10-Q 1 biib-2014331x10q.htm 10-Q BIIB-2014.3.31-10Q


 
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 March 31, 2014
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19311
BIOGEN IDEC INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
33-0112644
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
225 Binney Street, Cambridge, MA 02142
(617) 679-2000
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company  o
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  o    No  x
The number of shares of the issuer’s Common Stock, $0.0005 par value, outstanding as of April 18, 2014, was 237,199,825 shares.
 





BIOGEN IDEC INC.
FORM 10-Q — Quarterly Report
For the Quarterly Period Ended March 31, 2014
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II — OTHER INFORMATION
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 


2


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, contingent payments, milestone, royalty and other payments under licensing, collaboration or acquisition agreements, tax positions and contingencies, doubtful accounts, pre-approval inventory, cost of sales, research and development costs, compensation and other expenses, amortization of intangible assets, and foreign currency forward contracts;
the potential 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;
the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to patents and other proprietary and intellectual property rights, tax audits, assessments and settlements, product liability and other matters;
the expected timing and financial impact of the final resolution of our dispute with the Italian National Medicines Agency relating to sales of TYSABRI;
the costs, timing, potential approval and therapeutic scope of the development and commercialization of our pipeline products;
the potential impact of healthcare reform in the U.S. and measures being taken worldwide designed to reduce healthcare costs to constrain the overall level of government expenditures, including the impact of pricing actions in Europe and elsewhere and reduced reimbursement for our products;
our ability to finance our operations and business initiatives and obtain funding for such activities;
the impact of new laws and accounting standards; and
the drivers for growing our business, including our plans to pursue business development and research opportunities, and competitive conditions.
These forward-looking statements involve risks and uncertainties, including those that are described in the “Risk Factors” section of this report and elsewhere within this report that could cause actual results to differ materially from those reflected in such statements. You should not place undue reliance on these statements. Forward-looking statements speak only as of the date of this report. We do not undertake any obligation to publicly update any forward-looking statements.
NOTE REGARDING COMPANY AND PRODUCT REFERENCES
Throughout this report, “Biogen Idec,” the “Company,” “we,” “us” and “our” refer to Biogen Idec Inc. and its consolidated subsidiaries. References to “RITUXAN” refer to both RITUXAN (the trade name for rituximab in the U.S., Canada and Japan) and MabThera (the trade name for rituximab outside the U.S., Canada and Japan), and “ANGIOMAX” refers to both ANGIOMAX (the trade name for bivalirudin in the U.S., Canada and Latin America) and ANGIOX (the trade name for bivalirudin in Europe).
NOTE REGARDING TRADEMARKS
AVONEX®, RITUXAN®, TECFIDERA®, and TYSABRI® are registered trademarks of Biogen Idec. ALPROLIXTM, ELOCTATETM, FUMADERMTM and PLEGRIDYTM are trademarks of Biogen Idec. The following are trademarks of the respective companies listed: ANGIOMAX® and ANGIOXTM — The Medicines Company; ARZERRA® — Glaxo Group Limited; BENLYSTA® — GlaxoSmithKline Intellectual Property Limited; BETASERON®— Bayer Schering Pharma AG; EXTAVIA® — Novartis AG; FAMPYRA® — Acorda Therapeutics, Inc.; GAZYVATM —  Genentech, Inc.; and REBIF® — Ares Trading S.A.

3


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 March 31,
 
2014
 
2013
Revenues:
 
 
 
Product, net
$
1,742,765

 
$
1,095,779

Unconsolidated joint business
296,885

 
264,606

Other
90,101

 
54,711

Total revenues
2,129,751

 
1,415,096

Cost and expenses:
 
 
 
Cost of sales, excluding amortization of acquired intangible assets
279,245

 
133,749

Research and development
528,884

 
284,340

Selling, general and administrative
511,674

 
352,598

Amortization of acquired intangible assets
143,258

 
51,301

Collaboration profit sharing

 
85,357

(Gain) loss on fair value remeasurement of contingent consideration
(799
)
 
2,277

Total cost and expenses
1,462,262

 
909,622

Gain on sale of rights
3,859

 
5,051

Income from operations
671,348

 
510,525

Other income (expense), net
(5,601
)
 
(14,457
)
Income before income tax expense and equity in loss of investee, net of tax
665,747

 
496,068

Income tax expense
178,414

 
65,508

Equity in loss of investee, net of tax
7,605

 
3,811

Net income
479,728

 
426,749

Net income (loss) attributable to noncontrolling interests, net of tax
(228
)
 

Net income attributable to Biogen Idec Inc.
$
479,956

 
$
426,749

Net income per share:
 
 
 
Basic earnings per share attributable to Biogen Idec Inc.
$
2.03

 
$
1.80

Diluted earnings per share attributable to Biogen Idec Inc.
$
2.02

 
$
1.79

Weighted-average shares used in calculating:
 
 
 
Basic earnings per share attributable to Biogen Idec Inc.
236,786

 
236,837

Diluted earnings per share attributable to Biogen Idec Inc.
237,849

 
238,304












See accompanying notes to these unaudited condensed consolidated financial statements.

4


BIOGEN IDEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 
 
For the Three Months
Ended March 31,
 
2014
 
2013
Net income attributable to Biogen Idec Inc.
$
479,956

 
$
426,749

Other comprehensive income:
 
 
 
Unrealized gains (losses) on securities available for sale, net of tax of $1,014 and $654
1,725

 
(1,117
)
Unrealized gains on foreign currency forward contracts, net of tax of $265 and $1,421
5,791

 
11,603

Unrealized gains on pension benefit obligation
817

 
1,263

Currency translation adjustment
(2,944
)
 
(24,419
)
Total other comprehensive income (loss), net of tax
5,389

 
(12,670
)
Comprehensive income attributable to Biogen Idec Inc.
485,345

 
414,079

Comprehensive income (loss) attributable to noncontrolling interests, net of tax
(228
)
 

Comprehensive income
$
485,117

 
$
414,079






































See accompanying notes to these unaudited condensed consolidated financial statements.

5


BIOGEN IDEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share amounts)
 
 
As of March 31,
2014
 
As of December 31,
2013
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
828,601

 
$
602,562

Marketable securities
431,610

 
620,167

Accounts receivable, net
1,018,487

 
824,406

Due from unconsolidated joint business, net
278,316

 
252,662

Inventory
672,750

 
659,003

Other current assets
295,260

 
226,134

Total current assets
3,525,024

 
3,184,934

Marketable securities
724,272

 
625,772

Property, plant and equipment, net
1,744,266

 
1,750,710

Intangible assets, net
4,364,384

 
4,474,653

Goodwill
1,232,916

 
1,232,916

Investments and other assets
639,269

 
594,350

Total assets
$
12,230,131

 
$
11,863,335

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Current portion of notes payable and line of credit
$
3,550

 
$
3,494

Taxes payable
161,045

 
179,685

Accounts payable
212,809

 
219,913

Accrued expenses and other
1,216,843

 
1,355,187

Total current liabilities
1,594,247

 
1,758,279

Notes payable
591,012

 
592,433

Long-term deferred tax liability
200,901

 
232,554

Other long-term liabilities
702,908

 
659,231

Total liabilities
3,089,068

 
3,242,497

Commitments and contingencies


 


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

 

Common stock, par value $0.0005 per share
128

 
128

Additional paid-in capital
4,054,774

 
4,023,651

Accumulated other comprehensive loss
(22,355
)
 
(27,745
)
Retained earnings
6,829,091

 
6,349,135

Treasury stock, at cost
(1,724,927
)
 
(1,724,927
)
Total Biogen Idec Inc. shareholders’ equity
9,136,711

 
8,620,242

Noncontrolling interests
4,352

 
596

Total equity
9,141,063

 
8,620,838

Total liabilities and equity
$
12,230,131

 
$
11,863,335



See accompanying notes to these unaudited condensed consolidated financial statements.

6



BIOGEN IDEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
 
For the Three Months
Ended March 31,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
479,728

 
$
426,749

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
190,963

 
97,453

Share-based compensation
46,340

 
36,757

Deferred income taxes
(79,558
)
 
(66,525
)
Other
(71,476
)
 
(33,442
)
Changes in operating assets and liabilities, net:
 
 
 
Accounts receivable
(197,685
)
 
(75,546
)
Inventory
(16,980
)
 
(60,809
)
Accrued expenses and other current liabilities
(171,368
)
 
(180,910
)
Other changes in operating assets and liabilities, net
(75,338
)
 
35,212

Net cash flows provided by operating activities
104,626

 
178,939

Cash flows from investing activities:
 
 
 
Proceeds from sales and maturities of marketable securities
757,512

 
4,329,506

Purchases of marketable securities
(666,211
)
 
(1,160,680
)
Purchases of reverse repurchase agreements

 
(2,968,000
)
Purchases of property, plant and equipment
(54,306
)
 
(33,289
)
Acquisitions of business, net of cash acquired
(25,000
)
 

Other
(6,002
)
 
(11,596
)
Net cash flows provided by investing activities
5,993

 
155,941

Cash flows from financing activities:
 
 
 
Purchase of treasury stock

 
(41,023
)
Proceeds from issuance of stock for share-based compensation arrangements
22,363

 
21,817

Repayment of borrowings under senior notes

 
(450,000
)
Proceeds from borrowings under line of credit facility

 
200,000

Excess tax benefit from stock options
79,456

 
37,397

Other
13,056

 
(6,615
)
Net cash flows provided by (used in) financing activities
114,875

 
(238,424
)
Net increase (decrease) in cash and cash equivalents
225,494

 
96,456

Effect of exchange rate changes on cash and cash equivalents
545

 
(3,875
)
Cash and cash equivalents, beginning of the period
602,562

 
570,721

Cash and cash equivalents, end of the period
$
828,601

 
$
663,302












See accompanying notes to these unaudited condensed consolidated financial statements.

