10-Q 1 biib-2016630x10q.htm 10-Q Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
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 July 15, 2016, was 219,120,762 shares.
 



BIOGEN INC.
FORM 10-Q — Quarterly Report
For the Quarterly Period Ended June 30, 2016
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certain totals may not sum due to rounding.
 
 
 
 
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 selling, general and administrative expenses, amortization of intangible assets, foreign currency exchange risk, estimated fair value of assets and liabilities and impairment assessments;
expectations, plans and prospects relating to sales, pricing, growth and launch of our marketed and pipeline products;
the potential impact of increased product competition in the markets in which we compete;
the proposed spin off of our hemophilia business, including the completion and timing of the spin off and its anticipated benefits, costs and tax treatment;
the costs and timing of potential clinical trials, filing and approvals, and the potential therapeutic scope of the development and commercialization of our and our collaborators’ pipeline products;
the drivers for growing our business, including our plans and intent to commit resources relating to research and development programs;
our manufacturing capacity, use of third-party contract manufacturing organizations and plans and timing relating to the expansion of our manufacturing capabilities, including investments and activities in new manufacturing facilities;
the expected financial impact of ceasing manufacturing activities and fully or partially vacating our biologics manufacturing facility in Cambridge, MA and warehouse space in Somerville, MA;
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 on our results of operations and liquidity of the United Kingdom's (U.K.'s) intent to voluntarily depart from the European Union (E.U.);
the potential impact of healthcare reform in the United States (U.S.) and measures being taken worldwide designed to reduce healthcare costs to constrain the overall level of government expenditures, including the impact of pricing actions and reduced reimbursement for our products;
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;
lease commitments, purchase obligations and the timing and satisfaction of other contractual obligations;
potential costs and expenses incurred to execute business transformation and optimization initiatives;
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. Except as required by law, 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. 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). References to "ELOCTATE" refer to both ELOCTATE (the trade name for Antihemophilic Factor (Recombinant), Fc Fusion Protein in the U.S., Canada and Japan) and ELOCTA (the trade name for Antihemophilic Factor (Recombinant), Fc Fusion Protein in the E.U.).
NOTE REGARDING TRADEMARKS
ALPROLIX®, AVONEX®, BENEPALI®, ELOCTATE®, FLIXABI®, PLEGRIDY®, RITUXAN®, TECFIDERA® and TYSABRI® are registered trademarks of Biogen. FUMADERMTM and ZINBRYTATM are trademarks of Biogen. ENBREL®, GAZYVA®, HUMIRA®, REMICADE® and other trademarks referenced in this report are the property of their respective owners.

4


PART I FINANCIAL INFORMATION

BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share amounts)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Product, net
$
2,466.0

 
$
2,198.6

 
$
4,775.4

 
$
4,370.9

Revenues from anti-CD20 therapeutic programs
349.2

 
337.5

 
678.7

 
668.1

Other
79.0

 
55.6

 
166.9

 
107.6

Total revenues
2,894.2

 
2,591.6

 
5,621.0

 
5,146.6

Cost and expenses:
 
 
 
 
 
 
 
Cost of sales, excluding amortization of acquired intangible assets
370.3

 
286.1

 
683.3

 
598.6

Research and development
473.1

 
490.7

 
910.4

 
951.3

Selling, general and administrative
492.4

 
491.9

 
989.7

 
1,052.3

Amortization of acquired intangible assets
92.9

 
92.0

 
181.7

 
187.9

(Gain) loss on fair value remeasurement of contingent consideration
10.6

 
(2.2
)
 
12.9

 
5.6

Restructuring charges

 

 
9.7

 

Collaboration profit (loss) sharing
(5.6
)
 

 
(5.6
)
 

Total cost and expenses
1,433.7

 
1,358.5

 
2,782.1

 
2,795.6

Income from operations
1,460.5

 
1,233.1

 
2,838.9

 
2,351.0

Other income (expense), net
(58.5
)
 
(10.9
)
 
(111.3
)
 
(25.9
)
Income before income tax expense and equity in loss of investee, net of tax
1,402.0

 
1,222.2

 
2,727.6

 
2,325.1

Income tax expense
353.6

 
292.5

 
710.0

 
574.4

Equity in loss of investee, net of tax

 
4.9

 

 
5.7

Net income
1,048.4

 
924.8

 
2,017.6

 
1,745.0

Net income (loss) attributable to noncontrolling interests, net of tax
(1.4
)
 
(2.5
)
 
(3.1
)
 
(4.8
)
Net income attributable to Biogen Inc.
$
1,049.8

 
$
927.3

 
$
2,020.7

 
$
1,749.8

Net income per share:
 
 
 
 
 
 
 
Basic earnings per share attributable to Biogen Inc.
$
4.79

 
$
3.94

 
$
9.23

 
$
7.44

Diluted earnings per share attributable to Biogen Inc.
$
4.79

 
$
3.93

 
$
9.21

 
$
7.42

Weighted-average shares used in calculating:
 
 
 
 
 
 
 
Basic earnings per share attributable to Biogen Inc.
219.1

 
235.3

 
219.0

 
235.1

Diluted earnings per share attributable to Biogen Inc.
219.4

 
235.7

 
219.3

 
235.7








See accompanying notes to these unaudited condensed consolidated financial statements.

