,341

 
217,272

Other long-term liabilities
595,642

 
604,266

Total liabilities
2,939,445

 
3,166,323

Commitments and contingencies


 


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

 

Common stock, par value $0.0005 per share
128

 
127

Additional paid-in capital
3,917,985

 
3,854,525

Accumulated other comprehensive loss
(55,136
)
 
(55,305
)
Retained earnings
5,404,213

 
4,486,794

Treasury stock, at cost
(1,365,641
)
 
(1,324,618
)
Total Biogen Idec Inc. shareholders’ equity
7,901,549

 
6,961,523

Noncontrolling interests
596

 
2,272

Total equity
7,902,145

 
6,963,795

Total liabilities and equity
$
10,841,590

 
$
10,130,118



See accompanying notes to these unaudited condensed consolidated financial statements.

7


BIOGEN IDEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
 
For the Six Months
Ended June 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
917,419

 
$
689,507

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
225,880

 
174,569

Share-based compensation
67,387

 
60,467

Deferred income taxes
(118,047
)
 
(43,831
)
Other
(42,495
)
 
(21,070
)
Changes in operating assets and liabilities, net:
 
 
 
Accounts receivable
(185,688
)
 
(10,758
)
Inventory
(129,171
)
 
(44,363
)
Other changes in operating assets and liabilities, net
68,866

 
25,685

Net cash flows provided by operating activities
804,151

 
830,206

Cash flows from investing activities:
 
 
 
Proceeds from sales and maturities of marketable securities
4,404,707

 
1,423,931

Purchases of marketable securities
(1,617,974
)
 
(1,253,934
)
Acquisition of TYSABRI rights
(3,262,719
)
 

Acquisitions of business, net of cash acquired

 
(72,401
)
Purchases of property, plant and equipment
(87,440
)
 
(127,447
)
Other
(6,874
)
 
(22,647
)
Net cash flows used in investing activities
(570,300
)
 
(52,498
)
Cash flows from financing activities:
 
 
 
Purchase of treasury stock
(41,023
)
 
(909,951
)
Proceeds from issuance of stock for share-based compensation arrangements
39,002

 
43,081

Repayment of borrowings under senior notes
(452,340
)
 

Other
45,174

 
33,166

Net cash flows used in financing activities
(409,187
)
 
(833,704
)
Net increase (decrease) in cash and cash equivalents
(175,336
)
 
(55,996
)
Effect of exchange rate changes on cash and cash equivalents
(2,878
)
 
(1,735
)
Cash and cash equivalents, beginning of the period
570,721

 
514,542

Cash and cash equivalents, end of the period
$
392,507

 
$
456,811
















See accompanying notes to these unaudited condensed consolidated financial statements.

8

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


1.
Business
Overview
Biogen Idec is a global biotechnology company focused on discovering, developing, manufacturing and marketing therapies for the treatment of multiple sclerosis and other autoimmune disorders, neurodegenerative diseases and hemophilia. We also collaborate on the development and commercialization of RITUXAN and anti-CD20 product candidates for the treatment of non-Hodgkin's lymphoma and other conditions.
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial statements for interim periods in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The information included in this quarterly report on Form 10-Q should be read in conjunction with our consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2012 (2012 Form 10-K). Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2012 Form 10-K and updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
Consolidation
Our condensed consolidated financial statements reflect our financial statements, those of our wholly-owned subsidiaries and those of certain variable interest entities where we are the primary beneficiary. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interests in our condensed consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.
In determining whether we are the primary beneficiary of an entity and therefore required to consolidate, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. These considerations impact the way we account for our existing collaborative relationships and other arrangements. We continuously assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in us consolidating or deconsolidating our partner(s) to collaborations and other arrangements.
 Use of Estimates
The preparation of our condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments and methodologies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

9

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

2.
Acquisitions
TYSABRI
On April 2, 2013, we acquired full ownership of, and strategic, commercial and decision-making rights to, TYSABRI from Elan Pharma International, Ltd (Elan), an affiliate of Elan Corporation, plc. Upon the closing of the transaction, we made an upfront payment of $3.25 billion to Elan, which was funded from our existing cash, and our collaboration agreement with Elan was terminated.
We are accounting for this transaction as the acquisition of an asset as we did not acquire any employees from Elan nor did we acquire any significant processes that we did not previously perform or manage under the collaboration agreement. Under the collaboration agreement, we manufactured TYSABRI and collaborated with Elan on the product's marketing, commercial, regulatory, distribution and ongoing development activities. The collaboration agreement was designed to effect an equal sharing of worldwide profits and losses generated by the activities of the collaboration. For additional information related to this collaboration, please read Note 21, Collaborative and Other Relationships to our consolidated financial statements included within our 2012 Form 10-K.
The $3.25 billion upfront payment was capitalized in the second quarter of 2013 as an intangible asset within our condensed consolidated balance sheet as TYSABRI has reached technological feasibility. We adjusted the value of this intangible asset by $84.4 million related to deferred revenue from two sales-based milestones previously paid by Elan as well as transaction costs. The net intangible asset capitalized was $3,178.3 million. Commencing in the second quarter of 2013, we began amortizing this intangible asset over the estimated useful life of 17 years using an economic consumption method based on actual and expected revenue generated from the sales of our TYSABRI product.
Following the April 2, 2013 closing of the transaction, we began recording 100% of U.S. revenues, cost of sales and operating expenses related to TYSABRI within our condensed consolidated statements of income. Under the terms of the acquisition agreement, we continued to share on an equal basis TYSABRI profits with Elan until April 30, 2013. We recorded this profit split for the month ended April 30, 2013 as cost of sales within our condensed consolidated statements of income as we controlled TYSABRI effective April 2, 2013. Commencing May 1, 2013 and for the first twelve months thereafter, we will make contingent payments to Elan of 12% of worldwide net sales of TYSABRI, and thereafter, 18% on annual worldwide net sales up to $2.0 billion and 25% on annual worldwide net sales that exceed $2.0 billion. In 2014, the $2.0 billion threshold will be pro-rated for the portion of 2014 remaining after the first 12 months expires. Royalty payments to Elan will be recognized as cost of sales within our condensed consolidated statements of income.
3.
Accounts Receivable
Our accounts receivable primarily arise from product sales in the U.S. and Europe and mainly represent amounts due from our wholesale distributors, public hospitals and other government entities. Concentrations of credit risk with respect to our accounts receivable, which are typically unsecured, are limited due to the wide variety of customers and markets using our products, as well as their dispersion across many different geographic areas. The majority of our accounts receivable have standard payment terms which generally require payment within 30 to 90 days. We monitor the financial performance and credit worthiness of our large customers so that we can properly assess and respond to changes in their credit profile. We provide reserves against trade receivables for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve. To date, our historical write-offs of accounts receivable have not been significant.
The credit and economic conditions within Italy, Spain and Portugal, among other members of the European Union, remain uncertain. Uncertain credit and economic conditions have generally led to a lengthening of time to collect our accounts receivable in some of these countries. In some regions in these countries where our collections have slowed and a significant portion of these receivables are routinely being collected over periods in excess of one year, we have discounted our receivables and reduced related revenues based on the period of time that we estimate those amounts will be paid, to the extent such period exceeds one year, using the country’s market-based borrowing rate for such period. The related receivables are classified at the time of sale as long-term assets. We accrete interest income on these receivables, which is recognized as a component of other income (expense), net within our condensed consolidated statements of income.

