10-Q 1 biib-2015930x10q.htm 10-Q 10-Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19311
 
BIOGEN INC.
(Exact name of registrant as specified in its charter)
Delaware
 
33-0112644
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
225 Binney Street, Cambridge, MA 02142
(617) 679-2000
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):
Large accelerated filer x
 
Accelerated filer  o
Non-accelerated filer o
 
Smaller reporting company  o
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  o    No  x
The number of shares of the issuer’s Common Stock, $0.0005 par value, outstanding as of October 16, 2015, was 222,903,109 shares.
 



BIOGEN INC.
FORM 10-Q — Quarterly Report
For the Quarterly Period Ended September 30, 2015
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II — OTHER INFORMATION
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 


2


NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are 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, estimated fair value of assets and liabilities, and impairment assessments;
expectations and plans relating to sales, pricing, growth, launch and prospects of our marketed and pipeline products;
the potential impact of increased product competition in the markets in which we compete;
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;
the costs and timing of potential trials, filing and approvals, and the potential therapeutic scope of the development and commercialization of our and our collaborators’ pipeline products;
our intent to commit resources for research and development opportunities, and expectations relating to selling, general and administrative expense;
the drivers for growing our business, including our plans relating to business development opportunities and research and development programs;
the anticipated benefits, cost savings, and charges related to our corporate restructuring initiatives;
the expected timing of completion of our 2015 share repurchase program;
the expected timing of the closing our proposed collaboration with Mitsubishi Tanabe Pharma Corporation;
our manufacturing capacity, use of third party contract manufacturing and our plans and timing relating to the expansion of our manufacturing capabilities, including anticipated investments and activities in Solothurn, Switzerland and Research Triangle Park, North Carolina;
the impact of the continued uncertainty of the credit and economic conditions in certain countries in Europe and our collection of accounts receivable in such countries;
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;
expectations relating to the timing and execution of our stock repurchase programs;
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 in 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, whether as a result of new information, future developments or otherwise.

3


NOTE REGARDING COMPANY AND PRODUCT REFERENCES
Throughout this report, “Biogen,” the “Company,” “we,” “us” and “our” refer to Biogen Inc. (formerly 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®, PLEGRIDY®, RITUXAN®, TECFIDERA® and TYSABRI® are registered trademarks of Biogen. BENEPALITM, ELOCTATM, FLIXABITM, FUMADERMTM and ZINBRYTATM are trademarks of Biogen. The following are trademarks of the respective companies listed: ANGIOMAX® and ANGIOX® — The Medicines Company; BETASERON®— Bayer Pharma AG; BRENZYSTM — Merck Sharp & Dohme Corp.; EXTAVIA® — Novartis AG; FAMPYRATM — Acorda Therapeutics, Inc.; GAZYVA® —  Genentech, Inc.; and REBIF® — Ares Trading S.A.

4


PART I FINANCIAL INFORMATION

BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
 
 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Product, net
$
2,391,717

 
$
2,117,366

 
$
6,762,605

 
$
5,916,423

Unconsolidated joint business
337,181

 
290,678

 
1,005,302

 
890,859

Other
48,961

 
103,402

 
156,557

 
255,367

Total revenues
2,777,859

 
2,511,446

 
7,924,464

 
7,062,649

Cost and expenses:
 
 
 
 
 
 
 
Cost of sales, excluding amortization of acquired intangible assets
310,028

 
302,639

 
908,579

 
873,771

Research and development
519,863

 
417,174

 
1,471,140

 
1,393,331

Selling, general and administrative
477,827

 
570,436

 
1,530,083

 
1,658,732

Amortization of acquired intangible assets
98,065

 
122,431

 
285,972

 
382,515

(Gain) loss on fair value remeasurement of contingent consideration
244

 
(49,433
)
 
5,887

 
(46,213
)
Total cost and expenses
1,406,027

 
1,363,247

 
4,201,661

 
4,262,136

Gain on sale of rights

 
4,379

 

 
12,138

Income from operations
1,371,832

 
1,152,578

 
3,722,803

 
2,812,651

Other income (expense), net
(15,413
)
 
(16,290
)
 
(41,288
)
 
(17,030
)
Income before income tax expense and equity in loss of investee, net of tax
1,356,419

 
1,136,288

 
3,681,515

 
2,795,621

Income tax expense
330,093

 
274,774

 
904,475

 
721,709

Equity in loss of investee, net of tax
6,833

 
5,394

 
12,548

 
14,932

Net income
1,019,493

 
856,120

 
2,764,492

 
2,058,980

Net income (loss) attributable to noncontrolling interests, net of tax
53,871

 
(738
)
 
49,053

 
7,660

Net income attributable to Biogen Inc.
$
965,622

 
$
856,858

 
$
2,715,439

 
$
2,051,320

Net income per share:
 
 
 
 
 
 
 
Basic earnings per share attributable to Biogen Inc.
$
4.16

 
$
3.63

 
$
11.60

 
$
8.67

Diluted earnings per share attributable to Biogen Inc.
$
4.15

 
$
3.62

 
$
11.57

 
$
8.64

Weighted-average shares used in calculating:
 
 
 
 
 
 
 
Basic earnings per share attributable to Biogen Inc.
232,191

 
236,217

 
234,134

 
236,641

Diluted earnings per share attributable to Biogen Inc.
232,612

 
236,972

 
234,659

 
237,449








See accompanying notes to these unaudited condensed consolidated financial statements.

5


BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 
 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net income attributable to Biogen Inc.
$
965,622

 
$
856,858

 
$
2,715,439

 
$
2,051,320

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities available for sale, net of tax of $(1,320) and $(6) for the three months ended September 30, 2015 and 2014, respectively; and $(699) and $(3,021) for the nine months ended September 30, 2015 and 2014, respectively
(2,239
)
 
12

 
(1,154
)
 
(5,127
)
Unrealized gains (losses) on cash flow hedges, net of tax of $(187) and $302 for the three months ended September 30, 2015 and 2014, respectively; and $(229) and $307 for the nine months ended September 30, 2015 and 2014, respectively
(31,171
)
 
48,242

 
(40,084
)
 
64,793

Unrealized gains (losses) on pension benefit obligation
523

 
691

 
4,632

 
1,338

Currency translation adjustment
(23,504
)
 
(60,254
)
 
(61,322
)
 
(71,246
)
Total other comprehensive income (loss), net of tax
(56,391
)
 
(11,309
)
 
(97,928
)
 
(10,242
)
Comprehensive income attributable to Biogen Inc.
909,231

 
845,549

 
2,617,511

 
2,041,078

Comprehensive income (loss) attributable to noncontrolling interests, net of tax
53,586

 
(738
)
 
49,053

 
7,660

Comprehensive income
$
962,817

 
$
844,811

 
$
2,666,564

 
$
2,048,738




























See accompanying notes to these unaudited condensed consolidated financial statements.

