10-K 1 biib-20141231x10k.htm 10-K BIIB - 2014.12.31 - 10K
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2014
or
¨
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, Massachusetts 02142
(617) 679-2000
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, $0.0005 par value
 
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes þ        No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes ¨        No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ        No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):    Yes þ        No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    þ
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.
Large accelerated filer þ
 
Accelerated filer ¨ 
 
Non-accelerated filer ¨ 
 
Smaller reporting company ¨
 
 
 
 
(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 Act).    Yes ¨        No þ
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $74,386,280,444.
As of January 30, 2015, the registrant had 234,614,474 shares of common stock, $0.0005 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for our 2015 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.
 


BIOGEN IDEC INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2014
TABLE OF CONTENTS

 
 
Page
 
 
 
 
 




NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are being made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”) with the intention of obtaining the benefits of the “Safe Harbor” provisions of the Act. These forward-looking statements may be accompanied by such words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “project,” “target,” “will” and other words and terms of similar meaning. Reference is made in particular to forward-looking statements regarding:
the anticipated amount, timing and accounting of revenues, contingent payments, milestone, royalty and other payments under licensing, collaboration or acquisition agreements, tax positions and contingencies, collectability of receivables, pre-approval inventory, cost of sales, research and development costs, compensation and other expenses, amortization of intangible assets, foreign currency exchange risk and impairment assessments;
the potential impact of increased product competition in the multiple sclerosis (MS), hemophilia and oncology markets;
the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to patents and other proprietary and intellectual property rights, tax audits, assessments and settlements, pricing matters, sales and promotional practices, product liability and other matters;
patent terms, patent term extensions, patent office actions, and expected availability and period of regulatory exclusivity;
the costs, timing, potential approval and therapeutic scope of the development and commercialization of our pipeline products and the expected timing of related filings and regulatory actions;
our intent to commit resources for research and development opportunities;
our manufacturing capacity and use of third party contract manufacturing organizations to provide manufacturing services;
the drivers for growing our business, including our plans to pursue business development and research opportunities;
the potential impact of healthcare reform in the U.S., implementation of provisions of the Patient Protection and Affordable Care Act (also known as the Affordable Care Act or PPACA), 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;
lease commitments, purchase obligations and the timing and satisfaction of other contractual obligations;
the impact of the continued uncertainty and deterioration of the credit and economic conditions in certain countries in Europe and our collection of accounts receivable in such countries;
our ability to finance our operations and business initiatives and obtain funding for such activities; and
the impact of new laws and accounting standards.
These forward-looking statements involve risks and uncertainties, including those that are described in the “Risk Factors” section of this report and elsewhere 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
ALPROLIX®, AVONEX®, ELOCTATE®, RITUXAN®, TECFIDERA®, and TYSABRI® are registered trademarks of Biogen Idec. ELOCTATM, FUMADERMTM, PLEGRIDYTM and ZINBRYTATM are trademarks of Biogen Idec. The following are trademarks of the respective companies listed: ACTEMRA® - Chugai Seiyaku Kabushiki Kaisha; ADVATE® - Baxter International Inc.; ANGIOMAX® and ANGIOXTM - The Medicines Company; ARZERRA® - Glaxo Group Limited; BENLYSTA® - GlaxoSmithKline Intellectual Property Limited; AUBAGIO® - Sanofi Societe Anonyme France; BENEFIX® - Genetics Institute LLC; BETASERON®- Bayer Pharma AG; CIMZIA® - UCB Pharma, S.A.; COPAXONE® - Teva Pharmaceutical Industries Limited; ENBREL® - Immunex Corporation; EXTAVIA® and GILENYA® - Novartis AG; FAMPYRATM - Acorda Therapeutics, Inc.; GAZYVA® -  Genentech, Inc.; HELIXATE® - CSL Behring LLC; HUMIRA® - AbbVie Biotechnology Ltd.; IMBRUVICA® - Pharmacyclics, Inc.; KOGENATE® - Bayer AG; LEMTRADA® - Genzyme Corporation; ORENCIA® - Bristol-Myers Squibb Company; REBIF® - Ares Trading S.A.; REMICADE® - Janssen Biotech, Inc.; RIXUBIS - Baxter International Inc.; SIMPONI® and SIMPONI ARIATM - Johnson & Johnson; TREANDA® - Cephalon, Inc.; XELJANZ® - Pfizer Inc.; XYNTHA® - Wyeth LLC; and ZYDELIG® - Gilead Sciences.

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PART I
Item 1.
Business
Overview
Biogen Idec is a global biopharmaceutical company focused on discovering, developing, manufacturing and delivering therapies for neurological, autoimmune and hematologic disorders. Our principal marketed products include AVONEX, PLEGRIDY, TECFIDERA, TYSABRI, and FAMPYRA for multiple sclerosis (MS), ALPROLIX for hemophilia B and ELOCTATE for hemophilia A. 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 which is approved for the treatment of chronic lymphocytic leukemia.
We are focused on discovering and developing new therapies that improve the lives of patients having diseases with high unmet medical needs. We support our mission through the commitment of significant resources to research and development programs and business development opportunities, particularly within areas of our scientific, manufacturing and technical expertise - neurology, immunology and hematology, and scientific adjacencies.
We were formed as a corporation in the State of California in 1985 under the name IDEC Pharmaceuticals Corporation and reincorporated as a Delaware corporation in 1997. In 2003, we acquired Biogen, Inc. and changed our corporate name to Biogen Idec Inc.
Marketed Products
The following charts show our product sales and unconsolidated joint business revenues by principal product and geography as a percentage of revenue for the years ended December 31, 2014, 2013 and 2012.
(1) Other includes FAMPYRA, ALPROLIX, ELOCTATE and FUMADERM.

1


 
Product sales for AVONEX, TECFIDERA and TYSABRI and unconsolidated joint business revenues for RITUXAN each accounted for more than 10% of our total revenue for the years ended December 31, 2014 and 2013, and AVONEX, TYSABRI and RITUXAN each accounted for more than 10% of our total revenue for the year ended December 31, 2012. For additional financial information about our product and other revenues and geographic areas in which we operate, please read Note 25, Segment Information to our consolidated financial statements, Item 6. Selected Financial Data and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. A discussion of the risks attendant to our operations is set forth in the “Risk Factors” section of this report.
Multiple Sclerosis (MS) Products
We develop, manufacture and market a number of products designed to treat patients with MS. MS is a progressive neurological disease in which the body loses the ability to transmit messages along nerve cells, leading to a loss of muscle control, paralysis and, in some cases, death. Patients with active relapsing MS experience an uneven pattern of disease progression characterized by periods of stability that are interrupted by flare-ups of the disease after which the patient returns to a new baseline of functioning. Our MS products include:
AVONEX (interferon beta-1a), an intramuscular injectable therapy, indicated for the treatment of patients with relapsing forms of MS. AVONEX is a recombinant form of the interferon beta protein produced in the body in response to viral infection. The principal markets for AVONEX are the U.S., United Kingdom, France, Germany, Italy and Spain.
PLEGRIDY (peginterferon beta-1a), a subcutaneous injectable therapy, indicated in the U.S. for the treatment of patients with relapsing forms of MS and in the European Union (E.U.) for relapsing-remitting MS (RRMS). PLEGRIDY received approval from the European Commission (EC) in July 2014 and the U.S. Food and Drug Administration (FDA) in August 2014.
TECFIDERA (dimethyl fumarate), an oral therapy indicated in the U.S. for the treatment of patients with relapsing forms of MS and in the EU for people with RRMS. TECFIDERA was approved by the FDA in March 2013 and the EC in February 2014.
TYSABRI (natalizumab), a monoclonal antibody approved in numerous countries as a monotherapy for the treatment of patients with relapsing forms of MS. TYSABRI is also approved in the U.S. to treat Crohn's disease, an inflammatory disease of the intestines. The principal markets for TYSABRI in MS are the U.S., the United Kingdom, France, Germany, Italy and Spain. TYSABRI was approved in Japan in March 2014.

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FAMPYRA (prolonged-release fampridine tablets), is indicated for the improvement of walking ability in adult patients with MS. FAMPYRA is a prolonged-release tablet formulation of the drug fampridine. We have a license from Acorda Therapeutics, Inc. (Acorda) to develop and commercialize FAMPYRA in all markets outside the U.S. Our principal markets for FAMPRYA are France, Germany, Spain and Canada. For information about our agreement with Acorda, please read Note 20, Collaborative and Other Relationships to our consolidated financial statements included in this report.
Hemophilia Products
We develop, manufacture and market products designed to treat patients with hemophilia A and B. Hemophilia A is caused by having substantially reduced or no Factor VIII activity and hemophilia B is caused by having substantially reduced or no Factor IX activity, each of which is needed for normal blood clotting. People with hemophilia A and B experience bleeding episodes that may cause pain, irreversible joint damage and life-threatening hemorrhages. Prophylactic infusions of Factor VIII or Factor IX, as applicable, temporarily replace clotting factor necessary to control bleeding and prevent new bleeding episodes. Our products for hemophilia A and B include:
ALPROLIX [Coagulation Factor IX (Recombinant), Fc Fusion Protein], a recombinant DNA-derived, coagulation Factor IX concentrate indicated in the U.S. for treatment in adults and children with hemophilia B for control and prevention of bleeding episodes, perioperative management and routine prophylaxis to prevent or reduce the frequency of bleeding episodes. ALPROLIX was approved by the FDA in March 2014 and in Japan in June 2014.
ELOCTATE [Antihemophilic Factor (Recombinant), Fc Fusion Protein], a recombinant DNA-derived, antihemophilic factor indicated in the U.S. for treatment in adults and children with hemophilia A for control and prevention of bleeding episodes, perioperative management and routine prophylaxis to prevent or reduce the frequency of bleeding episodes. ELOCTATE was approved by the FDA in June 2014 and in Japan in December 2014.
We collaborate with Swedish Orphan Biovitrum AB (Sobi) to jointly develop and commercialize Factor VIII and Factor IX hemophilia products, including ELOCTATE and ALPROLIX. For information about our agreement with Sobi, please read Note 20, Collaborative and Other Relationships to our consolidated financial statements included in this report.
Genentech Collaboration
We collaborate with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group, on the development and commercialization of RITUXAN. We also share operating profits and losses relating to GAZYVA with Genentech in the U.S. The Roche Group and its sub-licensees maintain sole responsibility for the development, manufacturing and commercialization of GAZYVA in the U.S. For information about our unconsolidated joint business and agreement with Genentech, please read Note 1, Summary of Significant Accounting Policies and Note 20, Collaborative and Other Relationships to our consolidated financial statements included in this report.
RITUXAN (rituximab), a widely prescribed monoclonal antibody used to treat non-Hodgkin's lymphoma, rheumatoid arthritis, chronic lymphocytic leukemia (CLL) and two forms of ANCA-associated vasculitis. Non-Hodgkin's lymphoma and CLL are cancers that affect lymphocytes, which are a type of white blood cell that help to fight infection. Rheumatoid arthritis is a chronic disease that occurs when the immune system mistakenly attacks the body's joints, resulting in inflammation, pain and joint damage. ANCA-associated vasculitis is a rare autoimmune disease that largely affects the small blood vessels of the kidneys, lungs, sinuses, and a variety of other organs.  
GAZYVA (obinutuzumab), in combination with chlorambucil, is indicated for the treatment of patients with previously untreated CLL. The FDA granted GAZYVA breakthrough therapy designation due to the significance of the positive progression-free survival results from the Phase 3 CLL11 clinical trial and the serious and life threatening nature of CLL. GAZYVA was approved by the FDA in November 2013.
Other
FUMADERM (fumaric acid esters), a prolonged-release tablet formulation approved in Germany only for the treatment of adult patients with moderate to severe plaque psoriasis. Psoriasis is a skin disease in which cells build up on the skin surface and form scales and red patches.


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Marketing and Distribution
We promote our products in the U.S., most of the major countries of the E.U. and Japan primarily through our own sales forces and marketing groups. In some countries, particularly in areas where we continue to expand into new geographic areas, we partner with third parties. We focus our sales and marketing efforts on specialist physicians in private practice or at major medical centers. We use customary pharmaceutical company practices to market our products and to educate physicians, such as sales representatives calling on individual physicians, advertisements, professional symposia, direct mail, public relations and other methods. We provide customer service and other related programs for our products, such as disease and product specific websites, insurance research services and order, delivery and fulfillment services. We have also established programs in the U.S. which provide qualified uninsured or underinsured patients with marketed products at no or reduced charge, based on specific eligibility criteria.
We distribute our products in the U.S. principally through wholesale distributors of pharmaceutical products, mail order specialty distributors or shipping service providers. In other countries, the distribution of our products varies from country to country, including through wholesale distributors of pharmaceutical products and third party distribution partners who are responsible for most marketing and distribution activities.
RITUXAN and GAZYVA are marketed and distributed by the Roche Group and its sublicensees.
Our product sales to two wholesale distributors, AmerisourceBergen and McKesson, each accounted for more than 10% of our total revenues for the years ended December 31, 2014, 2013 and 2012, and on a combined basis, these wholesale distributors accounted for approximately 60%, 56% and 30% of our gross product revenues for such years, respectively.
Research and Development Programs
A commitment to research is fundamental to our company’s mission. Our research and development strategy is to discover and develop differentiated molecules that improve safety or efficacy for unmet medical needs. By applying our expertise in biologics and our growing capabilities in small molecule, antisense, gene therapy, gene editing and other technologies, we target specific medical needs where new or better treatments are needed.
We intend to continue committing significant resources to research and 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 technologies and to explore the utility of our existing products in treating disorders beyond those currently approved in their labels. For the years ended December 31, 2014, 2013 and 2012, research and development expenses were $1,893.4 million, $1,444.1 million and $1,334.9 million, respectively.
The table below highlights our current research and development programs that are in clinical trials. Drug development involves a high degree of risk and investment, and the status, timing and scope of our development programs are subject to change. Important factors that could adversely affect our drug development efforts are discussed in the “Risk Factors” section of this report.

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Therapeutic Area
 
Product Candidate
 
Targeted Indications
 
Collaborator (1)
 
Status
Neurology
 
ZINBRYTA (daclizumab high yield process)
 
MS
 
AbbVie Biotherapeutics
 
Phase 3 completed; Expect to submit MAA to FDA and EMA in 2015
 
 
TYSABRI (natalizumab)
 
Secondary progressive MS
 
None
 
Phase 3
 
 
 
 
Acute Ischemic Stroke
 
None
 
Phase 2
 
 
ISIS - SMNRx
 
Spinal muscular atrophy
 
Isis Pharmaceuticals
 
Phase 3
 
 
Anti-LINGO
 
Acute Optic Neuritis
 
None
 
Phase 2
 
 
 
 
MS
 
None
 
Phase 2
 
 
Neublastin
 
Neuropathic pain
 
None
 
Phase 2
 
 
BIIB037
 
Alzheimer’s disease
 
Neurimmune SubOne AG
 
Phase 1b; Preparing for Phase 3
 
 
BAN2401
 
Alzheimer’s disease
 
Eisai
 
Phase 2
 
 
E2609
 
Alzheimer’s disease
 
Eisai
 
Phase 2
 
 
ISIS - DMPKRx
 
Myotonic Dystrophy

 
Isis Pharmaceuticals
 
Phase 1
 
 
BIIB061
 
MS
 
None
 
Phase 1
 
 
 
 
 
 
 
 
 
Hematology
 
ALPROLIX [Coagulation Factor IX (Recombinant), Fc Fusion Protein]
 
Hemophilia B
 
Swedish Orphan Biovitrum

 
Expect to submit MAA to EMA in 2015

 
 
ELOCTATE [Antihemophilic Factor (Recombinant), Fc Fusion Protein]
 
Hemophilia A
 
Swedish Orphan Biovitrum

 
MAA submitted and under regulatory review by EMA

 
 
 
 
 
 
 
 
 
Immunology
 
STX-100
 
Idiopathic pulmonary fibrosis
 
None
 
Phase 2a
 
 
Anti-TWEAK
 
Lupus nephritis
 
None
 
Phase 2
 
 
Anti-CD40 Ligand
 
Systemic lupus erythematosus
 
UCB Pharma
 
Phase 1b
 
 
Anti-BDCA2
 
Systemic lupus erythematosus
 
None
 
Phase 1
 
Other
 
GAZYVA (obinutuzumab)
 
Non-Hodgkin’s lymphoma

 
Genentech (Roche Group)
 
Phase 3
 
 
 
 
Lupus nephritis
 
Genentech (Roche Group)
 
Phase 2
(1)
For information about certain of our agreements with collaborators and other third parties, please see “Business Relationships” below and Note 20, Collaborative and Other Relationships to our consolidated financial statements included in this report.
Late Stage Product Candidates
Additional information about our late stage product candidates, which includes programs in Phase 3 development or in registration stage, is set forth below.
ZINBRYTA (daclizumab high yield process)
ZINBRYTA is a monoclonal antibody that is being tested in RRMS. In June 2014, we announced positive top-line results from the Phase 3 DECIDE clinical trial, which investigated ZINBRYTA as a potential once-monthly, subcutaneous treatment for RRMS. Results showed that ZINBRYTA was superior on the study's primary endpoint, demonstrating a statistically significant reduction in annualized relapse rates when compared to interferon beta-1a (AVONEX).
TYSABRI (natalizumab)
In May 2013, we completed patient enrollment in a Phase 3 study of TYSABRI in secondary progressive MS, known as ASCEND. The study has a duration of approximately two years and involves approximately 875 patients. Secondary progressive MS is characterized by a steady progression of nerve damage, symptoms and disability.
ELOCTATE [Antihemophilic Factor (Recombinant), Fc Fusion Protein]
In June 2014, ELOCTATE, a recombinant factor VIII Fc fusion protein (rFVIIIFc), was approved by the FDA for the treatment of hemophilia A. In October 2014, we submitted a marketing authorization application (MAA) to the European Medicines Agency (EMA) for ELOCTA, the trade name for ELOCTATE in the E.U. The regulatory application included results from A-LONG, the pivotal Phase 3 clinical study that examined the efficacy, safety and pharmacokinetics of rFVIIIFc in males 12 years of age and older with severe hemophilia A and from Kids A-LONG, the Phase 3 clinical study that evaluated the efficacy and safety of rFVIIIFc in children with hemophilia A under the age of 12.