10

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

Our net accounts receivable balances from product sales in selected European countries are summarized as follows:
 
As of June 30, 2013
(In millions)
Current
Balance Included
within Accounts
Receivable, net
 
Non-Current
Balance Included
within Investments
and Other Assets
 
Total
Spain
$
90.2

 
$

 
$
90.2

Italy
$
102.4

 
$
6.3

 
$
108.7

Portugal
$
17.2

 
$
15.5

 
$
32.7

 
 
As of December 31, 2012
(In millions)
Current
Balance Included
within Accounts
Receivable, net
 
Non-Current
Balance Included
within Investments
and Other Assets
 
Total
Spain
$
78.9

 
$

 
$
78.9

Italy
$
94.4

 
$
10.2

 
$
104.6

Portugal
$
16.6

 
$
7.4

 
$
24.0

Approximately $27.0 million and $11.8 million of the aggregated balances for these countries were overdue more than one year as of June 30, 2013 and December 31, 2012, respectively.
Pricing of TYSABRI in Italy - AIFA
In the fourth quarter of 2011, Biogen Idec SRL, our Italian subsidiary, received a notice from the Italian National Medicines Agency (AIFA) stating that sales of TYSABRI for the period from February 2009 through February 2011 exceeded by EUR30.7 million a reimbursement limit established pursuant to a Price Determination Resolution (Price Resolution) granted by AIFA in December 2006. In December 2011, based on our interpretation that the Price Resolution by its terms only applied to the first 24 months of TYSABRI sales (which began in February 2007), we filed an appeal against AIFA in administrative court seeking a ruling that the reimbursement limit does not apply and that the position of AIFA is unenforceable. That appeal is pending.
In June 2013, Biogen Idec SRL received an additional notice from AIFA, stating that sales of TYSABRI from February 2011 through February 2013 also exceeded the same reimbursement limit in the Price Resolution. We dispute that the reimbursement limit applies to this period for the same reason that we dispute its application to the February 2009 through February 2011 period.
Since being notified in the fourth quarter of 2011 that AIFA believed a reimbursement limit was in effect, we have deferred revenue on sales of TYSABRI as if the reimbursement limit were in effect. As of June 30, 2013, we have deferred an aggregate amount of $103.8 million, of which $13.4 million and $27.3 million were deferred during the three and six months ended June 30, 2013, respectively. At the time of sale, our net accounts receivable balances from product sales in Italy include the amount of deferred revenue discussed above as our customers pay the invoice price of the product.
In July 2013, we reached an agreement in principle with the Price and Reimbursement Committee of AIFA to settle all of AIFA's existing claims relating to sales of TYSABRI in excess of the reimbursement limit for the periods between February 2009 through February 2013 for an aggregate repayment of EUR33.3 million. As part of this settlement, we also agreed that the reimbursement limit will no longer be in effect as of February 2013. The settlement is pending approval by the Italy Avvocatura Generale dello Stato and the board of directors of AIFA. Upon this approval and the execution of the settlement, we will dismiss our appeal.
As a result of this agreement, we recorded a liability and reduction to revenue of EUR15.4 million. That adjustment approximates 50% of the claim related to the period from February 2009 through February 2011 for which we had not recorded any amounts. We recorded the adjustment as of June 30, 2013 as the likelihood of making a payment to settle AIFA's claims for this period was now probable and the amount could be estimated. Upon approval of the settlement, any deferred revenue related to the periods subsequent to February 2011 that is in excess of the settlement will be recognized as revenue. For additional information, please read Note 20, Litigation to these condensed consolidated financial statements.

11

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

4.
Reserves for Discounts and Allowances
As a result of our acquisition of TYSABRI rights from Elan, we began recognizing reserves for discounts and allowances for U.S. TYSABRI revenue in the second quarter of 2013. Prior periods included reserves for discounts and allowances for rest of world TYSABRI revenue and worldwide AVONEX revenue only. In addition, as a result of the U.S. Food and Drug Administration (FDA) approval of TECFIDERA in late March 2013 and our start of commercial sales in the second quarter of 2013, we began recognizing reserves for discounts and allowances related to U.S. TECFIDERA revenue.
An analysis of the amount of, and change in, reserves is summarized as follows:
(In millions)
Discounts
 
Contractual
Adjustments
 
Returns
 
Total
Balance, as of December 31, 2012
$
15.5

 
$
194.8

 
$
26.8

 
$
237.1

Current provisions relating to sales in current year
115.9

 
331.0

 
9.8

 
456.7

Adjustments relating to prior years
(0.7
)
 
(4.3
)
 
1.2

 
(3.8
)
Payments/returns relating to sales in current year
(56.4
)
 