5


BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net income attributable to Biogen Inc.
$
1,049.8

 
$
927.3

 
$
2,020.7

 
$
1,749.8

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities available for sale, net of tax
4.5

 
(0.2
)
 
7.0

 
1.1

Unrealized gains (losses) on cash flow hedges, net of tax
29.3

 
(96.2
)
 
(18.3
)
 
(8.9
)
Unrealized gains (losses) on pension benefit obligation
0.7

 
2.9

 
0.9

 
4.1

Currency translation adjustment
(58.0
)
 
63.0

 
(48.4
)
 
(37.8
)
Total other comprehensive income (loss), net of tax
(23.5
)
 
(30.5
)
 
(58.8
)
 
(41.5
)
Comprehensive income attributable to Biogen Inc.
1,026.3

 
896.8

 
1,961.9

 
1,708.3

Comprehensive income (loss) attributable to noncontrolling interests, net of tax
(1.4
)
 
(2.3
)
 
(3.1
)
 
(4.5
)
Comprehensive income
$
1,024.9

 
$
894.5

 
$
1,958.8

 
$
1,703.7




































See accompanying notes to these unaudited condensed consolidated financial statements.

6


BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share amounts)
 
 
As of June 30,
2016
 
As of December 31,
2015
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
1,362.0

 
$
1,308.0

Marketable securities
2,434.8

 
2,120.5

Accounts receivable, net
1,293.0

 
1,227.0

Due from anti-CD20 therapeutic programs
334.1

 
314.5

Inventory
996.4

 
893.4

Other current assets
1,027.4

 
836.9

Total current assets
7,447.7

 
6,700.3

Marketable securities
3,477.6

 
2,760.4

Property, plant and equipment, net
2,301.8

 
2,187.6

Intangible assets, net
3,967.6

 
4,085.1

Goodwill
3,167.1

 
2,663.8

Investments and other assets
1,153.0

 
1,107.6

Total assets
$
21,514.8

 
$
19,504.8

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Current portion of notes payable and other financing arrangements
$
4.8

 
$
4.8

Taxes payable
212.8

 
208.7

Accounts payable
225.9

 
267.4

Accrued expenses and other
2,072.7

 
2,096.8

Total current liabilities
2,516.2

 
2,577.7

Notes payable and other financing arrangements
6,538.3

 
6,521.5

Long-term deferred tax liability
105.6

 
124.9

Other long-term liabilities
951.0

 
905.8

Total liabilities
10,111.1

 
10,129.9

Commitments and contingencies


 


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

 

Common stock, par value $0.0005 per share
0.1

 
0.1

Additional paid-in capital
69.1

 

Accumulated other comprehensive loss
(282.8
)
 
(224.0
)
Retained earnings
14,229.1

 
12,208.4

Treasury stock, at cost
(2,611.7
)
 
(2,611.7
)
Total Biogen Inc. shareholders’ equity
11,403.8

 
9,372.8

Noncontrolling interests
(0.1
)
 
2.1

Total equity
11,403.7

 
9,374.9

Total liabilities and equity
$
21,514.8

 
$
19,504.8



See accompanying notes to these unaudited condensed consolidated financial statements.

7


BIOGEN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
 
 
For the Six Months
Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
2,017.6

 
$
1,745.0

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
325.1

 
292.5

Share-based compensation
84.1

 
93.7

Deferred income taxes
(30.2
)
 
(90.6
)
Other
19.8

 
(5.8
)
Changes in operating assets and liabilities, net:
 
 
 
Accounts receivable
(65.0
)
 
(38.9
)
Inventory
(128.3
)
 
(81.3
)
Accrued expenses and other current liabilities
(162.3
)
 
(169.9
)
Current taxes payable
(151.7
)
 
102.0

Other changes in operating assets and liabilities, net
50.1

 
(66.4
)
Net cash flows provided by operating activities
1,959.2

 
1,780.3

Cash flows from investing activities:
 
 
 
Proceeds from sales and maturities of marketable securities
2,823.6

 
975.5

Purchases of marketable securities
(3,833.3
)
 
(2,045.0
)
Acquisitions of business, net of cash acquired

 
(198.8
)
Purchases of property, plant and equipment
(263.7
)
 
(227.7
)
Contingent consideration related to Fumapharm AG acquisition
(600.0
)
 
(250.0
)
Other
(65.9
)
 
(10.1
)
Net cash flows used in investing activities
(1,939.3
)
 
(1,756.1
)
Cash flows from financing activities:
 
 
 
Purchase of treasury stock

 
(42.2
)
Proceeds from issuance of stock for share-based compensation arrangements
23.9

