Commitments and Contingencies

TECFIDERA Litigation Settlement and License Agreement

In January 2017 we agreed to enter into a settlement and license agreement with Forward Pharma that will provide us an irrevocable license to all intellectual property owned by Forward Pharma and results in the termination of the German Infringement Litigation. Under the terms of the settlement and license agreement with Forward Pharma, we have agreed to pay Forward Pharma $1.25 billion in cash. Under certain circumstances outlined in the agreement, we will pay Forward Pharma royalties on net sales of our products for the treatment of multiple sclerosis that are covered by a Forward Pharma patent and have dimethyl fumarate (“DMF”) as an active pharmaceutical ingredient.

During the fourth quarter of 2016 we recognized a pre-tax charge of $454.8 million related to this matter. This amount represents the fair value of estimated royalties on our sales of TECFIDERA during the period April 2014 through December 31, 2016. When the cash payment is made following approval of the settlement and license agreement, we will recognize assets of $656.3 million and $138.9 million, reflecting the estimated fair value of the license acquired that is attributable to the U.S. and E.U., respectively. If Forward Pharma does not receive a patent in either the Interference Proceeding pending in the U.S. or the pending European Opposition Proceeding (which proceedings are defined in the settlement and license agreement), we would likely recognize an immediate impairment charge equal to the value of the license that is attributable to that jurisdiction as additional litigation expense and we would not be obligated to pay Forward Pharma royalties in such jurisdiction. If Forward Pharma receives a patent in either the U.S. Interference Proceeding or the E.U. Opposition Proceeding, we would amortize the assets related to a license of intellectual property in the related jurisdiction utilizing an economic consumption model and we may be obligated to royalties on a country by country basis in Europe and other ex-U.S. markets.

For additional information with respect to the terms of this agreement, including potential royalties payable, please read the Settlement and License Agreement dated January 17, 2017, between Biogen Swiss Manufacturing GmbH, Biogen International Holding Ltd, Forward Pharma A/S and the other parties thereto which is filed as Exhibit 10.41 to this 2016 Form 10-K. For additional information related to the ongoing Interference Proceeding with Forward Pharma in the U.S. or the European Office Opposition in the E.U., please read Note 20, Litigation to these consolidated financial statements.

TYSABRI Contingent Payments

In 2013 we acquired from Elan full ownership of all remaining rights to TYSABRI that we did not already own or control. Under the terms of the acquisition agreement, we are obligated to make contingent payments to Elan of 18% on annual worldwide net sales up to $2.0 billion and 25% on annual worldwide net sales that exceed $2.0 billion. Royalty payments to Elan and other third parties are recognized as cost of sales in our consolidated statements of income. Elan was acquired by Perrigo Company plc (Perrigo) in December 2013. Following that acquisition, we began making these royalty payments to Perrigo.

Contingent Consideration related to Business Combinations

In connection with our acquisitions of Convergence, Stromedix and Biogen International Neuroscience GmbH (BIN), we agreed to make additional payments based upon the achievement of certain milestone events.

As the acquisitions of Convergence, Stromedix and BIN, formerly Panima Pharmaceuticals AG, occurred after January 1, 2009, we record contingent consideration liabilities at their fair value on the acquisition date and revalue these obligations each reporting period. We may pay up to approximately $1.2 billion in remaining milestones related to these acquisitions. For additional information related to our acquisition of Convergence please read Note 2, Acquisitions, to these consolidated financial statements.

Fumapharm AG

In 2006 we acquired Fumapharm AG. As part of this acquisition we acquired FUMADERM and TECFIDERA (together, Fumapharm Products). We paid $220.0 million upon closing of the transaction and agreed to pay an additional $15.0 million if a Fumapharm Product was approved for MS in the U.S. or E.U. In the second quarter of 2013 we paid this $15.0 million contingent payment as TECFIDERA was approved in the U.S. for MS by the FDA. We are also required to make additional contingent payments to former shareholders of Fumapharm AG or holders of their rights based on the attainment of certain cumulative sales levels of Fumapharm Products and the level of total net sales of Fumapharm Products in the prior twelve month period, as defined in the acquisition agreement.

During 2016 we paid $1.2 billion in contingent payments as we reached the $7.0 billion, $8.0 billion, $9.0 billion and $10.0 billion cumulative sales levels related to the Fumapharm Products in the fourth quarter of 2015 and the first, second and third quarters of 2016, respectively, and accrued $300.0 million upon reaching $11.0 billion in total cumulative sales of Fumapharm Products in the fourth quarter of 2016.