7

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


1.
Summary of Significant Accounting Policies
Business Overview
Biogen Idec is a global biotechnology company focused on discovering, developing, manufacturing and marketing therapies for the treatment of multiple sclerosis (MS) and other autoimmune disorders, neurodegenerative diseases and hemophilia. We also collaborate on the development and commercialization of RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia and other conditions and share profits and losses for GAZYVA for the treatment of chronic lymphocytic leukemia.
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial statements for interim periods in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The information included in this quarterly report on Form 10-Q should be read in conjunction with our consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K). Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2013 Form 10-K and updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
Consolidation
Our condensed consolidated financial statements reflect our financial statements, those of our wholly-owned subsidiaries and those of certain variable interest entities where we are the primary beneficiary. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interests in our condensed consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.
In determining whether we are the primary beneficiary of an entity and therefore required to consolidate, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. These considerations impact the way we account for our existing collaborative relationships and other arrangements. We continuously assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in us consolidating or deconsolidating our collaborator(s) or 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.
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 $1,163.9 million and $1,118.3 million as of March 31, 2014 and December 31, 2013, respectively.

8

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

Accounting for Share-Based Compensation
During the three months ended March 31, 2014, under our share-based compensation program we began to grant awards for performance-vested restricted stock units, which can be settled in cash or shares of our common stock (PUs) at the sole discretion of the Compensation and Management Development Committee of the Board of Directors. We have classified these plans as a liability as, historically, similar plans have been settled in cash. We record the estimated fair value of PUs as compensation expense over the requisite service period, which is generally the vesting period. Where awards are made with non-substantive vesting periods (for instance, where a portion of the award vests upon retirement eligibility), we estimate and recognize expense, net of forfeitures, over the period from the grant date to the date on which the employee is retirement eligible.
We apply an accelerated attribution method to recognize share based compensation expense when accounting for our PUs and the fair value of the liability is remeasured at the end of each reporting period through expected settlement. Compensation expense associated with PUs is based upon the share price and the number of units expected to be earned after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures. Cumulative adjustments are recorded each quarter to reflect changes in the share price and estimated outcome of the performance-related conditions until the date results are determined and settled.
2.
Accounts Receivable
Our accounts receivable primarily arise from product sales in the U.S. and Europe and mainly represent amounts due from our wholesale distributors, public hospitals and other government entities. Concentrations of credit risk with respect to our accounts receivable, which are typically unsecured, are limited due to the wide variety of customers and markets using our products, as well as their dispersion across many different geographic areas. The majority of our accounts receivable have standard payment terms which generally require payment within 30 to 90 days. We monitor the financial performance and credit worthiness of our large customers so that we can properly assess and respond to changes in their credit profile. We provide reserves against trade receivables for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve. To date, our historical reserves and write-offs of accounts receivable have not been significant.
The credit and economic conditions within Italy, Spain and Portugal, among other members of the E.U. continue to remain uncertain. Uncertain credit and economic conditions have generally led to a lengthening of time to collect our accounts receivable in some of these countries. In Portugal and select regions in Spain and Italy, where our collections have slowed and a significant portion of these receivables are routinely being collected beyond our contractual payment terms and over periods in excess of one year, we have discounted our receivables and reduced related revenues based on the period of time that we estimate those amounts will be paid, to the extent such period exceeds one year, using the country’s market-based borrowing rate for such period. The related receivables are classified at the time of sale as non-current assets. We accrete interest income on these receivables, which is recognized as a component of other income (expense), net within our condensed consolidated statements of income.
Our net accounts receivable balances from product sales in selected European countries are summarized as follows:
 
As of March 31, 2014
(In millions)
Current
Balance Included
within Accounts
Receivable, net
 
Non-Current
Balance Included
within Investments
and Other Assets
 
Total
Spain
$
47.3

 
$
8.1

 
$
55.4

Italy
$
82.3

 
$
0.9

 
$
83.2

Portugal
$
10.4

 
$
11.1

 
$
21.5

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

 
$
6.8

 
$
120.1

Italy
$
76.1

 
$
2.4

 
$
78.5

Portugal
$
10.4

 
$
8.2

 
$
18.6


9

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

Approximately $15.5 million and $45.9 million of the total net accounts receivable balances for these countries were overdue more than one year as of March 31, 2014 and December 31, 2013, respectively. During the first quarter of 2014, we received approximately $59.6 million in payments from Spain related to receivables aged greater than one year. During the fourth quarter of 2013, Portugal remitted approximately $10.0 million of funds against receivables aged greater than two years.
Pricing of TYSABRI in Italy - AIFA
In the fourth quarter of 2011, Biogen Idec Italia SRL, our Italian subsidiary, received a notice from the Italian National Medicines Agency (Agenzia Italiana del Farmaco or AIFA) stating that sales of TYSABRI for the period from 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.
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 for each biannual period. As of March 31, 2014, we have deferred an aggregate amount of $143.2 million, of which $15.2 million was deferred during the three months ended March 31, 2014.
In July 2013, we negotiated an agreement in principle with AIFA's Price and Reimbursement Committee that would have resolved all of AIFA's claims relating to sales of TYSABRI in excess of the reimbursement limit for the periods between February 2009 through February 2013 for an aggregate repayment of EUR33.3 million. The agreement was sent to the Avvocatura Generale dello Stata (Attorney General) for its opinion. As a result of this agreement, we recorded a liability and reduction to revenue of EUR15.4 million at June 30, 2013. That adjustment approximates 50% of the claim related to the period from February 2009 through February 2011 as the likelihood of making a payment to resolve AIFA's claims for this period was then probable and the amount could be estimated.
During the first quarter of 2014, following receipt of a report from the Attorney General, AIFA's Price and Reimbursement Committee chose not to finalize the July 2013 agreement, but to instead enter into a new agreement with Biogen Idec Italia SRL that would eliminate the reimbursement limit beginning in February 2013. The agreement is pending approval by the AIFA Board of Directors and would be effective for a 24-month term following its subsequent publication in the Official Gazette.
With respect to the February 2009 through February 2013 period, AIFA and Biogen Idec Italia SRL remain in discussions about a resolution. We continue to believe that a settlement with AIFA and ratification of all interested parties in Italy is probable and have retained the EUR15.4 million liability recorded as of June 30, 2013.
We will continue to defer revenue until a pricing agreement is approved. Upon approval of a pricing agreement, related to the periods subsequent to February 2013, TYSABRI revenues that were deferred subsequent to February 2013 will be recognized as revenue based on the agreed-upon price. For additional information, please read Note 18, Litigation to these condensed consolidated financial statements.
3.
Reserves for Discounts and Allowances
An analysis of the change in reserves for discounts and allowances is summarized as follows:
(In millions)
Discounts
 
Contractual
Adjustments
 
Returns
 
Total
Balance, as of December 31, 2013
$
47.0

 
$
335.6

 
$
33.7

 
$
416.3

Current provisions relating to sales in current year
78.2

 
293.2

 
7.1

 
378.5

Adjustments relating to prior years
(1.4
)
 
(2.1
)
 
4.4

 
0.9

Payments/returns relating to sales in current year
(30.7
)
 
(91.4
)
 
(0.1
)
 
(122.2
)
Payments/returns relating to sales in prior years
(41.2
)
 
(159.0
)
 
(8.3
)
 
(208.5
)
Balance, as of March 31, 2014
$
51.9

 
$
376.3

 
$
36.8

 
$
465.0


10

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

The total reserves above, included in our condensed consolidated balance sheets, are summarized as follows:
(In millions)
As of March 31,
2014
 
As of December 31,
2013
Reduction of accounts receivable
$
134.5

 
$
151.4

Component of accrued expenses and other
330.5

 
264.9

Total reserves
$
465.0

 
$
416.3

4.
Inventory
The components of inventory are summarized as follows:
(In millions)
As of
March 31,
2014
 
As of
December 31,
2013
Raw materials
$
122.7

 
$
115.0

Work in process
421.2

 
435.4

Finished goods
128.9

 
108.6

Total inventory
$
672.8

 
$
659.0

As of March 31, 2014 and December 31, 2013, our inventory includes $81.7 million and $66.3 million, respectively, associated with our ELOCTATE and PLEGRIDY programs, which have been capitalized in advance of regulatory approval.
5.
Intangible Assets and Goodwill
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments, are summarized as follows:
 
 
 
As of March 31, 2014
 
As of December 31, 2013
(In millions)
Estimated
Life
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
Out-licensed patents
13-23 years
 