 
34.7

Excess tax benefit from share-based awards
9.0

 
69.7

Other
1.1

 
15.0

Net cash flows provided by financing activities
34.0

 
77.2

Net increase in cash and cash equivalents
53.9

 
101.4

Effect of exchange rate changes on cash and cash equivalents
0.1

 
(24.2
)
Cash and cash equivalents, beginning of the period
1,308.0

 
1,204.9

Cash and cash equivalents, end of the period
$
1,362.0

 
$
1,282.1













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 to patients for the treatment of neurological diseases, autoimmune disorders and rare diseases.
Our marketed products include TECFIDERA, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for multiple sclerosis (MS), ELOCTATE for hemophilia A and ALPROLIX for hemophilia B and FUMADERM for the treatment of severe plaque psoriasis. We also have a collaboration agreement with Genentech, Inc. (Genentech), a wholly-owned member of the Roche Group, which entitles us to certain business and financial rights with respect to RITUXAN for the treatment of non-Hodgkin's lymphoma, chronic lymphocytic leukemia (CLL) and other conditions, GAZYVA indicated for the treatment of CLL and follicular lymphoma, and other potential anti-CD20 therapies.
In addition to our innovative drug development efforts, we aim to leverage our manufacturing capabilities and scientific expertise through Samsung Bioepis, our joint venture with Samsung BioLogics Co. Ltd. (Samsung Biologics) that develops, manufactures and markets biosimilars as well as through other strategic contract manufacturing partners. Under our commercial agreement with Samsung Bioepis, we market and sell BENEPALI, an etanercept biosimilar referencing ENBREL, and FLIXABI, an infliximab biosimilar referencing REMICADE, in the European Union (E.U.).
In May 2016, we announced our intention to spin off our hemophilia business as an independent, publicly traded company. The new company will focus on the discovery and development of therapies for the treatment of hemophilia and other blood disorders, with existing marketed products ELOCTATE and ALPROLIX. The transaction is expected to be completed in early 2017, subject to the satisfaction of certain conditions, including, among others, final approval of our Board of Directors, receipt of a favorable opinion with respect to the tax-free nature of the transaction and the effectiveness of a Form 10 registration statement that will be filed with the Securities and Exchange Commission. The results of our hemophilia business will be included in our condensed consolidated financial statements until the transaction is completed.
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 statement 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, 2015 (2015 Form 10-K). Our accounting policies are described in the “Notes to Consolidated Financial Statements” in our 2015 Form 10-K and updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three and six months ended June 30, 2016, are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
We operate as one operating segment, which is discovering, developing, manufacturing and delivering therapies to patients for the treatment of neurological diseases, autoimmune disorders and rare diseases.
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.

9

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

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.
 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 we believe 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.
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 Accounting Standards Update (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. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies certain aspects of identifying performance obligations and licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on collectibility, non-cash consideration and the presentation of sales and other similar taxes collected from customers. These standards have the same effective date and transition date of January 1, 2018. We are currently evaluating the method of adoption and the potential impact that these standards may have on our financial position and results of operations.
During 2015, the FASB issued the following new standards, which we adopted on January 1, 2016:
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.
ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory.
ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.
The adoption of these standards did not have an impact on our financial position or results of operations. For additional information related to these standards, please read Note 1, Summary of Significant Accounting Policies: New Accounting Pronouncements to our consolidated financial statements included in our 2015 Form 10-K.

10

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

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new standard amends certain aspects of accounting and disclosure requirements of financial instruments, including the requirement that equity investments with readily determinable fair values be measured at fair value with changes in fair value recognized in our results of operations. The new standard does not apply to investments accounted for under the equity method of accounting or those that result in consolidation of the investee. Equity investments that do not have readily determinable fair values may be measured at fair value or at cost minus impairment adjusted for changes in observable prices. A financial liability that is measured at fair value in accordance with the fair value option is required to be presented separately in other comprehensive income for the portion of the total change in the fair value resulting from change in the instrument-specific credit risk. In addition, a valuation allowance should be evaluated on deferred tax assets related to available-for-sale debt securities in combination with other deferred tax assets. The new standard will be effective for us on January 1, 2018. The adoption of this standard is not expected to have a material impact on our financial position or results of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for us on January 1, 2019. The adoption of this standard is not expected to have a material impact on our net financial position, but will impact our assets and liabilities. We are currently evaluating the potential impact that this standard may have on our results of operations.
In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The new standard simplifies the embedded derivative analysis for debt instruments containing contingent call or put options by removing the requirement to assess whether a contingent event is related to interest rates or credit risks. 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 March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The new standard eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an adjustment must be made to the investment, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The new standard will be effective for us on January 1, 2017. The adoption of this standard is not expected to have a material impact on our financial position or results of operations.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard requires recognition of the income tax effects of vested or settled awards in the income statement and involves several other aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The new standard will be effective for us on January 1, 2017. This standard is not expected to have a material impact on our financial position, results of operations or statements of cash flows upon adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holding financial assets and net investment in leases that are not accounted for at fair value through net income to be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The new standard will be effective for us on January 1, 2020. The adoption of this standard is not expected to have a material impact on our financial position or results of operations.

11

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

2.    Restructuring
On October 21, 2015, we announced a corporate restructuring, which included the termination of certain pipeline programs and an 11% reduction in workforce. Under this restructuring, cash payments will total approximately $120 million, of which $15.9 million were related to previously accrued 2015 incentive compensation, resulting in net expected restructuring charges totaling approximately $105 million. These amounts will be substantially paid by the end of 2016.
For the three and six months ended June 30, 2016, we recognized restructuring charges totaling $0.0 million and $9.7 million, respectively. We previously recognized $93.4 million of restructuring charges in our consolidated statements of income during the fourth quarter of 2015. Our restructuring reserve is included in accrued expenses and other in our condensed consolidated balance sheets.
The following table summarizes the charges and spending related to our restructuring efforts during the six months ended June 30, 2016:
(In millions)
Workforce
Reduction
 
Pipeline
Programs
 
Total
Restructuring reserve as of December 31, 2015
$
33.7

 
$
3.6

 
$
37.3

Expense
4.9

 
5.4

 
10.3

Payments
(28.7
)
 
(6.0
)
 
(34.7
)
Adjustments to previous estimates, net
(3.5
)
 