6


BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share amounts)
 
 
As of September 30,
2015
 
As of December 31,
2014
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
4,089,003

 
$
1,204,924

Marketable securities
1,753,499

 
640,460

Accounts receivable, net
1,327,780

 
1,292,445

Due from unconsolidated joint business, net
319,788

 
283,360

Inventory
918,921

 
804,022

Other current assets
861,882

 
446,943

Total current assets
9,270,873

 
4,672,154

Marketable securities
1,947,354

 
1,470,652

Property, plant and equipment, net
2,027,821

 
1,765,683

Intangible assets, net
4,181,245

 
4,028,507

Goodwill
2,408,854

 
1,760,249

Investments and other assets
892,221

 
617,536

Total assets
$
20,728,368

 
$
14,314,781

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Current portion of notes payable and other financing arrangements
$
5,171

 
$
3,136

Taxes payable
458,672

 
168,058

Accounts payable
251,228

 
229,178

Accrued expenses and other
1,918,897

 
1,819,334

Total current liabilities
2,633,968

 
2,219,706

Notes payable and other financing arrangements
6,529,275

 
580,283

Long-term deferred tax liability
136,761

 
50,656

Other long-term liabilities
861,421

 
650,096

Total liabilities
10,161,425

 
3,500,741

Commitments and contingencies


 


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

 

Common stock, par value $0.0005 per share
124

 
129

Additional paid-in capital
1,342,373

 
4,196,156

Accumulated other comprehensive loss
(157,416
)
 
(59,488
)
Retained earnings
11,999,358

 
9,283,919

Treasury stock, at cost
(2,611,713
)
 
(2,611,706
)
Total Biogen Inc. shareholders’ equity
10,572,726

 
10,809,010

Noncontrolling interests
(5,783
)
 
5,030

Total equity
10,566,943

 
10,814,040

Total liabilities and equity
$
20,728,368

 
$
14,314,781



See accompanying notes to these unaudited condensed consolidated financial statements.

7


BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
 
For the Nine Months
Ended September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
2,764,492

 
$
2,058,980

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
444,100

 
530,508

Share-based compensation
131,537

 
119,508

Deferred income taxes
(185,802
)
 
(229,273
)
Other
31,564

 
(95,711
)
Changes in operating assets and liabilities, net:
 
 
 
Accounts receivable
(63,608
)
 
(297,057
)
Inventory
(150,387
)
 
(119,890
)
Accrued expenses and other current liabilities
(174,532
)
 
19,283

Other changes in operating assets and liabilities, net
(121,659
)
 
22,904

Net cash flows provided by operating activities
2,675,705

 
2,009,252

Cash flows from investing activities:
 
 
 
Proceeds from sales and maturities of marketable securities
3,363,374

 
1,942,871

Purchases of marketable securities
(4,870,142
)
 
(2,738,584
)
Acquisitions of business, net of cash acquired
(198,798
)
 

Purchases of property, plant and equipment
(456,885
)
 
(180,854
)
Contingent consideration related to Fumapharm AG acquisition
(550,000
)
 
(175,000
)
Other
(33,620
)
 
(13,131
)
Net cash flows used in investing activities
(2,746,071
)
 
(1,164,698
)
Cash flows from financing activities:
 
 
 
Purchase of treasury stock
(2,998,190
)
 
(359,981
)
Proceeds from issuance of stock for share-based compensation arrangements
45,509

 
44,960

Proceeds from borrowings
5,930,936

 

Repayment of borrowings
(2,083
)
 
(2,674
)
Excess tax benefit from stock options
70,778

 
90,423

Other
(62,147
)
 
(15,336
)
Net cash flows provided by (used in) financing activities
2,984,803

 
(242,608
)
Net increase in cash and cash equivalents
2,914,437

 
601,946

Effect of exchange rate changes on cash and cash equivalents
(30,358
)
 
(18,227
)
Cash and cash equivalents, beginning of the period
1,204,924

 
602,562

Cash and cash equivalents, end of the period
$
4,089,003

 
$
1,186,281












See accompanying notes to these unaudited condensed consolidated financial statements.

8

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


1.    Summary of Significant Accounting Policies
Business Overview
Biogen is a global biopharmaceutical company focused on discovering, developing, manufacturing and delivering therapies for neurological, autoimmune and hematologic disorders. Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, and FAMPYRA for the treatment of multiple sclerosis (MS), ALPROLIX for the treatment of hemophilia B, ELOCTATE for the treatment of hemophilia A and FUMADERM for the treatment of severe plaque psoriasis. We also generate revenue from our collaboration with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group, with respect to RITUXAN for the treatment of non-Hodgkin’s lymphoma, chronic lymphocytic leukemia (CLL) and other conditions, and share profits and losses with Genentech for GAZYVA, which is approved for the treatment of CLL.
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial statements for interim periods in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The information included in this quarterly report on Form 10-Q should be read in conjunction with our consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2014 (2014 Form 10-K). Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2014 Form 10-K and updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three and nine months ended September 30, 2015, are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
Consolidation
Our condensed consolidated financial statements reflect our financial statements, those of our wholly-owned subsidiaries and those of certain variable interest entities where we are the primary beneficiary. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interests in our condensed consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. Intercompany balances and transactions are eliminated in consolidation.
In determining whether we are the primary beneficiary of an entity, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. These considerations impact the way we account for our existing collaborative relationships and other arrangements. We continuously assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in us consolidating or deconsolidating one or more of our collaborators or partners.
We operate as one operating segment, which is focused on discovering, developing, manufacturing and delivering therapies for neurological, autoimmune and hematologic disorders.
 Use of Estimates
The preparation of our condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions.

9

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

Accounts Receivable
Our accounts receivable primarily arise from product sales in the U.S. and Europe and mainly represent amounts due from our wholesale distributors, public hospitals and other government entities. Concentrations of credit risk with respect to our accounts receivable, which are typically unsecured, are limited due to the wide variety of customers and markets using our products, as well as their dispersion across many different geographic areas. The majority of our accounts receivable require payment within 30 to 90 days. We monitor the financial performance and credit worthiness of our customers so that we can properly assess and respond to changes in their credit profile. We provide reserves against trade receivables for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve. To date, our historical reserves and write-offs of accounts receivable have not been significant.
In countries where we have experienced a pattern of payments extending beyond our contractual payment term and we expect to collect receivables greater than one year after the time of sale, we discount our receivables and reduce related revenues over the period of time that we estimate those amounts will be paid using the country’s market-based borrowing rate for such period. The related receivables are classified at the time of sale as non-current assets. We accrete interest income on these receivables, which is recognized as a component of other income (expense), net in our condensed consolidated statement of income. To date, our historical discounts of receivables have not been significant.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we do not believe that the impact of recently issued standards that are not yet effective will have a material impact on our financial position or results of operations upon adoption.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. We are currently evaluating the method of adoption and the potential impact that Topic 606 may have on our financial position and results of operations.
In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosure. The new standard expanded secured borrowing accounting to include repurchase-to-maturity transactions and repurchase financings and set forth new disclosure requirements for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions that are accounted for as secured borrowings. We adopted this standard on April 1, 2015 and expanded our disclosures presented in Note 7, Financial Instruments to these condensed consolidated financial statements. The adoption of this standard did not have an impact on our financial position or results of operations.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which clarified that debt issuance costs related to line-of-credit arrangements can be presented in the balance sheet as an asset and amortized over the term of the line-of-credit arrangement. We adopted these standards as of September 30, 2015 with retroactive application. The adoption of these standards did not have a significant impact on our financial position or results of operations. For additional information, please read Note 6, Fair Value Measurements to these condensed consolidated financial statements.

