Share-based Payments

Share-based Compensation Expense

The following table summarizes share-based compensation expense included in our consolidated statements of income:



	For the Years Ended December 31,
(In millions)	2017			2016			2015
Research and development	$	74.0		$	84.5		$	88.6
Selling, general and administrative	95.7			121.7			127.3
Restructuring charges	—			(1.8		)	(8.6		)
Subtotal	169.7			204.4			207.3
Capitalized share-based compensation costs	(9.6		)	(14.6		)	(11.0		)
Share-based compensation expense included in total cost and expenses	160.1			189.8			196.3
Income tax effect	(42.8		)	(54.0		)	(55.8		)
Share-based compensation expense included in net income attributable to Biogen Inc.	$	117.3		$	135.8		$	140.5

The following table summarizes share-based compensation expense associated with each of our share-based compensation programs:



	For the Years Ended December 31,
(In millions)	2017			2016			2015
Market stock units	$	22.4		$	38.4		$	38.1
Time-vested restricted stock units	107.3			120.0			119.0
Cash settled performance units	18.4			16.3			22.4
Performance units	12.3			18.6			13.9
Employee stock purchase plan	9.3			11.1			13.9
Subtotal	169.7			204.4			207.3
Capitalized share-based compensation costs	(9.6		)	(14.6		)	(11.0		)
Share-based compensation expense included in total cost and expenses	$	160.1		$	189.8		$	196.3

As of December 31, 2017, unrecognized compensation cost related to unvested share-based compensation was approximately $168.0 million, net of estimated forfeitures. We expect to recognize the cost of these unvested awards over a weighted-average period of 1.9 years.

Spin-off Related Equity Adjustments

Pursuant to an employee matters agreement entered into in connection with the spin-off of our hemophilia business and the provisions of our existing share-based compensation arrangements, we made certain adjustments to the number and terms of our outstanding stock options, RSUs, CSPUs and other share-based awards to preserve the intrinsic value of the awards immediately before and after the spin-off. For purposes of the vesting of these equity awards, continued employment or service with Biogen or with Bioverativ was treated as continued employment for purposes of both Biogen’s and Bioverativ’s equity awards with the outstanding awards continuing to vest over their respective original vesting periods. Outstanding unvested awards for employees transferring to Bioverativ were converted to unvested Bioverativ awards.

Adjustments to the number of our share-based compensation awards were made using an adjustment ratio based upon the weighted-average closing price of our common stock for the 10 calendar days prior to the effective date of the spin-off and the volume-weighted average prices for the 10 calendar days of our common stock following the effective date of the spin-off. For stock options, the exercise prices of the awards were modified to maintain the pre-spin intrinsic value of the awards in relation to the post-spin stock price of Biogen. The difference between the fair value of the awards based upon the adjustment ratio and the opening price on the distribution date was not material.

Share-Based Compensation Plans

We have three share-based compensation plans pursuant to which awards are currently being made: (i) the Biogen Inc. 2006 Non-Employee Directors Equity Plan (2006 Directors Plan); (ii) the Biogen Inc. 2017 Omnibus Equity Plan (2017 Omnibus Equity Plan); and (iii) the Biogen Inc. 2015 Employee Stock Purchase Plan (2015 ESPP).

Directors Plan

In May 2006 our shareholders approved the 2006 Directors Plan for share-based awards to our directors. Awards granted from the 2006 Directors Plan may include stock options, shares of restricted stock, RSUs, stock appreciation rights and other awards in such amounts and with such terms and conditions as may be determined by a committee of our Board of Directors, subject to the provisions of the plan. We have reserved a total of 1.6 million shares of common stock for issuance under the 2006 Directors Plan. The 2006 Directors Plan provides that awards other than stock options and stock appreciation rights will be counted against the total number of shares reserved under the plan in a 1.5-to-1 ratio. In June 2015 our shareholders approved an amendment to extend the term of the 2006 Directors Plan until June 2025.

Omnibus Plan

In June 2017 our shareholders approved the 2017 Omnibus Equity Plan for share-based awards to our employees. Awards granted from the 2017 Omnibus Equity Plan may include stock options, shares of restricted stock, RSUs, performance shares, stock appreciation rights and other awards in such amounts and with such terms and conditions as may be determined by a committee of our Board of Directors, subject to the provisions of the plan. Shares of common stock available for grant under the 2017 Omnibus Equity Plan consist of 8.0 million shares reserved for this purpose, plus shares of common stock that remained available for grant under our 2008 Omnibus Equity Plan as of June 7, 2017 or that could again become available for grant if outstanding awards under the 2008 Omnibus Equity Plan as of June 7, 2017 are cancelled, surrendered or terminated in whole or in part. The 2017 Omnibus Equity Plan provides that awards other than stock options and stock appreciation rights will be counted against the total number of shares available under the plan in a 1.5-to-1 ratio.

We have not made any awards pursuant to the 2008 Omnibus Equity Plan since our shareholders approved the 2017 Omnibus Equity Plan, and do not intend to make any awards pursuant to the 2008 Omnibus Equity Plan in the future, except that unused shares under the 2008 Omnibus Equity Plan have been carried over for use under the 2017 Omnibus Equity Plan.