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ALPROLIX [Coagulation Factor IX (Recombinant), Fc Fusion Protein]
In March 2014, ALPROLIX was approved by the FDA for the treatment of hemophilia B. Pediatric data will be required as part of the MAA for ALPROLIX that we plan to submit to the EMA. We have initiated Kids B-LONG, a global pediatric study evaluating the efficacy and safety of recombinant factor IX Fc fusion protein (rFIXFc) in children with hemophilia B under the age of 12.
GAZYVA
The Roche Group is managing the following Phase 3 studies of GAZYVA:
GOYA: investigating the efficacy and safety of GAZYVA in combination with CHOP chemotherapy compared to RITUXAN with CHOP chemotherapy in previously untreated patients with CD20-positive diffuse large B-cell lymphoma.
GALLIUM: investigating the efficacy and safety of GAZYVA in combination with chemotherapy followed by maintenance with GAZYVA compared to RITUXAN in combination with chemotherapy followed by maintenance with RITUXAN in previously untreated patients with indolent non-Hodgkin's lymphoma.
GADOLIN: investigating the efficacy and safety of GAZYVA plus bendamustine compared with bendamustine alone in patients with RITUXAN-refractory, indolent non-Hodgkin's lymphoma. In February 2015, the Roche Group announced positive results from the Phase 3 GADOLIN study. At a pre-planned interim analysis, an independent data monitoring committee determined that the study met its primary endpoint early, showing that people lived significantly longer without disease worsening or death (progression-free survival) when treated with GAZYVA plus bendamustine followed by GAZYVA alone, compared to bendamustine alone.
ISIS-SMNRx 
In August 2014, Isis Pharmaceuticals, Inc. (Isis) announced the initiation of a pivotal Phase 3 study evaluating ISIS-SMNRx in infants with spinal muscular atrophy (SMA), the most common genetic cause of infant mortality. This Phase 3 study, known as ENDEAR, is a randomized, double-blind, sham-procedure controlled thirteen month study in approximately 110 infants diagnosed with SMA. The study will evaluate the efficacy and safety of a 12mg dose of ISIS-SMNRx with a primary endpoint of survival or permanent ventilation. 
In November 2014, Isis announced the initiation of a pivotal Phase 3 study evaluating the efficacy and safety of ISIS-SMNRx in non-ambulatory children with SMA. This Phase 3 study, known as CHERISH, is a randomized, double-blind, sham-procedure controlled fifteen month study in approximately 120 children with SMA. The study will evaluate the efficacy and safety of a 12mg dose of ISIS-SMNRx with a primary endpoint of a change in the Hammersmith Functional Motor Scale-Expanded, a validated method to measure changes in muscle function in patients with SMA.
Business Relationships
As part of our business strategy, we establish business relationships, including joint ventures and collaborative arrangements with other companies, universities and medical research institutions to assist in the clinical development and/or commercialization of certain of our products and product candidates and to provide support for our research programs. We also evaluate opportunities for acquiring products or rights to products and technologies that are complementary to our business from other companies, universities and medical research institutions.
Below is a brief description of our significant relationships and collaborations that expand our pipeline and provide us with certain rights to existing and potential new products and technologies. For more information regarding certain of these relationships, including their ongoing financial and accounting impact on our business, please read Note 20, Collaborative and Other Relationships to our consolidated financial statements included in this report.
AbbVie Biotherapeutics, Inc. - We have a collaboration agreement with AbbVie Biotherapeutics, Inc. aimed at advancing the development and commercialization of ZINBRYTA (daclizumab high yield process) in MS.
Acorda Therapeutics, Inc. - We collaborate with Acorda to develop and commercialize products containing fampridine in markets outside the U.S. We also have responsibility for regulatory activities and the future clinical development of related products in those markets.

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Eisai Co., Ltd. - In 2014, we entered into a collaboration with Eisai Co., Ltd. (Eisai) to jointly develop and commercialize E2609 and BAN2401, two Eisai product candidates for the treatment of Alzheimer’s disease. The agreement also provides Eisai with options to jointly develop and commercialize two of our candidates for Alzheimer’s disease, the anti-amyloid beta antibody BIIB037 and an anti-tau monoclonal antibody, upon the exchange of clinical data.
Genentech (Roche Group) - We collaborate with Genentech on the development and commercialization of RITUXAN. In addition, in the U.S. we share operating profits and losses relating to GAZYVA with Genentech. The Roche Group and its sub-licensees maintain sole responsibility for the development, manufacturing and commercialization of GAZYVA in the U.S.
Isis Pharmaceuticals, Inc. - We have three separate exclusive, worldwide option and collaboration agreements with Isis under which both companies will develop and commercialize antisense therapeutics for up to three gene targets, Isis’ product candidates for the treatment of myotonic dystrophy type 1, and the antisense investigational candidate, ISIS-SMNRx for the treatment of SMA. We also have a six-year research collaboration agreement with Isis, which we entered into in 2013, under which both companies will perform discovery level research and develop and commercialize antisense and other therapeutics for the treatment of neurological disorders. 
Samsung Bioepis - We have an agreement with Samsung BioLogics Co. Ltd. (Samsung Biologics), that established an entity, Samsung Bioepis, to develop, manufacture and market biosimilar pharmaceuticals. In December 2013, pursuant to our 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 agreement, we will be responsible for commercialization of these product candidates across Europe. In January 2015, Samsung Bioepis' MAA for its ENBREL (etanercept) biosimilar candidate, SB4, was validated and accepted for review by the EMA.
Sangamo BioSciences, Inc. - In 2014, we entered into 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 using gene editing technologies for the treatment of two inherited blood disorders, sickle cell disease and beta-thalassemia.
Swedish Orphan Biovitrum AB - We collaborate with Sobi to jointly develop and commercialize Factor VIII and Factor IX hemophilia products, including ELOCTATE and ALPROLIX. We have commercial rights for North America and for rest of the world markets outside of Europe, Russia, Turkey and certain countries in the Middle East. Subject to the exercise of an opt-in right that Sobi may exercise with respect to each product developed under the collaboration, Sobi will have commercial rights in Europe, Russia, Turkey and certain countries in the Middle East for the applicable product. In November 2014, Sobi exercised its opt-in right to assume final development and commercialization of ELOCTA in those territories.
Patents and Other Proprietary Rights
Patents are important to obtaining and protecting exclusive rights in our drugs and drug candidates. We regularly seek patent protection in the U.S. and in selected countries outside the U.S. for inventions originating from our research and development efforts. In addition, we license rights to various patents and patent applications. U.S. patents, as well as most foreign patents, are generally effective for 20 years from the date the earliest application was filed; however, U.S. patents that issue on applications filed before June 8, 1995 may be effective until 17 years from the issue date, if that is later than the 20 year date. In some cases, the patent term may be extended to recapture a portion of the term lost during FDA regulatory review or, in the case of the U.S., because of U.S. Patent and Trademark Office (USPTO) delays in prosecuting the application. Specifically, in the U.S., under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, the term of a patent that covers an FDA-approved drug may also be eligible for patent term extension (for up to five years, but not beyond a total of 14 years from the date of product approval) as compensation for patent term lost during the FDA regulatory review process. The duration and extension of the term of foreign patents varies similarly, in accordance with local law. For example, supplementary protection certificates (SPCs) on some of our products have been granted in a number of European countries, compensating in part for delays in obtaining marketing approval.

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Regulatory exclusivity, which may consist of regulatory data protection and market protection, also can provide meaningful protection for our products. Regulatory data protection provides to the holder of a drug or biologic marketing authorization, for a set period of time, the exclusive use of the proprietary pre-clinical and clinical data that it created at significant cost and submitted to the applicable regulatory authority to obtain approval of its product. Our products also may qualify for market protection from regulatory authorities, pursuant to which a regulatory authority may not permit for a set period of time, the approval or commercialization of another product containing the same active ingredient(s) as our product. After that set period of time, third parties are then permitted to rely upon our data to obtain approval of their abbreviated applications to market (e.g., generic drugs and biosimilars). Although the World Trade Organization's agreement on trade-related aspects of intellectual property rights (TRIPS) requires signatory countries to provide regulatory exclusivity to innovative pharmaceutical products, implementation and enforcement varies widely from country to country.
We also rely upon other forms of unpatented confidential information to remain competitive. We protect such information principally through confidentiality agreements with our employees, consultants, outside scientific collaborators, scientists whose research we sponsor and other advisers. In the case of our employees, these agreements also provide, in compliance with relevant law, that inventions and other intellectual property conceived by such employees during their employment shall be our exclusive property.
Our trademarks are important to us and are generally covered by trademark applications or registrations in the USPTO and the patent or trademark offices of other countries. We also use trademarks licensed from third parties, such as the trademark FAMPYRA which we license from Acorda Therapeutics. Trademark protection varies in accordance with local law, and continues in some countries as long as the trademark is used and in other countries as long as the trademark is registered. Trademark registrations generally are for fixed but renewable terms.
A discussion of certain risks and uncertainties that may affect our patent position and proprietary rights is set forth in the “Risk Factors” section of this report.
Additional information about the patents, expected regulatory exclusivities and other proprietary rights covering our marketed products is set forth below.
AVONEX and PLEGRIDY
We have several U.S. patents and patent applications, and a number of corresponding foreign counterparts, related to AVONEX and/or PLEGRIDY. Our U.S. patent no. 7,588,755 claims the use of recombinant beta interferon for immunomodulation or treating a viral condition, viral disease, cancers or tumors. This patent, which expires in September 2026, covers the treatment of MS with AVONEX and PLEGRIDY. A discussion of legal proceedings related to this patent is set forth in Note 21, Litigation to our consolidated financial statements included in this report.
Additionally, we and another party each own a pending U.S. patent application related to recombinant interferon-beta protein. These applications, which fall outside of the General Agreement on Tariffs and Trade (GATT) amendments to the U.S. patent statute, are not published by the USPTO and, if they mature into granted patents, may be entitled to a term of seventeen years from the grant date. There is a pending interference proceeding in the USPTO involving these applications. We do not know whether either of these applications will mature into patents with claims relevant to AVONEX or to PLEGRIDY.
Additional protection for PLEGRIDY is provided by patents and patent applications with expiration dates out to 2025 in the U.S. and 2019 in the E.U., with the potential for patent term extension. PLEGRIDY is also entitled to regulatory exclusivity until 2026 in the U.S. and 2024 in the E.U.
TECFIDERA
We have several U.S. patents and patent applications, and a number of corresponding foreign counterparts, related to TECFIDERA.
Our principal U.S. patents and expiration dates, subject to pending applications for patent term extension, are:
U.S. patent no. 6,509,376, having claims to formulations of dimethyl fumarate for use in the treatment of autoimmune diseases including MS, expiring in 2019;
U.S. patent no. 7,320,999, having claims to a method of treating MS using dimethyl fumarate, expiring in 2020;
U.S. patent no. 7,619,001, having claims to a method of treating MS using dimethyl fumarate, monomethyl fumarate, or a combination thereof, expiring in 2018;

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U.S. patent no. 7,803,840, having claims to a method of treating an autoimmune disease selected from autoimmune polyarthritis and MS using dimethyl fumarate, expiring in 2018;
U.S. patent no. 8,399,514, covering the dosing regimen of 480 mg per day of dimethyl fumarate, monomethyl fumarate or combinations thereof for treating MS, expiring in 2028;
U.S. patent no. 8,524,773, having claims to a method of treating MS using dimethyl fumarate, expiring in 2018; and
U.S. patent no. 8,759,393, having claims to formulations of dimethyl fumarate, expiring in 2019.
Our principal European patents and expiration dates, subject to pending applications for supplemental patent certificates, are:
European patent no. (EP) 1131065, directed to formulations of dimethyl fumarate and to uses thereof for treating autoimmune diseases, including MS, expiring in 2019; and
EP 2137537, the counterpart patent to our U.S. patent covering the dosing regimen of 480 mg per day of dimethyl fumarate or monomethyl fumarate for treating MS, expiring in 2028.
In addition to patent protection, in the U.S. TECFIDERA is entitled to regulatory exclusivity until 2018. In the E.U., TECFIDERA is entitled to regulatory exclusivity until 2024.
TYSABRI
We have patents and patent applications covering TYSABRI in the U.S. and other countries. These patents and patent applications cover TYSABRI and related manufacturing methods, as well as various methods of treatment using the product. The principal patents covering the product and use of the product to treat MS are U.S. patent nos. 5,840,299 and 6,602,503 and EP 0804237, which expire between 2017 and 2020 (including supplementary protection certificates in many European countries). Additional U.S. and E.U. patents and applications covering methods of treatment using the product expire in 2023.
In addition to patent protection, TYSABRI is entitled to regulatory exclusivity until 2016 in both the U.S. and the E.U.
FAMPYRA
We have an exclusive license under two European granted patents, several pending European patent applications and numerous corresponding non-U.S. counterpart applications related to FAMPYRA. EP 0484186B1 claims pharmaceutical formulations containing aminopyridines including fampridine. This patent expired in November 2011 but is subject to pending and granted supplemental protection certificates which, where granted, will extend the patent term to 2016 on a country-by-country basis. EP 1732548B1, which claims sustained-release aminopyridine compositions for increasing walking speed in patients with MS, and EP 2377536B1, which claims sustained-release aminopyridine compositions for treating multiple sclerosis, expire in 2025 but are subject to pending and granted supplemental protection certificates which, where granted, will extend one of the patents’ term to 2026 on a country-by-country basis. In addition to these patent rights, FAMPYRA is covered by regulatory exclusivity in Europe until 2021.
ELOCTATE and ALPROLIX
We have several U.S. patents and patent applications, and a number of corresponding foreign counterparts, related to ELOCTATE and ALPROLIX and their use. The principal patents include U.S. patents nos. 7,404,956, 8,329,182, 7,348,004 and 7,862,820. These patents will expire between 2024 and 2025, and some may be entitled to additional patent term pursuant to the patent term extension provisions of the U.S. patent laws. Related European patents EP 1624891 and EP 1625209 expire in 2024 and may be entitled to additional patent term in at least some countries upon approval. Additionally, pending patent applications, if granted, would provide additional patent protection through 2034. ELOCTATE and ALPROLIX are both entitled to regulatory exclusivity in the U.S. until 2026.
RITUXAN and Anti-CD20 Antibodies
We have several U.S. patents and patent applications, and numerous corresponding foreign counterparts, directed to anti-CD20 antibody technology, including RITUXAN. The principal patents with claims to RITUXAN or its uses expire in the U.S. between 2015 and 2018 and expired in the rest of the world in 2013, subject to any available patent term extensions. In addition, we and our collaborator Genentech, have additional patents and patent applications directed to anti-CD20 antibodies and their uses to treat various diseases. Genentech has principal responsibility for managing the intellectual property portfolio for RITUXAN and the other anti-CD20 antibodies under our agreements with Genentech.

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Competition
Competition in the biopharmaceutical industries is intense and comes from many sources, including specialized biotechnology firms and large pharmaceutical companies. Many of our competitors are working to develop products similar to those we are developing or already market and have considerable experience in undertaking clinical trials and in obtaining regulatory approval to market pharmaceutical products. Certain of these companies have substantially greater financial, marketing and research and development resources than we do.
We believe that competition and leadership in the industry is based on managerial and technological excellence and innovation as well as establishing patent and other proprietary positions through research and development. The achievement of a leadership position also depends largely upon our ability to identify and exploit commercially the products resulting from research and the availability of adequate financial resources to fund facilities, equipment, personnel, clinical testing, manufacturing and marketing. Another key aspect of remaining competitive within the industry is recruiting and retaining leading scientists and technicians. We believe that we have been successful in attracting skilled and experienced scientific personnel.
Competition among products approved for sale may be based, among other things, on patent position, product efficacy, safety, convenience/delivery devices, reliability, availability and price. In addition, early entry of a new pharmaceutical product into the market may have important advantages in gaining product acceptance and market share. Accordingly, the relative speed with which we can develop products, complete the testing and approval process and supply commercial quantities of products will have an important impact on our competitive position.
The introduction of new products or technologies, including the development of new processes or technologies by competitors or new information about existing products may result in increased competition for our marketed products or could result in pricing pressure on our products. It is also possible that the development of new treatment options or standards of care could reduce the use of our products or may limit the utility and application of ongoing clinical trials for our product candidates. We may also face increased competitive pressures as a result of generics and the emergence of biosimilars in the U.S. and E.U. If a generic or biosimilar version of one of our products were approved, it could reduce our sales of that product.
Additional information about the competition that our marketed products face is set forth below.
AVONEX, PLEGRIDY, TYSABRI and TECFIDERA
AVONEX, PLEGRIDY, TYSABRI and TECFIDERA each compete with one or more of the following products:
Competing Product
 
Competitor
COPAXONE (glatiramer acetate)
 
Teva Pharmaceuticals Industries Ltd.
REBIF (interferon-beta-1)
 
Merck KGaA (and co-promoted with Pfizer Inc. in the U.S.)
BETASERON/BETAFERON (interferon-beta-1b)
 
Bayer Group
EXTAVIA (interferon-beta-1b)
 
Novartis AG
GILENYA (fingolimod)
 
Novartis AG
AUBAGIO (teriflunomide)
 
Sanofi
LEMTRADA (alemtuzumab)
 
Sanofi
Competition in the MS market is intense. Along with us, a number of companies are working to develop additional treatments for MS that may in the future compete with AVONEX, PLEGRIDY, TYSABRI, TECFIDERA or all of them. In addition, the commercialization of our own products, including new products such as TECFIDERA and PLEGRIDY, and the possible future introduction of generics, related prodrug derivatives or biosimilars of existing products may negatively impact future sales of our MS products.
FAMPYRA
FAMPYRA is indicated as a treatment to improve walking in adult patients with MS who have walking disability and is the first treatment that addresses this unmet medical need with demonstrated efficacy in people with all types of MS. FAMPYRA is currently the only therapy approved to improve walking in patients with MS.
FUMADERM
FUMADERM competes with several different types of therapies in the psoriasis market within Germany, including oral systemics such as methotrexate and cyclosporine.

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RITUXAN and GAZYVA in Oncology
RITUXAN and GAZYVA compete with several different types of therapies in the oncology market, including:
Competing Product
 
Competitor
TREANDA (bendamustine HCL)
 
Cephalon (Teva Pharmaceuticals)
ARZERRA (ofatumumab)
 
GenMab in collaboration with GlaxoSmithKline
IMBRUVICA (ibrutinib)
 
Pharmacyclics and Janssen
ZYDELIG (idelalisib)
 
Gilead
We also expect that over time GAZYVA will compete with RITUXAN in the oncology market. In addition, we are aware of other anti-CD20 molecules, including biosimilars, in development that, if successfully developed and approved, may compete with RITUXAN and GAZYVA in the oncology market.
RITUXAN in Rheumatoid Arthritis (RA)
RITUXAN competes with several different types of therapies in the RA market, including:
Competing Product/Type of Therapy
 
Competitor
Traditional Therapies:
 
 
Disease-modifying anti-rheumatic drugs such as steroids, methotrexate and cyclosporine
 
Numerous competitors
TNF Inhibitors:
 
 
REMICADE (infliximab)
 
Johnson & Johnson
SIMPONI and SIMPONI ARIA (golimumab)
 
Johnson & Johnson
HUMIRA (adalimumab)
 
AbbVie
ENBREL (etanercept)
 
Amgen and Pfizer
CIMZIA (certolizumab pegol)
 
UCB, S.A.
ORENCIA (abatacept)
 
Bristol-Myers Squibb Company
ACTEMRA (tocilizumab)
 
Roche Group
XELJANZ (tofacitinib)
 
Pfizer
We are also aware of other products, including biosimilars, in development that, if successfully developed and approved, may compete with RITUXAN in the RA market.
ELOCTATE and ALPROLIX
ELOCTATE and ALPROLIX compete with recombinant short-acting Factor VIII and IX products, respectively, including:
Competing Product
 
Competitor
ELOCTATE:
 
 
ADVATE [Antihemophilic Factor (Recombinant)]
 
Baxter
KOGENATE FS [Antihemophilic Factor (Recombinant)]
 
Bayer
HELIXATE FS [Antihemophilic Factor (Recombinant)]
 
CSL Behring
XYNTHA [Antihemophilic Factor (Recombinant)], Plasma/Albumin-Free
 
Pfizer
ALPROLIX:
 
 
BENEFIX Coagulation Factor IX (Recombinant)
 
Pfizer
RIXUBIS [Coagulation Factor IX (Recombinant)]
 
Baxter
Our hemophilia products also compete with a number of plasma-derived short-acting Factor VIII and IX products. We are also aware of other longer-acting products as well as other technologies, such as gene therapies, that are in development, and if successfully developed and approved may compete with our hemophilia products.