(128.7
)
 

 
(185.1
)
Payments/returns relating to sales in prior years
(13.8
)
 
(127.4
)
 
(9.1
)
 
(150.3
)
Balance, as of June 30, 2013
$
60.5

 
$
265.4

 
$
28.7

 
$
354.6

The total reserves above, included in our condensed consolidated balance sheets, are summarized as follows:
(In millions)
As of June 30,
2013
 
As of December 31,
2012
Reduction of accounts receivable
$
136.0

 
$
46.1

Component of accrued expenses and other
218.6

 
191.0

Total reserves
$
354.6

 
$
237.1

5.
Inventory
The components of inventory are summarized as follows:
(In millions)
As of
June 30,
2013
 
As of
December 31,
2012
Raw materials
$
110.1

 
$
101.8

Work in process
347.2

 
230.5

Finished goods
113.1

 
115.1

Total inventory
$
570.4

 
$
447.4

As of June 30, 2013, our inventory includes $76.3 million associated with our ELOCTATE, ALPROLIX, Serum-Free AVONEX and PLEGRIDY programs, which have been capitalized in advance of regulatory approval.

12

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

6.
Intangible Assets and Goodwill
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments, are summarized as follows:
 
 
 
As of June 30, 2013
 
As of December 31, 2012
(In millions)
Estimated
Life
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
Out-licensed patents
13-23 years
 
$
578.0

 
$
(435.9
)
 
$
142.1

 
$
578.0

 
$
(421.0
)
 
$
157.0

Core developed 
technology
15-23 years
 
3,005.3

 
(2,051.2
)
 
954.1

 
3,005.3

 
(1,965.7
)
 
1,039.6

In-process research and development
Up to 15 years upon
commercialization
 
327.4

 

 
327.4

 
330.1

 

 
330.1

Trademarks and 
tradenames
Indefinite
 
64.0

 

 
64.0

 
64.0

 

 
64.0

Acquired and in-licensed rights 
and patents
6-17 years
 
3,234.8

 
(43.5
)
 
3,191.3

 
53.7

 
(12.9
)
 
40.8

Total intangible assets
 
 
$
7,209.5

 
$
(2,530.6
)
 
$
4,678.9

 
$
4,031.1

 
$
(2,399.6
)
 
$
1,631.5

For the three and six months ended June 30, 2013, amortization of acquired intangible assets totaled $82.2 million and $133.5 million, respectively, as compared to $52.3 million and $98.2 million, respectively, in the prior year comparative periods. Included within the amortization of acquired intangible assets for the three months ended June 30, 2013 is a charge of $2.6 million related to a write down in carrying value of one of our in-process research and development assets to reflect a change in its estimated fair value.
Core Developed Technology
Core developed technology primarily relates to our AVONEX product which was recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. Our most recent long range planning cycle was completed in the third quarter of 2012, which reflected a small decrease in the expected lifetime revenue of AVONEX resulting in an increase in amortization expense.
Acquired and In-licensed Rights and Patents
The increase in acquired and in-licensed rights and patents during the six months ended June 30, 2013 was primarily related to the $3,178.3 million intangible asset capitalized in connection with our acquisition of TYSABRI rights from Elan on April 2, 2013. In the second quarter of 2013, we began amortizing this intangible asset over the estimated useful life using an economic consumption method based on actual and expected revenue generated from the sales of our TYSABRI product. For a more detailed description of this transaction, please read Note 2, Acquisitions to these condensed consolidated financial statements.
The estimated future amortization for acquired intangible assets is expected to be as follows:
(In millions)
As of June 30, 2013
2013 (remaining six months)
$
165.6

2014
330.7

2015
322.1

2016
328.2

2017
327.8

Total
$
1,474.4


13

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

Goodwill
The following table provides a roll-forward of the changes in our goodwill balance:
(In millions)
As of
June 30,
2013
 
As of
December 31,
2012
Goodwill, beginning of period
$
1,201.3

 
$
1,146.3

Goodwill acquired during the period
13.5

 
48.2

Other
(4.1
)
 
6.8

Goodwill, end of period
$
1,210.7

 
$
1,201.3

The increase in goodwill during the six months ended June 30, 2013 was related to the $15.0 million contingent payment made to former shareholders of Fumapharm AG (net of $1.5 million tax benefit), which became payable upon the approval of TECFIDERA in the U.S. For additional information related to future contingent payments, please read Note 21, Commitments and Contingencies to these condensed consolidated financial statements.
For the six months ended June 30, 2013, we adjusted goodwill to establish a deferred tax asset related to our Stromedix Inc. (Stromedix) transaction. For additional information related to our transaction with Stromedix, please read Note 2, Acquisitions to our consolidated financial statements included within our 2012 Form 10-K.
As of June 30, 2013, we had no accumulated impairment losses related to goodwill.
7.
Fair Value Measurements
The tables below present information about our assets and liabilities that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques we utilized to determine such fair value:
(In millions)
As of
June 30,
2013
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
261.5

 
$

 
$
261.5

 
$

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
99.6

 

 
99.6

 

Government securities
273.2

 

 
273.2

 

Mortgage and other asset backed securities
9.5

 

 
9.5

 

Marketable equity securities
28.9

 
28.9

 

 

Venture capital investments
23.5

 

 

 
23.5

Derivative contracts
5.9

 

 
5.9

 

Plan assets for deferred compensation
16.1

 

 
16.1

 

Total
$
718.2

 
$
28.9

 
$
665.8

 
$
23.5

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
5.9

 
$

 
$
5.9

 
$

Contingent consideration obligations
281.0

 

 

 
281.0

Total
$
286.9

 
$

 
$
5.9

 
$
281.0


14

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

(In millions)
As of
December 31,
2012
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
439.4

 
$

 
$
439.4

 
$

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
1,001.0

 

 
1,001.0

 

Government securities
1,657.8

 

 
1,657.8

 

Mortgage and other asset backed securities
512.9

 

 
512.9

 

Marketable equity securities
9.0

 
9.0

 

 

Venture capital investments
20.3

 