Stock Options

We currently do not grant stock options to our employees or directors. Outstanding stock options previously granted to our employees and directors generally have a ten-year term and vest over a period of between one and four years, provided the individual continues to serve at Biogen through the vesting dates. Options granted under all plans are exercisable at a price per share not less than the fair market value of the underlying common stock on the date of grant. The estimated fair value of options, including the effect of estimated forfeitures, is recognized over the options’ vesting periods. The fair value of the stock options granted in 2010 was estimated as of the date of grant using a Black-Scholes option valuation model. There were no grants of stock options made in 2017, 2016 and 2015. As of December 31, 2017, all outstanding options were exercisable.

The expected life of options granted is derived using assumed exercise rates based on historical exercise patterns and represents the period of time that options granted are expected to be outstanding. Expected stock price volatility is based upon implied volatility for our exchange-traded options and other factors, including historical volatility. After assessing all available information on either historical volatility, implied volatility or both, we have concluded that a combination of both historical and implied volatility provides the best estimate of expected volatility. The risk-free interest rate used is determined by the market yield curve based upon risk-free interest rates established by the Federal Reserve, or non-coupon bonds that have maturities equal to the expected term. The dividend yield of zero is based upon the fact that we have not historically granted cash dividends, and do not expect to issue dividends in the foreseeable future. Stock options granted prior to January 1, 2006 were valued based on the grant date fair value of those awards, using the Black-Scholes option pricing model, as previously calculated for pro-forma disclosures.

The following table summarizes our stock option activity:



	Shares		Weighted Average Exercise Price
Outstanding at December 31, 2016	66,000		$	54.06
Hemophilia spin-off adjustment	—		$	—
Granted	—		$	—
Exercised	(14,000	)	$	50.89
Cancelled	(10,000	)	$	55.11
Outstanding at December 31, 2017	42,000		$	53.83

The total intrinsic values of options exercised in 2017, 2016 and 2015 totaled $3.4 million, $10.4 million and $38.0 million, respectively. The aggregate intrinsic values of options outstanding as of December 31, 2017 totaled $11.1 million. The weighted average remaining contractual term for options outstanding as of December 31, 2017 was 1.3 years.

The following table summarizes the amount of tax benefit realized for stock options and cash received from the exercise of stock options:



	For the Years Ended December 31,
(In millions)	2017		2016		2015
Tax benefit realized for stock options	$	3.4	$	4.0	$	11.9
Cash received from the exercise of stock options	$	0.7	$	2.2	$	6.3

Market Stock Units (MSUs)

MSUs awarded to employees prior to 2014 vested in four equal annual increments beginning on the first anniversary of the grant date. Participants may ultimately earn between 0% and 150% of the target number of units granted based on actual stock performance.

MSUs awarded to employees in 2014 and thereafter vest in three equal annual increments beginning on the first anniversary of the grant date, and participants may ultimately earn between 0% and 200% of the target number of units granted based on actual stock performance.

The vesting of these awards is subject to the respective employee’s continued employment. The number of MSUs granted represents the target number of units that are eligible to be earned based on the attainment of certain market-based criteria involving our stock price. The number of MSUs earned is calculated at each annual anniversary from the date of grant over the respective vesting periods, resulting in multiple performance periods. Accordingly, additional MSUs may be issued or currently outstanding MSUs may be cancelled upon final determination of the number of awards earned. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.

The following table summarizes our MSU activity:



	Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2016	230,000		$	355.60
Hemophilia spin-off adjustment	4,000		$	—
Granted (a)	94,000		$	382.59
Vested	(112,000	)	$	311.17
Forfeited	(45,000	)	$	372.35
Unvested at December 31, 2017	171,000		$	370.83

(a)

MSUs granted in 2017 include approximately 9,000 MSUs issued in 2017 based upon the attainment of performance criteria set for 2013, in relation to awards granted in that year. MSUs granted during 2017 also include awards granted in conjunction with our annual awards made in February 2017 and MSUs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant. MSUs granted in 2017 reflect an adjustment based upon the final performance multiplier in relation to shares granted in 2016, 2015 and 2014.

We value grants of MSUs using a lattice model with a Monte Carlo simulation. This valuation methodology utilizes several key assumptions, including the 60 calendar day average closing stock price on grant date for MSUs awarded prior to 2014, the 30 calendar day average closing stock price on the date of grant for MSUs awarded in 2014 and thereafter, expected volatility of our stock price, risk-free rates of return and expected dividend yield.

The assumptions used in our valuation are summarized as follows:



	For the Years Ended December 31,
	2017	2016	2015
Expected dividend yield	—%	—%	—%
Range of expected stock price volatility	33.0% - 35.6%	38.2% - 40.7%	31.0% - 33.2%
Range of risk-free interest rates	0.9% - 1.6%	0.6% - 0.9%	0.2% - 1.0%
30 calendar day average stock price on grant date	$263.18 - $267.88	$260.67 - $304.86	$277.35 - $426.27
Weighted-average per share grant date fair value	$382.59	$328.03	$493.43

The fair values of MSUs vested in 2017, 2016 and 2015 totaled $31.4 million, $39.3 million and $109.0 million, respectively.