We will owe an additional $300.0 million contingent payment for every additional $1.0 billion in cumulative sales level of Fumapharm Products reached if the prior 12 months sales of the Fumapharm Products exceed $3.0 billion, until such time as the cumulative sales level reaches $20.0 billion, at which time no further contingent payments shall be due. If the prior 12 months sales of Fumapharm Products are less than $3.0 billion, contingent payments remain payable on a decreasing tiered basis. These payments will be accounted for as an increase to goodwill as incurred, in accordance with the accounting standard applicable to business combinations when we acquired Fumapharm. Any portion of the payment which is tax deductible will be recorded as a reduction to goodwill. Payments are due within 60 days following the end of the quarter in which the applicable cumulative sales level has been reached.

Contingent Development, Regulatory and Commercial Milestone Payments

Based on our development plans as of December 31, 2016, we could make potential future milestone payments to third parties of up to approximately $3.1 billion, including approximately $0.5 billion in development milestones, approximately $0.8 billion in regulatory milestones and approximately $1.8 billion in commercial milestones as part of our various collaborations, including licensing and development programs. Payments under these agreements generally become due and payable upon achievement of certain development, regulatory or commercial milestones. Because the achievement of these milestones had not occurred as of December 31, 2016, such contingencies have not been recorded in our financial statements. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval and commercial milestones.

Other Funding Commitments

As of December 31, 2016, we have several on-going clinical studies in various clinical trial stages. Our most significant clinical trial expenditures are to contract research organizations (CROs). The contracts with CROs are generally cancellable, with notice, at our option. We have recorded accrued expenses of approximately $21.0 million on our consolidated balance sheet for expenditures incurred by CROs as of December 31, 2016. We have approximately $500.0 million in cancellable future commitments based on existing CRO contracts as of December 31, 2016.

Tax Related Obligations

We exclude liabilities pertaining to uncertain tax positions from our summary of contractual obligations as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. As of December 31, 2016, we have approximately $47.8 million of net liabilities associated with uncertain tax positions.

Solothurn, Switzerland Facility

On December 1, 2015, we purchased land in Solothurn, Switzerland where we are building a biologics manufacturing facility over the next several years. As of December 31, 2016, we had contractual commitments of $176.3 million for the construction of this facility.

Leases

We rent laboratory and office space and certain equipment under non-cancelable operating leases. These lease agreements contain various clauses for renewal at our option and, in certain cases, escalation clauses typically linked to rates of inflation. Rental expense under these leases, net of amounts recognized in relation to exiting our manufacturing facility in Cambridge, Massachusetts and our Weston, Massachusetts facility, which terminate at various dates through 2028, amounted to $68.7 million, $68.6 million and $62.4 million in 2016, 2015 and 2014, respectively. In addition to rent, the leases may require us to pay additional amounts for taxes, insurance, maintenance and other operating expenses.

As of December 31, 2016, minimum rental commitments under non-cancelable leases, net of income from subleases, for each of the next five years and total thereafter were as follows:



(In millions)	2017			2018			2019			2020			2021			Thereafter			Total
Minimum lease payments	$	75.3		$	69.8		$	69.1		$	65.7		$	64.6		$	331.9		$	676.4
Less: income from subleases (1)	(8.9		)	(15.2		)	(15.5		)	(15.7		)	(16.2		)	(55.4		)	(126.9		)
Net minimum lease payments	$	66.4		$	54.6		$	53.6		$	50.0		$	48.4		$	276.5		$	549.5

(1)

Represents sublease income expected to be received for the vacated manufacturing facility in Cambridge, MA, the vacated portion of our Weston, Massachusetts facility and other facilities throughout the world. For additional information related to the sublease of the vacated manufacturing facility in Cambridge, MA, please read Note 3, Restructuring, Business Transformation and Other Cost Savings Initiatives to these consolidated financial statements.

Under certain of our lease agreements, we are contractually obligated to return leased space to its original condition upon termination of the lease agreement. At the inception of a lease with such conditions, we record an asset retirement obligation liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. In subsequent periods, for each such lease, we record interest expense to accrete the asset retirement obligation liability to full value and depreciate each capitalized asset retirement obligation asset, both over the term of the associated lease agreement. Our asset retirement obligations were not significant as of December 31, 2016 or 2015.

Eisai Financing Arrangement

During 2015 we amended our existing 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. For additional information, please read Note 10, Property, Plant and Equipment to these consolidated financial statements. As of December 31, 2016, the net present values of the future minimum lease payments were as follows:



(In millions)	As of December 31, 2016
2017	$	2.0
2018	16.7
Total	18.7
Less: interest	(0.6		)
Net present value of the future minimum lease payments	$	18.1