2.9

 
(0.6
)
Restructuring reserve as of June 30, 2016
$
6.4

 
$
5.9

 
$
12.3

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, 2015
$
56.1

 
$
548.7

 
$
57.9

 
$
662.7

Current provisions relating to sales in current year
266.8

 
973.8

 
17.6

 
1,258.2

Adjustments relating to prior years
(2.4
)
 
1.6

 
(5.5
)
 
(6.3
)
Payments/credits relating to sales in current year
(210.2
)
 
(605.1
)
 
(0.7
)
 
(816.0
)
Payments/credits relating to sales in prior years
(51.5
)
 
(384.9
)
 
(10.4
)
 
(446.8
)
Balance, as of June 30, 2016
$
58.8

 
$
534.1

 
$
58.9

 
$
651.8

The total reserves above, included in our condensed consolidated balance sheets, are summarized as follows:
(In millions)
As of
June 30,
2016
 
As of
December 31,
2015
Reduction of accounts receivable
$
161.3

 
$
144.6

Component of accrued expenses and other
490.5

 
518.1

Total reserves
$
651.8

 
$
662.7


12

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

4.    Inventory
The components of inventory are summarized as follows:
(In millions)
As of
June 30,
2016
 
As of
December 31,
2015
Raw materials
$
235.0

 
$
213.0

Work in process
654.6

 
577.6

Finished goods
139.1

 
143.0

Total inventory
$
1,028.7

 
$
933.6

 
 
 
 
Balance Sheet Classification:
 
 
 
Inventory
$
996.4

 
$
893.4

Investments and other assets
32.3

 
40.2

Total inventory
$
1,028.7

 
$
933.6

Inventory included in investments and other assets in our condensed consolidated balance sheets primarily consisted of work in process.
As of December 31, 2015, our inventory included $24.7 million associated with our ZINBRYTA program, $24.2 million associated with the FLIXABI program and $18.4 million associated with the BENEPALI program, which had been capitalized in advance of regulatory approval. The European Commission (EC) approved the marketing authorization applications for BENEPALI and FLIXABI, two anti-tumor necrosis factor (TNF) biosimilars, for marketing in the E.U. in January 2016 and May 2016, respectively, and the U.S. Food and Drug Administration (FDA) approved ZINBRYTA for the treatment of relapsing forms of MS in the U.S. in May 2016.
5.    Intangible Assets and Goodwill
Intangible Assets
Intangible assets, net of accumulated amortization, impairment charges and adjustments, are summarized as follows:
 
 
 
As of June 30, 2016
 
As of December 31, 2015
(In millions)
Estimated
Life
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
Out-licensed patents
13-23 years
 
$
543.3

 
$
(514.9
)
 
$
28.4

 
$
543.3

 
$
(506.0
)
 
$
37.3

Developed 
technology
15-23 years
 
3,005.3

 
(2,604.5
)
 
400.8

 
3,005.3

 
(2,552.9
)
 
452.4

In-process research and development
Indefinite until commercialization
 
692.3

 

 
692.3

 
730.5

 

 
730.5

Trademarks and 
tradenames
Indefinite
 
64.0

 

 
64.0

 
64.0

 

 
64.0

Acquired and in-licensed rights 
and patents
6-18 years
 
3,405.4

 
(623.3
)
 
2,782.1

 
3,303.2

 
(502.3
)
 
2,800.9

Total intangible assets
 
 
$
7,710.3

 
$
(3,742.7
)
 
$
3,967.6

 
$
7,646.3

 
$
(3,561.2
)
 
$
4,085.1

For the three and six months ended June 30, 2016, amortization of acquired intangible assets totaled $92.9 million and $181.7 million, respectively, as compared to $92.0 million and $187.9 million, respectively, in the prior year comparative periods. In-process research and development amounts include adjustments for foreign exchange rate fluctuations.

13

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

Developed Technology
Developed technology primarily relates to our AVONEX product, which was recorded in connection with the merger of Biogen, Inc. and IDEC Pharmaceuticals Corporation in 2003. The net book value of this asset as of June 30, 2016 was $392.8 million.
Acquired and In-licensed Rights and Patents
Acquired and in-licensed rights and patents primarily relate to our acquisition of all remaining rights to TYSABRI from Elan Corporation plc (Elan). The net book value of this asset as of June 30, 2016 was $2,633.4 million.
The increase in acquired and in-licensed rights and patents during the six months ended June 30, 2016, primarily reflects:
$50.0 million in total milestone payments due to Samsung Bioepis, which became payable upon the approval of BENEPALI and FLIXABI in the E.U. in January 2016 and May 2016, respectively;
$20.0 million milestone payment due to AbbVie Biotherapeutics, Inc. (AbbVie), which became payable upon the regulatory approval of ZINBRYTA in the U.S. in May 2016; and
$26.5 million upon the approval of ALPROLIX in the E.U. in May 2016, which is comprised of a $20.0 million contingent payment due to the former owners of Syntonix Pharmaceuticals, Inc. (Syntonix) and $6.5 million related to the establishment of a corresponding deferred tax liability.
For additional information on our relationship with Samsung Bioepis, please read Note 17, Collaborative and Other Relationships to these condensed consolidated financial statements. For additional information on our relationship with Syntonix, please read Note 21, Commitments and Contingencies to our consolidated financial statements included in our 2015 Form 10-K. For additional information on our relationship with AbbVie, please read Note 19, Collaborative and Other Relationships to our consolidated financial statements included in our 2015 Form 10-K.
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 completed in the third quarter of 2015. Based upon this analysis, the estimated future amortization of acquired intangible assets for the next five years is expected to be as follows:
(In millions)
As of
June 30,
2016
2016 (remaining six months)
$
181.6