$
543.3

 
$
(458.3
)
 
$
85.0

 
$
578.0

 
$
(450.8
)
 
$
127.2

Developed 
technology
15-23 years
 
3,005.3

 
(2,224.3
)
 
781.0

 
3,005.3

 
(2,165.4
)
 
839.9

In-process research and development
Indefinite until commercialization
 
330.9

 

 
330.9

 
327.4

 

 
327.4

Trademarks and 
tradenames
Indefinite
 
64.0

 

 
64.0

 
64.0

 

 
64.0

Acquired and in-licensed rights 
and patents
6-17 years
 
3,269.6

 
(166.2
)
 
3,103.4

 
3,240.0

 
(123.8
)
 
3,116.2

Total intangible assets
 
 
$
7,213.1

 
$
(2,848.8
)
 
$
4,364.4

 
$
7,214.7

 
$
(2,740.0
)
 
$
4,474.7

For the three months ended March 31, 2014, amortization of acquired intangible assets totaled $143.3 million, as compared to $51.3 million, in the prior year comparative period. The increase in amortization for the three months ended March 31, 2014 was primarily driven by amortization recorded in relation to the intangible asset recorded upon our acquisition of 100% of the rights to TYSABRI from Elan Pharma International Ltd. (Elan) and an increase in the amount of amortization recorded in relation to our AVONEX intangible asset.
Out-licensed patents
Out-licensed patents to third-parties primarily relate to patents acquired in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. During the three months ended March 31, 2014, we recorded a charge of $34.7 million related to the impairment of one of our out-licensed patents to reflect a change in its estimated fair value, due to a change in the underlying competitive market for that product, which occurred during the first quarter of 2014. The charge is included in amortization of acquired intangibles. The fair value of the intangible asset was based on discounted cash flow calculation using Level 3 fair value measurements and inputs including estimated revenues.

11

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

Developed Technology
Developed technology primarily relates to our AVONEX product, which was recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. The net book value of this asset as of March 31, 2014 was $771.1 million. We amortize this intangible asset using the economic consumption method based on actual and expected revenues generated from the sales of our AVONEX product.
Acquired and In-licensed Rights and Patents
Acquired and in-licensed rights and patents primarily relates to our acquisition of the TYSABRI rights from Elan. The net intangible asset capitalized related to this acquisition was $3,178.3 million. In the second quarter of 2013, we began amortizing this intangible asset over the estimated useful life using an economic consumption method based on actual and expected revenues generated from the sales of our TYSABRI product. The net book value of this asset as of March 31, 2014 was $3,041.0 million. For a more detailed description of this transaction, please read Note 2, Acquisitions to our consolidated financial statements included within our 2013 Form 10-K.
The increase in acquired and in-licensed rights and patents during the three months ended March 31, 2014 was related to the $20.0 million contingent payment due to the former owners of Syntonix Pharmaceuticals, Inc., which became payable upon the approval of ALPROLIX in the U.S. by the U.S. Food and Drug Administration (FDA). We have recorded an additional $7.8 million of acquired in-licensed rights and patents related to this consideration, along with a corresponding deferred tax liability of the same amount.
Estimated Future Amortization of Intangible Assets
Our amortization expense is based on the economic consumption of the intangible assets. Our most significant intangible assets are related to our AVONEX and TYSABRI products. Annually, during our long-range planning cycle, we perform an analysis of anticipated lifetime revenues of AVONEX and TYSABRI. This analysis is updated whenever events or changes in circumstances would significantly affect the anticipated lifetime revenues of either product.
Our most recent long range planning cycle was updated in the third quarter of 2013, and included the impact of our acquisition of TYSABRI rights from Elan and a decrease in the expected future product revenues of AVONEX, resulting in an increase in amortization expense as compared to prior quarters. The results of our analysis were impacted by changes in the estimated impact of TECFIDERA, as well as other existing and potential oral and alternative MS formulations, including PLEGRIDY, that may compete with AVONEX and TYSABRI. Based upon this more recent analysis, the estimated future amortization for acquired intangible assets is expected to be as follows:
(In millions)
As of March 31, 2014
2014 (remaining nine months)
$
316.3

2015
334.7

2016
319.9

2017
323.2

2018
324.3

2019
304.1

Total
$
1,922.5

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

 
$
1,201.3

Increase to goodwill

 
35.7

Other

 
(4.1
)
Goodwill, end of period
$
1,232.9

 
$
1,232.9

As of March 31, 2014, we had no accumulated impairment losses related to goodwill.

12

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

6.
Fair Value Measurements
The tables below present information about our assets and liabilities that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques we utilized to determine such fair value:
(In millions)
As of
March 31,
2014
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
236.1

 
$

 
$
236.1

 
$

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
536.9

 

 
536.9

 

Government securities
466.7

 

 
466.7

 

Mortgage and other asset backed securities
152.2

 

 
152.2

 

Marketable equity securities
13.8

 
13.8

 

 

Venture capital investments
23.6

 

 

 
23.6

Derivative contracts
2.6

 

 
2.6

 

Plan assets for deferred compensation
32.9

 

 
32.9

 

Total
$
1,464.8

 
$
13.8

 
$
1,427.4

 
$
23.6

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
19.1

 
$

 
$
19.1

 
$

Contingent consideration obligations
275.1

 

 

 
275.1

Total
$
294.2

 
$

 
$
19.1

 
$
275.1

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

 
$

 
$
424.7

 
$

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
439.8

 

 
439.8

 

Government securities
674.7

 

 
674.7

 

Mortgage and other asset backed securities
131.4

 

 
131.4

 

Marketable equity securities
11.2

 
11.2

 

 

Venture capital investments
21.9

 

 

 
21.9

Derivative contracts
3.8

 

 
3.8

 

Plan assets for deferred compensation
22.7

 

 
22.7

 

Total
$
1,730.2

 
$
11.2

 
$
1,697.1

 
$
21.9

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
23.5

 
$

 
$
23.5

 
$

Contingent consideration obligations
280.9

 

 

 
280.9

Total
$
304.4

 
$

 
$
23.5

 
$
280.9

There have been no impairments of our assets measured and carried at fair value during the three months ended March 31, 2014. In addition, there were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the three months ended March 31, 2014. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities were determined through third party pricing services. For a description of our validation procedures related to prices provided by third party pricing services, refer to Note 1, Summary of Significant Accounting Policies: Fair Value Measurements, to our consolidated financial statements included within our 2013 Form 10-K.

13

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

Marketable Equity Securities and Venture Capital Investments
Our marketable equity securities represent investments in publicly traded equity securities. Our venture capital investments, which are all Level 3 measurements, include investments in certain venture capital funds, accounted for at fair value, that primarily invest in small privately-owned, venture-backed biotechnology companies. These venture capital investments represented approximately 0.2% of total assets as of March 31, 2014 and December 31, 2013, respectively.
The following table provides a roll forward of the fair value of our venture capital investments, which includes Level 3 measurements:
 
For the Three Months
Ended March 31,
(In millions)
2014
 
2013
Fair value, beginning of period
$
21.9

 
$
20.3

Unrealized gains included in earnings
2.9

 
0.6

Unrealized losses included in earnings
(1.2
)
 
(1.4
)
Purchases

 

Settlements

 
(1.5
)
Fair value, end of period
$
23.6

 
$
18.0

 Debt Instruments
The fair and carrying values of our debt instruments, which are Level 2 liabilities, are summarized as follows:
 
As of March 31, 2014
 
As of December 31, 2013
(In millions)
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
Notes payable to Fumedica
$
17.5

 
$
16.1

 
$
17.5

 
$
15.8

6.875% Senior Notes due March 1, 2018
647.6

 
578.5

 
647.9

 
580.1

Total
$
665.1

 
$
594.6

 
$
665.4

 
$
595.9

The fair value of our notes payable to Fumedica was estimated using market observable inputs, including current interest and foreign currency exchange rates. The fair value of our 6.875% Senior Notes was determined through market, observable, and corroborated sources. For additional information related to our debt instruments, please read Note 12, Indebtedness to our consolidated financial statements included within our 2013 Form 10K.
Contingent Consideration Obligations
The following table provides a roll forward of the fair values of our contingent consideration obligations which includes Level 3 measurements:
 
For the Three Months
Ended March 31,
(In millions)
2014
 
2013
Fair value, beginning of period
$
280.9

 
$
293.9

Additions

 

Changes in fair value
(0.8
)
 
2.3

Payments
(5.0
)
 
(2.5
)
Fair value, end of period
$
275.1

 
$
293.7

As of March 31, 2014 and December 31, 2013, approximately $254.1 million and $251.9 million, respectively, of the fair value of our total contingent consideration obligations were reflected as components of other long-term liabilities within our condensed consolidated balance sheets with the remaining balances reflected as a component of accrued expenses and other.