 

 
20.3

Derivative contracts
1.8

 

 
1.8

 

Plan assets for deferred compensation
14.3

 

 
14.3

 

Total
$
3,656.5

 
$
9.0

 
$
3,627.2

 
$
20.3

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
14.4

 
$

 
$
14.4

 
$

Contingent consideration obligations
293.9

 

 

 
293.9

Total
$
308.3

 
$

 
$
14.4

 
$
293.9

There has been no impairment of our assets measured at fair value during the three and six months ended June 30, 2013. In addition, there were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the three and six months ended June 30, 2013. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities were determined through valuation models of third party pricing services. For a description of our validation procedures related to prices provided by third party pricing services, refer to Note 1, Summary of Significant Accounting Policies: Fair Value Measurements, to our consolidated financial statements included within our 2012 Form 10-K.
Marketable Equity Securities and Venture Capital Investments
Our marketable equity securities represent investments in publicly traded equity securities. Our venture capital investments, which are Level 3 measurements, include investments in certain venture capital funds, accounted for at fair value, that primarily invest in small privately-owned, venture-backed biotechnology companies. These venture capital investments represented approximately 0.2% of total assets as of June 30, 2013 and December 31, 2012, respectively.
The following table provides a roll-forward of the fair value of our venture capital investments that are Level 3 assets:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Fair value, beginning of period
$
18.0

 
$
22.1

 
$
20.3

 
$
23.5

Unrealized gains included in earnings
6.1

 
3.1

 
6.7

 
3.5

Unrealized losses included in earnings
(0.6
)
 
(0.2
)
 
(2.0
)
 
(2.0
)
Purchases

 
0.4

 

 
0.4

Settlements

 

 
(1.5
)
 

Fair value, end of period
$
23.5

 
$
25.4

 
$
23.5

 
$
25.4


15

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

 Debt Instruments
The fair and carrying values of our debt instruments, which are Level 2 liabilities, are summarized as follows:
 
As of June 30, 2013
 
As of December 31, 2012
(In millions)
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
Notes payable to Fumedica
$
15.9

 
$
14.4

 
$
20.0

 
$
17.9

Credit facility

 

 

 

6.0% Senior Notes due March 1, 2013

 

 
453.7

 
450.0

6.875% Senior Notes due March 1, 2018
654.3

 
583.3

 
681.6

 
586.4

Total
$
670.2

 
$
597.7

 
$
1,155.3

 
$
1,054.3

The fair value of our notes payable to Fumedica was estimated using market observable inputs, including current interest and foreign currency exchange rates. The fair value of our 6.875% Senior Notes was determined through market, observable, and corroborated sources. For additional information related to our debt instruments, please read Note 11, Indebtedness to these condensed consolidated financial statements.
Contingent Consideration Obligations
The following table provides a roll-forward of the fair values of our contingent consideration obligations that are Level 3 measurements:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Fair value, beginning of period
$
293.7

 
$
269.9

 
$
293.9

 
$
151.0

Additions

 
4.6

 

 
122.2

Changes in fair value
(5.2
)
 
12.9

 
(2.9
)
 
14.1

Payments
(7.5
)
 
(6.5
)
 
(10.0
)
 
(6.5
)
Fair value, end of period
$
281.0

 
$
280.9

 
$
281.0

 
$
280.9

As of June 30, 2013 and December 31, 2012, approximately $253.1 million and $271.5 million, respectively, of the fair value of our total contingent consideration obligations were reflected as components of other long-term liabilities within our condensed consolidated balance sheets with the remaining balances reflected as a component of accrued expenses and other.

16

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

8.
Financial Instruments
On April 2, 2013, we used $3.25 billion to fund the upfront payment we made to Elan in connection with our acquisition of TYSABRI rights.
Marketable Securities
The following tables summarize our marketable debt and equity securities:
As of June 30, 2013 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Available-for-sale:
 
 
 
 
 
 
 
Corporate debt securities
 
 
 
 
 
 
 
Current
$
26.4

 
$

 
$

 
$
26.4

Non-current
73.2

 

 
(0.2
)
 
73.4

Government securities
 
 
 
 
 
 
 
Current
248.8

 

 

 
248.8

Non-current
24.4

 

 

 
24.4

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current

 

 

 

Non-current
9.5

 

 

 
9.5

Total marketable debt securities
$
382.3

 
$

 
$
(0.2
)
 
$
382.5

Marketable equity securities, non-current
$
28.9

 
$
14.7

 
$

 
$
14.2

As of December 31, 2012 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Available-for-sale:
 
 
 
 
 
 
 
Corporate debt securities
 
 
 
 
 
 
 
Current
$
346.9

 
$
0.3

 
$

 
$
346.6

Non-current
654.1

 
2.8

 
(0.6
)
 
651.9

Government securities
 
 
 
 
 
 
 
Current
783.4

 
0.3

 

 
783.1

Non-current
874.4

 
0.8

 

 
873.6

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current
4.8

 

 

 
4.8

Non-current
508.1

 
1.4

 
(1.3
)
 
508.0

Total marketable debt securities
$
3,171.7

 
$
5.6

 
$
(1.9
)
 
$
3,168.0

Marketable equity securities, non-current
$
9.0

 
$
3.0

 
$

 
$
6.0

The following table summarizes our financial assets with maturities of less than 90 days from the date of purchase included within cash and cash equivalents on the accompanying condensed consolidated balance sheet:
(In millions)
As of
June 30,
2013
 
As of
December 31,
2012
Commercial paper
$
10.3

 
$
40.7

Overnight repurchase agreements

 
67.4

Short-term debt securities
251.2

 
331.3

Total
$
261.5

 
$
439.4

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

17

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

Summary of Contractual Maturities: Available-for-Sale Securities
The estimated fair value and amortized cost of our marketable debt securities available-for-sale by contractual maturity are summarized as follows:
 
As of June 30, 2013
 
As of December 31, 2012
(In millions)
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
Due in one year or less
$
275.2