2017
325.1

2018
298.2

2019
282.7

2020
277.1

2021
265.0


14

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

Goodwill
The following table provides a roll forward of the changes in our goodwill balance:
(In millions)
As of
June 30,
2016
Goodwill, beginning of period
$
2,663.8

Increase to goodwill
515.0

Other
(11.7
)
Goodwill, end of period
$
3,167.1

The increase in goodwill during the six months ended June 30, 2016 was related to $600.0 million in contingent milestones achieved (exclusive of $85.0 million in tax benefits) and payable to the former shareholders of Fumapharm AG or holders of their rights. Other includes changes in foreign exchange rates. For additional information related to future contingent payments to the former shareholders of Fumapharm AG or holders of their rights, please read Note 19, Commitments and Contingencies to these condensed consolidated financial statements.
As of June 30, 2016, we had no accumulated impairment losses related to goodwill.
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 June 30, 2016 (In millions)
Total
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
874.6

 
$

 
$
874.6

 
$

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
2,290.3

 

 
2,290.3

 

Government securities
2,973.4

 

 
2,973.4

 

Mortgage and other asset backed securities
648.7

 

 
648.7

 

Marketable equity securities
32.4

 
32.4

 

 

Derivative contracts
30.1

 

 
30.1

 

Plan assets for deferred compensation
35.6

 

 
35.6

 

Total
$
6,885.1

 
$
32.4

 
$
6,852.7

 
$

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
24.8

 
$

 
$
24.8

 
$

Contingent consideration obligations
515.7

 

 

 
515.7

Total
$
540.5

 
$

 
$
24.8

 
$
515.7


15

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

As of December 31, 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
$
909.5

 
$

 
$
909.5

 
$

Marketable debt securities:
 
 
 
 
 
 
 
Corporate debt securities
1,510.9

 

 
1,510.9

 

Government securities
2,875.9

 

 
2,875.9

 

Mortgage and other asset backed securities
494.1

 

 
494.1

 

Marketable equity securities
37.5

 
37.5

 

 

Derivative contracts
27.2

 

 
27.2

 

Plan assets for deferred compensation
40.1

 

 
40.1

 

Total
$
5,895.2

 
$
37.5

 
$
5,857.7

 
$

Liabilities:
 
 
 
 
 
 
 
Derivative contracts
$
14.7

 
$

 
$
14.7

 
$

Contingent consideration obligations
506.0

 

 

 
506.0

Total
$
520.7

 
$

 
$
14.7

 
$
506.0

There have been no material impairments of our assets measured and carried at fair value during the three and six months ended June 30, 2016. In addition, there were no changes in valuation techniques or inputs utilized or transfers between fair value measurement levels during the three and six months ended June 30, 2016. The fair values of Level 2 instruments classified as cash equivalents and marketable debt securities were determined through third party pricing services. For a description of our validation procedures related to prices provided by third party pricing services, refer to Note 1, Summary of Significant Accounting Policies: Fair Value Measurements, to our consolidated financial statements included in our 2015 Form 10-K.
Debt Instruments
The fair and carrying values of our debt instruments, which are Level 2 liabilities, are summarized as follows:
 
As of June 30, 2016
 
As of December 31, 2015
(In millions)
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
Notes payable to Fumedica
$
6.4

 
$
6.1

 
$
9.4

 
$
9.0

6.875% Senior Notes due March 1, 2018
598.2

 
561.9

 
602.6

 
565.3

2.900% Senior Notes due September 15, 2020
1,561.7

 
1,507.9

 
1,497.5

 
1,485.5

3.625% Senior Notes due September 15, 2022
1,061.0

 
992.7

 
1,014.2

 
992.2

4.050% Senior Notes due September 15, 2025
1,887.3

 
1,734.1

 
1,764.6

 
1,733.4

5.200% Senior Notes due September 15, 2045
1,996.3

 
1,721.3

 
1,757.6

 
1,721.1

Total
$
7,110.9

 
$
6,524.0

 
$
6,645.9

 
$
6,506.5

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. For additional information related to our debt instruments, please read Note 11, Indebtedness to our consolidated financial statements included in our 2015 Form 10-K.

16

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

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 June 30,
 
For the Six Months
Ended June 30,
(In millions)
2016
 
2015
 
2016
 
2015
Fair value, beginning of period
$
508.3

 
$
461.8

 
$
506.0

 
$
215.5

Additions

 
36.0

 

 
274.5

Changes in fair value
10.6

 
(2.2
)
 
12.9

 
5.6

Payments
(3.2
)
 

 
(3.2
)
 

Fair value, end of period
$
515.7

 
$
495.6

 
$
515.7

 
$
495.6

As of June 30, 2016 and December 31, 2015, approximately $304.0 million and $301.3 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.
7.    Financial Instruments
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
June 30,
2016
 
As of
December 31,
2015
Commercial paper
$
56.9

 
$
21.9

Overnight reverse repurchase agreements
66.3

 
134.7

Money market funds
531.5

 
673.8

Short-term debt securities
219.9

 
79.1

Total
$
874.6

 
$
909.5

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-backed securities and represent approximately 0.3% and 0.7% of total assets as of June 30, 2016 and December 31, 2015, respectively.
The following tables summarize our marketable debt and equity securities, classified as available-for-sale:
As of June 30, 2016 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Corporate debt securities
 