14

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

7.
Financial Instruments
Marketable Securities
The following tables summarize our marketable debt and equity securities:
As of March 31, 2014 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Available-for-sale:
 
 
 
 
 
 
 
Corporate debt securities
 
 
 
 
 
 
 
Current
$
135.7

 
$

 
$

 
$
135.7

Non-current
401.2

 
0.5

 
(0.2
)
 
400.9

Government securities
 
 
 
 
 
 
 
Current
295.9

 
0.1

 

 
295.8

Non-current
170.8

 

 
(0.1
)
 
170.9

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current

 

 

 

Non-current
152.2

 
0.1

 
(0.2
)
 
152.3

Total marketable debt securities
$
1,155.8

 
$
0.7

 
$
(0.5
)
 
$
1,155.6

Marketable equity securities, non-current
$
13.8

 
$
11.4

 
$
(0.1
)
 
$
2.5

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

 
$

 
$

 
$
100.7

Non-current
339.1

 
0.4

 
(0.1
)
 
338.8

Government securities
 
 
 
 
 
 
 
Current
519.5

 

 

 
519.5

Non-current
155.2

 

 
(0.1
)
 
155.3

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current

 

 

 

Non-current
131.4

 

 
(0.1
)
 
131.5

Total marketable debt securities
$
1,245.9

 
$
0.4

 
$
(0.3
)
 
$
1,245.8

Marketable equity securities, non-current
$
11.2

 
$
8.7

 
$

 
$
2.5

The following table summarizes our financial assets with maturities of less than 90 days from the date of purchase included within cash and cash equivalents on the accompanying condensed consolidated balance sheet:
(In millions)
As of
March 31,
2014
 
As of
December 31,
2013
Commercial paper
$
2.0

 
$
1.2

Overnight reverse repurchase agreements
44.1

 
22.4

Short-term debt securities
190.0

 
401.1

Total
$
236.1

 
$
424.7

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

15

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 March 31, 2014
 
As of December 31, 2013
(In millions)
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
Due in one year or less
$
431.6

 
$
431.5

 
$
620.2

 
$
620.2

Due after one year through five years
662.2

 
662.0

 
573.1

 
572.9

Due after five years
62.0

 
62.1

 
52.6

 
52.7

Total available-for-sale securities
$
1,155.8

 
$
1,155.6

 
$
1,245.9

 
$
1,245.8

The average maturity of our marketable debt securities available-for-sale as of March 31, 2014 and December 31, 2013 was 14 and 13 months, respectively.
Proceeds from Marketable Debt Securities
The proceeds from maturities and sales of marketable debt securities and resulting realized gains and losses are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions)
2014
 
2013
Proceeds from maturities and sales
$
757.5

 
$
4,329.5

Realized gains
$
0.2

 
$
6.3

Realized losses
$
(0.1
)
 
$
(2.0
)
Strategic Investments
As of March 31, 2014 and December 31, 2013, our strategic investment portfolio was comprised of investments totaling $66.1 million and $56.9 million, respectively, which are included in investments and other assets in our accompanying condensed consolidated balance sheets.
Our strategic investment portfolio includes investments in marketable equity securities of certain biotechnology companies and our investments in venture capital funds accounted for at fair value which totaled $37.5 million and $33.1 million as of March 31, 2014 and December 31, 2013, respectively. Our strategic investment portfolio also includes other equity investments in privately-held companies and additional investments in venture capital funds accounted for under the cost method. The carrying value of these investments totaled $28.6 million and $23.8 million as of March 31, 2014 and December 31, 2013, respectively.
Changes in Fair Value
During the three months ended March 31, 2014 and 2013, we realized changes in fair value recorded through income of $2.9 million and $0.3 million, respectively, on our strategic investment portfolio.
Impairments
For the three months ended March 31, 2014 and 2013, impairment charges on our marketable equity securities of certain biotechnology companies, investments in venture capital funds accounted for under the cost method and investments in privately-held companies were insignificant.

16

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

8.
Derivative Instruments
Foreign Currency Forward Contracts - Hedging Instruments
Due to the global nature of our operations, portions of our revenues are earned in currencies other than the U.S. dollar. The value of revenues measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. In order to mitigate these changes we use foreign currency forward contracts to lock in exchange rates associated with a portion of our forecasted international revenues.
Foreign currency forward contracts in effect as of March 31, 2014 and December 31, 2013 had durations of 1 to 21 months and 1 to 18 months, respectively. These contracts have been designated as cash flow hedges and accordingly, to the extent effective, any unrealized gains or losses on these foreign currency forward contracts are reported in accumulated other comprehensive income (loss) (referred to as AOCI in the tables below). Realized gains and losses for the effective portion of such contracts are recognized in revenue when the sale of product in the currency being hedged is recognized. 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
March 31,
2014
 
As of
December 31,
2013
Euro
$
819.0

 
$
636.3

Canadian dollar
27.5

 
34.0

British pound sterling
55.4

 
72.3

Total foreign currency forward contracts
$
901.9

 
$
742.6

The portion of the fair value of these foreign currency forward contracts that was included in accumulated other comprehensive income (loss) within total equity reflected losses of $17.5 million and $23.6 million as of March 31, 2014 and December 31, 2013, respectively. We expect all contracts to be settled over the next 21 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 March 31, 2014 and December 31, 2013, respectively, credit risk did not change the fair value of our foreign currency forward contracts.
The following table summarizes the effect of derivatives designated as hedging instruments on our condensed consolidated statements of income:
For the Three Months Ended March 31,
Net Gains/(Losses)
Reclassified from AOCI into Net Income
(Effective Portion)
 
Net Gains/(Losses)
Recognized into Net Income
(Ineffective Portion)
Location
 
2014
 
2013
 
Location
 
2014
 
2013
Revenue
 
$
(4.7
)
 
$
1.1

 
Other income (expense)
 
$
(0.2
)
 
$
0.2

Foreign Currency Forward Contracts - Other Derivatives
We also enter into other foreign currency forward contracts, usually with one month durations, to mitigate the foreign currency risk related to certain balance sheet positions. We have not elected hedge accounting for these transactions.
The aggregate notional amount of these outstanding foreign currency contracts was $303.2 million and $273.3 million as of March 31, 2014 and December 31, 2013, respectively. Net losses of $1.4 million and gains of $0.9 million related to these contracts were recognized as a component of other income (expense), net, for three months ended March 31, 2014 and 2013, respectively.

17

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

Summary of Derivatives
While certain of our derivatives are subject to netting arrangements with our counterparties, we do not offset derivative assets and liabilities 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 March 31, 2014
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
1.3

 
Investments and other assets
$
0.1

Liability derivatives
Accrued expenses and other
$
(16.1
)
 
Other long-term liabilities
$
(2.2
)
Other Derivatives:
 
 
Asset derivatives
Other current assets
$
1.2

Liability derivatives
Accrued expenses and other
$
(0.7
)
 
 
 
(In millions)
Balance Sheet Location
Fair Value As of December 31, 2013
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
0.6

Liability derivatives
Accrued expenses and other
$
23.4

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
3.2

Liability derivatives
Accrued expenses and other
$
0.1

9.
Indebtedness
Credit Facility
In March 2014, our $750.0 million senior unsecured revolving credit facility expired and was not renewed.
10.
Equity
Total equity as of March 31, 2014 increased $520.2 million compared to December 31, 2013. This increase was primarily driven by net income attributable to Biogen Idec Inc. of $480.0 million and an increase in additional paid in capital resulting from our share-based compensation arrangements totaling $31.1 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 three months ended March 31, 2014, we did not repurchase any shares of common stock. During the three months ended March 31, 2013, we repurchased approximately 0.3 million shares of common stock at a cost of approximately $41.0 million.
Approximately 4.2 million shares of our common stock remain available for repurchase under the 2011 authorization.

18

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

Noncontrolling Interests
The following table reconciles equity attributable to noncontrolling interests (NCI):
 
For the Three Months
Ended March 31,
(In millions)
2014
 
2013
Noncontrolling interests, beginning of period
$
0.6

 
$
2.3

Net income (loss) attributable to noncontrolling interests, net of tax
(0.2
)
 

Fair value of net assets and liabilities acquired and assigned to NCI
4.0

 

Deconsolidation of noncontrolling interest

 
(1.7
)
Noncontrolling interests, end of period
$
4.4

 
$
0.6

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

 
$
(23.7
)
 
$
(19.6
)
 
$
10.0

 
$
(27.7
)
Other comprehensive income (loss) before reclassifications
1.8

 
1.5

 
0.8

 
(2.9
)
 
1.2

Amounts reclassified from accumulated other comprehensive income (loss)
(0.1
)
 
4.3

 

 

 
4.2

Net current period other comprehensive income (loss)
1.7

 
5.8

 
0.8

 
(2.9
)
 
5.4

Balance, as of March 31, 2014
$
7.3

 
$
(17.9
)
 
$
(18.8
)
 
$
7.1

 
$
(22.4
)
(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
1.6

 
12.6

 
1.2

 
(24.4
)
 
(9.0
)
Amounts reclassified from accumulated other comprehensive income (loss)
(2.7
)
 
(1.0
)
 

 

 
(3.7
)
Net current period other comprehensive income (loss)
(1.1
)
 
11.6

 
1.2

 
(24.4
)
 
(12.7
)
Balance, as of March 31, 2013
$
3.1

 
$
0.9

 
$
(20.5
)
 
$
(51.5
)
 
$
(68.0
)


19

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

The following table summarizes the amounts reclassified from accumulated other comprehensive income:
(In millions)
Income Statement Location
Amounts Reclassified from Accumulated Other Comprehensive Income
For the Three Months
Ended March 31,
2014
 