10

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

In April 2015, the FASB issued ASU No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. Under this standard, if a cloud computing arrangement includes a software license, the software license element of the arrangement should be accounted for consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. The new standard will be effective for us on January 1, 2016. The adoption of this standard is not expected to have an impact on our financial position or results of operations.
In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The new standard removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The new standard will be effective for us on January 1, 2016. Early application is permitted. We maintain investments in certain venture capital funds which primarily invest in small, privately-owned, venture-backed biotechnology companies. The value of our investments in these venture capital funds is estimated using the net asset value of the fund and has been included in the fair value hierarchy disclosure as a Level 3 measurement. These venture capital investments are not material to our financial position or results of operations. We adopted this standard as of June 30, 2015 and our investments in venture capital funds are no longer included in our disclosures reflected in Note 6, Fair Value Measurements to these condensed consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The new standard applies only to inventory for which cost is determined by methods other than last-in, first-out and the retail inventory method, which includes inventory that is measured using first-in, first-out or average cost. Inventory within the scope of this standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard will be effective for us on January 1, 2017. The adoption of this standard is not expected to have an impact on our financial position or results of operations.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The new standard requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined and sets forth new disclosure requirements related to the adjustments. The new standard will be effective for us on January 1, 2016. The adoption of this standard is not expected to have an impact on our financial position or results of operations.
2.    Acquisitions
Convergence Pharmaceuticals
On February 12, 2015, we completed our acquisition of all of the outstanding stock of Convergence Pharmaceuticals (Convergence), a clinical-stage biopharmaceutical company with a focus on developing product candidates for neuropathic pain. Convergence’s lead candidate is its Phase 2 clinical candidate Raxatrigine (CNV1014802), which has demonstrated clinical activity in proof-of-concept studies for trigeminal neuralgia (TGN), a chronic orphan disease. Additionally, Raxatrigine has potential applicability in several other neuropathic pain states.
The purchase price consisted of a $200.1 million cash payment at closing, plus contingent consideration in the form of development and approval milestones up to a maximum of $450.0 million, of which $350.0 million is associated with the development and approval of Raxatrigine for the treatment of TGN. The acquisition was funded from our existing cash on hand and has been accounted for as the acquisition of a business. In addition to obtaining the rights to Raxatrigine and additional product candidates in preclinical development, we retained the services of key employees of Convergence.
In connection with our acquisition of Convergence, we recorded a liability of $274.5 million representing the fair value of the contingent consideration. This amount was estimated through a valuation model that incorporates industry-based probability adjusted assumptions relating to the achievement of these milestones and thus the likelihood of making the contingent payments. This fair value measurement is based upon significant inputs not observable in the market and therefore represents a Level 3 measurement.

11

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

The purchase price, as adjusted, consisted of the following:
(In millions)
 
Cash portion of consideration
$
200.1

Contingent consideration
274.5

Total purchase price
$
474.6

Subsequent changes in the fair value of the contingent consideration obligation will be recognized as adjustments to contingent consideration and reflected in our condensed consolidated statements of income. For additional information related to the fair value of this obligation, please read Note 6, Fair Value Measurements to these condensed consolidated financial statements.
During the second quarter of 2015, we adjusted our preliminary estimate of the fair value of the assets acquired and contingent consideration as of the date of acquisition to reflect revised estimates to our initial clinical development plans, resulting probabilities of success and the timing of certain milestone payments. The primary effects of these revised estimates resulted in an increase in the value of our estimated contingent consideration and goodwill by $36.0 million, respectively. Our revised purchase price allocation is reflected in the chart below. Our purchase price allocation is substantially complete.
The following table summarizes the estimated fair values of the separately identifiable assets acquired and liabilities assumed as of February 12, 2015, as adjusted:
(In millions)
 
In-process research and development
$
424.6

Other intangible assets
7.6

Goodwill
128.3

Deferred tax liability
(84.9
)
Other, net
(1.0
)
Total purchase price
$
474.6

Our estimate of the fair value of the in-process research and development (IPR&D) programs acquired was determined through a probability adjusted discounted cash flow analysis utilizing a discount rate of 11%. This valuation was primarily driven by the value associated with the lead candidate, Raxatrigine, which is in development for the treatment of TGN and is expected to be completed no earlier than 2020, at a remaining cost of approximately $145.0 million. The fair value associated with Raxatrigine for the treatment of TGN was $200.0 million. We have recorded additional IPR&D assets related to the use of Raxatrigine in two additional neuropathic pain indications, with a total estimated value of $220.0 million. The remaining cost of development for these two indications is approximately $415.0 million, with an expected completion date of no earlier than 2021. These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 fair value measurements.
We have attributed the goodwill recognized to the Convergence workforce's expertise in chronic pain research and clinical development and to establishing a deferred tax liability for the acquired IPR&D intangible assets which have no tax basis. The goodwill is not tax deductible.
Pro forma results of operations would not be materially different as a result of the acquisition of Convergence and therefore are not presented. Subsequent to the acquisition date, our results of operations include the results of operations of Convergence.

12

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

3.    Reserves for Discounts and Allowances
An analysis of the change in reserves for discounts and allowances is summarized as follows:
(In millions)
Discounts
 
Contractual
Adjustments
 
Returns
 
Total
Balance, as of December 31, 2014
$
47.6

 
$
387.1

 
$
49.1

 
$
483.8

Current provisions relating to sales in current year
332.0

 
1,278.0

 
26.4

 
1,636.4

Adjustments relating to prior years
(1.3
)
 
(20.9
)
 
(14.8
)
 
(37.0
)
Payments/credits relating to sales in current year
(277.9
)
 
(871.8
)
 
(1.6
)
 
(1,151.3
)
Payments/credits relating to sales in prior years
(40.7
)
 
(271.6
)
 
(8.9
)
 
(321.2
)
Balance, as of September 30, 2015
$
59.7

 
$
500.8

 
$
50.2

 
$
610.7

The total reserves above, included in our condensed consolidated balance sheets, are summarized as follows:
(In millions)
As of
September 30,
2015
 
As of
December 31,
2014
Reduction of accounts receivable
$
148.0

 
$
124.6

Component of accrued expenses and other
462.7

 
359.2

Total reserves
$
610.7

 
$
483.8

4.    Inventory
The components of inventory are summarized as follows:
(In millions)
As of
September 30,
2015
 
As of
December 31,
2014
Raw materials
$
221.5

 
$
128.3

Work in process
537.7

 
511.5

Finished goods
159.7

 
164.2

Total inventory
$
918.9

 
$
804.0

As of September 30, 2015, our inventory included $54.3 million associated with our ZINBRYTA, FLIXABI and BENEPALI programs, which have been capitalized in advance of regulatory approval. As of December 31, 2014, our inventory included $6.3 million associated with our ZINBRYTA program, which had been capitalized in advance of regulatory approval.