 
 
 
 
 
 
Current
$
913.4

 
$
0.3

 
$
(0.2
)
 
$
913.3

Non-current
1,376.9

 
7.8

 
(0.4
)
 
1,369.5

Government securities
 
 
 
 
 
 
 
Current
1,521.3

 
0.6

 

 
1,520.7

Non-current
1,452.1

 
3.1

 
(0.6
)
 
1,449.6

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current
0.1

 

 

 
0.1

Non-current
648.6

 
1.4

 
(0.9
)
 
648.1

Total marketable debt securities
$
5,912.4

 
$
13.2

 
$
(2.1
)
 
$
5,901.3

Marketable equity securities, non-current
$
32.4

 
$
0.9

 
$
(2.1
)
 
$
33.6


17

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

As of December 31, 2015 (In millions)
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Amortized
Cost
Corporate debt securities
 
 
 
 
 
 
 
Current
$
394.3

 
$

 
$
(0.5
)
 
$
394.8

Non-current
1,116.6

 
0.1

 
(4.1
)
 
1,120.6

Government securities
 
 
 
 
 
 
 
Current
1,723.4

 
0.1

 
(1.1
)
 
1,724.4

Non-current
1,152.5

 

 
(3.1
)
 
1,155.6

Mortgage and other asset backed securities
 
 
 
 
 
 
 
Current
2.8

 

 

 
2.8

Non-current
491.3

 
0.1

 
(1.8
)
 
493.0

Total marketable debt securities
$
4,880.9

 
$
0.3

 
$
(10.6
)
 
$
4,891.2

Marketable equity securities, non-current
$
37.5

 
$
9.2

 
$

 
$
28.3

Summary of Contractual Maturities: Available-for-Sale Securities
The estimated fair value and amortized cost of our marketable debt securities available-for-sale by contractual maturity are summarized as follows:
 
As of June 30, 2016
 
As of December 31, 2015
(In millions)
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
Due in one year or less
$
2,434.8

 
$
2,434.1

 
$
2,120.5

 
$
2,122.0

Due after one year through five years
3,255.9

 
3,245.4

 
2,575.9

 
2,583.9

Due after five years
221.7

 
221.8

 
184.5

 
185.3

Total available-for-sale securities
$
5,912.4

 
$
5,901.3

 
$
4,880.9

 
$
4,891.2

The average maturity of our marketable debt securities available-for-sale as of June 30, 2016 and December 31, 2015 was approximately 13 months and 16 months, respectively.
Proceeds from Marketable Debt Securities
The proceeds from maturities and sales of marketable debt securities and resulting realized gains and losses are summarized as follows:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2016
 
2015
 
2016
 
2015
Proceeds from maturities and sales
$
1,642.5

 
$
601.9

 
$
2,823.6

 
$
975.5

Realized gains
$
0.6

 
$
0.3

 
$
1.0

 
$
0.5

Realized losses
$
(1.2
)
 
$
(0.5
)
 
$
(1.6
)
 
$
(0.8
)
Strategic Investments
As of June 30, 2016 and December 31, 2015, our strategic investment portfolio was comprised of investments totaling $98.3 million and $96.0 million, respectively, which are included in investments and other assets in our 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.

18

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 and operating expenses are recorded in currencies other than the U.S. dollar. The value of revenues and operating expenses 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 and operating expenses.
Foreign currency forward contracts in effect as of June 30, 2016 and December 31, 2015 had durations of 1 to 18 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 and, beginning in the fourth quarter 2015, in operating expenses when the expense in the currency being hedged is recorded. 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 and operating expenses is summarized as follows:
 
Notional Amount
Foreign Currency: (In millions)
As of
June 30,
2016
 
As of
December 31,
2015
Euro
$
1,126.5

 
$
945.5

Swiss francs
43.5

 
80.8

Canadian dollar
39.9

 
76.7

Total foreign currency forward contracts
$
1,209.9

 
$
1,103.0

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 net losses of $16.4 million and net gains of $1.8 million as of June 30, 2016 and December 31, 2015, respectively. We expect all contracts to be settled over the next 18 months and any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to revenue or operating expense. We consider the impact of our and our counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its contractual obligations. As of June 30, 2016 and December 31, 2015, credit risk did not change the fair value of our foreign currency forward contracts.
The following tables summarize the effect of foreign currency forward contracts designated as hedging instruments on our condensed consolidated statements of income:
For the Three Months Ended June 30,
Net Gains/(Losses)
Reclassified from AOCI into Operating Income
(Effective Portion)
 
Net Gains/(Losses)
Recognized into Net Income
(Ineffective Portion)
Location
 
2016
 
2015
 
Location
 
2016
 
2015
Revenue
 
$
(4.3
)
 
$
40.4

 
Other income (expense)
 
$
2.1

 
$
1.2

Operating expenses
 
$
(0.1
)
 
$

 
Other income (expense)
 
$

 
$


19

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

For the Six Months Ended June 30,
Net Gains/(Losses)
Reclassified from AOCI into Operating Income
(Effective Portion)
 
Net Gains/(Losses)
Recognized into Net Income
(Ineffective Portion)
Location
 
2016
 
2015
 
Location
 
2016
 
2015
Revenue
 
$
4.5

 
$
75.4

 
Other income (expense)
 
$
4.0

 
$
3.4

Operating expenses
 
$
(0.2
)
 
$

 
Other income (expense)
 
$
(0.3
)
 
$

Interest Rate Contracts - Hedging Instruments
We have entered into interest rate swap contracts on certain borrowing transactions to manage our exposure to interest rate changes.
In connection with the issuance of our 2.90% Senior Notes, 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 durations of one month or less, 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 $557.2 million and $721.0 million as of June 30, 2016 and December 31, 2015, respectively. Net losses of $18.6 million and $16.2 million related to these contracts were recognized as a component of other income (expense), net, for three and six months ended June 30, 2016, respectively, as compared to net gains of $13.6 million and $3.9 million, respectively, in the prior year comparative periods.