2013
Gains (losses) on securities available for sale
Other income (expense)
$
0.1

 
$
4.1

 
Income tax benefit (expense)

 
(1.4
)
 
 
 
 
 
Gains (losses) on foreign currency forward contracts
Revenues
(4.7
)
 
1.1

 
Income tax benefit (expense)
0.4

 
(0.1
)
 
 
 
 
 
Total reclassifications, net of tax
 
$
(4.2
)
 
$
3.7

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 $4.3 million and $3.3 million as of March 31, 2014 and December 31, 2013, respectively. Other comprehensive income (loss) before reclassifications recognized during the three months ended March 31, 2014 and 2013, are shown net of tax of $1.1 million and $0.7 million, respectively.
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 $0.3 million and $0.1 million as of March 31, 2014 and December 31, 2013, respectively. Other comprehensive income (loss) before reclassifications recognized during the three months ended March 31, 2014 and 2013, are shown net of tax of $0.1 million and $1.6 million, respectively.
Postretirement Benefit Plans
Tax amounts related to the unfunded status of pension and retirement benefit plans were immaterial for all amounts presented.
12.
Earnings per Share
Basic and diluted earnings per share are calculated as follows:
 
For the Three Months
Ended March 31,
(In millions)
2014
 
2013
Numerator:
 
 
 
Net income attributable to Biogen Idec Inc.
$
480.0

 
$
426.7

Denominator:
 
 
 
Weighted average number of common shares outstanding
236.8

 
236.8

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

 
0.4

Time-vested restricted stock units
0.6

 
0.8

Market stock units
0.3

 
0.3

Dilutive potential common shares
1.0

 
1.5

Shares used in calculating diluted earnings per share
237.8

 
238.3

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

20

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

13.
Share-based Payments
Share-based Compensation Expense
The following table summarizes share-based compensation expense included within our condensed consolidated statements of income:
 
For the Three Months
Ended March 31,
(In millions)
2014
 
2013
Research and development
$
29.4

 
$
25.2

Selling, general and administrative
47.2

 
34.3

Subtotal
76.6

 
59.5

Capitalized share-based compensation costs
(2.6
)
 
(2.3
)
Share-based compensation expense included in total cost and expenses
74.0

 
57.2

Income tax effect
(22.3
)
 
(16.6
)
Share-based compensation expense included in net income attributable to Biogen Idec Inc.
$
51.7

 
$
40.6

The following table summarizes share-based compensation expense associated with each of our share-based compensation programs:
 
For the Three Months
Ended March 31,
(In millions)
2014
 
2013
Stock options
$

 
$
0.3

Market stock units
14.9

 
8.5

Time-vested restricted stock units
29.2

 
27.1

Cash settled performance units
21.4

 
20.4

Performance units
6.3

 

Employee stock purchase plan
4.8

 
3.2

Subtotal
76.6

 
59.5

Capitalized share-based compensation costs
(2.6
)
 
(2.3
)
Share-based compensation expense included in total cost and expenses
$
74.0

 
$
57.2

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 Three Months
Ended March 31,
 
2014
 
2013
Market stock units
214,000

 
253,000

Cash settled performance shares
172,000

 
270,000

Performance units
50,000

 

Time-vested restricted stock units
392,000

 
638,000

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

21

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

During the first quarter of 2014, we began granting awards for performance-vested restricted stock units, which can be settled in cash or shares of our common stock (PUs). PUs awarded to employees vest in three equal annual increments beginning on the anniversary of the grant date. The number of PUs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established at the beginning of the performance period, which ends on December 31st of each year. Participants may ultimately earn between 0% and 200% of the target number of units granted based on the degree of actual performance metric achievement, with no units being earned if the performance multiplier is below 50%. Accordingly, additional PUs may be issued or currently outstanding PUs may be cancelled upon final determination of the number of units earned. PUs are settled in cash or shares at the sole discretion of the Compensation and Management Development Committee of the Board of Directors, with settlement based on the 30 calendar day average closing stock price through each vesting date once the actual vested and earned number of units is known.
In addition, for the three months ended March 31, 2014, approximately 74,000 shares were issued under our employee stock purchase plan (ESPP) compared to approximately 112,000 shares issued in the prior year comparative period.
14.
Income Taxes
For the three months ended March 31, 2014, our effective tax rate was 26.8%, compared to 13.2% in the prior year comparative period.
A reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:
 
For the Three Months
Ended March 31,
 
2014
 
2013
Statutory rate
35.0
 %
 
35.0
 %
State taxes
1.2

 
7.7

Taxes on foreign earnings
(8.4
)
 
(9.9
)
Credits and net operating loss utilization
(1.3
)
 
(3.3
)
Purchased intangible assets
1.5

 
1.1

Manufacturing deduction
(2.0
)
 
(22.7
)
Other permanent items
0.3

 
5.5

Other
0.5

 
(0.2
)
Effective tax rate
26.8
 %
 
13.2
 %
For the three months ended March 31, 2014 compared to the same period in 2013, the increase in our income tax rate was primarily the result of a 2013 change in our uncertain tax position related to our U.S. federal manufacturing deduction and our unconsolidated joint business described below, the reinstatement for 2013 of the federal research and development tax credit which is now expired and lower current year expenses eligible for the orphan drug credit.
The change in the state taxes, manufacturing deduction and other permanent items of the effective tax rate reconciliation for the periods disclosed in the table above is primarily related to changes in the valuation of our federal and state uncertain tax positions in 2013, as discussed below under "Accounting for Uncertainty in Income Taxes".
Accounting for Uncertainty in Income Taxes
We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in the U.S. federal jurisdiction, various U.S. states, and foreign jurisdictions. With few exceptions, including the proposed disallowance we discuss below, we are no longer subject to U.S. federal tax examination for years before 2010 or state, local, or non-U.S. income tax examinations for years before 2004.
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, the calculation of our U.S. federal manufacturing deduction and overall tax classification of our unconsolidated joint business. Based on this guidance we reevaluated the level of our unrecognized benefits related to uncertain tax positions, and recorded a $42.8 million income tax benefit. This benefit was for a previously unrecognized position and related to years 2005 through 2012. We recorded an offsetting expense of $10.3 million for non-income based state taxes, which was recorded in other income (expense) within our condensed consolidated statements of income.

22

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

In October 2011, in conjunction with our examination, the IRS proposed a disallowance of approximately $130.0 million in deductions for tax years 2007, 2008 and 2009 related to payments for services provided by our wholly owned Danish subsidiary located in Hillerød, Denmark. We believe that these items represent valid deductible business expenses and are vigorously defending our position. We have initiated a mutual agreement procedure between the IRS and SKAT (the Danish tax authorities) for the years 2001 through 2009, in an attempt to reach agreement on the issue. In addition, we have applied for a bilateral advanced pricing agreement for the years 2010 through 2014 to resolve similar issues for the subsequent years.
It is reasonably possible that we will adjust the value of our uncertain tax positions related to our unconsolidated joint business and certain transfer pricing issues as we receive additional information from various taxing authorities, including reaching settlements with the authorities. In addition, the IRS and other national tax authorities routinely examine our intercompany transfer pricing with respect to intellectual property related transactions and it is possible that they may disagree with one or more positions we have taken with respect to such valuations.

15.
Other Consolidated Financial Statement Detail
Other Income (Expense), Net
Components of other income (expense), net, are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions)
2014
 
2013
Interest income
$
2.7

 
$
4.3

Interest expense
(7.6
)
 
(11.5
)
Impairments of investments

 
(0.3
)
Gain (loss) on investments, net
3.0

 
4.4

Foreign exchange gains (losses), net
(3.3
)
 
(2.6
)
Other, net
(0.4
)
 
(8.8
)
Total other income (expense), net
$
(5.6
)
 
$
(14.5
)
Accrued Expenses and Other
Accrued expenses and other consists of the following:
(In millions)
As of
March 31,
2014
 
As of
December 31,
2013
Employee compensation and benefits
198.1

 
$
343.4

Revenue-related rebates
330.5

 
264.9

Deferred revenue
205.4

 
172.7

Royalties and licensing fees
131.3

 
160.7

Clinical development expenses
58.1

 
55.2

Current portion of contingent consideration obligations
21.0

 
29.0

Construction in progress accrual
14.1

 
25.0

Collaboration expenses
4.8

 
18.7

Other
253.5

 
285.6

Total accrued expenses and other
$
1,216.8

 
$
1,355.2

16.
Investments in Variable Interest Entities
Consolidated Variable Interest Entities
Our condensed consolidated financial statements include the financial results of variable interest entities in which we are the primary beneficiary.