13

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

5.    Intangible Assets and Goodwill
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments, are summarized as follows:
 
 
 
As of September 30, 2015
 
As of December 31, 2014
(In millions)
Estimated
Life
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
Out-licensed patents
13-23 years
 
$
543.3

 
$
(499.9
)
 
$
43.4

 
$
543.3

 
$
(481.7
)
 
$
61.6

Developed 
technology
15-23 years
 
3,005.3

 
(2,523.8
)
 
481.5

 
3,005.3

 
(2,396.8
)
 
608.5

In-process research and development
Indefinite until commercialization
 
735.6

 

 
735.6

 
314.1

 

 
314.1

Trademarks and 
tradenames
Indefinite
 
64.0

 

 
64.0

 
64.0

 

 
64.0

Acquired and in-licensed rights 
and patents
3-17 years
 
3,297.6

 
(440.9
)
 
2,856.7

 
3,280.4

 
(300.1
)
 
2,980.3

Total intangible assets
 
 
$
7,645.8

 
$
(3,464.6
)
 
$
4,181.2

 
$
7,207.1

 
$
(3,178.6
)
 
$
4,028.5

For the three and nine months ended September 30, 2015, amortization of acquired intangible assets totaled $98.1 million and $286.0 million, respectively, as compared to $122.4 million and $382.5 million, respectively, in the prior year comparative periods.
For the three months ended September 30, 2015, compared to the same period in 2014, the decrease in amortization of acquired intangible assets was primarily driven by higher expected lifetime revenues of AVONEX, partially offset by lower expected lifetime revenues of TYSABRI. Amortization of acquired intangible assets during the three months ended September 30, 2014 included a $16.2 million impairment loss related to one of our IPR&D intangible assets.
For the nine months ended September 30, 2015, compared to the same period in 2014, the decrease in amortization of acquired intangible assets was primarily driven by a decrease in AVONEX revenues during the comparative periods. Amortization of acquired intangible assets during the nine months ended September 30, 2014 included total impairment charges of $50.9 million related to one of our out-licensed patents and one of our IPR&D intangible assets.
Developed Technology
Developed technology primarily relates to our AVONEX product, which was recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. The net book value of this asset as of September 30, 2015 was $472.9 million.
IPR&D
IPR&D represents the fair value assigned to research and development assets that we acquire that have not reached technological feasibility at the date of acquisition. Upon commercialization, we will determine the estimated useful life. In connection with our acquisition of Convergence in February 2015, we acquired IPR&D programs with an estimated fair value of $424.6 million. This amount will be adjusted for foreign exchange rate fluctuations. For a more detailed description of this transaction, please read Note 2, Acquisitions to these condensed consolidated financial statements.
Acquired and In-licensed Rights and Patents
Acquired and in-licensed rights and patents primarily relate to our acquisition of the TYSABRI rights from Elan Corporation plc (Elan). Elan was acquired by Perrigo Company plc (Perrigo) in December 2013. The net book value of this asset as of September 30, 2015 was $2,797.5 million.

14

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

Estimated Future Amortization of Intangible Assets
Our amortization expense is based on the economic consumption of intangible assets. Our most significant intangible assets are related to our AVONEX and TYSABRI products. Annually, during our long-range planning cycle, we perform an analysis of anticipated lifetime revenues of AVONEX and TYSABRI. This analysis is also updated whenever events or changes in circumstances would significantly affect the anticipated lifetime revenues of either product.
Our most recent long range planning cycle was updated in the third quarter of 2015. Based upon this analysis, there was not a significant change in our expected rate of amortization for acquired intangible assets and the estimated future amortization is expected to be as follows:
(In millions)
As of
September 30,
2015
2015 (remaining three months)
$
94.3

2016
348.8

2017
318.6

2018
291.0

2019
275.1

2020
269.1

Total
$
1,596.9

Goodwill
The following table provides a roll forward of the changes in our goodwill balance:
(In millions)
 
Balance, as of December 31, 2014
$
1,760.2

Increase to goodwill
649.4

Other
(0.7
)
Balance, as of September 30, 2015
$
2,408.9

The increase in goodwill during the nine months ended September 30, 2015 was related to $600.0 million in contingent payments achieved (exclusive of a $78.9 million tax benefit) to former shareholders of Fumapharm AG or holders of their rights and our acquisition of Convergence. Other includes changes related to foreign exchange rate fluctuations. For additional information related to future contingent payments to the former shareholders of Fumapharm AG or holders of their rights, please read Note 20, Commitments and Contingencies to these condensed consolidated financial statements. For additional information related to our acquisition of Convergence, please read Note 2, Acquisitions to these condensed consolidated financial statements.
As of September 30, 2015, we had no accumulated impairment losses related to goodwill.

15

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

6.    Fair Value Measurements
The tables below present information about our assets and liabilities that are regularly measured and carried at fair value and indicate the level within the fair value hierarchy of the valuation techniques we utilized to determine such fair value:
As of September 30, 2015 (In millions)
Total
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
3,804.2

 
$

 
$
3,804.2

 
$

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
1,039.9

 

 
1,039.9

 

Government securities
2,411.1

 

 
2,411.1

 

Mortgage and other asset backed securities
249.9

 

 
249.9

 

Marketable equity securities
25.7

 
25.7

 

 

Derivative contracts
61.4

 

 
61.4

 

Plan assets for deferred compensation
38.6

 

 
38.6

 

Total
$
7,630.8

 
$
25.7

 
$
7,605.1

 
$

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
31.3

 
$

 
$
31.3

 
$

Contingent consideration obligations
481.4

 

 

 
481.4

Total
$
512.7

 
$

 
$
31.3

 
$
481.4

As of December 31, 2014 (In millions)
Total
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
716.3

 
$

 
$
716.3

 
$

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
1,063.0

 

 
1,063.0

 

Government securities
849.8

 

 
849.8

 

Mortgage and other asset backed securities
198.3

 

 
198.3

 

Marketable equity securities
6.9

 
6.9

 

 

Derivative contracts
72.7

 

 
72.7

 

Plan assets for deferred compensation
36.9

 

 
36.9

 