20

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:
 
 
Fair Value
(In millions)
Balance Sheet Location
As of June 30, 2016
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
2.0

 
Investments and other assets
$
23.6

Liability derivatives
Accrued expenses and other
$
14.8

 
Other long-term liabilities
$

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
4.5

Liability derivatives
Accrued expenses and other
$
10.0

 
 
 
 
 
Fair Value
(In millions)
Balance Sheet Location
As of December 31, 2015
Hedging Instruments:
 
 
Asset derivatives
Other current assets
$
16.6

 
Investments and other assets
$
0.3

Liability derivatives
Accrued expenses and other
$
10.2

 
Other long-term liabilities
$
2.5

Other Derivatives:
 
 
Asset derivatives
Other current assets
$
10.3

Liability derivatives
Accrued expenses and other
$
2.0

9.    Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost, net of accumulated depreciation. Accumulated depreciation on property, plant and equipment was $1,471.0 million and $1,330.1 million as of June 30, 2016 and December 31, 2015, respectively.
Solothurn, Switzerland Facility
On December 1, 2015, we purchased land in Solothurn, Switzerland for 64.4 million Swiss Francs (approximately $62.5 million). We are building a biologics manufacturing facility on this land in the Commune of Luterbach over the next several years. As of June 30, 2016 and December 31, 2015, we had approximately $247.8 million and $99.0 million, respectively, capitalized as construction in progress related to the construction of this facility.
Cambridge, MA Manufacturing Facility
In June 2016, as a result of an evaluation of our manufacturing capabilities and capacity needs based on current and expected future demand, we determined that we intend to cease manufacturing in Cambridge, MA and vacate our 67,000 square foot small-scale biologics manufacturing facility in Cambridge, MA and 46,000 square foot warehouse space in Somerville, MA by the end of 2016.
We are currently considering alternatives for the facility, which may include a sale of our rights to the facility and related assets. In the event we are unsuccessful with a sale, we will close the facility by December 31, 2016.
As of June 30, 2016, the carrying value of associated assets totaled approximately $43.0 million and our remaining lease obligation related to these facilities totaled $26.3 million.

21

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

An impairment assessment as of June 30, 2016 was performed related to the assets, which resulted in no impairments.
The anticipated departure from these facilities has shortened the expected useful lives of certain leasehold improvements and other assets at these facilities. As a result, we recorded additional depreciation expense to reflect the assets' new shorter useful lives. As of June 30, 2016, we recognized approximately $15.8 million of this additional depreciation, which was recorded as cost of sales in our condensed consolidated statements of income.
10.    Equity
Total equity as of June 30, 2016 increased $2,028.8 million compared to December 31, 2015. This increase was primarily driven by net income attributable to Biogen Inc. of $2,020.7 million and an increase in additional paid in capital related to our share-based compensation arrangements, partially offset by other comprehensive losses.
Share Repurchases
In July 2016, our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock (2016 Share Repurchase Program). This authorization does not have an expiration date. Repurchased shares will be retired. The 2016 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. During the six months ended June 30, 2016 and 2015, we did not repurchase any shares of common stock under our 2011 Share Repurchase Program.
In May 2015, our Board of Directors authorized a program to repurchase up to $5.0 billion of our common stock, which was completed as of December 31, 2015. During the six months ended June 30, 2015, we repurchased and retired 0.1 million shares of common stock at a cost of $42.2 million.
Noncontrolling Interests
The following table reconciles equity (deficit) attributable to noncontrolling interests (NCI):
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2016
 
2015
 
2016
 
2015
NCI, beginning of period
$
1.3

 
$
2.7

 
$
2.1

 
$
5.0

Net income (loss) attributable to NCI, net of tax
(1.4
)
 
(2.5
)
 
(3.1
)
 
(4.8
)
Fair value of net assets and liabilities acquired and assigned to NCI

 

 
0.9

 

Translation adjustment and other

 
0.2

 

 
0.2

NCI, end of period
$
(0.1
)
 
$
0.4

 
$
(0.1
)
 
$
0.4


22

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

11.    Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss), net of tax by component:
(In millions)
Unrealized Gains (Losses) on Securities Available for Sale
 
Unrealized Gains (Losses) on Cash Flow Hedges
 
Unfunded Status of Postretirement Benefit Plans
 
Translation Adjustments
 
Total
Balance, as of December 31, 2015
$
(0.8
)
 
$
10.2

 
$
(37.8
)
 
$
(195.6
)
 
$
(224.0
)
Other comprehensive income (loss) before reclassifications
6.6

 
(13.9
)
 
0.9

 
(48.4
)
 
(54.8
)
Amounts reclassified from accumulated other comprehensive income (loss)
0.4

 
(4.4
)
 

 