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Regulatory
Our current and contemplated activities and the products and processes that will result from such activities are subject to substantial government regulation.
Regulation of Pharmaceuticals
Product Approval and Post-Approval Regulation in the United States
Before new pharmaceutical products may be sold in the U.S., preclinical studies and clinical trials of the products must be conducted and the results submitted to the FDA for approval. With limited exceptions, the FDA requires companies to register both pre-approval and post-approval clinical trials and disclose clinical trial results in public databases. Failure to register a trial or disclose study results within the required time periods could result in penalties, including civil monetary penalties. Clinical trial programs must establish efficacy, determine an appropriate dose and dosing regimen, and define the conditions for safe use. This is a high-risk process that requires stepwise clinical studies in which the candidate product must successfully meet predetermined endpoints. The results of the preclinical and clinical testing of a product are then submitted to the FDA in the form of a Biologics License Application (BLA) or a New Drug Application (NDA). In response to a BLA or NDA, the FDA may grant marketing approval, request additional information or deny the application if it determines the application does not provide an adequate basis for approval.
Product development and receipt of regulatory approval takes a number of years, involves the expenditure of substantial resources and depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments, potential safety signals observed in preclinical or clinical tests, and the risks and benefits of the product as demonstrated in clinical trials. The FDA has substantial discretion in the product approval process, and it is impossible to predict with any certainty whether and when the FDA will grant marketing approval. The agency may on occasion require the sponsor of a BLA or NDA to conduct additional clinical studies or to provide other scientific or technical information about the product, and these additional requirements may lead to unanticipated delay or expense. Furthermore, even if a product is approved, the approval may be subject to limitations based on the FDA's interpretation of the existing pre-clinical or clinical data.
The FDA has developed four distinct approaches intended to make therapeutically important drugs available as rapidly as possible, especially when the drugs are the first available treatment or have advantages over existing treatments: accelerated approval, fast track, breakthrough therapy, and priority review.
The FDA may grant “accelerated approval” status to products that treat serious or life-threatening illnesses and that provide meaningful therapeutic benefits to patients over existing treatments. Under this pathway, the FDA may approve a product based on surrogate endpoints, or clinical endpoints other than survival or irreversible morbidity. When approval is based on surrogate endpoints or clinical endpoints other than survival or morbidity, the sponsor will be required to conduct additional post-approval clinical studies to verify and describe clinical benefit. Under the agency's accelerated approval regulations, if the FDA concludes that a drug that has been shown to be effective can be safely used only if distribution or use is restricted, it may require certain post-marketing restrictions as necessary to assure safe use. In addition, for products approved under accelerated approval, sponsors may be required to submit all copies of their promotional materials, including advertisements, to the FDA at least thirty days prior to initial dissemination. The FDA may withdraw approval under accelerated approval after a hearing if, for instance, post-marketing studies fail to verify any clinical benefit, it becomes clear that restrictions on the distribution of the product are inadequate to ensure its safe use, or if a sponsor fails to comply with the conditions of the accelerated approval.
In addition, the FDA may grant “fast track” status to products that treat serious diseases or conditions and fill an unmet medical need. Fast track is a process designed to expedite the review of such products by providing, among other things, more frequent meetings with the FDA to discuss the product's development plan, more frequent written correspondence from the FDA about trial design, eligibility for accelerated approval, and rolling review, which allows submission of individually completed sections of a NDA or BLA for FDA review before the entire filing is completed. Fast track status does not ensure that a product will be developed more quickly or receive FDA approval.
The FDA may also grant “breakthrough therapy” status to drugs designed to treat, alone or in combination with another drug or drugs, a serious or life-threatening disease or condition and for which preliminary evidence suggests a substantial improvement over existing therapies. Such drugs need not address an unmet need, but are nevertheless eligible for expedited review if they offer the potential for an improvement. Breakthrough therapy status entitles the sponsor to earlier and more frequent meetings with the FDA regarding the development of nonclinical and clinical data and permits the FDA to offer product development or regulatory advice for the purpose of shortening the time to product approval. Breakthrough therapy status does not guarantee that a product will be developed or reviewed more quickly and does not ensure FDA approval.

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Finally, the FDA may grant “priority review” status to products that offer major advances in treatment or provide a treatment where no adequate therapy exists. Priority review is intended to reduce the time it takes for the FDA to review a NDA or BLA.
Regardless of the approval pathway employed, the FDA may require a sponsor to conduct additional post-marketing studies as a condition of approval to provide data on safety and effectiveness. If a sponsor fails to conduct the required studies, the agency may withdraw its approval. In addition, if the FDA concludes that a drug that has been shown to be effective can be safely used only if distribution or use is restricted, it can mandate post-marketing restrictions as necessary to assure safe use. In such a case, the sponsor may be required to establish rigorous systems to assure use of the product under safe conditions. These systems are usually referred to as Risk Evaluation and Mitigation Strategies (REMS). The FDA can impose financial penalties for failing to comply with certain post-marketing commitments, including REMS. In addition, any changes to an approved REMS must be reviewed and approved by the FDA prior to implementation.
We monitor information on side effects and adverse events reported during clinical studies and after marketing approval and report such information and events to regulatory agencies. Non-compliance with the FDA's safety reporting requirements may result in civil or criminal penalties. Side effects or adverse events that are reported during clinical trials can delay, impede, or prevent marketing approval. Based on new safety information that emerges after approval, the FDA can mandate product labeling changes, impose a new REMS or the addition of elements to an existing REMS, require new post-marketing studies (including additional clinical trials), or suspend or withdraw approval of the product. These requirements may affect our ability to maintain marketing approval of our products or require us to make significant expenditures to obtain or maintain such approvals.
If we seek to make certain types of changes to an approved product, such as adding a new indication, making certain manufacturing changes, or changing manufacturers or suppliers of certain ingredients or components, the FDA will need to review and approve such changes in advance. In the case of a new indication, we are required to demonstrate with additional clinical data that the product is safe and effective for a use other than that initially approved. FDA regulatory review may result in denial or modification of the planned changes, or requirements to conduct additional tests or evaluations that can substantially delay or increase the cost of the planned changes.
In addition, the FDA regulates all advertising and promotion activities and communications for products under its jurisdiction both before and after approval. A company can make only those claims relating to safety and efficacy that are approved by the FDA. However, physicians may prescribe legally available drugs for uses that are not described in the drug's labeling. Such off-label uses are common across medical specialties, and often reflect a physician's belief that the off-label use is the best treatment for patients. The FDA does not regulate the behavior of physicians in their choice of treatments, but the FDA regulations do impose stringent restrictions on manufacturers' communications regarding off-label uses. Failure to comply with applicable FDA requirements may subject a company to adverse publicity, enforcement action by the FDA, corrective advertising, and the full range of civil and criminal penalties available to the FDA.
Regulation of Combination Products
Combination products are defined by the FDA to include products comprised of two or more regulated components (e.g., a biologic and a device). Biologics and devices each have their own regulatory requirements, and combination products may have additional requirements. Some of our marketed products meet this definition and are regulated under this framework and similar regulations outside the U.S., and we expect that some of our pipeline product candidates may be evaluated for regulatory approval under this framework as well.
Product Approval and Post-Approval Regulation Outside the United States
We market our products in numerous jurisdictions outside the U.S. Most of these jurisdictions have product approval and post-approval regulatory processes that are similar in principle to those in the U.S. In Europe, where most of our ex-U.S. efforts are focused, there are several tracks for marketing approval, depending on the type of product for which approval is sought. Under the centralized procedure, a company submits a single application to the EMA. The marketing application is similar to the NDA or BLA in the U.S. and is evaluated by the Committee for Medicinal Products for Human Use (CHMP), the expert scientific committee of the EMA. If the CHMP determines that the marketing application fulfills the requirements for quality, safety, and efficacy, it will submit a favorable opinion to the EC. The CHMP opinion is not binding, but is typically adopted by the EC. A marketing application approved by the EC is valid in all member states. The centralized procedure is required for all biological products, orphan medicinal products, and new treatments for neurodegenerative disorders, and it is available for certain other products, including those which constitute a significant therapeutic, scientific or technical innovation.

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In addition to the centralized procedure, Europe also has: (1) a nationalized procedure, which requires a separate application to and approval determination by each country; (2) a decentralized procedure, whereby applicants submit identical applications to several countries and receive simultaneous approval; and (3) a mutual recognition procedure, where applicants submit an application to one country for review and other countries may accept or reject the initial decision. Regardless of the approval process employed, various parties share responsibilities for the monitoring, detection, and evaluation of adverse events post-approval, including national authorities, the EMA, the EC, and the marketing authorization holder. In some regions, it is possible to receive an “accelerated” review whereby the national regulatory authority will commit to truncated review timelines for products that meet specific medical needs.
Good Manufacturing Practices
Regulatory agencies regulate and inspect equipment, facilities, and processes used in the manufacturing and testing of pharmaceutical and biologic products prior to approving a product. If, after receiving clearance from regulatory agencies, a company makes a material change in manufacturing equipment, location, or process, additional regulatory review and approval may be required. We also must adhere to current Good Manufacturing Practices (cGMP) and product-specific regulations enforced by regulatory agencies following product approval. The FDA, the EMA and other regulatory agencies also conduct periodic visits to re-inspect equipment, facilities, and processes following the initial approval of a product. If, as a result of these inspections, it is determined that our equipment, facilities, or processes do not comply with applicable regulations and conditions of product approval, regulatory agencies may seek civil, criminal, or administrative sanctions or remedies against us, including significant financial penalties and the suspension of our manufacturing operations.
Good Clinical Practices
The FDA, the EMA and other regulatory agencies promulgate regulations and standards for designing, conducting, monitoring, auditing and reporting the results of clinical trials to ensure that the data and results are accurate and that the rights and welfare of trial participants are adequately protected (commonly referred to as current Good Clinical Practices (cGCP)). Regulatory agencies enforce cGCP through periodic inspections of trial sponsors, principal investigators and trial sites, contract research organizations (CROs), and institutional review boards. If our studies fail to comply with applicable cGCP, the clinical data generated in our clinical trials may be deemed unreliable and relevant regulatory agencies may require us to perform additional clinical trials before approving our marketing applications. Noncompliance can also result in civil or criminal sanctions. We rely on third parties, including CROs, to carry out many of our clinical trial-related activities. Failure of such third parties to comply with cGCP can likewise result in rejection of our clinical trial data or other sanctions.
Approval of Biosimilars
In March 2010, U.S. healthcare reform legislation known as the Affordable Care Act, amended the Public Health Service Act (PHSA), to authorize the FDA to approve biological products, referred to as biosimilars or follow-on biologics, that are shown to be highly similar to previously approved biological products based upon potentially abbreviated data packages. The approval pathway for biosimilars does, however, grant a biologics manufacturer a 12 year period of exclusivity from the date of approval of its biological product before biosimilar competition can be introduced. The FDA has released draft guidance documents as part of the implementation of the abbreviated approval pathway for biosimilars and these have not yet been finalized. The FDA has indicated that it is still evaluating a number of relevant issues, and additional guidance documents are expected to be released, including guidance on the criteria for interchangeability (which the FDA has indicated would be a “higher standard” than biosimilarity), naming, labeling and clinical pharmacology.
Biosimilars legislation has also been in place in the E.U. since 2003. In December 2012, guidelines issued by the EMA for approving biosimilars of marketed monoclonal antibody products became effective. In the E.U., biosimilars have been approved under a specialized pathway of centralized procedures. The pathway allows sponsors of a biosimilar to seek and obtain regulatory approval based in part on the clinical trial data of an innovator product to which the biosimilar has been demonstrated to be “similar”. In many cases, this allows biosimilars to be brought to market without conducting the full complement of clinical trials typically required for novel biologic drugs.

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Orphan Drug Act
Under the U.S. Orphan Drug Act, the FDA may grant orphan drug designation to drugs or biologics intended to treat a “rare disease or condition,” which generally is a disease or condition that affects fewer than 200,000 individuals in the U.S. If a product which has an orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, i.e., the FDA may not approve any other applications to market the same drug for the same indication for a period of seven years following marketing approval, except in certain very limited circumstances, such as if the later product is shown to be clinically superior to the orphan product. Legislation similar to the U.S. Orphan Drug Act has been enacted in other countries to encourage the research, development and marketing of medicines to treat, prevent or diagnose rare diseases. In the E.U., medicinal products intended for diagnosis, prevention or treatment of life-threatening or very serious diseases affecting less than five in 10,000 people receive 10-year market exclusivity, protocol assistance, and access to the centralized procedure for marketing authorization.
Regulation Pertaining to Pricing and Reimbursement
In both domestic and foreign markets, sales of our products depend, in part, on the availability and amount of reimbursement by third party payors, including governments and private health plans. Governments may regulate coverage, reimbursement and pricing of our products to control cost or affect utilization of our products. Private health plans may also seek to manage cost and utilization by implementing coverage and reimbursement limitations. Substantial uncertainty exists regarding the reimbursement by third party payors of newly approved health care products. The U.S. and foreign governments regularly consider reform measures that affect health care coverage and costs. For example, provisions of the Affordable Care Act have resulted in changes in the way health care is paid for by both governmental and private insurers, including increased rebates owed by manufacturers under the Medicaid Drug Rebate Program, annual fees and taxes on manufacturers of certain branded prescription drugs, the requirement that manufacturers participate in a discount program for certain outpatient drugs under Medicare Part D and the expansion of the number of hospitals eligible for discounts under Section 340B of the PHSA. Such reforms have had and are expected to continue to have a significant impact on our business.
Within the U.S.
Medicaid is a joint federal and state program that is administered by the states for low income and disabled beneficiaries. Under the Medicaid Drug Rebate Program, we are required to pay a rebate for each unit of product reimbursed by the state Medicaid programs. For most brand name drugs, the amount of the basic rebate for each product is set by law as the greater of 23.1% (17.1% for clotting factors and certain other products) of the average manufacturer price (AMP) or the difference between AMP and the best price available from us to any customer (with limited exceptions). The rebate amount must be adjusted upward if AMP increases more than inflation (measured by the Consumer Price Index - Urban). This adjustment can cause the total rebate amount to exceed the minimum 23.1% (or 17.1%) basic rebate amount. The rebate amount is calculated each quarter based on our report of current AMP and best price for each of our products to the Centers for Medicare & Medicaid Services (CMS). The requirements for calculating AMP and best price are complex. We are required to report any revisions to AMP or best price previously reported within a certain period, which revisions could affect our rebate liability for prior quarters. In addition, if we fail to provide information timely or we are found to have knowingly submitted false information to the government, the statute governing the Medicaid Drug Rebate Program provides for civil monetary penalties.
Medicare is a federal program that is administered by the federal government that covers individuals age 65 and over as well as those with certain disabilities. Medicare Part B generally covers drugs that must be administered by physicians or other health care practitioners; are provided in connection with certain durable medical equipment; or are certain oral anti-cancer drugs and certain oral immunosuppressive drugs. Medicare Part B pays for such drugs under a payment methodology based on the average sales price (ASP) of the drugs. Manufacturers, including us, are required to provide ASP information to the CMS on a quarterly basis. The manufacturer-submitted information is used to calculate Medicare payment rates. The current payment rate for Medicare Part B drugs is ASP plus 6%. The payment rates for drugs in the hospital outpatient setting are subject to periodic adjustment. The CMS also has the statutory authority to adjust payment rates for specific drugs outside the hospital outpatient setting based on a comparison of ASP payment rates to widely available market prices or to AMP, which could decrease Medicare payment rates, but the authority has not yet been implemented. If a manufacturer is found to have made a misrepresentation in the reporting of ASP, the governing statute provides for civil monetary penalties.
Medicare Part D provides coverage to enrolled Medicare patients for self-administered drugs (i.e., drugs that are not administered by a physician). Medicare Part D is administered by private prescription drug plans approved by the U.S. government and each drug plan establishes its own Medicare Part D formulary for prescription drug coverage and pricing, which the drug plan may modify from time-to-time. The prescription drug plans negotiate pricing with manufacturers and may condition formulary placement on the availability of manufacturer discounts. In addition, manufacturers, including us, are required to provide to CMS a 50% discount on brand name prescription drugs utilized by Medicare Part D beneficiaries when those beneficiaries reach the coverage gap in their drug benefits.

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Our products are subject to discounted pricing when purchased by federal agencies via the Federal Supply Schedule (FSS). FSS participation is required for our products to be covered and reimbursed by the Veterans Administration, Department of Defense, Coast Guard, and Public Health Service (PHS). Coverage under Medicaid, Medicare and the PHS pharmaceutical pricing program is also conditioned upon FSS participation. FSS pricing is intended not to exceed the price that we charge our most-favored non-federal customer for a product. In addition, prices for drugs purchased by the Veterans Administration, Department of Defense (including drugs purchased by military personnel and dependents through the TriCare retail pharmacy program), Coast Guard, and PHS are subject to a cap on pricing equal to 76% of the non-federal average manufacturer price (non-FAMP). An additional discount applies if non-FAMP increases more than inflation (measured by the Consumer Price Index - Urban). In addition, if we fail to provide information timely or we are found to have knowingly submitted false information to the government, the governing statute provides for civil monetary penalties.
To maintain coverage of our products under the Medicaid Drug Rebate Program and Medicare Part B, we are required to extend significant discounts to certain covered entities that purchase products under Section 340B of the PHS pharmaceutical pricing program. Purchasers eligible for discounts include hospitals that serve a disproportionate share of financially needy patients, community health clinics, hemophilia treatment centers and other entities that receive certain types of grants under the PHSA. For all of our products, we must agree to charge a price that will not exceed the amount determined under statute (the “ceiling price”) when we sell outpatient drugs to these covered entities. In addition, we may, but are not required to, offer these covered entities a price lower than the 340B ceiling price. The 340B discount formula is based on AMP and is generally similar to the level of rebates calculated under the Medicaid Drug Rebate Program.
Outside the U.S.
Outside the U.S., the E.U. represents our major market. Within the E.U., our products are paid for by a variety of payors, with governments being the primary source of payment. Governments may determine or influence reimbursement of products. Governments may also set prices or otherwise regulate pricing. Negotiating prices with governmental authorities can delay commercialization of our products. Governments may use a variety of cost-containment measures to control the cost of products, including price cuts, mandatory rebates, value-based pricing, and reference pricing (i.e., referencing prices in other countries and using those reference prices to set a price). Budgetary pressures in many E.U. countries are continuing to cause governments to consider or implement various cost-containment measures, such as price freezes, increased price cuts and rebates, and expanded generic substitution and patient cost-sharing. If budget pressures continue, governments may implement additional cost-containment measures.
Regulation Pertaining to Sales and Marketing
We are subject to various federal and state laws pertaining to health care “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws generally prohibit a prescription drug manufacturer from soliciting, offering, receiving, or paying any remuneration to generate business, including the purchase or prescription of a particular drug. Although the specific provisions of these laws vary, their scope is generally broad and there may be no regulations, guidance or court decisions that clarify how the laws apply to particular industry practices. There is therefore a possibility that our practices might be challenged under the anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third party payors (including Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including fines and civil monetary penalties, and exclusion from federal health care programs (including Medicare and Medicaid). In the U.S., federal and state authorities are paying increased attention to enforcement of these laws within the pharmaceutical industry and private individuals have been active in alleging violations of the laws and bringing suits on behalf of the government under the federal civil False Claims Act. If we were subject to allegations concerning, or were convicted of violating, these laws, our business could be harmed.