23

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

Neurimmune SubOne AG
In 2007, we entered into a collaboration agreement with Neurimmune SubOne AG (Neurimmune), a subsidiary of Neurimmune AG, for the development and commercialization of antibodies for the treatment of Alzheimer’s disease. Neurimmune conducts research to identify potential therapeutic antibodies and we are responsible for the development, manufacturing and commercialization of all products. Based upon our current development plans, we may pay Neurimmune up to $345.0 million in remaining milestone payments, as well as royalties on sales of any resulting commercial products.
Amounts that are incurred by Neurimmune for research and development expenses in support of the collaboration that we reimburse are reflected in research and development expense in our condensed consolidated statements of income. Future milestone payments will be reflected within our condensed consolidated statements of income as a charge to the noncontrolling interest, net of tax, when such milestones are achieved.
For the three months ended March 31, 2014, the collaboration incurred development expenses totaling $11.0 million, which is reflected as research and development expense within our condensed consolidated statements of income, compared to $5.0 million in the prior year comparative period.
The assets and liabilities of Neurimmune are not significant to our financial position or results of operations as it is a research and development organization. We have provided no financing to Neurimmune other than contractually required amounts.
Ataxion, Inc.
In February 2014, we paid $1.6 million for preferred stock of Ataxion, Inc. (Ataxion) and entered into an Option Agreement which gives us the right to purchase all outstanding shares of Ataxion at any time until 30 days after delivery of a Phase 1 clinical trial study report. We committed to make additional investments in Ataxion's preferred shares of up to $6.2 million if certain development milestones are achieved. If we exercise our option to purchase the outstanding shares of Ataxion, we could pay additional amounts upon achievement of clinical and commercial milestones.
In the Ataxion relationship, through our fixed price option to purchase the company, purchases of equity and presence on the program advisory committee, we are deemed to be the primary beneficiary of Ataxion, a variable interest entity. Therefore, we consolidate the results of Ataxion. As part of the initial consolidation of Ataxion, we recorded an in-process research and development intangible asset of $3.5 million and assigned that amount to minority interest within our stockholder's equity.
The assets and liabilities of Ataxion are not significant to our financial position or results of operations as it is a research and development organization. We have provided no financing to Ataxion other than contractually required amounts.
Unconsolidated Variable Interest Entities
We have relationships with other variable interest entities that we do not consolidate as we lack the power to direct the activities that significantly impact the economic success of these entities. These relationships include investments in certain biotechnology companies and research collaboration agreements. For additional information related to our significant collaboration arrangements with unconsolidated variable interest entities, please read Note 19, Investments in Variable Interest Entities to our consolidated financial statements included within our 2013 Form 10-K.
As of March 31, 2014 and December 31, 2013, the total carrying value of our investments in biotechnology companies that we have determined to be variable interest entities, but do not consolidate as we do not have the power to direct their activities, totaled $10.5 million and $5.5 million, respectively. Our maximum exposure to loss related to these variable interest entities is limited to the carrying value of our investments.
We have entered into research collaborations with certain variable interest entities where we are required to fund certain development activities. These development activities are included in research and development expense within our condensed consolidated statements of income, as they are incurred.
We have provided no financing to these variable interest entities other than previously contractually required amounts.
17.
Collaborative and Other Relationships
Eisai Co., Ltd.
On March 4, 2013 we entered into a collaboration with Eisai Co., Ltd. (Eisai) to jointly develop and commercialize two Eisai product candidates for the treatment of Alzheimer’s disease (AD). The agreement also provides Eisai with an option to

24

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

jointly develop and commercialize two of our candidates for AD, the anti-amyloid beta antibody BIIB037 and an anti-tau monoclonal antibody.
The collaboration initially will be centered on the co-development and co-commercialization of Eisai’s two clinical candidates: E2609, a BACE inhibitor, and BAN2401, an anti-amyloid beta antibody. Eisai will serve as the operational and regulatory lead in the co-development of E2609 and BAN2401 and will pursue marketing authorizations for both compounds worldwide. In major markets, such as the U.S. and the E.U., we and Eisai will co-promote the products following marketing approval. Both companies will share overall cost, including research and development expenses and profits will be split between the companies. The agreement excludes commercialization of these candidates in Japan, but includes an option for Eisai to receive an additional one-time payment from us in exchange for expanding joint development and commercialization activities to include Japan. 
We paid $100.0 million upon closing and recorded approximately $17.7 million reflecting the fair value of the options granted under the agreement, both of which were classified as research and development expense within our condensed consolidated statements of income. We could pay up to approximately an additional $1.0 billion based on the future achievement of certain development, regulatory and commercial milestones. 
Sangamo BioSciences, Inc.
On February 22, 2014, we completed an exclusive worldwide research, development and commercialization collaboration and license agreement with Sangamo BioSciences, Inc. (Sangamo) under which both companies will develop and commercialize product candidates for the treatment of two inherited blood disorders, sickle cell disease and beta-thalassemia. The collaboration is currently in the research stage of development.
Under the terms of the agreement, we paid Sangamo an upfront payment of $20.0 million in cash, with additional payments of up to $300.0 million based on the achievement of certain development, regulatory and commercial milestones, plus royalties based on sales. We recorded the $20.0 million upfront payment as research and development expenses. Under this arrangement, Sangamo will be responsible for identifying a product candidate for the treatment of beta-thalassemia and advancing that candidate through a completed Phase 1 human clinical trial, at which point we will assume responsibility for development. We will jointly develop a sickle cell disease candidate through the potential filing of an investigative new drug application, after which we will assume clinical responsibilities. We will lead the global development and commercialization efforts and Sangamo will have the option to assume co-promotion responsibilities in the U.S.
Isis Pharmaceuticals, Inc.
In January 2012, we entered into an exclusive, worldwide option and collaboration agreement with Isis Pharmaceuticals, Inc. (Isis) under which both companies will develop and commercialize Isis’ product candidate for the treatment of spinal muscular atrophy (SMA).
In January 2014, we amended the agreement and agreed to pay the clinical trial costs up to approximately $45.0 million related to the development of ISIS-SMNRx through studies which Isis will be responsible for performing. We will recognize the $45.0 million as research and development expenses as the trial costs are incurred. We are providing input on the clinical trial design and regulatory strategy and have an option to license ISIS-SMNRx until completion of the first successful Phase 2/3 trial.
Other Research and Discovery Arrangements
Samsung Bioepis
In February 2012, we finalized an agreement with Samsung BioLogics Co. Ltd. (Samsung Biologics) that established an entity, Samsung Bioepis, to develop, manufacture and market biosimilar pharmaceuticals. Under the terms of the agreement, Samsung Biologics agreed to contribute 280.5 billion South Korean won (approximately $250.0 million) for an 85 percent stake in Samsung Bioepis and we agreed to contribute approximately 49.5 billion South Korean won (approximately $45.0 million) for a 15 percent ownership interest. Our investment is limited to this contribution as we have no obligation to provide any additional funding. As of March 31, 2014, our ownership interest decreased to approximately 12% as Samsung Bioepis secured additional equity financing from Samsung Biologics and we did not participate in such financing. We maintain an option to purchase additional stock based in Samsung Bioepis that would allow us to increase our ownership percentage up to 49.9 percent. The exercise of this option is within our control and is based on paying for 49.9 percent of the total investment made to Samsung Bioepis in excess of what we have already contributed during the agreement plus interest.

25

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

As of March 31, 2014 and December 31, 2013, the carrying value of our investment in Samsung Bioepis totaled 18.4 billion and 25.2 billion South Korean won (approximately $17.5 million and $23.9 million), respectively, which is classified as a component of investments and other assets within our condensed consolidated balance sheets. We recognize our share of the results of operations related to our investment in Samsung Bioepis one quarter in arrears when the results of the entity become available, which is reflected as equity in loss of investee, net of tax within our condensed consolidated statements of income. During the three months ended March 31, 2014, we recognized a loss on our investment of $7.6 million, compared to $3.8 million in the prior year comparative period.
Simultaneous with the formation of Samsung Bioepis, we entered into a license agreement, a technical development services agreement and a manufacturing agreement with Samsung Bioepis. For the three months ended March 31, 2014, we recognized $24.1 million in other revenues in relation to these services, compared to $6.8 million in the prior year comparative period, which is reflected as a component of other revenues within our condensed consolidated statement of income.
On December 17, 2013, pursuant to our joint venture agreement with Samsung Biologics, we exercised our right to enter into an agreement with Samsung Bioepis to commercialize anti-TNF biosimilar product candidates in Europe. Under the terms of this agreement, we paid $36.0 million, which was recorded as a research and development expense within our condensed consolidated statements of income as the programs they relate to had not achieved regulatory approval. Samsung Bioepis is eligible to receive an additional $85.0 million in additional milestones related to clinical development and regulatory approval of the product candidates. Upon commercialization, there will be a 50 percent profit share with Samsung Bioepis.
For additional information related to our other significant collaboration arrangements, please read Note 20, Collaborative and Other Relationships to our consolidated financial statements included within our 2013 Form 10-K.
18.
Litigation
’755 Patent Litigation
On May 27, 2010, Bayer Healthcare Pharmaceuticals Inc. (Bayer) filed a lawsuit against us in the U.S. District Court for the District of New Jersey seeking a declaratory judgment that they do not infringe our U.S. Patent No. 7,588,755 ('755 Patent), which claims the use of interferon beta for immunomodulation or treating a viral condition, viral disease, cancers or tumors, and that the patent is invalid and seeking monetary relief in the form of attorneys' fees, costs and expenses. On May 28, 2010, Biogen Idec MA Inc. (BIMA) filed a lawsuit in the U.S. District Court for the District of New Jersey alleging infringement of the ’755 Patent by EMD Serono, Inc. (manufacturer, marketer and seller of REBIF), Pfizer, Inc. (co-marketer of REBIF), Bayer (manufacturer, marketer and seller of BETASERON and manufacturer of EXTAVIA), and Novartis Pharmaceuticals Corp. (marketer and seller of EXTAVIA) and seeking monetary damages, including lost profits and royalties. The court has consolidated the two lawsuits, and we refer to the two actions as the “Consolidated ’755 Patent Actions”.
Bayer, Pfizer, Novartis and EMD Serono have all filed counterclaims in the Consolidated ’755 Patent Actions seeking declaratory judgments of patent invalidity and non-infringement, and seeking monetary relief in the form of costs and attorneys' fees, and EMD Serono and Bayer have each filed a counterclaim seeking a declaratory judgment that the ’755 Patent is unenforceable based on alleged inequitable conduct. Bayer has also amended its complaint to seek such a declaration. No trial date has been set.
Italian National Medicines Agency
In the fourth quarter of 2011, Biogen Idec Italia SRL received notice from the Italian National Medicines Agency (Agenzia Italiana del Farmaco or AIFA) that sales of TYSABRI after mid-February 2009 exceeded a reimbursement limit established pursuant to a Price Determination Resolution (Price Resolution) granted by AIFA in December 2006. The Price Resolution set the initial price for the sale of TYSABRI in Italy and limited the amount of government reimbursement “for the first 24 months” of TYSABRI sales. As the basis for the claim, the AIFA notice referred to a 2001 Decree that provides for an automatic 24-month renewal of the terms of all Price Resolutions that are not renegotiated prior to the expiration of their term.
On December 23, 2011, we filed an appeal in the Regional Administrative Tribunal of Lazio (Il Tribunale Amministrativo Regionale per il Lazio) in Rome against AIFA, seeking a ruling that the reimbursement limit in the Price Resolution should apply as written to only "the first 24 months" of TYSABRI sales, which ended in February 2009. The final determination of the appeal is still pending and AIFA and Biogen Idec Italia SRL are in discussions about a resolution of the period from February 2009 through February 2013. On November 21, 2012, the tribunal ruled that the reimbursement limit would not automatically renew.