 
$
275.3

 
$
1,135.0

 
$
1,134.5

Due after one year through five years
103.9

 
104.0

 
1,744.3

 
1,741.2

Due after five years
3.2

 
3.2

 
292.4

 
292.3

Total available-for-sale securities
$
382.3

 
$
382.5

 
$
3,171.7

 
$
3,168.0

The average maturity of our marketable debt securities available-for-sale as of June 30, 2013 and December 31, 2012 was 11 months and 14 months, respectively.
Proceeds from Marketable Debt Securities
The proceeds from maturities and sales of marketable debt securities and resulting realized gains and losses are summarized as follows:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Proceeds from maturities and sales
$
78.3

 
$
599.6

 
$
4,404.7

 
$
1,423.9

Realized gains
$

 
$
0.6

 
$
6.3

 
$
1.3

Realized losses
$

 
$
(1.3
)
 
$
(2.0
)
 
$
(2.0
)
Strategic Investments
As of June 30, 2013 and December 31, 2012, our strategic investment portfolio was comprised of investments totaling $77.6 million and $64.2 million, respectively, which are included in investments and other assets in our accompanying condensed consolidated balance sheets.
Our strategic investment portfolio includes investments in marketable equity securities of certain biotechnology companies and our investments in venture capital funds accounted for at fair value which totaled $52.4 million and $29.3 million as of June 30, 2013 and December 31, 2012, respectively. Our strategic investment portfolio also includes other equity investments in privately-held companies and additional investments in venture capital funds accounted for under the cost method. The carrying value of these investments totaled $25.2 million and $34.9 million as of June 30, 2013 and December 31, 2012, respectively.
Net Gains, Impairments and Changes to Fair Value
During the three and six months ended June 30, 2013, we realized net gains, impairments and changes to fair value recorded through income of $4.4 million and $4.1 million, respectively, on our strategic investment portfolio as compared to $2.2 million and $13.5 million, respectively, in the prior year comparative periods. The net gains recognized during the six months ended June 30, 2012 included a gain of $9.0 million recognized upon our acquisition of Stromedix as we previously held an equity interest. For a more detailed description of this transaction, please read Note 2, Acquisitions to our consolidated financial statements included within our 2012 Form 10-K.
Impairments
For the three and six months ended June 30, 2013, we recognized impairment charges on our marketable equity securities of certain biotechnology companies, investments in venture capital funds accounted for under the cost method and investments in privately-held companies totaling $1.4 million and $1.7 million, respectively, as compared to $0.8 million and $1.3 million, respectively, in the prior year comparative periods.

18

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

9.
Derivative Instruments
Foreign Currency Forward Contracts - Hedging Instruments
Due to the global nature of our operations, portions of our revenues are earned in currencies other than the U.S. dollar. The value of revenues measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. In order to mitigate these changes we use foreign currency forward contracts to lock in exchange rates associated with a portion of our forecasted international revenues.
Foreign currency forward contracts in effect as of June 30, 2013 and December 31, 2012 had durations of 1 to 14 months. These contracts have been designated as cash flow hedges and accordingly, to the extent effective, any unrealized gains or losses on these foreign currency forward contracts are reported in accumulated other comprehensive income (loss) (referred to as AOCI in the tables below). Realized gains and losses for the effective portion of such contracts are recognized in revenue when the sale of product in the currency being hedged is recognized. To the extent ineffective, hedge transaction gains and losses are reported in other income (expense), net.
The notional value of foreign currency forward contracts that were entered into to hedge forecasted revenues is summarized as follows:
 
Notional Amount
Foreign Currency: (In millions)
As of
June 30,
2013
 
As of
December 31,
2012
Euro
$
551.0

 
$
492.2

Canadian dollar
19.6

 
31.8

Total foreign currency forward contracts
$
570.6

 
$
524.0

The portion of the fair value of these foreign currency forward contracts that was included in accumulated other comprehensive income (loss) within total equity reflected losses of $1.0 million and $11.8 million as of June 30, 2013 and December 31, 2012, respectively. We expect all contracts to be settled over the next 14 months and any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to revenue. We consider the impact of our and our counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its contractual obligations. As of June 30, 2013 and December 31, 2012, respectively, credit risk did not materially change the fair value of our foreign currency forward contracts.
The following table summarizes the effect of derivatives designated as hedging instruments on our condensed consolidated statements of income:
For the Three Months Ended June 30,
Gains/(Losses)
Reclassified from AOCI into Net Income
(Effective Portion)
 
Gains/(Losses)
Recognized into Net Income
(Ineffective Portion)
Location
 
2013
 
2012
 
Location
 
2013
 
2012
Revenue
 
$
0.1

 
$
13.6

 
Other income (expense)
 
$
0.1

 
$
1.3

For the Six Months Ended June 30,
Gains/(Losses)
Reclassified from AOCI into Net Income
(Effective Portion)
 
Gains/(Losses)
Recognized into Net Income
(Ineffective Portion)
Location
 
2013
 
2012
 
Location
 
2013
 
2012
Revenue
 
$
1.2

 
$
19.0

 
Other income (expense)
 
$
0.3

 
$
3.2

We recognized in product revenue net gains of $0.1 million and $1.2 million for the settlement of certain effective cash flow hedge instruments for the three and six months ended June 30, 2013, respectively, as compared to $13.6 million and $19.0 million, respectively, in the prior year comparative periods. These settlements were recorded in the same period as the related revenues were generated.