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Laws and regulations have been enacted by the federal government and various states to regulate the sales and marketing practices of pharmaceutical manufacturers. The laws and regulations generally limit financial interactions between manufacturers and health care providers or require disclosure to the government and public of such interactions. The laws include federal “sunshine” provisions enacted in 2010 as part of the comprehensive federal health care reform legislation. The sunshine provisions apply to pharmaceutical manufacturers with products reimbursed under certain government programs and require those manufacturers to disclose annually to the federal government (for re-disclosure to the public) certain payments made to physicians and certain other healthcare practitioners or to teaching hospitals. State laws may also require disclosure of pharmaceutical pricing information and marketing expenditures. Many of these laws and regulations contain ambiguous requirements. Given the lack of clarity in laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent federal and state laws and regulations. Outside the U.S., other countries have implemented requirements for disclosure of financial interactions with healthcare providers and additional countries may consider or implement such laws.
Other Regulations
Foreign Anti-Corruption
We are subject to various federal and foreign laws that govern our international business practices with respect to payments to government officials. Those laws include the U.S. Foreign Corrupt Practices Act (FCPA), which prohibits U.S. companies and their representatives from paying, offering to pay, promising, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate for the purpose of obtaining or retaining business or to otherwise obtain favorable treatment or influence a person working in an official capacity. In many countries, the health care professionals we regularly interact with may meet the FCPA's definition of a foreign government official. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls.
The laws to which we are subject also include the U.K. Bribery Act 2010 (Bribery Act) which proscribes giving and receiving bribes in the public and private sectors, bribing a foreign public official, and failing to have adequate procedures to prevent employees and other agents from giving bribes. U.S. companies that conduct business in the United Kingdom generally will be subject to the Bribery Act. Penalties under the Bribery Act include potentially unlimited fines for companies and criminal sanctions for corporate officers under certain circumstances.
NIH Guidelines
We conduct research at our U.S. facilities in compliance with the current U.S. National Institutes of Health Guidelines for Research Involving Recombinant DNA Molecules (NIH Guidelines). By local ordinance, we are required to, among other things, comply with the NIH Guidelines in relation to our facilities in Cambridge, Massachusetts and Research Triangle Park (RTP), North Carolina and are required to operate pursuant to certain permits.
Other Laws
Our present and future business has been and will continue to be subject to various other laws and regulations. Various laws, regulations and recommendations relating to data privacy and protection, safe working conditions, laboratory practices, the experimental use of animals, and the purchase, storage, movement, import, export and use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research work are or may be applicable to our activities. Certain agreements entered into by us involving exclusive license rights may be subject to national or international antitrust regulatory control, the effect of which cannot be predicted. The extent of government regulation, which might result from future legislation or administrative action, cannot accurately be predicted.
Environmental Matters
We strive to comply in all material respects with applicable laws and regulations concerning the environment. While it is impossible to predict accurately the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is not expected to require significant capital expenditures and has not had, and is not expected to have, a material adverse effect on our operations or competitive position.

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Manufacturing
We have three licensed biologics manufacturing facilities, which are located in RTP, North Carolina, Cambridge, Massachusetts, and Hillerød, Denmark. The RTP site includes a 105,000 square foot biologics manufacturing facility, which contains 6,000 (3 x 2,000) liters of bioreactor capacity, as well as a 175,000 square foot Large-Scale Manufacturing (LSM) plant which contains 90,000 (6 x 15,000) liters of bioreactor capacity. The Cambridge site is a 67,000 square foot biologics manufacturing facility that contains 10,000 (5 x 2,000) liters of bioreactor capacity. The Hillerød site is a 228,000 square foot LSM plant that contains 90,000 (6 x 15,000) liters of bioreactor capacity.
We rely on our manufacturing facilities in Cambridge, Massachusetts, RTP, North Carolina and Hillerød, Denmark for the production of drug substance for certain of our large molecule products and product candidates. Genentech is responsible for all worldwide manufacturing activities for bulk RITUXAN and GAZYVA and has sourced the manufacture of certain bulk RITUXAN and GAZYVA requirements to a third party. We principally use third parties to manufacture the active pharmaceutical ingredient (API) and the final product for our small molecule products and product candidates, including TECFIDERA and FUMADERM, and the final drug product for our large molecule products and product candidates. Acorda Therapeutics supplies FAMPYRA to us pursuant to its supply agreement with Alkermes, Inc.
In December 2012, we entered into an arrangement with Eisai to lease a portion of their facility in RTP to manufacture oral solid dose products supplementing our outsourced small molecule manufacturing capabilities. That facility also manufactures oral solid dose products for Eisai. As part of that arrangement, Eisai may provide us with packaging services for oral solid dose products. In December 2014, we submitted an application to the FDA to approve the manufacture of TECFIDERA 240 mg drug product at this facility. We intend to continue to utilize third party contract manufacturing organizations to manufacture the API and final product for our small molecule products and product candidates, which we intend to supplement through our internal oral solid dose manufacturing capabilities.
We source all of our fill-finish and the majority of final product assembly and storage operations for our products, along with a substantial part of our packaging operations, to a concentrated group of third party contract manufacturing organizations. We have internal label and packaging capability for clinical and commercial products at our Cambridge and Hillerød facilities. Raw materials, delivery devices, such as syringes and auto-injectors, and other supplies required for the production of our products and product candidates are procured from various third party suppliers and manufacturers in quantities adequate to meet our needs. Continuity of supply of such raw materials, devices and supplies is assured using a strategy of dual sourcing where possible or by a risk-based inventory strategy. Our third party service providers, suppliers and manufacturers may be subject to routine cGMP inspections by the FDA or comparable agencies in other jurisdictions and undergo assessment and certification by our quality management group.
We believe that our manufacturing facilities, together with the third party contract manufacturing organizations we outsource to, currently provide sufficient capacity for our products. We provide contract manufacturing services to Samsung Bioepis, a related party that develops, manufactures and markets biosimilars. We intend to continue to monitor the sufficiency of our manufacturing capacity in light of the development of our product pipeline.
Our Employees
As of December 31, 2014, we had approximately 7,550 employees worldwide.
Our Executive Officers (as of February 4, 2015)
George A. Scangos, Ph.D., 66, is our Chief Executive Officer and has served in this position since July 2010. From 1996 to July 2010, Dr. Scangos served as the President and Chief Executive Officer of Exelixis, Inc., a drug discovery and development company, where he continues to serve on the board. From 1993 to 1996, Dr. Scangos served as President of Bayer Biotechnology, where he was responsible for research, business development, process development, manufacturing, engineering and quality assurance of Bayer’s biological products. Before joining Bayer in 1987, Dr. Scangos was a professor of biology at Johns Hopkins University for six years, where he is still an adjunct professor. Dr. Scangos served as non-executive Chairman of Anadys Pharmaceuticals, Inc., a biopharmaceutical company, from 2005 to July 2010 and was a director of the company from 2003 to July 2010. He also served as the Chair of the California Healthcare Institute in 2010 and was a member of the board of the Global Alliance for TB Drug Development until 2010. Dr. Scangos is Treasurer of the Board of Directors of Pharmaceutical Research and Manufacturers of America (PhRMA), a member of the Boards of Trustees of the Boston Museum of Science and the Biomedical Science Careers Program, and a member of the National Board of Visitors of the University of California, Davis School of Medicine. Dr. Scangos is also on the Board of Directors of Agilent Technologies, Inc., a provider of bioanalytical and electronic measurement solutions. Dr. Scangos received his B.A. in Biology from Cornell University and Ph.D. in Microbiology from the University of Massachusetts, and was a Jane Coffin Childs Post-Doctoral Fellow at Yale University.

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Susan H. Alexander, 58, is our Executive Vice President, Chief Legal Officer and Corporate Secretary and has served in these positions since December 2011. Prior to that, from 2006 to December 2011, Ms. Alexander served as our Executive Vice President, General Counsel and Corporate Secretary. From 2003 to January 2006, Ms. Alexander served as the Senior Vice President, General Counsel and Corporate Secretary of PAREXEL International Corporation, a biopharmaceutical services company. From 2001 to 2003, Ms. Alexander served as General Counsel of IONA Technologies, a software company. From 1995 to 2001, Ms. Alexander served as Counsel at Cabot Corporation, a specialty chemicals and performance materials company. Prior to that, Ms. Alexander was a partner at the law firms of Hinckley, Allen & Snyder and Fine & Ambrogne. Ms. Alexander received her B.A. from Wellesley College and her J.D. from Boston University School of Law.
Spyros Artavanis-Tsakonas, Ph.D., 68, is our Senior Vice President, Chief Scientific Officer and has served in this position since May 2013. Prior to his appointment in May 2013, Dr. Artavanis-Tsakonas served as our interim Chief Scientific Officer while on sabbatical from Harvard Medical School from March 2012 to May 2013. Dr. Artavanis-Tsakonas has been a Professor of Cell Biology at the Harvard Medical School since 1999. Prior to that, from 1999 through 2012, he was Professor, Collège de France, serving as Chair of Biology and Genetics of Development, and from 1999 to 2007, he was also the K.J. Isselbacher- P. Schwartz Professor at the Massachusetts General Hospital Cancer Center and Director of Developmental Biology and Cancer at the Harvard Medical School. Dr. Artavanis-Tsakonas is the scientific co-founder of Exelixis Pharmaceuticals, Inc., a drug discovery and development company, Cellzome, a drug discovery and development company, and Anadys Pharmaceuticals, Inc., a biopharmaceutical company. Dr. Artavanis-Tsakonas obtained his M.Sc. in Chemistry from the Federal Institute of Technology, Zurich and a Ph.D. in Molecular Biology from the University of Cambridge, England. His postdoctoral research was completed at Biozentrum, University of Basel and Stanford University.
Paul J. Clancy, 53, is our Executive Vice President, Finance and Chief Financial Officer and has served in these positions since August 2007. Mr. Clancy joined Biogen, Inc. in 2001 and has held several senior executive positions with us, including Vice President of Business Planning, Portfolio Management and U.S. Marketing, and Senior Vice President of Finance with responsibilities for leading the Treasury, Tax, Investor Relations and Business Planning groups. Prior to that, he spent 13 years at PepsiCo, a food and beverage company, serving in a range of financial and general management positions. Mr. Clancy serves on the board of directors of Agios Pharmaceuticals, Inc. and Incyte Corporation, both biopharmaceutical companies. Mr. Clancy received his B.S. in Finance from Babson College and M.B.A. from Columbia University.
Gregory F. Covino, 49, is our Vice President, Finance and Chief Accounting Officer and has served in this position since April 2012. Prior to that, Mr. Covino served at Boston Scientific Corporation, a medical device company, as Vice President, Corporate Analysis and Control since March 2010, having responsibility for the company's internal audit function, and as Vice President, Finance, International from February 2008 to March 2010, having responsibility for the financial activities of the company's international division. Prior to that, Mr. Covino held several finance positions at Hubbell Incorporated, an electrical products company, including Vice President, Chief Accounting Officer and Controller from 2002 to January 2008, Interim Chief Financial Officer from 2004 to 2005, and Director, Corporate Accounting from 1999 to 2002. Mr. Covino received his B.S. in Business Administration from Bryant University.
John G. Cox, 52, is our Executive Vice President, Pharmaceutical Operations and Technology and has served in this position since June 2010. Mr. Cox joined Biogen, Inc. in 2003 and has held several senior executive positions with us, including Senior Vice President of Technical Operations, Senior Vice President of Global Manufacturing, and Vice President of Manufacturing and General Manager of Biogen Idec’s operations in RTP. Prior to that, Mr. Cox held a number of senior operational roles at Diosynth Inc., a life sciences manufacturing and services company, where he worked in technology transfer, validation and purification. Prior to that, Mr. Cox focused on the same areas at Wyeth Corporation, a life sciences company, from 1993 to 2000. Mr. Cox serves on the board of directors of Repligen Corporation, a life sciences company. Mr. Cox received his B.S. in Biology from Arizona State University, M.B.A. from the University of Michigan and M.S. in Cell Biology from California State University.
Kenneth Di Pietro, 56, is our Executive Vice President, Human Resources and has served in this position since January 2012. Mr. Di Pietro joined Biogen Idec from Lenovo Group, a technology company, where he served as Senior Vice President, Human Resources from 2005 to June 2011. From 2003 to 2005, he served as Corporate Vice President, Human Resources at Microsoft Corporation, a technology company. From 1999 to 2002, Mr. Di Pietro worked as Vice President, Human Resources at Dell Inc., a technology company. Prior to that, he spent 17 years at PepsiCo, a food and beverage company, serving in a range of human resource and general management positions. Mr. DiPietro serves on the board of directors of InVivo Therapeutics Corporation, a medical device company. Mr. Di Pietro received his B.S. in Industrial and Labor Relations from Cornell University.

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Steven H. Holtzman, 60, is our Executive Vice President, Corporate Development and has served in this position since January 2011. Prior to that, Mr. Holtzman was a founder of Infinity Pharmaceuticals, Inc., a drug discovery and development company, where he served as Chair of the Board of Directors from company inception in 2001 to November 2012, Executive Chair of the Board of Directors in 2010 and as Chief Executive Officer from 2001 to December 2009. From 1994 to 2001, Mr. Holtzman was Chief Business Officer at Millennium Pharmaceuticals Inc., a biopharmaceutical company. From 1986 to 1994, he was a founder, member of the Board of Directors and Executive Vice President of DNX Corporation, a biotechnology company. From 1996 to 2001, Mr. Holtzman served as presidential appointee to the national Bioethics Advisory Commission. Mr. Holtzman received his B.A. from Michigan State University and B.Phil. graduate degree from Oxford University which he attended as a Rhodes Scholar.
Adriana (Andi) Karaboutis, 52, is our Executive Vice President, Technology and Business Solutions and has served in this position since September 2014. Prior to joining us, Ms. Karaboutis was Vice President and Global Chief Information Officer of Dell, Inc., where she was responsible for leading a global IT organization focused on powering Dell as an end-to-end technology solutions provider. Prior to joining Dell in 2010, Ms. Karaboutis spent over 20 years at General Motors and Ford Motor Company in various international leadership positions including computer-integrated manufacturing, supply chain operations, and information technology. Ms. Karaboutis serves on the board of directors of Advance Auto Parts, an automotive after market parts provider. Ms. Karaboutis received a B.S. in Computer Science from Wayne State University in Detroit, Michigan.
Tony Kingsley, 51, is our Executive Vice President, Global Commercial Operations and has served in this position since November 2011. From January 2010 to November 2011, Mr. Kingsley served as our Senior Vice President, U.S. Commercial Operations. Prior to that, he served as Senior Vice President and General Manager of the Gynecological Surgical Products business at Hologic, Inc., a provider of diagnostic and surgical products, from October 2007 to November 2009, and as Division President, Diagnostic Products at Cytyc Corp., a provider of diagnostic and medical device products, from July 2006 to October 2007. In those roles, Mr. Kingsley ran commercial, manufacturing and research and development functions. From 1991 to 2006, he was a Partner at McKinsey & Company focusing on the biotechnology, pharmaceutical and medical device industries. Mr. Kingsley received his B.A. in Government from Dartmouth College and M.B.A. from Harvard Graduate School of Business Administration.
Adam Koppel, M.D., Ph.D., 45, is our Senior Vice President and Chief Strategy Officer, responsible for leading corporate strategy and portfolio management, and has served in this position since May 2014. Prior to joining us, Dr. Koppel served as a Managing Director of Brookside Capital, the public-equity affiliate of Bain Capital, since November 2003. Prior to Brookside Capital, he served as Associate Principal with McKinsey & Company, where he consulted to companies in the pharmaceutical and biotechnology industries. Dr. Koppel serves on the board of directors of PTC Therapeutics, Inc. and Trevena, Inc., both biopharmaceutical companies. Dr. Koppel received an M.D. and Ph.D. from the University of Pennsylvania School of Medicine, an M.B.A. from the Wharton School of the University of Pennsylvania and a B.A. from Harvard University.
Alfred W. Sandrock, Jr., M.D., Ph.D., 57, is our Group Senior Vice President, Chief Medical Officer and has served in this position since May 2013. From February 2012 to April 2013, Dr. Sandrock served as our Senior Vice President, Chief Medical Officer. Prior to that, Dr. Sandrock held several senior executive positions since joining us in 1998, including Senior Vice President of Development Sciences, Senior Vice President of Neurology Research and Development and Vice President of Clinical Development, Neurology. Dr. Sandrock received his B.A. in Human Biology from Stanford University, an M.D. from Harvard Medical School, and a Ph.D. in Neurobiology from Harvard University. He completed an internship in Medicine, a residency and chief residency in Neurology, and a clinical fellowship in Neuromuscular Disease and Clinical Neurophysiology (electromyography) at Massachusetts General Hospital.

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Douglas E. Williams, Ph.D., 56, is our Executive Vice President, Research and Development and has served in this position since January 2011. Prior to that, Dr. Williams held several senior executive positions at ZymoGenetics, Inc., a biopharmaceutical company, including Chief Executive Officer and Director, from January 2009 to October 2010; President and Chief Scientific Officer, from July 2007 to January 2009; and Executive Vice President, Research and Development and Chief Scientific Officer, from 2004 to July 2007. Prior to that, he held leadership positions within the biotechnology industry, including Chief Scientific Officer and Executive Vice President of Research and Development at Seattle Genetics, Inc., a biotechnology company, from 2003 to 2004, and Senior Vice President and Washington Site Leader at Amgen Inc., a biotechnology company, in 2002. Dr. Williams also served in a series of scientific and senior leadership positions during a decade at Immunex Corp., a biopharmaceutical company, including Executive Vice President and Chief Technology Officer, Senior Vice President of Discovery Research, Vice President of Research and Development, and as a director. Prior to that, Dr. Williams served on the faculty of the Indiana University School of Medicine and the Department of Laboratory Medicine at the Roswell Park Memorial Institute, in Buffalo, New York. Dr. Williams serves on the boards of directors of Regulus Therapeutics Inc. and Ironwood Pharmaceuticals, both life sciences companies. Dr. Williams received his B.S. in biological sciences from the University of Massachusetts, Lowell and Ph.D. in physiology from the State University of New York at Buffalo, Roswell Park Memorial Institute Division.
Available Information
Our principal executive offices are located at 225 Binney Street, Cambridge, MA 02142 and our telephone number is (617) 679-2000. Our website address is www.biogenidec.com. We make available free of charge through the Investors section of our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). We include our website address in this report only as an inactive textual reference and do not intend it to be an active link to our website. The contents of our website are not incorporated into this report.