Total
$
2,943.9

 
$
6.9

 
$
2,937.0

 
$

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
5.4

 
$

 
$
5.4

 
$

Contingent consideration obligations
215.5

 

 

 
215.5

Total
$
220.9

 
$

 
$
5.4

 
$
215.5

There have been no material impairments of our assets measured and carried at fair value during the three and nine months ended September 30, 2015. In addition, there were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the three and nine months ended September 30, 2015. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities was determined through third party pricing services. For a description of our validation procedures related to prices provided by third party pricing services, refer to Note 1, Summary of Significant Accounting Policies: Fair Value Measurements, to our consolidated financial statements included in our 2014 Form 10-K. For additional information

16

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

related to our decision to no longer reflect our investments in venture capital funds within the fair value hierarchy, refer to Note 1, Summary of Significant Accounting Policies: New Accounting Pronouncements, to these condensed consolidated financial statements.
Debt Instruments
The fair and carrying values of our debt instruments, which are Level 2 liabilities, are summarized as follows:
 
As of September 30, 2015
 
As of December 31, 2014
(In millions)
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
Notes payable to Fumedica
$
9.5

 
$
9.1

 
$
12.6

 
$
11.7

6.875% Senior Notes due March 1, 2018
614.0

 
566.9

 
634.6

 
571.7

2.900% Senior Notes due September 15, 2020
1,514.1

 
1,492.3

 

 

3.625% Senior Notes due September 15, 2022
1,008.4

 
991.9

 

 

4.050% Senior Notes due September 15, 2025
1,767.1

 
1,733.1

 

 

5.200% Senior Notes due September 15, 2045
1,766.9

 
1,721.0

 

 

Total
$
6,680.0

 
$
6,514.3

 
$
647.2

 
$
583.4

The fair value of our notes payable to Fumedica was estimated using market observable inputs, including current interest and foreign currency exchange rates. The fair values of each of our series of Senior Notes were determined through market, observable, and corroborated sources. In accordance with ASU No. 2015-03, during the three months ended September 30, 2015, we reclassified $1.8 million of our debt issuance costs related to our 6.875% Senior Notes issued in 2008 from an asset to a reduction to the carrying amount of the 6.875% Senior Notes. For additional information related to our notes payable to Fumedica and our 6.875% Senior Notes, please read Note 12, Indebtedness to our consolidated financial statements included in our 2014 Form 10-K. For additional information related to our Senior Notes issued on September 15, 2015, please read Note 10, Indebtedness, to these condensed consolidated financial statements.
Contingent Consideration Obligations
The following table provides a roll forward of the fair values of our contingent consideration obligations which includes Level 3 measurements:
 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
(In millions)
2015
 
2014
 
2015
 
2014
Fair value, beginning of period
$
495.7

 
$
279.1

 
$
215.5

 
$
280.9

Additions

 

 
274.5

 

Changes in fair value
0.2

 
(49.4
)
 
5.9

 
(46.2
)
Payments
(14.5
)
 
(16.5
)
 
(14.5
)
 
(21.5
)
Fair value, end of period
$
481.4

 
$
213.2

 
$
481.4

 
$
213.2

As of September 30, 2015 and December 31, 2014, approximately $301.9 million and $200.0 million, respectively, of our contingent consideration obligations valued using Level 3 measurements were reflected as components of other long-term liabilities in our condensed consolidated balance sheets with the remaining balances reflected as a component of accrued expenses and other.
In connection with our acquisition of Convergence, we recorded a liability of $274.5 million, representing the fair value of the contingent consideration. This valuation was based on probability weighted net cash outflow projections of $450.0 million, discounted using a rate of 2%, which is the estimated cost of debt financing for market participants. This liability reflects the revised estimate from the date of acquisition for our initial clinical development plans, resulting probabilities of success and the timing of certain milestone payments. For a more detailed description of this transaction, please read Note 2, Acquisitions to these condensed consolidated financial statements. As of September 30, 2015, approximately $176.4 million, related to our contingent consideration obligations arising from our acquisition of Convergence, is reflected as a component of accrued expenses and other in our condensed consolidated balance sheets.

17

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

Acquired IPR&D
In connection with our acquisition of Convergence, we also allocated $424.6 million of the total purchase price to acquired IPR&D, which was capitalized as an intangible asset. The amount allocated to acquired IPR&D was based on significant inputs not observable in the market and thus represented a Level 3 fair value measurement. This estimate was also adjusted from our preliminary estimate as of the date of acquisition to reflect revised estimates to our initial clinical development plans, resulting probabilities of success and the timing of certain milestone payments. These assets will be tested for impairment annually until commercialization, after which time the IPR&D will be amortized over its estimated useful life. For a more detailed description of this transaction, please read Note 2, Acquisitions to these condensed consolidated financial statements.
7.    Financial Instruments
Marketable Securities
The following tables summarize our marketable debt and equity securities, classified as available-for-sale:
As of September 30, 2015 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Corporate debt securities
 
 
 
 
 
 
 
Current
$
272.1

 
$

 
$
(0.1
)
 
$
272.2

Non-current
767.8

 
0.7

 
(1.3
)
 
768.4

Government securities
 
 
 
 
 
 
 
Current
1,481.4

 
0.6

 

 
1,480.8

Non-current
929.7

 
0.8

 
(0.3
)
 
929.2

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current

 

 

 

Non-current
249.9

 
0.2

 
(0.5
)
 
250.2

Total marketable debt securities
$
3,700.9

 
$
2.3

 
$
(2.2
)
 
$
3,700.8

Marketable equity securities, non-current
$
25.7

 
$
0.9

 
$
(3.4
)
 
$
28.2

As of December 31, 2014 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Corporate debt securities
 
 
 
 
 
 
 
Current
$
370.4

 
$

 
$
(0.2
)
 
$
370.6

Non-current
692.6

 
0.2

 
(1.5
)
 
693.9

Government securities
 
 
 
 
 
 
 
Current
269.9

 

 
(0.1
)
 
270.0

Non-current
579.9

 
0.3

 
(0.4
)
 
580.0

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current
0.2

 

 

 
0.2

Non-current
198.1

 
0.2

 
(0.2
)
 
198.1

Total marketable debt securities
$
2,111.1

 
$
0.7

 
$
(2.4
)
 
$
2,112.8

Marketable equity securities, non-current
$
6.9

 
$
1.2

 
$
(0.2
)
 
$
5.9


18

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

The following table summarizes our financial assets with maturities of less than 90 days from the date of purchase included in cash and cash equivalents on the accompanying condensed consolidated balance sheet:
(In millions)
As of
September 30,
2015
 