19

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

In relation to our foreign currency forward contracts, due to hedge ineffectiveness, we recognized in other income (expense) net gains of $0.1 million and $0.3 million for the three and six months ended June 30, 2013, respectively, as compared to $1.3 million and $3.2 million, respectively, in the prior year comparative periods.
Foreign Currency Forward Contracts - Other Derivatives
We also enter into other foreign currency forward contracts, usually with one month durations, to mitigate the foreign currency risk related to certain balance sheet positions. We have not elected hedge accounting for these transactions.
The aggregate notional amount of these other outstanding foreign currency contracts was $188.6 million and $243.2 million as of June 30, 2013 and December 31, 2012, respectively. Net gains of $0.6 million and $1.5 million related to these contracts were recognized as a component of other income (expense), net, for the three and six months ended June 30, 2013, respectively, as compared to $15.9 million and $11.4 million, respectively, in the prior year comparative periods.
Summary of Derivatives
While certain of our derivatives are subject to netting arrangements with our counterparties, we do not offset derivative assets and liabilities within our condensed consolidated balance sheets.
The following table summarizes the fair value and presentation in our condensed consolidated balance sheets for our outstanding derivatives including those designated as hedging instruments:
(In millions)
Balance Sheet Location
Fair Value As of June 30, 2013
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
5.3

Liability derivatives
Accrued expenses and other
$
5.1

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
0.6

Liability derivatives
Accrued expenses and other
$
0.8

 
 
 
(In millions)
Balance Sheet Location
Fair Value As of December 31, 2012
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
0.6

Liability derivatives
Accrued expenses and other
$
11.5

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
1.2

Liability derivatives
Accrued expenses and other
$
2.9

10.
Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost, net of accumulated depreciation. Accumulated depreciation on property, plant and equipment was $1,030.4 million and $941.1 million as of June 30, 2013 and December 31, 2012, respectively.
For the three and six months ended June 30, 2013, we capitalized interest costs related to construction in progress totaling approximately $1.9 million and $5.0 million, respectively, as compared to $8.6 million and $16.8 million, respectively, in the prior year comparative periods.

20

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

Cambridge Leases
In July 2011, we executed leases for two office buildings currently under construction in Cambridge, Massachusetts with a planned occupancy during the second half of 2013. Construction of these facilities began in late 2011. In accordance with accounting guidance applicable to entities involved with the construction of an asset that will be leased when the construction is completed, we are considered the owner of these properties during the construction period. Accordingly, we record an asset along with a corresponding financing obligation on our condensed consolidated balance sheet for the amount of total project costs incurred related to the construction in progress for these buildings. As of June 30, 2013 and December 31, 2012, cost incurred by the developer in relation to the construction of these buildings totaled approximately $131.9 million and $86.5 million, respectively. In July 2013, one of the office buildings was completed. We will assess and determine if the assets and corresponding liabilities should be derecognized during the third quarter of 2013. Upon completion of the second building, we will assess and determine if the remaining assets and corresponding liabilities should also be derecognized.
As a result of our decision to relocate our corporate headquarters in Cambridge, Massachusetts, we expect to vacate part of our Weston, Massachusetts facility in the second half of 2013. We expect to incur a charge between $20.0 million and $30.0 million in connection with this process. This estimate represents our remaining lease obligation for the vacated portion of our Weston facility, net of sublease income expected to be received.
Hillerød, Denmark Facility
As of September 2012, our large-scale biologics manufacturing facility in Hillerød, Denmark was ready for its intended use as we began the process of manufacturing clinical products for sale to third parties. As a result, we transferred $465.9 million from construction in progress to various fixed asset accounts. We ceased capitalizing a majority of the interest expense and began recording depreciation on the various assets during the third quarter of 2012. The average estimated useful life for the facility and its assets is 20 years. In July 2013, the facility was approved by the FDA and EMA for the manufacture of commercial TYSABRI.
Research Triangle Park (RTP) Lease
In December 2012, we entered into an arrangement with Eisai, Inc. (Eisai) to lease a portion of their facility in RTP to manufacture our and Eisai's oral solid dose products and for Eisai to provide us with vial-filling services for biologic therapies and packaging services for oral solid dose products. The 10 year operating lease agreement, which is cancellable after 5 years, became effective in February 2013 and gives us the option to purchase the facility. 
11.
Indebtedness
Credit Facility
In March 2013, we entered into a $750.0 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 a financial covenant that requires us to not exceed a maximum debt to EBITDA ratio. This facility terminates in March 2014. As of June 30, 2013, we had no outstanding borrowings and were in compliance with all covenants.
Senior Notes
On March 1, 2013, we repaid the $450.0 million principal amount of our 6.0% Senior Notes.
12.
Equity
Total equity as of June 30, 2013 increased $938.4 million compared to December 31, 2012. This increase was primarily driven by net income attributable to Biogen Idec Inc. of $917.4 million and an increase in additional paid in capital resulting from our share-based compensation arrangements totaling $63.5 million partially offset by repurchases of our common stock totaling $41.0 million.
Share Repurchases
In February 2011, our Board of Directors authorized the repurchase of up to 20.0 million shares of common stock. This authorization does not have an expiration date. During the six months ended June 30, 2013, we repurchased approximately 0.3 million shares at a cost of $41.0 million. During the six months ended June 30, 2012, we repurchased approximately 7.3 million shares at a cost of approximately $910.0 million
Approximately 5.9 million shares of our common stock remain available for repurchase under the 2011 authorization.

21

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

Noncontrolling Interests
The following table reconciles equity attributable to noncontrolling interests:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Noncontrolling interests, beginning of period
$
0.6

 
$
2.6

 
$
2.3

 
$
1.5

Net income attributable to noncontrolling interests, net of tax

 
0.3

 

 

Currency translation adjustment

 

 

 
0.1

Deconsolidation of noncontrolling interest

 
(0.5
)
 
(1.7
)
 
(0.5
)
Distributions to noncontrolling interests

 

 

 
1.3

Noncontrolling interests, end of period
$
0.6

 
$
2.4

 
$
0.6

 
$
2.4

For additional information related to our deconsolidation of noncontrolling interests related to Knopp Neurosciences, Inc. in March 2013, please read Note 18, Investments in Variable Interest Entities to these condensed consolidated financial statements.
13.
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss), net of tax by component:
(In millions)
Unrealized Gains (Losses) on Securities Available for Sale
 
Unrealized Gains (Losses) on Foreign Currency Forward Contracts
 
Unfunded Status of Postretirement Benefit Plans
 
Translation Adjustments
 
Total
Balance, as of December 31, 2012
$
4.2

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

 
10.2

 
2.3

 
(16.4
)
 
3.9

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

 

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

 
9.3

 
2.3

 
(16.4
)
 