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Item  1A.
Risk Factors
We are substantially dependent on revenues from our principal products.
Our current revenues depend upon continued sales of our principal products, TECFIDERA, AVONEX, TYSABRI, and RITUXAN. We may be substantially dependent on sales from our principal products for many years, including an increasing reliance on sales and growth of TECFIDERA as we continue to expand into additional markets. Any negative developments relating to any of these products, including the following, and as discussed in greater detail in these “Risk Factors”, may adversely affect our revenues and results of operations or could cause a decline in our stock price:
safety or efficacy issues;
the introduction or greater acceptance of competing products;
constraints and additional pressures on product pricing or price increases, due to a number of factors, including governmental or regulatory requirements, increased competition, or changes in reimbursement policies and practices of payors and other third parties; or
adverse legal, administrative, regulatory or legislative developments.
If we fail to compete effectively, our business and market position would suffer.
The biopharmaceutical industry and the markets in which we operate are intensely competitive. We compete in the marketing and sale of our products, the development of new products and processes, the acquisition of rights to new products with commercial potential and the hiring and retention of personnel. We compete with biotechnology and pharmaceutical companies that have a greater number of products on the market and in the product pipeline, greater financial and other resources and other technological or competitive advantages. One or more of our competitors may benefit from significantly greater sales and marketing capabilities, may develop products that are accepted more widely than ours or may receive patent protection that dominates, blocks or adversely affects our product development or business.
Our products are also susceptible to competition from generics and biosimilars in many markets. Generic versions of drugs and biosimilars are likely to be sold at substantially lower prices than branded products. Accordingly, the introduction of generic or biosimilar versions of our marketed products likely would significantly reduce both the price that we receive for such marketed products and the volume of products that we sell, which may have an adverse impact on our results of operations.
In the MS market, we face intense competition as the number of products and competitors continues to expand. Due to our significant reliance on sales of our MS products, our business may be harmed if we are unable to successfully compete in the MS market. More specifically, our ability to compete and maintain and grow our share in the MS market may be adversely affected due to a number of factors, including:
the introduction of more efficacious, safer, less expensive or more convenient alternatives to our MS products, including our own products;
the introduction of lower-cost biosimilars, follow-on products or generic versions of branded MS products sold by our competitors, and the possibility of future competition from generic versions or related prodrug derivatives or from off-label use by physicians of therapies indicated for other conditions to treat MS patients;
patient dynamics, including the size of the patient population and our ability to attract new patients to our therapies;
damage to physician and patient confidence in any of our MS products or to our sales and reputation as a result of label changes or adverse experiences or events that may occur with patients treated with our MS products;
inability to obtain appropriate pricing and reimbursement for our MS products compared to our competitors in key international markets; or
our ability to obtain and maintain patent, data or market exclusivity for our MS products.
Similarly, the hemophilia treatment market is highly competitive, with current treatments marketed by companies that have substantially greater financial resources and marketing expertise. Our ability to successfully compete in the hemophilia market and gain share in this market may be adversely affected due to a number of reasons, including:
difficulty in penetrating this market if our therapies are not regarded as offering substantial benefits over current treatments;

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the introduction by other companies of longer-lasting or more efficacious, safer, less expensive or more convenient treatments than our therapies;
our limited marketing experience within the hemophilia treatment market, which may impact our ability to develop well-established relationships with the associated medical and scientific community;
our failure to receive positive pediatric data from our ongoing global pediatric studies, which is required for filing our planned MAA for ALPROLIX with the EMA; or
if one of several companies that are working to develop additional treatments for hemophilia obtains marketing approval of its treatment in the E.U. before we do, our application with the EMA could be barred under operation of the EMA’s Orphan Medicines Regulation.
If we are unable to obtain and maintain adequate protection for our data, intellectual property and other proprietary rights, our business may be harmed.
Our success depends in part on our ability to obtain and defend patent and other intellectual property rights that are important to the commercialization of our products and product candidates. The degree of patent protection that will be afforded to our products and processes in the U.S. and in other important markets remains uncertain and is dependent upon the scope of protection decided upon by the patent offices, courts and lawmakers in these countries. We can provide no assurance that we will successfully obtain or preserve patent protection for the technologies incorporated into our products and processes, or that the protection obtained will be of sufficient breadth and degree to protect our commercial interests in all countries where we conduct business. If we cannot prevent others from exploiting our inventions, we will not derive the benefit from them that we currently expect. Furthermore, we can provide no assurance that our products will not infringe patents or other intellectual property rights held by third parties.
We also rely on regulatory exclusivity for protection of our products. Implementation and enforcement of regulatory exclusivity, which may consist of regulatory data protection and market protection, varies widely from country to country. Failure to qualify for regulatory exclusivity, or failure to obtain or maintain the extent or duration of such protections that we expect in each of the markets for our products, could affect our revenue for our products or our decision on whether to market our products in a particular country or countries or could otherwise have an adverse impact on our results of operations.
Litigation, interference, oppositions or other proceedings have been and may in the future be necessary in some instances to determine the validity and scope of certain of our proprietary rights, and in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. We may also face challenges to our patent and regulatory protections covering our products by manufacturers of generics and biosimilars that may choose to launch or attempt to launch their products before the expiration of our patent or regulatory exclusivity. Litigation, interference, oppositions or other similar types of proceedings are unpredictable and may be protracted, expensive and distracting to management. The outcome of such proceedings could adversely affect the validity and scope of our patent or other proprietary rights, hinder our ability to manufacture and market our products, require us to seek a license for the infringed product or technology or result in the assessment of significant monetary damages against us that may exceed amounts, if any, accrued in our financial statements. An adverse determination in a judicial or administrative proceeding or a failure to obtain necessary licenses could prevent us from manufacturing or selling our products. Furthermore, payments under any licenses that we are able to obtain would reduce our profits derived from the covered products and services.

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Sales of our products depend, to a significant extent, on adequate coverage, pricing and reimbursement from third party payors, which are subject to increasing and intense pressure from political, social, competitive and other sources. Our inability to maintain adequate coverage, or a reduction in pricing or reimbursement, could have an adverse effect on our business, revenues and results of operations, and could cause a decline in our stock price.
Sales of our products are dependent, in large part, on the availability and extent of coverage, pricing and reimbursement from government health administration authorities, private health insurers and other organizations, and drug prices are under significant scrutiny in the markets where our products are prescribed. Our ability to set the price for our products can vary significantly from country to country and as a result so can the price of our products, and we may continue to face increasing pressure to lower the prices for our products in many markets. Changes in government regulations or private third-party payors' reimbursement policies, as well as pressure by employers on private health insurance plans to reduce costs, may reduce pricing and reimbursement for our products and adversely affect our future results. In addition, when a new medical product is approved, the availability of government and private reimbursement for that product is uncertain, as is the pricing and amount for which that product will be reimbursed. We also cannot predict the availability, pricing or amount of reimbursement for our product candidates. Our failure to maintain adequate coverage, pricing, or reimbursement for our products would have an adverse effect on our business, revenues and results of operation, could curtail or eliminate our ability to adequately fund research and development programs for the discovery and commercialization of new products, and could cause a decline in our stock price.
In the U.S., federal and state legislatures, health agencies and third-party payors continue to focus on containing the cost of health care. Legislative and regulatory proposals and enactments to reform health care insurance programs could significantly influence the manner in which our products are prescribed and purchased. For example, provisions of the PPACA have resulted in changes in the way health care is paid for by both governmental and private insurers, including increased rebates owed by manufacturers under the Medicaid Drug Rebate Program, annual fees and taxes on manufacturers of certain branded prescription drugs, the requirement that manufacturers participate in a discount program for certain outpatient drugs under Medicare Part D and the expansion of the number of hospitals eligible for discounts under Section 340B of the Public Health Service Act. These changes have had and are expected to continue to have a significant impact on our business.
Managed care organizations continue to seek price discounts and, in some cases, to impose restrictions on the coverage of particular drugs. For example, health insurers, pharmacy benefit managers and other payors may seek price discounts or rebates in connection with the placement of our products on their formularies. They could also impose restrictions on access to our products, and could even choose to exclude coverage of our products entirely.
There is also significant economic pressure on state budgets that may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage or payment for our drugs. In recent years, some states have considered legislation that would control the prices of drugs, including laws to allow importation of pharmaceutical products from lower cost jurisdictions outside the U.S. State Medicaid programs are increasingly requesting manufacturers to pay supplemental rebates and requiring prior authorization by the state program for use of any drug for which supplemental rebates are not being paid. Government efforts to reduce Medicaid expenses may lead to increased use of managed care organizations by Medicaid programs. This may result in managed care organizations influencing prescription decisions for a larger segment of the population and a corresponding constraint on prices and reimbursement for our products. In addition, under the PPACA, as states implement their health care marketplaces or operate under the federal exchange, the impact on drug manufacturers, including us, will depend in part on the formulary and benefit design decisions made by insurance sponsors or plans participating in these programs. It is 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.
In the European Union and some other international markets, the government provides health care at low cost to consumers and regulates pharmaceutical prices, patient eligibility or reimbursement levels to control costs for the government-sponsored health care system. Many countries have announced or implemented measures to reduce health care costs to constrain their overall level of government expenditures. These measures vary by country and may include, among other things, patient access restrictions, suspensions on price increases, prospective and possibly retroactive price reductions and other recoupments and increased mandatory discounts or rebates, recoveries of past price increases, and greater importation of drugs from lower-cost countries to higher-cost countries. These measures have negatively impacted our revenues, and may continue to adversely affect our revenues and results of operations in the future. In addition, certain countries set prices by reference to the prices in other countries where our products are marketed. Thus, our inability to secure adequate prices in a particular country may not only limit the marketing of our products within that country, but may also adversely affect our ability to obtain acceptable prices in other markets. This may create the opportunity for third party cross-border trade or influence our decision to sell or not to sell a product, thus adversely affecting our geographic expansion plans and revenues.

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Adverse safety events or restrictions on use and safety warnings for our products can negatively affect our business, product sales and stock price.
Adverse safety events involving our marketed products may have a negative impact on our business. Discovery of safety issues with our products could create product liability and could cause additional regulatory scrutiny and requirements for additional labeling, withdrawal of products from the market, and the imposition of fines or criminal penalties. Adverse safety events may also damage physician and patient confidence in our products and our reputation. Any of these could result in liabilities, loss of revenue, material write-offs of inventory, material impairments of intangible assets, goodwill and fixed assets, material restructuring charges and other adverse impacts on our results of operations.
Regulatory authorities are making greater amounts of stand-alone safety information directly available to the public through periodic safety update reports, patient registries and other reporting requirements. The reporting of adverse safety events involving our products or products similar to ours and public rumors about such events may increase claims against us and may also cause our product sales or stock price to decline or experience periods of volatility.
Restrictions on use or significant safety warnings that may be required to be included in the label of our products, such as the risk of developing progressive multifocal leukoencephalopathy (PML), a serious brain infection, in the label for TYSABRI and in the U.S. label for TECFIDERA, may significantly reduce expected revenues for those products and require significant expense and management time.
Our long-term success depends upon the successful development, license or acquisition of new products and additional indications for existing products.
Our long-term viability and growth will depend upon the successful development of new products and technologies from our research and development activities, including those licensed or acquired from third parties and biosimilars developed through our joint venture with Samsung Biologics, and approval of additional indications for our existing products. The sustainability of growth in our business is dependent in part upon our ability to continue to build a strong early and mid-stage pipeline of product candidates in our core competencies as well as additional areas of unmet need. Product development is very expensive and involves a high degree of risk. Only a small number of research and development programs result in the commercialization of a product. Success in preclinical work or early stage clinical trials does not ensure that later stage or larger scale clinical trials will be successful or that regulatory approval will be obtained. Further, it is possible that we may experience delays, uncertainties or difficulties developing biosimilars as the legislative and regulatory pathways for approval of biosimilars continue to evolve in many markets.
Conducting clinical trials is a complex, time-consuming and expensive process. Our ability to complete our clinical trials in a timely fashion depends in large part on a number of key factors including protocol design, regulatory and institutional review board approval, patient enrollment rates, and compliance with extensive current Good Clinical Practices. We have opened clinical sites and are enrolling patients in a number of countries where our experience is more limited. In most cases, we use the services of third party clinical trial providers and third party contract research organizations, or CROs, to carry out most of our clinical trial related activities and accurately report their results, which may impact our ability to control the timing, conduct, expense and quality of our clinical trials. One CRO has responsibility for substantially all of our clinical trial related activities and reporting. If our CROs do not successfully carry out their activities or meet expected deadlines, our trials may be delayed. We may also need to replace our CROs. Although we believe that there are a number of other third-party CROs we could engage to continue these activities, the replacement of an existing CRO may result in delay of the affected trials or otherwise adversely affect our efforts to obtain regulatory approvals and commercialize our drug candidates.
If we fail to adequately manage the design, execution and regulatory aspects of our large, complex and diverse clinical trials, our studies and any potential regulatory approvals may be delayed, or we may fail to gain approvals for our product candidates. Clinical trials may indicate that our product candidates lack efficacy, have harmful side effects or raise safety or other concerns that may significantly reduce the likelihood of regulatory approval, result in significant restrictions on use and safety warnings in the approved label, adversely affect placement within the treatment paradigm, or otherwise significantly diminish the commercial potential of the product candidate. Also, positive results in a registrational trial may not be replicated in any subsequent confirmatory trials. Even if later stage clinical trials are successful, regulatory authorities may disagree with our view of the data or require additional studies, may disagree with trial design or the endpoints employed in the trials, may fail to approve the facilities or the processes used to manufacture a product candidate, may fail to approve or delay approval of our product candidates, dosing or delivery methods, companion devices or may otherwise grant marketing approval that is more restricted than anticipated, including indications covering narrow patient populations and the imposition of safety monitoring or educational requirements or risk evaluation and mitigation strategies. The occurrence of any such events could result in the incurrence of significant costs and expenses, have an adverse effect on our business, including our financial condition and results of operations, or cause our stock price to decline or experience periods of volatility.

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Even if we are able to successfully develop new products or indications, we may make a strategic decision to discontinue development of such product or indication if, for example, we believe commercialization will be difficult relative to other opportunities in our pipeline.
We depend on relationships with collaborators and other third-parties for product and royalty revenue, and the development, commercialization and marketing of certain products, which are outside of our full control.
We rely on a number of significant collaborative relationships for product and royalty revenue, and the development, commercialization, and marketing of certain of our products and product candidates. Reliance on collaborative relationships subjects us to a number of risks, including:
we may be unable to control the resources our collaborator devotes to our programs or products;
disputes may arise with respect to ownership of rights to technology developed with our collaboration partner, and the underlying contract with our collaborator may fail to provide significant protection or may fail to be effectively enforced if the collaborator fails to perform;
our collaborators’ interests may not always be aligned with our interests and they may not market a product in the same manner or to the same extent that we would, which could adversely affect our revenues;
collaborations often require the parties to cooperate, and failure to do so effectively could adversely affect product sales by our collaborators or the clinical development or regulatory approvals of products under joint control or could result in termination of the research, development or commercialization of product candidates or result in litigation or arbitration; and
any failure on the part of our collaborators to comply with applicable laws and regulatory requirements in the marketing, sale and maintenance of the market authorization of our products or to fulfill any responsibilities they may have to protect and enforce any intellectual property rights underlying our products could have an adverse effect on our revenues as well as involve us in possible legal proceedings.
Given these risks, there is considerable uncertainty regarding the success of our current and future collaborative efforts. If these efforts fail, our product development or commercialization of new products could be delayed or revenues from products could decline.
Manufacturing issues could substantially increase our costs, limit supply of our products and reduce our revenues.
The process of manufacturing our products is complex, highly regulated and subject to numerous risks, including:
The manufacturing process for our products is extremely susceptible to product loss due to contamination, oxidation, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our products or manufacturing facilities, we may need to close our manufacturing facilities for an extended period of time to investigate and remediate the contaminant.
We rely on third party suppliers and manufacturers for, among other things: manufacturing of RITUXAN and GAZYVA; the majority of our clinical and commercial requirements for TECFIDERA and other small molecule products and product candidates; raw materials and supplies for production of products we manufacture; delivery devices such as syringes and auto-injectors; drug product and fill-finish operations; the majority of our final product storage; and a substantial portion of our packaging operations. In addition, due to the unique manner in which our products are manufactured, we rely on single source providers of several raw materials and manufacturing supplies. These third parties are independent entities subject to their own unique operational and financial risks that are outside of our control. These third parties may not perform their obligations in a timely and cost-effective manner or in compliance with applicable regulations, and they may be unable or unwilling to increase production capacity commensurate with demand for our existing or future products. Finding alternative providers could take a significant amount of time and involve significant expense due to the specialized nature of the services and the need to obtain regulatory approval of any significant changes to our suppliers or manufacturing methods. We cannot be certain that we could reach agreement with alternative providers or that the FDA or other regulatory authorities would approve our use of such alternatives.
We rely on our manufacturing facilities in Cambridge, Massachusetts, RTP, North Carolina and Hillerød, Denmark for the production of drug substance for certain of our large molecule products and product candidates, including AVONEX, TYSABRI, PLEGRIDY, ZINBRYTA, ALPROLIX and ELOCTATE. Our global bulk supply of these products and product candidates depends on the uninterrupted and efficient operation of these facilities, which could be adversely affected by equipment failures, labor shortages, natural disasters, power failures and numerous other factors.

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We and our third party providers are generally required to maintain compliance with current Good Manufacturing Practices and other stringent requirements and are subject to inspections by the FDA and comparable agencies in other jurisdictions to confirm such compliance. Any delay, interruption or other issues that arise in the manufacture, fill-finish, packaging, or storage of our products as a result of a failure of our facilities or the facilities or operations of third parties to pass any regulatory agency inspection could significantly impair our ability to develop and commercialize our products. Significant noncompliance could also result in the imposition of monetary penalties or other civil or criminal sanctions and damage our reputation.
Any adverse developments affecting our manufacturing operations or the operations of our third-party suppliers and manufacturers may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the commercial supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Such developments could increase our manufacturing costs, cause us to lose revenue or market share as patients and physicians turn to competing therapeutics, diminish our profitability or damage our reputation.
While we believe we currently have sufficient manufacturing capacity to meet our near-term manufacturing requirements, it is probable that we would need additional manufacturing capacity to support future clinical and commercial manufacturing requirements for product candidates in our pipeline, if such candidates are successful and approved. Due to the long lead times necessary for the expansion of manufacturing capacity, it is possible that we may incur significant costs to build or acquire additional facilities or obtain third party contract manufacturers in advance of product demand and sales. If we are unable to adequately and timely manufacture and supply our products and product candidates, our business may be harmed.
Our business may be adversely affected if we do not manage our current growth and do not successfully execute our growth initiatives.
We have experienced significant growth in our headcount and operations, which has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. We anticipate further growth through both internal development projects as well as external opportunities, which may include the acquisition, partnering and in-licensing of products, technologies and companies or the entry into strategic alliances and collaborations. The availability of high quality development opportunities is limited and competitive, and we are not certain that we will be able to identify candidates that we and our shareholders consider suitable or complete transactions on terms that are acceptable to us and our shareholders. In order to pursue such opportunities, we may require significant additional financing, which may not be available to us on favorable terms, if at all. Even if we are able to successfully identify and complete acquisitions and other strategic alliances and collaborations, we may face unanticipated costs or liabilities in connection with the transaction or we may not be able to integrate them or take full advantage of them or otherwise realize the benefits that we expect.
To manage our current and future potential growth effectively, we need to continue to enhance our operational, financial and management processes and to expand, train and manage our employee base. Our growth is also dependent upon our ability to attract and retain qualified scientific, information technology, manufacturing, sales and marketing and executive personnel and to develop and maintain relationships with qualified clinical researchers and key distributors in a highly competitive environment. Supporting our growth initiatives and the further development of our existing products and potential new products in our pipeline will require significant capital expenditures and management resources, including investments in research and development, sales and marketing, manufacturing capabilities and other areas of our business. If we do not successfully manage our current growth and do not successfully execute our growth initiatives, then our business and financial results may be adversely affected and we may incur asset impairment or restructuring charges.
If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, penalties and a loss of business.
Our activities, and the activities of our collaborators, distributors and other third party providers, are subject to extensive government regulation and oversight both in the U.S. and in foreign jurisdictions. The FDA and comparable agencies in other jurisdictions directly regulate many of our most critical business activities, including the conduct of preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting and product risk management. Our interactions in the U.S. or abroad with physicians and other health care providers that prescribe or purchase our products are also subject to government regulation designed to prevent fraud and abuse in the sale and use of the products and place greater restrictions on the marketing practices of health care companies. Health care companies such as ours are facing heightened scrutiny of their relationships with health care providers from anti-corruption enforcement officials. In addition, we along with many other pharmaceutical and biotechnology companies have been the target of lawsuits and investigations alleging violations of government regulation, including claims asserting submission of incorrect pricing information, impermissible off-label promotion of pharmaceutical products, payments intended to influence the referral of health care business, submission of false claims for government reimbursement, antitrust violations, or violations related to