As of
December 31,
2014
Commercial paper
$
21.4

 
$
54.2

Overnight reverse repurchase agreements
188.3

 
305.0

Money market funds
3,119.1

 
321.2

Short-term debt securities
475.4

 
35.9

Total
$
3,804.2

 
$
716.3

The carrying values of our commercial paper, including accrued interest, overnight reverse repurchase agreements, money market funds and our short-term debt securities approximate fair value due to their short term maturities. Our overnight reverse repurchase agreements are collateralized with agency-guaranteed mortgage securities and represent approximately 0.9% and 2.1% of total assets as of September 30, 2015 and December 31, 2014, respectively.
Summary of Contractual Maturities: Available-for-Sale Securities
The estimated fair value and amortized cost of our marketable debt securities classified as available-for-sale by contractual maturity are summarized as follows:
 
As of September 30, 2015
 
As of December 31, 2014
(In millions)
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
Due in one year or less
$
1,753.5

 
$
1,753.0

 
$
640.5

 
$
640.8

Due after one year through five years
1,820.1

 
1,820.3

 
1,343.7

 
1,345.2

Due after five years
127.3

 
127.5

 
126.9

 
126.8

Total available-for-sale securities
$
3,700.9

 
$
3,700.8

 
$
2,111.1

 
$
2,112.8

The average maturity of our marketable debt securities available-for-sale as of September 30, 2015 and December 31, 2014 was approximately 13 months and 15 months, respectively.
Proceeds from Marketable Debt Securities
The proceeds from maturities and sales of marketable debt securities and resulting realized gains and losses are summarized as follows:
 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
(In millions)
2015
 
2014
 
2015
 
2014
Proceeds from maturities and sales
$
2,387.9

 
$
625.4

 
$
3,363.4

 
$
1,942.9

Realized gains
$
0.7

 
$

 
$
1.3

 
$
0.4

Realized losses
$
(2.0
)
 
$
(0.1
)
 
$
(2.9
)
 
$
(0.3
)
Strategic Investments
As of September 30, 2015 and December 31, 2014, our strategic investment portfolio was comprised of investments totaling $68.4 million and $47.8 million, respectively, which are included in investments and other assets in our accompanying condensed consolidated balance sheets. Our strategic investment portfolio includes investments in equity securities of certain biotechnology companies and investments in venture capital funds where the underlying investments are in equity securities of biotechnology companies.

19

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

8.    Derivative Instruments
Foreign Currency Forward Contracts - Hedging Instruments
Due to the global nature of our operations, portions of our revenues are earned in currencies other than the U.S. dollar. The value of revenues measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. In order to mitigate these changes we use foreign currency forward contracts to lock in exchange rates associated with a portion of our forecasted international revenues.
Foreign currency forward contracts in effect as of September 30, 2015 and December 31, 2014 had durations of 1 to 15 months. These contracts have been designated as cash flow hedges and accordingly, to the extent effective, any unrealized gains or losses on these foreign currency forward contracts are reported in accumulated other comprehensive income (loss) (referred to as AOCI in the tables below). Realized gains and losses for the effective portion of such contracts are recognized in revenue when the sale of product in the currency being hedged is recognized. To the extent ineffective, hedge transaction gains and losses are reported in other income (expense), net.
The notional value of foreign currency forward contracts that were entered into to hedge forecasted revenues is summarized as follows:
 
Notional Amount
Foreign Currency: (In millions)
As of
September 30,
2015
 
As of
December 31,
2014
Euro
$
1,146.1

 
$
1,174.6

Canadian dollar
17.4

 
56.7

British pound sterling
12.0

 
34.5

Japanese yen
9.3

 
16.6

Australian dollar
5.4

 
19.9

Total foreign currency forward contracts
$
1,190.2

 
$
1,302.3

The portion of the fair value of these foreign currency forward contracts that was included in accumulated other comprehensive income (loss) in total equity reflected gains of $23.3 million and $72.1 million as of September 30, 2015 and December 31, 2014, respectively. We expect all contracts to be settled over the next 15 months and any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to revenue. We consider the impact of our and our counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its contractual obligations. As of September 30, 2015 and December 31, 2014, credit risk did not change the fair value of our foreign currency forward contracts.
The following table summarizes the effect of foreign currency forward contracts designated as hedging instruments on our condensed consolidated statements of income:
For the Three Months Ended September 30,
Net Gains/(Losses)
Reclassified from AOCI into Operating Income
(Effective Portion)
 
Net Gains/(Losses)
Recognized into Net Income
(Ineffective Portion)
Location
 
2015
 
2014
 
Location
 
2015
 
2014
Revenue
 
$
43.9

 
$
2.9

 
Other income (expense)
 
$
2.0

 
$
(0.5
)
For the Nine Months Ended September 30,
Net Gains/(Losses)
Reclassified from AOCI into Operating Income
(Effective Portion)
 
Net Gains/(Losses)
Recognized into Net Income
(Ineffective Portion)
Location
 
2015
 
2014
 
Location
 
2015
 
2014
Revenue
 
$
119.3

 
$
(7.1
)
 
Other income (expense)
 
$
5.4

 
$
(1.6
)

20

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

Interest Rate Contracts - Hedging Instruments
We may enter into interest rate lock contracts or interest rate swap contracts on certain borrowing transactions to manage our exposure to interest rate changes and to reduce our overall cost of borrowing.
Interest Rate Lock Contracts
During the three months ended September 30, 2015, we entered into treasury rate locks that were designated as cash flow hedges to hedge against changes in the 10-year and 30-year U.S. treasury interest rates that could have impacted our anticipated debt offering. In connection with the issuance of our 4.05% and 5.20% Senior Notes, as described in Note 10, Indebtedness, we settled the treasury rate locks and realized an $8.5 million gain. As the hedging relationship was effective, the gain was recorded in AOCI and will be recognized in other income (expense), net over the life of the 4.05% and 5.20% Senior Notes.
Interest Rate Swap Contracts
In connection with the issuance of our 2.90% Senior Notes, as described in Note 10, Indebtedness, we entered into interest rate swaps with an aggregate notional amount of $675.0 million, which expire on September 15, 2020. The interest rate swap contracts are designated as hedges of the fair value changes in the 2.90% Senior Notes attributable to changes in interest rates. Since the specific terms and notional amount of the swaps match the debt being hedged, it is assumed to be a highly effective hedge and all changes in the fair value of the swaps are recorded as a component of the 2.90% Senior Notes with no net impact recorded in income. Any net interest payments made or received on the interest rate swap contracts are recognized as a component of interest expense in our condensed consolidated statements of income.
Foreign Currency Forward Contracts - Other Derivatives
We also enter into other foreign currency forward contracts, usually with one month durations, to mitigate the foreign currency risk related to certain balance sheet positions. We have not elected hedge accounting for these transactions.
The aggregate notional amount of these outstanding foreign currency contracts was $787.2 million and $365.2 million as of September 30, 2015 and December 31, 2014, respectively. Net losses of $8.1 million and $4.2 million related to these contracts were recognized as a component of other income (expense), net, for three and nine months ended September 30, 2015, respectively, as compared to net losses of $7.7 million and $11.5 million, respectively, in the prior year comparative periods.