0.2

Balance, as of June 30, 2013
$
9.2

 
$
(1.4
)
 
$
(19.4
)
 
$
(43.5
)
 
$
(55.1
)
The following table summarizes the amounts reclassified from accumulated other comprehensive income:
(In millions)
Income Statement Location
Amounts Reclassified from Accumulated Other Comprehensive Income
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
2013
 
2012
 
2013
 
2012
Gains (losses) on securities available for sale
Other income (expense)
$

 
$
(0.7
)
 
$
4.3

 
$
(0.8
)
 
Income tax expense

 
0.3

 
(1.5
)
 
0.3

 
 
 
 
 
 
 
 
 
Gains (losses) on foreign currency forward contracts
Revenues
0.1

 
13.6

 
1.2

 
19.0

 
Income tax expense
(0.2
)
 
(1.3
)
 
(0.3
)
 
(1.9
)
 
 
 
 
 
 
 
 
 
Total reclassifications, net of tax
 
$
(0.1
)
 
$
11.9

 
$
3.7

 
$
16.6


22

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

Securities Available for Sale
Balances included within accumulated other comprehensive income (loss) related to unrealized gains (losses) on securities available for sale are shown net of tax of $5.4 million and $2.5 million as of June 30, 2013 and December 31, 2012, respectively. Other comprehensive income (loss) before reclassifications recognized during the six months ended June 30, 2013 are shown net of tax of $4.4 million.
Foreign Currency Forward Contracts
Balances included within accumulated other comprehensive income (loss) related to unrealized gains (losses) on foreign currency forward contracts are shown net of tax of $0.4 million and $1.1 million as of June 30, 2013 and December 31, 2012, respectively. Other comprehensive income (loss) before reclassifications recognized during the six months ended June 30, 2013 are shown net of tax of $1.8 million.
Postretirement Benefit Plans
Tax amounts related to the unfunded status of pension and retirement benefit plans were immaterial for all amounts presented.
14.
Earnings per Share
Basic and diluted earnings per share are calculated as follows:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
Net income attributable to Biogen Idec Inc.
$
490.7

 
$
386.8

 
$
917.4

 
$
689.5

Denominator:
 
 
 
 
 
 
 
Weighted average number of common shares outstanding
237.5

 
239.0

 
237.2

 
239.4

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options and employee stock purchase plan
0.3

 
0.6

 
0.4

 
0.6

Time-vested restricted stock units
0.6

 
0.8

 
0.7

 
1.0

Market stock units
0.3

 
0.2

 
0.3

 
0.2

Dilutive potential common shares
1.2

 
1.6

 
1.4

 
1.8

Shares used in calculating diluted earnings per share
238.7

 
240.6

 
238.5

 
241.2

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

23

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

15.
Share-based Payments
Share-based Compensation Expense
The following table summarizes share-based compensation expense included within our condensed consolidated statements of income:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Research and development
$
23.7

 
$
18.1

 
$
48.9

 
$
37.8

Selling, general and administrative
45.4

 
25.0

 
79.7

 
53.8

Subtotal
69.1

 
43.1

 
128.6

 
91.6

Capitalized share-based compensation costs
(2.7
)
 
(1.3
)
 
(5.0
)
 
(2.5
)
Share-based compensation expense included in total cost and expenses
66.4

 
41.8

 
123.6

 
89.1

Income tax effect
(20.3
)
 
(12.7
)
 
(36.9
)
 
(27.1
)
Share-based compensation expense included in net income attributable to Biogen Idec Inc.
$
46.1

 
$
29.1

 
$
86.7

 
$
62.0

The following table summarizes share-based compensation expense associated with each of our share-based compensation programs:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Stock options
$
0.1

 
$
0.8

 
$
0.4

 
$
0.9

Market stock units
6.6

 
5.6

 
15.1

 
11.6

Time-vested restricted stock units
24.8

 
22.2

 
51.9

 
48.1

Performance-vested restricted stock units settled in shares

 

 

 
0.1

Cash settled performance shares
35.8

 
13.9

 
56.2

 
28.7

Employee stock purchase plan
1.8

 
0.6

 
5.0

 
2.2

Subtotal
69.1

 
43.1

 
128.6

 
91.6

Capitalized share-based compensation costs
(2.7
)
 
(1.3
)
 
(5.0
)
 
(2.5
)
Share-based compensation expense included in total cost and expenses
$
66.4

 
$
41.8

 
$
123.6

 
$
89.1

Grants Under Share-based Compensation Plans
The following table summarizes our equity grants to employees, officers and directors under our current stock plans:
 
For the Six Months
Ended June 30,
 
2013
 
2012
Market stock units
257,000

 
302,000

Cash settled performance shares
271,000

 
327,000

Time-vested restricted stock units
680,000

 
865,000

No performance-vested restricted stock units or stock options were granted during the six months ended June 30, 2013 and 2012. In addition, for the six months ended June 30, 2013, approximately 160,000 shares were issued under our employee stock purchase plan (ESPP) compared to approximately 168,000 shares issued in the prior year comparative period.

24

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

16.
Income Taxes
For the three and six months ended June 30, 2013, our effective tax rate was 24.4% and 19.6%, respectively, as compared to 23.8% and 22.7%, respectively, in the prior year comparative periods.
A reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2013
 
2012
 
2013
 
2012
Statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
 
35.0
 %
State taxes
1.9

 
0.8

 
4.4

 
0.8

Taxes on foreign earnings
(7.2
)
 
(7.6
)
 
(8.4
)
 
(7.9
)
Credits and net operating loss utilization
(3.5
)
 
(3.9
)
 
(3.4
)
 
(3.8
)
Purchased intangible assets
1.8

 
1.1

 
1.5

 
1.1

Manufacturing deduction
(2.4
)
 
(2.1
)
 
(11.1
)
 
(2.1
)
Other permanent items
(1.0
)
 
(0.3
)
 
1.8

 
(1.0
)
Other
(0.2
)
 
0.8

 
(0.2
)
 