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environmental matters. These risks may be heightened as we continue to expand our global operations and introduce additional products to the market.
Regulations governing the health care industry are subject to change, with possibly retroactive effect, including:
new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to health care availability, pricing or marketing practices, compliance with wage and hour laws and other employment practices, method of delivery, payment for health care products and services, compliance with health information and data privacy and security laws and regulations, tracking and reporting payments and other transfers of value made to physicians and teaching hospitals, extensive anti-bribery and anti-corruption prohibitions, product serialization and labeling requirements, and used product take-back requirements;
changes in the FDA and foreign regulatory approval processes that may delay or prevent the approval of new products and result in lost market opportunity;
requirements that provide for increased transparency of clinical trial results and quality data, such as the EMA’s recently enacted clinical transparency policy, which could impact our ability to protect trade secrets and competitively-sensitive information contained in approval applications or could be misinterpreted leading to reputational damage, misperception or legal action which could harm our business; and
changes in FDA and foreign regulations that may require additional safety monitoring, labeling changes, restrictions on product distribution or use, or other measures after the introduction of our products to market, which could increase our costs of doing business, adversely affect the future permitted uses of approved products, or otherwise adversely affect the market for our products.
Examples of previously enacted and possible future changes in laws that could adversely affect our business include the enactment in the U.S. of health care reform, potential regulations easing the entry of competing biosimilars in the marketplace, new legislation or implementation of existing statutory provisions on importation of lower-cost competing drugs from other jurisdictions, enhanced penalties for and investigations into non-compliance with U.S. fraud and abuse laws, and compliance with the Physician Payment Sunshine Act in the U.S. and similar foreign rules and regulations that require collection and reporting of payments or other transfers of value made to physicians and teaching hospitals.
Violations of governmental regulation may be punishable by criminal and civil sanctions against us, including fines and civil monetary penalties and exclusion from participation in government programs, including Medicare and Medicaid, as well as against executives overseeing our business. In addition to penalties for violation of laws and regulations, we could be required to repay amounts we received from government payors, or pay additional rebates and interest if we are found to have miscalculated the pricing information we have submitted to the government. Whether or not we have complied with the law, an investigation into alleged unlawful conduct could increase our expenses, damage our reputation, divert management time and attention and adversely affect our business.
A breakdown or breach of our information technology systems could subject us to liability or interrupt the operation of our business.
We are increasingly dependent upon information technology systems and data. Our computer systems continue to increase in multitude and complexity due to the growth in our business, making them potentially vulnerable to breakdown, malicious intrusion and random attack. Likewise, data privacy or security breaches by individuals authorized to access our information technology systems or others may pose a risk that sensitive data, including intellectual property, trade secrets or personal information belonging to us, our patients, customers or other business partners, may be exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity. While we continue to build and improve our information systems and infrastructure and believe we have taken appropriate security measures to minimize these risks to our data and information technology systems, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business.
Our sales and operations are subject to the risks of doing business internationally.
We are increasing our presence in international markets, particularly emerging markets, subjecting us to many risks that could adversely affect our business and revenues, such as:
the inability to obtain necessary foreign regulatory or pricing approvals of products in a timely manner;
collectability of accounts receivable;
fluctuations in foreign currency exchange rates, in particular a strengthening of the U.S. dollar versus foreign currencies;

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difficulties in staffing and managing international operations;
the imposition of governmental controls;
less favorable intellectual property or other applicable laws;
increasingly complex standards for complying with foreign laws and regulations that may differ substantially from country to country and may conflict with corresponding U.S. laws and regulations;
the far-reaching anti-bribery and anti-corruption legislation in the U.K., including the U.K. Bribery Act 2010, and elsewhere and escalation of investigations and prosecutions pursuant to such laws;
compliance with complex import and export control laws;
restrictions on direct investments by foreign entities and trade restrictions;
greater political or economic instability; and
changes in tax laws and tariffs.
In addition, our international operations are subject to regulation under U.S. law. For example, the Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining business abroad. In many countries, the health care professionals we regularly interact with may meet the definition of a foreign government official for purposes of the Foreign Corrupt Practices Act. Failure to comply with domestic or foreign laws could result in various adverse consequences, including: possible delay in approval or refusal to approve a product; recalls, seizures or withdrawal of an approved product from the market; disruption in the supply or availability of our products or suspension of export or import privileges; the imposition of civil or criminal sanctions; the prosecution of executives overseeing our international operations; and damage to our reputation. Any significant impairment of our ability to sell products outside of the U.S. could adversely impact our business and financial results.
Our effective tax rate may fluctuate and we may incur obligations in tax jurisdictions in excess of accrued amounts.
As a global biopharmaceutical company, we are subject to taxation in numerous countries, states and other jurisdictions. As a result, our effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Our effective tax rate, however, may be different than experienced in the past due to numerous factors, including changes in the mix of our profitability from country to country, the results of examinations and audits of our tax filings, adjustments to the value of our uncertain tax positions, changes in accounting for income taxes and changes in tax laws. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations.
In addition, our inability to secure or sustain acceptable arrangements with tax authorities and previously enacted or future changes in the tax laws, among other things, may result in tax obligations in excess of amounts accrued in our financial statements.
In the U.S., there are several proposals under consideration to reform tax law, including proposals that may reduce or eliminate the deferral of U.S. income tax on our unrepatriated earnings, penalize certain transfer pricing structures, and reduce or eliminate certain foreign or domestic tax credits or deductions. Our future reported financial results may be adversely affected by tax law changes which restrict or eliminate certain foreign tax credits or our ability to deduct expenses attributable to foreign earnings, or otherwise affect the treatment of our unrepatriated earnings.
In addition to U.S. tax reform proposals, the adoption of some or all of the recommendations set forth in the Organization for Economic Co-operation and Development’s project on “Base Erosion and Profit Shifting” (BEPS) by tax authorities in the countries in which we operate, could negatively impact our effective tax rate. These recommendations focus on payments from affiliates in high tax jurisdictions to affiliates in lower tax jurisdictions and the activities that give rise to a taxable presence in a particular country.

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Our operating results are subject to significant fluctuations.
Our quarterly revenues, expenses and net income (loss) have fluctuated in the past and are likely to fluctuate significantly in the future due to the risks described in these “Risk Factors” as well as the timing of charges and expenses that we may take. We have recorded, or may be required to record, charges that include:
the cost of restructurings;
impairments with respect to investments, fixed assets and long-lived assets, including in-process R&D and other intangible assets;
inventory write-downs for failed quality specifications, charges for excess or obsolete inventory and charges for inventory write downs relating to product suspensions, expirations or recalls;
bad debt expenses and increased bad debt reserves;
outcomes of litigation and other legal or administrative proceedings, regulatory matters and tax matters;
milestone payments under license and collaboration agreements; and
payments in connection with acquisitions and other business development activities.
Our revenues are also subject to foreign exchange rate fluctuations due to the global nature of our operations. We recognize foreign currency gains or losses arising from our operations in the period in which we incur those gains or losses. Although we have foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies, our efforts to reduce currency exchange losses may not be successful. As a result, currency fluctuations among our reporting currency, the U.S. dollar, and the currencies in which we do business will affect our operating results, often in unpredictable ways. Our net income may also fluctuate due to the impact of charges we may be required to take with respect to foreign currency hedge transactions. In particular, we may incur higher than expected charges from hedge ineffectiveness or from the termination of a hedge relationship.
Our operating results during any one period do not necessarily suggest the anticipated results of future periods.
Our investments in properties may not be fully realized.
We own or lease real estate primarily consisting of buildings that contain research laboratories, office space, and manufacturing operations. For strategic or other operational reasons, we may decide to further consolidate or co-locate certain aspects of our business operations or dispose of one or more of our properties, some of which may be located in markets that are experiencing high vacancy rates and decreasing property values. If we determine that the fair value of any of our owned properties is lower than their book value we may not realize the full investment in these properties and incur significant impairment charges. If we decide to fully or partially vacate a leased property, such as we did following our 2013 relocation of our corporate headquarters from Weston, Massachusetts to Cambridge, Massachusetts, we may incur significant cost, including lease termination fees, rent expense in excess of sublease income and impairment of leasehold improvements. In addition, in the event we expand our manufacturing capacity and we do not fully utilize our manufacturing facilities, this may result in idle time at facilities or substantial excess manufacturing capacity. Any of these events may have an adverse impact on our results of operations.
Our portfolio of marketable securities is subject to market, interest and credit risk that may reduce its value.
We maintain a portfolio of marketable securities for investment of our cash. Changes in the value of our portfolio of marketable securities could adversely affect our earnings. In particular, the value of our investments may decline due to increases in interest rates, downgrades of the bonds and other securities included in our portfolio, instability in the global financial markets that reduces the liquidity of securities included in our portfolio, declines in the value of collateral underlying the securities included in our portfolio, and other factors. Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio or sell investments for less than our acquisition cost. Although we attempt to mitigate these risks through diversification of our investments and continuous monitoring of our portfolio's overall risk profile, the value of our investments may nevertheless decline.
We may not be able to access the capital and credit markets on terms that are favorable to us.
We may seek access to the capital markets to supplement our existing funds and cash generated from operations for working capital, capital expenditure and debt service requirements, and other business initiatives. The capital and credit markets have experienced extreme volatility and disruption which leads to uncertainty and liquidity issues for both borrowers and investors. In the event of adverse capital and credit market conditions, we may be unable to obtain capital market financing

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on favorable terms. Changes in credit ratings issued by nationally recognized credit rating agencies could adversely affect our cost of financing and have an adverse effect on the market price of our securities.
Our business involves environmental risks, which include the cost of compliance and the risk of contamination or injury.
Our business and the business of several of our strategic partners involve the controlled use of hazardous materials, chemicals, biologics and radioactive compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with state and federal standards, there will always be the risk of accidental contamination or injury. If we were to become liable for an accident, or if we were to suffer an extended facility shutdown, we could incur significant costs, damages and penalties that could harm our business. Manufacturing of our products and product candidates also requires permits from government agencies for water supply and wastewater discharge. If we do not obtain appropriate permits, or permits for sufficient quantities of water and wastewater, we could incur significant costs and limits on our manufacturing volumes that could harm our business.
The illegal distribution and sale by third parties of counterfeit versions of our products or stolen products could have a negative impact on our reputation and business.
Third parties might illegally distribute and sell counterfeit or unfit versions of our products, which do not meet our rigorous manufacturing, distribution and testing standards. A patient who receives a counterfeit or unfit drug may be at risk for a number of dangerous health consequences. Our reputation and business could suffer harm as a result of counterfeit or unfit drugs sold under our brand name. In addition, thefts of inventory at warehouses, plants or while in-transit, which are not properly stored and which are sold through unauthorized channels, could adversely impact patient safety, our reputation and our business.
The increasing use of social media platforms presents new risks and challenges.
Social media is increasingly being used to communicate about our products and the diseases our therapies are designed to treat. Social media practices in the biopharmaceutical industry continue to evolve and regulations relating to such use are not always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients may use social media channels to comment on the effectiveness of a product or to report an alleged adverse event. When such disclosures occur, there is a risk that we fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend the company or the public's legitimate interests in the face of the political and market pressures generated by social media due to restrictions on what we may say about our products. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face overly restrictive regulatory actions or incur other harm to our business.
Some of our collaboration agreements contain change in control provisions that may discourage a third party from attempting to acquire us.
Some of our collaboration agreements include change in control provisions that could reduce the potential acquisition price an acquirer is willing to pay or discourage a takeover attempt that could be viewed as beneficial to shareholders.  Upon a change in control, some of these provisions could trigger reduced milestone, profit or royalty payments to us or give our collaboration partner rights to terminate our collaboration agreement, acquire operational control or force the purchase or sale of the programs that are the subject of the collaboration.   
Item  1B.
Unresolved Staff Comments
None.
Item  2.
Properties
Below is a summary of our owned and leased properties as of December 31, 2014.
Massachusetts
In Cambridge, Massachusetts, we own approximately 508,000 square feet of real estate space, consisting of a building that houses a research laboratory and a cogeneration plant totaling approximately 263,000 square feet and a building that contains research, development and quality laboratories which total approximately 245,000 square feet.
In addition, we lease a total of approximately 1,225,000 square feet in Massachusetts, which is summarized as follows:
822,000 square feet in Cambridge, Massachusetts, which is comprised of a 67,000 square foot biologics manufacturing facility and 755,000 square feet for our corporate headquarters, laboratory and additional office space;

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357,000 square feet of office space in Weston, Massachusetts, of which 175,000 square feet has been subleased through the remaining term of our lease agreement; and
46,000 square feet of warehouse space in Somerville, Massachusetts.
Our Massachusetts lease agreements expire at various dates through the year 2028.
North Carolina
In RTP, North Carolina, we own approximately 740,000 square feet of real estate space, which is summarized as follows:
357,000 square feet of laboratory and office space;
175,000 square feet related to a large-scale biologics manufacturing facility;
105,000 square feet related to a biologics manufacturing facility;
60,000 square feet of warehouse space; and
43,000 square feet related to a large-scale purification facility.
In addition, we lease 48,000 square feet of a facility in RTP, North Carolina from Eisai to manufacture our and Eisai's oral solid dose products.
Denmark
We have a large-scale biologics manufacturing facility totaling approximately 228,000 square feet located in Hillerød, Denmark.
We also own approximately 306,000 square feet of additional space which is currently in use at this location and is summarized as follows:
139,000 square feet of warehouse, utilities and support space;
70,000 square feet related to a label and packaging facility;
47,000 square feet of administrative space; and
50,000 square feet related to a laboratory facility.
Other International
We lease office space in Zug, Switzerland, our international headquarters, the United Kingdom, Germany, France, Denmark, and numerous other countries. Our international lease agreements expire at various dates through the year 2023.
Item  3.
Legal Proceedings
For a discussion of legal matters as of December 31, 2014, please read Note 21, Litigation to our consolidated financial statements included in this report, which is incorporated into this item by reference.
Item  4.
Mine Safety Disclosures
Not applicable.

32


PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market and Stockholder Information
Our common stock trades on The NASDAQ Global Select Market under the symbol “BIIB.” The following table shows the high and low sales price for our common stock as reported by The NASDAQ Global Select Market for each quarter in the years ended December 31, 2014 and 2013:
 
Common Stock Price
 
2014
 
2013
 
High
 
Low
 
High
 
Low
First Quarter
$
358.89

 
$
270.62

 
$
192.92

 
$
139.72

Second Quarter
$
322.25

 
$
272.02

 
$
242.64

 
$
191.80

Third Quarter
$
349.00

 
$
298.31

 
$
248.95

 
$
203.55

Fourth Quarter
$
361.93

 
$
290.85

 
$
298.82

 
$
221.07

As of January 30, 2015, there were approximately 816 stockholders of record of our common stock.
In addition, as of January 30, 2015, 30 stockholders of record of Biogen, Inc. common stock have yet to exchange their shares of Biogen, Inc. common stock for our common stock as contemplated by the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in November 2003.
Dividends
We have not paid cash dividends since our inception. While we historically have not paid cash dividends and do not have a current intention to pay cash dividends, we continually review our capital allocation strategies, including, among other things, payment of cash dividends, stock repurchases, or acquisitions.
Issuer Purchases of Equity Securities
The following table summarizes our common stock repurchase activity during the fourth quarter of 2014:
Period
Total
Number of
Shares
Purchased
(#)
 
Average Price
Paid per
Share
($)
 
Total Number of
Shares Purchased
as Part of Publicly
Announced  Programs
(#)
 
Maximum Number
of Shares That May
Yet Be Purchased
Under Our Programs
October 2014
7,862

 
297.72

 
7,771

 
2,939,869

November 2014
1,395,731

 
314.38

 
1,395,731

 
1,544,138

December 2014
279,982

 
305.98

 
279,982

 
1,264,156

Total
1,683,575

 
312.90

 
 
 
 
On February 11, 2011, we announced that 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. As of December 31, 2014, approximately 18.7 million shares of our common stock at a cost of $2,770.0 million have been repurchased under this authorization and approximately 1.3 million shares of our common stock remain available for repurchase.


33


Stock Performance Graph
The graph below compares the five-year cumulative total stockholder return on our common stock, the S&P 500 Index, the Nasdaq Pharmaceutical Index and the Nasdaq Biotechnology Index assuming the investment of $100.00 on December 31, 2009 with dividends being reinvested. The stock price performance in the graph below is not necessarily indicative of future price performance.
 
2009
2010
2011
2012
2013
2014
Biogen Idec Inc.
100.00

125.33

205.70

273.59

522.56

634.49

NASDAQ Pharmaceutical
100.00

108.40

116.03

154.38

254.51

332.21

S&P 500 Index
100.00

115.06

117.49

136.30

180.44

205.14

NASDAQ Biotechnology
100.00

116.06

130.08

172.67

286.67

385.29


34


Item 6.
Selected Financial Data
BIOGEN IDEC INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
(In millions, except per share amounts)
 
 
(2) (4)
 
 
 
(2) (3)
 
(1)
Results of Operations
 
 
 
 
 
 
 
 
 
Product revenues
$
8,203.4

 
$
5,542.3

 
$
4,166.1

 
$
3,836.1

 
$
3,470.1

Revenues from unconsolidated joint business
1,195.4

 
1,126.0

 
1,137.9

 
996.6

 
1,077.2

Other revenues
304.5

 
263.9

 
212.5

 
215.9

 
169.1

Total revenues
9,703.3

 
6,932.2

 
5,516.5

 
5,048.6

 
4,716.4

Total cost and expenses
5,747.7

 
4,441.6

 
3,707.4

 
3,323.9

 
3,467.5

Gain on sale of rights
16.8

 
24.9

 
46.8

 

 

Income from operations
3,972.4

 
2,515.5

 
1,855.9

 
1,724.7

 
1,248.9

Other income (expense), net
(25.8
)
 
(34.9
)
 
(0.7
)
 
(13.5
)
 
(19.0
)
Income before income tax expense and equity in loss of investee, net of tax
3,946.6

 
2,480.6

 
1,855.1

 
1,711.2

 
1,229.9

Income tax expense
989.9

 
601.0

 
470.6

 
444.5

 
331.3

Equity in loss of investee, net of tax
15.1

 
17.2

 
4.5

 

 

Net income
2,941.5

 
1,862.3

 
1,380.0

 
1,266.7

 
898.6

Net income (loss) attributable to noncontrolling interests, net of tax
6.8

 

 

 
32.3

 
(106.7
)
Net income attributable to Biogen Idec Inc.
$
2,934.8

 
$
1,862.3

 
$
1,380.0

 
$
1,234.4

 
$
1,005.2

Diluted Earnings Per Share
 
 
 
 
 
 
 
 
 
Diluted earnings per share attributable to Biogen Idec Inc.
$
12.37

 
$
7.81

 
$
5.76

 
$
5.04

 
$
3.94

Weighted-average shares used in calculating diluted earnings per share attributable to Biogen Idec Inc.
237.2

 
238.3

 
239.7

 
245.0

 
254.9

Financial Condition
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and marketable securities
$
3,316.0

 
$
1,848.5

 
$
3,742.4

 
$
3,107.4

 
$
1,950.8

Total assets
$
14,316.6

 
$
11,863.3

 
$
10,130.1

 
$
9,049.6

 
$
8,092.5

Notes payable, line of credit and other financing arrangements, less current portion
$
582.1

 
$
592.4

 
$
687.4

 
$
1,060.8

 
$
1,066.4

Total Biogen Idec Inc. shareholders’ equity
$
10,809.0

 
$
8,620.2

 
$
6,961.5

 
$
6,425.5

 
$
5,396.5

In addition to the following notes, the financial data included within the tables above should be read in conjunction with our consolidated financial statements and related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this report and our previously filed Form 10-Ks.
(1)
Included in total cost and expenses are charges to acquired in-process research and development (IPR&D) totaling $245.0 million. Of this amount, $205.0 million was incurred in connection with the license agreement entered into with Knopp Neurosciences Inc. (Knopp), which we consolidated as we determined that we were the primary beneficiary of the entity. The $205.0 million charge was partially offset by an attribution of $145.0 million to the noncontrolling interest. We also incurred a charge of $40.0 million in connection with our acquisition of Biogen Idec Hemophilia Inc. (BIH), formerly Syntonix, related to the initiation of patient enrollment in a registrational trial of ALPROLIX.
(2)
Our share of revenues from unconsolidated joint business reflects charges of $50.0 million in 2011 and $49.7 million in 2013 for damages and interest awarded to Hoechst in Genentech's arbitration with Hoechst for RITUXAN.
(3)
Biogen Idec Inc.’s shareholders’ equity reflects a reduction in additional paid in capital and noncontrolling interests totaling $187.3 million resulting from our purchase of the noncontrolling interest in our joint venture investments in Biogen Dompé SRL and Biogen Dompé Switzerland GmbH.