 
(4.0
)
Net current period other comprehensive income (loss)
7.0

 
(18.3
)
 
0.9

 
(48.4
)
 
(58.8
)
Balance, as of June 30, 2016
$
6.2

 
$
(8.1
)
 
$
(36.9
)
 
$
(244.0
)
 
$
(282.8
)
(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
0.9

 
66.1

 
4.1

 
(37.8
)
 
33.3

Amounts reclassified from accumulated other comprehensive income (loss)
0.2

 
(75.0
)
 

 

 
(74.8
)
Net current period other comprehensive income (loss)
1.1

 
(8.9
)
 
4.1

 
(37.8
)
 
(41.5
)
Balance, as of June 30, 2015
$
0.7

 
$
62.8

 
$
(27.5
)
 
$
(137.0
)
 
$
(101.0
)
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 June 30,
 
For the Six Months
Ended June 30,
2016
 
2015
 
2016
 
2015
Gains (losses) on securities available for sale
Other income (expense)
$
(0.6
)
 
$
(0.2
)
 
$
(0.6
)
 
$
(0.3
)
 
Income tax benefit (expense)
0.2

 
0.1

 
0.2

 
0.1

 
 
 
 
 
 
 
 
 
Gains (losses) on cash flow hedges
Revenues
(4.3
)
 
40.4

 
4.5

 
75.4

 
Operating expenses
(0.1
)
 

 
(0.2
)
 

 
Other income (expense)

 

 
0.1

 

 
Income tax benefit (expense)
0.1

 
(0.2
)
 

 
(0.4
)
 
 
 
 
 
 
 
 
 
Total reclassifications, net of tax
 
$
(4.7
)
 
$
40.1

 
$
4.0

 
$
74.8


23

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

12.    Earnings per Share
Basic and diluted earnings per share are calculated as follows:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
Net income attributable to Biogen Inc.
$
1,049.8

 
$
927.3

 
$
2,020.7

 
$
1,749.8

Denominator:
 
 
 
 
 
 
 
Weighted average number of common shares outstanding
219.1

 
235.3

 
219.0

 
235.1

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

 
0.1

 
0.1

 
0.1

Time-vested restricted stock units
0.1

 
0.2

 
0.1

 
0.3

Market stock units
0.1

 
0.1

 
0.1

 
0.2

Dilutive potential common shares
0.3

 
0.4

 
0.3

 
0.6

Shares used in calculating diluted earnings per share
219.4

 
235.7

 
219.3

 
235.7

Amounts excluded from the calculation of net income per diluted share because their effects were anti-dilutive were insignificant.
13.     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 June 30,
 
For the Six Months
Ended June 30,
(In millions)
2016
 
2015
 
2016
 
2015
Research and development
$
21.5

 
$
22.1

 
$
42.9

 
$
57.5

Selling, general and administrative
28.7

 
26.2

 
63.4

 
81.8

Restructuring charges

 

 
(1.8
)
 

Subtotal
50.2

 
48.3

 
104.5

 
139.3

Capitalized share-based compensation costs
(4.4
)
 
(2.2
)
 
(7.5
)
 
(5.6
)
Share-based compensation expense included in total cost and expenses
45.8

 
46.1

 
97.0

 
133.7

Income tax effect
(12.7
)
 
(12.9
)
 
(27.9
)
 
(39.6
)
Share-based compensation expense included in net income attributable to Biogen Inc.
$
33.1

 
$
33.2

 
$
69.1

 
$
94.1


24

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

The following table summarizes share-based compensation expense associated with each of our share-based compensation programs:
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
(In millions)
2016
 
2015
 
2016
 
2015
Market stock units
$
7.9

 
$
9.1

 
$
21.3

 
26.1

Time-vested restricted stock units
33.9

 
31.8

 
64.0

 
63.7

Cash settled performance units
4.6

 
3.2

 
4.8

 
27.0

Performance units
1.3

 
1.2

 
8.2

 
14.4

Employee stock purchase plan
2.5

 
3.0

 
6.2

 
8.1

Subtotal
50.2

 
48.3

 
104.5

 
139.3

Capitalized share-based compensation costs
(4.4
)
 
(2.2
)
 
(7.5
)
 
(5.6
)
Share-based compensation expense included in total cost and expenses
$
45.8

 
$
46.1

 
$
97.0

 
$
133.7

We estimate the fair value of our obligations associated with our performance units 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 Six Months
Ended June 30,
 
2016
 
2015
Market stock units
166,000

 
179,000

Cash settled performance shares
86,000

 
115,000

Performance units
56,000

 
89,000

Time-vested restricted stock units
594,000

 
375,000

Employee Stock Purchase Plan (ESPP)
In June 2015, our stockholders approved the Biogen Inc. 2015 ESPP (2015 ESPP). The 2015 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 2015 ESPP is 6,200,000.
For the six months ended June 30, 2016, approximately 109,000 shares were issued under our 2015 ESPP, compared to approximately 98,000 shares issued under our 1995 ESPP in the prior year comparative period.

25

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

14.    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 June 30,
 
For the Six Months
Ended June 30,
 
2016
 
2015
 
2016
 
2015
Statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
 
35.0
 %
State taxes
1.0

 
0.4

 
1.0

 

Taxes on foreign earnings
(10.0
)
 
(11.1
)
 
(9.0
)
 
(9.8
)
Credits and net operating loss utilization
(1.2
)
 
(0.7
)
 
(1.2
)
 
(0.7
)