0.6

Effective tax rate
24.4
 %
 
23.8
 %
 
19.6
 %
 
22.7
 %
The increase in our tax rate for the three months ended June 30, 2013 compared to the same period in 2012, is primarily attributable to the commercial launch of TECFIDERA in the United States, which has resulted in a higher relative percentage of our earnings being recognized in the U.S., a higher tax jurisdiction. In addition, in 2013 we are recognizing the unfavorable effect of the amortization of the deferred charge relating to the Daclizumab program noted below, reduced expenditures eligible for the orphan drug credit and higher state taxes. These factors were partially offset by the revaluation of uncertain tax positions due to new information received related to our U.S. federal manufacturing deduction discussed below and lower intercompany royalties owed by a foreign wholly owned subsidiary to a U.S. wholly owned subsidiary on the international sales of one of our products.
For the six months ended June 30, 2013, the reduction in our income tax rate compared to the same period in 2012, was primarily the result of a change in our uncertain tax position related to our U.S. federal manufacturing deduction, described below, lower intercompany royalties owed by a foreign wholly owned subsidiary to a U.S. wholly owned subsidiary on the international sales of one of our products and the reinstatement of the federal research and development credit. These favorable items were partially offset by higher relative earnings in the United States from the launch of TECFIDERA, lower orphan drug credits due to reduced expenditures in eligible clinical trials and higher state taxes.
The change in the state taxes, manufacturing deduction and other permanent items of the effective tax rate reconciliation for the periods disclosed above is primarily related to changes in the valuation of our federal uncertain tax positions, in "Accounting for Uncertainty in Income Taxes" discussed further below.
During the three months ended June 30, 2013, we recorded a deferred charge of $203.7 million in connection with certain intercompany transfers of the intellectual property for Daclizumab. The deferred charge will be amortized to income tax expense over the economic life of the Daclizumab program. If the Daclizumab program were to be discontinued, we will accelerate the amortization of this deferred charge and record an expense equal to its remaining net book value.
Accounting for Uncertainty in Income Taxes
We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in the U.S. federal jurisdiction, various U.S. states, and foreign jurisdictions. With few exceptions, including the proposed disallowance we discuss below, we are no longer subject to U.S. federal tax examination for years before 2010 or state, local, or non-U.S. income tax examinations for years before 2004.

25

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

Federal Uncertain Tax Positions
During the three months ended March 31, 2013, we received updated technical guidance from the IRS concerning our current and prior year filings and calculation of our U.S. federal manufacturing deduction related to our unconsolidated joint business. Based on this guidance we reevaluated the level of our unrecognized benefits related to uncertain tax positions, and recorded a $33.0 million benefit, which is net of ancillary federal and state tax effects. This benefit is for a previously unrecognized position and relates to years 2005 through 2012 and is net of a $10.0 million expense for non-income based state taxes, which is recorded in other income (expense) within our condensed consolidated statements of income. During the three months ended June 30, 2013, we remeasured the uncertain tax position upon receiving new information and recorded a net benefit of approximately $7.4 million.
In October 2011, in conjunction with our examination, the IRS proposed a disallowance of approximately $130 million in deductions for tax years 2007, 2008 and 2009 related to payments for services provided by our wholly owned Danish subsidiary located in Hillerød, Denmark. We believe that these items represent valid deductible business expenses and are vigorously defending our position.
It is reasonably possible that we will adjust the value of our uncertain tax positions related to the manufacturing deduction as we receive additional information from various taxing authorities. We do not anticipate any other significant changes in our positions in the next twelve months other than expected settlements which have been classified as current liabilities within the accompanying balance sheet.
State Uncertain Tax Positions
On June 8, 2010, we received Notices of Assessment from the Massachusetts Department of Revenue (DOR) against Biogen Idec MA Inc. (BIMA), one of our wholly-owned subsidiaries, for $103.5 million of corporate excise tax, including associated interest and penalties, related to our 2004, 2005 and 2006 state tax filings. The assessment asserted that the portion of sales attributable to Massachusetts, the computation of BIMA's research and development credits and certain deductions claimed by BIMA were not appropriate. On February 3, 2013, we filed a petition with the Massachusetts Appellate Tax Board (Massachusetts ATB) appealing the denial of our application for abatement. We have been in discussions with the Massachusetts DOR to resolve our outstanding matters and have recorded adjustments to our uncertain tax positions to reflect those discussions and our best estimate of the outcome.
The audits of our state tax filings for 2007 and 2008 are not completed. As these filings were prepared in a manner consistent with prior filings, we may receive an assessment for those years as well. Due to tax law changes effective January 1, 2009, the computation and deductions at issue in previous tax filings are not part of our subsequent tax filings in Massachusetts.
We believe that these assessments do not impact the amount of liabilities for income tax contingencies. However, there is a possibility that we may not prevail in defending all of our assertions with the Massachusetts DOR. If these matters are resolved unfavorably in the future, the resolution could have a material adverse impact on our effective tax rate and our results of operations.
17.
Other Consolidated Financial Statement Detail
Other Income (Expense), Net
Components of other income (expense), net, are summarized as follows:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2013
 
2012
 
2013
 
2012
Interest income
$
0.9

 
$
10.2

 
$
5.2

 
$
16.7

Interest expense
(7.3
)
 
(7.0
)
 
(18.9
)
 
(14.4
)
Impairments of investments
(1.4
)
 
(0.8
)
 
(1.7
)
 
(1.3
)
Gain (loss) on investments, net
5.7

 
2.5

 
10.1

 
14.3

Foreign exchange gains (losses), net
(5.3
)
 
(1.3
)
 
(7.9
)
 
0.1

Other, net
(3.0
)
 
(0.6
)
 
(11.7
)
 
2.7

Total other income (expense), net
$
(10.4
)
 
$
3.0

 
$
(24.9
)
 
$
18.1


26

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

Accrued Expenses and Other
Accrued expenses and other consists of the following:
(In millions)
As of
June 30,
2013
 
As of
December 31,
2012
Revenue-related rebates
$
218.6

 
$
191.0

Employee compensation and benefits
213.3

 
248.5

Deferred revenue