21

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

Summary of Derivatives
While certain of our derivatives are subject to netting arrangements with our counterparties, we do not offset derivative assets and liabilities in our condensed consolidated balance sheets.
The following table summarizes the fair value and presentation in our condensed consolidated balance sheets of our outstanding derivatives including those designated as hedging instruments:
(In millions)
Balance Sheet Location
Fair Value As of September 30, 2015
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
54.1

 
Investments and other assets
$
5.6

Liability derivatives
Accrued expenses and other
$
17.6

 
Other long-term liabilities
$
8.5

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
1.7

Liability derivatives
Accrued expenses and other
$
5.2

 
 
 
(In millions)
Balance Sheet Location
Fair Value As of December 31, 2014
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
69.5

 
Investments and other assets
$
1.9

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
1.3

Liability derivatives
Accrued expenses and other
$
5.4

9.    Property, Plant and Equipment
Property, plant and equipment are recorded at cost, net of accumulated depreciation. Accumulated depreciation on property, plant and equipment was $1,320.5 million and $1,186.4 million as of September 30, 2015 and December 31, 2014, respectively.
Research Triangle Park Facility Purchase
On August 24, 2015, we purchased from Eisai, Inc. (Eisai) its drug product manufacturing facility and supporting infrastructure in Research Triangle Park (RTP), North Carolina for $104.8 million. The purchase price consisted of the following:
(In millions)
 
Buildings
$
58.6

Machinery and equipment
25.9

Land
20.3

Total purchase price
$
104.8

On August 24, 2015, we also amended our existing 10 year lease related to Eisai's oral solid dose products manufacturing facility in RTP, North Carolina where we manufacture our and Eisai's oral solid dose products. As amended, the lease provides for a 3 year term and our agreement to purchase the facility upon expiration of the lease term and Eisai's completion of certain activities. Accordingly, we recorded the assets along with a corresponding financing obligation on our condensed consolidated balance sheet for $20.3 million, the net present value of the future minimum lease payments. The assets were recorded as a component of buildings and machinery and equipment. We expect to complete the purchase of the oral solid products manufacturing facility at the end of the lease term in the third quarter of 2018.

22

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

10.    Indebtedness
2015 Senior Notes
On September 15, 2015, we issued senior unsecured notes for an aggregate principal amount of $6.0 billion, consisting of the following:
$1.5 billion of 2.90% Senior Notes due September 15, 2020, valued at 99.792% of par;
$1.0 billion of 3.625% Senior Notes due September 15, 2022, valued at 99.920% of par;
$1.75 billion of 4.05% Senior Notes due September 15, 2025, valued at 99.764% of par; and
$1.75 billion of 5.20% Senior Notes due September 15, 2045, valued at 99.294% of par.
These notes are senior unsecured obligations and may be redeemed at our option at the greater of (1) 100% of the principal amount plus accrued and unpaid interest or (2) the sum of the present values of the remaining scheduled payments of interest and principal discounted to the date of redemption on a semi-annual basis at the treasury rate plus an incremental margin, plus, in either case, accrued and unpaid interest. The notes also contain a change of control provision that may require us to purchase the notes at a price equal to 101% of the principal amount plus accrued and unpaid interest to the date of purchase under certain circumstances.
The costs associated with this offering of approximately $47.5 million have been recorded as a reduction to the carrying amount of the debt on our condensed consolidated balance sheet. These costs will be amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. The discounts will be amortized as additional interest expense over the period from issuance through maturity using the effective interest rate method. Interest on the notes is payable March 15 and September 15 of each year.
Additionally, in connection with this offering, we entered into interest rate swaps. The carrying value of the 2.90% Senior Notes includes approximately $5.6 million related to changes in the fair value of the interest rate swaps. For additional information, please read Note 8, Derivative Instruments, to these condensed consolidated financial statements.
Credit Facility
In August 2015, we entered into a $1.0 billion senior unsecured revolving credit facility, under which we are permitted to draw funds for working capital and general corporate purposes for 5 years. The terms of the revolving credit facility include a financial covenant that requires us not to exceed a maximum consolidated leverage ratio. As of September 30, 2015, we had no outstanding borrowings and were in compliance with all covenants under this facility.
11.    Equity
Total equity as of September 30, 2015 decreased $247.1 million compared to December 31, 2014. Significant changes were as follows:
Additional paid in capital was reduced by share repurchases of $2,998.2 million, as described below, and activity under our share-based compensation arrangements totaling $144.4 million;
Other comprehensive losses of $97.9 million; and
Net income attributable to Biogen Inc. of $2,715.4 million.
Share Repurchases
In May 2015, our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2015 Share Repurchase Program). This authorization does not have an expiration date. Repurchased shares will be retired. The 2015 Share Repurchase Program is in addition to the approximately 1.3 million shares remaining under our February 2011 Share Repurchase Program (2011 Share Repurchase Program), which has been used principally to offset common stock issuances under our share-based compensation plans.

23

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

During the nine months ended September 30, 2015, we repurchased and retired approximately 9.7 million shares of common stock at a cost of $2,998.2 million under our 2015 Share Repurchase Program, which had the effect of reducing additional paid in capital by a similar amount. We did not repurchase any shares of common stock under our 2011 Share Repurchase Program. During the nine months ended September 30, 2014, we purchased approximately 1.2 million shares of common stock at a cost of $360.0 million under our 2011 Share Repurchase Program. As of September 30, 2015, additional paid in capital totaled approximately $1,342.4 million.
Noncontrolling Interests
The following table reconciles equity attributable to noncontrolling interests (NCI):
 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
(In millions)
2015
 
2014
 
2015
 
2014
NCI, beginning of period
$
0.4

 
$
3.9

 
$
5.0

 
$
0.6

Net income (loss) attributable to NCI, net of tax
53.9

 
(0.7
)
 
49.1

 
7.7

Fair value of net assets and liabilities acquired and assigned to NCI
0.2

 

 
0.1

 
4.0

Distribution to NCI
(60.0
)
 

 
(60.0
)
 
(9.1
)
Translation adjustment and other
(0.3
)
 

 

 

NCI, end of period
$
(5.8
)
 
$
3.2

 
$
(5.8
)
 
$
3.2

For the three and nine months ended September 30, 2015, net income (loss) attributable to NCI, net of tax, was related to a $60.0 million milestone payment made to Neurimmune SubOne AG. For additional information, please read Note 17, Investments in Variable Interest Entities, to these condensed consolidated financial statements.
12.    Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss), net of tax by component:
(In millions)
Unrealized Gains (Losses) on Securities Available for Sale
 
Unrealized Gains (Losses) on Cash Flow Hedges
 
Unfunded Status of Postretirement Benefit Plans
 
Translation Adjustments
 
Total
Balance, as of December 31, 2014
$
(0.4
)
 
$
71.7

 
$
(31.6
)
 