35


(4)
Commencing in the second quarter of 2013, product and total revenues include 100% of net revenues related to sales of TYSABRI as a result of our acquisition of all remaining rights to TYSABRI from Elan and net revenues related to sales of TECFIDERA. In addition, upon the closing of our acquisition of all remaining rights to TYSABRI, our collaboration agreement was terminated, and we no longer record collaboration profit sharing.

36


Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and related notes beginning on page F-1 of this report. Certain totals may not sum due to rounding.
Executive Summary
Introduction
Biogen Idec is a global biopharmaceutical company focused on discovering, developing, manufacturing and delivering therapies for neurological, autoimmune and hematologic disorders. Our principal marketed products include AVONEX, PLEGRIDY, TECFIDERA, TYSABRI, and FAMPYRA for multiple sclerosis (MS), ALPROLIX for hemophilia B and ELOCTATE for hemophilia A. 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 which is approved for the treatment of chronic lymphocytic leukemia.
Our current revenues depend upon continued sales of our principal products. We may be substantially dependent on sales from our principal products for many years, including an increasing reliance on sales of TECFIDERA as we expand into additional markets. 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 Years Ended
December 31,
 
% Change
 
2014 compared to 2013
(In millions, except per share amounts and percentages)
2014
 
2013
(1)
 
Total revenues
$
9,703.3

 
$
6,932.2

 
40.0
%
Income from operations
$
3,972.4

 
$
2,515.5

 
57.9
%
Net income attributable to Biogen Idec Inc.
$
2,934.8

 
$
1,862.3

 
57.6
%
Diluted earnings per share attributable to Biogen Idec Inc.
$
12.37

 
$
7.81

 
58.3
%
(1)
Commencing in the second quarter of 2013, product and total revenues include 100% of net revenues related to TYSABRI as a result of our acquisition of all remaining rights to TYSABRI from Elan and net revenues related to sales of TECFIDERA.
As described below under “Results of Operations,” our income from operations for the year ended December 31, 2014, reflect the following:
Worldwide AVONEX revenues totaled $3,013.1 million for 2014, representing an increase of 0.3% over 2013.
Worldwide PLEGRIDY revenues totaled $44.5 million for 2014.
Worldwide TECFIDERA revenues totaled $2,909.2 million for 2014, representing an increase of 232.1% over 2013.
Worldwide TYSABRI revenues totaled $1,959.5 million for 2014, representing an increase of 28.4% over 2013.
Worldwide FAMPYRA revenues totaled $80.2 million for 2014, representing an increase of 8.4% over 2013.
Worldwide ALPROLIX revenues totaled $76.0 million for 2014.
Worldwide ELOCTATE revenues totaled $58.4 million for 2014.
Our share of revenues from unconsolidated joint business totaled $1,195.4 million for 2014, representing an increase of 6.2% from 2013.

37


Total cost and expenses increased 29.4% for 2014 compared to 2013. This increase resulted from a 42.8% increase in the amortization of acquired intangible assets, a 36.5% increase in cost of sales, a 31.1% increase in research and development expense and a 30.4% increase in selling, general and administrative expense, partially offset by a 100.0% decrease in collaboration profit sharing and an increase in the gain on fair value remeasurement of contingent consideration compared with the same period in 2013.
The change in amortization of acquired intangible assets was primarily driven by a $60.2 million increase in amortization of acquired and in-licensed rights and patents as we recognized a full year of expense related to our TYSABRI rights in 2014 versus nine months of expense in 2013, total impairment charges of $50.9 million related to one of our out-licensed patents and one of our in-process research and development intangible assets, and higher amortization of our developed technology intangible asset as a result of lower expected lifetime revenues of AVONEX versus the prior year.
The increase in cost of sales was primarily driven by higher unit sales volume, including recent product launches and higher royalty payments due to Elan. The increase in research and development expense was primarily related to an increase in costs incurred in connection with our early stage programs and milestone and upfront payments. Higher selling, general and administrative expense resulted from increased costs incurred in connection with our recent product launches.
We generated $2,942.1 million of net cash flows from operations for 2014, which were primarily driven by earnings offset by an increase in working capital. Cash, cash equivalents and marketable securities totaled approximately $3,316.0 million as of December 31, 2014.
Business Environment
We conduct our business within the biopharmaceutical industry, which is highly competitive. Many of our competitors are working to develop or have commercialized products similar to those we market or are developing. In addition, the commercialization of certain of our own approved MS products and pipeline product candidates may negatively impact future sales of our MS products. Our products may also face increased competitive pressures from the introduction of generic versions, related prodrug derivatives or biosimilars of existing products and other technologies, such as gene therapies.
The Patient Protection and Affordable Care Act (PPACA)
The 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 will 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.
During the third quarter of 2014, the Internal Revenue Service issued final regulations related to the Branded Pharmaceutical Drug (BPD) Fee, which had the effect of changing the recognition of the fee for accounting purposes, from the period in which the fee was paid, to the period when the sale occurs. Our products that are subject to the BPD fee include PLEGRIDY, TECFIDERA and TYSABRI, which are recorded in selling, general and administrative expenses, and RITUXAN, which is recorded in unconsolidated joint business. As a result of these final regulations, we recognized an incremental BPD fee of $43.6 million during 2014 for the periods of 2013 and 2014. The final regulations did not change the timing of payments.

38


Results of Operations
Revenues
Revenues are summarized as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
Product Revenues:
 
 
 
 
 
 
 
 
 
United States
$
5,566.7

 
$
3,581.0

 
$
2,176.8

 
55.5
%
 
64.5
 %
Rest of world
2,636.7

 
1,961.3

 
1,989.3

 
34.4
%
 
(1.4
)%
Total product revenues
8,203.4

 
5,542.3

 
4,166.1

 
48.0
%
 
33.0
 %
Unconsolidated joint business revenues
1,195.4

 
1,126.0

 
1,137.9

 
6.2
%
 
(1.0
)%
Other revenues
304.5

 
263.9

 
212.5

 
15.4
%
 
24.2
 %
Total revenues
$
9,703.3

 
$
6,932.2

 
$
5,516.5

 
40.0
%
 
25.7
 %
Product Revenues
Product revenues are summarized as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
Multiple Sclerosis (MS):
 
 
 
 
 
 
 
 
 
AVONEX
$
3,013.1

 
$
3,005.5

 
$
2,913.1

 
0.3
%
 
3.2
%
PLEGRIDY
44.5

 

 

 
**

 
**

TECFIDERA
2,909.2

 
876.1

 

 
232.1
%
 
**

TYSABRI
1,959.5

 
1,526.5

 
1,135.9

 
28.4
%
 
34.4
%
FAMPYRA
80.2

 
74.0

 
57.4

 
8.4
%
 
28.9
%
Hemophilia:
 
 
 
 
 
 
 
 
 
ALPROLIX
76.0

 

 

 
**

 
**

ELOCTATE
58.4

 

 

 
**

 
**

Other product revenues:
 
 
 
 
 
 
 
 
 
FUMADERM
62.5

 
60.2

 
59.7

 
3.8
%
 
0.8
%
Total product revenues
$
8,203.4

 
$
5,542.3

 
$
4,166.1

 
48.0
%
 
33.0
%
Multiple Sclerosis (MS)
AVONEX and PLEGRIDY
Revenues from AVONEX and PLEGRIDY are summarized as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
AVONEX:
 
 
 
 
 
 
 
 
 
United States
$
1,956.7

 
$
1,902.4

 
$
1,793.7

 
2.9
 %
 
6.1
 %
Rest of world
1,056.4

 
1,103.1

 
1,119.4

 
(4.2
)%
 
(1.5
)%
Total AVONEX revenues
$
3,013.1

 
$
3,005.5

 
$
2,913.1

 
0.3
 %
 
3.2
 %
PLEGRIDY (1):
 
 
 
 
 
 
 
 
 
United States
$
27.8

 
$

 
$

 
**

 
**

Rest of world
16.7

 

 

 
**

 
**

Total PLEGRIDY revenues
$
44.5

 
$

 
$

 
**

 
**

(1)
E.U. sales began in the third quarter of 2014 and in the U.S. in the fourth quarter of 2014.

39


For 2014 compared to 2013, the increase in U.S. AVONEX revenues was primarily due to price increases, partially offset by a decrease in unit sales volume of 10%, which was attributable in part to patients transitioning to PLEGRIDY and oral MS therapies, including TECFIDERA. For 2013 compared to 2012, the increase in U.S. AVONEX revenues was primarily due to price increases, partially offset by a decrease in unit sales volume of 8%, which were attributable in part to patients transitioning to oral therapies including TECFIDERA.
For 2014 compared to 2013, the decrease in rest of world AVONEX revenues was due to a 7% decrease in unit demand in Europe primarily attributable to patients transitioning to oral therapies including TECFIDERA, partially offset by a 6% increase in unit demand in the Emerging Markets region. Rest of world AVONEX revenue for 2014 compared to 2013 also reflects the negative impact of foreign currency exchange rate changes experienced in 2014, partially offset by gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program. For 2013 compared to 2012, the decrease in rest of world AVONEX revenues was primarily due to pricing reductions resulting from austerity measures enacted in some countries, partially offset by increased unit demand primarily in Europe. Rest of world AVONEX revenues for 2013 compared to 2012 also reflects the positive impact of foreign currency exchange rates, partially offset by losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program.
TECFIDERA
Revenues from TECFIDERA are summarized as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
United States (1)
$
2,426.6

 
$
864.4

 
$

 
180.7
%
 
**
Rest of world (2)
482.6

 
11.7

 

 
**

 
**
Total TECFIDERA revenues
$
2,909.2

 
$
876.1

 
$

 
232.1
%
 
**
(1)
U.S. sales began in the second quarter of 2013.
(2)
Germany sales began in the first quarter of 2014.
For 2014 compared to 2013, the increase in U.S. TECFIDERA revenues was primarily due to increases in unit sales volume.
For 2014 compared to 2013, rest of world TECFIDERA revenues increased as sales in Germany began in the first quarter of 2014. We expect that rest of world TECFIDERA revenue will increase as TECFIDERA becomes commercially available in additional markets in 2015.
TYSABRI
Revenues from TYSABRI are summarized as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
United States
$
1,025.1

 
$
814.2

 
$
383.1

 
25.9
%
 
112.5
 %
Rest of world
934.4

 
712.3

 
752.8

 
31.2
%
 
(5.4
)%
Total TYSABRI revenues
$
1,959.5

 
$
1,526.5

 
$
1,135.9

 
28.4
%
 
34.4
 %
For 2014 compared to 2013, the increase in U.S. TYSABRI revenues was primarily due to price increases and our recognition, starting in April 2013, of 100% of net revenues on TYSABRI in-market sales due to our acquisition of the remaining rights to TYSABRI from Elan, partially offset by a 4% decrease in unit sales volume. For 2013 compared to 2012, the increase in U.S. TYSABRI revenues was primarily due to our acquisition of the remaining rights to TYSABRI from Elan, price increases and a 1% increase in unit sales volume, which includes the impact of patients transitioning to TECFIDERA.
Based on data reported by Elan for 2013 and 2012 and our sales to third party customers, total U.S. TYSABRI in-market sales were $958.3 million and $886.0 million for 2013 and 2012, respectively. For 2014 compared to 2013, the increase in U.S. TYSABRI in-market sales was primarily due to price increases, partially offset by patients transitioning to oral therapies including TECFIDERA. For 2013 compared to 2012, the increase in in-market sales was due to price increases.

40


For 2014 compared to 2013, the increase in rest of world TYSABRI revenues was primarily due to the recognition of $53.5 million of revenue previously deferred in Italy relating to the pricing agreement with the Italian National Medicines Agency (Agenzia Italiana del Farmaco or AIFA) as discussed below, volume increases in Europe of 10% and in the Emerging Markets region of 18% and a favorable net price in Germany as the mandatory rebate percentage was reduced. Rest of world TYSABRI revenue for 2014 compared to 2013 also reflects the negative impact of foreign currency exchange rate changes experienced in 2014, partially offset by gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program. For 2013 compared to 2012, the decrease in rest of world TYSABRI revenues was primarily due to pricing reductions from austerity measures enacted in some countries, a decrease in unit demand primarily in Europe and the net impact of a EUR15.4 million reduction in revenues recorded for a probable settlement of outstanding claims with AIFA relating to sales of TYSABRI in Italy in excess of a reimbursement limit for the periods between February 2009 and January 2011. Rest of world TYSABRI revenues for 2013 compared to 2012 also reflects the positive impact of foreign currency exchange rates, partially offset by losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program.
For information relating to our agreement with AIFA relating to sales of TYSABRI in Italy, please read Note 4, Accounts Receivable to our consolidated financial statements included in this report. As described in Note 4 to our consolidated financial statements, in June 2014, AIFA approved a resolution, effective for a 24 month term, setting the price for TYSABRI in Italy. The resolution also eliminated the reimbursement limit from February 2013 onward.
FAMPYRA
Revenues from FAMPYRA are summarized as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
United States
$

 
$

 
$

 
**

 
**

Rest of world
80.2

 
74.0

 
57.4

 
8.4
%
 
28.9
%
Total FAMPYRA revenues
$
80.2

 
$
74.0

 
$
57.4

 
8.4
%
 
28.9
%
We have a license from Acorda Therapeutics, Inc. (Acorda) to develop and commercialize FAMPYRA in all markets outside the U.S. For information about our relationship with Acorda, please read Note 20, Collaborative and Other Relationships to our consolidated financial statements included within this report.
For 2014 compared to 2013, the increase in FAMPYRA revenue was primarily due to increased demand, partially offset by the recognition of deferred revenue in the prior year comparative period. For 2013 compared to 2012, the increase in FAMPYRA revenue was due to the recognition of previously deferred revenue and increased demand in Germany and France. FAMPYRA revenue for 2013 includes the recognition of revenues previously deferred in Germany as a result of finalizing a contract that included the final negotiated fixed price, which was higher than the lowest point of the initial range cited by the German pricing authority.
Hemophilia
ALPROLIX
Revenues from ALPROLIX are summarized as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
United States (1)
$
72.1

 
$

 
$

 
**
 
**
Rest of world (2)
3.9

 

 

 
**
 
**
Total ALPROLIX revenues
$
76.0

 
$

 
$

 
**
 
**
(1)
U.S. sales began in the second quarter of 2014.
(2)
Japanese sales began in the fourth quarter of 2014.

41


ELOCTATE
Revenues from ELOCTATE are summarized as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
United States (1)
$
58.4

 
$

 
$

 
**
 
**
Rest of world

 

 

 
**
 
**
Total ELOCTATE revenues
$
58.4

 
$

 
$

 
**
 
**
(1)
U.S. sales began in the third quarter of 2014.
Other Product Revenues
Other product revenues are summarized as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
FUMADERM
$
62.5

 
$
60.2

 
$
59.7

 
3.8
%
 
0.8
%
Unconsolidated Joint Business Revenues
We collaborate with Genentech, Inc., a wholly-owned member of the Roche Group, on the development and commercialization of RITUXAN. In addition, in the U.S. we share operating profits and losses relating to GAZYVA with Genentech. The Roche Group and its sub-licensees maintain sole responsibility for the development, manufacturing and commercialization of GAZYVA in the U.S. For additional information related to this collaboration, including information regarding the pre-tax profit sharing formula and its impact on future unconsolidated joint business revenues, please read Note 20, Collaborative and Other Relationships to our consolidated financial statements included within this report.
Revenues from unconsolidated joint business are summarized as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
Biogen Idec's share of profits in the U.S. for RITUXAN and GAZYVA (1)
$
1,114.1

 
$
1,085.2

 
$
1,031.7

 
2.7
%
 
5.2
 %
Reimbursement of selling and development expenses in the U.S. for RITUXAN
3.0

 
2.1

 
1.6

 
42.9
%
 
31.3
 %
Revenue on sales in the rest of world for RITUXAN
78.3

 
38.7

 
104.6

 
102.3
%
 
(63.0
)%
Total unconsolidated joint business revenues
$
1,195.4

 
$
1,126.0

 
$
1,137.9

 
6.2
%
 
(1.0
)%
(1) GAZYVA sales began in the fourth quarter of 2013.
Biogen Idec’s Share of Pre-tax Profits in the U.S. for RITUXAN and GAZYVA
The following table provides a summary of amounts comprising our share of pre-tax profits on RITUXAN and GAZYVA in the U.S.:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
Product revenues, net
$
3,556.6

 
$
3,425.8

 
$
3,131.8

 
3.8
 %
 
9.4
%
Cost and expenses
771.1

 
615.9

 
543.7

 
25.2
 %
 
13.3
%
Pre-tax profits in the U.S. for RITUXAN and GAZYVA
$
2,785.5

 
$
2,809.9

 
$
2,588.1

 
(0.9
)%
 
8.6
%
Biogen Idec's share of pre-tax profits in the U.S. for RITUXAN and GAZYVA
$
1,114.1

 
$
1,085.2

 
$
1,031.7

 
2.7
 %
 
5.2
%
For 2014 compared to 2013, the increase in U.S. product revenues was primarily due to price increases and an increase in unit sales volume, partially offset by the 2013 recognition of $94.9 million in net revenues resulting from the July 2013 issuance by the Department of Health and Human Services of its final rule on the Exclusion of Orphan Drugs for Certain Covered Entities Under 340B Program. The issuance of the final rule by the Department of Health and Human Services did not have an impact on the amount we recorded as revenues from unconsolidated joint business in our consolidated statements of income because, through June 30, 2013, we had been increasing our share of profits in the U.S. to reflect our interpretation of the proposed 340B rule. The final rule was consistent with our prior interpretation. For 2013 compared to 2012, the increase in U.S. product revenues was due to price increases, an increase in unit sales volume and the $94.9 million recognition in net revenues as discussed above.
Collaboration costs and expenses for 2014 compared to 2013 increased primarily due to the recognition of $53.9 million of additional BPD fee expense as well as GAZYVA sales and marketing and research and development expenses. For additional information related to the BPD fee, please read “The Patient Protection and Affordable Care Act (PPACA)” in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Upon the first marketing approval of GAZYVA by the FDA, we began recognizing all activity, including sales and marketing and research and development expenses related to the GAZYVA program in unconsolidated joint business within our consolidated statements of income. Prior to its first regulatory approval, we recognized our share of GAZYVA development and commercialization expenses as research and development expense and selling, general and administrative expense, respectively, within our consolidated statements of income.
Collaboration costs and expenses for 2013 compared to 2012 increased primarily due to a higher cost of goods sold resulting from an increased volume in RITUXAN sales, higher associated third party royalties and GAZYVA sales and marketing and research and development expenses. 
Revenue on Sales in the Rest of World for RITUXAN
Revenue on sales in the rest of world for RITUXAN consists of our share of pre-tax co-promotion profits on RITUXAN in Canada and royalty revenue on sales outside the U.S. and Canada. For 2014 compared to 2013, revenue on sales in the rest of world for RITUXAN increased primarily due to the prior year recognition of a $41.2 million charge for damages and interest awarded to Hoechst in its arbitration with Genentech. For 2013 compared to 2012 revenue on sales in the rest of world for RITUXAN decreased as a result of a $41.2 million charge for damages and interest awarded to Hoechst, as discussed above, as well as the expirations of royalties on a country-by-country basis.
The royalty period for sales in the rest of world is 11 years from the first commercial sale of such product on a country-by-country basis. The royalty periods for the substantial portion of the royalty-bearing sales in the rest of world markets expired during 2012 and 2013. We expect future revenue on sales of RITUXAN in the rest of world will be limited to our share of pre-tax co-promotion profits in Canada.
Other Revenues
Other revenues are summarized as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
Royalty revenues
$
176.7

 
$
185.7

 
$
168.7

 
(4.8
)%
 
10.1
%
Corporate partner revenues
127.8

 
78.2

 
43.8

 
63.4
 %
 
78.5
%
Total other revenues
$
304.5

 
$
263.9

 
$
212.5

 
15.4
 %
 
24.2
%
Royalty Revenues
We receive royalties from net sales on products related to patents that we licensed. Our most significant source of royalty revenue has been derived from net worldwide sales of ANGIOMAX, which is licensed to The Medicines Company (TMC). In March 2012, the U.S. Patent and Trademark Office granted the extension of the term of the principal U.S. patent that covers ANGIOMAX to December 15, 2014.
Royalty revenues from the net worldwide sales of ANGIOMAX are recognized in an amount equal to the level of net sales achieved during a calendar year multiplied by the royalty rate in effect for that tier under our agreement with TMC. The royalty rate increases based upon which tier of total net sales are earned in any calendar year. During 2012, we amended our agreement with TMC for the period from January 1, 2013 to December 15, 2014 to modestly increase the royalty rate in effect for all tiers.