26

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

On March 25, 2014, AIFA's Price and Reimbursement Committee entered into an agreement with Biogen Idec Italia SRL that would eliminate the reimbursement limit beginning in February 2013. The agreement is pending approval by the AIFA Board of Directors and would be effective for a 24-month term following its subsequent publication in the Official Gazette.
Average Manufacturer Price Litigation
On September 6, 2011, we and several other pharmaceutical companies were served with a complaint originally filed under seal on October 28, 2008 in the United States District Court for the Eastern District of Pennsylvania by Ronald Streck (the relator) on behalf of himself and the United States, and the states of New Jersey, California, Rhode Island, Michigan, Montana, Wisconsin, Massachusetts, Tennessee, Oklahoma, Texas, Indiana, New Hampshire, North Carolina, Florida, Georgia, New Mexico, Illinois, New York, Virginia, Delaware, Hawaii, Louisiana, Connecticut, and Nevada (collectively, the States), and the District of Columbia, alleging violations of the False Claims Act, 31 U.S.C. § 3729 et seq. and state and District of Columbia statutory counterparts. The United States and the States have declined to intervene, and the District of Columbia has not intervened. The complaint as amended alleges that Biogen Idec and other defendants underreport Average Manufacturer Price (AMP) information to the Centers for Medicare and Medicaid Services, thereby causing Biogen Idec and the other defendants to underpay rebates under the Medicaid Drug Rebate Program. The relator alleges that the underreporting has occurred because Biogen Idec and other defendants improperly consider various payments that they make to drug wholesalers to be discounts under applicable federal law. The court has dismissed certain claims and a trial has been set for December 2014 on the remaining claims. We have not formed an opinion that an unfavorable outcome under the remaining claims is either “probable” or “remote,” and are unable at this stage of the litigation to form an opinion as to the magnitude or range of any potential loss. We believe that we have good and valid defenses and intend to vigorously defend against the allegations.
Government Matters
We have learned that state and federal governmental authorities are investigating our sales and promotional practices and have received related subpoenas. We have also received a subpoena from the federal government for documents relating to our relationship with certain pharmacy benefit managers. We are cooperating with the government in these matters.
Qui Tam Litigation
In August, 2012, we learned that a relator, on behalf of the United States and certain states, filed a suit under seal on February 17, 2011 against us, Elan Corporation, plc, and Elan Pharmaceuticals, Inc. in the United States District Court for the Western District of Virginia. We have neither seen nor been served with the complaint, but understand that it was filed under the Federal False Claims Act.
  Product Liability and Other Legal Proceedings
We are also involved in product liability claims and other legal proceedings generally incidental to our normal business activities. While the outcome of any of these proceedings cannot be accurately predicted, we do not believe the ultimate resolution of any of these existing matters would have a material adverse effect on our business or financial condition.
19.
Commitments and Contingencies
In 2006, we acquired Fumapharm AG. As part of this acquisition we acquired FUMADERM and TECFIDERA (together, Fumapharm Products). We are required to make additional contingent payments to former shareholders of Fumapharm AG based on the attainment of certain cumulative sales levels of Fumapharm Products, with the amount of each payment based on the level of total net sales of Fumapharm Products in the prior twelve month period, as defined in the acquisition agreement:

27

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

 
 
Cumulative Sales Level
 
 
$1.0B
 
$2.0B
 
$3.0B
 
Each additional $1.0B up to $20.0B
Prior 12 Month Sales
 
Payment Amounts (In Millions)
< $500 million
 
$

 
$

 
$

 
$

$500 million - $1.0 billion
 
25.0

 
50.0

 
50.0

 
50.0

$1.0 billion - $1.5 billion
 
50.0

 
100.0

 
100.0

 
100.0

$1.5 billion - $2.0 billion
 

 
150.0

 
150.0

 
150.0

$2.0 billion - $2.5 billion
 

 
200.0

 
200.0

 
200.0

$2.5 billion - $3.0 billion
 

 

 
250.0

 
250.0

> $3.0 billion
 

 

 

 
300.0

These payments will be accounted for as an increase to goodwill as incurred, in accordance with the accounting standard applicable to business combinations when we acquired Fumapharm. Any portion of the payment which is tax deductible will be recorded as a reduction to goodwill. Payments are due within 60 days following the end of the quarter in which the applicable cumulative sales level has been reached. During the three months ended March 31, 2014, we paid the $25.0 million contingent payment as we reached the $1.0 billion cumulative sales level related to the Fumapharm Products in 2013.
20.
Segment Information
We operate as one operating segment, which is the business of discovering, developing, manufacturing and marketing therapies for the treatment of multiple sclerosis and other autoimmune disorders, neurodegenerative diseases and hemophilia and, therefore, our chief operating decision-maker manages the operations of our company as a single operating segment.

28


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes beginning on page 4 of this quarterly report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K). Certain totals may not sum due to rounding.
Executive Summary
Introduction
Biogen Idec is a global biotechnology company focused on discovering, developing, manufacturing and marketing therapies for the treatment of multiple sclerosis (MS) and other autoimmune disorders, neurodegenerative diseases and hemophilia. We also collaborate on the development and commercialization of RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia and other conditions and share profits and losses for GAZYVA for the treatment of chronic lymphocytic leukemia.
In the near term, our revenues are dependent upon continued sales of our four principal products, AVONEX, TYSABRI, TECFIDERA and RITUXAN. In the longer term, our revenue growth will be dependent upon the successful clinical development, regulatory approval and launch of new commercial products, our ability to obtain and maintain patents and other rights related to our marketed products and assets originating from our research and development efforts, and successful execution of external business development opportunities. 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.
Financial Highlights
The following table is a summary of financial results achieved:
 
For the Three Months
Ended March 31,
(In millions, except per share amounts and percentages)
2014 (1)
 
2013 (2)
 
Change %
Total revenues
$
2,129.8

 
$
1,415.1

 
50.5
%
Income from operations
$
671.3

 
$
510.5

 
31.5
%
Net income attributable to Biogen Idec Inc.
$
480.0

 
$
426.7

 
12.5
%
Diluted earnings per share attributable to Biogen Idec Inc.
$
2.02

 
$
1.79

 
12.7
%
(1)
Total revenues for the three months ended March 31, 2014 includes 100% of net revenues related to sales of TYSABRI as a result of our acquisition of TYSABRI rights from Elan on April 2, 2013 and net revenues related to sales of TECFIDERA, our oral first-line treatment for people with relapsing forms of MS, which was approved by the U.S. Food and Drug Administration (FDA) in March 2013 and the European Commission (EC) in February 2014.
(2)
Our share of revenues from unconsolidated joint business reflects a charge of $41.5 million for damages and interest awarded to Hoechst GmbH (Hoechst) in Genentech Inc.'s arbitration with Hoechst for RITUXAN.
As described below under “Results of Operations,” our operating results for the three months ended March 31, 2014 reflect the following:
Worldwide AVONEX revenues totaled $761.5 million in the first quarter of 2014, representing an increase of 2.1% over the same period in 2013.
Worldwide TYSABRI revenues totaled $441.0 million in the first quarter of 2014, representing an increase of 41.3% over the same period in 2013. The increase in revenue is primarily due to 100% of net U.S. revenue being recognized starting in April 2013 as a result of our acquisition of TYSABRI rights.
Worldwide TECFIDERA revenues totaled $505.7 million in the first quarter of 2014.
Our share of RITUXAN and GAZYVA revenues totaled $296.9 million in the first quarter of 2014, representing an increase of 12.2% over the same period in 2013.