$
(99.2
)
 
$
(59.5
)
Other comprehensive income (loss) before reclassifications
(2.2
)
 
78.6

 
4.6

 
(61.3
)
 
19.7

Amounts reclassified from accumulated other comprehensive income (loss)
1.0

 
(118.7
)
 

 

 
(117.7
)
Net current period other comprehensive income (loss)
(1.2
)
 
(40.1
)
 
4.6

 
(61.3
)
 
(97.9
)
Balance, as of September 30, 2015
$
(1.6
)
 
$
31.6

 
$
(27.0
)
 
$
(160.5
)
 
$
(157.4
)

24

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

(In millions)
Unrealized Gains (Losses) on Securities Available for Sale
 
Unrealized Gains (Losses) on Cash Flow Hedges
 
Unfunded Status of Postretirement Benefit Plans
 
Translation Adjustments
 
Total
Balance, as of December 31, 2013
$
5.6

 
$
(23.7
)
 
$
(19.6
)
 
$
10.0

 
$
(27.7
)
Other comprehensive income (loss) before reclassifications
1.4

 
57.5

 
1.3

 
(71.2
)
 
(11.0
)
Amounts reclassified from accumulated other comprehensive income (loss)
(6.5
)
 
7.3

 

 

 
0.8

Net current period other comprehensive income (loss)
(5.1
)
 
64.8

 
1.3

 
(71.2
)
 
(10.2
)
Balance, as of September 30, 2014
$
0.5

 
$
41.1

 
$
(18.3
)
 
$
(61.2
)
 
$
(38.0
)
The following table summarizes the amounts reclassified from accumulated other comprehensive income:
(In millions)
Income Statement Location
Amounts Reclassified from Accumulated Other Comprehensive Income
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
2015
 
2014
 
2015
 
2014
Gains (losses) on securities available for sale
Other income (expense)
$
(1.3
)
 
$
(0.1
)
 
$
(1.6
)
 
$
10.1

 
Income tax benefit (expense)
0.5

 

 
0.6

 
(3.6
)
 
 
 
 
 
 
 
 
 
Gains (losses) on cash flow hedges
Revenues
43.9

 
2.9

 
119.3

 
(7.1
)
 
Other income (expense)

 

 

 

 
Income tax benefit (expense)
(0.2
)
 
(0.1
)
 
(0.6
)
 
(0.2
)
 
 
 
 
 
 
 
 
 
Total reclassifications, net of tax
 
$
42.9

 
$
2.7

 
$
117.7

 
$
(0.8
)
13.    Earnings per Share
Basic and diluted earnings per share are calculated as follows:
 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
(In millions)
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
 
 
Net income attributable to Biogen Inc.
$
965.6

 
$
856.9

 
$
2,715.4

 
$
2,051.3

Denominator:
 
 
 
 
 
 
 
Weighted average number of common shares outstanding
232.2

 
236.2

 
234.1

 
236.6

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

 
0.1

 
0.1

 
0.1

Time-vested restricted stock units
0.2

 
0.5

 
0.3

 
0.5

Market stock units
0.1

 
0.2

 
0.2

 
0.2

Dilutive potential common shares
0.4

 
0.8

 
0.6

 
0.8

Shares used in calculating diluted earnings per share
232.6

 
237.0

 
234.7

 
237.4


25

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

Amounts excluded from the calculation of net income per diluted share because their effects were anti-dilutive were not significant.
14.     Share-based Payments
Share-based Compensation Expense
The following table summarizes share-based compensation expense included in our condensed consolidated statements of income:
 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
(In millions)
2015
 
2014
 
2015
 
2014
Research and development
$
10.8

 
$
24.2

 
$
68.3

 
$
78.1

Selling, general and administrative
17.5

 
34.7

 
99.3

 
115.5

Subtotal
28.3

 
58.9

 
167.6

 
193.6

Capitalized share-based compensation costs
(2.8
)
 
(2.3
)
 
(8.4
)
 
(7.5
)
Share-based compensation expense included in total cost and expenses
25.5

 
56.6

 
159.2

 
186.1

Income tax effect
(6.4
)
 
(16.6
)
 
(46.0
)
 
(55.4
)
Share-based compensation expense included in net income attributable to Biogen Inc.
$
19.1

 
$
40.0

 
$
113.2

 
$
130.7

The following table summarizes share-based compensation expense associated with each of our share-based compensation programs:
 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
(In millions)
2015
 
2014
 
2015
 
2014
Market stock units
$
7.3

 
$
7.1

 
$
33.4

 
30.2

Time-vested restricted stock units
30.4

 
28.2

 
94.1

 
86.6

Cash settled performance units
(9.5
)
 
15.2

 
17.5

 
50.6

Performance units
(2.8
)
 
5.7

 
11.6

 
16.0

Employee stock purchase plan
2.9

 
2.7

 
11.0

 
10.2

Subtotal
28.3

 
58.9

 
167.6

 
193.6

Capitalized share-based compensation costs
(2.8
)
 
(2.3
)
 
(8.4
)
 
(7.5
)
Share-based compensation expense included in total cost and expenses
$
25.5

 
$
56.6

 
$
159.2

 
$
186.1

We estimate the fair value of our obligations associated with our performance and cash settled performance units at the end of each reporting period through expected settlement. Cumulative adjustments to these obligations are recorded each quarter to reflect changes in the stock price and estimated outcome of the performance-related conditions. 
Grants Under Share-based Compensation Plans
The following table summarizes our equity grants to employees, officers and directors under our current stock plans:
 
For the Nine Months
Ended September 30,
 
2015
 
2014
Market stock units
181,000

 
236,000

Cash settled performance shares
115,000

 
182,000

Performance units
89,000

 
57,000

Time-vested restricted stock units
393,000

 
437,000


26

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

Employee Stock Purchase Plan (ESPP)
In June 2015, our stockholders approved the Biogen Inc. 2015 Employee Stock Purchase Plan (ESPP). The ESPP, which became effective on July 1, 2015, replaced the Biogen Idec Inc. 1995 ESPP (1995 ESPP), which expired on June 30, 2015. The maximum aggregate number of shares of our common stock that may be purchased under the ESPP is 6,200,000.
For the nine months ended September 30, 2015, approximately 98,000 and 43,000 shares were issued under our 1995 ESPP and 2015 ESPP, respectively, compared to approximately 150,000 shares issued under our 1995 ESPP in the prior year comparative period.
15.    Income Taxes
A reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:
 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
 
2015
 
2014
 
2015
 
2014
Statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
 
35.0
 %
State taxes
1.2

 
1.2

 
0.5

 
1.2

Taxes on foreign earnings
(10.7
)
 
(9.3
)
 
(10.1
)
 
(8.9
)
Credits and net operating loss utilization
(1.1
)
 
(0.6
)
 
(0.9
)
 
(0.8
)
Purchased intangible assets
1.5