42


For 2014 compared to 2013, royalty revenues decreased due to a decrease in the net worldwide sales of ANGIOMAX subject to royalty payments. For 2013 compared to 2012 the increase in royalty revenues was primarily related to the increase in the royalty rate as well as an increase in the net worldwide sales of ANGIOMAX.
Our royalty revenues from ANGIOMAX ceased as of December 15, 2014 upon patent expiry. We also expect declines in royalty revenues from our out-licensed patents over the next several years due to changes in the competitive landscape related to one of the underlying technologies we licensed. These changes resulted in an asset impairment charge of $34.7 million recorded in the first quarter of 2014 which has been reflected in amortization of acquired intangible assets within our consolidated statement of income. As a result, we estimate that in 2015 we will have a decrease of approximately $130 million in royalty revenues.
Corporate Partner Revenues
Our corporate partner revenues include amounts earned under contract manufacturing agreements, which includes revenues related to our arrangement with Samsung Bioepis, and revenues covering products previously included within our product line that we have sold or exclusively licensed to third parties.
For 2014 compared to 2013, the increase in corporate partner revenue was primarily due to higher contract manufacturing revenue and increased revenue from our biosimilar arrangements, partially offset by lower revenue associated with our Zevalin supply agreement. For 2013 compared to 2012, the increase in corporate partner revenues was primarily due to increased revenue from our biosimilar arrangements and an amendment to our Zevalin supply agreement, which resulted in the delivery of our remaining Zevalin inventory and the recognition of a previously deferred amount. Zevalin is a program we sold in 2007 but have continued to manufacture in accordance with the amendment to our Zevalin supply agreement. As part of the amendment, we committed to one additional Zevalin manufacturing campaign, which was completed in the third quarter of 2014.
For additional information on our relationship with Samsung Bioepis, please read Note 20, Collaborative and Other Relationships to our consolidated financial statements included within this report.
Reserves for Discounts and Allowances
Revenues from product sales are recorded net of applicable allowances for trade term discounts, wholesaler incentives, Medicaid rebates, Veterans Administration (VA) and Public Health Service (PHS) discounts, specialty pharmacy program fees, managed care rebates, product returns, and other governmental rebates or applicable allowances including those associated with the implementation of pricing actions in certain international markets where we operate.
Reserves established for these discounts and allowances are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer). These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Our estimates take into consideration our historical experience, current contractual and statutory requirements, specific known market events and trends, and forecasted customer buying and payment patterns. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which will have an effect on earnings in the period of adjustment. To date, such adjustments have not been significant.
Reserves for discounts, contractual adjustments and returns that reduced gross product revenues are summarized as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
Discounts
$
346.3

 
$
235.6

 
$
96.2

 
47.0
%
 
144.9
%
Contractual adjustments
1,231.6

 
835.0

 
529.5

 
47.5
%
 
57.7
%
Returns
52.6

 
24.0

 
21.9

 
119.2
%
 
9.6
%
Total allowances
$
1,630.5

 
$
1,094.6

 
$
647.6

 
49.0
%
 
69.0
%
Gross product revenues
$
9,833.9

 
$
6,636.9

 
$
4,813.7

 
48.2
%
 
37.9
%
Percent of gross product revenues
16.6
%
 
16.5
%
 
13.5
%
 
 
 
 

43


As a result of our acquisition of all remaining rights to TYSABRI from Elan, we began recognizing reserves for discounts and allowances for U.S. TYSABRI revenue in the second quarter of 2013. Prior periods included reserves for discounts and allowances for rest of world TYSABRI revenue and worldwide AVONEX revenue. In addition, following our commercial product launches, we began recognizing reserves for discounts and allowances related to these products' revenue. Gross product revenues for the first quarter of 2013 and for 2012 include sales of TYSABRI to Elan under our collaboration agreement, which did not have any corresponding reserves for discounts and allowances.
Discounts include trade term discounts and wholesaler incentives. For 2014 compared to 2013, the increase in discounts was primarily driven by our recent product additions. For 2013 compared to 2012, the increase in discounts was primarily driven by the additions of TECFIDERA and U.S. TYSABRI amounts.
Contractual adjustments relate to Medicaid and managed care rebates, VA, PHS discounts, specialty pharmacy program fees and other government rebates or applicable allowances. In addition to the above noted product additions, for 2014 compared to 2013, the increase in contractual adjustments was primarily due to an increase in managed care rebates, U.S. governmental rebates and allowances as a result of price increases and additional managed care contracts. For 2013 compared to 2012, the increase in contractual adjustments was primarily due to the additions of TECFIDERA and U.S. TYSABRI amounts and an increase in U.S. governmental rebates and allowances as a result of price increases.
Product return reserves are established for returns made by wholesalers. In accordance with contractual terms, wholesalers are permitted to return product for reasons such as damaged or expired product. The majority of wholesaler returns are due to product expiration. Reserves for product returns are recorded in the period the related revenue is recognized, resulting in a reduction to product sales. For 2014 compared to 2013, return reserves increased primarily due to our acquisition of all remaining rights to TYSABRI, the start of commercial sales of TECFIDERA and increased return rates for prior year AVONEX shipments. For 2013 compared to 2012, return reserves increased primarily due to our acquisition of all remaining rights to TYSABRI and the FDA approval and start of commercial sales of TECFIDERA.
For additional information related to our reserves, please read Note 5, Reserves for Discounts and Allowances to our consolidated financial statements included within this report.
Cost and Expenses
A summary of total cost and expenses is as follows:
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
Cost of sales, excluding amortization of acquired intangible assets
$
1,171.0

 
$
857.7

 
$
545.5

 
36.5
 %
 
57.2
 %
Research and development
1,893.4

 
1,444.1

 
1,334.9

 
31.1
 %
 
8.2
 %
Selling, general and administrative
2,232.3

 
1,712.1

 
1,277.5

 
30.4
 %
 
34.0
 %
Amortization of acquired intangible assets
489.8

 
342.9

 
202.2

 
42.8
 %
 
69.6
 %
Collaboration profit sharing

 
85.4

 
317.9

 
(100.0
)%
 
(73.1
)%
(Gain) loss on fair value remeasurement of contingent consideration
(38.9
)
 
(0.5
)
 
27.2

 
**

 
(102.0
)%
Restructuring charges

 

 
2.2

 
**

 
(100.0
)%
Total cost and expenses
$
5,747.7

 
$
4,441.6

 
$
3,707.4

 
29.4
 %
 
19.8
 %

44


Cost of Sales, Excluding Amortization of Acquired Intangible Assets (Cost of Sales)
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
Product cost of sales
$
585.7

 
$
427.6

 
$
365.9

 
37.0
%
 
16.9
%
Royalty cost of sales
585.3

 
430.1

 
179.6

 
36.1
%
 
139.5
%
Total cost of sales
$
1,171.0

 
$
857.7

 
$
545.5

 
36.5
%
 
57.2
%
For 2014 compared to 2013, the increase in product cost of sales was driven by higher unit sales volume, including recent product launches and our contract and biosimilars manufacturing arrangements. For 2013 compared to 2012, the increase in product cost of sales was driven by higher unit sales volume, our product launch of TECFIDERA in the U.S. and our biosimilars manufacturing arrangement with Samsung Bioepis. In addition, for 2013 compared to 2012, the increase in product cost of sales was driven by an increase in charges related to excess, obsolete, unmarketable or other inventory due in part to the implementation of our plans to supply rest of world markets with TYSABRI manufactured at our Hillerød, Denmark facility, which was approved by the FDA and EMA in July 2013. 
Our products are subject to strict quality control and monitoring which we perform throughout the manufacturing process. Periodically, certain batches or units of product may no longer meet quality specifications or may expire. The expiry associated with our inventory is generally between 6 months and 5 years, depending on the product.
Inventory amounts written down related to excess, obsolete, unmarketable, or other inventory totaled $50.6 million, $47.3 million, and $24.8 million for the years ended December 31, 2014, 2013, and 2012, respectively.
For 2014 compared to 2013 as well as for 2013 compared to 2012, the increase in royalty cost of sales was primarily driven by our acquisition of all remaining rights to TYSABRI, partially offset by the expiration of a third party royalty related to AVONEX. As a result of our acquisition of all remaining rights to TYSABRI from Elan, our contingent payments due to Elan are recorded as a component of royalty cost of sales.
Research and Development
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
Marketed products
$
371.0

 
$
252.1

 
$
128.2

 
47.2
 %
 
96.6
 %
Late stage programs
109.5

 
272.8

 
467.0

 
(59.9
)%
 
(41.6
)%
Early stage programs
246.5

 
130.8

 
90.7

 
88.5
 %
 
44.2
 %
Research and discovery
162.8

 
97.6

 
94.6

 
66.8
 %
 
3.2
 %
Other research and development costs
755.9

 
552.7

 
479.0

 
36.8
 %
 
15.4
 %
Milestone and upfront payments
247.7

 
138.1

 
75.4

 
79.4
 %
 
83.2
 %
Total research and development
$
1,893.4

 
$
1,444.1

 
$
1,334.9

 
31.1
 %
 
8.2
 %
Research and development expense incurred in support of our marketed products includes costs associated with product lifecycle management activities including, if applicable, costs associated with the development of new indications for existing products. Late stage programs are programs in Phase 3 development or in registration stage. Early stage programs are programs in Phase 1 or Phase 2 development. Research and discovery represents costs incurred to support our discovery research and translational science efforts. Other research and development costs consist of indirect costs incurred in support of overall research and development activities and non-specific programs, including activities that benefit multiple programs, such as management costs as well as depreciation and other facility-based expenses. For several of our programs, the research and development activities are part of our collaborative and other relationships. Our costs reflect our share of the total costs incurred.

45


For 2014 compared to 2013, the increase in research and development expense was primarily related to increase in costs incurred in connection with our early stage programs, upfront and milestone expenses, research and discovery, marketed products and other research and development cost, partially offset by a decrease in costs incurred in connection with our late stage programs. Research and development expense related to our early stage programs increased over the prior year comparative periods primarily due to costs incurred in the advancement of our Anti-LINGO program in MS, our BIIB037 program for Alzheimer’s disease, BAN2401, a program for Alzheimer’s disease related to our collaboration agreement with Eisai and an increase in spending incurred in connection with our development of STX-100 for the treatment of idiopathic pulmonary fibrosis. The increase in spending associated with marketed products is related to ALPROLIX, ELOCTATE and PLEGRIDY, which were recently approved, and costs associated with TYSABRI, which previously were shared with Elan and now are recorded 100% by us upon our acquisition of all remaining rights to TYSABRI from Elan in April 2013. The increase in other research and development costs were related to increased workforce and infrastructure spend in support of core research and development activities.
The decrease in spending associated with our late stage product candidates was driven by approvals of ALPROLIX, ELOCTATE and PLEGRIDY in 2014 and GAZYVA in the fourth quarter of 2013, partially offset by costs incurred in the development of ISIS-SMNRx for the treatment of SMA.
For 2013 compared to 2012, the increase in research and development expense was primarily related to an increase in costs incurred in connection with our marketed products, early stage programs and upfront and milestone payments partially offset by a decrease in costs incurred in connection with our late stage programs. The increase in spending associated with marketed products is related to TECFIDERA and costs associated with TYSABRI, which previously were shared with Elan. Research and development expense related to our early stage programs increased over the prior year primarily due to costs incurred in the advancement of our Anti-LINGO program in MS, our BIIB037 program for Alzheimer’s disease, our anti-TWEAK program for lupus nephritis, and an increase in spending incurred in connection with our development of STX-100 for the treatment of idiopathic pulmonary fibrosis.
The decrease in spending associated with our late stage product candidates was driven by the discontinuation of dexpramipexole, decreased clinical trial activity associated with ELOCTATE and ALPROLIX, which had clinical trials conclude in 2012, and the FDA approval of TECFIDERA in the U.S. during the first quarter of 2013. At the end of December 2012, we learned that a Phase 3 trial investigating dexpramipexole in people with amyotrophic lateral sclerosis (ALS) did not meet its primary endpoint and failed to show efficacy in its key secondary endpoints. Based on these results, we discontinued development of dexpramipexole in ALS.
We intend to continue committing significant resources to targeted research and development opportunities where there is a significant unmet need and where the drug candidate has the potential to be highly differentiated. Specifically, we intend to continue to invest in our MS pipeline and in pursuing additional therapies for autoimmune disorders, neurodegenerative diseases and hematologic conditions.
Milestone and Upfront Payments included in Research and Development Expense
Research and development expense for 2014 includes $139.3 million recorded in connection with our collaboration agreement with Eisai, $25.0 million recorded as milestones in relation to our collaboration agreements with Isis and an aggregate of $60.0 million related to upfront payments made to Sangamo, Google and for other strategic business arrangements. For additional information about these transactions, please read Note 20, Collaborative and Other Relationships to our consolidated financial statements included within this report. Included in total research and development expense in 2013 were charges of $75.0 million related to an upfront payment made to Isis in September 2013 upon entering into a six year research collaboration with Isis under which both companies will perform research and then seek to develop and commercialize antisense or other therapeutics for the treatment of neurological disorders, $36.0 million related to upfront and milestone payments made to Samsung Bioepis in December 2013 upon entering into a development and commercialization agreement and a $10.0 million milestone payment made to Isis related to the selection and advancement of ISIS-DMPKRx to treat mytonic dystrophy (DM1). These payments are classified as research and development expense as the programs they relate to have not achieved regulatory approval. Research and development expense in 2012 included charges totaling $71.0 million related to upfront payments made to Isis in January, June and December 2012 upon entering into three separate agreements for the development of Isis’ antisense investigational drug ISIS-SMNRx for the treatment of SMA, product candidates related to the treatment of DM1, and antisense therapeutics for up to three gene targets, respectively.

46


Selling, General and Administrative
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
Selling, general and administrative
$
2,232.3

 
$
1,712.1

 
$
1,277.5

 
30.4
%
 
34.0
%
For 2014 compared to 2013, the increase in selling, general and administrative expenses was primarily driven by costs associated with developing commercial capabilities for our recent product launches along with an increase in sales and marketing activities in support of our MS products. The successful commercialization of new and potential new products requires significant investments, such as sales force build and development, training, marketing, and other related activities. The increase in selling, general, and administrative expense was also driven by an increase in corporate giving and the recognition of $21.9 million of additional BPD fee expense. For additional information related to the BPD fee, please read “The Patient Protection and Affordable Care Act (PPACA)” in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
For 2013 compared to 2012, the increase in selling, general and administrative expense was primarily driven by costs associated with developing commercial capabilities for the product launch of TECFIDERA and the potential product launches of ELOCTATE and ALPROLIX, an increase in sales and marketing activities in support of AVONEX and TYSABRI and the $27.2 million charge recognized in relation to exiting our Weston, Massachusetts facility. For additional information related to this charge, please read Note 11, Property, Plant and Equipment to our consolidated financial statements included in this report. The increase in sales and marketing activities in support of TYSABRI were primarily driven by assuming 100% responsibility of activities as a result of our acquisition of all remaining rights to TYSABRI from Elan. In addition, the increase in selling, general, and administrative expense was driven by an increase in share-based compensation expense, partially offset by a reduction in grant and sponsorship activity.
We remain focused on our recent product launches. As discussed above, we continue to invest in commercial capabilities in support of our TECFIDERA program, and we have continued to make investments in the development of commercial capabilities for our hemophilia products.
Amortization of Acquired Intangible Assets
 
For the Years Ended
December 31,
 
% Change
 
2014 compared to 2013
 
2013 compared to 2012
(In millions, except percentages)
2014
 
2013
 
2012
 
Amortization of acquired intangible assets
$
489.8

 
$
342.9

 
$
202.2

 
42.8
%
 
69.6
%
For 2014 compared to 2013, the change in amortization of acquired intangible assets was primarily driven by a $60.2 million increase in amortization of acquired and in-licensed rights and patents as we recognized a full year of expense related to our TYSABRI rights in 2014 versus nine months of expense in 2013, total impairment charges of $50.9 million related to one of our out-licensed patents and one of our IPR&D intangible assets, and lower expected lifetime revenues of AVONEX as discussed further below. For additional information related to the amortization of acquired intangible assets, please read Note 7, Intangible Assets and Goodwill to our consolidated financial statements included within this report. For 2013 compared to 2012, the change in amortization of acquired intangible assets was primarily driven by our acquisition of all remaining rights to TYSABRI from Elan and an increase in the amount of amortization recorded in relation to our AVONEX intangible asset.
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.
Our most recent long range planning cycle was updated in the third quarter of 2014. Our analysis included an increase in the expected future product revenues of TYSABRI, resulting in a decrease in amortization expense as compared to prior quarters. Our analysis also included a decrease in the expected future product revenues of AVONEX, resulting in an increase in amortization exp