29


Total cost and expenses increased 60.8% in the first quarter of 2014, compared to the same period in 2013. This increase resulted from a 179.2% increase in the amortization of acquired intangible assets, a 86.0% increase in research and development expense, a 108.8% increase in cost of sales, a 172.4% increase in income tax expense and a 45.1% increase in selling, general and administrative expense, partially offset by a 100.0% decrease in collaboration profit sharing compared with the same period in 2013.
The increases in cost of sales and the amortization of acquired intangibles are a result of our April 2013 acquisition of the TYSABRI rights. We also recorded higher amortization on our AVONEX intangible asset. Our increase in research and development expense is primarily attributable to upfront payments made to Eisai Co., Ltd. (Eisai) and Sangamo BioSciences, Inc. (Sangamo) in connection with collaboration agreements entered into with these companies in the first quarter of 2014. Higher selling, general and administrative expense resulted from increased costs incurred in connection with our product launch of TECFIDERA in the U.S. and E.U. and ALPROLIX in the U.S. and Canada and our development of commercial capabilities for potential product launches of ELOCTATE and PLEGRIDY.
We generated $104.6 million of net cash flows from operations for the three months ended March 31, 2014, which were primarily driven by earnings offset by an increase in working capital. Cash, cash equivalents and marketable securities totaled approximately $1,984.5 million as of March 31, 2014.
Business Environment
We conduct our business within the biotechnology and pharmaceutical industries, which are highly competitive. Many of our competitors are working to develop or have commercialized products similar to those we market or are developing, including oral and other alternative formulations that may compete with AVONEX, TYSABRI, TECFIDERA or other products we are developing. In addition, the commercialization of certain of our own approved products and pipeline product candidates may negatively impact future sales of AVONEX, TYSABRI, TECFIDERA or all three. We may also face increased competitive pressures from the emergence of biosimilars, generic versions of TECFIDERA or related prodrug derivatives. In the U.S., AVONEX, TYSABRI, and RITUXAN 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, that are similar to or interchangeable with previously approved biological products based upon potentially abbreviated data packages.
Global economic conditions continue to present challenges for our industry. Governments in many international markets where we operate have implemented austerity measures to constrain the overall level of government expenditures. These measures, which include efforts aimed at reforming health care coverage and reducing health care costs, particularly in certain countries in Europe, continue to exert pressure on product pricing, have delayed reimbursement for our products, and have negatively impacted our revenues and results of operations. It is possible that additional U.S. federal health care reform measures will be adopted in the future, including as a result of ongoing discussions to reduce the U.S. federal budget deficit to address government finances, any of which could result in increased pricing pressure and reduced reimbursement for our products and otherwise have an adverse impact on our financial position or 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.
The Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act (PPACA) included a significant expansion of the Medicaid program, as well as the creation of new state-based health benefit exchanges, or marketplaces, through which individuals and small businesses may purchase health insurance. Premium and cost-sharing credits and subsidies are available to those who qualify based on income. Marketplace plans began to enroll new members in October 2013, and coverage began on January 1, 2014. Although the effects of the legislation are still unclear, PPACA could result in a greater number of individuals with health insurance under Medicaid and the marketplace health plans. The impact on manufacturers, including us, will depend in part on the formulary and benefit design decisions made by insurance sponsors or plans participating in the programs. It is possible that individuals who were previously unable to access insurance may now become insured, thus increasing coverage for our products. This potential increase in coverage, however, may be offset by the added discounts that could be required in these channels as well as the number of patients who over time move from commercial insurance to the health insurance marketplaces. It is also possible that we may need to provide discounts or rebates to such plans in order to maintain favorable formulary access for our products for this patient population, which could have an adverse impact on our sales and results of operations.

30


Key Pipeline and Product Developments
TECFIDERA
In February 2014, the EC approved the use of TECFIDERA in the European Union (E.U.) as a first-line oral treatment for people with relapsing-remitting MS.
TYSABRI
In March 2014, we received marketing approval for TYSABRI in Japan.
ALPROLIX
In March 2014, the FDA approved the use of ALPROLIX for the control and prevention of bleeding episodes, perioperative (surgical) management and routine prophylaxis in adults and children with hemophilia B. ALPROLIX was also approved by Health Canada for the treatment of hemophilia B in March 2014.
PLEGRIDY
In March 2014, we announced that the FDA extended the initial Prescription Drug User Fee Act (PDUFA) date for its review of our application for PLEGRIDY by three months, which is a standard extension period.
Results of Operations
Revenues
Revenues are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions, except percentages)
2014
 
2013
Product revenues:
 
 
 
 
 
 
 
United States
$
1,170.2

 
54.9
%
 
$
604.9

 
42.7
%
Rest of world
572.6

 
26.9
%
 
490.9

 
34.7
%
Total product revenues
1,742.8

 
81.8
%
 
1,095.8

 
77.4
%
Unconsolidated joint business
296.9

 
13.9
%
 
264.6

 
18.7
%
Other revenues
90.1

 
4.2
%
 
54.7

 
3.9
%
Total revenues
$
2,129.8

 
100.0
%
 
$
1,415.1

 
100.0
%
Product Revenues
Product revenues are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions, except percentages)
2014
 
2013
AVONEX
$
761.5

 
43.7
%
 
$
746.1

 
68.1
%
TYSABRI
441.0

 
25.3
%
 
312.2

 
28.5
%
TECFIDERA
505.7

 
29.0
%
 

 
%
Other product revenues
34.6

 
2.0
%
 
37.5

 
3.4
%
Total product revenues
$
1,742.8

 
100.0
%
 
$
1,095.8

 
100.0
%
AVONEX
Revenues from AVONEX are summarized as follows:

31


 
For the Three Months
Ended March 31,
(In millions, except percentages)
2014
 
2013
 
Change %
United States
$
476.1

 
$
491.5

 
(3.1
)%
Rest of world
285.4

 
254.6

 
12.1
 %
Total AVONEX revenues
$
761.5

 
$
746.1

 
2.1
 %
For the three months ended March 31, 2014, compared to the same period in 2013, the decrease in U.S. AVONEX revenues was primarily due to a 16% decrease in unit sales volume, which was primarily attributable to patients transitioning to oral therapies including TECFIDERA, partially offset by price increases.
For the three months ended March 31, 2014, compared to the same period in 2013, the increase in rest of world AVONEX revenues primarily was due to increased unit demand in the Emerging Markets region and a favorable net price in Germany due to a lower mandatory rebate, partially offset by pricing reductions in some countries. The increased unit demand in the Emerging Markets region was primarily related to the timing of shipments in Brazil, a tender market, which occurred in the first quarter this year but the second quarter of last year. Rest of world AVONEX revenue for the three months ended March 31, 2014, compared to the same period in 2013, also reflects the positive impact of foreign currency exchange rates, offset by losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program.
We expect AVONEX to continue facing increased competition in the MS marketplace in both the U.S. and rest of world. We and a number of other companies have commercialized or are working to develop additional treatments for MS, including oral and other alternative formulations that may compete with AVONEX. The launch and growth of TECFIDERA and the commercialization of certain of our own potential products, such as PLEGRIDY, may also negatively impact future sales of AVONEX. Increased competition also may lead to reduced unit sales of AVONEX, as well as increasing price pressures particularly in geographic markets outside the U.S.
TYSABRI
Revenues from TYSABRI are summarized as follows:
 
For the Three Months
Ended March 31,
(In millions, except percentages)
2014
 
2013
 
Change %
United States
$
234.3

 
$
113.4

 
106.6
%
Rest of world
206.7

 
198.8

 
4.0
%
Total TYSABRI revenues
$
441.0

 
$
312.2

 
41.3
%
The increase in U.S. TYSABRI revenue for the three months ended March 31, 2014, compared to the same period in 2013, was primarily due to our recognition, starting in April 2013, of 100% of net revenues on TYSABRI in-market sales due to our acquisition of the remaining TYSABRI rights from Elan and price increases, partially offset by a 22% decrease in unit sales volume.
Based on data reported by Elan for 2013 and our sales to third party customers, total U.S. TYSABRI in-market sales were $234.3 million and $257.4 million for the three months ended March 31, 2014 and 2013, respectively. The decrease in the three months ended March 31, 2014 in-market sales compared to the prior year comparable period was primarily due to changes in the inventory levels at our distributor in anticipation of our acquisition of TYSABRI rights from Elan (which occurred in April 2013) and patients transitioning to oral therapies.
For the three months ended March 31, 2014, compared to the same period in 2013, the increase in rest of world TYSABRI revenues was primarily due to a favorable net price in Germany as the mandatory rebate percentage was reduced and volume increases primary in Emerging Markets, partially offset by pricing