Cash Settled Performance Units (CSPUs)

CSPUs awarded to employees vest in three equal annual increments beginning on the first anniversary of the grant date. The vesting of these awards is subject to the respective employee’s continued employment with such awards settled in cash. The number of CSPUs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established at the beginning of the performance period, which ends on December 31 of each year. Participants may ultimately earn between 0% and 200% of the target number of units granted based on the degree of actual performance metric achievement. Accordingly, additional CSPUs may be issued or currently outstanding CSPUs may be cancelled upon final determination of the number of units earned. CSPUs awarded prior to 2014 are settled in cash based on the 60 calendar day average closing stock price through each vesting date once the actual vested and earned number of units is known. CSPUs awarded in 2014 and thereafter will be settled in cash based on the 30 calendar day average closing stock price through each vesting date, once the actual vested and earned number of units is known. Since no shares are issued, these awards do not dilute equity. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.

The following table summarizes our CSPU activity:



	Shares
Unvested at December 31, 2016	122,000
Hemophilia spin-off adjustment	3,000
Granted (a)	83,000
Vested	(69,000	)
Forfeited	(34,000	)
Unvested at December 31, 2017	105,000

(a)

CSPUs granted in 2017 include awards granted in conjunction with our annual awards made in February 2017 and CSPUs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant. CSPUs granted in 2017 also include CSPUs issued in 2017 based upon the attainment of performance criteria set for 2016 in relation to shares granted in 2016.

The cash paid in settlement of CSPUs vested in 2017, 2016 and 2015 totaled $16.6 million, $31.9 million and $79.8 million, respectively.

Performance-vested Restricted Stock Units (PUs)

PUs are granted to certain employees in the form of RSUs that may be settled in cash or shares of our common stock at the sole discretion of the Compensation and Management Development Committee of our Board of Directors. These awards are structured and accounted for the same way as the CSPUs, and vest in three equal annual increments beginning on the first anniversary of the grant date. The number of PUs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established at the beginning of the performance period, which ends on December 31 of each year. Participants may ultimately earn between 0% and 200% of the target number of units granted based on the degree of actual performance metric achievement. Accordingly, additional PUs may be issued or currently outstanding PUs may be cancelled upon final determination of the number of units earned. PUs settling in cash are based on the 30 calendar day average closing stock price through each vesting date once the actual vested and earned number of units is known. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.

The following table summarizes our PU activity:



	Shares
Unvested at December 31, 2016	110,000
Hemophilia spin-off adjustment	3,000
Granted (a)	40,000
Vested	(43,000	)
Forfeited	(19,000	)
Unvested at December 31, 2017	91,000


(a)	PUs granted in 2017 include awards granted in conjunction with our annual awards made in February 2017 and PUs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant.

During 2015 32,000 PUs were converted to share settlements, of which approximately 11,000 shares were vested and issued. All other PUs that vested in 2015 were settled in cash totaling $12.4 million.

All PUs that vested in 2017 and 2016 were settled in cash totaling $11.5 million and $8.1 million, respectively.

Time-Vested Restricted Stock Units (RSUs)

RSUs awarded to employees generally vest no sooner than one-third per year over three years on the anniversary of the date of grant, or upon the third anniversary of the date of the grant, provided the employee remains continuously employed with us, except as otherwise provided in the plan. Shares of our common stock will be delivered to the employee upon vesting, subject to payment of applicable withholding taxes. RSUs awarded to directors for service on our Board of Directors vest on the first anniversary of the date of grant, provided in each case that the director continues to serve on our Board of Directors through the vesting date. Shares of our common stock will be delivered to the director upon vesting and are not subject to any withholding taxes. The fair value of all RSUs is based on the market value of our stock on the date of grant. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.

The following table summarizes our RSU activity:



	Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2016	888,000		$	303.49
Hemophilia spin-off adjustment	12,000		$	—
Granted (a)	464,000		$	293.41
Vested	(350,000	)	$	308.04
Forfeited	(182,000	)	$	292.57
Unvested at December 31, 2017	832,000		$	291.85


(a)	RSUs granted in 2017 primarily represent RSUs granted in conjunction with our annual awards made in February 2017 and awards made in conjunction with the hiring of new employees. RSUs granted in 2017 also include approximately 11,000 RSUs granted to our Board of Directors.

RSUs granted in 2016 and 2015 had weighted average grant date fair values of $268.52 and $388.88, respectively.

The fair values of RSUs vested in 2017, 2016 and 2015 totaled $100.0 million, $104.6 million and $239.7 million, respectively.

Employee Stock Purchase Plan (ESPP)

In June 2015 our shareholders approved the 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 6.2 million.

The following table summarizes our ESPP activity:



	For the Years Ended December 31,
(In millions, except share amounts)	2017		2016		2015
Shares issued under the 2015 ESPP	167,000		190,000		78,000
Shares issued under the 1995 ESPP	—		—		98,000
Cash received under the 2015 ESPP	$	39.8	$	41.5	$	19.3
Cash received under the 1995 ESPP	$	—	$	—	$	30.0